Harris & Ewing Young boy with bucket and pole on the Potomac Jun 1929
A lot of people will be paying attention today to the open letter published in his own paper by Gabor Steingart, the publisher of Germany’s leading financial newspaper Handelsblatt. And it’s admittedly not an everyday occurrence when a man like Steingart writes a letter like that. But the content is not that big a deal. He doesn’t call out any lies.
Mind you, the Handelsblatt is not some small paper, it’s Germany’s major financial publication, and Germany is Europe’s largest economic power. For the proper perspective, think of the publisher of the Wall Street Journal or the Financial Times writing a major article, in 3 languages, that denounces the politics of their respective governments and the coalitions they are part of.
Thing is, if either of the latter would write such a thing, our first thought would be, and rightly so, that there are political reasons behind it. Steingart’s letter seems to fit that pattern. He doesn’t go so far as to say what the western media are claiming about Ukraine and Russia is wrong, he merely says that ‘our’ politics vis à vis the situation, and Putin in particular, are. Because they harm German interests.
I don’t think that goes nearly far enough. I don’t think we should say that what our politicians and press have claimed over the past 23 days since MH17 crashed is fine, or acceptable, or even pardonable, and that we should simply only try and find a different approach towards Russia going forward, because that would be more constructive. It wouldn’t help us understand, let alone solve, what happened, and more importantly, what’s wrong with us that makes us blindly follow the lies (a.k.a. lack of evidence).
In my view, it’s time for every single one of us to take a few large strides back and look at what evidence there is, and what there is not. When we’re done looking at that, and we know right from wrong, we can assign blame, and perhaps punishment. With a clear conscience. Right now, we have done no such thing, and we risk not ever doing it.
We’re instead engaged in a shouting contest for assigning blame, and we shout so loud precisely because we have no evidence. The louder our screams, the less the evidence seems to matter. In the course of this, we risk doing things that we will not easily, or not at all, be able to take back. We risk doing serious and lasting damage without a shred of evidence. Because our politicians and media tell us that’s the thing to do. It obviously is not.
Since the crash that killed 298 people, I have, right here at The Automatic Earth, been through what evidence I think we should demand, at least the minimum amount of it, before we pass judgment.
Politicians and media tell us the MH17 was brought down with a BUK rocket, but not one square inch of such a rocket was found on the crash site. Which means the involvement of such a rocket is merely a theory, nothing more. Nothing.
We don’t know what information is on the black boxes, though they were handed over to a British lab two weeks or so ago. We don’t know what’s on the Air Traffic Control logs, because those were taken away by the Ukraine Secret Service the day of the crash, and no-one ever heard from them again.
We don’t know why there were Ukraine jets near the MH17 plane when it got hit, but ti’s getting hard to deny that they were there. We don’t know why Ukraine deployed BUK installations in the area not long before July 17.
Malaysia was obviously one of the main parties involved in the crash: it lost many people, and it pretty much lost its major airline, which was delisted and taken over by its government at a huge price. Malaysia’s no. 1 newspaper, The New Straits Times, maybe not quite as big as the Handelsblatt, but still, published this 3 days ago:
US Analysts Conclude MH17 Downed By Aircraft
Intelligence analysts in the United States had already concluded that Malaysia Airlines flight MH17 was shot down by an air-to-air missile, and that the Ukrainian government had had something to do with it. This corroborates an emerging theory postulated by local investigators that the Boeing 777-200 was crippled by an air-to-air missile and finished off with cannon fire from a fighter that had been shadowing it as it plummeted to earth.
In a damning report dated Aug 3, headlined “Flight 17 Shoot-Down Scenario Shifts”, Associated Press reporter Robert Parry said “some US intelligence sources had concluded that the rebels and Russia were likely not at fault and that it appears Ukrainian government forces were to blame”.
In a statement released by the Ukrainian embassy on Tuesday, Kiev denied that its fighters were airborne during the time MH17 was shot down. This follows a statement released by the Russian Defence Ministry that its air traffic control had detected Ukrainian Air Force activity in the area on the same day .[..]
Yesterday, the New Straits Times quoted experts who had said that photographs of the blast fragmentation patterns on the fuselage of the airliner showed two distinct shapes – the shredding pattern associated with a warhead packed with “flechettes”, and the more uniform, round-type penetration holes consistent with that of cannon rounds. [..]
Parry also cited a July 29 Canadian Broadcasting Corporation interview with Michael Bociurkiw, one of the first Organisation for Security and Cooperation in Europe (OSCE) investigators to arrive at the scene of the disaster, near Donetsk. Bociurkiw is a Ukrainian-Canadian monitor with OSCE who, along with another colleague, were the first international monitors to reach the wreckage after flight MH17 was brought down over eastern Ukraine. In the CBC interview, the reporter in the video preceded it with: “The wreckage was still smouldering when a small team from the OSCE got there. No other officials arrived for days”.
That rhymes with the video of a rebel leader saying nobody came to pick up the bodies, and after 3 days they themselves started doing it – with respect -, because it seemed the right thing to do, and because leaving dead bodies in 3 days of 35ºC heat is a really bad idea. Nobody ever came in the first days.
“There have been two or three pieces of fuselage that have been really pockmarked with what almost looks like machinegun fire; very, very strong machinegun fire,” Bociurkiw said in the interview. Parry had said that Bociurkiw’s testimony is “as close to virgin, untouched evidence and testimony as we’ll ever get. Unlike a black-box interpretation-analysis long afterward by the Russian, British or Ukrainian governments, each of which has a horse in this race, this testimony from Bociurkiw is raw, independent and comes from one of the two earliest witnesses to the physical evidence. [..]
