NPC L.E. White Coal Co. yards, Washington 1922
Does America understand how it’s dumbing itself down? If you make education, what future do you have?
• America Is A Ponzi Scheme: A Commencement Speech For The Scammed (Tom)
It couldn’t be a sunnier, more beautiful day to exit your lives — or enter them — depending on how you care to look at it. After all, here you are four years later in your graduation togs with your parents looking on, waiting to celebrate. The question is: Celebrate what exactly? In possibly the last graduation speech of 2015, I know I should begin by praising your grit, your essential character, your determination to get this far. But today, it’s money, not character, that’s on my mind. For so many of you, I suspect, your education has been a classic scam and you’re not even attending a “for profit” college — an institution of higher learning, that is, officially set up to take you for a ride.
Maybe this is the moment, then, to begin your actual education by looking back and asking yourself what you should really have learned on this campus and what you should expect in the scams — I mean, years — to come. Many of you — those whose parents didn’t have money — undoubtedly entered these stately grounds four years ago in relatively straitened circumstances. In an America in which corporate profits have risen impressively, it’s been springtime for billionaires, but when it comes to ordinary Americans, wages have been relatively stagnant, jobs (the good ones, anyway) generally in flight, and times not exactly of the best. Here was a figure that recently caught my eye, speaking of the world you’re about to step into: in 2014, the average CEO received 373 times the compensation of the average worker. Three and a half decades ago, that number was a significant but not awe-inspiring 42 times.
Still, you probably arrived here eager and not yet in debt. Today, we know that the class that preceded you was the most indebted in the history of higher education, and you’ll surely break that “record.” And no wonder, with college tuitions still rising wildly (up 1,120% since 1978). Judging by last year’s numbers, about 70% of you had to take out loans simply to make it through here, to educate yourself. That figure was a more modest 45% two decades ago. On average, you will have rung up least $33,000 in debt and for some of you the numbers will be much higher. That, by the way, is more than double what it was those same two decades ago.
Eye-opening critique by Ambrose.
• IMF Has Betrayed Its Mission In Greece, Captive To Eurozone Creditors (AEP)
The International Monetary Fund is in very serious trouble. Events have reached a point in Greece where the Fund’s own credibility and long-term survival are at stake. The Greeks are not withholding a €300m payment to the IMF because they have run out of money, though they soon will do. Five key players in the radical-Left Syriza movement – meeting in the Maximus Mansion in Athens yesterday – took an ice-cold, calculated, and carefully-considered decision not to pay. They knew exactly what they were doing. The IMF’s Christine Lagarde was caught badly off guard. Staff officials in Washington were stunned. On one level, the “bundling” of €1.6bn of payments due to the IMF in June is just a technical shuffle, albeit invoking a procedure last used by Zambia for different reasons in the 1980s.
In reality it is a warning shot, and a dangerous escalation for all parties. Syriza’s leaders are letting it be known that they are so angry, and so driven by a sense of injustice, that they may indeed default to the IMF on June 30 and in doing so place the institution in the invidious position of explaining to its 188 member countries why it has lost their money so carelessly, and why it has made such a colossal hash of its affairs. The Greeks accuse the IMF of colluding in an EMU-imposed austerity regime that breaches the Fund’s own rules and is in open contradiction with five years of analysis by its own excellent research department and chief economist, Olivier Blanchard. Greece’s public debt is 180pc of GDP. The loans are in a currency that the country does not control. It is therefore foreign currency debt.
The IMF knows that Greece cannot possibly pay this down by draconian austerity – the policy already implemented for five years with such self-defeating effects – and the longer it pretends otherwise, the more its authority drains away. It is has pushed for debt relief behind closed doors but only half-heartedly, unwilling to confront the EMU creditor powers head on. Objectively, it is acting as an imperialist lackey – as Greek Marxists might say. Indeed, it has brought about the worst possible outcome. The Fund’s man on the ground in Athens – Poul Thomsen – has pushed the austerity agenda with a curious passion that shocks even officials in the European Commission, pussy cats by comparison. This would be justifiable (sort of) if the other side of the usual IMF bargain were available: debt relief and devaluation.
This is how IMF programmes normally work: impose tough reforms but also wipe the slate clean on debt and restore crippled countries to external viability. It is a very successful formula. On the rare occasion when the IMF goes wrong it is usually because it tries to prop up a fixed change rate long past its sell-by date. All of this went out of the window in Greece. The IMF enforced brute liquidation without compensating stimulus or relief. It claimed that its policies would lead to a 2.6pc contraction of GDP in 2010 followed by brisk recovery. What in fact happened was six years of depression, a deflationary spiral, a 26pc fall GDP, 60pc youth unemployment, mass exodus of the young and the brightest, chronic hysteresis that will blight Greece’s prospects for a decade to come, and to cap it all the debt ratio exploded because of the mathematical – and predictable – denominator effect of shrinking nominal GDP..
