Abenomics Archives - Page 5 of 5 - The Automatic Earth

Chair Janet Yellen said she expects the Federal Reserve to raise interest rates this year, and that subsequent increases will be gradual without following a predictable path. “I expect that conditions may warrant an increase in the federal funds rate target sometime this year,” Yellen said Friday in remarks prepared for delivery in San Francisco. She and fellow policy makers “generally anticipate that a rather gradual rise in the federal funds rate will be appropriate over the next few years.” After the initial increase, officials won’t follow “any predetermined course of tightening” that involves similar-sized increases at regular intervals, Yellen said.

“The actual path of policy will evolve as economic conditions evolve, and policy tightening could speed up, slow down, pause, or even reverse course depending on actual and expected developments in real activity and inflation,” she said. Policy makers last week opened the door to an interest-rate increase as soon as June, while also signaling they’ll go slow once they get started. The benchmark federal funds rate has been kept near zero since December 2008. Rates near zero helped cause a “sizable reduction” in labor market slack, and a modest rate increase is “highly unlikely” to halt that progress, Yellen said.[..]

The labor market is “likely to improve further in coming months,” Yellen said. At the same time, progress on meeting the Fed’s inflation goal has been “notably absent.” Some of the weakness in inflation “likely reflects continuing slack” in labor markets. Despite disappointing retail-sales data, she said consumer spending probably will “expand at a good clip this year given such robust fundamentals as strong employment gains, boosts to real incomes from lower energy prices, continued increases in household wealth, and a relatively high level of consumer confidence.”

End of a line.

• Housing Contribution To US GDP Lowest In Post-War Era (Zero Hedge)

Deutsche Bank is out predicting that a sluggish US housing market is likely to impact the supply of MBS going forward. As DB notes, housing isn’t the GDP contributor it once was and not by a long shot. Not only that, but when it comes to recoveries, the housing market’s GDP contribution was 7 times below its post WW2 average in year one and has fared even worse since. Here’s DB with more:

The contribution of housing to US GDP continues to run at some of the lowest levels since the end of World War II. New construction of single- and multi-family homes, renovations, broker fees and the like still only make up a bit more than 3% of current GDP, well below the post-war average of 4.7%. Not only has the level of lift from housing come in low, but it has bounced out of the last official recession slowly, too. Housing on average has contributed a half a percentage point to GDP a year after the end of every post-war US recession. This time around, housing added only 7 bp. And the contribution of housing in the second and third years after the recent recession also has fallen well below post-war averages.

“Even if the pace is slackening, the Chinese are still building high-rise apartments which will remain empty and airports, roads, rails and bridges that are hideously redundant.”

• The Bottom’s Not In – This Market Is Dumber Than A Mule (David Stockman)

They were trying to put in a bottom – again! The sell-off earlier this week amounted to the sixth sizeable “dip” since November 20 – so the market’s ingrained reflex was back at work all afternoon, trying to scoop up the “bargains”. But the roundtrip to the flat-line shown below is not a classic “wall of worry” and its not a “bottom” that’s being put in. This market is dumber than a mule, and the nation’s central bank and its counterparts around the world have made it so. The plain truth is that six years of torrential money printing and worldwide ZIRP have not happened with impunity. On the one hand, massive, sustained and universal financial repression caused an artificial growth and investment boom in much of the world, especially China and the EM, which has now run out of steam and is visibly and rapidly cooling.

There is probably no better proxy for the global investment boom than the spot price of iron ore because it captures China’s massive infrastructure construction spree and the waves of mining, shipbuilding, steel-making and construction materials spending that it set off all over the world. But this huge tidal wave has now crested, leaving behind the worst of both worlds – cooling demand and still expanding supply. For the first time since around 1980, China’s steel consumption is projected to fall in 2015 – with demand slumping from 830 million tons last year toward 800 million tons, and that is just the beginning as China’s credit-fueled construction frenzy finally comes to a halt. In fact, during the boom that took iron ore prices from a historic level of around $20-30 per ton to a peak of nearly $200 in 2011, China’s iron and steel capacity grew like topsy. Production capacity expanded from about 200 million tons at the turn of the century to upwards of 1.1 billion tons at present.

Yet this year’s decline of demand to around 800 million tons does not begin to reflect the coming adjustment. That’s because there is still a residual component of one-time demand in that number that is in no way sustainable. Even if the pace is slackening, the Chinese are still building high-rise apartments which will remain empty and airports, roads, rails and bridges that are hideously redundant. Eventually that will end because even the red capitalist rulers in Beijing are terrified of China’s towering mountain of debt – $28 trillion and still rising by hundreds of billions every month. Yet underneath this one-time explosion of demand for steel, aluminum, copper, concrete and the rest of the materials slate is something called sell-through demand. The latter reflects the sustainable level of demand for replacement of long-lived assets like bridges and shorter-term durables like cars and appliances. In the case of steel, that sustainable “sell through” demand level could be as low as 500-600 million tons or hardly half of China’s steel production capacity.

“For the first time since the early 20th century, there are the elements of a genuine revolution brewing in Europe, a continent plagued by violence throughout its history.”

• Greek Crisis Nears A Turning Point (MarketWatch)

The simmering crisis in Greece has the potential to become one of those seemingly small events that leads to big consequences. The election of a radical government by a public exhausted from five years of debilitating recession, the war of words conducted by that government in the face of the iron fist of establishment power in the European Union, and the expected resolution either in the form of a total retreat by the Greek government and its collapse or an exit from the euro – all this seems relatively small on the scale of global events. But few expected the assassination of an Austrian royal heir to start World War I, or the shelling of a military depot in Gdansk by German forces in 1939 to lead to the conflagration of World War II, or, for that matter, the strike in 1980 by Polish trade union Solidarity in that same port city to lead to the unraveling of the Soviet empire.

The Greek crisis could well become a similar turning point in history. Amid all the posturing, dogmatism and bad faith in the standoff between the government of Greek Prime Minister Alexis Tsipras and European and international monetary officials is a genuine challenge not only to the postwar integration of Europe but the entire foundation of the peace ushered in during that period. So if you’re sick and tired of hearing about Greece, think again. For the first time since the early 20th century, there are the elements of a genuine revolution brewing in Europe, a continent plagued by violence throughout its history. The bumbling, short-sighted policies of the German government under Chancellor Angela Merkel and the spineless Brussels bureaucracy dominated by Berlin are in many ways similar to previous miscalculations by European leaders that plunged Europe and the world into disaster.

And it is not helped by a U.S. foreign policy in disarray under the weak and uneven leadership of a president ill-equipped to deal with global realpolitik. The Greek government itself seems to be operating in a parallel universe of false hopes. The economy minister, George Stathakis, said he is optimistic Greece will reach an agreement with international lenders next week even though their stated goals remain diametrically opposed.

No, it’s not.

• Austerity Is Greece’s Only Hope (Hans-Werner Sinn)

The euro has brought a balance-of-payments crisis to Europe, just as the gold standard did in the 1920s. In fact, there is only one difference between the two episodes: During today’s crisis, huge international rescue packages have been available. These rescue packages have relieved the eurozone’s financial distress, but at a high cost. Not only have they enabled investors to avoid paying for their poor decisions; they have also given overpriced southern European countries the opportunity to defer real depreciation in the form of a reduction of relative prices of goods. This is necessary to restore the competitiveness that was destroyed in the euro’s initial years, when it caused excessive inflation.

Indeed, for countries like Greece, Portugal, or Spain, regaining competitiveness would require them to lower the prices of their own products relative to the rest of the eurozone by about 30%, compared to the beginning of the crisis. Italy probably needs to reduce its relative prices by 10-15%. But Portugal and Italy have so far failed to deliver any such “real depreciation,” while relative prices in Greece and Spain have fallen by only 8% and 6%, respectively. Revealingly, of all the crisis countries, only Ireland managed to turn the corner. The reason is obvious: its bubble already burst at the end of 2006, before any rescue funds were available.

Ireland was on its own, so it had no option but to implement massive austerity measures, reducing its product prices relative to other eurozone countries by 13% from peak to trough. Today, Ireland’s unemployment rate is falling dramatically, and its manufacturing sector is booming. In relative terms, Greece received most of Europe’s bailout money and showed the largest increase in unemployment. The official loans granted to the country by the European Central Bank and the international community have increased more than sixfold during the past five years, from €53 billion ($58 billion) in February 2010 to €324 billion, or 181% of GDP, now. Nevertheless, the unemployment rate has more than doubled, from 11% to 26%.

“Any decision to remove ELA would effectively force Greece out of the eurozone by pulling the plug..”

• Varoufakis Denies Resignation, Greeks Accused Of “Gambling” Away Trust (Teleg.)

Responding to a story in Bild on Friday morning, who quoted a Greek government source saying that it was only a matter of time until Mr Varoufakis resigned, the “rock-star” former academic tweeted he found the reports of his apparent demise, “amusing”. A Greek government official had earlier dismissed the reports, telling Reuters: “None of this is true, it’s far from reality.” Mr Varoufakis has become a controversial figure in the fractious negotiations between Greece and its eurozone creditors. Tensions reached a peak when the minister was caught up in a farcical argument over whether he “stuck the middle finger” to the eurozone giant during a lecture he gave in 2013. The finance minister, who is not a member of parliament for the Syriza party, also walked out on an TV interview earlier this month, after he was questioned about being a “liability” to his government.

Athens has been scrambling to make repayments to its creditors while continuing to pay wages and pensions. The government now faces another €2.4bn cash squeeze in April, including a €450m loan repayment to the IMF on April 9. In a bid to finally release €7.2bn in bail-out funds, Greece has promised to deliver a full reform list to creditors by Monday. But in a sign of the frayed relations between the debtor country and its paymasters, Germany’s Bundesbank chief accused the Leftist government of betraying the trust of its creditors. “Until the autumn, an improvement in the economy had been discernible. But the new government has gambled away a lot of trust,” said Jens Weidmann, an ardent critic of financial relief for Athens. Mr Weidmann added he did not “buy the argument that they are financially overburdened,” referring to the state of Greece’s finances.