Retired Lufthansa pilot Peter Haisenko had also weighed in on the new shootdown theory with Parry and pointed to the entry and exit holes centred around the cockpit. “You can see the entry and exit holes. The edge of a portion of the holes is bent inwards. These are the smaller holes, round and clean, showing the entry points most likely that of a 30mm caliber projectile. [..]
“It had to have been a hail of bullets from both sides that brought the plane down. This is Haisenko’s main discovery. You can’t have projectiles going in both directions — into the left-hand-side fuselage panel from both its left and right sides — unless they are coming at the panel from different directions. “Nobody before Haisenko had noticed that the projectiles had ripped through that panel from both its left side and its right side. This is what rules out any ground-fired missile,” Parry had said.
Ironclad evidence? Certainly not. But no less credible than what we’ve heard thus far, and what nigh all western opinion is based on, much of which, especially in the first days, came from the US repeating what Kiev government social media said, information that has since all been torn to bits, or 99% of it: no source has less reliable than Kiev.
Come to think of it, if ever you needed proof that the Ukraine government consists of a set of handpuppets, you can now be satisfied. PM Yatsenyuk announced on Friday that the country considers shutting off the Russian pipelines under its territory, so no gas can be delivered to Europe.
Ukraine would not dare say any such thing of its own accord. The Ukraine ‘leaders’ are handpuppets to US and EU interests. In turn, EU leaders are US handpuppets, or they would have never accepted a list of sanctions that hurt them, but not America. It spells ‘follow the money’ all the way to the next war. They all sing the same tune, and as long as they can get the majority of their people to go along, they can take it further. And risk doing serious and lasting damage. Without a shred of evidence.
Do read Steingart’s The Escalation of Politics : The West Has Lost Direction , and do read Dmitry Orlov’s reaction to it, but don’t forget, it’s important you make up your own mind about all this.
To that end, may I suggest y’all write to your Congressmen and MPs or whatever they’re called where you are, and your newspapers and TV outlets, and ask them to provide you the proof that either the east Ukrainians or the Russians, or all of the above, those parties that everyone today lays the blame on, are responsible for the crash of flight MH17. And that they crashed it on purpose, which is not a minor detail.
If you don’t receive- detailed – proof from anyone, that should tell you a lot. Don’t accept some ‘trust us’ line, that won’t do. Go for actual evidence. I for one would like to see some, any, evidence. I’d like to know what happened. And nobody wants to tell me.
I’d like to know so I can stop thinking about it, and writing about it, but most of all so I no longer have to listen to all the lies my ‘own people’ tell me 24/7.
Sometimes it makes me feel like I’m some kind of second class citizen, just because I don’t like war party talk, and I want to see with my own eyes, and judge with my own brain.
I should never have to feel like that just for asking questions. And if I do have to, that means there’s something wrong with ‘my people’.
Or, sure, with me.
• The West Is On The Wrong Path (Handelsblatt)
German journalism has switched from level-headed to agitated in a matter of weeks. The spectrum of opinions has been narrowed to the field of vision of a sniper scope. Newspapers we thought to be all about thoughts and ideas now march in lock-step with politicians in their calls for sanctions against Russia’s President Putin. Even the headlines betray an aggressive tension as is usually characteristic of hooligans when they ‘support’ their respective teams. The Tagesspiegel: “Enough talk!“ The FAZ: “Show strength“. The Süddeutsche Zeitung: “Now or never.“ The Spiegel calls for an “End to cowardice“: “Putin’s web of lies, propaganda, and deception has been exposed. The wreckage of MH 17 is also the result of a crashed diplomacy.“ Western politics and German media agree.
Every reflexive string of accusations results in the same outcome: in no time allegations and counter-allegations become so entangled that the facts become almost completely obscured. Who deceived who first? Did it all start with the Russian invasion of the Crimean or did the West first promote the destabilization of the Ukraine? Does Russia want to expand into the West or NATO into the East? Or did maybe two world-powers meet at the same door in the middle of the night, driven by very similar intentions towards a defenseless third that now pays for the resulting quagmire with the first phases of a civil war? If at this point you are still waiting for an answer as to whose fault it is, you might as well just stop reading. You will not miss anything. We are not trying to unearth this hidden truth. We don’t know how it started. We don’t know how it will end. And we are sitting right here, in the middle of it. At least Peter Sloterdijk has a few words of consolation for us: “To live in the world means to live in uncertainty.“
Our purpose is to wipe off some of the foam that has formed on the debating mouths, to steal words from the mouths of both the rabble-rousers and the roused, and put new words there instead. One word that has become disused of late is this: realism. The politics of escalation show that Europe sorely misses a realistic goal. It’s a different thing in the US. Threats and posturing are simply part of the election preparations. When Hillary Clinton compares Putin with Hitler, she does so only to appeal to the Republican vote, i.e. people who do not own a passport. For many of them, Hitler is the only foreigner they know, which is why Adolf Putin is a very welcome fictitious campaign effigy. In this respect, Clinton and Obama have a realistic goal: to appeal to the people, to win elections, to win another Democratic presidency.
