Nicolas de Staël Paris la nuit 1954
Bits and pieces from A Saxo banks missive.
First graph: China credit impulse in the world economy plummeted 25% in Q2.
Second graph: Saxo smokes funny stuff. It says: Global trade but also non-construction investment in Western countries has been catching up with the pre-crisis long-term trend.. Well, not that I can see there.
Third graph: Stuff about inflation. Look, velocity is sinking through the floor. And Broad Money is not rising much (despite QE). Ergo: no inflation.
• Are We Too Optimistic On Global Growth? (Saxo Bank)
Is economic growth on a solid footing?We have a contrarian view on global growth in 2018 and consider that the consensus is a bit too rosy. We expect lower GDP growth in the second and third quarters due to the contraction in the credit impulse in China. As mentioned by the IMF, China still represents one-third of the global growth impulse. In Q2’17, China’s credit impulse declined by 25% year-on-year, therefore reaching a new post-crisis low. Since this index leads the real economy by nine to 12 months, we expect worse data next year for China, but also for the global economy.
The global economic situation has been improving over the past years. Global trade but also non-construction investment in Western countries has been catching up with the pre-crisis long-term trend.
[..] Will inflation ever come back? Lowflation has been one of the main macroeconomic issues in recent years and it is expected to remain a thorn in the foot of central bankers for longer yet. Since September 2016, China – the main exporter of deflation – has started to export inflation along with higher global commodity prices (up 3% in October 2017 year-on-year, based on data from the World Bank), but global inflation still remains subdued. Central bankers, and particularly ECB president Mario Draghi, consider that low inflation is only a transitory phenomenon linked to hysteresis and underemployment and that job gains will eventually push inflation to target. Those elements certainly play a role in the short and medium terms but as pointed out by Benoit Coeuré, the problem is that the Phillips curve is “flatter, non-linear, mid-specified”.
We don’t expect that inflation will significantly pick up next year since, in our view, lowflation is primarily a structural phenomenon. More and more economists are agreeing with that take, including outgoing Federal Reserve chair Janet Yellen who recently confirmed that we don’t properly understand inflation dynamics. Monetarists explain low inflation by the slow rate of growth in broad money since the great recession. This might be part of the problem, but it is not completely convincing since the money stock has not been constant and has started to decrease since 1997 in the United States.
Two pieces on the same issue: the IRS and bitcoin. First Simon Black, then Mike Maloney.
• The Government Is Coming For Your Bitcoin (Black)
The same day Bitcoin cracked its all-time high above $11,000, the government dealt its first blow to the crypto world… On Wednesday, a federal judge in San Francisco ordered the popular Bitcoin exchange, Coinbase, to provide the IRS with information on over 14,000 account holders. The taxman noticed that only 800-900 people reported gains related to Bitcoin in each of the years between 2013-2015. It seemed unusual given Bitcoin’s meteoric rise. So the IRS went for its pound of flesh. Initially, the government wanted complete data on every Coinbase user that transacted between 2013 and 2015. The exchange’s website says it has 13 million users (more than the number of Schwab brokerage accounts).
But Coinbase pushed back… and the government agreed to only take limited data (including name, date of birth, address, tax ID number, transaction statements and account logs) for accounts that have bought, sold, sent or received at least $20,000 worth of Bitcoin in a given year. Don’t say I didn’t warn you about Coinbase. I told Sovereign Man: Confidential readers last month: “If you’re tempted to purchase Bitcoin from the popular Coinbase exchange, don’t bother. They’ve sold out to regulators.” The IRS is calling this a “partial win.” But you can be sure, there will be a public beheading. This is something governments almost always do. [..] Now that it’s at all-time highs, the government wants its piece.
I read the 400+ pages of the proposed tax code. How many lines in there do you think deal with cryptocurrency? ZERO. How many lines deal with e-commerce? ZERO. The government had every opportunity to set the rules for the 21st century. And they failed miserably. So the rules remain as clear as mud. Instead of trying to make it clear, their tactic is intimidation, force and coercion. This is just the beginning. There will be more. And my advice is don’t be one of those guys. Every transaction that you make in Bitcoin is potentially a taxable event.
“And guess what they’re going to have to sell to come up with the cash [to pay the IRS]; because you can’t pay your taxes with bitcoin…
• Bitcoin & Tax: The Coming Coinbase Fiasco (Mike Maloney)
Mike Maloney takes a look at a very important Bitcoin issue that could prove to be a market-mover in the new year: The IRS has realized that Bitcoin is a cash cow for them, but at the same time there is just a small percentage of Coinbase users who are filing gains or losses. What could this add up to?