As part of its efforts to stay solvent over the next few weeks, Greece has requested a €1.9bn transfer of profits held by the ECB, from the holdings of Greek government bonds. So far, the ECB has rebuffed all Greek pleas to alleviate their cash squeeze. The central bank has been keeping Greek banks alive through the provision of emergency liquidity assitance (ELA), after it stopped its ordinary lending to the country after Syriza’s election. Any decision to remove ELA would effectively force Greece out of the eurozone by pulling the plug on the country’s stricken lenders and giving way to capital controls.

“We are creating ambiguity with the creditors intentionally because they have to know that we are prepared for a rift, otherwise you can’t negotiate..”

• Alternate Greek FinMin Tsakalotos Says Athens ‘Prepared For Rift’ (Kathimerini)

Alternate Finance Minister Euclid Tsakalotos on Friday made waves by saying that the Greek government was “always prepared for a rift.” Tsakalotos, who is the ministry’s key official for international economic relations, made the comment during an interview on Star television channel, prompting a flurry of reactions and criticism on social media. Tsakalotos was speaking just two days after Finance Minister Yanis Varoufakis was caught on camera during a visit to Crete on the occasion of Greece’s Independence Day telling a citizen that he hoped Greeks would continue to back the government “after the rift.” Varoufakis’ comment was subsequently played down by SYRIZA commentators who said he might have been referring to a possible rift with vested interests in Greece rather than with the country’s creditors.

Apparently in the same vein, Tsakalotos said on Friday, “If you don’t entertain the possibility of a rift in the back of your mind then obviously the creditors will pass the same measures as they did with the previous [government].” “We are creating ambiguity with the creditors intentionally because they have to know that we are prepared for a rift, otherwise you can’t negotiate,” he said. He added that the new government is intent on backing “those who lost a lot in the crisis, and that we are prepared, if things do not go well, for a rift.” Prior to his comments, Tsakalotos took part in a meeting with Varoufakis and Prime Minister Alexis Tsipras.

Motions. Through. Going.

• Greece Submits New List Of Reforms To Unlock Further Aid (Reuters)

Greece has sent its creditors a long-awaited list of reforms with a pledge to produce a small budget surplus this year in the hope that it will unlock badly needed cash, Greek government officials said on Friday. The EU and IMF lenders, informally called the Brussels Group, will start discussing the list later on Friday, a euro zone official said, although a Greek official said the examination would begin on Saturday. Their approval, followed by the blessing of euro zone finance ministers, will be needed for Athens to unfreeze further aid and stave off bankruptcy. Athens has not indicated whether the latest list will contain a more far-reaching reform program than a previous list of seven reforms on broad issues ranging from tax evasion to public sector reforms, which failed to impress lenders.

The new list includes measures to boost state revenues by €3 billion this year, but will not include any “recessionary measures” like wage or pension cuts, a government official said. The list estimates a primary budget surplus of 1.5% for 2015 – below the 3% target included in the country’s existing EU/IMF bailout – and growth of 1.4%, the official said. Prime Minister Alexis Tsipras’s left-wing government has previously said the list will include measures to improve investor sentiment, boost tax revenues, and judicial reform. The government is also expected to address some form of pension reform, though it has already excluded any attempt to raise the retirement age or other sensitive measures that would be viewed as cutting pension payouts for austerity-hit Greeks.

Aghast, I tell you.

• Greece’s German Allies Aghast as Tsipras Fails to Assure (Bloomberg)

Even Greek Prime Minister Alexis Tsipras’s friends in Germany are getting exasperated with his government after a visit to Berlin fueled skepticism that he can do what’s needed to end the impasse over his country’s finances. While the atmosphere was good in talks between Tsipras and Chancellor Angela Merkel this week, an improvement in tone may not help resolve a standoff over the reforms required to unlock aid, according to a German government official familiar with the chancellor’s strategy on Greece who asked not to be named because the meeting was private. Members of Merkel’s Social Democratic coalition partners, who have sought to strike a more moderate tone on Greece than her party, were left unconvinced that he can resolve the crisis.

“What’s coming out of Greece is moving completely in the wrong direction,” Joachim Poss, a Social Democratic lawmaker who is the party’s deputy parliamentary spokesman on finance policy, said in an interview. “The situation is really worrying — we’re stunned watching the developments.” Tsipras’s difficulty in persuading even more measured German policy makers he’s on the right track risks entrenching a conflict with Greece’s European creditors as his government runs out of money. More than a month after winning an extension of the country’s bailout deal, Greek officials will finally submit plans on how they’ll meet the conditions for releasing aid on Friday, an official from Tsipras’s administration said.

The delay led Thomas Oppermann, the Social Democrat Bundestag floor leader, to join Finance Minister Wolfgang Schaeuble in speculating about a possible Greek exit. “A Greek exit from the euro zone would be a political disaster, not only for the euro zone but for the whole idea of Europe,” Oppermann told Deutschlandfunk radio March 24. “Of course we can’t rule that out. It’s first of all down to the Greek government whether it does what is required to stay in the euro zone.”

“..even when Rajoy says it’s getting better it pushes down his ratings because people don’t believe it.”

• Is Spain’s Recovery For Real? (Guardian)

With this an election year in Spain, the tone in Madrid has turned triumphalist. Last month the finance minister predicted the country would enjoy five years of growth of up to 3%, while prime minister Mariano Rajoy has declared “the crisis is over” – only to be slapped down by the president of the European commission, Jean-Claude Juncker, who said that could hardly be the case with 4.5 million people out of work. Backtracking, Rajoy said the crisis was over, but not its legacy. After regional polls in Andalusia handed 15 seats to anti-austerity party Podemos, 2015 is a big year for Spanish politics. There are also municipal elections in Madrid and Barcelona, another regional poll in Catalonia, and then, in November, the general election.

But not all voters share the government’s upbeat outlook. On the day the country’s economic minister, Luis de Guindos, gave his optimistic five-year forecasts to an audience of businesspeople, the national statistics office published a survey showing that four out of every five Spaniards believe the economy is in the same or worse state than last year and over half don’t believe things will improve in 2016. As more and more people pass the two-year cut-off for unemployment benefit, the number of beggars on the streets of Madrid and Barcelona is growing, many of them middle-aged, while an estimated 1.5 million Spaniards are now relying on soup kitchens for food. So what is really happening? [..]

Julia Fossi of the Barcelona soup kitchen Esperanza (the Spanish word for “hope”) says there has been a notable rise in the number of Spaniards sleeping on the street. “The average age is around 40 to 50,” she says. “People are evicted from their homes and sleep in entrances of banks. We had one woman who had been thrown out of her home who was sleeping in La Caixa with her cat.” Edward Hugh, a Welsh economist based in Spain, says: “The economic situation is perceived by most Spaniards as being so bad that even when Rajoy says it’s getting better it pushes down his ratings because people don’t believe it.”

Everyone’s answer to the price slump: produce more.

• Someone Needs To Go Broke In The Australian Iron Ore Industry (Guardian)

The Australian iron ore industry is poised for a huge shake-up as the global glut worsens and margins continue to tighten. The nation’s biggest iron ore miners, Rio Tinto and BHP Billiton, are still making money and expanding production, but questions remain about the viability of their heavily indebted rivals Fortescue and Gina Rinehart’s Roy Hill project. Iron ore is trading at a six-year low of around $US55 per tonne amid weaker Chinese demand. The price slump this week prompted Fortescue’s chairman Andrew “Twiggy” Forrest to call for a cap on iron ore production which was promptly dismissed by Rinehart and the head of Rio Tinto Sam Walsh. But the price outlook remains bleak, with an extra 200m tonnes of the steel-making ingredient expected to be dumped on the market over the next few years.

Morningstar analyst Matthew Hodge says higher cost miners like Fortescue and Roy Hill will soon be “running to stand still”. “There has to be some rationalisation,” Hodge said. “Someone needs to go broke, or some miners need to merge production because what’s happening at the moment is unsustainable. “Things are bad and there’s no real sign they’re going to get any better soon, unless there’s a bit more enthusiasm around forming a cartel.” Fortescue has just finished a huge expansion program and Rio Tinto plans to expand by another 50m tonnes while Roy Hill will begin ramping up to 55m tonnes in September. Lurking in the background is Brazilian giant Vale which is planning a $20bn investment to expand production by another 90m tonnes by 2018.

Why the question mark?

• Emerging World: Heading For Contagious Credit Crisis? (CNBC)

Major emerging markets (EMs) like Brazil and Russia could be at risk of a widespread credit crisis—that could impact the world’s financial markets, experts warn. ING Investment Management warned in March that banks and companies in some emerging markets could topple if their currencies remained under pressure and capital outflows continue. “This pressure threatens to bring the fundamentally weakest countries into deep economic and political trouble,” said M.J. Bakkum, senior emerging markets strategist at ING, in a research note. “Brazil, Russia and Turkey are the most vulnerable. It is not impossible that serious corporate defaults happen or even that banks fall over in one of these countries. For the first time since 2002, we should consider the risk of contagion in the emerging world, with possibly implications for global financial markets.”

On Friday, Barclays cut its outlook for all major EM economies, with the exception of India, which it upgraded, and Indonesia, which it left unchanged. It forecast that EMs as a whole would decelerate to post average annual gross domestic product growth from 4.8% of 4.5% in 2015, with three of the four “BRIC” economies—Brazil, Russia and China—seen slowing. “This contrasts with the notable acceleration in advanced economies’ growth and implies the narrowest EM-DM (development market) growth gap since the early 2000s,” said analysts led by Christian Keller in Barclays Research’s quarterly EM report. On Friday, Capital Economics said that the global economy was “unlikely” to return to pre-crisis rates of growth without a revival in the BRICs.

