Raúl Ilargi Meijer

Aug 252016
 
 August 25, 2016  Posted by at 9:18 am Finance Tagged with: , , , , , , , , , , ,  No Responses »
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Harris&Ewing US Navy Yard, Washington. Sight shop, big gun section 1917


‘It’s Easier To Start A War Than To Forgive Debt’ (ET)
Mobius: Helicopter Money Will Be Japan’s Next Big Experiment, And Soon (BBG)
Central Bankers Eye Public Spending To Plug $1 Trillion Investment Gap (R.)
World Trade Falls for Second Quarter in a Row (WS)
Largest Oil Companies’ Debts Hit Record High (WSJ)
This is What’s Wrong with US Oil (WS)
Scotland North Sea Oil Revenues Collapse 97% (Ind.)
The Woman Who Revived Russia’s Markets (WSJ)
China Imposes Caps on P2P Loans to Curb Shadow-Banking Risks (BBG)
Runaway Bosses Fleeing Debts A Symptom Of China’s Economic Slowdown (SCMP)
Real World Shows Economics Has a Deflation Problem (BBG)
S&P: Increased Risk Of ‘Sharp Correction In New Zealand Property Prices’ (Int.)
Treasury to EU: Back Off On Tax Probes Of US Companies (CNBC)
French Support For The EU Project Is Crumbling On The Left And Right (AEP)
‘It Took On A Life Of Its Own’: How One Rogue Tweet Led Syrians To Germany (G.)
We’ve Been Wrecking The Planet A Lot Longer Than You Think (SMH)

 

 

Good and long interview with Macquarie strategist Victor Shvets.

‘It’s Easier To Start A War Than To Forgive Debt’ (ET)

Shvets says the world should have actually delevered or paid down the debt to return initiative to the private sector, but thinks people could not accept the levels of pain associated with it. “You could eliminate the impact of the overcapacity through deflation. Nobody is prepared to accept that we might have to wipe out decades of growth just to eliminate leverage. Banks go, there are defaults, bankruptcies, layoffs,” he said. He thinks the Biblical debt jubilee, where slaves would be freed and debt would be forgiven every 50 years is a nice idea that would also work today if it weren’t for entrenched special interests. “The debt is not spread evenly, we still live in a tribal world, and it’s easier to start a war than to forgive debt,” Shvets said.

Global central banks with their easy money policies of negative interest rates and quantitative easing are working against a debt deflation scenario, with limited success, according to Shvets. “That was the entire idea of aggressive monetary policies: Stimulate investment and consumption. None of that works, there is no evidence. It can impact asset prices, but they don’t flow into the real economy,” he said. “Remember, the people at the Fed and the Bank of England are not supermen, they are people with an above average IQ trying to do a very difficult job in a highly complex environment.” Both overleveraging, easy money policies, and technological shifts are responsible for increasing levels of income inequality across the globe, another hallmark of the previous two industrial revolutions. Fewer people control more of the wealth.

Read more …

So far it’s all just talk.

Mobius: Helicopter Money Will Be Japan’s Next Big Experiment, And Soon (BBG)

The Federal Reserve signals a reluctance to raise interest rates. The yen strengthens to 90 per dollar. Haruhiko Kuroda decides to act. Helicopter money is coming, says Mark Mobius, even as soon as next month. The 80-year-old investment veteran is outlining how he expects central banks to respond to sluggish economic growth. For Mobius, executive chairman of Templeton Emerging Markets Group, traditional easing measures have just made people save instead of spend or borrow. Combined with a stronger yen, he says that’s going to force the Bank of Japan governor to contemplate a policy he’s repeatedly ruled out. “They’re really beginning to think what ammunition they have,” he said in an interview on a visit to a typhoon-struck Tokyo this week.

“The first reaction is to say, OK, let’s go for helicopter money, let’s get money directly into the hands of consumers,” he said. “I think that would probably be the next step.” Central bankers have flooded their economies with monetary stimulus in the eight years since the global financial crisis, driving up asset prices – including the stock markets that Mobius invests in – while struggling to kickstart global growth. A foray into negative interest rates in Japan has been met with the yen surging to about 100 per dollar, falling stocks and dwindling bank profits.

Read more …

Party time.

Central Bankers Eye Public Spending To Plug $1 Trillion Investment Gap (R.)

While markets wait for Janet Yellen’s latest message about the direction of monetary policy, the Federal Reserve chief and her colleagues already have one for politicians: the U.S. economy needs more public spending to shift into higher gear. In the past few weeks, Yellen and three of the Fed’s other four Washington-based governors have called in speeches and Congressional hearings for government infrastructure spending and other efforts to counter weak growth, sagging productivity improvements, and lagging business investment. The fifth member has supported the idea in the past. The Fed has no direct influence over fiscal policy and its officials traditionally refrain from discussing it in detail.

Having its top officials – from Yellen to former investment banker and Bush administration official Jerome Powell – speak in one voice sends a strong signal to the next president and Congress about the limits they face in setting monetary policy and what is needed to improve the economy’s prospects. The Fed’s annual conference in Jackson Hole, Wyoming, where Yellen speaks on Friday, is due to focus on how to improve central banks’ “toolkit,” but the unanimous message from the Fed’s top policymakers is that those tools are not enough. “Monetary policy is not well equipped to address long-term issues like the slowdown in productivity growth,” Fed vice chair Stanley Fischer said on Sunday. He said it was up to the administration to invest more in infrastructure and education.

Behind Fischer’s statement lies a troubling feature of the recovery – business investment has fallen below levels in prior years and companies seem to have stopped responding to low borrowing costs. As a share of GDP, U.S. annual business investment since 2008 has averaged nearly a full percentage point below the previous decade’s average, government data shows. Reuters calculations indicate the investment shortfall has blown a hole in annual GDP that has grown to as much as one trillion dollars a year compared with what it would have been if the previous trend continued.

Read more …

“A full decade of stagnation.”

World Trade Falls for Second Quarter in a Row (WS)

Adding to the picture of crummy demand for goods around the world, the CPB Netherlands Bureau for Economic Policy Analysis, a division of the Ministry of Economic Affairs, just released its preliminary data of its Merchandise World Trade Monitor for June. Trade volumes rose 0.7% in June from May, after falling 0.5% in May, but were about flat year-over-year, and below the volumes of December 2014! On a quarterly basis – it averages out the monthly ups and downs – world trade fell 0.8%, contracting for the second quarter in a row. The CPB recently adjusted its world trade data down, going back many years.

The new data now depicts a post-Financial Crisis recovery of global trade that was a lot weaker than the original data had indicated. These downward adjustments of 2% to 3% came in a world where economic growth, according to the IMF, is stuck at 3.1% in 2016. This chart of the CPB’s World Trade Monitor index shows the old data released as of July 2015 (blue line) and the newly adjusted data released today (red line). Note the 4.4% drop from the peak in global trade volumes in the original data for December 2014 and in the current data for June 2016!

World trade is a reflection of the goods-producing economy. Services don’t get shipped around the world. Goods do. So industrial production, excluding construction, is key. And here the trend is awful for advanced economies. Global industrial production, excluding construction, rose 0.6% in June, after a 0.3% decline in May. The index for industrial production in advanced economies rose to 102.5, below where it had been in January (103.4), a level it had hit after the Financial Crisis in December 2012, but down from the glory days before the Financial Crisis when the index peaked in February 2008 (107.8). And here’s a tidbit: the first time that the index hit the current level had been in April 2006. A full decade of stagnation.

Industrial production has shifted to emerging economies (“cheap labor” economies) for many years, such as China, as companies in the US, decades ago, and eventually in Europe and Japan began outsourcing and offshoring production to emerging economies. Hence, industrial production in emerging economies has surged over this period. This was particularly the case after the Financial Crisis when companies in the US, Europe, and Japan redoubled their efforts to get production relocated offshore. This chart shows the CPB’s industrial production index globally (green line), and also separated by advanced economies (the dismally flat-ish blue line at the bottom) and emerging economies (brown line at the top):

Read more …

Someone better restructure that entire industry, or ugly things will happen.

Largest Oil Companies’ Debts Hit Record High (WSJ)

Some of the world’s largest energy companies are saddled with their highest debt levels ever as they struggle with low crude prices, raising worries about their ability to pay dividends and find new barrels. Exxon Mobil, Shell, BP and Chevron hold a combined net debt of $184 billion—more than double their debt levels in 2014, when oil prices began a steep descent that eventually bottomed out at $27 a barrel earlier this year. Crude prices have rebounded since, but still hover near $50 a barrel. The soaring debt levels are a fresh reminder of the toll the two-year price slump has taken on the oil industry. Just a decade ago, these four companies were hauled before Congress to explain “windfall profits” but now can’t cover expenses with normal cash flow.

Executives at BP, Shell, Exxon and Chevron have assured investors that they will generate enough cash in 2017 to pay for new investments and dividends, but some shareholders are skeptical. In the first half of 2015, the companies fell short of that goal by $40 billion, according to a Wall Street Journal analysis of their numbers. “Eventually something will give,” said Michael Hulme, manager of the $550 million Carmignac Commodities Fund, which holds stakes in Shell and Exxon. “These companies won’t be able to maintain the current dividends at $50 to $60 oil—it’s unsustainable.” BP has said it expects to be able to pay for its operations, make new investments and meet its dividend at an oil price of between $50 and $55 a barrel next year.

The debt is piling up despite cuts of billions of dollars on new projects and current operations. Repaying the loans could weigh the companies down for years, crimping their ability to make investments elsewhere and keep pumping ever more oil and gas. “They are just not spending enough to boost production,” said Jonathan Waghorn at Guinness Atkinson Asset Management.

Read more …

As graphs go…

This is What’s Wrong with US Oil (WS)

Soothsayers out there have been prophesying time and again, for over a year, that very soon, in fact next week, the supply glut will start to unwind; that production in the US is already coming down sharply, that demand is up, or whatever…. In the end, a glut comes down to whether inventories are rising, particularly during a time of the year when they’re supposed to be falling (glut gets worse), or whether they’re falling (glut stabilizes or abates). It’s not just crude oil, but also the products that crude oil gets refined into for eventual use. And these stocks of petroleum products have been a doozie, particularly gasoline.

Gasoline stocks were essentially unchanged for the week, at 232.7 million barrels, a record for this time of the year, and up 8.5% from the already elevated inventory levels last year. Distillate fuels rose by 200,000 barrels to 153.3 million barrels. And “all other oils” jumped by a total of 3.9 million barrels to 490.6 million barrels. So total petroleum products stocks rose by 6.6 million barrels during the week, or 0.5%. Once again, this small-ish number, but over the period of the oil bust, total petroleum products stocks have soared by 30% and now exceed for the first time ever another huge milestone: 1.4 billion barrels. This chart shows what a truly relentless glut looks like:

Read more …

No independence then?!

Scotland North Sea Oil Revenues Collapse 97% (Ind.)

Scotland’s revenues from North Sea oil have collapsed by 97% in the past year as oil prices have plummeted, reigniting a fierce debate over whether an independent Scotland could finance itself. Scottish Liberal Democrat leader Willie Rennie said: “The nationalists’ case for independence has been swallowed up by a £14bn black hole.” Taxes collected from oil production fell from £1.8bn in 2015 to just £60m in 2016. The gap between tax revenues and what Scotland spends is now 9.5%, or £14.8bn, compared to a 4% deficit for the UK as a whole. Scotland’s public sector now spends £12,800 per person, but collects just £10,000 each, the figures reveal. In 2008-9, as oil peaked at almost $150 per barrel, the Scottish government brought in a record £11.6bn from North Sea fields.

Read more …

Funny. Here’s what I wrote on April 8, 2015: Russia’s Central Bank Governor Is Way Smarter Than Ours

The Woman Who Revived Russia’s Markets (WSJ)

Russian markets are red hot again. Two years after plunging oil prices and Western economic sanctions fueled an investor exodus, the Micex stock index on Tuesday hit an all-time high. It is up 25% this year in dollar terms, making Russia the sixth-best performer among 23 emerging countries tracked by MSCI Inc. The ruble has gained 13% against the dollar this year, ranking third among all emerging currencies. Russia’s local-currency bonds rank third this year in performance out of 15 countries tracked by JP Morgan Chase. Many investors credit central-bank chief Elvira Nabiullina for Russia’s resurgence. They cite her surprise decision to end the ruble’s peg to the dollar in November 2014 and then sharply raise interest rates to combat capital flight and knock down inflation.

The moves were painful for Russia’s economy, which went into a sharp recession as the value of the ruble slumped, reducing consumer and business purchasing power. But over time they have helped to restore some international-investor faith in a country still shadowed by its 1998 default. “The correct steps taken by the Russian central bank have restored confidence in the ruble and its macroeconomic policy,” said Andrey Kutuzov, an associate portfolio manager of the Wasatch Emerging Markets Small Cap fund. Global investors this year have added $1.3 billion to funds that invest in Russian bonds and stocks, according to EPFR Global. The share of foreigners among government bondholders rose to 24.5% as of June 1, its highest level since late 2012, according to the Russian central bank.

Read more …

“..loans for weddings, guaranteed against the cash gifts that couples expect to receive..”

China Imposes Caps on P2P Loans to Curb Shadow-Banking Risks (BBG)

China imposed limits on lending by peer-to-peer platforms to individuals and companies in an effort to curb risks in one part of the loosely-regulated shadow-banking sector. An individual can borrow as much as 1 million yuan ($150,000) from P2P sites, including a maximum of 200,000 yuan from any one site, the China Banking Regulatory Commission said in Beijing on Wednesday. Corporate borrowers are capped at five times those levels. Tighter regulation may encourage consolidation that aids the industry long-term, said Wei Hou at Sanford C. Bernstein in Hong Kong. China’s authorities are concerned about defaults and fraud among the nation’s 2,349 online lenders. In December, the country’s biggest Ponzi scheme was exposed after Internet lender Ezubo allegedly defrauded more than 900,000 people out of the equivalent of $7.6 billion.

The nation has 1778 “problematic” online lenders, according to the CBRC. The P2P lenders are barred from taking public deposits or selling wealth-management products and must appoint qualified banks as custodians and improve information disclosure, the regulator said. [..] China’s P2P industry brokered 982 billion yuan of loans in 2015, almost quadruple the amount in 2014 and an approximately 10-fold increase from 2013, according to Yingcan. P2P firms attracted more than 3.4 million investors and 1.15 million borrowers in July, with loans extended at an average interest rate of 10.3%, according to Yingcan. Products offered by P2P platforms in China can include anything from loans for weddings, guaranteed against the cash gifts that couples expect to receive, to high-yield lending for risky property or mining projects.

Read more …

Biggest debts must be with shadow banks, and they don’t hang up posters.

Runaway Bosses Fleeing Debts A Symptom Of China’s Economic Slowdown (SCMP)

Wanted posters for fugitive debtors, not commercials, are the main images that flash up on a big electronic screen in downtown Yixing, in the heart of the faltering Chinese industrial powerhouse that is the Yangtze River Delta. The posters, from the local courts, show the identity card numbers and pictures of dozens of people who have fled unpaid debts. Rewards ranging from 20,000 yuan (HK$23,000) to 330,000 yuan are offered to anyone reporting their whereabouts. But Hengsheng Square is the glitziest part of Yixing – with the most luxury stores, the brightest lights and the priciest office buildings – and few passers-by, their attention directed elsewhere, heed the wanted posters. They have little novelty value in any case, with the “runaway debtor” phenomenon now just part of daily life in the small city as economic growth slows.

In many ways, the square stands as a metaphor for the overall health of the Chinese economy. Under a prosperous surface, deep cracks have begun to emerge in its investment-led model, casting a shadow over the country’s economic growth prospects and even giving rise to doubts about the fundamental soundness of the world’s second-biggest economy. “The economic dynamics are waning,” said Professor Hu Xingdou, an economist at Beijing Institute of Technology. “China’s economic growth in recent years was powered by massive money printing, which is dangerous and unsustainable.”

Read more …

Holding up Spain as a success story while it has 20-25% unemployment never seemed terribly credible. It still doesn’t.

Real World Shows Economics Has a Deflation Problem (BBG)

Jacob Rothschild, the billionaire scion of arguably Europe’s greatest banking dynasty says we’re living through “the greatest experiment in monetary policy in the history of the world.” There’s a major flaw in the experiment, though: the real world isn’t responding to policy in the way that the textbooks say it should. Moreover, it seems increasingly evident that the fears that led to zero interest rates and quantitative easing were at best overblown, if not entirely unjustified. The economic quandary is easy to parse. Central banks almost everywhere have sanctioned a 2% inflation target as signifying financial Nirvana. But, as the table below shows, consumer prices in the world’s major economies are rising much slower than that arbitrary ideal:

Spain has emerged as the poster child for deflation. Prices fell by 0.6% in July, the country’s 12th consecutive month with no increase in inflation. The textbooks suggest that when there’s a prolonged period of falling prices – the definition of deflation – the economy can quickly find itself in a tailspin. Businesses and consumers will defer purchases in the expectation that goods and services will be even cheaper in the future. So if Spain has had an average inflation rate of -0.4% since the end of 2013, and has seen lower prices in 23 of the past 30 months, consumers will have responded by shunning the shops and curtailing their spending, right? Wrong:

Read more …

Heed that warning.

S&P: Increased Risk Of ‘Sharp Correction In New Zealand Property Prices’ (Int.)

International credit rating agency S&P Global Ratings has warned of the increasing risks facing New Zealand banks as a result of the continuing rise in house prices. In a new report, S&P has downgraded its Banking Industry Country Risk Assessment (BICRA) for NZ’s banks by a notch, dropping it from 3 to 4, on a scale where 1 is the lowest risk and 10 is the highest risk. However it has not changed the individual credit ratings of any New Zealand banks. [..] .. our ratings on all the financial institutions operating in New Zealand remain unchanged. “This reflects our expectation that despite some weakening in the capital levels of all these financial institutions, their stand alone credit profiles (SACPs) would remain unchanged.

However S&P did downgrade the SACPs of ASB and Rabobank by one notch each, although it did not downgrade the two banks’ credit ratings, “… reflecting our assessment of timely financial support from their respective parents, if needed,” S&P said. S&P said the increased risks to this country’s banking sector had been driven by “…continued strong growth in residential property prices nationally, coupled with an increase in private sector credit growth.” “We believe the risk of a sharp correction in property prices has further increased and, if it were to occur – with about 56% of registered banks’ lending assets secured by residential home loans – the impact on financial institutions would be amplified by the New Zealand economy’s external weaknesses, in particular its persistent current account deficit and high level of external debt.”

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This is just plain funny.

Treasury to EU: Back Off On Tax Probes Of US Companies (CNBC)

There’s a giant pot of corporate gold sitting outside the United States, and the U.S. Treasury and the European Commission are squabbling over how to get their hands on it. American multinational corporations have stashed more than $2 trillion in profits and assets outside to avoid paying what many companies argue are unduly high U.S. corporate tax rates. Over the past few years, the European Commission has opened investigations into a handful of those companies, including Apple, Starbucks and Amazon, to determine whether they owe taxes to European countries. But the Treasury Department, in a “white paper” released Wednesday, said those investigations have gone too far.

The paper attacked the legal approach the EU is using to determine tax liabilities on American companies, saying it targets “income that (European) Member States have no right to tax under well-established international tax standards.” The paper also argued that taxes collected by European countries could, in effect, come right out of the pockets of American taxpayers. That’s because taxes collected by European countries could be deducted from any future payments to the Treasury. “That outcome is deeply troubling, as it would effectively constitute a transfer of revenue to the EU from the U.S. government and its taxpayers,” the paper said. The report urged the European Commission to “return to the system and practice of international tax cooperation that has long fostered cross-border investment between the United States and EU Member States.”

Read more …

France will demand the hollowing out of the EU. Decentralization. Inevitable when economies shrink.

French Support For The EU Project Is Crumbling On The Left And Right (AEP)

The drama of Brexit may soon be matched or eclipsed by crystallizing events in France, where the Long Slump is at last taking its political toll. A democracy can endure deflation policies for only so long. The attrition has wasted the French centre-right and the centre-left by turns, and now threatens the Fifth Republic itself. The maturing crisis has echoes of 1936, when the French people tired of ‘deflation decrees’ and turned to the once unthinkable Front Populaire, smashing what remained of the Gold Standard. Former Gaulliste president Nicolas Sarkozy has caught the headlines this week, launching a come-back bid with a package of hard-Right policies unseen in a western European democracy in modern times.

But the uproar on the Left is just as revealing. Arnaud Montebourg, the enfant terrible of the Socialist movement, has launched his own bid for the Socialist Party with a critique of such ferocity that it bears examination. The former economy minister says France voted for a left-wing French manifesto four years ago and ended up with a “right-wing German policy regime”. This is objectively true. The vote was meaningless. “I believe that we have reached the end of road for the EU, and that France no longer has any interest in it. The EU has left us mired in crisis long after the rest of the world has moved on,” he said. Mr Montebourg stops short of ‘Frexit’ but calls for the unilateral suspension of EU labour laws. “As far as I am concerned, the current treaties have elapsed.

I will be inspired by the General de Gaulle’s policy of the ’empty chair’, a strike against the EU. I am not in favour of a French Brexit, but we can longer accept a Europe like that,” he said. In other words, he wishes to leave from within – as Poland, and Hungary are doing – without actually triggering any legal or technical clause. Mr Montebourg is unlikely to progress far but his indictment of president François Hollande is devastating. The party leadership was warned repeatedly and emphatically that contractionary policies would inevitably lead to another million jobless but the economic was swept aside. “They never budged from their Catechism and their false certitudes,” he said.

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“..the first post on social media to change the course of European history..”

‘It Took On A Life Of Its Own’: How One Rogue Tweet Led Syrians To Germany (G.)

The tweet was sent by Germany’s ministry for migration and refugees a year ago today. “The #Dublin procedure for Syrian citizens is at this point in time effectively no longer being adhered to,” the message read. With 175 retweets and 165 likes, it doesn’t look like classic viral content. But in Germany it is being spoken of as the first post on social media to change the course of European history. Referring to an EU law determined at a convention in Dublin in 1990, the tweet was widely interpreted as a de facto suspension of the rule that the country in Europe where a refugee first arrives is responsible for handling his or her asylum application.

By this point in 2015, more than 300,000 asylum seekers had reached Europe by boat – a figure that was already 50% higher than even the record-breaking number of arrivals in 2014. Although the German ministry’s intervention certainly did not start the crisis, it did make Germany the first-choice destination for Syrians who previously might have aimed for other countries in Europe, such as Sweden, which at the time offered indefinite asylum to Syrians. It also created an impression of confusion and loss of political control, from which Angela Merkel’s government has at times struggled to recover. Twelve months on, politicians and officials at the centre of Berlin’s bureaucratic machine are still trying to figure out how the tweet came about.

Four days previously, Angelika Wenzl, the executive senior government official at the refugee ministry, which in Germany is known as BAMF, had emailed out an internal memo titled “Rules for the suspension of the Dublin convention for Syrian citizens” to its 36 field bureaux around the country, stating that Syrians who applied for asylum in Germany would no longer be sent back to the country where they had first stepped on European soil. [..] By channels that officials and journalists have so far failed to pinpoint, Wenzl’s internal memo was leaked to the press.

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I forget who said it, but it’s still an interesting take: ”Nature developed mankind to get rid of a carbon imbalance”.

We’ve Been Wrecking The Planet A Lot Longer Than You Think (SMH)

When Charles Dickens, the English novelist, was detailing the “soft black drizzle” of pollution over London, he might inadvertently have been chronicling the early signs of global warming. New research led by Australian scientists has pegged back the timing of when humans had clearly begun to change the climate to the 1830s. An international research project has found human-induced climate change is first detectable in the Arctic and tropical oceans around the 1830s, earlier than expected. That’s about half a century before the first comprehensive instrumental records began – and about the time Dickens began his novels depicting Victorian Britain’s rush to industrialise.

The findings, published on Thursday in the journal Nature, were based on natural records of climate variation in the world’s oceans and continents, including those found in corals, ice cores, tree rings and the changing chemistry of stalagmites in caves. Helen McGregor, an ARC future fellow at the University of Wollongong and one of the paper’s lead authors, said it was “quite a surprise” the international research teams of dozens of scientists had been able to detect a signal of climate change emerging in the tropical oceans and the Arctic from the 1830s. “Nailing down the timing in different regions was something we hadn’t expected to be able to do,” Dr McGregor told Fairfax Media.

Interestingly, the change comes sooner to northern climes, with regions such as Australasia not experiencing a clear warming signal until the early 1900s. Nerilie Abram, another of the lead authors and an associate professor at the Australian National University’s Research School of Earth Sciences, said greenhouse gas levels rose from about 280 parts per million in the 1830s to about 295 ppm by the end of that century. They now exceed 400 ppm.