May’s problems grow fast. Her own people are starting to leave her. They fear for their own political futures. Cue Corbyn.
• Theresa May Faces New Crisis After Mass Walkout Over Social Policy (O.)
Theresa May was plunged into a new crisis on Saturday night after the government’s social mobility adviser revealed he and his team were quitting, warning that the prime minister was failing in her pledge to build a “fairer Britain”. In a major blow to No 10, Alan Milburn, the former Labour cabinet minister who chairs the government’s social mobility commission, said that he and all three of his fellow commissioners were walking out – including a leading conservative, Gillian Shephard. The move will be seen as a direct challenge to May’s vow in Downing Street to place fairness and social justice at the heart of her premiership. In his resignation letter, seen by the Observer, Milburn warns that dealing with Brexit means the government “does not seem to have the necessary bandwidth to ensure the rhetoric of healing social division is matched with the reality.
“I have little hope of the current government making the progress I believe is necessary to bring about a fairer Britain,” he tells the prime minister. “It seems unable to commit to the future of the commission as an independent body or to give due priority to the social mobility challenge facing our nation.” The resignations come with the prime minister already under pressure, as she faces crunch Brexit talks and questions over the future of her most senior minister, Damian Green. Milburn says failing to deal with the inequalities that fuelled the Brexit vote would simply lead to a rise of political extremes. In a devastating assessment of the lack of progress, Milburn says: “The worst position in politics is to set out a proposition that you’re going to heal social divisions and then do nothing about it. It’s almost better never to say that you’ll do anything about it.
“It’s disappointing at least that the government hasn’t got its shoulder to the wheel in the way it should to deal with these structural issues that lead to social division and political alienation in the country. “In America for 30 years real average earnings have remained flat. Now here the chancellor is predicting that will last for 20 years. That has a consequence for people, but a political consequence as well. It means more anger, more resentment and creates a breeding ground for populism.”
Very risky, but once he can make the costs clear, he might pull it off. He’ll need Tory defectors, though, and they won’t want to help him. But if things get bad enough with May, they may.
• Corbyn Signals Labour Could Be Open to Second Brexit Referendum (BBG)
U.K. Labour Party leader Jeremy Corbyn hinted that he could be open to holding a second referendum on Brexit as the consequences of leaving the European Union become clearer. Asked if he was prepared to rule out a second vote after meeting with Portuguese Prime Minister Antonio Costa in Lisbon on Saturday, Corbyn said his party hasn’t fixed its position on the issue. “We’ve not made any decision on a second referendum,’’ Corbyn said at a European Socialist Party conference in the Portuguese capital. “What we’ve said is that we would respect the result of the first referendum.”
Britain’s main opposition party is trying to portray itself as a government-in-waiting after gaining seats in June’s general election and stripping Prime Minister Theresa May of her majority. Since going into that vote with a Brexit strategy similar to May’s Conservatives, Labour has diverged in recent months, saying it would keep open the options of remaining in the single market and customs union, both of which the premier has ruled out. “If we were in government, we would immediately legislate to guarantee British residence to all European Union nationals that live and work in Britain, and the right to bring their families to Britain as well,’’ Corbyn told reporters. “We will negotiate the issues of relations with Europe on the basis of a free-trade relationship with Europe.’’
This is only about the divorce bill. Someone should ask about the total cost.
• Theresa May Has Got To Come Clean About The Cost Of Brexit (Ind.)
We know what the Prime Minister is up to. She wants to keep quiet about the size of the exit fee she is offering to the European Union until after Monday’s lunch with Jean-Claude Juncker, the Europan Commission President, and Michel Barnier, the EU negotiator. Indeed, she does not want her own MPs to know the sum until after the European Council on 14 and 15 December, at which she hopes to secure agreement to move to the next phase of Brexit talks. Once again, the national interest is being subordinated to the higher cause of holding the Conservative Party together – the sort of thing that prompted David Cameron to get us into the mess we are now in.
It is a small consolation, therefore, that the official opposition, led on this question by Sir Keir Starmer, the Shadow Brexit Secretary, is holding the Government to account. Labour is tabling an amendment to the EU (Withdrawal) Bill on Wednesday that would require any financial settlement to be assessed by the Office for Budget Responsibility and the National Audit Office. Of course, The Independent regards the prospect of a settlement amounting to between £45bn and £55bn as reasonable in principle. The reasons Conservative Eurosceptics might find it hard to accept are obvious. One is that they ran a referendum campaign on the assumption that leaving the EU would save the British people vast sums that could be diverted to the health service or other popular causes. The divorce bill gives the opposite impression.