New oil order.

• Oil Is Preparing For A New World Order (CNBC)

A new oil order has arrived and it will be marked by greater uncertainty and generally lower oil prices as the oil industry frantically re-prices as costs decline and gains in efficiency are made, strategists say. As investors continue to weigh up the fallout of a rout in oil prices since June last year, Goldman Sachs has warned that the “level of uncertainty cannot be underestimated as these dynamics spill over into the price of commodities, currencies and consumption baskets around the world, with far-reaching market and economic implications.” And amid heightened uncertainty, oil prices can swing sharply in either direction as developments this week have shown with a crisis in Yemen triggering a spike in crude.

“Oil has been sideways for about four months, in a $15 range; it hits a bottom, bounces up, hits the top comes back down,” Sean Corrigan, founder of True Sinews Consultancy told CNBC Europe’s “Squawk Box” Friday.”We’re all waiting for the next break and trying to find the signal that will push us from this range,” he added. The Goldman Sachs note, published late last week, adds that while it believes “the new equilibrium price for oil is $65 a barrel for WTI and $70 a barrel for Brent, the risks are skewed to the downside.” Those forecasts would imply gains of at least 21% for Brent crude from current levels around $58 and a rise of about 30% for WTI, which is trading at around $50. Still, and more significantly, prices would remain more than 30% below peak levels of above $100 a barrel on both oil contracts seen last year before concerns about a supply glut helped drive prices down.

Nobody does.

• Japan Inc. Doesn’t Believe In Abenomics (CNBC)

Tokyo stock prices are at fifteen-year highs, but Japanese corporations remain pessimistic about the country’s growth potential as Abenomics has fallen short of expectations, analysts say. “The demographics are negative – Japan is a super-aging society, not a growth market,” Fujitsu Research Institute senior economist Martin Schulz told CNBC by phone on Friday. “Japanese corporations have adapted and their strategy is to look for growth overseas.” More than two years after Prime Minister Shinzo Abe returned to power, a sharply weaker yen has boosted profits at blue chip exporters, spurring a sharp stock rally. But a recent government survey confirmed that Japan Inc remains pessimistic about the outlook for economic growth.

More companies plan to hold back from new capital investments, this year’s survey showed; the proportion planning new investments over the next three years was down 1.9 percentage points on-year, at 64.5%. “Companies still do not believe in Abenomics,” said Mizuho Research Institute chief economist Hajime Takata in a note published on Friday. “After fifteen years of deflation, corporate Japan’s mindset remains conservative,” he added by email. Still, while the broader economy is struggling to recover from the three percentage point consumption tax increase in April 2014 that tipped the economy into a technical recession, many of Japan’s blue chip corporations are thriving on a weaker yen.

Public assets for pennies on the dollar to feudal lords.

• Petrobras Said to Start Asset Sale With Fields in Argentina (Bloomberg)

Petroleo Brasileiro SA, the state-controlled company at the center of Brazil’s biggest corruption scandal, agreed to sell oil and natural gas fields in southern Argentina to billionaire Eduardo Eurnekian’s Corporacion America, two people with knowledge of the deal said. The sale, the first divestment since a management overhaul at Petrobras last month, was approved by the Rio de Janeiro-based company this month, the people said. The fields, in the Patagonian province of Santa Cruz, are valued at about $90 million with proven reserves that are 75% gas, one of the people said.

The sale process in Argentina began in September and was delayed as Petrobras became ensnared in a corruption scandal that led to the resignation of Maria das Gracas Silva Foster as chief executive officer in February. New CEO Aldemir Bendine is leading a review of investment plans and corporate governance and is seeking to increase asset sales to raise funds as the company is locked out of international credit markets. Eurnekian is looking to expand his oil and gas unit after purchasing a majority stake in Cia General de Combustibles in 2013. The 82-year-old businessmen runs the holding with several nephews encompassing industries from airports to construction.

Really? “Expanding the economy, especially in Europe, hasn’t been that easy?”

• Reinhart and Rogoff: Cut Government Debt Creatively (Bloomberg)

It’s not just companies like Google and Facebook that need to tap creativity to thrive. Governments laboring under sovereign debt burdens should do so too, suggests a new Harvard Kennedy School research paper by Carmen M. Reinhart, Vincent Reinhart and Kenneth Rogoff. During the financial crisis, governments piled up so much debt that they’re now forced to think outside the box about how to get rid of the burden. Really, they should have considered the broader swath of options all along, their research suggests. Some cookie-cutter solutions include boosting growth, running primary budget surpluses and selling state-owned assets. Expanding the economy, especially in Europe, hasn’t been that easy.

On average, the growth of real GDP at very high levels of debt is below that at low levels of debt, the economists wrote. And selling off efficient utilities may bring governments some short-term relief while depriving them of revenues they could have expected over the long term. So how about more ingenious ways to fight debt? In the past these included taxing the wealthy, boosting inflation and even defaulting on debt obligations, the three economists wrote. “Advanced countries have relied far more on such approaches than many observers choose to remember,” the economists wrote, examining 70 episodes across 22 advanced economies since 1800.

Big debt hurts capital markets and economic growth and deprives the government of the crucial weapon of taking up more credit to respond to unexpected catastrophes. That’s why officials scramble to cut the burden when they can and how they can. [..] “Governments are the last line of resort in many situations, and it is important to maintain the option value of being able to issue sudden large bursts of debt in response to catastrophes (war, financial or otherwise),” Reinhart, Reinhart and Rogoff wrote in the latest paper. “The message from dozens of episodes of significant debt reductions in advanced economies since the Napoleonic War is that everything is on the table.”

“The big banks have issued a threat, and it’s up to us to fight back.”

• Elizabeth Warren Launches Counteroffensive Against Citigroup (Bloomberg)

Just hours after Reuters reported that Citigroup and other banks are debating whether to halt some of their own donations, Senator Elizabeth Warren is calling on her followers to make up the difference. Citing “concerns that Senate Democrats could give Warren and lawmakers who share her views more power,” Citigroup has already decided for now to withhold donations to the Democratic Senatorial Campaign Committee, sources inside the bank told Reuters. The maximum that bank could donate under campaign finance rules is $15,000 per year. “Citi’s Political Action Committee contributes to candidates and parties across the political spectrum that share our desire for pro-business policies that promote economic growth,” Molly Millerwise Meiners, Citi’s Director of Corporate Communications said in a statement.

Citigroup confirmed that it has not donated to the DSCC yet. “The big banks have issued a threat, and it’s up to us to fight back.” As for other banks, Goldman Sachs has already sent its 2015 donations, while Bank of America and JP Morgan are also considering their next steps. In December, Warren gave a long speech criticizing the close ties between Citigroup and Congress. “There’s a lot of talk coming from Citigroup about how the Dodd-Frank Act isn’t perfect,” Warren said. “So let me say this to anyone who is listening at Citi: I agree with you. Dodd-Frank isn’t perfect. It should have broken you into pieces.” The move is more symbolic than financial, and has already spurred a counteroffensive from Warren.

In a fundraising request (titled “Wall Street isn’t happy with us,”) Warren accused the banks of wanting Washington to puts its needs before Americans and “get a little public fanny-kissing for their money too.” The pitch argues that 2016 Democratic Senate candidates could lose $30,000 each, and asks for for help raising matching funds. “The big banks have issued a threat, and it’s up to us to fight back,” Warren wrote. If Citigroup, JP Morgan, Goldman Sachs, and Bank of America wanted to give Warren—a skilled fundraiser—a chance to bolster her image as an anti-Wall Street progressive hero and raise a few thousands, they succeeded. What this won’t do is make it easier for Democrats to soften their tone toward Wall Street.

All honest people, mind you. Upstanding.

• Monsanto Lobbyist Calls Roundup Safe for Humans, But Won’t Drink It (RawStory)

A controversial lobbyist who claimed that the chemical in Monsanto’s Roundup weed killer was safe for humans refused to drink his own words when a French television journalist offered him a glass. In a preview of an upcoming documentary on French TV, Dr. Patrick Moore tells a Canal+ interviewer that glyphosate, the active ingredient in Roundup herbicide, was not increasing the rate of cancer in Argentina.

“You can drink a whole quart of it and it won’t hurt you,” Moore insists.
“You want to drink some?” the interviewer asks. “We have some here.”
“I’d be happy to, actually,” Moore replies, adding, “Not really. But I know it wouldn’t hurt me.”
“If you say so, I have some,” the interviewer presses.
“I’m not stupid,” Moore declares.
“So, it’s dangerous?” the interviewer concludes.

But Moore claims that Roundup is so safe that “people try to commit suicide” by drinking it, and they “fail regularly.”
“Tell the truth, it’s dangerous,” the interviewer says.
“It’s not dangerous to humans,” Moore remarks. “No, it’s not.”
“So, are you ready to drink one glass?” the interviewer continues to press.
“No, I’m not an idiot,” Moore says defiantly. “Interview me about golden rice, that’s what I’m talking about.”

At that point, Moore declares that the “interview is finished.”
“That’s a good way to solve things,” the interviewer quips.
“Jerk!” Moore grumbles as he storms off the set.

According to EcoWatch, Moore was an early member of Greenpeace before becoming a consultant for “the polluting companies that Greenpeace works to change: Big Oil, pesticides and GMO agribusiness, forestry, nuclear power … anyone who puts up the money for truth-benders who appear to carry scientific and environmental authority.”