“..whether democratic change is possible or violent revolution is in fact the only effective option.”
• Why The Battle Between Athens And Brussels Matters To All Of You (Andreou)
Conclusion: The EU/IMF have played their hand badly. By calling a bluff that wasn’t a bluff they have played themselves into a situation in which they have no win scenario and no exit strategy. They will lose. The only question now is whether they lose badly or not and whether they take Greece down with them. If this intransigence is played out, they force Greece into a new election, possible Grexit, instability, and plunge the entire continent back into recession. If they back down, Greece is seen as victorious, Podemos wins in Spain and they start the same negotiations with Iglesias, only the sums involved are larger and a resistance front in Southern Europe pushing back against imposed market liberalisation and austerity becomes a serious challenge.
They have, I think, realised this, but are still locked in a self-destructive raising of the stakes. Merkel and Hollande have noted this, which is why they have taken charge of negotiations increasingly away from the Eurogroup. The reason this matters to all is twofold. First, it forces out into the open and brings into sharp contrast the increasing divergence between the wellbeing of markets and the wellbeing of populations. Second, it marks a clear act of economic blackmail by a global de facto establishment – let’s call it “The Davos Set” – unhappy at a democratic people opting for an alternative to neoliberalism. How these tensions resolve themselves will determine whether national elections remain meaningful in any way; whether democratic change is possible or violent revolution is in fact the only effective option.
They don’t have the know-how or intelligence to change position. All they can do is dig in their heels.
• Greece’s Creditors Need A Dose Of Reality (Joe Stiglitz)
EU leaders continue to play a game of brinkmanship with the Greek government. Athens has met its creditors’ demands more than halfway. Yet Germany and Greece’s other creditors continue to demand that the country sign on to a programme proven to be a failure, and that few economists ever thought could, would, or should be implemented. The swing in Greece’s fiscal position from a large primary deficit to a surplus was almost unprecedented, but the demand that the country achieve a primary surplus of 4.5% of GDP was unconscionable. Unfortunately, at the time that the “troika” first included this irresponsible demand in the international financial programme for Greece, the country’s authorities had no choice but to accede to it.
The folly of continuing to pursue this programme is particularly acute, given the 25% decline in GDP that Greece has endured since the beginning of the crisis. The troika badly misjudged the macroeconomic effects of the programme they imposed. According to their published forecasts, they believed that, by cutting wages and accepting other austerity measures, Greek exports would increase and the economy would quickly return to growth. They also believed that the first debt restructuring would lead to debt sustainability. The troika’s forecasts have been wrong, and repeatedly so. And not by a little, but by an enormous amount. Greece’s voters were right to demand a change in course, and their government is right to refuse to sign on to a deeply flawed programme.
Having said that, there is room for a deal: Greece has made clear its willingness to engage in continued economic overhaul, and has welcomed Europe’s help in implementing some of them. A dose of reality on the part of Greece’s creditors – about what is achievable and about the macroeconomic consequences of different fiscal and structural changes – could provide the basis of an agreement that would be good not only for Greece, but for all of Europe. Some in Europe, especially in Germany, seem nonchalant about a Greek exit from the eurozone. The market has, they claim, already “priced in” such a rupture. Some even suggest it would be good for the monetary union. I believe such views significantly underestimate the current and future risks involved. A similar degree of complacency was evident in the US before the collapse of Lehman Brothers in September 2008.
“Ideally, a default by the Greek government should be the first step of a wonderful era of recovery and prosperity..”
• Greece: Time For Default And Debt Restructuring (Forbes
[..] who was getting “bailed out”? It was mostly foreign banks. Over time, as the Greek debt matured (instead of a default and 50% writedown), holders of the debt were paid in full, and the Greek government’s debt was gradually transferred to the “troika” lenders, and indirectly the bag-holding taxpayers of Europe. Not surprisingly, some members of the Greek parliament are now arguing that at least some of the Greek government’s debt constitutes “odious debt,” a legal term which justified the government of Ecuador’s debt default in 2009. In addition, the Greek government in 2012 conducted a recapitalization of Greek banks, totaling €48.2 billion, or 24.8% of GDP.