This impression is reinforced by the way the sum, made up of several separate items, is rolled up into one very big number. In fact, of the £45bn-£55bn, about £20bn represents the continuation of our net contributions for the two years of a transition period, in which we would continue to be an EU member in all but name (and influence). The rest, Ms May insists, is similarly money that we owe in any case as a consequence of our membership. f so, there can be no objection to its being scrutinised to confirm it – or to giving Parliament the chance to approve or reject it in a vote. As Lord Heseltine, the former Deputy Prime Minister, told The Independent, “What would a Conservative opposition do if a Labour Party proposed to spend £30bn, £40bn or £50bn without telling Parliament what it was doing with it?”
And then there’s the Irish question.
• The Coming Days Will Stretch The Politics Of Brexit To The Limit (RTE)
When it comes to the border on the island of Ireland, the coming days will stretch the politics of Brexit to the limit. “For a border community, it impacts on every aspect of everyday life. When you get up in the morning, which road do you go out on?” “In Dublin or Belfast they won’t understand.” These are the views of one resident reported in a comprehensive survey of people living along both sides of the border on how Brexit will impact their lives, economically, socially, and psychologically. The paper, Bordering on Brexit: The Views of Local Communities in the Central Border Region of Ireland/Northern Ireland, has been published by a Queen’s University research team led by Dr Katy Hayward.
“That very close, tight way that it affects everything you think about and everything you do” continues the respondent. “For example, the man who fixes my car lives in Newtownbutler, Co Fermanagh – to drive you’d go out the Cavan road into Co Fermanagh, then into Co Monaghan, then into Co Fermanagh and then you get to his house. I could do that journey in 10 or 15 minutes; what would that be like if crossing an international European border?” These parochial but very real concerns, from Derry to Dundalk, are this weekend the subject of intense international diplomacy, gripping London, Dublin, Belfast and Brussels in a seemingly irreconcilable tug of politics. Donald Tusk, the President of the European Council, has set Monday as an absolute deadline for Theresa May to tell the EU, during a working lunch with the Commission president Jean-Claude Juncker, how she intends to solve the border problem, as well as the issue of Britain’s financial settlement and the rights of EU citizens.
Whether that deadline can be met, and what happens between Monday and the summit of EU leaders on 14 and 15 December, will have untold implications for the history of Ireland and the United Kingdom. The outcome may determine whether there is a hard border, no border, or something in between. It will have ramifications for the civil war in the Conservative Party and the stand-off between Sinn Féin and the DUP in Northern Ireland. It will have implications for millions of euro in cross-border trade, for cross-border healthcare, education, energy, waterways and other daily activities whose very nature is encouraged and facilitated by the Good Friday Agreement (GFA). And it will have implications for the man in Co Cavan who gets his car fixed in Newtownbutler, Co Fermanagh.
Just not their own., Ireland; Luxembourg; The Netherlands; Malta.
• EU’s Net Starts To Close On Tax Havens (G.)
When Europe’s finance ministers sit down to a working breakfast in Brussels on Tuesday, after deciding whether to order the continental or the full English, the British delegation will be faced with an even tougher decision. Chancellor Philip Hammond and his counterparts will be asked to approve a list of those countries, island states and former colonies which the European Union has deemed to be “non-cooperative jurisdictions”. Put more plainly, the EU will be announcing a blacklist of tax havens. Coming as it does less than a month after the publication of the Paradise Papers – an investigation by the Guardian and 95 partners worldwide into a leak of 13.4 million files from two offshore service providers – the announcement is hotly anticipated. Campaigners, lobbyists and politicians on both sides of the offshore debate are on tenterhooks.
For the kind of small island economies whose GDP depends on selling secrecy and tax breaks, a blacklisting could be devastating, particularly if Brussels follows up with a series of sanctions for doing business in these countries. Speculation about who will be placed on the EU’s naughty step has reached fever pitch. The latest draft, according to reports last week, contains 20 names, down from a possible 92 at the beginning of the year. That number could be further whittled down – the horse-trading is continuing up to the wire. So fierce is the debate that some believe publication might be postponed. “The finance ministers of the member states must not let political considerations cloud their judgment when agreeing their final list next week,” says the influential tax reform campaigner and German MEP Sven Giegold.