Debt Rattle February 6 2015

Feb 062015

February 6, 2015 Posted by Raúl Ilargi Meijer at 11:44 am Finance Tagged with: Abenomics, debt write-off, deflation, Germany, Greece, Lazard, oil, stocks, Syriza, Venezuela 1 Response »

DPC Chamber of Commerce, Boston MA 1904

• Deflation Risk in U.S. Seen Rivaling Euro Area (Bloomberg)

• Stocks Will Be ‘Ripped To Smithereens’: Albert Edwards (CNBC)

• Oil Heading For $30, Currency War Coming (CNBC)

• Is China Preparing for Currency War? (Pesek)

• China’s Monumental Debt Trap – Why It Will Rock The Global Economy (Stockman)

• Conquering China’s Mountain of Debt (Bloomberg)

• The Debt Write-off Behind Germany’s ‘Economic Miracle’ (France24)

• Why Deutsche Bank Thinks Europe Will Fold (Zero Hedge)

• Time for #GreekLivesMatter (Naked Capitalism)

• Greek Leaders Return Home for Rethink After Rebuff From Germany (Bloomberg)

• ECB Said to Allow Greek Banks €59.5 Billion Emergency Cash (Bloomberg)

• Greek Debt Drama Is ‘Theater,’ But Stakes Are High (CNBC)

• Greece and Varoufakis Need Supporters Not Sympathisers (Guardian)

• The Lazard Banker Shaping Greece’s and Ukraine’s Financial Fate (WSJ)

• Banker to the Broke: Lazard Advises Greece, Ukraine (Bloomberg)

• Abenomics Leaves Japan’s Poor and Elderly Behind (Bloomberg)

• Is Denmark Facing A Speculative Attack? (CNBC)

• Australia Central Bank Acting Like It ‘Just Woke Up’ (CNBC)

• Oz PM Abbott Fights for Political Life as Colleagues Seek Ouster (Bloomberg)

• Venezuela Oil Deal Hits Caribbean Hard (CNBC)

• John Kerry Rated Worst Secretary Of State In 50 Years (MarketWatch)

“The scales will soon lift from the market’s eyes.”

• Deflation Risk in U.S. Seen Rivaling Euro Area (Bloomberg)

Deflation would be as much of an issue for the U.S. as it is for the euro region if consumer prices were tracked the same way, according to Albert Edwards, a global strategist at Societe Generale SA. The Chart Of The Day helps illustrate how Edwards drew his conclusion, presented in a report yesterday. He tracked changes in the core U.S. consumer-price index, which excludes food and energy, and the CPI for shelter. Core inflation in December was 1.6%, according to the Labor Department. That’s 0.9 percentage point more than the euro region’s comparable figure, as compiled by Eurostat. This gap disappears after bringing the U.S. figure into line with Eurostat’s definition of housing, Edwards wrote.

“The deflationary fault line on which the U.S. sits is every bit as precarious as that of the euro zone, but is being disguised,” the London-based strategist wrote. “The scales will soon lift from the market’s eyes.” Ten-year Treasury notes are headed for yields of less than 1% as the deflation threat grows, according to Edwards. The yield stood at 1.81% yesterday after ending last month at 1.64%. The adjusted U.S. data exclude owners’ equivalent rent, or the estimated cost borne by homeowners who live in their houses as opposed to renting them out. The euro region doesn’t have a similar category.

“U.S. numbers differ because they are measured with “shelter inflation” which is derived from housing costs based on rent, not the price of homes.”

• Stocks Will Be ‘Ripped To Smithereens’: Albert Edwards (CNBC)

Societe Generale’s notoriously bearish strategist, Albert Edwards, has warned that the deflation threat currently dogging the euro zone is greater in the U.S. and that equity markets will soon be “ripped to smithereens.” “The deflationary fault line on which the U.S. sits is every bit as precarious as that of the euro zone, but is being disguised,” he said in a new research note on Thursday. “The scales will soon lift from the market’s eyes.” Despite years of central bank easing, consumer price growth across the world has begun to stagnate with the euro zone recently falling into deflationary territory – when consumer price growth turns negative. An official flash figure for the 19-country region last week showed prices fell by 0.6% year-on-year in January.

Across the Atlantic, consumer prices increased 0.8% in the 12 months through December, the weakest reading since October 2009. The U.S. might be posting better figures than the euro zone, but Edwards argues that it’s not a like-for-like comparison. “My former esteemed colleagues Marchel Alexandrovich and David Owen pointed out to me that if U.S. core CPI (consumer price index) is measured in a similar way to the euro zone, then U.S. core CPI inflation is already ‘pari passu’ (on an equal footing) with the euro zone despite the former having enjoyed a much stronger economy,” he said. He adds that U.S. numbers differ because they are measured with “shelter inflation” which is derived from housing costs based on rent, not the price of homes.

This has been preventing U.S. core CPI from falling away sharply, to the extent that it has in the euro zone, according to Edwards. With this warning, Edwards now believes that there is “ample room” for global yields to fall further over the next two years. He believes that market participants will see sub-1% yields on the U.S. 10-year sovereign, down from its current level of 1.8015%. Edwards regularly touts the idea of an economic “Ice Age” in which equities will collapse because of global deflationary pressures. On Thursday he maintained his view that equities are likely to fall below 2009 lows. “I remain confident that the global equity markets will be ripped to smithereens in the next economic downturn which will, once again, show that the central banks have inflated another massive unstable financial bubble,” he said. “The market is far too convinced that the U.S. is in the spring of its economic recovery, whereas I believe we could well be in the autumn.”

“Kilduff said that the industry had merely gotten rid of “the runts of the litter..”

• Oil Heading For $30, Currency War Coming (CNBC)

So much for the rally. Oil will likely still head as low as $30, analyst John Kilduff told CNBC on Thursday. “I still believe we’re going to go to that $30 to $33 area, which is the low point from the financial crisis in 2008, 2009. What you saw over the past several days was technical in nature, a short squeeze. This volatility is a little crazy and I think that $30 target is a downside target is for technicians that are in this market,” the founding partner of Again Capital said in a “Squawk Box” interview. U.S. crude tumbled 9% on Wednesday to settle at $48.45, erasing nearly all of its gains in the previous two sessions. The benchmark commodity – West Texas Intermediate – had soared 22% from a nearly six-year low of $43.58 last Thursday, ending the day at $53.05 on Tuesday.

The rally’s sharp reversal spilled over into the stock market, with energy stocks leading the day’s decline in the S&P 500. Data on Friday that showed exploration and production companies had shut down 90 rigs in the prior week boosted the rally. Kilduff said that the industry had merely gotten rid of “the runts of the litter,” noting that U.S. production had not fallen and still stands at 9.1 million barrels a day. He said speculation that Saudi Arabia, the world’s largest oil exporter, would agree to production cuts in order to reach a deal with Russia on the Syrian conflict also sent oil higher.

It has no choice.

• Is China Preparing for Currency War? (Pesek)

China has entered the global monetary-easing fray, along with more than a dozen other economies, after its central bank surprised investors by cutting reserve requirements 50 basis points to spur lending and combat deflation. But Beijing may be raring for an even bigger and more perilous fight – in the currency markets. Reducing the amount of cash that banks are required to set aside (to 19.5%), as China has just done, is largely symbolic – a don’t-panic-we’re-on-top-of-things reassurance to international markets and local property developers. Still, the move is also an inflection point. China is in all likelihood about to loosen monetary policy considerably to support economic growth. If global conditions worsen, China’s one-year lending rate, now at 5.6%, could head toward zero.

At the same time, something else is afoot in Beijing could have even greater global impact. The central bank is cooking up measures to widen the band in which its currency trades. People’s Bank of China officials say it’s about limiting volatility as capital zooms in and out of the economy. Let’s call it what it really is: the first step toward yuan depreciation and currency war. As China grapples with its slowest growth in 24 years, President Xi Jinping is under pressure to stimulate the economy. Yet that would run afoul of his pledges to curb runaway debt and credit (the latter jumped about $20 trillion from 2009 to 2014). What better way to gin up growth without adding to China’s bubbles than by sharply weakening the exchange rate?

A cheaper yuan would boost exports and buy Xi more time to recalibrate growth engines away from excessive investment and debt. “The real economy desperately needs a weaker yuan,” says economist Diana Choyleva of Lombard Street Research. The question is, does the rest of the world? Any significant drop in the yuan would prompt Japan to unleash another quantitative-easing blitz. The same goes for South Korea, whose exports are already hurting. Singapore might feel compelled to expand upon last week’s move to weaken its dollar. Before long, officials in Bangkok, Hanoi, Jakarta, Manila, Taipei and even Latin America might act to protect their economies’ competitiveness.

David Stockman sent me a mail last night pointing out we had written on the same topic yesterday: “Perhaps there truly is such a thing as “great minds thinking”………..etc.” My inevitable reply: “That IS funny, yeah. You’ll never see me thinking of myself as a great mind, though (you, different story altogether), I’m just an outsider describing the crash to all the other outsiders.” See also: Debt In The Time Of Wall Street.

• China’s Monumental Debt Trap – Why It Will Rock The Global Economy (Stockman)

Bloomberg News finally did something useful this morning by publishing some startling graphs from McKinsey’s latest update on the worldwide debt tsunami. If you don’t mind a tad of rounding, the planetary debt total now stands at $200 trillion compared to world GDP of just $70 trillion. The implied 2.9X global leverage ratio is daunting in itself. But now would be an excellent time to recall the lessons of Greece because the true implications are far more ominous. Today’s raging crisis in Greece was hidden from view for many years in the run-up to its first EU bailout in 2010 because the denominator of its reported leverage ratio – national income or GDP – was artificially inflated by the debt fueled boom underway in its economy.