Angela Merkel can hardly claim these mitigating circumstances for herself. Geography forces every German Chancellor to be a bit more serious. As neighbors of Russia, as part of the European community bound in destiny, as recipient of energy and supplier of this and that, we Germans have a clearly more vital interest in stability and communication. We cannot afford to look at Russia through the eyes of the American Tea Party. [..]
If the West had judged the then US government which marched into Iraq without a resolution by the UN and without proof of the existence of “WMDs“ by the same standards as today Putin, then George W. Bush would have immediately been banned from entering the EU. The foreign investments of Warren Buffett should have been frozen, the export of vehicles of the brands GM, Ford, and Chrysler banned. The American tendency to verbal and then also military escalation, the isolation, demonization, and attacking of enemies has not proven effective. The last successful major military action the US conducted was the Normandy landing. Everything else – Korea, Vietnam, Iraq, and Afghanistan – was a clear failure. Moving NATO units towards the Polish border and thinking about arming Ukraine is a continuation of a lack of diplomacy by the military means. This policy of running your head against the wall – and doing so exactly where the wall is the thickest – just gives you a head ache and not much else. And this considering that the wall has a huge door in the relationship of Europe to Russia.
• German Stunner: “West is on the Wrong Path” (Dmitry Orlov)
Gabor Steingart, the the publisher of Germany’s leading financial newspaper Handelsblatt, just let loose with an editorial directly challenging Washington’s idiotic anti-Russian policies. The appearance of this document is very timely: just yesterday Russia unleashed the first round of counter-sanctions, banning the import of foodstuffs from the US and the EU. These counter-sanctions are cleverly designed to cause pain in proportion to the level of anti-Russian activity of the country in question; thus, the three Baltic countries, which are virulently anti-Russian in spite of having large Russian populations and surviving largely through trade with Russia, face staggering losses, followed by equally anti-Russian Poland, followed by the rest of the EU, including poor Greece, which is friendly to Russia and should be considered collateral damage.
The greatest beneficiaries of these sanctions are all those countries that opposed (11) or abstained (58) when the UN voted to condemn Russia’s annexation of Crimea: they get to leapfrog over EU and US economically by exporting foodstuffs to Russia. Russia’s consumers and Russia’s agricultural sector are also among the winners: Russians will eat healthier food, with no GMO contamination, while profits that used to flow to the US and the EU will now be invested in domestic agriculture, making Russia more self-sufficient in food and aiding in the development of rural districts. Another clever element to these sanctions is that farmers tend to be politically vocal and influential. I see tractors clogging the streets of Europe’s capitals and dumptruck-loads of manure decorating the steps of government buildings before too long.
As to his diagnosis of Obama’s true motivation, I think he has it wrong. It’s not all about pleasing the Tea Party. They, and American voters in general, are irrelevant, it makes no difference who gets elected, and Obama’s policies are not Obama’s. There is a deeper reason why the oligarchs who own and operate the country formerly known as America are currently attempting to enlarge every problem they see, be it stoking civil war in Ukraine or provoking ISIS into attacking Americans: they are desperate to avoid a scenario where the US collapses on its own, with no external enemy to blame. Not only would it be just too humiliating, but also the population, suddenly brought out of its stupor, might turn on those actually responsible rather than helplessly blame some foreign scapegoat. Putin has to fit the bill, reality be damned.
Steingart’s editorial is full of appeals to reason, ethics, morality, and historical wisdom. But he is the publisher of a financial newspaper, and I suspect that he did some arithmetic prior to writing his piece, and that his motivation for writing it might be rather basic: he realized that Obama just took away his sausage. I hope that other Germans, and other Europeans, make this realization as well, and start behaving accordingly.
Hear that, guys?
• We Will See A 25% To 30% Correction In The Second Half Of 2014 (Saxo Bank)
We’ve largely ignored geo-political risks, ignored a slowdown in European growth, ignored the fact that Germany is deteriorating fast while increasing the amount of risk we take. That’s the view of Saxo Bank’s Steen Jakobsen who says the market is so one sided and complacent he feels a need to scream.
Steen is urging traders and investors to take a serious reality check, pointing out that this decline is illustrated perfectly well on fixed income markets. German yields have fallen to record lows and there’s now a move towards safe haven assets. In recent weeks, we’ve seen an increase in global risks, not least with Russia and Ukraine and in the Middle East. On Thursday, President Obama authorised the use of airstrikes over Iraq. Steen tells investors not to panic.However, he’s predicted for a long time that in the second half of 2014 we would see a 25 to 30% correction from the top and that growth would slow dramatically.
I changed the title of this, because it’s so good.
• The Whole Global Financial System Is Booby Trapped (King World News)
Eric King: “Michael Belkin also told KWN that the Fed doesn’t understand the leverage they have created. Their easy money policy and money printing funnels into all kinds of hedge funds in mid-town Manhattan and according to Belkin, ‘they leverage up the wazoo in al these weird, arcane derivatives.’ He warned a great deleveraging is coming that is going to feed on itself.”
Stockman: “Yes. I think the whole global financial system is booby trapped with both visible and hidden leverage. The problem with the Fed, and Yellen in particular, is that they are looking at a very narrow set of indicators. For instance, the nominal balance sheets of the big banks. But the biggest source of leverage in the economy today is the whole area of structured finance and options trading of one type or another. These Wall Street mechanisms are inherently leveraged; and the market has been coiled up like a spring everywhere owing to the endless bid funded by that massive leverage. Well, on the way up this forces assets values to continue to inflate and rise. But on the way down, when these positions are liquidated, the adjustment can become very violent in the other direction.”