The Greek government did get some equity in trade for its €48 billion (which it obtained in the form of troika “bailout” loan), although this equity is likely to go to zero if the Greek government defaults on its bonds, likely resulting in terminal insolvency among Greek banks, if existing insolvency and deposit flight doesn’t kill them first. Who was bailed out? Where did the €48 billion go? To the banks’ creditors, including foreign banks.Odious? I have to hold my nose just to write this stuff down. None of it is new either; you would find most of the same elements in the Latin American sovereign debt crises of the 1980s.
The end result of all this is that the Greek government’s debt today, totaling €313 billion, consists of €64 billion of domestically-issued bonds, €15 billion of short-term notes, €2.7 billion of foreign-issued bonds and securitizations, €212 billion of “bailout” loans, and €5.0 billion of other external loans. In short, the total foreign exposure by private entities (banks) to the Greek government is, today, about €7.6 billion. Thus, if this swelling pile of debt is eventually written down by 70%, the €220 billion loss will get eaten by the innocent taxpayers of Europe, rather than the privately-owned banks. Actually, the money has already been lost, as the only way to avoid a default at this point is for the taxpayers of Europe to continue to loan Greece’s government more money.
There’s some talk that a default by the Greek government would require “leaving the eurozone,” whatever that means, and perhaps not using the euro. This is mostly just globalist propaganda, along with the notion that a Greek default would also require future “federalization” of Europe. Just look at that NBER list of 153 debt restructurings, none of which required, or was followed by, any “federalization.” There is no reason that Greece can’t continue to use euros as the basis of commerce, just as dollarized Ecuador continued to use dollars as the basis of commerce after the government’s 2009 default.
Ideally, a default by the Greek government should be the first step of a wonderful era of recovery and prosperity, just as was the case in Russia after its default in 1998. By following the Magic Formula (Low Taxes, Stable Money) after the default, along with other reforms, Greeks can become wealthier than Germans in less than twenty years.
And it is absurd.
• Greek PM Rejects ‘Absurd’ Proposal From Creditors (Reuters)
Greece’s government rejects an “absurd” and “unrealistic” proposal from creditors and hopes it will be withdrawn, Prime Minister Alexis Tsipras said on Friday as he called on lenders to accept a rival proposal from Athens instead. Tsipras was presented with a tough compromise proposal for aid from lenders that crossed many of his “red lines” this week, including tax hikes, privatizations and pension reform, quickly sparking outrage from his leftist Syriza party. In an uncompromising speech to parliament, Tsipras said a proposal by Athens made earlier this week was the only realistic basis for a deal and accused Europe of failing to understand that Greek lawmakers could not vote for more austerity.
“The proposals submitted by lenders are unrealistic,” Tsipras said, adding the offer did not take into account common ground found between the two sides during months of negotiations. “The Greek government cannot consent to absurd proposals.” In what appeared to be a threat against lenders that Greece was prepared to move unilaterally if its demands were not met, Tsipras said the government would legislate the restoration of collective bargaining rights for Greek workers – a move opposed by lenders. Still, Tsipras said he was confident that Greece is closer to a deal than ever, and the Greek proposal took needs of the creditors into account. “Time is not running out only for us, it is running out for everybody else as well,” he said. “It’s certain that in the coming days we will hear many things since we are in the final stretch.”
Carrot and stick, both getting bigger.
• EU To Lend Greece €35 Billion If It Agrees To Reforms – Juncker (RT)
The EU is ready to lend €35 billion to Greece between now and 2020 if Athens agrees to implement reforms, European Commission President Jean-Claude Juncker has said. “Greece can get a considerable sum, €35 billion euros until 2020, provided that they implemented programs that would enable our Greek friends to master these funds,” said Juncker, speaking to the members of the European Committee of the Regions on Thursday. The money is already reserved to Athens, but the allocation depends on Greek reforms, Juncker said.
As of Wednesday, five months of €7.2 billion bailout-for-reforms negotiations between Athens and international creditors had failed to produce any result. Since 2010, when Greece’s sovereign debt crisis worsened dramatically, EU and the IMF have lent the Greek government nearly €250 billion in return for brutal austerity measures that have seen the Greek people plunged into deep poverty. Despite a partial write-down of Greek debts in 2012, its public debt is currently €316 billion, 175% of GDP. This is three times the maximum permissible level of this indicator for the eurozone countries, which, according to the Stability and Growth Pact, is 60% of GDP.
Debt relief is moving back to the forefront.