In other words, it was caught in a feedback loop. The more it borrowed to finance government deficit spending and business investment, whether profitable or not, the more its Keynesian macro metrics – that is, GDP accounts based on spending, not real wealth—-registered a falsely rising level of prosperity and capacity to carry its ballooning debt. Five years later, of course, the picture is much different. Greece’s GDP has now shrunk by more than 25%. The abysmal picture depicted in the graph below explains what really happened. Namely, that the bloated denominator of GDP came crashing back to earth, exposing that Greece’s true leverage was dramatically higher than the 100% ratio reported in the years before the crisis.

“They receive only about half of China’s total tax revenue, while they must pay for 80% of all government expenses..”

• Conquering China’s Mountain of Debt (Bloomberg)

Close the back door, open the front door. That s the official slogan used to describe China s most ambitious reform of government finances in two decades, to be introduced later in 2015. The aim is to wean badly indebted local governments tens of thousands of cities, counties, and townships off their dangerous reliance on off-balance-sheet financing and backdoor borrowing, from both banks and the unregulated shadow finance sector. Funds to support China s rapid urbanization to build infrastructure, keep pension programs solvent, and more will come from a vastly expanded, newly legalized local bond market.

The development of a local bond market is a real milestone, says Debra Roane, senior credit officer at Moody’s Investors Service. Once local governments start issuing debt in their own name, it will be clear that they are responsible for it, and that will ultimately lead to more prudent decision- making. They will stay away from riskier projects. Ever since China’s last major fiscal reform in the mid-1990s, when then-Vice Premier Zhu Rongji restored control of public finances to the national government, local governments have faced a dilemma. They receive only about half of China’s total tax revenue, while they must pay for 80% of all government expenses, including schools, roads, and health care. The local governments are banned from borrowing directly from banks and from issuing bonds.

As a result, a vast, unregulated industry has sprung up in what many call local government finance vehicles. Some 10,000 of these for-profit finance companies raise funds for local needs. They also have enabled local authorities to commit acts of apparent folly. The finance companies, with the implicit backing of local governments, bankrolled entire new city districts that now sit largely empty. This has led to a very opaque and risky situation, with unclear accountability, Roane says. It s not clear who is responsible for all this debt. China’s officially stated deficit is about 2% of its gross domestic product. That’s a fiction, says Chen Long, China economist at researcher GavekalDragonomics in Beijing, because it doesn’t include any of this indirect local borrowing. Add it in and the deficit rises to about 5% of GDP, Chen estimates. The National Audit Office found that as of 18 months ago, local debt including indirect borrowing totaled 17.9 trillion yuan ($2.86 trillion), up 63% since the end of 2010, much more than the 40% expansion of the economy.

As Tsipras said (paraphrased) : “And we didn’t even kill anyone”.

• The Debt Write-off Behind Germany’s ‘Economic Miracle’ (France24)

When discussing Greece’s whopping $310 billion debt, the country’s new Prime Minister Alexis Tsipras likes to recall a time when Europe’s great debt offender was not Greece, but Germany, today’s paragon of fiscal responsibility. The leader of the radical-left Syriza party refers in particular to an international conference held in London in 1953, during which West Germany secured a write-off of more than 50% of debt, accumulated after two world wars. Back then, with memories of Nazi atrocities still fresh, many countries were reluctant to offer such generous debt relief. But the US persuaded its European allies, including Greece, to relinquish debt repayments and reparations in order to build a stable and prosperous Western Europe that could contain the threat from Soviet Russia.

“Tsipras is right to remind Germans how well they were treated, with both debt relief and money from the Marshall Plan,” says Professor Stephany Griffith-Jones, an economist at Columbia University, referring to the US programme to help rebuild European economies after World War II. She believes Greece is justified in demanding a more generous approach from its creditors, despite obvious differences between its current plight and that of war-ravaged Germany. “In fact, Greece’s situation is perhaps more urgent because the pressure from markets and the financial sector is so much stronger than in the 1950s,” she says.

West Germany’s debt at the time was well below the levels seen in Greece today. But German negotiators successfully argued that it would hinder efforts to rebuild the country’s economy – much as Greek governments have in recent years, in vain. Under a crucial term of the London Agreement, repayments of the remaining debt were made conditional on West Germany running a trade surplus. In other words, the German government would only pay back its creditors when it could afford to – and not by borrowing even more money. Reimbursements were also limited to 3% of export earnings. This gave Germany’s creditors an incentive to import German goods so they would later get their money back, thereby laying the foundations of the country’s powerful export sector and fostering its so-called “economic miracle”.

“Germany’s resurgence has only been possible through waiving extensive debt payments and stopping reparations to its World War II victims,” economic historian Albrecht Ritschl told Der Spiegel in 2011, describing Germany as “the biggest debt transgressor” of the past century. “During the 20th century, Germany was responsible for what were the biggest national bankruptcies in recent history,” Ritschl said, pointing to the collapse of the German economy in the early 1930s, which sent shockwaves through global markets. “It is only thanks to the United States, which sacrificed vast amounts of money after both World War I and World War II, that Germany is financially stable today and holds the status of Europe’s headmaster. That fact, unfortunately, often seems to be forgotten.”

“If DB is right, and if Europe folds, the question then is what concessions will the ECB and the Eurozone be prepared to give to Italy, Spain and all the other nations where anti-European sentiment has been on a tear..”

• Why Deutsche Bank Thinks Europe Will Fold (Zero Hedge)

The Greek situation summaries Greece by Deutsche Bank’s George Saravelos have consistently been among the best in the entire sellside. His latest Greek update, which is a must read for anyone who hasn’t been following the fluid developments out of southeast Europe, which fluctuate not on an hourly but on a minute basis, does not disappoint. But while his summary of events is great, what is of far greater significance is his conclusion, namely that ultimately Europe will fold: “we consider the most likely outcome to be a Eurogroup offer of a new Third program” and “given that the current program expires this February the offer to negotiate a new Third program may provide political room for the government to sit on the negotiating table.

At the same time such an offer is very likely to be attached to strict conditions, with the willingness to accommodate t-bill issuance an open question. Developments overnight suggest that this has become less likely, imposing maximum pressure on the government to reach agreement within a matter of weeks.” If DB is right, and if Europe folds, the question then is what concessions will the ECB and the Eurozone be prepared to give to Italy, Spain and all the other nations where anti-European sentiment has been on a tear in recent months, and especially in the aftermath of Syriza’s stunning victory.

From Deutsche Bank: Greek Update

Over the last couple of weeks we have framed developments in Greece around three questions:
• First, under what conditions would the Troika be willing to continue negotiating with Greece?
• Second, does the Greek government accept these conditions?
• Third, how does the ECB link Greek bank financing to program negotiation?

“The ECB’s kneecapping of Greece demonstrates how central banks act as powerful enforcers on behalf of lenders and investors. The ECB operates with no concern that it will be reined in by democratic governments..”

• Time for #GreekLivesMatter (Naked Capitalism)

If you are not part of the solution, you are part of the problem. The Troika’s willingness to turn Greece into a failed state first, as a side effect of its “rescue the French and German banks” operation, and now, as part of its German hegemony protection racket, is killing people and in the longer term will only accelerate the rise of extreme right wing elements in the Eurozone. As Ilargi wrote last week:

In what universe is it a good thing to have over half of the young people in entire countries without work, without prospects, without a future? And then when they stand up and complain, threaten them with worse? How can that possibly be the best we can do? And how much worse would you like to make it? If a flood of suicides and miscarriages, plummeting birth rates and doctors turning tricks is not bad enough yet, what would be?

If you live in Germany or Finland, and it were indeed true that maintaining your present lifestyle depends on squeezing the population of Greece into utter misery, what would your response be? F##k ‘em? You know what, even if that were so, your nations have entered into a union with Greece (and Spain, and Portugal et al), and that means you can’t only reap the riches on your side and leave them with the bitter fruit.

[..] Please circulate this post widely and tweet it, using #GreekLivesMatter. If you live in a city where a central bank is located, get this idea in front of organizers. They can no doubt adapt and improve upon it. And above all, send it to all the Greeks you know, even those in Greece who might send it on to friends and family in the diaspora. If you are in the US, please contact your Congressman and express your dismay that the Fed is tacitly supporting the ECB in its reckless and destructive Eurozone policies and has the stature and the leverage to weigh in. Remember, many Republicans are as unhappy with the lack of transparency and undue concentration of power at the Fed. Even a small step supporting this effort is a step in the right direction.

“We didn’t even agree to disagree from where I’m standing..”

• Greek Leaders Return Home for Rethink After Rebuff From Germany (Bloomberg)

Prime Minister Alexis Tsipras is preparing to set out the most detailed account yet of his plans to revive the Greek economy after a diplomatic push ended with a rebuff from Germany and a warning shot from the ECB. Tsipras was greeted by the rare sight of a pro-government demonstration in downtown Athens on Thursday night after he vowed to stick to his anti-bailout campaign pledges, despite their rejection by German Finance Minister Wolfgang Schaeuble. The prime minister will lay out his policy plans on Sunday, in the opening speech of the three-day-long parliamentary debate leading up to a confidence vote to confirm his government.

Ministers met in Athens on Thursday to discuss the policy program and may reconvene on Saturday to assess Finance Minister Yanis Varoufakis’s feedback from his meeting with Schaeuble in Berlin. The first direct talks between Greece and Germany since Tsipras took power yielded no agreement on how to narrow their differences over Tsipras’s determination to end the German-led austerity regime. “We agreed to disagree” Schaeuble said after meeting Varoufakis on Thursday. “We didn’t even agree to disagree from where I’m standing,” the Greek responded.