Read more …

Aug 242016
 
 August 24, 2016  Posted by at 9:17 am Finance Tagged with: , , , , , , ,  5 Responses »
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G. G. Bain Asbury Park, Jersey Shore 1914


British House-Buyers Dance With the Devil (BBG)
How America Accidentally Nationalised Its Mortgage Market (Economist)
Fed Going Out To Jackson Hole To Get Divorce From Markets (MW)
The Real Casualty Of Brexit: Reputations Of Economists Who Predicted Doom (MW)
Companies Must Sort Pension Black Holes Before Paying Out Dividends (Tel.)
Illinois Governor’s Office Warns Of Crippling Pension Payment Hike (R.)
Many Donors To Clinton Foundation Met With Her At State Department (AP)
ECB Secretly Hands Cash to Select Corporations (DQ)
Troika Prompts Greece To Tighten Debt Repayments (Kath.)
Investors Controlling $13 Trillion Want G20 Leaders To Ratify Paris Deal (G.)
A Thousand Balls of Flame (Dmitry Orlov)

 

 

“..people are still very keen to buy and the lenders are keen to lend..”

British House-Buyers Dance With the Devil (BBG)

What will it take to halt the U.K. housing market? Maybe not the Brexit vote. British builder Persimmon became the latest to challenge the “Brexit is bearish for building” thesis on Tuesday when it said home reservation rates are 17% higher since July 1 compared to the same period a year ago. Customer site visits are buoyant too. To outsiders, this property obsession seems a kind of collective madness. Yes, British house prices are expected to fall 1% next year, according to economists at Countrywide, but they believe they’ll restart the upward march in 2018. Brits’ appetite for houses at inflated prices (see chart below) brings to mind former Citigroup boss Chuck Prince’s infamous 2007 assertion that “as long as the music is playing [in terms of liquidity], you’ve got to get up and dance”.

Wavering prospective home-buyers are enticed by ultra-cheap mortgages, bolstered by the Bank of England cutting rates after the Brexit vote. So buying is still often cheaper than renting. And while falling interest rates raise big questions about company pension promises, buying a home at least gives you somewhere to live in retirement. Persimmon CEO Jeff Fairburn told Bloomberg that “people are still very keen to buy and the lenders are keen to lend”.Brits aren’t mad, they’re just trapped: prisoners of a system that conspires to keep prices high and houses in short supply. They know their government will do almost anything to prevent house prices collapsing. Buyers can already obtain loans from the government to help get on the housing ladder, a policy that will further inflate prices for those lucky enough to own property already.

Read more …

Desperately trying to keep the bubble afloat.

How America Accidentally Nationalised Its Mortgage Market (Economist)

The most dramatic moment of the global financial crisis of the late 2000s was the collapse of Lehman Brothers on September 15th 2008. The point at which the drama became inevitable, though—the crossroads on the way to Thebes—came two years earlier, in the summer of 2006. That August house prices in America, which had been rising almost without interruption for as long as anyone could remember, began to fall—a fall that went on for 31 months. In early 2007 mortgage defaults spiked and a mounting panic gripped Wall Street. The money markets dried up as banks became too scared to lend to each other. The lenders with the largest losses and smallest capital buffers began to topple. Thebes fell to the plague.

Ten years on, and America’s banks have been remade to withstand such disasters. When Jamie Dimon, the boss of JPMorgan Chase, talks of its “fortress” balance-sheet, he has a point. The banking industry’s core capital is now $1.2 trillion, more than double its pre-crisis level. In order to grind out enough profits to satisfy their shareholders, banks have slashed costs and increased prices; their return on equity has edged back towards 10%. America’s lenders are still widely despised, but they are now in reasonable shape: highly capitalised, fairly profitable, in private hands and subject to market discipline. The trouble is that, in America, the banks are only part of the picture.

There is a huge, parallel structure that exists outside the banks and which creates almost as much credit as they do: the mortgage system. In stark contrast to the banks it is very badly capitalised (see chart 2). It is also barely profitable, largely nationalised and subject to administrative control. That matters. At $26 trillion America’s housing stock is the largest asset class in the world, worth a little more than the country’s stockmarket. America’s mortgage-finance system, with $11 trillion of debt, is probably the biggest concentration of financial risk to be found anywhere. It is still closely linked to the global financial system, with $1 trillion of mortgage debt owned abroad. It has not gone unreformed in the ten years since it set off the most severe recession of modern times. But it remains fundamentally flawed.

The strange path the mortgage machine has taken has implications for ordinary people, as well as for financiers. The supply of mortgages in America has an air of distinctly socialist command-and-control about it. Some 65-80% of all new home loans are repackaged by organs of the state. The structure of these loans, their volume and the risks they entail are controlled not by markets but by administrative fiat. No one is keen to make transparent the subsidies and dangers involved, the risks of which are in effect borne by taxpayers. But an analysis by The Economist suggests that the subsidy for housing debt is running at about $150 billion a year, or roughly 1% of GDP. A crisis as bad as last time would cost taxpayers 2-4% of GDP, not far off the bail-out of the banks in 2008-12.

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My bet is they’re too scared.

Fed Going Out To Jackson Hole To Get Divorce From Markets (MW)

Like celebrities who went to Las Vegas in the 1950s to get quick divorces, the Federal Reserve could be going to Jackson Hole this week to prepare to divorce policy from financial markets. In a way, the Fed’s relationship with the markets can be boiled down to a simple rule: the U.S. central bank is happy to surprise markets when it is easing policy but has never surprised the market with a rate hike. But the Fed may be preparing to end this relationship, especially given the recent behavior of financial markets with interest rates so low. Despite some fairly clear warnings that September is a “live” meeting. the market continues to see only a 24% probability of a rate hike in September, according to the CME’s Fed Watch tool.

New York Fed President William Dudley, San Francisco Fed President John Williams, and Atlanta Fed President Dennis Lockhart have pointed to a possible September move. Even Fed Vice Chairman Stanley Fischer chimed in with some broadly hawkish comments. In the wake of these developments, Carl Tannenbaum, chief economist at Northern Trust in Chicago, said he did not understand why rate hike probabilities remain so low. “I am mystified at what the short-term futures market is looking at,” he said. One thing the financial markets are clearly not looking at is a mirror. If they did they might see that their behavior is a big reason the Fed wants to hike rates in the first place.

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Funny how that goes.

The Real Casualty Of Brexit: Reputations Of Economists Who Predicted Doom (MW)

Did you hear the one about the economist who drove into a swimming pool and broke his neck? He forgot to seasonally adjust. Have you seen the version of Trivial Pursuit designed by an economist? It has 3,000 questions and 10,000 answers. There has always been a thriving, if niche, market in jokes about the dismal science, and its equally gloomy practitioners. And no doubt, there will soon be plenty to add to the list about Brexit. What‘s the difference between an economist predicting a Brexit-triggered recession and a confused and senile old man? The economist is the one with a calculator. And so on.

Over the spring, there were a lot of predictions about who would suffer the most damage if the British decided to vote to leave the European Union. The U.K. economy would be plunged into recession, we were told. The banking system would go down. The eurozone would take a terrible hit. And yet the real casualty turns out to be something quite different: The reputation of professional economists. With a very few exceptions, they forecast the U.K. would go straight into recession as a result of Brexit. As it turns out, however, Britain is doing just fine, and so is the rest of Europe. That is surely a calamity for which the profession deserves a beating – and at the very least should start asking itself some serious questions.

If you rewind a few weeks, and listened seriously to some of the predictions made about the likely consequences of Brexit, you would imagine that the U.K., and indeed the rest of the world, would be sliding into recession by now. In the immediate aftermath of the vote, number-crunchers from all the main investment banks, and from the policy and regulatory authorities, were unanimous in forecasting that the slowdown in economic activity would be sharp and sudden.

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Dividends are why people hold stocks. Yeah, that’s short-termism.

Companies Must Sort Pension Black Holes Before Paying Out Dividends (Tel.)

British companies are slashing their dividends, which, if you own their shares, either directly or through your pension scheme, is bad news. With companies like Wm Morrison, Anglo American and Standard Chartered cutting their payouts, underlying UK dividends fell 3.3pc year-on-year in the second quarter – the worst performance among the world’s seven richest economies. But here is another, possibly more staggering, statistic: UK companies threw five times as much cash at their shareholders as they did at their pension deficits last year. I would wager that the first stat (which comes courtesy of Henderson Global Investors) will be more worrisome to most investors, especially at a time of evaporating yield in the fixed income market and question marks hovering over property.

But I would argue that the second (from the actuarial consultants Lane Clark & Peacock) should give them greater pause for thought. Because, although the search for yield (and the lack thereof) has become one of the defining issues in the investment landscape, the pensions crisis is posing an almost existential question for corporate Britain. Many of the big corporate stories over the summer – BHS, Tata Steel, BT and Openreach – have been united by a single theme: pensions. And, with negative yields on many government (and some corporate) bonds blowing blackholes in schemes, expect the pain to get worse before it gets better. And yet many companies are still hosing their shareholders down with dividends.

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Even if you know damn well you can’t make anywhere near 7.5%, please keep pretending.

Illinois Governor’s Office Warns Of Crippling Pension Payment Hike (R.)

Potential action this week by Illinois’ biggest public pension fund could put a big dent in the state’s already fragile finances, Governor Bruce Rauner’s administration warned. A Monday memo from a top Rauner aide said the Teachers’ Retirement System (TRS) board could decide at its meeting this week to lower the assumed investment return rate, a move that would automatically boost Illinois’ annual pension payment. “If the (TRS) board were to approve a lower assumed rate of return taxpayers will be automatically and immediately on the hook for potentially hundreds of millions of dollars in higher taxes or reduced services,” Michael Mahoney, Rauner’s senior advisor for revenue and pensions, wrote to the governor’s chief of staff, Richard Goldberg.

When TRS lowered the investment return rate to 7.5% from 8% in 2014 the state’s pension payment increased by more than $200 million, according to the memo. Illinois’ fiscal 2017 pension payment to its five retirement systems was estimated at $7.9 billion, up from $7.617 billion in fiscal 2016 and $6.9 billion in fiscal 2015, according to a March report by a bipartisan legislative commission. The country’s fifth-largest state’s unfunded pension liability stood at $111 billion at the end of fiscal 2015, with TRS accounting for more than 55% of that gap. The funded ratio was a weak 41.9%.

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85 donors contributed $156 million. Plus 16 foreign governments donated another $170 million.

Many Donors To Clinton Foundation Met With Her At State Department (AP)

More than half the people outside the government who met with Hillary Clinton while she was secretary of state gave money — either personally or through companies or groups — to the Clinton Foundation. It’s an extraordinary proportion indicating her possible ethics challenges if elected president. At least 85 of 154 people from private interests who met or had phone conversations scheduled with Clinton while she led the State Department donated to her family charity or pledged commitments to its international programs, according to a review of State Department calendars released so far to The Associated Press. Combined, the 85 donors contributed as much as $156 million. At least 40 donated more than $100,000 each, and 20 gave more than $1 million.

Donors who were granted time with Clinton included an internationally known economist who asked for her help as the Bangladesh government pressured him to resign from a nonprofit bank he ran; a Wall Street executive who sought Clinton’s help with a visa problem; and Estee Lauder executives who were listed as meeting with Clinton while her department worked with the firm’s corporate charity to counter gender-based violence in South Africa. The meetings between the Democratic presidential nominee and foundation donors do not appear to violate legal agreements Clinton and former president Bill Clinton signed before she joined the State Department in 2009.

But the frequency of the overlaps shows the intermingling of access and donations, and fuels perceptions that giving the foundation money was a price of admission for face time with Clinton. Her calendars and emails released as recently as this week describe scores of contacts she and her top aides had with foundation donors. The AP’s findings represent the first systematic effort to calculate the scope of the intersecting interests of Clinton Foundation donors and people who met personally with Clinton or spoke to her by phone about their needs. The 154 did not include U.S. federal employees or foreign government representatives. Clinton met with representatives of at least 16 foreign governments that donated as much as $170 million to the Clinton charity, but they were not included in AP’s calculations because such meetings would presumably have been part of her diplomatic duties.

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Don’t act surprised!

ECB Secretly Hands Cash to Select Corporations (DQ)

In June, the ECB began buying the bonds of some of the most powerful companies in Europe as well as the European subsidiaries of foreign multinationals. This pushed the average yield on euro investment-grade corporate debt to 0.65%. Large quantities of highly rated corporate debt with shorter maturities are trading at negative yields, where brainwashed investors engage in the absurdity of paying for the privilege of lending money to corporations. By August 12, the ECB had handed out over €16 billion in freshly printed money in exchange for corporate bonds. Throughout, the public was given to understand that the ECB was buying already-issued bonds trading in secondary markets. But the public has been fooled.

Now it has been revealed by The Wall Street Journal that the ECB has also secretly been buying bonds directly from companies, thus handing them directly its freshly printed money. It has been doing so via “private placements.” These debt sales are not open to the broader market. There’s no need for a prospectus. Only a small number of institutional investors participate. It allows companies to raise cash quickly, without jumping through the normal hoops. Private placements are not unusual. What’s new is that the ECB used them to buy bonds. There have been two of these secretive private placements. And Morgan Stanley arranged them. The Wall Street Journal determined this by analyzing data from Dealogic and national central banks.

The two companies involved were the Spanish energy giants Repsol and Iberdrola. The Bank of Spain, now no more than a local branch of the ECB, was among the select buyers of a €500 million bond issued by Repsol. It is also the owner of part of a €200 million bond issued by Iberdrola. Among the advantages of issuing debt in a private placement is that it allows companies to raise cash quickly. According to Apostolos Gkoutzinis, head of European capital markets at law firm Shearman & Sterling, cited by The Wall Street Journal: because there is no prospectus or the other formalities required in a normal bond offering, “there won’t be any transparency, there won’t be a press release. It’s all done discreetly.”

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Stone. Squeeze. “Plans [..] that will see foreclosures and auctions for 55% of debtors are already in progress.”

Troika Prompts Greece To Tighten Debt Repayments (Kath.)

The Greek government’s plans for allowing taxpayers to make debt repayments to the state in 100 installments has been halted by the country’s lenders, who are refusing to consent to the scheme on the grounds that it will inflate debts to the state coffers. Alternate Finance Minister Tryfon Alexiadis told Skai there will be no new regulation for the reypayments, and called on debtors either to service their debts or make use of the existing framework of 12 or 24 installments. Greece’s lenders had been increasing the pressure recently to make the debt repayment process for those who owe money to the state more rigorous.

As of July 1, the legal framework was tightened for those with debts to the state. As a result, those who were already in the 100-installment scheme learned they would have to pay any debts incurred after that date no later than 15 days after the deadline. If they have not paid after 15 days, they are thrown out of the 100-installment scheme and will face the same penalties as anyone else. From January 1, 2018, the precondition for the continuation of the arrangement will be that they have repaid any new debts by the date they were due. According to figures from the Ministry of Finance, debts to the state are growing at a rate of €1 billion per month. In the first half of the year, the amount of new taxpayer debt to the state came to €6.8 billion.

In order to reduce the growth rate of the debt and increase state revenues, the government, in agreement with its creditors, has moved to coercive measures against state debtors. Plans by the General Secretariat of Public Revenue that will see foreclosures and auctions for 55% of debtors are already in progress.

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What if complying is prohibitively expensive?

Investors Controlling $13 Trillion Want G20 Leaders To Ratify Paris Deal (G.)

A group of 130 institutions that control US$13tn of investments have called on G20 nations to ratify the Paris agreement this year and accelerate investment in clean energy and forced disclosure of climate-related financial risk. Countries that ratified the Paris agreement early would benefit from better policy certainty and would attract investment in low-carbon technology, the signatories said in a letter before the G20 heads of government meeting in September. They called for strong carbon pricing to be implemented, as well as regulations that encouraged energy efficiency and renewable energy. Plans for how to phase out fossil fuels also needed to be developed, they said.

Financial regulators needed to force companies to disclose how climate change, and climate-related policies, would impact their bottom line, the group said. “So investors are asking companies: tell us what the implementation of the Paris agreement means for your business so that we can price that risk and invest accordingly,” said Emma Herd, the chief executive of the Investor Group on Climate Change (IGCC) – one of the six organisations that represent the 130 investors on the letter. Herd said that required not only mandatory reporting but also for that reporting to be standardised so that investors can compare between companies and between industries.

The signatories of the letter wrote: “The Paris agreement on climate change provides a clear signal to investors that the transition to the low-carbon, clean energy economy is inevitable and already under way. “Governments have a responsibility to work with the private sector to ensure that this transition happens fast enough to catalyse the significant investment required to achieve the Paris agreement’s goals.”

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“..the US has squandered a fantastic sum of money fattening up its notoriously corrupt defense establishment ..”

A Thousand Balls of Flame (Dmitry Orlov)

“Russia is ready to respond to any provocation, but the last thing the Russians want is another war. And that, if you like good news, is the best news you are going to hear.”

[..] There is exactly one nation in the world that nukes other countries, and that would be the United States. It gratuitously nuked Japan, which was ready to surrender anyway, just because it could. It prepared to nuke Russia at the start of the Cold War, but was prevented from doing so by a lack of a sufficiently large number of nuclear bombs at the time. And it attempted to render Russia defenseless against nuclear attack, abandoning the Anti-Ballistic Missile Treaty in 2002, but has been prevented from doing so by Russia’s new weapons. These include, among others, long-range supersonic cruise missiles (Kalibr), and suborbital intercontinental missiles carrying multiple nuclear payloads capable of evasive maneuvers as they approach their targets (Sarmat).

All of these new weapons are impossible to intercept using any conceivable defensive technology. At the same time, Russia has also developed its own defensive capabilities, and its latest S-500 system will effectively seal off Russia’s airspace, being able to intercept targets both close to the ground and in low Earth orbit.mIn the meantime, the US has squandered a fantastic sum of money fattening up its notoriously corrupt defense establishment with various versions of “Star Wars,” but none of that money has been particularly well spent. The two installations in Europe of Aegis Ashore (completed in Romania, planned in Poland) won’t help against Kalibr missiles launched from submarines or small ships in the Pacific or the Atlantic, close to US shores, or against intercontinental missiles that can fly around them. The THAAD installation currently going into South Korea (which the locals are currently protesting by shaving their heads) won’t change the picture either.

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DPC ‘On the beach, Palm Beach’ 1905


Emerging Market Debt Up 24% In 2015 To $18 Trillion (VW)
China Caught In ‘Dead Money’ Trap; PBOC Pleads For Fiscal Stimulus (AEP)
China’s Best-Performing Bank A ‘Mirage’ Of Shadow Lending (BBG)
More Than 1.5 Million UK Households In Extreme Debt (G.)
Monetary Policy Has Nationalized The Japan Stock Market (CNBC)
Bank of Japan’s Rush Into Stocks Raises Fears Of Market Distortions (R.)
Fed Admits $4 Trillion More In QE Needed In Case Of “Economic Shock” (ZH)
Deutsche Bank’s $10-Billion Scandal (New Yorker)
Goldman Says It’s Too Late to Chase the Booming Real Estate Sector (BBG)
Congressman Seeks to “Stop Madness” of US Support for Saudi War in Yemen (IC)
Hillary Emails Recovered By FBI To Be Released Just Before Election Day (G.)
Chaffetz: FBI’s Notes From Clinton Interview Keep Changing (WE)
Foundation Ties Bedevil Hillary Clinton’s Presidential Campaign (NYT)
US Banks Want To Cut Branches, But Customers Keep Coming (R.)
Dark Dynamics (Jim Kunstler)
From The Destruction Of Greece To Democracy In Europe (Galbraith)
Coast Guard Fired at Migrant Boats, European Border Agency Documents Show (IC)
Greece Plans New Refugee Centers As New Arrivals Soar (Kath.)

 

 

“Unsurprisingly, China was responsible for almost all of the growth in debt last year.”

Emerging Market Debt Up 24% In 2015 To $18 Trillion (VW)

Alongside gold and developed market Sovereign bonds, developed market equities and bonds have been some of the hottest trades this year. According to Bank of America’s “Flow Show” report published at the end of last week, around $2 billion flowed into emerging market debt funds over the last week. This marks the seventh straight week of inflows into such funds. Over this period, more than $20 billion has been invested in emerging market bond funds, the largest amount on record. Meanwhile and $5 billion found its way into emerging market stock funds last week, taking the seven-week total to $14.6 billion for emerging market equity funds, a near two-year high.

Emerging market debt funds have become a hot commodity this year as the yields on developed market bonds plunge to levels that offer little in the way of return. Bond funds have attracted $138 billion so far this year. On the other hand, equity funds have seen outflows of $128 billion since the start of 2016 (all of these outflows come from mutual funds, low-cost equity ETF have attracted $52.5 billion of assets so far this year). It seems that emerging markets are only too happy to generate more debt to meet the increasing demand for investors. According to research from Bank of America’s quantitative fixed income strategist Jane Brauer, last year the total value of global emerging market outstanding debt rose to $18.2 trillion, up around $2 trillion year-on-year.

In local currency terms this gain is 24% but in US dollar terms, thanks to dollar depreciation, the rise in debt looks much more subdued at only 12%. For 2014 the total value of global emerging market outstanding debt grew by 12% year-on-year and on average the emerging market debt stock has increased by approximately 14% per annum since the year 2000. Unsurprisingly, China was responsible for almost all of the growth in debt last year. China total debt rose by $2 trillion during 2015. China domestic debt skyrocketed by 30% in 2015 in US dollar terms, with the government and financial institutions local debt components both increasing 36%.

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The more central banks print, the more trust evaporates.

China Caught In ‘Dead Money’ Trap; PBOC Pleads For Fiscal Stimulus (AEP)

China is at mounting risk of a Japanese-style “liquidity trap” as monetary policy loses traction and the economy approaches credit exhaustion, forcing a shift towards Keynesian fiscal stimulus. Officials at the PBOC have begun to call for a fundamental change in strategy, warning that interest rate cuts have become an increasingly blunt tool. They cannot easily stop companies hoarding cash or halt the slide in private investment. Sheng Songcheng, the PBOC’s head of analysis, set off a storm last month by warning that the economy had “started to show some signs of being caught in a liquidity trap”. He has since stepped up his pleas for action by the fiscal authorities to relieve the burden on the central bank, a Chinese variant of the parallel drama that is being played out in Europe and Japan.

Mr Sheng told China Business News on Monday that the country has a very low reliance on foreign borrowing and can easily afford to shore up the economy with a Keynesian boost. “China can let its deficit-to-GDP ratio rise to over 3pc or even 5pc in the long run. It can spur growth more effectively by lowering corporate taxes than by cutting the interest rate,” he said. The powerful State Council has now joined the chorus with calls this week for a $75bn cut in business taxes to boost confidence and channel stimulus to the productive economy. Caixin magazine said Chinese companies are hoarding record sums of “dead money” rather than spending it. The growth rate of private investment has dropped to 2.1pc over the last seven months, the lowest since the global financial crisis. The central bank is effectively ‘pushing on a string’, an expression coined by John Maynard Keynes in the 1930s.

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But most of the shadow loans are not inside the banks.

China’s Best-Performing Bank A ‘Mirage’ Of Shadow Lending (BBG)

The best-performing bank in China is in a struggling city in the northeast where weeds sprout alongside the concrete skeletons of high rises in an industrial zone that mostly looks like a ghost town. Steel plants have laid off tens of thousands of workers. Cranes stand idle on construction sites. Wipe away a spiderweb on a dirty glass door at an empty complex with smashed windows and there’s a notice from the local government demanding rent unpaid since November 2014. Yet the Bank of Tangshan’s financial statements hardly reflect these realities. Instead, this small lender reports the fastest growth of 156 Chinese financial institutions and the lowest level of bad loans, a mere 0.06%. Its profit jumped 436% in two years and assets soared almost 400% since the start of 2014 to 177.9 billion yuan ($26.7 billion).

It’s largely driven by shadow lending. The bank is the most prominent example of the off-loan-book wizardry that’s turbo-charging some of China’s small and mid-sized banks, creating opaque risks that could lead to failures, bailouts or liquidity shocks that jolt the nation and global markets in the years ahead. “It’s a mirage built upon risks,” said He Xuanlai, of Commerzbank. The Singapore-based analyst cited smaller banks’ use of so-called “investment receivables” — including asset management plans and wealth management products — to boost lending without facing requirements to bolster capital and loan-loss provisions. “It’s hard to assess the banks’ true asset quality.”

This form of shadow lending is so widespread that a survey of 26 banks by Moody’s Investors Service found that they’d quadrupled use of the products since 2012, with small and mid-sized lenders contributing an outsize share. The IMF estimates that Chinese banks held $2.3 trillion of shadow credit products at the end of last year, adding to a build-up that could pose “substantial risks” to the financial system. Some little-known Chinese banks have already been quietly bailed out, UBS said.

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What caused Brexit.

More Than 1.5 Million UK Households In Extreme Debt (G.)