• Leaked: Greece’s New Debt Restructuring Plan (FT)
The Greek government of prime minister Alexis Tsipras has long argued debt relief must be part of any new agreement to complete its current €172bn bailout. But the compromise plan drawn up by its international creditors and presented to Tsipras on Wednesday night in Brussels contains no such promise. So Athens is intending to present its own restructuring plan that the government claims will cut its burgeoning debt load from the current 180% of gross domestic product to just 93% by 2020. The plan is touched on in the 47-page counter-proposal Athens sent to its creditors Monday night. But it is given a full treatment in a new seven-page document authored by the government and entitled “Ending the Greek Crisis”.
The restructuring plan is ambitious, offering ways to reduce the amount of debt held by all four of its public-sector creditors: the ECB, which holds €27bn in Greek bonds purchased starting in 2010; the IMF, which is owed about €20bn from bailout loans; individual eurozone member states, which banded together to make €53bn bilateral loans to Athens as part of its first bailout; and the eurozone’s bailout fund, the European Financial Stability Facility, which picks up the EU’s €144bn in the current programme. If all the elements of the new plan are adopted, the Greek government reckons its debt will be back under 60% of GDP – the eurozone’s ceiling agreed under the 1992 Maastricht Treaty – by 2030.
The proposal starts with a plan for the ECB holdings, acquired as part of the central bank’s bond purchase programme that attempted to stabilise Greek borrowing costs. This idea has already been publicly articulated by finance minister Yanis Varoufakis on several occasions, and is very straightforward: the eurozone’s €500bn rescue fund, the European Stability Mechanism would loan Greece €27bn, which Athens would then use to pay off the ECB bonds. The ESM’s loans are at longer maturities and lower interest rates than the Greek bonds held by the ECB, so it’s a debt restructuring without a real debt restructuring. Two of the ECB-held bonds come due in July and August, with payments totaling €6.7bn, so figuring out a way to deal with these is a matter of urgency. The problem is, the plan is basically a bailout with no strings attached, so it’s very unlikely to fly in eurozone capitals.
“History will tell that the true grave diggers of the European project will beAngela Merkel, Nicolas Sarkozy and François Hollande..”
• The Blindness Of The European Powers (Jacques Sapir)
The nature of the problem at hand was clear since January 25th. When SYRIZA preferred to ally itself with the Independent Greeks rather than with the Europeist pseudopod The River (To Potami) it became evident for any reasonable observer that the question put to Europe would be political and not technical. But the Eurogroup and the EU preferred not to see this reality, most certainly because it questioned the very architecture which had been constructed by Germany in complicity with the French, but also the Italian and Spanish governments. One wcan never stress enough the considerable responsibility of Nicolas Sarkozy and François Hollande when they chose to align themselves with the proposals of Mrs Merkel rather than provoking a helpful crisis which would have put an end to the antidemocratic slide of Europe.
If the debate on rules of governance and the logic of austerity had taken place between 2010 and 2013, it is possible that lasting solutions could have been found to the economic as well as political crisis the Eurozone was going through. But the refusal to open such a crisis, in the name of the « preservation of the Euro», runs a strong risk to end up in its opposite: a crisis, originating in Greece and progressively spreading to all of the countries, which will end up sweeping away not only the Euro, which would not be a big loss, but also the whole of the European construction. The political blindness of the European leaders, their obstinacy in pushing ahead with policies the principles of which were nefarious from all evidence and the results gruesome, will have considerable consequences on Europe. History will tell that the true grave diggers of the European project will beAngela Merkel, Nicolas Sarkozy and François Hollande, with the help of MM Rajoy and Renzi.
Caught in their blindness, these leaders wanted to believe that Greece only wanted to renegotiate the straightjacket of servitude in which it was restrained. But what Greece wanted and still wants is an end to this straightjacket and not a replacement of some of the shackles. So we have witnessed a fundamental misapprehension developing between Athens and the other countries. Where the creditors were proposing pure formal concessions in exchange for new loans, the Greek leaders proposed important concessions, which one might even find excessive, such as on privatisations and the suspension of some social measures, but in exchange for a global treatment of the debt question, passing evidently through an annulation of part of this debt and the restructurating of another, transforming it into a 50 years debt.