A few hours before the Berlin encounter, the ECB heaped pressure on Tsipras by restricting Greek access to its direct liquidity lines, citing concerns about the country’s commitment to existing bailout pledges. The Greek government opted to “stop cooperating with the troika,” ECB Governing Council member Jens Weidmann said in a speech in Venice on Thursday. The move leaves Greek banks reliant on €59.5 billion of Emergency Liquidity Assistance, extended by the Bank of Greece, which is subject to review by the ECB Governing Council every two weeks. Undeterred by the ECB reaction, which triggered a sell-off in Greek bank shares, Tsipras told lawmakers from his party, Syriza, that he intends to stick to his campaign promises. “The government will negotiate hard for the first time in years, and will put a final end to the troika and its policies,” Tsipras said.

As Tsipras was speaking, hundreds gathered outside the parliament building to protest against the ECB’s decision, labeling it “blackmail.” Unlike the riots which rocked the Greek capital in 2011 and 2012, the march was peaceful and evening news bulletins dedicated more time to the fact that Syriza lawmakers opt not to wear ties than to the market declines, which saw bank stocks lose 10%. Sakellaridis said that Tsipras’s visits to Nicosia, Rome, Paris and Brussels this week had yielded results and the government isn’t alarmed about the potential impact of the ECB decision. Central bank governor Yannis Stournaras said the ECB decision “can be reversed” and the outflow of banking deposits is “under control.” “It was a very quiet day today,” he said, after meeting Deputy Prime Minister Yannis Dragasakis.

Allow?! If it walks feudal, and quacks feudal…

• ECB Said to Allow Greek Banks €59.5 Billion Emergency Cash (Bloomberg)

The European Central Bank will allow the Greek central bank to provide as much as €59.5 billion in emergency funding for the country’s lenders, a euro-area central-bank official familiar with the decision said. The measure is needed after the ECB shut off a key avenue for Greek banks’ funding on Wednesday, citing doubts that the country’s newly elected government will conclude its aid program. Greek stocks and bonds fell on Thursday after the ECB’s decision to end a waiver on the quality of Greek debt it accepts as collateral. The offer highlights how ECB officials are warning Greek politicians to keep to euro-area rules while striving to avoid a crisis in the financial system.

The ECB approved €50 billion in ELA as a replacement for its regular funding, plus an extra €9.5 billion, the official said, asking not to be identified because the proceedings aren’t public. German newspaper Die Welt reported earlier on Thursday that the ECB would allow the Greek central bank to offer about €60 billion in ELA. Under the measure, a nation’s central bank can provide liquidity to lenders at its own risk. The ECB will review ELA every two weeks to check whether the funds are being used in a way that doesn’t interfere with monetary policy. Should the ECB object, “the bank concerned cannot fund itself and that the bank concerned the same day or in the next couple of days would miss a payment and the counterpart will call a bankruptcy,” Governing Council member Klaas Knot said at the Dutch parliament in The Hague on Thursday. “So you have a credit event,” he said, while declining to comment specifically on Greece.

“Everyone wants to live in fairyland and none of us want to go back to real economies [..] This is nice theater, but it’s not going to solve anything.”

• Greek Debt Drama Is ‘Theater,’ But Stakes Are High (CNBC)

The ongoing drama surrounding Greece’s efforts to drum up support for a new debt deal is just “theater,” according to one analyst, who warned that Europe needs to wake up. Greek Finance Minister Yanis Varoufakis met his German counterpart Wolfgang Scheuble in Berlin on Thursday, after a week of travelling across Europe to try and bolster support for a new debt deal and bailout conditions. The talks were a mixed success, however, with Scheuble saying that the ministers had “agreed to disagree,” but Varoufakis denying that this was the case. Satyajit Das, author of “Traders, Guns & Money” told CNBC Friday that the talks were symptomatic of a “make-believe world.”

“Everyone wants to live in fairyland and none of us want to go back to real economies,” he said. “This is nice theater, but it’s not going to solve anything.” With no apparent progress over a debt deal for Greece, despite a week of high profile meetings between Varoufakis and Greek Prime Minister Alexis Tsipras and their fellow euro zone ministers, there is growing speculation over the eventual outcome. Das, an expert on financial derivatives and risk management, went on to stress that Greece’s “underlying dynamics” hadn’t changed. “They still can’t pay back their debt and we haven’t fixed anything. We still have to fix the basic economy,” he said. “The fundamental thing is that the Greeks want to be in the euro, they want to get this relief. The Germans want to save the German banks and the French want to save the French banks –they don’t want to have write-offs.” [..]

Panicos Demetriades, former governor of the Central Bank of Cyprus, told CNBC Friday that a “game of chicken” was being played out between the Greeks and Germans. And he added that an agreement over Greece was needed sooner rather than later in order to maintain confidence in the Greek financial system. “The Greeks have done everything possible to gain support for their positions, which are not unreasonable as the program doesn’t seem to be producing what was expected of it,” he told CNBC. “But they really don’t have the time that they think they do – that time isn’t there.” Demetriades, professor of financial economics at the University of Leicester, said that the ECB move was a symptom of deposit outflows in Greece. “Depositors are getting nervous. Even a small chance of the euro area breaking up would leave them in a mess,” he said. “It is important that the Greek government understands that if there is no agreement soon things will progressively get worse for them.”

“Varoufakis’s plea for “space for all of us to come to an agreement” sounds no more than common sense.”

• Greece and Varoufakis Need Supporters Not Sympathisers (Guardian)

What has Yanis Varoufakis, Greece’s finance minister, achieved during his grand tour of European capitals this week? Not much. He has collected a few rave reviews for his dress sense and sounded a model of sweet reasonableness in his press conferences. But on the substance? Yesterday in Berlin Wolfgang Schäuble, Germany’s finance minister, said Greece’s European partners had already gone as far as they would go on debt relief. He invited Athens to help itself. Varoufakis was left in the odd position of disputing Schäuble’s assertion that the pair had agreed to disagree. Over in Frankfurt, the ECB cranked up the pressure on Greece by yanking its banks’ access to cheap funding: Greek government bonds will no longer be accepted as collateral.

The banks can still get emergency liquidity by going through Greece’s central bank. But they will pay a higher rate of interest for that dubious privilege. What’s more the central bank’s ability to keep the funds flowing is not endless because the ECB can impose limits. The message behind the ECB’s decision seemed clear: we will play hard; we are not about to change our rules of engagement; the time for Greece’s new Syriza government to face reality is fast approaching. Indeed, the end of this month now looms as a real, and dangerous, crunch-point. Syriza has said it wants to exit the bailout programme and argues for a three-month bridging loan to allow time for negotiations. The message from Shäuble was a firm no to the loan. A stand-off between Syriza and the eurozone powerhouses was always in the offing but the positions are now stark. Something has to give here – and quickly.

In a rational world, a bridging loan would be an excellent idea. Attempting to resolve the Greek mess via brinkmanship in the space of three weeks is madness. Remaining depositors in Greek banks will be fleeing. Varoufakis’s plea for “space for all of us to come to an agreement” sounds no more than common sense. Extending finance to Athens until the end of May would not cost much. If the ECB is restricted by its mandate, politicians could always find a pragmatic fudge; they have done so many times in the past. But that is not the way the winds are blowing. Even François Hollande in France and Matteo Renzi in Italy called the ECB’s move legitimate and said it was a way to force agreement. The eurozone’s big beasts seem determined to force a quick resolution, rather than accept Syriza’s timetable.

Socialist punk banker.

• The Lazard Banker Shaping Greece’s and Ukraine’s Financial Fate (WSJ)

Europe’s financial future may hang in the balance in an office on Paris’s Boulevard Haussmann that belongs to a French banker with a taste for punk rock. Matthieu Pigasse is a self-described pro-market socialist and fan of The Clash. The 46-year-old financier is also head of the government advisory arm at Lazard , the international investment bank hired in recent days by both Greece and Ukraine to help renegotiate their debts, according to people familiar with the matter. Mr. Pigasse “has been involved in some of the most important sovereign-debt restructurings in the last decade,” said Deborah Zandstra, a sovereign-debt partner at lawyers Clifford Chance LLP. “His appointment by the new Greek administration is a positive step.”

Both assignments are key to Europe’s political and economic health. Ukraine must negotiate with foreign creditors over as much as $20 billion of Eurobond debt. These efforts could be crucial in whether Ukraine is able to negotiate further loans and keep its budget afloat, bolstering an economy ravaged by the conflict with Russian-backed rebels in the east. In Greece, new Prime Minister Alexis Tsipras has promised to slash the country’s heavy debt burden. But other eurozone leaders have declared that any reduction in the face value of Greek debt would be unacceptable and the Greek finance minister is now proposing to swap debt for new growth-linked bonds. For Lazard, an advisory and asset management firm that listed in New York in 2005, counseling governments has become a steady and growing business.

A team of Lazard bankers, led by Mr. Pigasse, advised Greece in 2012 when it pushed through one of the largest debt restructurings of all time. Lazard has also been very active in Africa, where it has advised Egypt, Mauritania, the Democratic Republic of Congo, Gabon and Ivory Coast. Last year it helped Ethiopia with its debut $1 billion sovereign-bond issue. Advising governments is a relatively small part of Lazard’s business, with fees making up just a small fraction of total revenue. But government mandates are particularly prestigious and the work can be lucrative. In March 2012, Greece said it paid Lazard €25 million for its advice over the previous two years. The sovereign-advisory arm, run out of the Paris office, has increased head count by 50% to 30 over the past three years.

“All their expenses are paid, and they have no capital at risk. This is as sweet as it gets.”

• Banker to the Broke: Lazard Advises Greece, Ukraine (Bloomberg)

When the government goes broke, the broke call Lazard Ltd. While Lazard is best known for mergers and acquisitions, the firm has found lucrative work advising governments in two of the world’s current economic trouble spots: Greece and Ukraine.
The roles are in keeping with Lazard’s long – and not always successful – history as a top adviser to cash-strapped governments. Argentina, Egypt, Indonesia, Iraq, Ivory Coast: all have turned to Lazard over the years. So did New York City, back in the 1970s. It’s nice work for Lazard, which gets to collect fees no matter how things play out for a government or its creditors. “This is a very high-margin business,” said William Cohan, a former Lazard banker and author of a book on the firm. “All their expenses are paid, and they have no capital at risk. This is as sweet as it gets.”