One of the big questions is how many, if any, members of the UK’s sprawling offshore network will be named. Any decision taken by ministers on Tuesday will have to be unanimous. Britain may be exiting Europe, but it retains its veto until 2019 and Theresa May’s government has been pulling every lever to protect its dependencies. Whitehall sources have confirmed that those Caribbean territories which suffered the most damage during this year’s devastating hurricanes will be given extra time to get their house in order. It has been reported that seven jurisdictions, not all of them British, have been given a temporary reprieve in order to recover from the damage. This is likely to mean the British Virgin Islands, Montserrat and the Turks & Caicos Islands – all of which are UK territories that took a battering from hurricanes Harvey, Irma and Maria – are safe for now.
[..] In a recent report, Blacklist or Whitewash?, Oxfam applied the criteria the EU is using to draw up the blacklist to 92 countries screened by the union and its 28 member states. The criteria exclude EU member states, but if they did not, Oxfam concluded that four countries should be blacklisted: Ireland; Luxembourg; The Netherlands; Malta. It also concluded that 35 non-EU states should be on the list: Albania; Anguilla; Antigua and Barbuda; Aruba; Bahamas; Bahrain; Bermuda; Bosnia and Herzegovina; British Virgin Islands; Cook Islands; Cayman Islands; Curaçao; Faroe Islands; Macedonia; Gibraltar; Greenland; Guam; Hong Kong; Jersey; Marshall Islands; Mauritius; Montenegro; Nauru; New Caledonia; Niue; Oman; Palau; Serbia; Singapore; Switzerland; Taiwan; Trinidad and Tobago; UAE; US Virgin Islands; Vanuatu.
Drip drip drip bloodletting.
• Greece, Creditors Strike Deal on the Conditions for Fresh Cash (BBG)
Greece and its international creditors agreed on a set of economic overhauls the country must undertake in exchange for fresh loans, paving the way for a payment that will help it build a cash buffer as it seeks to prepare for its bailout exit. The so-called staff level agreement came after a week of talks in Athens saw the two sides reach common ground on politically sensitive issues such as reforms in the energy sector, public administration, the financial system, social-cohesion programs and fiscal performance among others. “We reached the staff-level agreement” Finance Minister Euclid Tsakalotos said after the last meeting with creditor’s representatives in Athens. Greece is going to implement as soon as possible all the measures needed in order to get fresh bailout money, he added.
After January’s Eurogroup, Tsakalotos expects that discussions will start for further debt relief, the fourth bailout review that is expected to conclude in May or June, and for exiting the crisis. The deal marks the completion of a key step in the negotiations between Athens and the auditors of its aid program – representing euro-area governments and the IMF – as the country is starting to prepare for its post-bailout life. A successful conclusion of the current review will not only entail the release of fresh loans but it will also help Greece regain the trust of investors, as it plans to tap financial markets again. The continent’s most indebted state was the first euro-area nation to seek a lifeline from its peers in 2010 and the only one still reliant on such concessional loans to stay afloat. Additional bond sales are a crucial step in the efforts to build up a post-program cash cushion and ensure it can stand on its own feet without external help. “Looking ahead, our baseline remains that Greece will achieve a clean exit from the bailout program when it ends next summer,” Wolfango Piccoli, co-president of Teneo Intelligence said in a note to clients.
“To this aim, Greece would need to build a buffer of around 12-15 billion euros ahead of its exit from the program.” Still, the Greek government will first have to implement a long list of around 100 overhauls before it can receive any fresh disbursements and formally conclude the ongoing audit of its bailout. Some measures will be voted in December while an omnibus bill to implement the remaining prior actions must be voted in parliament before Jan. 11. Once Greece has undertaken the agreed reforms, euro-area finance ministry deputies can examine whether Athens has fully complied with the conditions attached to its bailout at a meeting on Jan. 11 and green-light the disbursement of fresh loans, which could take place by mid-February, an EU official said on Dec. 1.
Athens will end up bringing thousands to the mainland. And housing many in deplorable conditions.
• Islanders To Descend On Athens Over Refugee Crisis (K.)
Protesters will converge outside the Immigration Policy Ministry on Tuesday to demand immediate relief for the eastern Aegean islands of Samos, Lesvos and Chios, where facilities for migrants and refugees are overflowing with thousands of stranded asylum seekers. The rally is being organized by the municipalities of the three islands and aims to publicize the plight of asylum seekers who have been trapped there for more than a year, testing local communities. “We have decided to protest and to demand again the immediate decongestion of our islands, so that the government reacts to the problem,” a joint statement by the municipalities read. To this end, Samos Mayor Michalis Angelopoulos is in contact with islander associations in Athens to get their support.