• The Economic Consequences Of Austerity (Amartya Sen)
On 5 June 1919, John Maynard Keynes wrote to the prime minister of Britain, David Lloyd George, “I ought to let you know that on Saturday I am slipping away from this scene of nightmare. I can do no more good here.” Thus ended Keynes’s role as the official representative of the British Treasury at the Paris Peace Conference. It liberated Keynes from complicity in the Treaty of Versailles (to be signed later that month), which he detested. Why did Keynes dislike a treaty that ended the state of war between Germany and the Allied Powers (surely a good thing)? Keynes was not, of course, complaining about the end of the world war, nor about the need for a treaty to end it, but about the terms of the treaty, and in particular the suffering and the economic turmoil forced on the defeated enemy, the Germans, through imposed austerity.
Austerity is a subject of much contemporary interest in Europe I would like to add the word unfortunately somewhere in the sentence. Actually, the book that Keynes wrote attacking the treaty, The Economic Consequences of the Peace, was very substantially about the economic consequences of imposed austerity . Germany had lost the battle already, and the treaty was about what the defeated enemy would be required to do, including what it should have to pay to the victors. The terms of this Carthaginian peace, as Keynes saw it (recollecting the Roman treatment of the defeated Carthage following the Punic wars), included the imposition of an unrealistically huge burden of reparation on Germany, a task that Germany could not carry out without ruining its economy.
As the terms also had the effect of fostering animosity between the victors and the vanquished and, in addition, would economically do no good to the rest of Europe, Keynes had nothing but contempt for the decision of the victorious four (Britain, France, Italy and the United States) to demand something from Germany that was hurtful for the vanquished and unhelpful for all. The high-minded moral rhetoric in favour of the harsh imposition of austerity on Germany that Keynes complained about came particularly from Lord Cunliffe and Lord Sumner, representing Britain on the Reparation Commission, whom Keynes liked to call ‘the Heavenly Twins’. In his parting letter to Lloyd George, Keynes added, ‘I leave the Twins to gloat over the devastation of Europe’.
SOmething that gets overlooked all too easily: “Now we can see just how unprepared Europe was..”
• The Ready Cyclist And Our Great Collision (Nikos Konstandaras)
In high school I had a physics teacher who was mad about bicycles. One day, he told us a story of how, in another town where he had lived when he was younger, he would ride down a steep hill, picking up great speed. Every day he would think of what would happen if a car suddenly blocked his path. “I’ll stand up on the pedals, I’ll jump high and I’ll land on the other side of the car,” he would tell himself, over and over. “One day,” he went on, “a car suddenly appeared out of a side street; I stood up on the pedals, I jumped high and fell on the other side. I hurt my arms, my legs, my ribs, but I didn’t break anything. I was sore, but I was alive.” I can still imagine 30 pairs of young eyes staring at him. “Always be ready for the worst,” he said and went on with a lesson on vectors.
Some 40 years later I still don’t know if the story was true, but my teacher’s words are seared into my mind. Every day as I ride my motorbike I ask myself if I am ready for anything that may come my way. Now that Greece and the rest of Europe look like they cannot avoid a collision, I wonder how the EU – this political, economic and social giant of 500 million people – had not made the slightest provision for the possibility of an accident as it sped toward further union. When Greece found itself in need in 2010, the lack of a plan not only delayed its rescue, but it also sowed the seeds of the whirlwind that Europe now faces – where a lack of trust between Greece and our partners is undermining the very spirit of unity and solidarity that is the foundation of the whole edifice. In five years we have seen a resurgence of divisions and stereotypes from Europe’s bloody past.
Now we can see just how unprepared Europe was, how it did not have the necessary rescue mechanisms nor the mentality that all its peoples were members of the same body. Even as the euro was adopted, economic union lagged, as did the necessary checks. And when “unruly” Greece became the first country to run into trouble, our partners left our country hanging for six months instead of closing ranks around it, declaring that the problem was a European one, that Europe would take care of it and would bring its errant member into line. Our partners pointed fingers at us, while inside Greece currents of anger and fear swelled up, undermining relations with our partners.
I think perhaps the crucial question is will there be time.
• Could A Digi-Drachma Avert A Grexit? (Reuters)
Greek Finance Minister Yanis Varoufakis may have been joking when he tweeted about Greece adopting bitcoin, but some financial technology geeks say an asset-backed digital currency could be a solution to the country’s cash crisis. Greece faces €1.5 billion of repayments to its creditors this month, having been locked in talks on a cash-for-reforms deal for months. Failure to agree could trigger a Greek default and potential exit from the euro zone, dealing a big blow to the supposedly irreversible currency union. In order to avoid such a “Grexit” some reckon Greece could adopt a bitcoin-like parallel digital currency with which it could pay its pensioners and public-sector workers. It could be called the “digi-drachma”, after Greece’s pre-euro currency.