Eric King: “It sounds like we have a train wreck in front of us.”
Stockman: “Train wreck is a pretty good term to describe what is coming. But this train wreck isn’t simply going to hit a wall out of the blue. Actually, it has been forming and accumulating and expanding for many years now, and yet it has simply been ignored, particularly by the financial markets which have ridden this bubble to these extreme and historic heights. But when you take the balance sheet of the Fed from $900 billion to $4.5 trillion in less than 70 months, and when that pattern is replicated around the world, that is a train wreck in slow motion. The only issue is, when does it hit the wall? The answer to that question is it’s not very far down the road, and I can promise you that is when all hell is going to break loose.”
Shell left all its Arctic options. How desparate is Exxon? Still, Washington lets them do what they want in Russia … What does that tell you?
• Exxon Drilling Russian Arctic Shows Sanction Lack Bite (Bloomberg)
Sanctions, what sanctions? Exxon Mobil Corp. will start drilling a $700 million well in the Arctic Ocean tomorrow, Russia’s government said, showing that for all the talk of action against Vladimir Putin’s oil industry, the largest U.S. energy company is undeterred. As Russia’s relations with Europe and the U.S. deteriorated to the lowest point since the Cold war over the conflict in Ukraine, the European Union imposed a third round of sanctions last week, restricting the export of equipment used for offshore oil production. That doesn’t affect Exxon’s plans because the contract to hire the rig was signed before the measures were announced.
Developing the Arctic is vital for Russia, where energy provides half the state’s revenue, to maintain oil production near a post-Soviet high of more than 10 million barrels a day. For Exxon, where output fell to a five-year low in the second quarter, a discovery would offer a vital new source of crude. “The well is very important, it’s probably one of the most interesting wells in the global oil industry for many years,” James Henderson, a senior research fellow at the Oxford Institute for Energy Studies, said in a phone interview. After more than two years’ planning Exxon and its partner OAO Rosneft, Russia’s state oil producer, will start drilling the Universitetskaya prospect tomorrow, the Kremlin said in a statement today. Putin will give the signal to start Russia’s northernmost well accompanied by Rosneft Chief Executive Igor Sechin, who’s subject to U.S. sanctions himself, and Exxon Mobil Russia head Glenn Waller.
• Ukraine Threatens Oil and Gas Cut-Off in Russia Sanctions (Bloomberg)
Ukraine threatened to block Russian oil and gas supplies to Europe in new sanctions against Vladimir Putin’s government, which it blames for a separatist uprising that has ravaged the country’s east. Ukraine, which no longer receives any gas from Russia but acts as a conduit for its neighbor’s European customers, is considering a “complete or partial ban on the transit of all resources” across its territory, Prime Minister Arseniy Yatsenyuk told reporters today in Kiev. It may also ban Russian planes from its airspace and cut defense-industry cooperation.
“There’s no doubt that Russia will continue its course – started a decade ago – aimed at banning imports of Ukrainian goods, limiting cooperation with Ukraine, pressure and blackmail,” Yatsenyuk said. “In the most negative scenario for Ukraine, losses during the first year may reach $7 billion, not only because of sanctions but also because of the Kremlin’s aggressive policy.” The threat may signal that the government in Kiev calculates it has little to lose. It comes a day after Russia banned food imports from Ukraine, the U.S., the European Union and other countries that blame it for stoking the worst geo-political crisis since the Cold War. Gas prices in western Europe rose on the news of Ukraine’s sanctions plan, which would require parliamentary approval.
Great piece by Orlov, but making fun of it won’t make the blood go away.
in the case of flight MH17, the false flag theory rests on an untenable assumption: that the Ukrainians, if tasked with shooting it down, would in fact succeed in shooting it down. All previous evidence illustrates that when Ukrainians want to shoot down a plane, they may succeed in shooting down a nursery school, a maternity ward, an apartment building full of elderly Ukrainians, but never a plane. Conversely, if Ukrainians set out to destroy a maternity ward or a kindergarten (as they are known to sometimes do) odds are that they will hit a Boeing. They inherited a now rather obsolete Buk M1 air defense system from the USSR, which, in skilled hands, is quite capable of shooting down a Boeing flying at cruising altitude, but you’d be wrong to think that they have figured out how it works. They held exactly one training exercise using this system, in 2001, and succeeded in… shooting down a Russian civilian airliner!
There were no training exercises in using this system until… it was used to shoot down MH17! It was used in Georgia during the war of 2008 over South Ossetia, where it did shoot down four Russian military aircraft, but there it was commanded by American mercenaries of Polish descent. Ukrainians excell at robbing, selling out, dismantling and destroying their own country; but achieving a specific, precise result as part of a highly coordinated mission? Not so much. Case in point: some Australian and Dutch troops wanted to go and maintain security at the crash site, but couldn’t, because the Ukrainians chose the occasion of their arrival to attack some neighboring towns and villages. You’d think that they would treat the opportunity to get some NATO boots on the ground as a Godsend, and act accordingly, but such rational behavior would be, you know, un-Ukrainian. The proper thing for them to do is to go and strafe some nearby village, and get themselves ambushed and slaughtered to a man by an angry babushka with a Kalashnikov.