The Lazard team, led by Paris-based banker Matthieu Pigasse, advised a previous Greek government during the nation’s last major financial crisis, when an exit from the euro currency area loomed as a possibility if talks failed. Last week, the nation’s new government hired Lazard to help again as the country seeks to ease the pressure from a debt load of about €315 billion. Ukraine is also working with Lazard, according to people familiar with the situation. Based officially in Bermuda with major offices in Paris and New York, Lazard faces challenges with both of those assignments. The newly elected Greek government of Alexis Tsipras has pledged to increase wages, halt public-sector layoffs and cancel planned asset sales – all part of a package of structural reforms demanded by creditor states including Germany.

Finance Minister Yanis Varoufakis is weighing plans to trade existing debt for new bonds pegged to economic growth, after a proposal to impose a loss of capital on creditors met opposition. Ukraine, for its part, was struggling to meet debt payments even before what the U.S. and European Union say is a Russian-backed rebellion in its eastern regions began last year. It’s now seeking to avert default after its economy shrank an estimated 7.5% in 2014 amid the fighting. Russia, which annexed Ukraine’s Crimea peninsula in March, denies involvement in the conflict. Payments to advisers are determined by the size of the debt reduction and the degree to which creditors participate, and Lazard earned as much as €25 million over two years for previous Greek work, the government said in 2012.

it’s a pattern, not a design flaw.

• Abenomics Leaves Japan’s Poor and Elderly Behind (Bloomberg)

Hiroyuki Kawanishi’s tiny two-room flat in Tokyo may not be much, but it’s home. With Prime Minister Shinzo Abe trimming benefits for the poor as he increases spending on the military and cuts corporate taxes, it may not be for long. “If the housing subsidy is cut, I’ll lose my apartment,” said Kawanishi, 42, who was born with cerebral palsy and can barely fit his wheelchair next to the single bed in his 40 square-meter (400 square-foot) flat. “I’ll have to go to a government nursing home with no freedom. There’ll be no point in living.” Since Abe took office two years ago, aggressive monetary easing devalued the yen, bolstering earnings at big companies and lifting the stock market 70%.

It’s been good for exporters and those who own shares and property, but not so good for those without assets. For them, Abenomics means higher prices and dwindling government support. “If inflation accelerates further under Abe’s policies, inequality will widen,” said Hideo Kumano, chief economist at Dai-ichi Life Research Institute Inc. “The socially vulnerable and low-income classes will be worst affected and a cut in livelihood subsidies deals them a double punch.” Abe is facing a problem that is dogging developed economies from the U.S. to Australia: how to sustain a recovery without widening the wealth gap. More than 30% of households in Japan have no financial assets, up from 26% in 2012, according to the Central Council for Financial Services Information in Tokyo.

Abe’s government is seeking to lower subsidies for housing and winter heating allowances for the poor as part of a three-step program that began in August 2013 to trim welfare costs, including for food, clothes and fuel. The move is part of the government’s efforts to contain rising social security costs as Japan’s aging society pushes up medical and other welfare expenses. The world’s third-largest economy is also the biggest debtor among the advanced economies, with borrowings projected by the International Monetary Fund to swell to more than 245% of gross domestic product in 2015.

Every single currency is under threat.

• Is Denmark Facing A Speculative Attack? (CNBC)

Denmark’s central bank is reaching for bigger bazookas to battle the speculators betting it will be forced to abandon its currency’s peg to the euro. “They’ve thrown the proverbial policy toolkit at defending the euro-Danish peg,” Kamal Sharma, a foreign currency strategist at Bank of America Merrill Lynch, told CNBC Thursday. “They will continue to intervene with the possibility of further rate cuts, even the tail risk of the recalibration of the trading range.” Bets that the krone will rise are building. Some of the flows have headed for Denmark’s stock market, with Danish-focused mutual funds and exchange-traded fund (ETFs) seeing $230 million in inflows over the past six weeks, according to data from Jefferies.

Barclays analysts called it “the slings and arrows of market speculation.” It bears similarities to the speculative attacks that led Thailand to abandon the baht’s peg to the dollar in the late 1990s — the “Lehman-moment” of the Asian Financial Crisis. Denmark’s peg is set for the krone to trade within a 2.25% band of 7.46038 to the euro, although it has been holding it in a 0.5% band. Although the euro has recovered somewhat this week, it has fallen around 17% against the greenback since the beginning of 2014.

“The RBA (Reserve Bank of Australia) is acting as if someone slipped tranquilizers into their drink 18 months ago..”

• Australia Central Bank Acting Like It ‘Just Woke Up’ (CNBC)

Australia’s record low interest rates are about to head way lower, analysts tell CNBC, as the country’s central bank scrambles to play catch up in the race to the bottom for borrowing costs. “The RBA (Reserve Bank of Australia) is acting as if someone slipped tranquilizers into their drink 18 months ago. They’ve just woken up and they’re looking [at] the world around them and they’re only gradually coming to terms with what they can see,” said Michael Every, head of Asia-Pacific markets research at Rabobank. The RBA chopped interest rates by a quarter-point on Tuesday to a historic low of 2.25%, surprising most economists but not the debt markets, which had priced in a 60% chance of a cut.

The central bank gave no hint that further easing is imminent, minutes from the meeting released Friday showed, although it did revise its 2015 growth forecast downwards to 1.75-2.75%, from 2-3% previously. Its less-than-dovish tone gave the Australia dollar a fillip against the U.S. dollar, rising to $0.7860. But Every believes the RBA will have no choice but the bring rates even lower, with central banks the world over going on a monetary loosening spree. China, India, Russia and Canada are just a handful of major economies that have surprised with rate cuts this year. This alongside Switzerland’s shock decision to remove its currency floor while moving interest rates into negative territory, and European Central Bank’s widely expected decision to finally embark on a bond-purchasing program, or QE, to revive the euro zone economy.

He should just leave.

• Oz PM Abbott Fights for Political Life as Colleagues Seek Ouster (Bloomberg)

Australian Prime Minister Tony Abbott said he will fight to stop party lawmakers ousting him next week after just 17 months in power, as two colleagues sought a leadership ballot. vAbbott, 57, said he and his deputy, Julie Bishop, will try to defeat the so-called spill motion when their Liberal Party meets in Canberra Feb. 10. Under party rules, a leadership ballot will go ahead if more than half of the 102 Liberal lawmakers back the motion. “We will stand together in urging the party-room to defeat this particular motion,” Abbott told reporters in Sydney. The party should back “stability and the team that the people voted for at the election.” Less than half-way through his first term, Abbott is struggling to quell disquiet over his leadership amid a voter backlash against his spending cuts and a decision to bestow a knighthood on Queen Elizabeth II’s husband, Prince Philip.

Some senior Cabinet ministers have rallied around the prime minister, saying he should be given time to reverse the government’s flagging poll ratings and reset his policy agenda. “The question now is whether or not there is a willing challenger” to Abbott, said Haydon Manning, a politics professor at Flinders University in Adelaide. “Even if Abbott keeps the leadership, he’ll still be aware he’s just buying himself time to turn around the performance of the government.” Lawmaker Luke Simpkins sent an e-mail to party colleagues earlier Friday saying they must bring concerns about Abbott’s leadership to a head by holding a vote for a spill. His motion was seconded by Don Randall. Nobody has yet said they will challenge Abbott for the leadership. Both Bishop, 58, and Communications Minister Malcolm Turnbull, 60, tipped by local media as potential successors to Abbott, have said they support the prime minister.

Curious deal.

• Venezuela Oil Deal Hits Caribbean Hard (CNBC)

For many countries, cheaper oil is helping boost economic growth. But if you’re a struggling Caribbean nation dependent on energy subsidies from Venezuela, the crash in oil prices is not welcome news. Venezuela’s heavily oil-dependent economy has been sent into a tailspin by the collapse of crude prices, which has starved the country for cash to pay for domestic energy subsidies and imported goods. With little foreign currency reserves left, the economy is contracting, inflation has soared and the government has resorted to rationing food and other consumer staples. And with no rebound in oil prices in sight, the country’s future is looking bleak.

To finance its budget, the government needs oil prices above $140 a barrel, putting generous subsidies for education, food and housing at risk of deep cutbacks.It has also jeopardized generous financing terms extended to more than a dozen Caribbean nations that rely on Venezuelan oil to fuel their own economies. Venezuela launched the so-called Petrocaribe accord in 2005 as it sought to become a low-cost energy provider and win political favor among small island economies heavily reliant on oil imports. But as oil prices have fallen, Venezuela’s energy blessing has turned to something of a curse. Under the terms of the Petrocaribe agreement, the drop in oil prices has—paradoxically—raised members’ oil import costs.

That’s because, as crude prices fall, they lose access to extremely generous financing terms that amount to subsidies. When oil was over $100 a barrel, Petrocaribe member countries paid just 40% of the upfront costs, and Venezuela’s state oil company, PDVSA, covered the rest of the expense with a low interest rate loan payable over 25 years. Some have also paid their oil bills with bartered agricultural products or services. The extra cash from deferred payments helped some countries finance infrastructure projects and other spending programs. But those finance terms become much less generous as the price of oil falls, forcing member countries to pay more upfront, with payment in full when prices fall below $40 a barrel, according to RBC economist Marla Dukharan.

Funny headline, but not entirely true.