But unlike bitcoin, which is totally decentralized and given value simply by its usefulness, it would be issued by the state and backed with the country’s substantial assets. “If you’ve got all these assets, why don’t you use them to back up a digital currency?” said Lee Gibson-Grant, founder of Coinstructors, a consultancy for those wanting to use bitcoin’s underlying technology – the blockchain – to start businesses. If Greece’s assets could be tokenized and issued as a digital currency, argues Gibson-Grant, public-sector wages and pensions could be paid with it. That would preserve scarce euros for repaying the country’s creditors and help avoid a sell-off of valuable assets at rock-bottom prices.
Varoufakis himself, who on April 1 tweeted a link to a satirical story that reported him as saying Greece would adopt bitcoin if a deal with its creditors could not be reached, blogged in 2014 about the possibility of a parallel “Future Tax (FT) coin”. The FT coin, said Varoufakis, an academic economist whose radical-left Syriza party was then not yet in government, would be denominated in euros but backed by future tax revenues. It would use a “bitcoin-like algorithm in order to make the system transparent, efficient and transactions-cost-free” and could provide “a source of liquidity for the governments that is outside the bond markets”. Greece’s radical left is not alone in having considered a parallel currency.
The ECB has analyzed a scenario in which Greece pays civil servants with IOUs, which would rely on future tax revenue in a similar way to the FT coin, creating a virtual second currency in the euro bloc. ECB experts decided it would not work, as public sector workers would receive payment in the IOU currency rather than in euros, putting further pressure on Greek banks because those workers were likely then to plunder their savings. Furthermore, the basis for both such ideas relies on an implicit assumption that the Greek state will not collapse — by no means guaranteed in the current climate. “This would be different to a distributed, trustless digital currency such as bitcoin, since holders would still have to trust the issuer,” said Tom Robinson, Chief Operating Officer at London-based bitcoin storage firm Elliptic.
Better watch out: “..an increasing “ghettoisation” along ethnic and racial lines..”
• New Zealand Heading Toward ‘Social And Housing Apartheid’ (NZ Herald)
New Zealand is heading towards a “social and housing apartheid” as a result of soaring house prices locking people out of the property market, a leading economist claims. New Zealand Institute of Economic Research (NZIER) principal economist Shamubeel Eaqub and his wife Selena, also an economist, argue in their new book Generation Rent, that unless serious changes are made across the housing, banking and construction sectors, New Zealand will become divided into two classes – the landed gentry and everyone else. Speaking on The Nation this morning, Mr Eaqub said the current housing market, especially in Auckland’s hot property bubble, was “creating generations of people who are priced out” of the market.
“What we have created is essentially this lost generation … these property orphans, who simply cannot get into the housing market,” he said. “So regardless of a correction in the future, you’ve still created this underclass, this segregation of society.” The situation was creating two classes in society, he said. “What we’re looking at now is essentially this landed gentry – if you’ve got mummy or daddy who own houses, you’re likely to own houses,” Mr Eaqub said. “We’re seeing this already in Auckland, where if you want to buy a house you really need help from somebody who’s been in the market for a very long time.
“We’re creating two New Zealands – this landed gentry, this wealth-generated, hereditary sort of wealth, those are the people who will be able to buy houses, and then there is the rest. “We are creating this social and housing apartheid where you’ve got these people who are the ‘generation rent’ and they’re locked out of so much of New Zealand that’s predicated itself on owning a home.” He added: “Housing apartheid is, I think, this concept that ‘generation rent’ simply cannot participate in so much of how New Zealand is set up.” Mr Eaqub also claimed there was a “growing wedge” between the two classes, and that an increasing “ghettoisation” along ethnic and racial lines was emerging in New Zealand cities.
Not surprisingly, the FT seeks the answer in building more, and ignores the influence of speculation, buy-to-let et al in driving up prices into a bubble. Just make housing a basic human right, much better.
• UK Housing: The £24 Billion Property Puzzle (FT)
The former bed and breakfast hotel close to Blackpool’s seafront has, like the northern English town itself, seen better days. The owner, Val, has been renting its 19 rooms to long-term unemployed benefit claimants since 1982. Each tenant receives £91 a week in housing benefit to subsidise their rent — meaning that Val, who likens the house to “one big family”, earns close to £90,000 a year from the state: more than three times the national average wage. Val is not alone. The seaside town’s landlords received £91m in housing benefit last year. Of the 17,500 privately rented homes more than 14,000 qualify for housing benefit, the highest proportion in the country.