Once you discount the theory that the downing of MH17 was a highly orchestrated false flag operation, everything falls into place. Why did the Ukrainians deploy their Buk M1 batteries and radar in Donetsk region, even though there was no enemy for them to shoot at? Because they are idiots. Why was there a Ukrainian Sukhoi 25 jet fighter in the air there? Trailing behind passenger jets and using them as human shields is standard Ukrainian practice. Why did that fighter zoom up into the Boeing’s flight corridor and pop up on air traffic control radar at the exact time the Boeing was shot down? That’s a standard evasive maneuver: the pilot saw a missile being launched, and tried to get out of its way by aiming up. If he hadn’t done that, then the story would have been that Ukrainians shot down their own jet fighter as part of a successful (by Ukrainian standards) exercise, held in the vicinity of an international passenger flight just to spice things up.
Why did Dnepropetrovsk APC redirect the flight over the war zone and the Buk M1 batteries? Because the Ukrainians had recently issued an order that closed the airspace over Donetsk, well below the plane’s cruising altitude and away from its flight path, but perhaps something was lost in translation to Ukraine’s wonderfully precise official language, and so the APC redirected the flight right over the closed airspace and told it to fly right above the minimum altitude. Why did the Ukrainians launch the rocket?[..] … the Ukrainian government, so carefully slapped together out of US State Department-approved dregs of Ukrainian society, has in the meantime come unstuck. The coalition goverment failed after a spectacular fistfight on the floor of the Supreme Rada, with the two rabidly nationalist parties walking out (OK, I won’t call them Nazi, but only today).
Prime minister Yatsenyuk (who had been hand-picked for the job and nicknamed “Yats” by Victoria Nuland of the US State Department) has resigned. [Update: he changed his mind and decided to stay: or did his American handlers change his mind for him?] President Piglet is still there, but it’s unclear what it is he is doing. In fact, it is becoming unclear whether there even is a Ukrainian government; of late, the officials in Donetsk have been receiving very strange, barely coherent missives from Kiev, obviously written in American English and clumsily translated, then signed and stamped by some Ukrainian monkey to make them look slightly more legit. If the Ukrainian translators run away too, then the American minders will be forced to resort to using Google Translate, making it the world’s first experiment in governance through word salad.
How long before we send tropps back in? Bombing desert sand has never proven to be a great idea.
• Washington Opened The Gates Of Hell In Iraq: Now Come The Furies (Stockman)
The late, great critic of the American Imperium, Chalmers Johnson, popularized the salient concept of “blowback”. That is, the notion that if you bomb, drone, invade, desecrate and slaughter—collaterally or otherwise— a people and their lands, they might find ways to return the favor. But even Johnson could not have imagined the kind of blowback coming ferociously Washington’s way now. Namely, the mayhem being visited on much of Iraq by American tanks, armored personnel carriers, heavy artillery, anti-aircraft batteries and other advanced weaponry that has fallen into the hands of the very jihadist radicals that have been the ostensible target of Washington’s entire multi-trillion “war on terrorism”. No question about it. The ISIS terrorists are winning against the hapless Iraqi military and even the formidable Kurdish peshmerga fighters—using some of the most lethal arms that the US military-industrial complex could concoct.
Yes, that wasn’t supposed to happen. During the bloody years after George W. Bush declared “mission accomplished” the Iraqi’s were ostensibly provided the arms and training to provide for their own defense. The American “occupation”, therefore, was really not all that. Instead, it was actually an exercise in “nation-building” that would bequeath to the people Washington had “liberated” a self-governing democracy equipped with the means to insure internal order and external security. Washington politicians—including President Obama—gave endless speeches about that. You can look them up! Except…except….Iraq was never a nation. At least the Ottomans knew that you don’t put Shiite’s, Sunni and Kurds in the same parliament or police force, and most certainly not the same army!
By contrast, it was the British and French foreign offices which in 1916 drew the Sykes-Picot boundaries and created the historical illusion that a nation called Iraq actually existed. And it was their successors in the west which installed a series of corrupt and brutal rulers, including kings, generals and Saddam Hussein himself, who maintained an always tentative and frequently blood-soaked semblance of governance within these artificial borders. Then came the neo-cons who for no discernible reason of national security could not leave well enough alone. By god, they were going to have regime change, a stable supplier of 6 million barrels of oil per day, and a stalwart ally armed to the teeth on the very doorstep of the Axis-Of-Evil; that is, the Iranian Shiite theocracy which happened to be religious kin to the single largest block of the Iraqi population.
Ambrose is an idealist, not a neutral observer.
• China Is Exporting Deflation To The World Again (AEP)
Two quick words of caution on the explosive rise in China’s exports in July. (Amazing how China always beats OECD states in compiling trade data). The category known as “non-specified exports” rose by 92pc in a single month, according to Morgan Stanley this morning. This is widely thought to be capital outflows, disguised in the trade data through over-invoicing. It typically occurs through Hong Kong and Taiwan. The 17.5pc rise in exports to Europe is probably real (since that data is harder to fiddle). Far from being healthy, it is alarming. Euroland is clearly not booming. A wealth of data suggests that the eurozone already has one foot in recession. Hans Redeker from Morgan Stanley said the 5pc-6pc fall the Chinese yuan against the euro in the first half of the year is undercutting southern Europe. Portugal and Italy – among others, with Spain a borderline case – have a great number of small companies in textiles, shoes, furniture, tiles, and increasingly electrical goods, machinery, and telecommunications that compete toe-to-toe with China.