Currently the islands of the Aegean are home to a total of 15,486 refugees and migrants, of whom 6,520 are at Lesvos’s Moria hotspot, which was designed to hold 2,300 people. Similarly, on Samos there are 2,083 people sheltered at the center near Vathi which has a capacity of just 700, as does the Vial facility on Chios, which is currently sheltering 2,377 people. With winter arriving, hundreds of people – half of whom are children – at the Lesvos and Chios hotspots are still living in summer tents and exposed to the elements, without access to basic hygiene facilities.
Reports said that work to place prefabricated huts next to the Vial hotspot to help ease the crowded conditions at the center and to make improvements to existing facilities was put on hold on Friday by a local court, pending a January 16 trial which will examine a lawsuit filed by the Chios Municipality against the Immigration Policy Ministry over its decision to house migrants and refugees at that specific hotspot. Meanwhile, in a government bid to relieve some of the pressure on the islands, 500 people were transferred in the last two days alone from the islands to the Greek mainland. Nonetheless, 50 more people arrived on the islands’ shores from Turkey on Friday.
Given what we see of refugee conditions globally, that Compact doesn’t seem to amount to much.
• US Pulls Out of UN’s Global Compact on Migration (AFP)
The administration of President Donald Trump has withdrawn the United States from a United Nations pact to improve the handling of migrant and refugee situations, deeming it “inconsistent” with its policies, the US mission to the global body announced Saturday. “Today, the US Mission to the United Nations informed the UN Secretary-General that the United States is ending its participation in the Global Compact on Migration,” the Americans said in a statement. In September 2016, the 193 members of the UN General Assembly unanimously adopted a non-binding political declaration, the New York Declaration for Refugees and Migrants, pledging to uphold the rights of refugees, help them resettle and ensure they have access to education and jobs.
“The New York Declaration contains numerous provisions that are inconsistent with US immigration and refugee policies and the Trump Administration’s immigration principles. As a result, President Trump determined that the United States would end its participation in the Compact process that aims to reach international consensus at the UN in 2018,” the US statement said. US Ambassador Nikki Haley said the country would continue its “generosity” in supporting migrants and refugees around the world, but that “our decisions on immigration policies must always be made by Americans and Americans alone.” “We will decide how best to control our borders and who will be allowed to enter our country. The global approach in the New York Declaration is simply not compatible with US sovereignty.”
Great discussion. Many false assumptions. Farming was not exactly a health booster.
• Why Did We Start Farming? (LRB)
Fire changed humans as well as the world. Eating cooked food transformed our bodies; we developed a much shorter digestive tract, meaning that more metabolic energy was available to grow our brains. At the same time, Homo sapiens became domesticated by its dependence on fire for warmth, protection and fuel. If this was the start of human progress towards ‘civilisation’, then – according to the conventional narrative – the next step was the invention of agriculture around ten thousand years ago. Farming, it is said, saved us from a dreary nomadic Stone Age hunter-gatherer existence by allowing us to settle down, build towns and develop the city-states that were the centres of early civilisations. People flocked to them for the security, leisure and economic opportunities gained from living within thick city walls.
The story continues with the collapse of the city-states and barbarian insurgency, plunging civilised worlds – ancient Mesopotamia, China, Mesoamerica – into their dark ages. Thus civilisations rise and fall. Or so we are told. The perfectly formed city-state is the ideal, deeply ingrained in the Western psyche, on which our notion of the nation-state is founded, ultimately inspiring Donald Trump’s notion of a ‘city’ wall to keep out the barbarian Mexican horde, and Brexiters’ desire to ‘take back control’ from insurgent European bureaucrats. But what if the conventional narrative is entirely wrong? What if ancient ruins testify to an aberration in the normal state of human affairs rather than a glorious and ancient past to whose achievements we should once again aspire?
What if the origin of farming wasn’t a moment of liberation but of entrapment? Scott offers an alternative to the conventional narrative that is altogether more fascinating, not least in the way it omits any self-congratulation about human achievement. His account of the deep past doesn’t purport to be definitive, but it is surely more accurate than the one we’re used to, and it implicitly exposes the flaws in contemporary political ideas that ultimately rest on a narrative of human progress and on the ideal of the city/nation-state.
[..] But why did it take so long – about four thousand years – for the city-states to appear? The reason is probably the disease, pestilence and economic fragility of those Neolithic villages. How did they survive and grow at all? Well, although farming would have significantly increased mortality rates in both infants and adults, sedentism would have increased fertility. Mobile hunter-gatherers were effectively limited by the demands of travel to having one child every four years. An increase in fertility that just about outpaced the increase in mortality would account for the slow, steady increase in population in the villages. By 3500 BCE the economic and demographic conditions were in place for a power-grab by would-be leaders.
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