The situation is being repeated around the UK, which paid £24bn in rent subsidies in 2013/14, double the amount a decade ago and the equivalent of £1 in every £4 in Britain’s budget deficit. Iain Duncan Smith, work and pensions secretary, has described the rent subsidies as part of a “dysfunctional welfare system” that often traps those it is supposed to help. Cutting benefit spending is high on the new Conservative government’s list of priorities. But anti-poverty campaigners argue that without the subsidies thousands of families would be homeless. Opponents counter that they ultimately line the pockets of neglectful landlords and fuel rising house prices by increasing their bidding power when buying homes.
“No one wakes up in the morning with the aspiration of living in a bedsit,” says Steve Matthews, director of housing for Blackpool council. “People end up in this accommodation because they are vulnerable and they have no other choice.” Val’s tenants are at the sharp end of a housing crisis. A shortfall in supply as too few houses are built, has been compounded by rising demand due to a growing population, which increased by 7.6% in the 10 years to 2013. Partly as a result London house prices per square foot are now the second highest in the world after Monaco, according to the London School of Economics’ Centre for Economic Performance.
Abenomics is all about belief only.
• Japan’s Peter Pan Problem (Pesek)
There are plenty of people in Asia who believe Haruhiko Kuroda, governor of the Bank of Japan, lives in Neverland. At the very least, economists on both sides of Japan’s deflation debate — those who worry Kuroda has weakened the yen too much, and those who believe he hasn’t done enough — think his policies have been out of touch. But it was still surprising to hear Kuroda admit on Wednesday that his policies are guided by imagination — specifically, the Japanese public’s willingness to imagine they’re working. “I trust that many of you are familiar with the story of Peter Pan, in which it says, ‘the moment you doubt whether you can fly, you cease forever to be able to do it,'” he said at a BOJ-hosted conference.
I’ll admit it’s somewhat distressing when the central banker managing the currency in which you’re paid suggests he’s relying on children’s stories for guidance. But Kuroda’s quote merits close scrutiny: It speaks volumes about why his policy of setting ultralow interest rates has failed to gain traction. Some might say Peter Pan, a boy who never grows old on the small island of Neverland, is the wrong metaphor for Japan, where 26% of the country’s 127 million citizens are over 65, and aging fast. A better reference, one could argue, is “Alice in Wonderland,” since Kuroda’s low interest rates have created a world where investors increasingly find it difficult to distinguish between illusion and reality. But in other ways, Peter Pan is an entirely apt metaphor. Just like young Peter, Kuroda’s quantitative easing program has never grown up; what was supposed to be a temporary policy increasingly seems like a permanent one.
Granted, this isn’t entirely his fault. The BOJ’s job would be much easier if Prime Minister Shinzo Abe carried out his promises of structural reform. But as much as central banking is a matter of liquidity, it’s also a confidence game. Just as theater directors are supposed to compel audiences to suspend their disbelief, Kuroda’s responsibility is to set monetary policy in a way that gives the public a feeling of hope about the economy – and induces them to increase spending. It’s on this emotional level that Kuroda is failing. Investors, particularly those overseas, seem to feel optimistic about low interest rates: They’ve driven the Nikkei up 36% over the last 12 months. But Japanese consumers don’t feel the magic and aren’t spending – inflation still hasn’t approached the BOJ’s desired 2% target.
This is where Kuroda penchant for space metaphors becomes relevant. “In order to escape from deflationary equilibrium, tremendous velocity is needed, just like when a spacecraft moves away from Earth’s strong gravitation,” he said in February. “It requires greater power than that of a satellite that moves in a stable orbit.”
They were always sure to bear the brunt of increasing instability.
• Emerging Markets Are Caught Up In The Bond Rout (CNBC)
Stocks and currencies are not the only markets caught up in the bond market turmoil this week. Emerging markets have also felt the pain, highlighting their vulnerability to events in the developed world. MSCI’s emerging market stock index was on track Friday for a third straight week of losses, while the Indonesian rupiah hit a 17-year low against the dollar earlier in the day and the Russian ruble hit a two-month low on Thursday. This week’s sell-off in global bond prices, pushing yields on U.S. Treasury and European government bonds sharply higher on changing perceptions about the inflation outlook, has spilled over into emerging markets. And analysts say it’s exacerbating the volatility at a time when jitters about the timing of a possible rise in U.S. interest rates and concern about Greece’s future in the euro zone have tempered appetite for risky assets.