About 1.6m UK households are living in extreme debt, according to a report by the TUC, which says official figures underestimate the intense burden of repayment on many families and individuals. Contrary to official data, which suggests that households have been repaying debt accumulated before the financial crisis, the Britain in the Red report says households are finding it harder than ever to cope as wages have fallen. “More than 1m families with a household income below £30,000 are in extreme debt and ongoing wage stagnation is making the problem worse,” the report says. Total unsecured debt, including car loans and credit cards, but excluding mortgages, for UK households rose by £48bn between 2012 and 2015 to £353bn.

As wages declined, the real burden of repaying debt became tougher. The TUC said 3.2m households are in problem debt, defined as spending more than 25% of total household income on unsecured debt repayments. About 1.6m households are in extreme debt, paying out 40% or more of household income to creditors. The problem is growing fastest among the working poor, people with jobs but insufficient pay to stay financially afloat. OECD figures show that UK real wages fell by 10.4% between 2007 and 2015, making the task of keeping up debt repayments harder. In 2015, 9% of low-income households with an adult in employment were in extreme problem debt, almost double the figure of 5% in 2014, the report found.

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One day you’ll find out how insane this is.

Monetary Policy Has Nationalized The Japan Stock Market (CNBC)

Even a resurgent yen hasn’t dampened Japan’s stock rally over the past couple months, but that’s not necessarily because investors like the market. The Nikkei 225 index has surged around 10% since late June, even as the yen has climbed against the dollar, with the pair testing levels under 100. Normally this would be bad news for stocks as a stronger yen is a negative for exporters as it reduces their overseas profits when converted to local currency. So what explains the buoyant stock market? Analysts attributed the gains to the Bank of Japan (BOJ), not fundamentals.

In a report titled, “BOJ nationalizing the stock market,” Nicholas Smith, an analyst at CLSA, said that the central bank’s exchange-traded fund (ETF) buying program was distorting the market. At its late July meeting, the BOJ said it would increase its ETF purchases so that their amount outstanding will rise at an annual pace of 6 trillion yen ($56.7 billion), from 3.3 trillion yen previously. Those purchases were particularly distorting to the market because they focused largely on funds tracking the Nikkei 225 index, Smith said in a note dated Sunday, estimating that more than half of the BOJ’s ETF buying was likely in Nikkei-tied funds.

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Kuroda and Abe are destroying their own markets by destroying price discovery.

Bank of Japan’s Rush Into Stocks Raises Fears Of Market Distortions (R.)

The Bank of Japan’s near doubling of its purchases of Tokyo shares is causing investors to worry the central bank will dominate financial markets, which could lead to price distortions as it continues to grease the economy. The BOJ’s buying spree will make it harder for investors to sift good companies from bad, and raises a host of other problems including misallocating capital, making equities trading more speculative and reducing incentives for companies to meet shareholder needs, analysts say. More than three years of massive monetary stimulus has already resulted in the central bank cornering the Japanese government bond (JGB) market and distorting interest rates. “The increased BOJ purchasing provides a very favorable demand environment for listed equities,” said Michael Kretschmer, CIO at Pelargos Capital in the Hague.

“Nevertheless, in the long run we strongly doubt these type of monetary gimmicks aimed at price setting of risk assets can have a sustained positive impact on economic growth.” The BOJ doesn’t dominate the stock market as it does JGBs, but its revved up buying of index-based shares has shifted attention to the central bank’s behavior and away from how companies perform. [..] Some liken the increased purchases by the BOJ – the only central bank in the world that buys stocks at the moment – to failed government efforts over more than two decades to prop up the market by pressing government-related financial institutions to buy after the bursting of the late-1980s asset bubble.

[..] With foreign investors largely staying away, disappointed at the lack of progress in Japan’s structural reforms, the BOJ is almost sure to be the biggest buyer on the Tokyo Stock Exchange for the foreseeable future. “The market is driven completely by the BOJ’s buying rather than views on each companies’ earnings,” said a fund manager at a Japanese asset management firm.

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“..the Fed is already factoring in a scenario in which a shock to the economy leads to additional QE of either $2 trillion, or in a worst case scenario, $4 trillion..”

Fed Admits $4 Trillion More In QE Needed In Case Of “Economic Shock” (ZH)

In a Fed Staff working paper released over the weekend titled “Gauging the Ability of the FOMC to Respond to Future Recessions” and penned by deputy director of the division of research and statistics at the Fed, the author concludes that “simulations of the FRB/US model of a severe recession suggest that large-scale asset purchases and forward guidance about the future path of the federal funds rate should be able to provide enough additional accommodation to fully compensate for a more limited [ability] to cut short-term interest rates in most, but probably not all, circumstances.” So far so good, however, there are some notable problems with the paper’s assumptions, as Citi head of G10 FX, Steven Englander, observes.

He writes that the paper’s basic framework is to take the standard US economic model used by the Fed, give it a negative shock big enough to push the unemployment rate up by 5%age points (big but not unprecedented over the last 50 years) and deploying the Fed’s policy rate, QE and forward guidance tools to see if they are adequate to get the economy back on track. Negative rates and helicopter money are not used. The two simulations assume: 1) the economy is in equilibrium initially with inflation at 2%, r* at 1%, so equilibrium nominal fed funds is 3%; 2) the economy is in equilibrium initially with inflation at 2%, r* at zero (secular stagnation) and equilibrium nominal fed funds at 2%.

He compares three policy approaches. The first assumes a linear world where fed funds can go into negative territory but there is no breakdown in the structure of economic relationships. It is probably not a realistic view of policy ineffectiveness at negative rates, but it is mean to be a baseline. The second just takes fed funds down to zero and keeps it there long enough for unemployment to return to baseline. “The third takes fed funds down to zero and augments it with additional $ 2trn of QE and forward guidance. A variation on the third policy response function doubles the amount of QE in the second simulation.” In other words, the Fed is already factoring in a scenario in which a shock to the economy leads to additional QE of either $2 trillion, or in a worst case scenario, $4 trillion, effectively doubling the current size of the Fed’s balance sheet.

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Mirror trades designed to get capital out of Russia. Nice piece.

Deutsche Bank’s $10-Billion Scandal (New Yorker)

Deutsche Bank is an unwieldy institution with headquarters in Frankfurt and about a hundred thousand employees in seventy countries. When it was founded, in 1870, its stated purpose was to facilitate trade between Germany and other countries. It soon established footholds in Shanghai, London, and Buenos Aires. In 1881, the bank arrived in Russia, financing railways commissioned by Alexander III. It has operated there ever since. During the Nazi era, Deutsche Bank sullied its reputation by financing Hitler’s regime and purchasing stolen Jewish gold. After the war, the bank concentrated on its domestic market, playing a significant role in Germany’s so-called economic miracle, in which the country regained its position as the most potent state in Europe.

After the deregulation of the U.S. and U.K. financial markets, in the nineteen-eighties, Deutsche Bank refreshed its overseas ambitions, acquiring prominent investment banks: the London firm Morgan Grenfell, in 1989, and the American firm Bankers Trust, in 1998. By the new millennium, Deutsche Bank had become one of the world’s ten largest banks. In October, 2001, it débuted on the New York Stock Exchange. Although the bank’s headquarters remained in Germany, power migrated from conservative Frankfurt to London, the investment-banking hub where the most lavish profits were generated. The assimilation of different banking cultures was not always successful. In the nineties, when hundreds of Americans went to work for Deutsche Bank in London, German managers had to place a sign in the entrance hall spelling out “Deutsche” phonetically, because many Americans called their employer “Douche Bank.”

In 2007, the bank’s share price hit an all-time peak: a hundred and fifty-nine dollars. But as it grew fast it also grew loose. Before the housing market collapsed in the United States, in 2008, sparking a global financial crisis, Deutsche Bank created about thirty-two billion dollars’ worth of collateralized debt obligations, which helped to inflate the housing bubble. In 2010, Deutsche Bank’s own staff accused it of having masked twelve billion dollars’ worth of losses. Eric Ben-Artzi, a former risk analyst, was one of three whistle-blowers. He told the SEC that, had the bank’s true financial health been known in 2008, it might have folded, as Lehman Brothers had. Last year, Deutsche Bank paid the SEC a $55 million fine but admitted no wrongdoing. Ben-Artzi told me that bank executives had incurred a tiny penalty for a huge crime. “There was cultural criminality,” he said. “Deutsche Bank was structurally designed by management to allow corrupt individuals to commit fraud.”

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When has that ever stopped the greater fool?

Goldman Says It’s Too Late to Chase the Booming Real Estate Sector (BBG)

Real estate stocks were a buying opportunity a few years ago, but at this point Goldman Sachs says the area is too risky for investors. At the end of this month, Real Estate will separate from Financials to become its own sector in the S&P 500. While those stocks have outpaced the S&P 500 so far in 2016, analysts led by David Kostin at Goldman Sachs say there are a lot of challenges, and they are not recommending investors try to make up for the missed gains. “Real Estate has outpaced the S&P 500 by 156 basis points year-to-date, which has hurt large-cap mutual fund returns given their underweight allocation to the sector,” Kostin and company write.

One thing that could help the new sector, however, is that even if those fund managers just move from underweight to neutral, there could be a big inflow of funds. According to Goldman, close to half of large-cap core funds managers have zero exposure to the sector. The analysts forecast as much as $19 billion in new demand, as funds that aren’t currently in real estate try to play catch up. That may be good enough not to slap a sell rating on these stocks, but it isn’t enough to give them a buy rating. “Looking forward, we recommend a Neutral weighting to the Real Estate sector given slowing top-line revenue growth, average relative valuation, and risks from a higher interest rate environment,” they conclude.

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“I taught the law of war when I was on active duty [..] You can’t kill children, newlyweds, doctors and patients – those are exempt targets under the law of war..”

Congressman Seeks to “Stop Madness” of US Support for Saudi War in Yemen (IC)

For months, a California congressman has been trying to get Obama administration officials to reconsider U.S. backing for the Saudi-led war in Yemen. And for months, he has been given the runaround. Ted Lieu, a Democrat representing Los Angeles County, served in the Air Force and is a colonel in the Air Force Reserves. The brutal bombing of civilian areas with U.S.-supplied planes and weapons has led him to act when most of his colleagues have stayed silent. “I taught the law of war when I was on active duty,” he told The Intercept. “You can’t kill children, newlyweds, doctors and patients – those are exempt targets under the law of war, and the coalition has been repeatedly striking civilians,” he said. “So it is very disturbing to me. It is even worse that the U.S. is aiding this coalition.”

But he and a very few other lawmakers who have tried to take bipartisan action to stop U.S. support for the campaign are a lonely bunch. “Many in Congress have been hesitant to criticize the Saudis’ operational conduct in Yemen,” Lieu said. He didn’t say more about that. The matter has gotten ever more urgent since August 7, when the Saudi-led coalition relaunched an aggressive campaign of attacks after Houthi rebels in Yemen rejected a one-sided peace deal. More than 60 Yemeni civilians have been killed in at least five attacks on civilian areas since the new bombing campaign began. On August 13, the coalition bombed a school in Haydan, Yemen, killing at least 10 children and injuring 28 more.

Lieu released a statement two days later, harshly condemning the attack. “The indiscriminate civilian killings by Saudi Arabia look like war crimes to me. In this case, children as young as 8 were killed by Saudi Arabian air strikes,” he wrote. “By assisting Saudi Arabia, the United States is aiding and abetting what appears to be war crimes in Yemen,” Lieu added. “The administration must stop enabling this madness now.” Then, mere minutes after his office sent out the statement about the August 13 attack, another tragedy started making headlines: The coalition had just bombed a hospital operated by the international medical humanitarian group Doctors Without Borders (MSF), killing 19.

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Something tells me this is not a done deal.

Hillary Emails Recovered By FBI To Be Released Just Before Election Day (G.)

Nearly 15,000 emails recovered by the FBI from the private server used by Hillary Clinton when she was secretary of state are set to be made public just before the presidential election in November, it emerged in court on Monday. The state department said it was reviewing 14,900 documents that came to light in the now-closed investigation into the handling of sensitive information that flowed through the server in question. That is a major addition to the 30,000 emails that Clinton’s lawyers considered work-related and returned to the department in December 2014. The FBI cleared Clinton of criminal conduct but found her to have have been “extremely careless”, and the saga continues to dog her.

On 5 August the FBI completed a transfer of several thousand previously undisclosed work-related emails for the state department to review and publish. Responding to the news, the Republican National Committee chairman, Reince Priebus, said Clinton “seems incapable of telling the truth”. State lawyers told federal judge James Boasberg on Monday they expected to release the emails in batches on 14, 21 and 28 October and 4 November. The election, against Republican nominee Donald Trump, takes place on 8 November. Boasberg ordered that the department should aim for a more ambitious deadline. The judge set another hearing for 22 September, so progress can be reviewed.

Tom Fitton, president of the conservative legal group Judicial Watch, which brought the case under a Freedom of Information Act (Foia) request, tweeted: “FBI found almost 15,000 new Clinton documents. When will state release them?” Another federal judge, Emmet Sullivan, last week ordered Clinton to answer written questions from Judicial Watch. Her answers are not due until after the presidential election.

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“The Oversight committee is slated to hold a hearing next month to look at the possibility of bringing perjury charges against the former secretary of state. FBI Director James Comey has been named as a possible witness.”

Chaffetz: FBI’s Notes From Clinton Interview Keep Changing (WE)

The FBI has handed Congress two copies of notes from its interview with Hillary Clinton about her private email server, but according to the chairman of the House Oversight Committee, the two sets of notes aren’t consistent with each other. “The … thing that is stunning to me, which I found out last night, is the FBI gave us one set of documents. Then we asked them, and they … gave us a second copy in a classified setting. But they’re different,” said committee Chairman Rep. Jason Chaffetz in a Monday morning interview on MSNBC. The Utah Republican said he had no explanation, and that he would have to seek one from the FBI. “We have a second set of documents that’s now different. You turn them page by page, and they’re different. I don’t know why that happens,” Chaffetz added.

Chaffetz said there was “new information” in the second set of documents, which has left the committee confused. “So we’re going back to square one. We’ve only had them for days, but still, the second copy is different from the first copy. Why is that?” he asked. Asked whether he would pursue perjury charges against Clinton for making misleading statements to Congress, Chaffetz demurred, but did criticize the FBI. “I’m stunned the FBI director came before Congress and testified that during their year-long investigation, they never looked at the under oath testimony from Hillary Clinton.” “You’re kidding me? You’re doing an investigation about the email scandal, and you never look at what she said under oath? Politicians lie, but when you’re under oath, you can’t do that,” Chaffetz said.

The Oversight committee is slated to hold a hearing next month to look at the possibility of bringing perjury charges against the former secretary of state. FBI Director James Comey has been named as a possible witness. It would the second time in as many months that Comey has been called before Congress to explain the investigation into Clinton’s emails.

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Emails, Clinton Foundation, I still can’t see how she would be electable. Time to bring in Joe Biden?

Foundation Ties Bedevil Hillary Clinton’s Presidential Campaign (NYT)

The kingdom of Saudi Arabia donated more than $10 million. Through a foundation, so did the son-in-law of a former Ukrainian president whose government was widely criticized for corruption and the murder of journalists. A Lebanese-Nigerian developer with vast business interests contributed as much as $5 million. For years the Bill, Hillary and Chelsea Clinton Foundation thrived largely on the generosity of foreign donors and individuals who gave hundreds of millions of dollars to the global charity. But now, as Mrs. Clinton seeks the White House, the funding of the sprawling philanthropy has become an Achilles’ heel for her campaign and, if she is victorious, potentially her administration as well.

With Mrs. Clinton facing accusations of favoritism toward Clinton Foundation donors during her time as secretary of state, former President Bill Clinton told foundation employees on Thursday that the organization would no longer accept foreign or corporate donations should Mrs. Clinton win in November. But while the move could avoid the awkwardness of Mr. Clinton jetting around the world asking for money while his wife is president, it did not resolve a more pressing question: how her administration would handle longtime donors seeking help from the United States, or whose interests might conflict with the country’s own.

The Clinton Foundation has accepted tens of millions of dollars from countries that the State Department — before, during and after Mrs. Clinton’s time as secretary — criticized for their records on sex discrimination and other human-rights issues. The countries include Saudi Arabia, the United Arab Emirates, Qatar, Kuwait, Oman, Brunei and Algeria. Saudi Arabia has been a particularly generous benefactor. The kingdom gave between $10 million and $25 million to the Clinton Foundation. (Donations are typically reported in broad ranges, not specific amounts.) At least $1 million more was donated by Friends of Saudi Arabia, which was co-founded by a Saudi prince.

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Germany’s call yesterday for people to hoard cash changes this game.

US Banks Want To Cut Branches, But Customers Keep Coming (R.)

Despite banks’ nudging toward online tools, many U.S. customers are not ready to give up regular visits to their nearest branch, complicating the industry’s efforts to slim down. U.S. banks have trimmed the number of branches by 6% since it peaked in 2009, according to Federal Deposit Insurance Corp data. The 93,283 branches open at the end of last year was the lowest level in a decade. Yet analysts who have examined the data say banks should have done more to offset the pressure on revenue from low interest rates and regulatory demands. The number of FDIC-insured banks has fallen by more than 25% over that time even as industry assets have grown, indicating room for greater branch consolidation.

Bank executives argue, however, that branches remain crucial for acquiring new customers and doing more business with existing ones. Closures, they say, would hurt revenue more than help reduce costs. “Our customers still want to visit us,” Jonathan Velline, Wells Fargo’s head of ATM and store strategy, told Reuters in an interview. “They’re still coming to our stores and our ATMs at pretty consistent rates.” Bankers across the industry share that view. They say online banking complements traditional services for U.S. customers, but few have gone fully digital.

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Jim gets back to basics: oil was always a one-off, and there are no replacements.

Dark Dynamics (Jim Kunstler)

What the world is witnessing, without actually paying much attention, is the death of our debt-based economy — that is, borrowing the means to thrive in the now from a future that can’t really furnish it anymore. The illusion that the future would always provide was a legacy of the cheap energy era. That era ended in 2005. The basic promise is broken and with it the premise for living as we had been. The energy available today, especially oil, is no longer cheap enough to run the industrial economies designed to run on it. Any way that you look at the dynamic, Modernity loses. With oil under $50 a barrel, and gasoline under $3 a gallon (back east), the public apparently thinks that the Peak Oil story is dead and gone.

But when it costs $75 a barrel to pull the stuff out of the ground, and the stuff only sells for $47 a barrel, the oil companies’ business model doesn’t really work. The shale oil companies especially have been gaming the system by issuing bonds that pay relatively high interest rates in an investment climate where almost nothing else offers enough yield to live on, especially for pension funds and insurance companies. Two little upward bumps this year in the price of oil toward the $50 range prompted a wish that the good old days of high-priced oil were coming back, that the oil business would be profitable again. The trouble is that high oil prices – say, over $100 a barrel, as it was in 2014 – crush advanced economies, so that demand for oil crashes, and with it productive activity.

Without productivity, the debts issued by companies (and even governments) don’t get repaid. There really is no “sweet spot” in this energy cost equation. A lot of wishful thinkers would like to believe that you can run contemporary life on something beside oil. But the usual “solutions,” solar and wind energy, don’t pencil out, especially when you consider that the hardware for running them – the photovoltaics, charge controllers, batteries, turbines, and blades, can’t be mass-produced and distributed without the very fossil fuels they are supposed to replace.

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James Galbraith runs with Yanis’ ideas for DiEM25.

From The Destruction Of Greece To Democracy In Europe (Galbraith)

In Protesting the Treaty of Versailles ending World War I, John Maynard Keynes wrote: “The policy . . . of depriving the lives of millions of human beings, of depriving a whole nation of happiness should be abhorrent and detestable — abhorrent and detestable, even if it were possible, even if it enriched ourselves, even if it did not sow the decay of the whole civilized life of Europe.” Last year’s third bailout of Greece, imposed by Europe and the International Monetrary Fund, does to Greece what Versailles did to Germany: It strips assets to satisfy debts. Germany lost its merchant marine, its rolling stock, its colonies, and its coal; Greece has lost its seaports, its airports — the profitable ones — and is set to sell off its beaches, the public asset that is a uniquely Greek glory.

Private businesses are being forced into bankruptcy to make way for European chains; private citizens are being forced into foreclosure on their homes. It’s a land grab. And for what? To satisfy old public debts, incurred for tanks, submarines, the Olympics, big construction projects outsourced to German firms, and to hide deficits in health care, with creditor connivance — a quagmire of graft to support an illusion, that Greece could “compete” as part of the euro. Already in 2010 the IMF knew it was breaking its own rules by pretending that Greece could recover quickly, sustain a huge primary surplus, and repay its debts. Why? To help save French and German banks, which the IMF’s sainted managing director, Dominique Strauss-Kahn, wanted to do, because he wanted to be president of France.

Europe crushed the Greek resistance in 2015. Not because Wolfgang Schäuble, the German finance minister, thought his economic plan would work; he candidly told the Greek finance minister, Yanis Varoufakis, that “as a patriot” he would not sign it himself. But Germany wants to impose its order on Italy and on France, where civil society continues to fight back. And Chancellor Angela Merkel could not admit to her voters, or to fellow Europeans from Slovakia to Portugal, that back in 2010 she’d saved Germany’s banks by saddling them with Greek debts that could never be paid. Greece was given collective punishment as a lesson. It was done to show that “there is no alternative.” It was done to stop any other attempt to develop, articulate, and defend a more rational policy. It was done to protect the power of the ECB, the German government in Europe, and the policy-making authority, in face of a long record of failure, of the IMF.

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Routine procedure.

Coast Guard Fired at Migrant Boats, European Border Agency Documents Show (IC)

On a smuggler’s boat from Turkey two years ago, 19-year-old Rawan watched the passengers start to panic as a Greek coast guard vessel approached them head on, circling twice. Rawan heard two gunshots ring out from the Greek patrol. Fearing arrest, the driver of Rawan’s boat, a Turkish fisherman, turned the vehicle around to flee back to Turkey. Then Rawan heard more shots. When the bullet hit her in the lower back, at first she felt nothing. Then, Rawan says, it felt like fire. Rawan’s husband had made it to Germany a year earlier; both were fleeing their home in Damascus, Syria. Rawan and 12 other Syrians were headed for the Greek island of Chios on a small fiberglass boat, much faster than the inflatable dinghies that many refugees use for the 5-mile crossing.

Before the shots, Rawan heard “stop” blare over a loudspeaker on the coast guard vessel. She and four others were in the forward compartment of the boat, and more people were sitting in the back near the outboard engine. Rawan’s father-in-law, Adnan Akil, was also shot in the lower back, and Amjad A., another Syrian refugee who asked that only his first name and last initial be used, was shot in the shoulder. Akil says he clearly remembers the chain of events leading up to the shooting. One officer had a pistol, the other had a submachine gun. Akil, Rawan, and other witnesses say they heard one officer shoot in automatic bursts. “We were shouting and screaming for the driver to stop,” remembers Braa Abosaleh, another Syrian refugee who was on the boat that day.

When the driver didn’t stop, the coast guard rammed their boat from the back right side. Akil and Rawan remember the driver stopping the boat, pretending he was going to surrender. As the officers put down their weapons and approached, the driver fired up the engine again and turned back toward Turkey. This time, the coast guard shot directly at the fleeing boat.

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I fear for Greece between now and (into) 2017.

Greece Plans New Refugee Centers As New Arrivals Soar (Kath.)

Greek authorities hope that the construction of a new migrant reception center in Thiva, central Greece, which is set to be completed in the coming days, will ease congestion in camps on the country’s eastern Aegean islands, while plans are also under way to open a refugee facility on Crete. “The situation on the islands is only marginally under control,” a source inside the Public Order Ministry told Kathimerini on condition of anonymity on Monday. Authorities are said to be drawing up plans to create so-called “closed-structure” detention camps on the islands to separate individuals who are scheduled to be repatriated – as well as troublemakers – from those who have passed a first screening in their claim for international protection.

Meanwhile, migrants with a criminal past will be transferred from the islands to pre-departure centers on mainland Greece. About 300 individuals have already been transferred and another 100 are to follow in the coming days. Less straightforward are the government’s plans to construct migrant reception facilities on the island of Crete. Officials at the Ministry for Immigration Policy told Kathimerini that, by the end of September, local authorities are expected to propose sites where these facilities could be built. “Any plans are to take effect as of November, after the island’s tourism season has drawn to a close,” an unnamed official said.