They are famously “fishing in the same pool”, mostly mid-tier technology. The complementary index for European and Chinese exports shows that the EU is in direct competition with China on 35pc of 5,775 types of goods covered, up from 15 per cent in 2000. Germany is hit too, of course. Its solar industry has been largely wiped out by cheap Chinese copies. But it is southern Europe that is suffering the worst damage. China’s imports from the rest of the world fell 1.6pc year-on-year. Some of this is a base effect, no doubt. Yet the underlying pattern is that China is draining global demand. To the extent that its record surplus of $47.3bn is genuine, it is essentially negative for the world trading system.
The country is not rebalancing. The reforms have not yet gone much beyond talk. It is still over-investing, and still exporting deflation worldwide. The European Central Bank could take defensive action to weaken the euro by relaxing its extremely tight monetary policy (as defined by credit contraction and M3 contraction across Euroland, ex-Germany). Instead it is sitting on its hands, engaged in theological discussions about the definition of deflation, at best trying to talk down the euro without actually doing anything. Other than that, China’s soaring exports are marvellous news.
Didn’t see that one coming?
• Canadian Banks’ Rating Outlooks Downgraded to Negative by S&P (Bloomberg)
Canada’s six biggest banks including Toronto-Dominion Bank and Royal Bank of Canada had their outlooks cut to negative from stable by Standard & Poor’s because of regulatory changes that could affect bondholders. “The outlook revision reflects our expectation of reduced potential for extraordinary government support arising from implementation of the proposed new elements of the resolution framework for Canadian banks,” Tom Connell, an S&P credit analyst, said in a statement today. The other banks affected are Bank of Nova Scotia, Canadian Imperial Bank of Commerce, Bank of Montreal and National Bank of Canada, according to the statement.
• Are Central Banks Out of Options? (Phoenix)
The Central Bank interventions of the last five years can be broken into two categories: actual monetary policy changes and verbal interventions. The period from 2009-2012 largely saw Central Banks engaging in the former. The only problem is that two primary monetary policies in Central Banks arsenals (cutting interest rates, launching QE programs) are either useless in combating solvency issues or have little to no effect in terms of generating growth. Regarding the first issue, if you are insolvent as most of the large banks in the world are, the ability to borrow more money at lower interest rates is of next to no value. If you’re leveraged at 26 to 1 or higher, borrowing more money accomplishes nothing when your equity is wiped out by a 4% drop in asset prices. Regarding the second issue (QE’s failure to generate growth), consider that both Japan and the UK have engaged in QE policies equal to or greater than 25% of their respective GDPs and have failed to generate a significant uptick in their GDPs or employment.
Moreover, the positive aspect of QE, the alleged “wealth effect” or the belief that individuals would spend more money based on higher asset prices, can quickly become a political issue as it is largely the top 1% of individuals who benefit most from this. As a result of this, beginning in 2012 Central Banks began to move towards using verbal intervention more than monetary policy. After all, if you can get the positive benefit of QE (higher stock prices) without actually having to do anything from a monetary perspective… why engage in QE at all? The Fed bucked the trend in 2012, launching QE 3 and QE 4 to boost Obama’s reelection chances. Since that time, every positive move the Fed has made has been verbal in nature (promising to maintain low interest rates, etc.). In terms of monetary moves, since that time Fed has been actively tapering QE.
However, we may be reaching the end of efficacy even for verbal intervention. Consider that Mario Draghi managed to kick off a two year rally in stocks and two year drop in bond yields in Europe simply by promising to “do whatever it takes” in mid-2012. The ECB didn’t implement any new monetary policies until June 2014 when it cut interest rates to negative. Since that time, EU markets have largely sold off. And when Draghi mentioned that the ECB was “considering QE” in yesterday’s press conference, the intraday rally was short-lived. In simple terms, the markets want Draghi to act again, not simply engage in verbal intervention. So, globally interest rates are at ZERO or even negative and the markets have realized that QE doesn’t do much. What exactly does this leave for Central Banks to do? Not much. The question is when the markets realize this…
I think by now Wall Street’s buying it all, hiding it from view.
• The US High Yield Bond Theatre Is On Fire (WolfStreet)
Suddenly there’s a laundry list of what went wrong. A “more hawkish Fed stance, heightened geopolitical risks,” Argentina’s default, another bank collapse and panicky bailout in Europe (Banco Espirito Santo), “and concerns over stretched valuations,” wrote Matthew Mish, Head of Credit Strategy at UBS Investment Bank, and Thibault Colle, Associate Credit Strategist; it triggered “a cascade of mutual fund outflows in recent weeks.” They weren’t exaggerating. Investors yanked $7.1 billion out of junk bond funds in the week ending Wednesday, a record amount, according to Lipper. This has been going on since early July, and junk bond prices have dropped, yields have jumped from all-time lows, and yield spreads have suddenly widened. After having been inflated to dizzying proportions, the junk-bond bubble has been pricked. And the hot air is hissing out of it. This chart by UBS is a picture of investors suddenly bailing out while they still can. The vicious taper tantrum of last summer looks comparatively tame:
Neither glorious economic fundamentals nor corporate financial engineering caused investors to pile helter-skelter, eyes-closed into this high-yield junk. The Fed’s financial repression did. The Fed has made it impossible for yield investors to earn a noticeable return above the rate of inflation with low-risk paper. So they chased after whatever yield they could get and they held their noses and ventured deeper and deeper into a swamp they normally wouldn’t want to be in. They did that in unison. The demand they created for junk drove up valuations and repressed yields further into low-yield purgatory, where potential losses are huge and potential gains very meager. Exactly as the Fed had wanted them to. But the Fed has changed its mind. And it’s communicating it on a near daily basis. The force that has driven up the junk bond market and that has allowed overleveraged corporations to sell a mountain of junk bonds at record low cost is in the process of disappearing: QE will be tapered out of existence this fall; ZIRP will be whittled down later. Instead of the Fed’s free money flowing into the high-yield market, money is now draining out of it.