“Sentiment towards emerging markets has deteriorated significantly on the back of the sell-off in government debt markets, with a sharp increase in outflows from emerging market debt funds this week,” Nicholas Spiro at Spiro Sovereign Strategy, told CNBC. “Emerging markets are facing a triple whammy of a sovereign bond sell-off, a plethora of country-specific risks (not least Greece) and an anticipated tightening in U.S. monetary policy,” he said. Analysts say that central European countries were especially vulnerable to the sell-off in German Bunds as their markets are closely correlated to price action in the euro zone. There’s also the Greece factor, with turmoil there likely to hurt the outlook for the euro zone and the emerging markets with which it has close economic and trade links.
“Clearly Greece is the big unknown at the moment. Contagion from that would probably be concentrated in parts of eastern Europe, which have the closest linkages to the euro zone,” Capital Economics’ William Jackson told CNBC. [..] Jackson at Capital Economics said Turkey and South Africa were two emerging markets to watch most closely in terms of further volatility. Turkish assets have faced additional pressure from uncertainty ahead of a weekend election that could force the ruling AK party to form a coalition. The Turkish lira traded at about 2.66 per dollar on Friday, holding near one-month lows. “On every single measure of vulnerability you can look at, Turkey usually comes near the top,” said Jackson.
Can we all get this through to our heads now?
• ‘Russia Would Attack NATO Only In A Mad Person’s Dream’ – Putin (RT)
Russia is not building up its offensive military capabilities overseas and is only responding to security threats caused by US and NATO military expansion on its borders, Russian President Vladimir Putin told Italian outlet Il Corriere della Sera. Speaking to the paper on the eve of his visit to Italy, Putin stressed that one should not take the ongoing Russian aggression scaremongering in the West seriously, as a global military conflict is unimaginable in the modern world. “I think that only an insane person and only in a dream can imagine that Russia would suddenly attack NATO. I think some countries are simply taking advantage of people’s fears with regard to Russia. They just want to play the role of front-line countries that should receive some supplementary military, economic, financial or some other aid”, Putin said.
Certain countries could be deliberately nurturing such fears, he added, saying that hypothetically the US could need an external threat to maintain its leadership in the Atlantic community. Iran is clearly not very scary or big enough for this, Putin noted with irony. Russia’s President invited the journalists to compare the global military presence of Russia and the US/NATO, as well as their military spending levels. He also urged them to look at the steps each side has taken in connection with the Anti-Ballistic Missile Treaty since the collapse of the Soviet Union. Russia’s military policy is not global, offensive, or aggressive, Putin stressed, adding that Russia has virtually no bases abroad, and the few that do exist are remnants of its Soviet past.
He explained that there were small contingents of Russian armed forces in Tajikistan on the border with Afghanistan, mainly due to the high terrorist threat in the area. There is an airbase in Kyrgyzstan, which was opened at request of the Kyrgyz authorities to deal with a terrorist threat there. Russia also has a military unit in Armenia, which was set up to help maintain stability in the region, not to counter any outside threat. In fact, Russia has been working towards downsizing its global military presence, while the US has been doing the exact opposite. “We have dismantled our bases in various regions of the world, including Cuba, Vietnam, and so on”, the president stressed. I invite you to publish a world map in your newspaper and to mark all the US military bases on it. You will see the difference.
That’s not human consumption, but human contact.
• 60% of China’s Underground Water ‘Not Fit For Human Contact’ (RT)
About 60% of underground water in China, and one-third of its surface water, have been rated unfit for human contact last year, according to the environment ministry in Beijing. The ministry said in a statement that water quality is getting worse, and the ministry classified 61.5% of underground water at nearly 5,000 monitoring sites as “relatively poor” or “very poor.” In 2013, the figure stood at 59.6%. The fact that the water is unfit for human contact means that it can only be used for industrial purposes or irrigation. The water supplies are classified into six grades, with only 3.4% of 968 monitoring sites of surface water meeting the highest “Grade I” standard. A total of 63.1% was reported to be suitable for human use, rated “Grade III” or above.
China is currently carrying out a “war on pollution” campaign, to deal with environmental issues. In particular, in April, the government in Beijing pledged to increase the %age of good quality water sources up to 70% in seven main river basins, and to more than 93% in urban drinking supplies, by 2020. Also, a prohibition on water-polluting plants in industries – such as oil refining and paper production – is set to come into effect by the end of 2016. Air pollution also remains one of the most serious issues in China, the ministry said in its statement. Just 16 of the 161 major Chinese cities satisfied the national standard for clean air in 2014, statistics demonstrated, local news agencies reported. The other 145 cities – over 90% all in all – failed to meet the requirements.
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