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Aug 222016
 
 August 22, 2016  Posted by at 9:29 am Finance Tagged with: , , , , , , , , , , ,  4 Responses »
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NPC Wilkins-Rogers Milling Co., Washington, DC 1926


Oil Falls As August Price Rally Seen Overblown, China Fuel Exports Soar (R.)
Less Than 5% Of Japan Inc. Think Abe’s Stimulus Will Boost The Economy (R.)
Grim Outlook for the Economy, Stocks: Stephanie Pomboy (Barron’s)
Citi Is About to Relive the 2008 Derivatives Nightmare (MM)
The Brexit Question That Nobody Asked (BBG)
China Is Grappling With Hidden Unemployment (BBG)
Australia’s Unprecedented Collapse In Business Investment, In One Chart (BI)
Australia Central Bank Loses Credibility As Housing Boom Continues (AFR)
American Journalism Is Collapsing Before Our Eyes (Goodwin)
The Clintons Really Do Think They Can Get Away With Anything (WSJ)
Clinton Not In The Clear (Jack Kelly)
The History of Money: Not What You Think (Minskys)
German Government: Citizens Should Store Food, Water And Cash (DWN)
‘Nobody Believes In Anything Anymore’: Greek Crisis is Far From Over (CNBC)
Rescuing Refugees: ‘You Never Get Used To It – And That’s A Good Thing’ (G.)
Inuit Fear Being Overwhelmed As ‘Extinction Tourism’ Descends On Arctic (G.)

 

 

“China’s July exports of diesel and gasoline soared by 181.8% and 145.2% respectively..”

Oil Falls As August Price Rally Seen Overblown, China Fuel Exports Soar (R.)

Oil prices fell on Monday as analysts doubted upcoming producer talks would rein in oversupply, saying that Brent would likely fall back below $50 a barrel as August’s more than 20% crude rally looks overblown. Soaring exports of refined products from China also pressured prices, as this was seen as the latest indicator of an ongoing global fuel glut, traders said. China’s July exports of diesel and gasoline soared by 181.8% and 145.2% respectively compared with the same month last year, to 1.53 million tonnes and 970,000 tonnes each, putting pressure on refined product margins. Brent crude futures were trading at $50.22 per barrel at 0224 GMT, down 66 cents, or 1.3%.

U.S. West Texas Intermediate (WTI) crude was down 51 cents, or 1.05%, at $48.01 a barrel. Analysts cast doubt on an August price rally, saying that much of it was a result of short-covering and anticipation of upcoming producer talks to discuss means to curb oversupply. “Positioning data seems to confirm our view that the latest oil bounce is more technical and positioning-oriented than fundamental. In fact, new buyers have been mostly absent the past few months,” Morgan Stanley said. Regarding the upcoming producer talks, the bank said a agreement was “highly unlikely” and that there were “too many headwinds and logistical challenges to a meaningful deal”.

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Less than 5% are wrong.

Less Than 5% Of Japan Inc. Think Abe’s Stimulus Will Boost The Economy (R.)

Japanese companies overwhelmingly say the government’s latest stimulus will do little to boost the economy and the Bank of Japan should not ease further, a Reuters poll showed, a setback for policymakers’ efforts to overcome deflation and stagnation. Prime Minister Shinzo Abe this month unveiled a 13.5 trillion yen (£102.6 billion) fiscal package of public works projects and other measures, vowing a united front with the BOJ to revive the economy and raising speculation of a surge in government spending essentially financed by the central bank. But less than 5% of companies believe the steps will boost the economy near-term or raise its growth potential, according to the Reuters Corporate Survey, conducted August 1-16.

“It’s disappointing that the stimulus focuses on public works, and it lacks attention to promoting industry and technology that would lead to future growth,” said a manager at a precision-machinery maker. Abe took office 3 1/2 years ago, pledging to reboot the economy with aggressive monetary stimulus, fiscal spending and reform plans. After an early spurt of growth and surging corporate profits, helped by a sharp fall in the yen, the economy is again sputtering and prices are slipping, underscoring the challenge for Japan to beat nearly two decades of deflation and anaemic growth. “Unless drastic steps are taken to fix the root of Japan’s problems – the falling birthrate and working population – solid economic growth won’t return … only public debt would pile up without sustainable growth,” said an electrical machinery firm.

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You would still have to specify those who have nothing left to save; economists miss out on that.

Grim Outlook for the Economy, Stocks: Stephanie Pomboy (Barron’s)

For some time, Stephanie Pomboy, an economist and the founder of MacroMavens, has pushed a provocative theory that a crisis-chastened U.S. consumer would retard global growth. That is why a U.S. recovery has taken so long to take off, and why Japan and Europe look set to embark on more rounds of quantitative easing. An avid reader of Shakespeare, Pomboy appreciates the comic and tragic dimensions of the markets—the giddy optimism for the second half of the year, and the potentially disastrous consequences of excessively low rates. As stocks teetered at new highs, we phoned Pomboy in Vail, Colo., where she lives when not in Manhattan, to hear her latest views. They aren’t rosy: Investors and policy makers are deluding themselves that we will soon return to a pre-financial crisis framework. Things have changed, she says, which means expectations for economic growth in the second half are far too optimistic. And today’s low rates could cause another financial crisis, bankrupting pension plans, putting retirees at risk, and hurting stocks.

Barron’s: You like to focus on the consumer—and plot U.S. consumer spending as a percentage of GDP versus world trade. Why? Pomboy: What ignited and supported the entire era of globalization was the spendthrift U.S. consumer; economies have been totally reliant on trade to U.S. consumers. This once-in-a-generation asset deflation will fundamentally change behavior, just as the Depression changed an entire generation’s attitude about spending and saving. Obviously, the burden of proof is on me, because for 20 years the consumer has reliably borrowed from China to buy their tube socks. Post-crisis, the consumer has clearly pulled back.

How many months did we have disappointing retail sales numbers that no one could explain? They’d say it’s too hot, too cold, there’s Brexit. But what’s really causing this slowdown in spending is that the post-crisis consumer is determined to save, and do it the old-fashioned way. Historically, when rates go down, people save less. In this cycle, things have completely reversed. Over the same stretch of time that the two-year note has gone from 4% to 1%, the savings rate has doubled. There are mountains of evidence to support my thesis. But every Wall Street analyst and the Fed is using the pre-crisis analytical framework to look at an economy that is fundamentally challenged.

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Note the numbers: “Credit Suisse prudently sold $380 billion of derivatives to Citi, thereby reducing its own leverage exposure by $5 billion.”

Citi Is About to Relive the 2008 Derivatives Nightmare (MM)

Deutsche Bank – with its stock now trading at a 30-year low – was recently called the world’s riskiest financial institution by the IMF. Better late than never… In a last-ditch effort to save itself, DB is trying to dump a bucket load of credit derivatives – the murky, risky financial instruments that triggered the 2008 financial crisis. You would think no one would buy these weapons of financial mass destruction… but you’d be wrong. In a staggeringly stupid move, the American bank I’m telling you about today has gone on a derivatives shopping spree, eagerly taking credit default swaps off the hands of failing Eurozone banks like DB and Credit Suisse. That means, of course, another outsize short opportunity for you to take…

Citigroup already nearly destroyed itself with derivatives during the 2008 crisis, requiring the biggest taxpayer bailout in history in order to stay afloat. Strangely, it didn’t learn its lesson the first time its stock fell below $1. As rival banks see the writing on the wall and scramble to get rid of their derivatives, Citi is now cheerfully snapping up billions of dollars’ worth. Several weeks ago, Credit Suisse prudently sold $380 billion of derivatives to Citi, thereby reducing its own leverage exposure by $5 billion. Last year, Deutsche Bank palmed off $250 billion of credit default swaps on (guess who?) Citi, and is in talks to get rid of even more. The result is that Citi now holds the most derivatives of any of its U.S. rivals. That’s a staggering total exposure of nearly $56 trillion, according to the OCC’s latest report, shown here:

[..] our current $650 trillion derivatives market is a nightmare scenario waiting to happen. First problem: the size. It’s 36x the size of the U.S. GDP and over 8x larger than the world GDP – the entire global output of the entire world in a year. While credit default swaps shrank significantly in size since the financial crisis, they remain large enough to constitute a potential time bomb inside the financial system that could blow up any time. Second problem: the interconnectedness. Every derivative contract involves two parties that agree to make certain payments to each other. But if one party is unable or unwilling to live up to its agreement and make those payments, the other party is left holding the bag and nursing a big loss. In a crisis, this can leave a volume of broken contracts that will overwhelm these institutions and render them instantly insolvent.

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Where is the EU heading?

The Brexit Question That Nobody Asked (BBG)

Mervyn King, former governor of the Bank of England, has written the best article I’ve read on Britain’s exit from the EU. In an essay for the New York Review of Books he makes many excellent points, but one is of surpassing importance. It’s an obvious point, or ought to be, that nonetheless has been almost entirely ignored by other respectable commentators: Whether Britain should stay in the EU depends on where the EU is heading. The EU is plainly in deep trouble with or without the U.K., and its condition as a political project is anything but stable. Judging whether Britain is better off as a member therefore requires a judgment not only about what Britain has gained or lost from membership up to now but also an assessment of the future character of the whole EU enterprise.

Britain’s Remain campaign, expressing the collective opinion of every expert on the subject, has had almost nothing to say about this. As King points out, the EU is structurally unsound. (Joseph Stiglitz in the FT makes the same point.) It has pressed political union both too far and not far enough. That is, it has created half a political union – with a single currency but without a collective fiscal policy or the political apparatus that would be necessary to legitimize it. King: Putting the cart before the horse – setting up a monetary union before a political union – has led the ECB to become more and more vocal about the need to “complete the architecture” of monetary union by proceeding quickly to create a Treasury and finance minister for the entire eurozone.

The ability of such a new ministry to make transfers between member countries of the monetary union would reduce pressure on the ECB to find new ways of holding the monetary union together. But there is no democratic mandate for a new ministry to create such transfers or to have political union – voters do not want either. And voters aren’t the only ones who don’t want it. German officialdom (backed by popular opinion) is viscerally opposed to a “transfer union,” which is Germany’s name for fiscal policy as it operates in any normal country. Germany’s position is understandable, since Germans would give much more than they received in any such arrangement. But that doesn’t alter the conclusion: Not only is the EU structurally unsound, but there’s also little prospect that the structure either can be or will be repaired.

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Color me baffled.

China Is Grappling With Hidden Unemployment (BBG)

Cracks are starting to show in China’s labor market as struggling industrial firms leave millions of workers in flux. While official jobless numbers haven’t budged, the underemployment rate has jumped to more than 5% from near zero in 2010, according to Bai Peiwei, an economics professor at Xiamen University. Bai estimates the rate may be 10% in industries with excess capacity, such as unprofitable steel mills and coal mines that have slashed pay, reduced shifts and required unpaid leave. Many state-owned firms battling overcapacity favor putting workers in a holding pattern to avoid mass layoffs that risk fueling social unrest. While that helps airbrush the appearance of duress, it also slows the shift of workers to services jobs, where labor demand remains more solid in China’s shifting economy.

“Underemployment in overcapacity industries is a drag on the potential improvement of productivity in China, which will lead to a softening wage trend,” said Grace Ng at JPMorgan in Hong Kong. “It would exert pressure on private consumption demand and in turn affect the overall rebalancing of the economy.” Other projections indicate the employment situation is even worse. An indicator of unemployment and underemployment produced by London-based research firm Fathom Consulting has more than tripled since 2012 to 13.2%. The official jobless rate isn’t much help for economists: it’s been virtually unchanged at about 4.1% since 2010 even as the economy slowed. The gauge only counts those who register for unemployment benefits in their home towns, which doesn’t take into account 277 million migrant workers. Total employment is 775 million, National Bureau of Statistics data show.

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Wow. What a chart that is.

Australia’s Unprecedented Collapse In Business Investment, In One Chart (BI)

You’ve probably heard of the “capex cliff”, the term for the collapse in capital expenditure plans by Australian businesses that is an inevitable feature of the economy following the once-in-a-lifetime mining investment boom driven mainly by the surge in Chinese demand over the past two decades. But with Australia’s manufacturing industry having been hollowed out too over the past decade, the capital investment pipeline for both mining and manufacturing are gone. So the fall-off, when measured in terms of a percentage of GDP, is nothing short of spectacular in historical context, as shown in this chart from Macquarie. It’s not hard to see why economists have occasionally mentioned the word “recessionary” in reference to the investment outlook.

Part of what’s driving this is that Australia’s economy is increasingly being driven by much less capital-intensive sectors such as education and tourism, which don’t require huge pieces of machinery and infrastructure like trains, tunnelling machines and factory plant equipment. And on the other side of the ledger, the huge increases in capital investment during the mining boom have laid the foundations for the vast increase in Australia’s commodity export volumes, which have been supporting economic growth since the spending started to fall away. The Macquarie research team notes, however, that “non-mining business capex has yet to meaningfully react to lower interest rates, and that companies are “waiting for clear signs of sustained demand before investing.” Right now, those signs are nowhere to be seen.

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You can make charts just like this one for many countries.

Australia Central Bank Loses Credibility As Housing Boom Continues (AFR)

Australia’s booming housing market has once again head-faked the central bank, which is losing credibility every time it cuts on claims the world’s dearest residential property prices are nothing to worry about. In rationalising its decision to reduce the cash rate to 1.5% in August, the Reserve Bank of Australia alleged that “the likelihood of lower interest rates exacerbating risks in the housing market has diminished”. Yet auction clearance rates in our two largest cities, Sydney and Melbourne, which account for 47% of the metro population, have subsequently risen back to boom-time levels. CoreLogic reports that 86.4% of Sydney auctions on the weekend resulted in a sale, which is 10 percentage points higher than the equivalent clearance rate 12 months ago and just shy of the 89.7% record set in May last year.

In Melbourne, 76.1% of auctions saw a sale, besting the 74.3% clearance rate in the same week last year. Median clearance rates in Sydney and Melbourne over the four weeks since July 31 have been 78% and 76% respectively, materially above the median levels observed in these cities since the current housing boom commenced in 2013 on the back of the RBA’s stimulus. While the RBA argues that much lower sales volumes in 2016 signal weakness, this is likely more a reflection of a four-year boom exhausting supply. And it does not stack up with unusually strong clearance rates or persistently exuberant capital gains across Sydney and Melbourne.

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I can only fully agree. And no, again, that’s not because I support Trump. Everything and everyone should be scrutinized.

American Journalism Is Collapsing Before Our Eyes (Goodwin)

Donald Trump may or may not fix his campaign, and Hillary Clinton may or may not become the first female president. But something else happening before our eyes is almost as important: the complete collapse of American journalism as we know it. The frenzy to bury Trump is not limited to the Clinton campaign and the Obama White House. They are working hand-in-hand with what was considered the cream of the nation’s news organizations. The shameful display of naked partisanship by the elite media is unlike anything seen in modern America. The largest broadcast networks – CBS, NBC and ABC – and major newspapers like The New York Times and Washington Post have jettisoned all pretense of fair play. Their fierce determination to keep Trump out of the Oval Office has no precedent.

Indeed, no foreign enemy, no terror group, no native criminal gang, suffers the daily beating that Trump does. The mad mullahs of Iran, who call America the Great Satan and vow to wipe Israel off the map, are treated gently by comparison. By torching its remaining credibility in service of Clinton, the mainstream media’s reputations will likely never recover, nor will the standards. No future producer, editor, reporter or anchor can be expected to meet a test of fairness when that standard has been trashed in such willful and blatant fashion. Liberal bias in journalism is often baked into the cake. The traditional ethos of comforting the afflicted and afflicting the comfortable leads to demands that government solve every problem. Favoring big government, then, becomes routine among most journalists, especially young ones.

I know because I was one of them. I started at the Times while the Vietnam War and civil-rights movement raged, and was full of certainty about right and wrong. My editors were, too, though in a different way. Our boss of bosses, the legendary Abe Rosenthal, knew his reporters leaned left, so he leaned right to “keep the paper straight.” That meant the Times, except for the opinion pages, was scrubbed free of reporters’ political views, an edict that was enforced by giving the opinion and news operations separate editors. The church-and-state structure was one reason the Times was considered the flagship of journalism. Those days are gone. The Times now is so out of the closet as a Clinton shill that it is giving itself permission to violate any semblance of evenhandedness in its news pages as well as its opinion pages.

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But then you think: well, well, what got into the Wall Street Journal editors? Expect pressure on Clinton Foundation to increase.

The Clintons Really Do Think They Can Get Away With Anything (WSJ)

After years of claiming that the Clinton Foundation poses no ethical conflicts for Bill and Hillary or the U.S. government, Bill Clinton now admits the truth—sort of. If his wife becomes President, he says the Super PAC masquerading as a charity won’t accept foreign or corporate contributions. Bill will also resign from the foundation board, and Chelsea will stop raising money for it. Now they tell us. If such fund-raising poses a problem when she’s President, why didn’t it when she was Secretary of State or while she is running for President? The answer is that it did and does, and they know it, but the foundation was too important to their political futures to give it up until the dynastic couple were headed back to the Oval Office.

Now that Hillary is running ahead of Donald Trump, Bill can graciously accept new restrictions on their pay-to-play politics. Bill must be having a good laugh over this one. The foundation served for years as a conduit for corporate and foreign cash to burnish the Clinton image, pay for their travel expenses for speeches and foreign trips, and employ their coterie in between campaigns or government gigs. Donors could give as much as they wanted because the foundation is a “charity.” President Obama may have banished Sidney Blumenthal from the State Department, but Bill could stash his conspiratorial pal at the foundation, keeping him on the family payroll while Sid flooded Hillary with foreign-policy advice. Her private email server was supposed to hide their email traffic—until that gambit was exposed last year.

But FBI Director James Comey let Hillary off the hook on the emails, and he declined to investigate the foundation, so it looks like they’re home free. By now the corporate and foreign cash has already been delivered, in anticipation that Hillary Clinton could become the next President. So now it’s the better part of political prudence to claim the ethical high ground. If you choose to believe or have a short memory. Readers may recall that the foundation promised the White House when Mrs. Clinton became Secretary of State that the foundation would restrict foreign donations and get approval from the State Department. It turned out the foundation violated that pledge, specifically when accepting $500,000 from Algeria.

The foundation also agreed to disclose donor names but failed to do so for more than 1,000 foreign donors until the failure was exposed by press reports. [..] Far from offering some new clean ethical slate, this latest foundation gambit ought to be a warning about a third Clinton term. Protected by Democrats and a press corps desperate to beat Donald Trump, the Clintons really do think they can get away with anything.

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“.. In 2013, for instance, the Clinton Foundation took in $140 million, but spent just $9 million (6.4%) on direct aid. A typical charity devotes about 75% of receipts to aid.”

Clinton Not In The Clear (Jack Kelly)

Hillary Clinton has little to fear from Donald Trump. But she may be casting nervous glances over her shoulder at Preet Bharara. You may not have heard of Mr. Bharara. Sheldon Silver, former speaker of the New York State Assembly, a Democrat, and Dean Skelos, former majority leader of the New York Senate, a Republican, wish they hadn’t. In May, they were sentenced to 12 years and five years in prison, respectively, for corruption. Preet Bharara is the U.S. attorney for the Southern District of New York. Since his appointment in 2009, Mr. Bharara “has launched a one-man crusade against evil-doers, ranging from corrupt politicians to the Mafia,” wrote Alan Chartock, a political science professor who’s a longtime watcher of New York state government.

The Southern District of New York is the lead of three U.S. attorneys’ offices investigating the Clinton Foundation, a recently retired deputy director of the FBI told the Daily Caller. The Clinton Foundation is headquartered in New York. It was begun in Little Rock, Ark., to raise funds for the Clinton library. The office in Washington, D.C., may focus on when Hillary was secretary of state. The Clinton Foundation has received more than $2 billion in contributions. More than 1,000 donors are foreigners. The foundation won’t disclose their names or amounts donated. Few of the funds raised have been spent on charitable works. In 2013, for instance, the Clinton Foundation took in $140 million, but spent just $9 million (6.4%) on direct aid. A typical charity devotes about 75% of receipts to aid.

Much more is spent on pay and benefits for staff, office rent, conferences and travel. Some of the highest-paid staffers are political operatives, such as Huma Abedin, who for a time was on the payrolls of both the Clinton Foundation and the State Department, and Sid Blumenthal, who ran a private intelligence network for Hillary in Libya. The most ballyhooed project, relief for Haiti after a devastating earthquake in 2010, was an example of “Robin Hood in reverse”— robbing the poor for the benefit of the rich, said financial analyst Charles Ortel. The Clinton Foundation is a “charity fraud network,” Mr. Ortel wrote on his blog. “What possesses powerful, wealthy and educated persons to prey on the most desperately poor humans on earth as they posture as philanthropists?”

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Interesting view.

The History of Money: Not What You Think (Minskys)

Most of us have an idea of how money came to be. It goes something like this: People wanted to exchange goods for other goods, but it was difficult to coordinate. So they started exchanging goods for money, and money for goods. This tells us that money is a medium of exchange. It’s a nice and simple story. The problem is that it may not be true. We may be understanding money entirely wrong. The above story assumes that first there was a market, and then people introduced money to make the market work better. But some people find this hard to believe. Those who subscribe to the Chartalist school of thought give a different history. Before money was used in markets, they say, it was used in primitive criminal justice systems.

Money started as—and still is—is a record of debt. It is a way to keep track of what one person owes another. There’s anthropological evidence to back up this view. Work by Innes, and Wray suggest that the origins of money are more like this: In a pre-market, feudal society, there was usually a system to maintain justice in the community. If someone committed a crime, the authority, let’s call him the king, would decide that the criminal owed a fine to the victim. The fine could be a cow, a sheep, three chickens, depending on the crime. Until that cow was brought forward, the criminal was indebted to the victim. The king would record the criminal’s outstanding debt. This system changed over time. Rather than paying fines to the victim, criminals were ordered to pay fines to the king.

This way, resources were being moved to the king, who could coordinate their use for the benefit of the community as a whole. This was useful for the King, and for the development of the society. But the amount of resources coming from a criminal here and there was not impressive. The system had to be expanded to draw more resources to the kingdom. To expand the system, the king created debt-records of his own. You can think of them as pieces of papers that say King-Owes-You. Next, he went to his citizens and demanded they give him the resources he wanted. If a citizen gave their cow to the king, the king would give the citizen some of his King-Owes-You papers. Now, a cow seems more useful than a piece of paper, so it seems silly that a citizen would agree to this.

But the king had thought of a solution. To make sure everyone would want his King-Owes-You papers, he created a use for them. He proclaimed that every so often, all citizens had to come forward to the kingdom. Each citizen would be in big trouble, unless they could provide little pieces of paper that showed the king still owed them. In that case, the king would let the citizen go, and not owe them any longer. The citizen would be free to go off and acquire more King-Owes-You papers, to make sure he would be safe the next time, too.

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Saw this on Reuters and other sites, but they all left out the need to store cash, for some reason, which is in the original directive. So I ran the article through Google Translate and corrected it a little.

A government advising people to store cash is not a minor point, I would think. Not in the days of plastic and a war on cash.

German Government: Citizens Should Store Food, Water And Cash (DWN)

For the first time since the end of the Cold War, the federal government according to a report wants to encourage new stockpiling the population again, so that they, in the case of a disaster or an armed attack temporarily, can take care of themselves. “The population is ‘advised’ to hold a personal supply of food of ten days,” quoted the “Frankfurter Allgemeine Sonntagszeitung” from a concept for civil defense, which the government is requested to adopt on Wednesday. According to the report, the population should be able to protect themselves in an emergency before calling government action to ensure an adequate supply of food, water, energy and cash. Therefore, the population should also be ‘advised’, to hold, for a period of five days, two liters of drinking water per person per day, it is stated in the text drawn up by the Ministry of the Interior.

According to “FAS” is the first strategy for civil defense since the end of the Cold War in 1989. She had been given in 2012 by the Budget Committee of the Bundestag in order. In the 69-page concept it is stated “that an attack on the territory of Germany, which requires a conventional defense, play” was. Nevertheless, it was necessary, “nevertheless to such sufficiently prepared not fundamentally excluded for the future development of life-threatening”. Interestingly, the FAZ reported in this regard that the Federal Government also worry about their own safety. The newspaper writes that in the paper literally stand “. Precautions are the event the task of the service office to meet in order to relocate the performance of duties of a public authority to another, sheltered place (Emergency Seat) can”

It is not clear whether these preparations related to a possible war. The federal government has recently changed its military strategy and regarded Russia as an enemy. NATO considers Russia an attack on NATO territory possible. Therefore, NATO wants the US and the EU also defend outside their own territory. Reuters writes that in the concept of “the need for a reliable alarm system, a better structural protection of buildings and sufficient capacity discussed in the health system” would. Reuters: “The civilian support of the armed forces should be again a priority. These included modifications to the traffic steering when the Bundeswehr must relocate combat units. “

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Very far from over. Please help me support. Read: Meanwhile in Greece..

‘Nobody Believes In Anything Anymore’: Greek Crisis is Far From Over (CNBC)

With Europe facing pressing crises including the refugee crisis, economic slowdown and political disintegration following the Brexit vote, it’s easy to forget that Greece’s political and economic crisis dominated headlines last summer. One year on and a third bailout worth €86 billion later, arrived at after tortuous negotiations between Greece and its lenders, and the situation in Greece is a game of two halves with many Greeks suffering – and some trying to make something out of a bad situation. Greece’s government has been forced to make widespread spending cuts over the course of its three separate bailout programs, making life harder for most Greeks of ordinary means. The cuts have affected all ages with unemployment rising to the highest level in Europe.