The new FICO scores, and Tyler Durden’s take on them.
• FICO Recalibrates Its Credit Scores (WSJ)
A change in how the most widely used credit score in the U.S. is tallied will likely make it easier for tens of millions of Americans to get loans. Fair Isaac Corp said Thursday that it will stop including in its FICO credit-score calculations any record of a consumer failing to pay a bill if the bill has been paid or settled with a collection agency. The San Jose, Calif., company also will give less weight to unpaid medical bills that are with a collection agency. The moves follow months of discussions with lenders and the Consumer Financial Protection Bureau aimed at boosting lending without creating more credit risk. Since the recession, many lenders have approved only the best borrowers, usually those with few or no blemishes on their credit report.
The changes are expected to boost consumer lending, especially among borrowers shut out of the market or charged high interest rates because of their low scores. “It expands banks’ ability to make loans for people who might not have qualified and to offer a lower price [for others],” said Nessa Feddis, senior vice president of consumer protection and payments at the American Bankers Association, a trade group. As of July, about 64.3 million consumers in the U.S. had a medical collection on their credit report, according to data from credit bureau Experian. And of the 106.5 million consumers with a collection on their report, 9.4 million had no balance—and won’t be penalized under the new credit-score system. Some critics said that loosening standards could bring losses for borrowers and lenders. “A lot of people really just can’t handle credit—you’re not really helping them by allowing them to dig themselves into debt,” said Howard Strong, a lawyer in Tarzana, Calif. “It’s like a sharp knife—if you don’t know how to use it, you can cut yourself.”
Many types of debt, including credit cards, can be discharged in bankruptcy. If borrowers fall behind, they could file for bankruptcy and cause lenders to suffer losses, Mr. Strong said. Under the current system, collections can impact credit scores as much as foreclosures and bankruptcies do. But the infractions are often small. Borrowers can be on time paying their debts, for example, but thrown by a medical emergency. Collections stay on credit reports for as long as seven years, even if a borrower has paid off that balance and remained up-to-date on other debts. Some experts said the new model for FICO scores walks a fine line: It loosens standards without overstating the creditworthiness of borrowers. Fair Isaac said it ran studies to determine how likely borrowers are to repay their debts if they had a stellar credit record with the exception of such collections.
• A New ‘Housing Recovery’ Scheme Emerges: Boost FICO Scores (Zero Hedge)
Now that the the fourth dead cat bounce in US housing since the Lehman crisis is rapidly fading, and laundered Chinese “hot money” transfers into US luxury real estate no longer provides a firm base to the ultra-luxury segment, the US government is scrambling to find ways to boost that all important – and missing – aspect of any US recovery: the housing market. This is further amplified by the recent admission by the Fed that it is in fact encouraging asset bubbles, not only in stocks but certainly in all assets, such as houses. Well, the government may have just stumbled on the solution to kick the can yet again and force yet another credit-driven housing bubble, a solution so simple we are shocked some bureaucrat didn’t think of it earlier: changing the definition of the all important FICO score, the most important number at the base of every mortgage application.
First, a tangent. Recall that as we reported last week, a shocking 77 million Americans currently face debt collectors, a number that previously had received no prominence because credit card companies report delinquency numbers, not the number that is “what happens next” after a delinquency is charged off and goes to the repo man. Sure enough, as delinquencies have been declining over the past several years – a widely trumpeted phenomenon to boost confidence in the recoveryless recovery – collection numbers were never mentioned as the realization that 77 million Americans effectively have zero access to credit because of (partial) defaults, they are no longer seen as eligible debtors.
Well, not any more. According to the WSJ, in what is a desperate attempt to boost the pool of eligible, credit-worthy mortgage recipients, Fair Isaac, the company behind the crucial FICO score that determines every consumer’s credit rating, “will stop including in its FICO credit-score calculations any record of a consumer failing to pay a bill if the bill has been paid or settled with a collection agency. The San Jose, Calif., company also will give less weight to unpaid medical bills that are with a collection agency.” In doing so, it will “make it easier for tens of millions of Americans to get loans.” How many millions?
As of July, about 64.3 million consumers in the U.S. had a medical collection on their credit report, according to data from credit bureau Experian. And of the 106.5 million consumers with a collection on their report, 9.4 million had no balance—and won’t be penalized under the new credit-score system.
Because nothing says a stable recovery like picking at lowest hanging fruit – changing the definition of an eligible creditor – to prove the point. The impact won’t be long in coming: “The changes are expected to boost consumer lending, especially among borrowers shut out of the market or charged high interest rates because of their low scores. “It expands banks’ ability to make loans for people who might not have qualified and to offer a lower price [for others],” said Nessa Feddis, senior vice president of consumer protection and payments at the American Bankers Association, a trade group.”