A survey by independent analysis firm DiaNEOsis in June revealed that many Greeks were facing an increasing struggle to get by. Extreme poverty in the Greek population (of 11 million people) had risen from 2.2% in 2009, to 15% in 2015, the public opinion survey of 1,300 people showed, with 1.6 million people now living below in extreme poverty. One resident of the northern Greek city of Thessaloniki, Evangelos Kyrimlis, told CNBC that the Greece’s crisis had taken its toll on society, both at a local and national level. “Disillusionment is the first big thing that’s going on,” he noted. “Nobody believes in anything anymore.” “The second big thing is withdrawal. People have retreated to their families and fight only for the family survival. Society has been fragmented,” he said.

Kyrimlis works for his partner’s family firm, having returned to Greece after working for an engineering consultancy in London. Returning to Greece in the midst of the country’s financial breakdown, he said he now noted an increase in animosity between people, saying there was a “widespread hatred not directed to anyone in particular, it’s like all against all.”

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“When they reached the port in Sicily the Italian Red Cross were there, with coffins and flowers for every person who died [..] The tough MSF doctors who have been going from war to war cried because of the flowers..”

Rescuing Refugees: ‘You Never Get Used To It – And That’s A Good Thing’ (G.)

It was the silence of the passengers that Hassiba Hadj-Sahraoui first noticed. Usually when the humanitarian rescue boat sees a tiny dinghy bobbing about in the Mediterranean there’s frantic waving and shouting. “When our team approached in smaller boats and everyone was so quiet we realised something was wrong,” she says. “We asked permission to go aboard and that’s when we realised the others had been waiting for rescue for hours with dead bodies in the boat.” Twenty-two bodies were recovered that day (21 of them women) and 209 people were saved by the crew of the Aquarius, a boat run by Medicins Sans Frontieres (MSF) that patrols the refugee route between Libya and Italy. MSF advocacy manager Hadj-Sahraoui got an idea of how they died from the testimonies of survivors once they were safely on the Aquarius.

A wooden board that had been placed along the bottom of the dinghy broke and water started to come in, mixing with leaking fuel cans. A panic ensued and the 22 people died either in a stampede or drowning in a mix of water and fuel. The people they rescued were in shock. “The priority – it’s sad to say – is with the living,” says Hadj-Sahraoui. “So there’s a very quick medical team, trying to assess needs.” Once the survivors were on the Aquarius they were each given a blanket, water and some food. The people who were soaked in fuel were sent for a shower, because the fuel and sea salt cause nasty burns. Then they registered them. Hadj-Sahraoui speaks Arabic, French and English, a great advantage in her line of work. She asks each person where they are from, how old they are, and if they are travelling alone.

“We don’t wear sunglasses, because we need to have eye contact. It’s about humanity. It’s big smiles saying: ‘You’re now safe. This is where you are. This is what’s going to happen next.’ What surprised me is how polite people are. How they take their time to say thank you.” Once all the survivors were safely on board, and being tended to, the crew of the Aquarius also felt it was right on this occasion to recover the bodies of the women and one man who died. “For several hours we tried to keep the living on one side of the boat. The bodies had spent hours in the water, so we were trying to protect the living from seeing that. The doctor took pictures for identification, because families will never know what happened to their loved ones.” When they reached the port in Sicily the Italian Red Cross were there, with coffins and flowers for every person who died.

“The tough MSF doctors who have been going from war to war cried because of the flowers,” says Hadj-Sahraoui. “I was one of the suckers who cried a lot.” She says that people who do humanitarian work need to learn to take care of themselves, because there’s a lot of emotional burnout. MSF staff have psychological debriefings before and after they go on missions, and after extreme experiences like this one.

Read more …

No-one’s going to stop this.

Inuit Fear Being Overwhelmed As ‘Extinction Tourism’ Descends On Arctic (G.)

In a few days, one of the world’s largest cruise ships, the Crystal Serenity, will visit the tiny Inuit village of Ulukhaktok in northern Canada. Hundreds of passengers will be ferried to the little community, more than doubling its population of around 400. The Serenity will then raise anchor and head through the Northwest Passage to visit several more Inuit settlements before sailing to Greenland and finally New York. It will be a massive undertaking, representing an almost tenfold increase in passenger numbers taken through the Arctic on a single vessel – and it has triggered considerable controversy among Arctic experts. Inuit leaders fear that visits by giant cruise ships could overwhelm fragile communities, while others warn that the Arctic ecosystem, already suffering the effects of global warming, could be seriously damaged.

“This is extinction tourism,” said international law expert Professor Michael Byers, of the University of British Columbia. “Making this trip has only become possible because carbon emissions have so warmed the atmosphere that Arctic sea ice in summer is disappearing. The terrible irony is that this ship – which even has a helicopter for sightseeing and a huge staff-to-passenger ratio – has an enormous carbon footprint that is only going to make things even worse in the Arctic.” The Serenity is by far the biggest cruise vessel to traverse the fabled Northwest Passage, whose exploration has claimed the lives of hundreds of seamen. The ship has a crew of 655 and carries 1,070 passengers, who have paid between £19,000 and £120,000 for a voyage that Crystal Cruises says will take them on an “intrepid adventure” from Anchorage in Alaska to New York over 32 days.

For its part, Crystal insists its clients will have to follow a strict code of conduct during shore visits, while the ship’s air, water and rubbish discharges will be tightly controlled. Only low-sulphur fuel will be burned in the Serenity’s engines, said a spokesman. The Serenity will be accompanied by the UK icebreaker the RSS Ernest Shackleton, he added.

Read more …

Aug 212016
 
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Dorothea Lange Home of rural rehabilitation client, Tulare County, CA 1938

 

Our by now regular contributor Dr. Nelson Lebo III, the New Englander ‘lost’ in New Zealand, sent me another article, and it’s great (well, in my view). His title for the article may put some people on the wrong foot, but I think that’s alright.

I’ve been to New Zealand a few times, and Nicole of course has even moved there, so I was aware of how poorly constructed many homes are -and often made of wood-, but I’d never heard of ‘curtain banks’. Still, they exist all over the country. Turns out, lots of New Zealand homes are so damp and moldy that curtains can literally save lives, and certainly make them more comfortable/bearable. But many people are too poor to be able to afford curtains. Hence the curtain banks. I’d be curious to know if similar initiatives exist anywhere lese on the planet. Do let me know.

Nelson’s second ‘bank’ is made of/filled with water. Agriculture, in particular the one-trick pony of the dairy industry, has caused the land to deteriorate so badly that water washes off the hillsides and the land without natural barriers like trees and shrubs left to stop and naturally regulate it. In other words, there is no ‘water bank’ or ‘stream bank’ left. I really like Nelson’s comparing this velocity of water to the velocity of money in a financial system.

 

 

Dr. Nelson Lebo III: Banks…what is there to say that hasn’t already been said? If you read the Automatic Earth, if you watch Max Keiser, if you’ve followed The Crash Course, there is no comment about financial institutions I can make that would add to the critique. That’s not my gig anyway. My gig is to offer realistic, achievable, grass roots, no-excuses alternatives to the dominant neoliberal consumerist paradigm. One approach I’ve gravitated toward over the years goes by the name of permaculture.

Permaculture has been around for decades. You’ve probably heard of it but do you know what it is? Yeah, that’s the problem. My observations are that the eco design methodology known as permaculture suffers in two fundamental ways: a confusing name and dogmatic application by inexperienced converts. The name is the name – no changing it at this point – and there is no antidote for dogma. But for a general audience of readers I’d like to lay out the ethics and practice of permaculture in the clearest ways possible – by using concrete examples.

 

Example One: The Permaculture Ethics

When engaging with permaculture as a design methodology, practitioners are bound to follow a simple code of ethics: care for the environment; care for people; and, share surplus resources. I appreciate this ethical code because it helps distinguish a permaculturist from anyone else who may be involved in some aspect of the ‘sustainability movement’ such as an organic farmer, recycler, green builder, eco-entrepreneur or local currency advocate.

This is not to say that a permaculturist cannot engage in all of these (indeed they do), but that anyone who practices one or more than these is not necessarily engaging with the permaculture ethics. Think of large-scale organic farms in California that truck in “certified organic” inputs and ship out bags of lettuce thousands of miles to the East Coast. Not permaculture.

People may take a permaculture course or buy a permaculture book for various reasons, but these do not necessarily make them a practicing permaculturist. I like to make the point that the difference between a permaculturist and a survivalist is 100 cases of baked beans and a gun. If you ain’t sharing, it ain’t permaculture.

I also appreciate the ethics because they are an integral part of the design process. In other words, the ethics can be used to help shape a larger project. An example of this is the ‘curtain bank’ that we recently opened in our community.

 

 

Those unfamiliar with curtain banks can be forgiven as many developed countries around the world have decent standards for housing that include high performance windows and central heating. But most of the New Zealand housing stock has been variously described as “sub-standard”, “abysmal”, “horrid”, and “a joke.” Mind you, that’s a bad joke instead of a funny one.

The majority of homes in this country are so cold that curtains must be used as a serious way to reduce heat loss. It is not uncommon for overnight indoor temperatures to drop into the mid-single-digits Celsius and daytime indoor temperatures to barely reach double-digits. I’ve heard stories of frost on the inside of windowpanes.

To add insult to injury, we also suffer from wealth and income inequality that make the purchase of new or even second-hand curtains out of reach for many families. As a result curtain banks have popped up in cities around the nation to redistribute second-hand curtains free of charge.

 

Applied Permaculture Ethics

Sharing surplus resources : People of means replace their curtains for various reasons, but most often for aesthetic ones. If the curtains are still in good condition and free of mould, they can be dropped off at the curtain bank, which makes them available for other households. Like any bank it accepts deposits and grants withdrawals. No fees. No contracts. No interest rates.

While traditional banks have the privilege to ‘lend money into existence’ we cannot lend curtains into existence, although it would be nice. We rely on donations from good people in our community to be passed on to other good people in our community. Which brings us to the next ethic.

Caring for people : It’s no secret that there is a link between sub-standard housing and illness in New Zealand. Sadly, most of the housing in our city is cold and/or damp. These unhealthy homes are especially hard on children and seniors. Many lack adequate curtaining.

Getting properly installed curtains, insulating blinds and window blankets into as many homes as possible helps make the occupants more comfortable and healthier. This is straight up caring for people by addressing some fairly basic needs.

Care for the earth : Improving the ‘thermal envelope’ of a home is the best way to save the energy required for heating and cooling. Saving energy is generally considered good for the environment by reducing carbon emissions or reducing the number of rivers dammed or even reducing the number of solar panels that need to be manufactured.

In these ways curtain banks tick all of the boxes for the permaculture ethics.

 

Example Two: Applied Eco-Design

The other example I’ll share is a direct application of eco-design: imitating nature to develop or reestablish robust ecological systems. The latter of these is sometimes called ‘regenerative design’.

Most of New Zealand is plagued by a legacy of bad farming practices most easily described as overgrazing steep slopes and allowing stock to foul streams.

We took possession of our small farm two years ago and have been working persistently to – dare I say it – ‘heal the land.’ Currently we are in the process of reestablishing a wetland and protecting the streams from stock. Additionally, we are planting native trees and poplar poles on steep hillsides to prevent slips, reduce erosion and provide bee fodder.

We are doing all this because that’s what nature wants. In other words, that’s the way the land was 1,000 years ago (less the non-native poplars) and given enough time that’s what it would revert to after the permanent removal of large hooved mammals. Our work just speeds up the process and allows for a continued agricultural function, which we are still figuring out.

All of this work is supported by our amazing Regional Council, which offers expert advice, low-cost poplar poles, and matching funding for fencing and native plantings. I cannot speak highly enough of these programmes. Horizons Regional Council does a fantastic job of looking at the big picture and applying holistic solutions. Unlike most government bodies and agencies, they get it.

 


Lake Horowhenua Planting Day

 

Forests and wetlands play important roles in moderating seasonal water flows across large land areas. In other words they store water high on the landscape during wet periods and release it slowly during dry periods. It works like a bank by accepting deposits and granting withdrawals.

Much of the farmland in our region suffers from extreme weather on both ends – wet and dry. Neither is good for stock, nor good for farmers, nor good for water quality, nor good for anyone living downstream. It’s a lose-lose-lose-lose situation and the reasons are clear: not enough trees on hillsides and streamsides. That’s basically it.

The solution is to build resilient waterways by imitating nature. Projects like ours are the best way that landowners and supportive communities can directly address the extreme weather events associated with a volatile changing climate.

The restoration work on our farm will help – to a tiny degree – everyone who lives and works downstream and downriver from us by keeping water out of the system during peak rain events. This is critical to our community that already faces tens of millions of dollars in repair bills from the last two major rain events that occurred just 13 months apart.

Given enough farmers with enough will and enough government assistance there is no reason we could not fence off all the streams in our region and plant all the steep hillsides to appropriate species. It’s much cheaper than cleaning up over and over again after serial flood events.

 

Alternative Banking

So what this is all about is developing alternative banking systems – stream banks and curtain banks among others – and getting communities involved. This is what resilience is all about (see also Resilience is The New Black and Climate, Energy, Economy: Pick Two)

This is the heart and soul of permaculture design thinking, and it is the best way to address the two biggest issues facing humanity: wealth inequality and climate change.

When I dip my toe into the financial news media on occasion I hear this phrase: “the velocity of money” as it pertains to the “health of the economy.”

I thought of the phrase the other day while meeting with a client on managing storm water on their large rural property after they had already done everything wrong. Yes, they had done absolutely everything wrong and I was trying to get them to understand that channelizing water only makes it go faster and cause more damage. The damage was obvious after the last major rain event – that’s why they called me in for an assessment.

As I explained the biological – rather than engineering – solutions, I felt we were going around in circles because they did not really want to hear what I had to say. They just wanted to be rid of the water. Sorry, but that’s not an option without over half a million dollars to spend on massive underground drains, which don’t solve the problem but simply pass it on to everyone downstream. And besides, they don’t have the money anyway.

Finally, I simply said, “The only possible solution is to slow the water and spread the water. It’s the only way to stop the damage.”

And that has me thinking. Should we apply the same approach to dollars?

I reckon a critical piece of the puzzle for neglected rural economies like ours is to slow and spread the flow of money as much as possible before it inevitably drains back to the major centres of power and wealth.

 

 

Dorothea Lange wrote about the photograph at the top, back in November 1938:

“Home of rural rehabilitation client, Tulare County, California. They bought 20 acres of raw unimproved land with a first payment of 50 dollars which was money saved out of relief budget (August 1936). They received a Farm Security Administration loan of $700 for stock and equipment. Now they have a one-room shack, seven cows, three sows, and homemade pumping plant, along with 10 acres of improved permanent pasture. Cream check approximately 30 dollars per month. Husband also works about ten days a month outside the farm. Husband is 26 years old, wife 22, three small children. Been in California five years. ‘Piece by piece this place gets put together. One more piece of pipe and our water tank will be finished’. From Shorpy.

 

 

Aug 212016
 
 August 21, 2016  Posted by at 9:13 am Finance Tagged with: , , , , , , , , ,  10 Responses »
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Dorothea Lange ‘A season’s work in the beans’, Marion County, Oregon 1939


Neo-Liberalism Has Had Its Day. So What Happens Next? (G.)
BOJ’s Kuroda Says Won’t Rule Out Deepening Negative Rate Cut (R.)
EU Officials Ignored Years of Emissions Evidence (Spiegel)
The Sound of Blairite Silence (Paul Mason)
53% Of Clinton Foundation Donors Would Be Barred Under Proposed Rule (ZH)
Leaked Memo Proves Soros Ruled Ukraine In 2014 (Duran)
The Aleppo Poster Child (Paul Craig Roberts)
Refugees In Greek Camps Targeted By Mafia Gangs (G.)
Hundreds Rescued From Overcrowded Migrant Boats In Med (EN)
‘Next Year Or The Year After, The Central Arctic Will Be Free Of Ice’ (G.)

 

 

Long, not terrible but not terribly convincing either.

Neo-Liberalism Has Had Its Day. So What Happens Next? (G.)

The western financial crisis of 2007-8 was the worst since 1931, yet its immediate repercussions were surprisingly modest. The crisis challenged the foundation stones of the long-dominant neoliberal ideology but it seemed to emerge largely unscathed. The banks were bailed out; hardly any bankers on either side of the Atlantic were prosecuted for their crimes; and the price of their behaviour was duly paid by the taxpayer. Subsequent economic policy, especially in the Anglo-Saxon world, has relied overwhelmingly on monetary policy, especially quantitative easing. It has failed. The western economy has stagnated and is now approaching its lost decade, with no end in sight.

After almost nine years, we are finally beginning to reap the political whirlwind of the financial crisis. But how did neoliberalism manage to survive virtually unscathed for so long? Although it failed the test of the real world, bequeathing the worst economic disaster for seven decades, politically and intellectually it remained the only show in town. Parties of the right, centre and left had all bought into its philosophy, New Labour a classic in point. They knew no other way of thinking or doing: it had become the common sense. It was, as Antonio Gramsci put it, hegemonic. But that hegemony cannot and will not survive the test of the real world.

The first inkling of the wider political consequences was evident in the turn in public opinion against the banks, bankers and business leaders. For decades, they could do no wrong: they were feted as the role models of our age, the default troubleshooters of choice in education, health and seemingly everything else. Now, though, their star was in steep descent, along with that of the political class. The effect of the financial crisis was to undermine faith and trust in the competence of the governing elites. It marked the beginnings of a wider political crisis. But the causes of this political crisis, glaringly evident on both sides of the Atlantic, are much deeper than simply the financial crisis and the virtually stillborn recovery of the last decade. They go to the heart of the neoliberal project that dates from the late 70s and the political rise of Reagan and Thatcher, and embraced at its core the idea of a global free market in goods, services and capital.

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Yada yada Kuroda.

BOJ’s Kuroda Says Won’t Rule Out Deepening Negative Rate Cut (R.)

The Bank of Japan will not rule out deepening a cut to negative rates it introduced in February, the Sankei newspaper quoted Governor Haruhiko Kuroda as saying, even as the controversial policy has failed to spur inflation or economic growth. In an interview with the daily, Kuroda said the BOJ’s negative rate policy has not reached its limits. “The degree of negative rates introduced by European central banks is bigger than Japan. Technically there definitely is room for a further cut,” Kuroda told the Sankei. The BOJ stunned markets in January when it set a minus 0.1% rate on some deposits that banks place at the central bank, with the move taking effect from February.

While the BOJ hoped the shift to negative rates would encourage banks to lend more, spurring higher spending and inflation, none of that has happened as yet. The BOJ will also consider whether to make any changes to the 80 trillion yen ($798 billion) per year massive asset-purchase plan once the outcome of a comprehensive assessment of its monetary policies is out in September, Kuroda said. The asset purchases are a key plank of the central bank’s “quantitative and qualitative easing” program deployed in 2013, aimed at achieving its 2% inflation target. Despite the aggressive easings, however, inflation is well off the target and growth remains anemic.

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Just another way to signal the failure of the EU. It’s endemic.

EU Officials Ignored Years of Emissions Evidence (Spiegel)

Meeting minutes, correspondence and conversation records that SPIEGEL ONLINE and the Swedish daily Svenska Dagbladet have obtained now show that the European Commission and member states knew, since 2010 at the latest, that the extremely harmful emissions from diesel cars were strikingly higher than legal levels. But apparently none of the officials wanted the automakers to tell them why this was the case. According to EU officials, pressure from countries with a strong auto industry, most notably Germany, significantly reduced interest in an investigation. Instead of doing something about the environmental policy violation, the Commission and the member states passed the buck to each other.

This undignified back-and-forth even continued after the VW scandal about manipulated diesel cars in the United States was exposed in September 2015. The EU bureaucracy was one of the first to be informed, through its research organizations, about the high nitric oxide emissions of the VW vehicle fleet. In 2007, experts with European Commission’s Joint Research Centre (JRC) tested the emissions from operating diesel cars. Additional tests using the so-called PEMS method were performed in 2011 and 2013. The results were the same each time: Nitric oxide (NOX) emissions were several times higher than the levels measured in type approval tests in the laboratory.

Volkswagen was already making an unfavorable impression at the time. The biggest nitric oxide emitter in the 2011 and 2013 tests was a VW Multivan with a diesel engine. This emerges from the list of names of the car models involved, which were not published at the time but has been obtained by SPIEGEL ONLINE. The other eight diesel cars, however, that were randomly selected by the JRC engineers for the PEMS test had the same problem. Be it the Fiat Scudo, Bravo or Punto, the VW Golf or Passat, the Renault Clio or the BMW 120d, not a single model even remotely complied with nitric oxide limits in normal operation.

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The UK won’t let the US get away with claiming the title of ugliest political story.

The Sound of Blairite Silence (Paul Mason)

With Owen Smith it is never clear where, on the road from BBC Wales, via Pfizer, via the years as a special adviser in Belfast surrounded by all those nice members of MI5, via losing Blaenau Gwent to an independent because he was too identified with Blair … at what point did Owen become converted to Jeremy Lite left radical socialism? This combination of high personal ambition and the lack of a permanent belief system is exactly the right attribute for someone whose purpose is to be a placeholder for the Blairite counter-revolution. Who can forget, after all, that Angela Eagle -the original placeholder- launched her campaign without a single policy. Smith is there to remove the grip of Corbyn, and Corbynism on those few parts of the Labour machine it controls.

After that the money amassed by Saving Labour, Progress and Labour Tomorrow will be used to fund the party’s re-conversion to a safe tool of the global elite. It will be back to normal. At every stage, the pro-1% Labour machine has tried to suppress democracy: it tried to force Corbyn off the ballot paper; it tried to debar new, pro-Corbyn members from voting; it tried to produce a new Labour leader without a vote; it imposed an arbitrary cut-off date for new members voting. At the same time the Labour right is promoting an series of largely unfounded victim narratives: that ‘Corbyn is antisemitic’ (backed up with a defamatory attack on Shami Chakrabarti). It’s promoted the narrative of misogyny, of physical threats, of ‘Trotskyist entrism’, of Corbyn ‘sabotaging’ the Remain campaign.

We must anticipate the outcome of this on the principle that Chekov outlined in theatre: if a gun appears in Act I, by the end of Act III someone is going to get shot. Every signal from the Labour right appears to point towards a second coup against Corbyn, once he wins the leadership election, which will make Owen Smith s current effort look like a sideshow.

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There is simply too much wrong about this. A Hillary presidency would damage the reputation of America’s political system too severely. Even Trump Jr of all people makes a valid point.

And no, that does not mean I support Trump. Air everyone’s dirty laundry, by all means. Investigate Trump with all you got. But don’t ignore this.

53% Of Clinton Foundation Donors Would Be Barred Under Proposed Rule (ZH)

On Thursday evening, alongside Trump’s unexpected statement of “regret”, Bill Clinton made another just as important announcement when he said that should Hillary become president, the $2 billion Clinton Family foundation will no longer accept money from any corporate and foreign donors and will bring an end to its annual Clinton Global Initiative meeting regardless of the outcome of the November election. To this we responded that this was to be expected: after all “once Hillary is president, she will no longer need a backdoor way of legally receiving Saudi and other foreign money: at that moment, billions in Saudi dollars will be deemed perfectly acceptable for passage through the front door, mostly in exchange for weapons and ammo.”

Other had similar reactions, with the announcement drawing skepticism on Friday mostly from the right left as critics wondered why the Clintons have never before cut off corporate and overseas money to their charity, and more importantly why they would wait until after the election to do so. RNC Chairman Reince Priebus tweeted Friday that the Clintons’ continued acceptance of those dollars during the presidential campaign is a “massive, ongoing conflict of interest.” The left also spoke up, when Nina Turner, a former Ohio state senator who was a leading surrogate for Clinton’s rival in the Democratic primary race, Bernie Sanders, said the restrictions were a good step but should be imposed immediately. “In my opinion, and in the opinion of lots of Americans, this should have been done long ago,” she said.

As it turns out, the self-impossed restrictions would be more stringent than those put in place while Clinton was secretary of state – ironically when the temptation to bribe the top US diplomat was far higher – when the foundation was merely required to seek State Department approval to accept new donations from foreign governments, permitting the charity to accept millions of dollars from governments and wealthy interests all over the world. They would also be stricter than the policy adopted when Clinton launched her campaign that placed some limits on foreign government funding but allowed corporate and individual donations, for the simple reason that Hillary was willing the accept cash for any and all future favors.

Others questioned why Clinton had now decided that the foundation should rule out donations that she apparently thought were acceptable during her tenure as the country’s top diplomat. “Is it ok to accept foreign and corporate money when Secretary of State but not when POTUS???” Donald Trump Jr., son of the Republican nominee, tweeted Thursday night.

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A man so old he could die any moment now gets to shape a future he will not live to see, just because he has some money. If that’s not a damning verdict of our political systems, what is?

Leaked Memo Proves Soros Ruled Ukraine In 2014 (Duran)

We noted in a previous post how important Ukraine was to George Soros, with documents from DC Leaks that show Soros, and his Open Society NGO, scouring the Greek media and political landscape to push the benefits of his Ukraine coup upon a Russian leaning Greek society. Now more documents, in the massive 2,500 leaked tranche, show the immense power and control Soros had over Ukraine immediately following the illegal Maidan government overthrow. Soros and his NGO executives held detailed and extensive meetings with just about every actor involved in the Maidan coup: from US Ambassador Geoffrey Pyatt, to Ukraine’s Ministers of Foreign Affairs, Justice, Health, and Education. The only person missing was Victoria Nuland, though we are sure those meeting minutes are waiting to see the light of day.

Plans to subvert and undermine Russian influence and cultural ties to Ukraine are a central focus of every conversation. US hard power, and EU soft power, is central towards bringing Ukraine into the neo-liberal model that Soros champions, while bringing Russia to its economic knees. Soros’ NGO, International Renaissance Foundation (IRF) plays a key role in the formation of the “New Ukraine”…the term Soros frequently uses when referring to his Ukraine project. In a document titled, “Breakfast with US Ambassador Geoffrey Pyatt”, George Soros, (aka GS), discusses Ukraine’s future with: Geoffrey Pyatt (US Ambassador to Ukraine); David Meale (Economic Counsellor to the Ambassador); Lenny Benardo (OSF); Yevhen Bystrytsky (Executive Director, IRF); Oleksandr Sushko (Board Chair, IRF); Ivan Krastev (Chariman, Centre for Liberal Studies); Sabine Freizer (OSF); Deff Barton (Director, USAID, Ukraine)

The meeting took place on March 31, 2014, just a few months after the Maidan coup, and weeks before a full out civil war erupted, after Ukraine forces attacked the Donbass. In the meeting, US Ambassador Pyatt outlines the general goal for fighting a PR war against Putin, for which GS is more than happy to assist. “Ambassador: The short term issue that needs to be addressed will be the problem in getting the message out from the government through professional PR tools, especially given Putin’s own professional smear campaigns.” “GS: Agreement on the strategic communications issue—providing professional PR assistance to Ukrainian government would be very useful. Gave an overview of the Crisis Media Center set up by IRF and the need for Yatseniuk to do more interviews with them that address directly with journalists and the public the current criticisms of his decision making.”

Pyatt pushes the idea of decentralization of power for the New Ukraine, without moving towards Lavrov’s recommendation for a federalized Ukraine. GS notes that a federalization model would result in Russia gaining influence over eastern regions in Ukraine, something that GS strictly opposes.

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How many more years of this?

The Aleppo Poster Child (Paul Craig Roberts)

Washington’s media presstitutes are using the image of the child to bring pressure on Russia to stop the Syrian army from retaking Alleppo. Washington wants its so-called moderate rebels to retain Alleppo so that Washington can split Syria in two, thereby keeping a permanent pressure against President Assad. As for the little boy in the propaganda picture, he does not seem to be badly injured. Let us not forget the tens of thousands of children that Washington’s wars and bombings of 7 Muslim countries have killed without any tears shed by CNN anchors, and let us not forget the 500,000 Iraqi children that the United Nations concluded died as a result of US sanctions against Iraq, children’s deaths that Clinton’s Secretary of State Madeleine Albright said were worth it.

Let us not forget that Washington’s determination to overthrow the Syrian government has brought many deaths to Syrians of all age groups. Washington alone is responsible for the deaths. The evil Obama regime has stated over and over that “Assad must go” and is prepared to destroy the country and much of the population in order to get rid of him. According to the Obama regime, Assad must go because he is a dictator. Washington tells this lie despite the fact that Assad was elected and re-elected and has far higher support among Syrians that Obama has among Americans. Moreover, whatever Washington accuses Assad of doing to Syrians is nothing compared to the death and destruction that Washington brought to Syria.

Perhaps the tragedy of Aleppo could have been avoided if the Russian government had not prematurely declared “mission accomplished” in Syria and withdrawn only to have to rush back after the Russian government was again deceived by Washington.

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The EU, Europe as a whole, fails dramatically, and nothing is improving.

Greece by then had already received €181m to help deal with the crisis from Brussels.

Look, Greece estimated the cost to its budget at €2 billion at least 6 months ago. Now, all the money goes to NGOs. Whose track record is not great, to say the least.

Refugees In Greek Camps Targeted By Mafia Gangs (G.)

Fresh evidence is emerging that refugees stranded in camps across Greece are falling victim to rising levels of vice peddled by mafia gangs who see the entrapped migrants as perfect prey for prostitution, drug trafficking and human smuggling. Details of the alarming conditions present in many of the facilities comes as the Greek government – facing criticism after the Observer’s exposé of sexual abuse in camps last week – announced urgent measures to deal with the crisis. A further four refugee centres, it said, would be set up in a bid to improve severe overcrowding, a major source of tensions in the camps. Aid workers say an estimated 58,000 migrants and asylum seekers in Greece are increasingly being targeted by Greek and Albanian mafias.

Tales of criminals infiltrating camps to recruit vulnerable women and men are legion. “If nothing is done to improve the lifestyle of these refugees and to use their time more productively, I see a major disaster,” warned Nesrin Abaza, an American aid worker volunteering at the first privately funded camp known as Elpida (Greek for hope) outside Thessaloniki. “These camps are a fertile breeding ground for terrorism, gangs and violence. It seems like the world has forgotten about them. They are not headline news any more, so therefore they do not exist … but the neglect will show its ugly head.” With an estimated 55 centres nationwide – including “hotspots” on the Aegean islands within view of Turkey – Greece has effectively become a huge holding pen for refugees since EU and Balkan countries closed their borders to shut them out earlier this year.

[..] the EU released €83m in April to improve living conditions for refugees stranded in the country. The UN refugee agency, the International Federation of the Red Cross and six international NGOs were given the bulk of the funding. Greece by then had already received €181m to help deal with the crisis from Brussels. Announcing the emergency support, the EU commissioner for humanitarian aid and crisis management, Christos Stylianides, claimed the assistance was “a concrete example of how the EU delivers on the challenges Europe faces”. “We have to restore dignified living conditions for refugees and migrants in Europe as swiftly as possible,” he said. But four months later, as allegations of sexual abuse and criminal activity envelop the camps, questions are mounting over whether the money was properly administered. In addition to bad sanitary conditions and lack of police protection, the latest revelations have shone a light on whether the humanitarian system is working at all.

“There is no emphasis on humanity, it is all about numbers,” Amed Khan, a financier turned philanthropist who funded Elpida, told the Observer. Elpida, also established in a former factory near Thessaloniki, has a tea room and yoga centre and, seeing itself as a pioneering initiative, encourages refugees to regard it as a home. In the month since the camp opened its doors, it has won plaudits for being the most humane refugee centre in Greece. “Nobody is using money here efficiently or effectively,” lamented Khan. “The humanitarian system is the same one that has been in place since the second world war, it lacks intellectual flexibility and is totally broken. The real question to be asked is, has the aid that has been given been appropriately utilised?”

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3000 dead so far this year.

Hundreds Rescued From Overcrowded Migrant Boats In Med (EN)

More than 300 people have been rescued from the Mediterranean Sea after migrant boats capsized off the coast of Libya. One small vessel packed with 27 Syrians flipped over and sank, according to humanitarian group Migrant Offshore Aid Station. The bodies of two women and one man were recovered. Among the dead were two girls, aged eight months and five years. The survivors were taken to the Sicilian port of Trapani. Migrants from North Africa are favouring the dangerous voyage toward Italy after last year’s prefered route from Turkey to the Greek islands has been largely shut down. According to the International Organization for Migration, about three thousand migrants have died in the Med so far this year.

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“You will be able to cross over the North Pole by ship.”

‘Next Year Or The Year After, The Central Arctic Will Be Free Of Ice’ (G.)

Peter Wadhams has spent his career in the Arctic, making more than 50 trips there, some in submarines under the polar ice. He is credited with being one of the first scientists to show that the thick icecap that once covered the Arctic ocean was beginning to thin and shrink. He was director of the Scott Polar Institute in Cambridge from 1987 to 1992 and professor of ocean physics at Cambridge since 2001. His book, A Farewell to Ice, tells the story of his unravelling of this alarming trend and describes what the consequences for our planet will be if Arctic ice continues to disappear at its current rate. “You have said on several occasions that summer Arctic sea ice would disappear by the middle of this decade. It hasn’t. Are you being alarmist?”

No. There is a clear trend down to zero for summer cover. However, each year chance events can give a boost to ice cover or take some away. The overall trend is a very strong downward one, however. Most people expect this year will see a record low in the Arctic’s summer sea-ice cover. Next year or the year after that, I think it will be free of ice in summer and by that I mean the central Arctic will be ice-free. You will be able to cross over the North Pole by ship. There will still be about a million square kilometres of ice in the Arctic in summer but it will be packed into various nooks and crannies along the Northwest Passage and along bits of the Canadian coastline. Ice-free means the central basin of the Arctic will be ice-free and I think that that is going to happen in summer 2017 or 2018.

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Aug 202016
 
 August 20, 2016  Posted by at 9:13 am Finance Tagged with: , , , , , , , , ,  1 Response »
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William Henry Jackson New Orleans, “Canal Street from the Clay monument” 1890


A Black Swan The Size Of World War I (IBT)
Canadian Debt Slaves Pile it on (WS)
Things Keep Getting Worse For EU Banks (CNBC)
Brexit Armageddon Was A Terrifying Vision – But It Simply Hasn’t Happened (G.)
Over 500,000 UK First-Time Buyers Let Down By ‘Help To Buy’ Scheme (Sun)
A Dairy Firm at the End of the Earth Is Trying to Rule the World (BBG)
Does Motorola Need To Go To Rehab? (CCB)
Finance is Not the Economy (Hudson/Bezemer)
Saudi Arabia Kills Civilians, the US Looks the Other Way (NYT)
US Withdraws Staff From Saudi Arabia Dedicated To Yemen Planning (R.)
US Army Fudged Its Accounts By Trillions Of Dollars (R.)
Netherlands On Brink Of Banning Sale Of Petrol-Fuelled Cars (Ind.)

 

 

“The saving grace would have been to invest in Detroit startups or other investments that successfully straddled wars, Russian revolution, crises..”

A Black Swan The Size Of World War I (IBT)

To illustrate a strategic gap common to today’s portfolio managers, George Sokoloff, PhD, founder and CIO at Carmot Capital, proposes an interesting thought experiment – a breakdown of a typical, well-diversified investment strategy in 1912. Teetering on the cusp of revolution, war and depression, Sokoloff’s point is that, even following a modern portfolio management strategy, the manager would stand to lose the vast majority of their assets. People tend to rely on historically stable relationships between bonds and stocks, and when that relationship breaks down – as often happens in a liquidity event – even complicated strategies involving some arbitrage, essentially blow up. Imagine being a wealth manager out of Geneva in 1912, trying to create a nice diversified portfolio of developed market bonds, and emerging market bonds, says Sokoloff.

Say 39% of client assets would be split between stocks of Great Britain, France, German Empire, Austria-Hungary and Italy: truly mature, developed markets. Some 21% of assets would go into stocks of the two fastest growing economies: Russian Empire and North American United States. The wealth manager might also put a smidge into emerging economies like Argentina, Brazil or Japan. In bonds, allocation would be somewhat similar. Gilts with sub-3% yield would be the benchmark, with the rest of developed and emerging bonds trading at a spread. Alternatives investment could be in anything ranging from arable land in central Russia or the Great Plains, to shares of new automotive or aeroplane startups in Europe and America, to Japanese manufacturing ventures.

This well-intentioned, balanced portfolio would be in for a wild ride in the next decade and possibly drawdowns of as much as 80%. The saving grace would have been to invest in Detroit startups or other investments that successfully straddled wars, Russian revolution, crises and the technological boom of the early 20th century. Sokoloff told IBTimes UK: “That thought experiment is really frightening to me. You followed very sound modern portfolio management advice back then and still in ten years your portfolio is gone. I don’t think we are really learning the lessons of history, especially now that the global economy is so much more interconnected than it was before.”

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Scary.

Canadian Debt Slaves Pile it on (WS)

Consumer debt in Canada’s debt-fueled economy rose to a new record of C$1.67 trillion in the second quarter, according to Equifax. That’s up 3.0% from the prior quarter and 6.3% from a year ago. Excluding mortgages, consumer debt rose 3.4%, to C$21,878 per borrower on average. Folks 65 and over splurged the most with money they didn’t have and ended up increasing their debt by 8.2%. But Millennials had trouble. Their debts barely rose, and their delinquency rates have begun to jump. Equifax Canada, which based this report on its 25 million consumer credit files, doesn’t appear to capture the full extent of Canadian household debt: Statistics Canada’s most recent quarterly report pegged “total household credit market debt,” which includes mortgages, at a record C$1.933 trillion, up 5% year-over-year.

This gives Canadian households one of the highest debt-to-income ratios in the world. The ratio started soaring relentlessly 15 years ago, supporting the housing boom that barely took a breather during the Financial Crisis – a boom that now has turned into one of the globe’s most phenomenal and riskiest housing bubbles. Piling on debt to move the economy and the housing bubble forward was encouraged by record low borrowing rates. So at the end of the first quarter, the level of consumer debt was 165.3% of disposable income. It’s so high that it’s regularly subject of ineffectual hand-wringing in Canada’s central bank circles:

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“..investment banking in Germany, for example, is down 45%…”

Things Keep Getting Worse For EU Banks (CNBC)

European Union banks just can’t catch a break. Many of them are still slogging uphill to recoup share price losses incurred from the Brexit vote in the U.K. European investment banking revenue overall is down 23% this year compared with the same period in 2015, according to data tracker Dealogic. And all are lagging behind U.S. banks for wallet share, or how much revenue they take in from dealmaking compared to competitors. JPMorgan Chase tops every bank in the EU for wallet share, with 7.3% of deals, according to data from Dealogic this week. It’s followed by Goldman Sachs, which has 6.2% of deals, and only then, in third place, is an EU bank: Deutsche Bank has 5% of revenue on European mergers and acquisitions.

But European banks (and their American counterparts) are fighting off a rising tide of boutique banks that have taken a growingpercentage of M&A revenue from them over the last decade. Around the world, M&A levels have declined from recent record highs. But the pain is exacerbated in Europe, where big banks experienced a steeper drop off in revenue. Dealogic data show that investment banking in Germany, for example, is down 45%. Globally, European deals account for just 22% of banking revenue, the lowest margin since Dealogic began tracking investment banking wallet share. That comes in the wake of banks being hit especially hard on concerns about elevated loan losses, especially those coming from oil and gas assets.

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For the love of Brexit.

Brexit Armageddon Was A Terrifying Vision – But It Simply Hasn’t Happened (G.)

Unemployment would rocket. Tumbleweed would billow through deserted high streets. Share prices would crash. The government would struggle to find buyers for UK bonds. Financial markets would be in meltdown. Britain would be plunged instantly into another deep recession. Remember all that? It was hard to avoid the doom and gloom, not just in the weeks leading up to the referendum, but in those immediately after it. Many of those who voted remain comforted themselves with the certain knowledge that those who had voted for Brexit would suffer a bad case of buyer’s remorse. It hasn’t worked out that way. The 1.4% jump in retail sales in July showed that consumers have not stopped spending, and seem to be more influenced by the weather than they are by fear of the consequences of what happened on 23 June.

Retailers are licking their lips in anticipation of an Olympics feelgood factor. The financial markets are serene. Share prices are close to a record high, and fears that companies would find it difficult and expensive to borrow have proved wide of the mark. Far from dumping UK government gilts, pension funds and insurance companies have been keen to hold on to them. City economists had predicted an immediate rise in the claimant count measure of unemployment in July. That hasn’t happened either. This week’s figures show that instead of a 9,000 rise, there was an 8,600 drop.

Some caveats are in order. It is still early days. Hard data is scant. Survey evidence is still consistent with a slowdown in the economy in the second half of 2016. Brexit may be a slow burn, with the impact only becoming apparent in the months and years to come. But it is obvious that the sky has not fallen in as a result of the referendum, and those who said it would look a bit silly. By now, Britain was supposed to be reeling from the emergency budget George Osborne said would be necessary to fill a £30bn black hole in the public finances caused by a plunging economy. The emergency budget is history, as is Osborne.

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Nobody should be buying a home in Britain.

Over 500,000 UK First-Time Buyers Let Down By ‘Help To Buy’ Scheme (Sun)

The much-trumpeted Help to Buy Isa was branded a scandal last night as it emerged that first-time buyers will not be able to use it for a deposit. More than 500,000 savers opened accounts after George Osborne claimed it would provide ‘direct Government support’. But it has been revealed that a flaw in the scheme means a 25% Government bonus on savings will not be paid out until a house purchase has been completed. Experts said those struggling to find the money to buy a home would have to look to their parents for loans. The Help to Buy Isas, which launched last year, let customers save £200 a month, to which the Government adds £50, up to a final total of £15,000. Buyers are usually required to provide a 10% deposit when they exchange contacts.

But the small print shows the bonus cannot be used for the initial deposit and only spent as part of the purchase cost. So far, fewer than 1,500 people have used the Isas to help buy a home as the limit on how much can be paid in means they have only just got a realistic amount to put toward a deposit. Andrew Boast of SAM Conveyancing said: “It is a scandal. Unsuspecting first-time buyers are finding that they can’t use the bonus as part of the deposit.” Danny Cox of Hargreaves Lansdown financial advisers said: “Hundreds of thousands of Help to Buy Isa savers risk finding a last-minute hole in their finances.” A Treasury spokesman said: “It has always been the case that money saved in a Help to Buy Isa is for an exchange deposit, with the bonus of up to £3,000 per Isa going toward the total funds available for the property transaction.”

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Fonterra was never going to last. Illusions of grandeur only go so far.

A Dairy Firm at the End of the Earth Is Trying to Rule the World (BBG)

In the shadow of a snow-dusted volcano on a corner of New Zealand’s North Island, a sprawling expanse of stainless steel vats, chimneys and giant warehouses stands as a totem of the tiny nation’s dominance in the global dairy trade. The Whareroa factory was until recently the largest of its kind, churning out enough milk powder, cheese and cream to fill more than three Olympic-sized swimming pools a week. The plant has helped make owner Fonterra Cooperative Group the world’s top dairy exporter and its farmer-suppliers among the greatest beneficiaries of China’s emerging thirst for milk. Now, faced with reduced Chinese demand that’s eroded milk prices and helped drag 80% of New Zealand’s dairy farmers into the red, the 44-year-old factory has come to symbolize Fonterra’s struggle to climb the value chain.

While a global shift toward more natural foods has spurred even Coca-Cola to develop new milk products, Fonterra’s business remains largely wedded to commodities traded on often-volatile international markets. That’s frustrated the ranks of the cooperative’s 10,500 farmer-shareholders, who are set to receive the lowest return in nine years for the milking season just ended, and turned Fonterra’s strategy into the subject of national debate. “Fonterra hasn’t taken the opportunity to put itself in a position to really weather these storms as well as they should be able to,” said Harry Bayliss, 63, a former Fonterra director who still supplies the cooperative from farms about 30 kilometers west of the Whareroa factory. “What the board has focused on in the last 10 years haven’t been areas that have created real ongoing value for the shareholders or the company.”

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Motorola borrows heavily to buy its own shares. If that isn’t liquidating your company, what is? “It’s a much weaker company than it was two or three years ago..”

Does Motorola Need To Go To Rehab? (CCB)

How does Motorola Solutions CEO Greg Brown keep his company’s stock rising despite declining revenue and profit? Volume—of share repurchases. Since splitting off its mobile phone business in 2011, Motorola Solutions has spent $11.5 billion buying back stock. Earlier this month, the provider of products and services for government communications systems authorized another $2 billion in repurchases. The buybacks have reduced total share count by more than half, bolstering earnings per share even as actual profit declined to $613 million in 2015 from $1.16 billion in 2011. And because investors price shares on the basis of EPS, Motorola Solutions shares increased 90% in value over that period, to $75.99 yesterday, outpacing a 72% rise for the Standard & Poor’s 500 market.

Of course, Motorola Solutions is far from alone in gobbling its own shares as an antidote to sluggish growth. Companies in the Standard & Poor’s 500 repurchased a record amount in the 12 months through March 31. Still, Motorola ranks in the top 10% in terms of the percentage of outstanding shares repurchased over five years, according to Birinyi Associates. Buybacks are becoming more controversial as they consume a growing share of capital. Critics say companies are artificially burnishing their results rather than investing in business activities that would generate real long-term growth. Defenders say buybacks make sense for companies that generate more cash than they can reinvest profitably.

But Motorola Solutions has spent far more than excess cash flow on buybacks. Since the spinoff, the now Chicago-based maker of two-way radio systems has produced $2.7 billion in operating cash flow and collected $3.4 billion in proceeds from selling its enterprise business to Zebra Technologies in 2014. That $6.1 billion total represents a little more than half of Motorola’s buyback outlay. Brown has financed the rest with borrowed money, tripling long-term debt to $5 billion since the spinoff. Cash on hand dropped to $1.5 billion as of June 30, from $3.1 billion a year earlier. “It’s a much weaker company than it was two or three years ago,” says analyst David Novosel of Gimme Credit, a research firm in Chicago.

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“When the financial bubble bursts, negative equity spreads as asset prices fall below the mortgages, bonds, and bank loans attached to the property.“

Finance is Not the Economy (Hudson/Bezemer)

Analysis of private sector spending, banking, and debt falls broadly into two approaches. One focuses on production and consumption of current goods and services, and the payments involved in this process. Our approach views the economy as a symbiosis of this production and consumption with banking, real estate, and natural resources or monopolies. These rent-extracting sectors are largely institutional in character, and differ among economies according to their financial and fiscal policy. (By contrast, the “real” sectors of all countries usually are assumed to share a similar technology.)

Economic growth does require credit to the real sector, to be sure. But most credit today is extended against collateral, and hence is based on the ownership of assets. As Schumpeter (1934) emphasized, credit is not a “factor of production,” but a precondition for production to take place. Ever since time gaps between planting and harvesting emerged in the Neolithic era, credit has been implicit between the production, sale, and ultimate consumption of output, especially to finance long- distance trade when specialization of labor exists (Gardiner 2004; Hudson 2004a, 2004b). But it comes with a risk of overburdening the economy as bank credit creation affords an opportunity for rentier interests to install financial “tollbooths” to charge access fees in the form of interest charges and currency-transfer agio fees.

Most economic analysis leaves the financial and wealth sector invisible. For nearly two centuries, ever since David Ricardo published his Principles of Political Economy and Taxation in 1817, money has been viewed simply as a “veil” affecting commodity prices, wages, and other incomes symmetrically. Mainstream analysis focuses on production, consumption, and incomes. In addition to labor and fixed industrial capital, land rights to charge rent are often classified as a “factor of production,” along with other rent-extracting privileges. Also, it is as if the creation and allocation of interest-bearing bank credit does not affect relative prices or incomes.

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Not exactly. The US is not some innocent bystander. Having the NYT write this up is maybe a sign, but it’s also double tongued.

Saudi Arabia Kills Civilians, the US Looks the Other Way (NYT)

In the span of four days earlier this month, the Saudi Arabia-led coalition in Yemen bombed a Doctors Without Borders-supported hospital, killing 19 people; a school, where 10 children, some as young as 8, died; and a vital bridge over which United Nations food supplies traveled, punishing millions. In a war that has seen reports of human rights violations committed by every side, these three attacks stand out. But the Obama administration says these strikes, like previous ones that killed thousands of civilians since last March, will have no effect on the American support that is crucial for Saudi Arabia’s air war.

On the night of Aug. 11, coalition warplanes bombed the main bridge on the road from Hodeidah, along the Red Sea coast, to Sana, the capital. When it didn’t fully collapse, they returned the next day to destroy the bridge. More than 14 million Yemenis suffer dangerous levels of food insecurity — a figure that dwarfs that of any other country in conflict, worsened by a Saudi-led and American-supported blockade. One in three children under the age of 5 reportedly suffers from acute malnutrition. An estimated 90 percent of food that the United Nation’s World Food Program transports to Sana traveled across the destroyed bridge.

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Too much publicity lately?

US Withdraws Staff From Saudi Arabia Dedicated To Yemen Planning (R.)