And they still deny there’s a bubble.
• Average House Prices In London Jump 19% In A Year (Guardian)
Average house prices in London have jumped 19% in a year, with the typical cost of a property in one borough set to pass the £2m mark for the first time within weeks, according to new data. The report, issued by estate agency group LSL Property Services and research firm Acadata, stated that, following a “temporary waning” of growth in the capital’s market, the average London house saw 2% – or almost £11,000 – added to its value in June alone. In Lambeth the annual rate of price growth is running at 38.5%, while Wandsworth and Waltham Forest each notched up 25%-plus. Meanwhile, the average price-tag in Kensington and Chelsea – dubbed by some “the richest borough in Europe” – has climbed to £1.99m and “looks poised to set an average property price of £2m within the next few weeks”.
The report said the average price paid for a house in England and Wales now stood at £270,636 – up 9.9% on a year earlier. But David Newnes, director of Reeds Rains and Your Move estate agents, owned by LSL, said the government’s policies on housing “should not be led astray” by what was happening in prime central London. He added: “If London and the south-east are removed from the equation, the annual change in average houses prices drops to 4.6% … Outside of London, the south-east and east Midlands, prices dropped and stabilised across all other seven regions in June.” Newnes said further interventions or tighter rules “could fracture the health of the recovery”.
Obama! You’re on!
• Argentina Threatened With Contempt Order By US Judge (Reuters)
Argentina’s economy ministry once again defiantly asserted the country has made a required debt payment on restructured sovereign bonds on Friday night, just hours after a U.S. judge threatened a contempt-of-court order if Argentina did not stop issuing such statements. U.S. District Judge Thomas Griesa, who has overseen the nation’s long-running debt battle with hedge funds, railed at Argentina’s lawyers at a hearing in New York a day after the publication of another so-called legal notice insisting the government has met its payment requirements and was therefore not in default.
Holding a newspaper copy of the notice, Griesa said if the false statements did not stop, a contempt of court order will become necessary. Later on Friday, however, Argentina’s economy ministry issued a statement accusing Griesa of “clear partiality in favor of the vulture funds.” “Judge Griesa continues contradicting himself and the facts by saying that Argentina did not pay,” the statement said. Meanwhile, a spokeswoman for the U.S. State Department said the United States would not permit the International Justice Court in The Hague to hear Argentina’s claims that U.S. court decisions had violated its sovereignty.
Ben and Jerry know how hard it is to be GMO free. It’s not about stop moving backward any more, it’s about needing to move forward, attack, or else.
• The GMO Fight Ripples Down the Food Chain (WSJ)
Two years ago, Ben & Jerry’s Homemade Inc. initiated a plan to eliminate genetically modified ingredients from its ice cream, an effort to address a nascent consumer backlash and to fulfill its own environmental goals. This fall, nearly a year behind schedule, it expects to finish phase one, affecting its flavorful “chunks and swirls” like cookie dough and caramel. The only part left to convert: the milk that makes ice cream itself. Thanks to the complexities of sourcing milk deemed free of genetically modified material, that could take five to 10 more years. “There’s a lot more that goes into it than people realize,” said Rob Michalak, Ben & Jerry’s director of social mission.
Two decades after the first genetically engineered seeds were sold commercially in the U.S., genetically modified organisms—the crops grown from such seeds—are the norm in the American diet, used to make ingredients in about 80% of packaged food, according to industry estimates. Now an intensifying campaign, spearheaded by consumer and environmental advocacy groups like Green America, is causing a small but growing number of mainstream food makers to jettison genetically modified organisms, or GMOs. In addition to Ben & Jerry’s, a subsidiary of Unilever, General Mills this year started selling its original flavor Cheerios without GMOs. Post Holdings took the GMOs out of Grape-Nuts. Boulder Brands’ Smart Balance has converted to non-GMO for its line of margarine and other spreads. Chipotle is switching to non-GMO corn tortillas.
“Non-GMO” is one of the fastest-growing label trends on U.S. food packages, with sales of such items growing 28% last year to about $3 billion, according to market-research firm Nielsen. In a poll of nearly 1,200 U.S. consumers for The Wall Street Journal, Nielsen found that 61% of consumers had heard of GMOs and nearly half of those people said they avoid eating them. The biggest reason was because it “doesn’t sound like something I should eat.” Grass roots campaigns in several states are pushing for mandatory labeling of foods with GMOs – something most food companies staunchly oppose. In May, Vermont adopted the first state law requiring companies to label GMO foods, starting in 2016.
• Canada Quarantines Man With Ebola Symptoms (AFP)
A Canadian hospital put a patient in isolation Friday after he arrived in the country from Nigeria with symptoms of fever and flu – possible signs he is infected with Ebola – local media said. Nigeria is one of several countries in West Africa that has had confirmed cases of Ebola, in the world’s largest ever outbreak of the deadly haemorrhagic fever that has seen nearly 1 000 deaths and more than 1 700 people infected since the beginning of the year.
A doctor at the Brampton, Ontario hospital, near Toronto, said the patient had a fever and other symptoms similar to those seen in Ebola cases, the news channel CP24 said. Authorities decided to place him in isolation as a precaution, though there has been no official diagnosis and there are multiple diseases that could have caused his symptoms, stressed Eileen de Villa, an official with the region’s Public Health office, according to CTV news. In addition to quarantining the patient, the hospital also enacted other strict precautionary measures, she said.
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