The U.S. military has withdrawn from Saudi Arabia its personnel who were coordinating with the Saudi-led air campaign in Yemen, and sharply reduced the number of staff elsewhere who were assisting in that planning, U.S. officials told Reuters. Fewer than five U.S. service people are now assigned full-time to the “Joint Combined Planning Cell,” which was established last year to coordinate U.S. support, including air-to-air refueling of coalition jets and limited intelligence-sharing, Lieutenant Ian McConnaughey, a U.S. Navy spokesman in Bahrain, told Reuters. That is down from a peak of about 45 staff members who were dedicated to the effort full-time in Riyadh and elsewhere, he said.

The June staff withdrawal, which U.S. officials say followed a lull in air strikes in Yemen earlier this year, reduces Washington’s day-to-day involvement in advising a campaign that has come under increasing scrutiny for causing civilian casualties. A Pentagon statement issued after Reuters disclosed the withdrawal acknowledged that the JCPC, as originally conceived, had been “largely shelved” and that ongoing support was limited, despite renewed fighting this summer. “The cooperation that we’ve extended to Saudi Arabia since the conflict escalated again is modest and it is not a blank check,” Pentagon spokesman Adam Stump said. U.S. officials, speaking on condition of anonymity, said the reduced staffing was not due to the growing international outcry over civilian casualties in the 16-month civil war that has killed more than 6,500 people in Yemen, about half of them civilians.

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The DoD simply does no accounting.

US Army Fudged Its Accounts By Trillions Of Dollars (R.)

The United States Army’s finances are so jumbled it had to make trillions of dollars of improper accounting adjustments to create an illusion that its books are balanced.The Defense Department’s Inspector General, in a June report, said the Army made $2.8 trillion in wrongful adjustments to accounting entries in one quarter alone in 2015, and $6.5 trillion for the year. Yet the Army lacked receipts and invoices to support those numbers or simply made them up. As a result, the Army’s financial statements for 2015 were “materially misstated,” the report concluded. The “forced” adjustments rendered the statements useless because “DoD and Army managers could not rely on the data in their accounting systems when making management and resource decisions.”

Disclosure of the Army’s manipulation of numbers is the latest example of the severe accounting problems plaguing the Defense Department for decades. The report affirms a 2013 Reuters series revealing how the Defense Department falsified accounting on a large scale as it scrambled to close its books. As a result, there has been no way to know how the Defense Department – far and away the biggest chunk of Congress’ annual budget – spends the public’s money. The new report focused on the Army’s General Fund, the bigger of its two main accounts, with assets of $282.6 billion in 2015. The Army lost or didn’t keep required data, and much of the data it had was inaccurate, the IG said. “Where is the money going? Nobody knows,” said Franklin Spinney, a retired military analyst for the Pentagon and critic of Defense Department planning.

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It’ll take a lot more than that to make cities liveable. How about a deep financial crisis?

Netherlands On Brink Of Banning Sale Of Petrol-Fuelled Cars (Ind.)

Europe appears poised to continue its move towards cutting fossil fuel use as the Netherlands joins a host of nations looking to pass innovative green energy laws. The Dutch government has set a date for parliament to host a roundtable discussion that could see the sale of petrol- and diesel-fuelled cars banned by 2025. If the measures proposed by the Labour Party in March are finally passed, it would join Norway and Denmark in making a concerted move to develop its electric car industry. It comes after Germany saw all of its power supplied by renewable energies such as solar and wind power on one day in May as the economic powerhouse continues to phase out nuclear energy and fossil fuels.

And outside Europe, both India and China have demanded that citizens use their cars on alternate days only to reduce the exhaust fume production which is causing serious health problems for the populations of both nations. The consensus-oriented parties of the Netherlands are set to consider a total ban on petrol and diesel cars in a debate on 13 October. Richard Smokers, principle adviser in sustainable transport at the Dutch renewable technology company TNO, said the Dutch government was committed to meeting the Paris climate change agreement to reduce greenhouse emissions to 80% less than the 1990 level. The plan requires the majority of passenger cars to be run on CO2-free energy by 2050.

“Dutch cities still have some problems to meet existing EU air quality standards and have formulated ambitions to improve air quality beyond these standards,” he told The Independent, adding that the government had at the same time been reluctant to implement strict policies on the environment. “The current government embraces long term targets and strives at meeting EU requirements, but is hesistant about proposing ‘strong’ policy measures. “Instead it prefers to facilitate and stimulate initiatives from stakeholders in society.” If the law to ban the sale of new fossil-fuel cars by 2025 passes, a significant move will have been made towards phasing out all petrol and diesel cars by 2035, added Dr Smokers.

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Aug 192016
 
 August 19, 2016  Posted by at 2:25 pm Finance Tagged with: , , , , , , , , ,  9 Responses »
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Opening of Golden Gate Bridge May 27 1937

This is an absolute must see, and a joy to watch. Longtime friend of the Automatic Earth Steve Keen was on BBC’s Hardtalk over the weekend. I already really liked the 2.30min clip the BBC released earlier this week. Now Steve himself has posted the entire interview, while the BBC only has an audio podcast (for anyone outside the UK).

You can see that Steve came prepared for some ‘hard’ questioning, and the format fits him very well. Kudo’s! Also, kudo’s to the BBC for having him on, perhaps alternative views on economics have become more palatable in Britain post-Brexit? Interviewer Stephen Sackur sound quite typical of what I see in British media almost 2 months after Brexit: fear and uncertainty and the overall notion that leaving the EU is a very bad thing. Time to move on, perhaps?

I’m not sure Steve would join me in professing the term Beautiful Brexit, but our views on the EU are remarkably alike: it’s a dangerous club (and it will end up imploding no matter what). And that is in turn remarkable unlike the view of our friend Yanis Varoufakis, who is seeking to reform the union.

I went to see Yanis’ presentation of his DiEM25 initiative on the island of Aegina, off Athens, last week, and I found far too much idealism there. There were DiEM25 members from France, Italy and Spain, and they all seemed to agree on one thing: “we need” a pan-European organization -of sorts-. But do we? And why? In my view, they ignore those questions far too easily.

Moreover, even if we choose that path, why the EU? For me, as I said to the people I was with last week, reforming the EU is like reforming the mafia: you don’t want to go there, you want to dissolve it and shut it down. What the EU is today is the result of 60+ years of building an anti-democratic structure that involves and feeds tens of thousands of people, and you’re not going to break that down in any kind of short term.

Though it’s politically ‘not done’, I do think Boris Johnson was on to something when he said during the Brexit campaign: “Napoleon, Hitler, various people tried this out, and it ends tragically. The EU is an attempt to do this by different methods [..] But fundamentally, what is lacking is the eternal problem, which is that there is no underlying loyalty to the idea of Europe. There is no single authority that anybody respects or understands. That is causing this massive democratic void.”

When he said it in May, it was used as campaign fodder by the Remain side, though ironically they never mentioned Napoleon, only Hitler. “How dare you make that comparison!” But Johnson could have mentioned Charlemagne or Charles V, or Julius Ceasar just as well. They all tried to unify Europe, and all with pretty bloody results.

And just like all the idealism I see today in DiEM25, there were plenty idealists at the foundation of the EU, too. But again it’s going awfully wrong. Diversity is what makes Europe beautiful, and trying to rule over it from a centralized place threatens that diversity. European nations have a zillion ways to work together, but a central government and a central bank, plus a one-currency system, that is not going to work.

Still, before I get people proclaiming for instance that Steve Keen is a fan of Boris Johnson, which I’m sure he’s not and neither am I, we’re both fans of Yanis Varoufakis, just not on this issue, but before I make people make that link, I’ll shut up and hand you over to Steve.

But not before reiterating once more that in my view none of this EU talk really matters, because centralization can exist only in times of -economic- growth (or dictatorship), and we’re smack in the middle of a non-growth era kept hidden from us by a veil of gigantesque debt issuance. The future is going to be localization, protectionism, name it what you want; feel free to call it common sense. It will happen regardless of what you call it.

 

 

 

 

Aug 192016
 
 August 19, 2016  Posted by at 9:51 am Finance Tagged with: , , , , , , , , ,  2 Responses »
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Walker Evans Waterfront in New Orleans. French market sidewalk scene 1935


Paul Singer: Market ‘Breakdown’ To Be ‘Sudden, Intense, And Large’ (CNBC)
Vancouver Housing Market Implodes: Average Price Plunges 20% In 1 Month (ZH)
UK’s £8.8 Trillion Wealth Owes Much to Housing (BBG)
Moody’s Lowers Outlook On Australia Banks To Negative (R.)
China’s Secret Lists of Zombie Borrowers Leave Banks in the Dark (BBG)
As China Shrinks, Mongolia Has an Epic Economic Meltdown (BBG)
Stiglitz: The Euro Is On Course To Fail (Economist)
The Subtle Tyranny of Blockchain (Thomas)
It’s Time to Abolish the DEA and America’s “War on Drugs” Gulag (CHS)
The US Is Promoting War Crimes In Yemen (G.)
Greek Coast Guard Rescues Dozens Of Migrants Stuck On Islet (AP)
The Fishermen of Lesbos (Hakai)

 

 

“Experience doesn’t count for much, and extreme confidence may be fatal.”

Paul Singer: Market ‘Breakdown’ To Be ‘Sudden, Intense, And Large’ (CNBC)

In a bleak new letter to investors, Paul Singer’s Elliott Management warns that the bond market is “broken” and that when the central bank actions of recent years no longer ward off a market downturn, the subsequent loss of confidence could be severe. The fund’s recent investor letter, which covers the second quarter, notes that Elliott’s managers are currently seeing “what is in many ways the most peculiar period we have faced in 39 years.” Too much power has been ceded to central banks, the letter adds, the value of money has been debased, inflation is probably inevitable, and when it happens, it could be swift and impossible to tamp down.

Elliott is a $28 billion fund founded in 1977 by Singer, now its president. The fund is up more than 6% for the year through July, according to an investor. Given the persistence of low or negative yields on government and other bonds and the continued stampede to buy them nonetheless, today’s environment marks “the biggest bond bubble in world history,” and “the global bond market is broken,” the investor letter states. The letter discusses, at some length, the oddity of an investor mentality that flies to an asset class regarded as a “safe haven” even when there are low or nonexistent returns attached to it and no guarantee that current conditions will persist.

In one wry aside, the letter suggests a safety warning be attached to the $12 trillion government bond market now trading at negative yields: “Hold such instruments at your own risk; danger of serious injury or death to your capital!” Trading in this market is particularly difficult, it adds. “Everyone is in the dark,” Elliott notes. “Experience doesn’t count for much, and extreme confidence may be fatal.” Moreover, “the ultimate breakdown (or series of breakdowns) from this environment is likely to be surprising, sudden, intense, and large.”

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Coming soon to a theater near you. Denmark, Holland, Australia, New Zealand, UK, the list is long.

Vancouver Housing Market Implodes: Average Price Plunges 20% In 1 Month (ZH)

It appears that the Vancouver housing market has slammed shut. Which is hardly a surprise: virtually everyone saw it coming, the only question was when. Eilers says he’s been warning of a real estate slow-down for at least a year due to the region’s unsustainable and unsupportable prices. West Vancouver, where he does a large part of his business, had a benchmark detached home price of almost $3.4 million in July according to the Real Estate Board of Greater Vancouver. “The market in West Van is up 450 per cent since 2001. So is everyone making 600 per cent more income than they were so they can pay their taxes and buy their houses? Of course not. So how is this inflation been financed? By off-shore money and record debt.”

Precisely what we said at the start of the year when we first heard horror stories about Chinese buyers paying cash, sight unseen, for any and every local luxury, and not so luxury home. It appears that it is not just the 15% luxury tax implemented on on July 25 that has burst the bubble: according to Eilers sales were dropping even before the tax. According to the data, July was another slow month in West Vancouver with only 44 sales, down from 80 in 2015. June saw 74 sales, also down from 102 the year before. The pattern has left the market “devastated”, Eilers adds. While it may be too early to make a definitive conclusion, after all while earlier this month, the REBGV released its statistics for the month of July, saying the data showed the market had slowed down to “normal levels”, there was still no official August data available, and thus no actual indication of the slowdown.

Fortunately for buyers, real-time data proves otherwise. Zolo, a Canadian real estate brokerage, keeps track of MLS home sales in real-time and reports prices as an average rather than the “benchmark price” used by the REBGV. It currently shows a major correction underway in most Metro Vancouver markets. According to the website, the City of Vancouver currently has an average home price of $1.1 million, down 20.7% over the last 28 days and down 24.5% over the last three months. The average detached home is $2.6 million, down 7% compared to three months ago.

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What a bubble looks like. This is going to be painful. Re: Vancouver.

UK’s £8.8 Trillion Wealth Owes Much to Housing (BBG)

The total net worth of the U.K. at the end of 2015 was £8.8 trillion ($11.6 trillion), the Office for National Statistics said in London on Thursday. Much of the £493 billion jump from a year earlier came from the £355 billion increase in the value dwellings. The data also showed the U.K. was ahead of other G-7 countries in terms of growth of non-financial assets in 2014.

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More housing shock, more pain to come. “The strong price appreciation of residential real estate has been driving an increase in household debt to a record high..”

Moody’s Lowers Outlook On Australia Banks To Negative (R.)

Moody’s has lowered its outlook on Australia’s banks to negative from stable, warning of sluggish profit growth due to slow wage increases, record-low interest rates, strong lending competition and rising household debt. The agency said the banks, whose credit ratings are among the highest in the world, could be hurt by an increase in problem loans among mining companies and households in mining-dependent states. Moody’s action came after S&P in July also placed major Australian banks’ AA- ratings on negative outlook, in a signal that a downgrade was possible. Both agencies rate the banks one rung below the highest, triple-A, investment grade. A downgrade would make financing more expensive for banks at a time when regulators want them to put aside more cash to weather any repeat of the global financial crisis.

Australia’s highly profitable “Big Four” banks – National Australia Bank, ANZ Banking Group, Westpac and Commonwealth Bank – emerged from the financial crisis relatively unscathed but are facing questions over their capital levels, slowing earnings growth and rising bad debts. “The outlook change reflects Moody’s expectation of a more challenging operating environment for banks in Australia for the remainder of 2016 and beyond,” Frank Mirenzi, a vice president and senior analyst at Moody’s, said in a statement. He noted that profit growth could slow and asset quality decline, and make banks and consumers more vulnerable to economic shocks. “The strong price appreciation of residential real estate has been driving an increase in household debt to a record high,” Mirenzi noted.

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China would collapse if not for the shadow banks. It’s fully addicted.

China’s Secret Lists of Zombie Borrowers Leave Banks in the Dark (BBG)

There’s a list Ni Baixiang, head of Industrial & Commercial Bank of China’s Jiangxi branch, would love to get his hands on. Commonly referred to as the “zombie list,” it’s compiled by Jiangxi regional authorities and holds the names of the most deadbeat of borrowers: state-owned companies deemed too weak to survive and destined to be wound down. In short, the kind of enterprises banks already weighed down by rising bad loans want to steer well clear of. Only, neither Ni nor his competitors in Jiangxi are allowed to know who they are. “They won’t tell us because if we know, we’ll lose confidence,” Ni, whose bank is China’s largest, told reporters after a press briefing in Beijing earlier this month.

Ni’s dilemma underscores the challenge China faces as it tries to stem a tide of bad loans while carrying out an orderly restructuring of a state corporate sector burdened by overcapacity and bloated bureaucracies. Several provincial governments are withholding information on zombie borrowers from banks for fear that they’ll cut off financing immediately, according to officials who asked not to be identified. In several provinces, government-compiled lists of zombie companies are also kept secret from local banking regulators, the people said, asking not to be named discussing sensitive information. Knowing which state-owned companies get the “zombie” designation can be crucial for bankers because authorities ultimately decide whether they’ll fail, and local officials often meddle in banks’ lending decisions.

An economy growing at the slowest pace in a quarter century is adding urgency to President Xi Jinping’s push to steer China away from the investment-led model it’s relied on in the past. A key part of that is restructuring industries saddled with overcapacity, such as steel, cement and coal. McKinsey estimates that shedding surplus industrial capacity could add $5.6 trillion to the economy between now and 2030.

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China’s making up the numbers it goes along, but here’s how we find out how it’s really doing.

As China Shrinks, Mongolia Has an Epic Economic Meltdown (BBG)

Back in 2008, Mongolia honored its revered national hero Genghis Khan with an enormous, stainless steel statue on the bank of the Tuul River about a half-hour’s drive outside of the capital of Ulaanbaatar. The 13th century conqueror’s name graces the capital’s international airport and his image is also plastered on the tugrik, the local currency. Right now, Khans aren’t getting much respect. The government, having burned through much of its foreign currency reserves, faces a crushing debt burden and is having trouble meeting its civil service payroll. On Thursday, the central bank hiked its benchmark interest rate by a remarkable 4.5 percentage points to 15% to prop up the tugrik, the world’s worst performing currency in August.

Mongolia, a mineral-rich and landlocked $12 billion economy bordering Russia and China, is staring at a full-blown balance of payments crisis. It’s caused barely a ripple in global financial markets, but the nation’s economic meltdown offers instructive lessons to far bigger resource-reliant economies like Brazil, Venezuela, Russia and Saudi Arabia. This is an economy that gives new meaning to what economists call the resource curse. An overabundance of natural resources can result in lopsided economic growth, government waste and boom-bust cycles that can leave a country’s finances in tatters. “Mongolia should be much richer than it is,” said Lutz Roehmeyer, a money manager at Landesbank Berlin Investment. “There is nowhere else in the world where it is so easy to dig up resources without any problems and sell the commodities to China with such low transportation costs.”

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It’s way too late to save the euro.

Stiglitz: The Euro Is On Course To Fail (Economist)

Those in search of an antidote to the anxieties that arise from Britain’s vote to leave the European Union should avoid the latest book from Joseph Stiglitz. Its subject is the euro, which has hitherto been the main font of fears for Europe and (his analysis suggests) will soon be once again. It is a meaty subject, suited to a big-name economist. Mr Stiglitz has won a Nobel prize, served as a feather-ruffling chief economist for the World Bank and written several books with a fair claim to prescience, notably, “Globalisation and Its Discontents”, published in 2002. The main argument of his new book is that, on its current course, the euro is certain to fail—and indeed, that it was fatally flawed from birth.

It entails a fixed exchange rate and a single interest rate for its members, which means countries must forgo the option to devalue in times of economic weakness. To make up for that loss, the euro’s architects should have created institutions, such as jointly issued bonds, mutual backing of bank deposits and a common fund for unemployment insurance, so the costs of righting each economy are shared. Instead the burden falls on individual countries through austerity policies, such as tax rises and wage cuts. The results have been ugliest in Greece, where national income has shrunk by a quarter since 2007 and where the unemployment rate is 24%. There is still time to put in place better policies, thinks Mr Stiglitz. But an amicable divorce would be preferable to the current situation, which puts the considerable achievement of European integration at risk.

A good chunk of the book is taken up with a critique of policymakers’ efforts to address the euro crisis. Mr Stiglitz rightly takes issue with the blame-the-victim analysis of the euro’s failings that is commonly heard in Germany. The persistent trade surpluses of Germany and the vast deficits of boomtime Spain, Portugal and Greece are two sides of the same coin. Indeed, in a world short of aggregate demand, German thrift is the bigger failing, argues Mr Stiglitz. He favours the remedy, first proposed by John Maynard Keynes, of forcing creditor countries to adjust by taxing their trade surpluses.

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“In any protocol, everyone has to act the same. But in a blockchain like Ethereum, everyone has to think the same.”

The Subtle Tyranny of Blockchain (Thomas)

The past months have become a new chapter in the evolution of blockchain technology. Ethereum’s fork in the wake of the DAO hacks. Bitcoin’s almost-fork in the wake of the (still unresolved) block size debate. All of this is leading to the growing frustration and even disillusionment of key figures in the crypto-currency community. I left the Bitcoin community in 2012 for very similar reasons. In 2011, I was part of the group that helped Gavin Andresen design the Pay-to-Script-Hash (P2SH) feature. The design wasn’t very complex, it was backwards-compatible and provided crucial building blocks for improving Bitcoin’s security and performance. Unfortunately, getting it deployed turned out to be very political.

It was easy to extrapolate from this change to more advanced functionality still on the roadmap and get depressed about our chances to make important progress in the future. As the Bitcoin price rose, the number of stakeholders expanded and the amount of money at stake increasingly dominated the technical discussion. With this context in mind, the recent situation with Ethereum is not surprising in the slightest. As a blockchain grows, the larger and highly vested userbase becomes more and more difficult to shepard. When combined with time pressure (i.e. the 27-day DAO split creation period), something had to give. There wasn’t enough time to get the sort of buy-in and preparation needed to safely hardfork a system like Ethereum.

At the root of the difficulty in updating blockchains is the need to maintain shared state. In any protocol, everyone has to act the same. But in a blockchain like Ethereum, everyone has to think the same. Everyone’s memory (also known as “state” in computer science terms) has to be exactly the same and evolve according to the same rules. Shared state adds tremendous complexity and that has a big impact on developers: Blockchains are a pain to work with. Everyone who has done it knows what I’m talking about. The fact that blockchain has been largely ignored by major tech companies and embraced by the financial industry is partly because that industry has a relatively high tolerance for arcane and complex systems.

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To once again quote Michael Moore: You can’t declare war on a noun.

It’s Time to Abolish the DEA and America’s “War on Drugs” Gulag (CHS)

It’s difficult to pick the most destructive of America’s many senseless, futile and tragically needless wars, but the “War on Drugs” is near the top of the list.Prohibition of mind-altering substances has not just failed–it has failed spectacularly, and generated extremely destructive and counterproductive consequences. What was the result of the Prohibition of alcohol in the 1920s? Prohibition instantly criminalized 40+% of the adult populace and created hugely profitable criminal organizations. What was the result of the “War on Drugs”? This modern-day Prohibition instantly criminalized large swaths of the adult populace and created hugely profitable criminal organizations. If you want to increase drug use, criminalize innocent citizens and spawn gargantuan criminal organizations, then by all means declare “war” via Prohibition.

The results of Prohibition/War on Drugs are so visibly perverse and so destructive that the entire enterprise is sickeningly Orwellian. The well-paid apologists for Prohibition/War on Drugs claim that imprisoning millions of people “helps” them avoid drugs. If you think being tossed in prison for a few years “helps” people, then step right up and accept a fiver (5-year sentence) in an American prison, which is essentially a factory that produces one product: people damaged by imprisonment, deprived of their full citizenship, hobbled by a felony conviction–ex-con beneficiaries of years of tutorials by hardened criminals. This is as Orwellian as the Vietnam War’s famous “It became necessary to destroy the town to save it.”

If you think throwing millions of people in prison “helps” them or society, you are either insane or you’re making a living in the gulag or our sick system of “justice”. If you don’t think America has a “War on Drugs” Gulag, please glance at this chart of Americans in jail and prison – many for drug-related offenses:

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“..inside Yemen this is not perceived to be a Saudi bombing campaign, this is a US bombing campaign..”

The US Is Promoting War Crimes In Yemen (G.)

Saudi Arabia resumed its appalling war in Yemen last week and has already killed dozens more civilians, destroyed a school full of children and leveled a hospital full of sick and injured people. The campaign of indiscriminate killing – though let’s call it what it is: a war crime – has now been going on for almost a year and a half. And the United States bears a large part of the responsibility. This US-backed war is not just a case of the Obama administration sitting idly by while its close ally goes on a destructive spree of historic proportions. The government is actively selling the Saudis billions of dollars of weaponry. They’re re-supplying planes engaged in the bombing runs and providing “intelligence” for the targets that Saudi Arabia is hitting.

Put simply, the US is quite literally funding a humanitarian catastrophe that, by some measures, is larger than the crisis in Syria. As the New York Times editorial board wrote this week: “Experts say the coalition would be grounded if Washington withheld its support.” Yet all we’ve heard is crickets. High-ranking Obama administration officials are hardly ever asked about the crisis. Cable television news has almost universally ignored it. Both the Clinton and Trump presidential campaigns have been totally silent on this issue despite their constant arguing over who would be better at “stopping terrorism”. Beyond the grotesque killing of civilians, it’s clear at this point that the Saudis’ bombing campaign has also boosted al-Qaida in the Arabian Peninsula (Aqap) to a level which Reuters described as “stronger and richer” than anytime in its 20-year history.

Jake Tapper commendably broke the television news blackout about Yemen on his CNN show on Wednesday. Senator Chris Murphy of Connecticut, one of the very few elected representatives talking about the crisis, told Tapper that “it’s wild to me” that the Congress isn’t debating the “unauthorized” war in Yemen. The Saudis “could not do it without the United States”, he said. “We have made the decision to go to war in Yemen” – against Saudi Arabia’s enemies, not ours – without any debate. “If you talk to Yemenis, they will tell you that inside Yemen this is not perceived to be a Saudi bombing campaign, this is a US bombing campaign,” Murphy continued. “What’s happening is we are helping to radicalize the the Yemeni population against the United States.”

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Not from Turkey. Lybia is more likely.

Greek Coast Guard Rescues Dozens Of Migrants Stuck On Islet (AP)

Greece’s coast guard rescued dozens of migrants Friday whose boat ran aground on a deserted islet off the coast of southwestern Greece, hundreds of miles from the usual entry point of migrants into the European Union nation. The boat carrying about 70 people ran aground overnight on the tiny islet of Sapientza, off the southwestern tip of the Peloponnese, the coast guard said. The vast majority of migrants reach Greece’s eastern Aegean islands a few miles from the Turkish coast.

Coast guard vessels picked up the migrants Friday morning, ferrying them to the mainland where they were to be registered. It was not immediately clear what type of boat they had been on, where they had set sail from or where they had been sailing to. Separately, government figures showed 261 migrants or refugees arrived on Greek islands in the 24 hours from Thursday morning to Friday morning – a jump compared to recent figures, which had ranged from a few dozen to about 150 per day. Of those who arrived in the last 24 hours, the vast majority – 139 people – reached the eastern Aegean island of Lesvos. The rest arrived on Chios, Samos, Leros and Karpathos.

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Endearing.

The Fishermen of Lesbos (Hakai)

The Greek island of Lesbos is at the forefront of the refugee crisis as boatload after boatload of men, women, and children fleeing conflict in Syria, Iraq, Afghanistan, and elsewhere arrive on its shores. While citizen volunteers, NGOs, and governments claim much of the spotlight for rescue and recovery efforts, local people—especially those most experienced on the water—play a vital role, even at risk to their livelihoods and, perhaps, personal health. Greek video journalist Nikolia Apostolou introduces us to Lesbos fishermen on the front lines.

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Aug 182016
 
 August 18, 2016  Posted by at 8:51 am Finance Tagged with: , , , , , , , , , , ,  2 Responses »
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NPC George W. Cochran & Co., 709 14th Street NW, Washington DC 1920


Japanese Imports Drop -24.7%, Exports Crash -14.1% (ZH)
A Physics Lesson for Central Bankers (BBG)
The Idea Of The Fed Raising The Inflation Target Is Outrageous (Boockvar)
On The Impossibility Of Helicopter Money And Why The Casino Will Crash (DS)
US Buyback Announcements Tumble to a 2012 Low (BBG)
Oil Drillers Have Slashed Spending For 2015-2020 By $1 Trillion
Only 37% Of Borrowers Are Paying Down Their Student Loans (WSJ)
Chinese Airlines Need To Hire 100 Pilots A Week For The Next 20 Years (BBG)
Hillary Clinton Picks TPP and Fracking Advocate To Set Up Her White House (IC)
Is US Moving Nuclear Weapons From Turkey to Romania? (EurA)
America Is Complicit in the Carnage in Yemen (NYT Editorial Board)
California Slaughter: The State-Sanctioned Genocide of Native Americans (NW)
Uncovering The Brutal Truth About The British Empire (G.)
Greek Villagers Rescued Refugees. Now They Are the Ones Suffering. (NYT)

 

 

Apparently Kuroda doesn’t buy enough yet.

Japanese Imports Drop -24.7%, Exports Crash -14.1% (ZH)

For the 19th month in a row, Japanese Imports plunged – dropping 24.7% YoY (worse than expected), the biggest drop since Oct 2009. Exports were just as dismal, also missing expectations, plunging 14.1% YoY – worst since Oct 2009. The biggest driver of the collapse of Japanese trade was a 44% crash in the Chinese trade balance. There’s no lipstick to put on this pig… it’s a disaster.. and worse still Yen is strengthening back below 100 against the USD.

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Why not simply admit that central bankers and economists alike have no idea what they’re doing?! Even if they ever had a clue, we’re now 8 years into ‘uncharted territory’, and it’s all anyone‘s guess. That’s what ‘uncharted territory’ means.

Moreover, central bankers and economists come in with dogmatic school book theories that don’t apply in ‘uncharted territory’, and those school book educations make sure they’re the very last candidates for finding creative solutions. Comparing economics to actual science does not help one bit.

A Physics Lesson for Central Bankers (BBG)

The world is braced for the discovery of a fifth fundamental forces of nature – the four known ones being electromagnetism, gravity, and strong and weak nuclear forces – that subverts the so-called standard model of particle physics. Given the lackluster outlook for global growth, maybe economics needs a similar revolution. Quantitative easing’s failure to quash the threat of deflation is finance’s equivalent of the bump in the data that alerted physicists to the possibility of a new boson. The mismatch between economic theory and the real-world outcome of zero interest rates poses a direct challenge to the current orthodoxy that puts a 2% inflation target at the heart of monetary policy in most of the developed world.

Figures earlier this week showed inflation running at an annual pace of just 0.8% in the U.S. and 0.6% in the U.K. Consumer prices in the euro zone are rising by about 0.2% a year; in Japan, prices dropped by 0.4% in June. The consensus forecast among economists surveyed by Bloomberg News is for none of the four central banks in those regions to meet their targets in 2016, and for the ECB and the BOJ to continue falling short for at least the next year:

Years of pumping trillions of dollars, euros, yen and pounds into the economy by buying government debt and other securities hasn’t produced the rebound in inflation that economics textbooks predicted. Record low borrowing costs haven’t led to a surge in investment and spending that would lead to higher prices. That’s the kind of empirical evidence that should produce a reconsideration of what Rothschild Investment Trust Chairman Jacob Rothschild this week called “the greatest experiment in monetary policy in the history of the world.” Neil Grossman, director of Florida-based bank C1 Financial and former chief investment officer at TKNG Capital Partners, likens the need to abandon the current economic orthodoxy with the impact of quantum physics on science in the last century.

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“There is no science to this 2% number, it is all art.”

The Idea Of The Fed Raising The Inflation Target Is Outrageous (Boockvar)

I can’t let an opportunity go by without criticizing a Fed official. I believe their feet should be held to the fire after creating a huge asset price bubble and culture of debt that is dragging down economic growth. Fed President John Williams comments yesterday really got me angry. First, he suggested possibly raising the Fed’s 2% inflation target. This reflects an amazing cluelessness of the damage this would do if realized. We are in an epic bond bubble globally where higher inflation would be kryptonite. With the bond monster central bankers have created, the last thing they should want is higher inflation. Also, many U.S. citizens are literally living paycheck to paycheck and a higher cost of living without a corresponding increase in wages or any interest income would damage the largest component of the U.S. economy and the lives of millions.

Second, he said, “Conventional monetary policy has less room to stimulate the economy during an economic downturn.” This we know is true. But he then added, “This will necessitate a greater reliance on unconventional tools like central bank balance sheets, forward guidance, and potentially even negative policy rates.” This last sentence proves he’s blind to the negative consequences of what unconventional tools have wrought and he believes in negative rates even in the face of all the evidence of how damaging the idea is. Let me expand on the first issue of inflation. Central banks in the U.S., Eurozone, UK and in Japan have tethered their monetary policy decisions on growth certainly but also the desire for 2% annual inflation. There is no science to this 2% number, it is all art.

The reason for this target and desire for this level of inflation is a matter of control. While they like to keep interest rates artificially low, they also understand the need to have them higher than they are in order to respond to any economic challenges. The fallacy with this theory that higher inflation is good and deflation is bad, is inflation is just a symptom of underlying supply and demand and technological improvements, and thus shouldn’t be manipulated.

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Stockman: “..earnings had fallen by 19% since then, even as the stock market moved from 1950 to nearly 2200 or 13% higher..”

On The Impossibility Of Helicopter Money And Why The Casino Will Crash (DS)

[..] .. the S&P 500 companies posted Q2 2016 earnings for the latest 12 month period at $86.66 per share. So at the August bubble high the market was being valued at a lunatic 25.1X. Even in a healthy, growing economy that valuation level is on the extreme end of sanity. But actual circumstances are currently more nearly the opposite. That is, earnings have now been falling for six straight quarters in line with GDP growth that has slumped to what amounts to stall speed. In fact, reported earnings for the S&P 500 peaked at $106 per share in the 12 months ended in September 2014. That means that earnings had fallen by 19% since then, even as the stock market moved from 1950 to nearly 2200 or 13% higher.

This is called multiple expansion in the parlance of Wall Street, but it’s hard to find a more bubblicious example. Two years ago the market was trading at just 18.4X, meaning that on the back of sharply falling earnings the PE multiple had risen by 36%! Valuation multiples are supposed to go up only when the economic and profits outlook is improving, not when it’s unmistakably deteriorating as at present. But during the spring-summer melt-up these faltering fundamentals were blithely ignored on the hopes of a second half growth spurt and, failing the latter, that the Fed would again pull the market’s chestnuts out of the fire.

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Time for Yellen to buy those stocks? Buybacks were the no. 1 reason the S&P looked good till now. Better find something to replace them, or else…

US Buyback Announcements Tumble to a 2012 Low (BBG)

Stock buybacks appear to be slowing down, suggesting either corporate America’s outlook has dimmed, stock valuations have become prohibitively high or, most optimistically, that companies are starting to listen to investors and put funds toward other uses. Buybacks announced for the second quarter’s earnings season between July 8 and August 15 totaled an average of $1.8 billion a day, the lowest volume in an earnings season since the summer of 2012, according to TrimTabs Investment Research.
Share repurchases have been a key driver of this year’s stock market rally, despite a notable deceleration relative to to the same period in 2015. In the first seven months of 2016, buybacks totaled $376.5 billion, according to TrimTabs.

That’s down 21% from $478.4 billion in the first seven months of last year. Equity buybacks last week totaled just $2.6 billion, while record highs in U.S. stocks triggered an increase in new equity offerings. “The reluctance to pull the trigger on share repurchases suggests corporate leaders are becoming less enthusiastic about what they see ahead,” David Santschi, chief executive officer of TrimTabs, said in a press release on Tuesday. That means “buybacks aren’t likely to provide as much fuel for the stock market as they have in the recent past.” According to TrimTabs, just five companies have announced buybacks of more-than $3 billion this earnings season: Biogen ($5 billion), Visa ($5 billion), CBS ($5 billion), AIG ($3 billion), and 21st Century Fox ($3 billion).

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Hard to admit to something that will cost you your livelihood. They all keep hoping for rising prices.

Oil Drillers Have Slashed Spending For 2015-2020 By $1 Trillion

Mad Dog, BP’s drilling project deep in the Gulf of Mexico, could be Exhibit A in the oil industry’s war on cost. When the British oil giant announced the project’s second phase in 2011, it put the price at $20 billion. Last month, after simplifying plans and benefiting from a sharp drop in everything from steel to drilling services, Chief Executive Officer Bob Dudley said he could do the job for $9 billion.

Across the industry, companies have taken a chainsaw to expenses, slashing spending for the 2015-to-2020 period by $1 trillion through cutting staff, delaying projects, changing drilling techniques and squeezing outside contractors, according to consulting firm Wood Mackenzie. That’s cushioned businesses as oil prices plunged 60% since 2014. Now producers seek to show they can make the savings stick, while service providers try to reverse their losses. Industry costs “may be the defining issue of the next six to 12 months,” said J. David Anderson, a Barclays analyst in New York. “As you start ramping up, the fact is you’re going to need more services and they’re going to have to come in at a higher price.”

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Someone will come with an across the board forgiveness plan. But it’ll be contentious.

Only 37% Of Borrowers Are Paying Down Their Student Loans (WSJ)

A largely overlooked report released in February by the Government Accountability Office suggests that the Obama administration’s policies have exacerbated student debt, which equals nearly a quarter of annual federal borrowing. With only 37% of borrowers actually paying down their loans, the federal student-loan program more closely resembles the payday-lending industry than a benevolent source of funds for college. As this newspaper reported in April, “43% of the roughly 22 million Americans with federal student loans weren’t making payments as of Jan. 1,” and a staggering “1 in 6 borrowers, or 3.6 million, were in default on $56 billion in student debt.”

If student debt continues to skyrocket, the federal government may have to deal with as much as a $500 billion write-down when future defaults and loan-forgiveness programs are factored in. In 2010, the Obama administration dispensed with the private intermediaries that had administered federal loans since the 1960s. It put in their place Direct Lending, a program administered by the Education Department. At the time, the Congressional Budget Office estimated that Direct Lending would save $62 billion from 2010 to 2020. That didn’t happen. The program’s advocates failed to anticipate how two other Obama-backed college affordability initiatives—Income-Driven Repayment and loan forgiveness—would create a cataclysmic hit to the federal student-loan program’s finances.

There are more than 20 Income-Driven Repayment programs, but they all work essentially the same way. Students struggling financially can defer their payments. When no or limited payments are made, their balances grow. Today, over 20 million borrowers are watching their loan balances increase thanks to these programs. The average balance ballooned to approximately $25,000 in 2014 from $15,000 in 2004, according to the Federal Reserve Bank of New York, and has grown still larger since then.

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In their dreams.

Chinese Airlines Need To Hire 100 Pilots A Week For The Next 20 Years (BBG)

Chinese airlines need to hire almost 100 pilots a week for the next 20 years to meet skyrocketing travel demand. Facing a shortage of candidates at home, carriers are dangling lucrative pay packages at foreigners with cockpit experience. Giacomo Palombo, a former United Airlines pilot, said he’s being bombarded every week with offers to fly Airbus A320s in China. Regional carrier Qingdao Airlines promises as much as $318,000 a year. Sichuan Airlines, which flies to Canada and Australia, is pitching $302,000. Both airlines say they’ll also cover his income tax bill in China. “When the time to go back to flying comes, I’ll definitely have the Chinese airlines on my radar,” said Palombo, 32, now an Atlanta-based consultant for McKinsey. “The financials are attractive.”

Air traffic over China is set to almost quadruple in the next two decades, making it the world’s busiest market, according to Airbus Group SE. Startup carriers barely known abroad are paying about 50% more than what some senior captains earn at Delta Air Lines, and they’re giving recruiters from the U.S. to New Zealand free rein to fill their captains’ chairs. With some offers reaching $26,000 a month in net pay, pilots from emerging markets including Brazil and Russia can quadruple their salaries in China, said Dave Ross, Las Vegas-based president of Wasinc International. Wasinc is recruiting for more than a dozen mainland carriers, including Chengdu Airlines, Qingdao Airlines and Ruili Airlines. “When we ask an airline, ‘How many pilots do you need?,’ they say, ‘Oh, we can take as many as you bring,”’ Ross said. “It’s almost unlimited.”

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Incredible, but he really said it: “..there’s not a single case where hydraulic fracking has created an environmental problem for anyone..”

Hillary Clinton Picks TPP and Fracking Advocate To Set Up Her White House (IC)

Two big issues dogged Hillary Clinton during the Democratic primary: the Trans-Pacific Partnership trade agreement (TPP) and fracking. She had a long history of supporting both. Under fire from Bernie Sanders, she came out against the TPP and took a more critical position on fracking. But critics wondered if this was a sincere conversion or simply campaign rhetoric. Now, in two of the most significant personnel moves she will ever make, she has signaled a lack of sincerity. She chose as her vice presidential running mate Tim Kaine, who voted to authorize fast-track powers for the TPP and praised the agreement just two days before he was chosen.

And now she has named former Colorado Democratic Senator and Interior Secretary Ken Salazar to be the chair of her presidential transition team — the group tasked with helping set up the new administration should she win in November. That includes identifying, selecting, and vetting candidates for over 4,000 presidential appointments. As a senator, Salazar was widely considered a reliable friend to the oil, gas, ranching and mining industries. As interior secretary, he opened the Arctic Ocean for oil drilling, and oversaw the botched response to the BP oil spill in the Gulf of Mexico. Since returning to the private sector, he has been an ardent supporter of the TPP, while pushing back against curbs on fracking.

The TPP would enhance the ability of corporations to sue to overturn environmental regulations, but Salazar helped a pro-TPP front group, the “Progressive Coalition for American Jobs,” argue the opposite. In a November 2015 USA Today op-ed that Salazar co-wrote with Bruce Babbitt, the two men argued that the TPP would be the “the greenest trade deal ever” by promoting sustainable energy. Both Salazar and Babbitt cited their former positions as interior secretaries to boost their credibility. The following month, Salazar authored a Denver Post op-ed with two former Colorado governors also affiliated with PCAJ, arguing that the agreement would protect the state’s scenic beauty: “And as a state rich with natural wonder and a long history of conservation, Colorado can be proud that the TPP includes the highest environmental standards of any trade agreement in history.”

Shortly after leaving his post at the Obama administration, Salazar appeared at an oil and gas industry conference to argue in favor of fracking. “We know that, from everything we’ve seen, there’s not a single case where hydraulic fracking has created an environmental problem for anyone,” Salazar told the attendees, who included the vice president of BP America, another keynote speaker at the conference. “We need to make sure that story is told.”

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Not confirmed. But moving them out of Turkey seems logical. Not exactly a safe third country these days.

Is US Moving Nuclear Weapons From Turkey to Romania? (EurA)

Two independent sources told EurActiv.com that the US has started transferring nuclear weapons stationed in Turkey to Romania, against the background of worsening relations between Washington and Ankara. According to one of the sources, the transfer has been very challenging in technical and political terms. “It’s not easy to move 20+ nukes,” said the source, on conditions of anonymity. According to a recent report by the Simson Center, since the Cold War, some 50 US tactical nuclear weapons have been stationed at Turkey’s Incirlik air base, approximately 100 kilometres from the Syrian border.

During the failed coup in Turkey in July, Incirlik’s power was cut, and the Turkish government prohibited US aircraft from flying in or out. Eventually, the base commander was arrested and implicated in the coup. Whether the US could have maintained control of the weapons in the event of a protracted civil conflict in Turkey is an unanswerable question, the report says. Another source told EurActiv.com that the US-Turkey relations had deteriorated so much following the coup that Washington no longer trusted Ankara to host the weapons. The American weapons are being moved to the Deveselu air base in Romania, the source said. Deveselu, near the city of Caracal, is the new home of the US missile shield, which has infuriated Russia.

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It doesn’t sit well with me at all that the NYT editors are saying this. Far too much blood on those hands. It doesn’t feel right one bit.

America Is Complicit in the Carnage in Yemen (NYT Editorial Board)

A hospital associated with Doctors Without Borders. A school. A potato chip factory. Under international law, those facilities in Yemen are not legitimate military targets. Yet all were bombed in recent days by warplanes belonging to a coalition led by Saudi Arabia, killing more than 40 civilians. The United States is complicit in this carnage. It has enabled the coalition in many ways, including selling arms to the Saudis to mollify them after the nuclear deal with Iran. Congress should put the arms sales on hold and President Obama should quietly inform Riyadh that the United States will withdraw crucial assistance if the Saudis do not stop targeting civilians and agree to negotiate peace.

The airstrikes are further evidence that the Saudis have escalated their bombing campaign against Houthi militias, which control the capital, Sana, since peace talks were suspended on Aug. 6, ending a cease-fire that was declared more than four months ago. They also suggest one of two unpleasant possibilities. One is that the Saudis and their coalition of mostly Sunni Arab partners have yet to learn how to identify permissible military targets. The other is that they simply do not care about killing innocent civilians. The bombing of the hospital, which alone killed 15 people, was the fourth attack on a facility supported by Doctors Without Borders in the past year even though all parties to the conflict were told exactly where the hospitals were located.

In all, the war has killed more than 6,500 people, displaced more than 2.5 million others and pushed one of the world’s poorest countries from deprivation to devastation. A recent United Nations report blamed the coalition for 60% of the deaths and injuries to children last year. Human rights groups and the United Nations have suggested that war crimes may have been committed.

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Today Yemen, yesterday California. Maybe if we stop trying to hide the past, we’re less likely to repeat it?!

California Slaughter: The State-Sanctioned Genocide of Native Americans (NW)

The tally is relentlessly grim: a whole settlement wiped out in Trinity County “excepting a few children”; an Indian girl raped and left to die somewhere near Mendocino; as many as 50 killed at Goose Lake; and, two months later, as many as 257 murdered at Grouse Creek, scores of them women and children. There were the four white ranchers who tracked down a band of Yana to a cave, butchering 30. “In the cave with the meat were some Indian children,” reported a chronicle published later. One of the whites “could not bear to kill these children with his 56-calibre Spencer rifle. ‘It tore them up so bad.’ So he did it with his 38-calibre Smith and Wesson revolver.”

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We might as well stop speaking about western ‘civilization’.

Uncovering The Brutal Truth About The British Empire (G.)

Help us sue the British government for torture. That was the request Caroline Elkins, a Harvard historian, received in 2008. The idea was both legally improbable and professionally risky. Improbable because the case, then being assembled by human rights lawyers in London, would attempt to hold Britain accountable for atrocities perpetrated 50 years earlier, in pre-independence Kenya. Risky because investigating those misdeeds had already earned Elkins heaps of abuse. Elkins had come to prominence in 2005 with a book that exhumed one of the nastiest chapters of British imperial history: the suppression of Kenya’s Mau Mau rebellion. Her study, Britain’s Gulag, chronicled how the British had battled this anticolonial uprising by confining some 1.5 million Kenyans to a network of detention camps and heavily patrolled villages.

It was a tale of systematic violence and high-level cover-ups. It was also an unconventional first book for a junior scholar. Elkins framed the story as a personal journey of discovery. Her prose seethed with outrage. Britain’s Gulag, titled Imperial Reckoning in the US, earned Elkins a great deal of attention and a Pulitzer prize. But the book polarised scholars. Some praised Elkins for breaking the “code of silence” that had squelched discussion of British imperial violence. Others branded her a self-aggrandising crusader whose overstated findings had relied on sloppy methods and dubious oral testimonies. By 2008, Elkins’s job was on the line. Her case for tenure, once on the fast track, had been delayed in response to criticism of her work.

To secure a permanent position, she needed to make progress on her second book. This would be an ambitious study of violence at the end of the British empire, one that would take her far beyond the controversy that had engulfed her Mau Mau work. That’s when the phone rang, pulling her back in. A London law firm was preparing to file a reparations claim on behalf of elderly Kenyans who had been tortured in detention camps during the Mau Mau revolt. Elkins’s research had made the suit possible. Now the lawyer running the case wanted her to sign on as an expert witness. Elkins was in the top-floor study of her home in Cambridge, Massachusetts, when the call came. She looked at the file boxes around her. “I was supposed to be working on this next book,” she says. “Keep my head down and be an academic. Don’t go out and be on the front page of the paper.”

She said yes. She wanted to rectify injustice. And she stood behind her work. “I was kind of like a dog with a bone,” she says. “I knew I was right.” What she didn’t know was that the lawsuit would expose a secret: a vast colonial archive that had been hidden for half a century. The files within would be a reminder to historians of just how far a government would go to sanitise its past. And the story Elkins would tell about those papers would once again plunge her into controversy.

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But not everyone has lost it: “If it happens again, everyone will do the exact same thing: We will help.”

Greek Villagers Rescued Refugees. Now They Are the Ones Suffering. (NYT)

Stratis Valamios revved the motor on his small white boat and steered under a thumbnail moon out of the harbor of this fishing village, perched on the northern tip of Lesbos, Greece’s third-largest island. Skies were clear enough to see the purple mountains of Turkey a short distance across the Aegean Sea. It would be easy on this tranquil evening to catch calamari. These days, he needed a good haul to make ends meet. A year ago, he and other fishermen in the tiny village, Skala Sikaminias, were making a more unusual catch: thousands of sea-drenched asylum seekers who streamed across the Aegean to escape conflict and poverty in the Middle East and Africa.

As one of the landfalls in Greece that is closest to Turkey, Skala Sikaminias, with its 100 residents, fast became ground zero for the crisis, the first stop in Europe for people trying to reach Germany in a desperate bid to start new lives. “I’d be in the middle of the sea, and I would see 50 boats zigzagging toward me,” Mr. Valamios said, gazing across the narrow channel. “I would speed toward them, and they would throw their children into my boat to be saved.” Today the migrants have mostly stopped coming. The coastline, once littered with orange life vests and wrecked boats, has been cleaned to a near-spotless white. But the human drama has left an imprint here, and across all of Lesbos, in ways that have only begun to play out.

The village is nearly empty of tourists this year as Germans, Swedes and other visitors who had long flocked to the crystalline waters of Lesbos go elsewhere, wary of spending their vacations in a place now associated with human desperation. Business at the island’s hotels and tavernas has slumped around 80%, especially along the 7.5-mile stretch between Skala Sikaminias and the vacation town of Molyvos, where many of the more than 800,000 migrants who survived the crossing last year washed ashore. Mr. Valamios used to supplement his income as a fisherman by working five months of the year at Myrivilis’ Mulberry taverna, facing the bucolic port where fishermen mend yellow nets beneath oleanders and village cats prowl for fish. This year, he was asked to work just one month amid a dearth of customers. Nearly 1,000 Greeks in the area have lost seasonal employment.

[..] The villagers no longer experience the sea in the same way. When they look at the horizon, some say they think for a split second that another refugee boat is coming. “We have to be ready,” Mr. Valamios said. “If it happens again, everyone will do the exact same thing: We will help.”

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