• John Kerry Rated Worst Secretary Of State In 50 Years (MarketWatch)

A new survey of scholars ranks Secretary of State John Kerry dead last in terms of effectiveness in that job over the past 50 years. Henry Kissinger was ranked the most effective secretary of state with 32.2% of the vote. He was followed by James Baker, Madeleine Albright, and Hillary Clinton, as judged by a survey of 1,615 international relations scholars. Kerry received only 0.3% of the votes cast. According to the survey, the three most important foreign-policy issues facing the U.S. are climate change, armed conflict in the Middle East and failed or failing states. The survey of 1,375 U.S. colleges and universities was conducted by Foreign Policy magazine and the College of William & Mary.

Debt Rattle January 8 2015

Jan 082015

January 8, 2015 Posted by Raúl Ilargi Meijer at 11:41 am Finance Tagged with: Abenomics, antibiotics, Charlie Hebdo, deflation, euro, fossil fuels, Greece, paycheck, Ron Paul 17 Responses »

DPC Old Absinthe House, bar, New Orleans 1906

• Most Americans Are One Paycheck Away From The Street (MarketWatch)

• Ron Paul On Paris Attack: Bad Foreign Policy ‘Invites Retaliation’ (Breitbart)

• Why Oil Will Go Even Lower (CNBC)

• The Worrying Math From US Shale Plays (Ron Patterson)

• White House Doesn’t Feel Pressure To Expand US Crude Exports (Reuters)

• Oil Investors Pour Most Money Into Funds in 4 Years (Bloomberg)

• World’s Best Forecaster Targets Euro-Dollar Parity (Bloomberg)

• Are Bond Yields Flashing A Panic Signal? (CNBC)

• Eurozone Deflation Is The Final Betrayal Of Southern Europe (AEP)

• A Tale Of Two Record Unemployments: Italy vs Germany (Zero Hedge)

• German Unemployment Falls to Record Low on Strengthening Economic Recovery (Bloomberg)

• Italy Jobless Rate Rises to Record Amid Growth Outlook Concerns (Bloomberg)

• Greek Crisis Jolts QE Juggernaut as ECB Ponders Deflation (Bloomberg)

• German Lawmakers Say Greek Debt Talks Possible After Vote (Bloomberg)

• ECB Wants New Greek Government To Quickly Reach Deal With Creditors (Reuters)

• Here’s One Road Map For A Greek Eurozone Exit (MarketWatch)

• We Are Entering An Era Of Shattered Illusions (Alt-Market)

• Fed Bullish On US Recovery (Reuters)

• Japan Household Mood Worsens To Levels Before ‘Abenomics’ (Reuters)

• China Steps In To Support Venezuela, Ecuador As Oil Prices Tumble

• Lawmakers Up Pressure On Obama To Release Secret 9/11 Documents (Fox)

• ‘France Wants To Mend Ties With Russia’ (RT)

• Fight Over Keystone Pipeline is Completely Divorced From Reality (Bloomberg)

• Most Fossil Fuels Are ‘Unburnable’ (BBC)

• The ‘Untouchable Reserves’ (BBC)

• US Antibiotics Discovery Labelled ‘Game Changer’ For Medicine (BBC)

A gutted society.

• Most Americans Are One Paycheck Away From The Street (MarketWatch)

Americans are feeling better about their job security and the economy, but most are theoretically only one paycheck away from the street. Approximately 62% of Americans have no emergency savings for things such as a $1,000 emergency room visit or a $500 car repair, according to a new survey of 1,000 adults by personal finance website Bankrate.com. Faced with an emergency, they say they would raise the money by reducing spending elsewhere (26%), borrowing from family and/or friends (16%) or using credit cards (12%). “Emergency savings are not just critical for weathering an emergency, they’re also important for successful homeownership and retirement saving,” says Signe-Mary McKernan, senior fellow and economist at the Urban Institute, a nonprofit organization that focuses on social and economic policy.

The findings are strikingly similar to a U.S. Federal Reserve survey of more than 4,000 adults released last year. “Savings are depleted for many households after the recession,” it found. Among those who had savings prior to 2008, 57% said they’d used up some or all of their savings in the Great Recession and its aftermath. What’s more, only 39% of respondents reported having a “rainy day” fund adequate to cover three months of expenses and only 48% of respondents said that they would completely cover a hypothetical emergency expense costing $400 without selling something or borrowing money. Why aren’t people saving? “A lot of people are in debt,” says Andrew Meadows, producer of “Broken Eggs,” a documentary about retirement. “Probably the most common types of debt are student loans and costs related to medical issues.”

He spent seven weeks traveling around the U.S. and interviewed over 100 people about why they haven’t saved enough money. “People are still feeling the heat from the Great Recession.” Some 44% of senior citizens have enough savings to cover unexpected expenses versus 33% of millennials, Bankrate.com found. On the upside, the Bankrate survey found that 82% of Americans keep a household budget, up from 60% in 2012. Even in the age of the smartphone, most people keep a budget the old-fashioned way, either with a pen and paper (36%) or in their heads (18%). Just 26% of those surveyed say they use a computer program or smartphone app.

That’s exactly what I said yesterday in I Follow Charlie.

• Ron Paul On Paris Attack: Bad Foreign Policy ‘Invites Retaliation’ (Breitbart)

On Wednesday’s “The Steve Malzberg Show” on NewsMax TV, former Rep. Ron Paul (R-TX) tied the Paris shooting, along with other Western domestic terrorist attacks to the bad foreign policies of those countries. “Partially what the Secretary of State said is true,” Paul said. “This is pretty obscene, when it comes to violence, and libertarians are pretty annoyed by anybody who initiates violence. “The context of things, France has been a target for many, many years, because they’ve been involved in foreign affairs in Libya, and they really prodded us along in — recently in Libya, but they’ve been involved in Algeria, so they’ve had attacks like this, you know, not infrequently,” he added.

“So, it does involve, you know, their foreign policy as well. When people do this, you know, the rejection of the violence has to be made, and with that I agree. I put blame on bad policy that we don’t fully understand, and we don’t understand what they’re doing because the people who are objecting to the foreign policy that we pursue, they do it from a different perspective. They see us as attacking them, and killing innocent people, so yes, they, they have — this doesn’t justify, so don’t put those words in my mouth — it doesn’t justify, but it explains it.” Paul cited U.S. involvement in the Middle East that helped to inspire the rise of ISIS.

“And this is why we say if we had somebody do to us what we have done to so many countries in the Middle East, and how many people we’ve killed, and sending over drones, and bombing, being involved in all these wars, and supporting dictators one week, and taking away the support — and the stupidity of us sending all those weapons into Syria, ending up in the hands of ISIS — and right now we’re even sending more weapons. You know, because ISIS took all the American weapons. It’s that overall policy which invites retaliation, and they see us as intruders. But it’s a little bit more complex, you know, when they hit us, either here at home, and hit civilians, and what’s happening in France. But I don’t think you can divorce these instances from the overall foreign policy.”

“The median estimate of more than 30 forecasters in a Bloomberg survey is $1.15 by the end of 2016.”

• World’s Best Forecaster Targets Euro-Dollar Parity (Bloomberg)

Being more bearish on the euro than the consensus helped ING become the world’s most accurate currency forecaster in 2014. The Dutch bank sees no reason to change its strategy now, breaking from the pack to predict a drop to parity with the dollar within two years. After watching the 19-nation currency slide as low as $1.1792 today from last year’s high of $1.3993 in May, ING sees it continuing to weaken all the way to $1, a level last seen in 2002. The median estimate of more than 30 forecasters in a Bloomberg survey is $1.15 by the end of 2016. ING expects measures by the European Central Bank to boost the euro zone’s flagging economy and avoid deflation will have direr consequences for the currency than most other firms. Few investors will want the euro as policy makers expand the money supply, especially as the Federal Reserve makes dollar assets more attractive by raising interest rates.

“We are one of the most bearish houses on euro-dollar,” Petr Krpata, a foreign-exchange strategist at ING in London, said yesterday by phone. “It looks as if the Fed will start hiking rates sooner rather than later, potentially even late in the second quarter, and this will further fuel the divergence on policy.” ING topped Bloomberg’s rankings of foreign-exchange analysts for the four quarters ended Dec. 31, rising from second place previously and supplanting German lender Landesbank Baden-Wuerttemberg in the No. 1 slot. In one of its best calls, ING predicted at the start of 2014 the euro would fall 13% to $1.20 by Dec. 31, compared with a median estimate in a Bloomberg survey of $1.28 at the time. The shared currency ended the year at $1.2098, and traded at $1.1798 as of 9:39 a.m. in London.

Or is it a loss of sanity signal?

• Are Bond Yields Flashing A Panic Signal? (CNBC)

Government bond yields in the U.S., Europe and Japan are plumbing lows, suggesting a flight to safety, but analysts aren’t ready to hit the panic button. “This is the first time ever that rates are this low, as even during the 1930s rates were well above current levels,” Steven Englander, head of G-10 foreign-exchange strategy at Citigroup, said in a note this week, noting the average G-3 10-year government bond yield is below 1%. The 10-year U.S. Treasury yield was trading around 1.98% late Tuesday in the U.S. after starting the year around 2.17%. Germany’s 10-year bund was around 0.47%, around all-time lows, after ending 2014 around 0.54%, while the Japanese government bond (JGB) was around 0.30%, a tad up from the record low 0.265% touched earlier this week. Bond prices move inversely to yields.

“This is not happening during the panic phase of a crisis, but after the panic is over and we have had significant recoveries in asset prices globally,” he said. But rather than a panic signal, he calls it “more a sign that investors think we are going nowhere for a long time.” Others are also disregarding the idea that declines in already low bond yields may be a warning signal. “The markets seem to be suggesting that you have perhaps even a recessionary environment, not dissimilar to an emerging market crisis, an Asian crisis or even the GFC (global financial crisis),” Piyush Gupta, CEO of DBS, said at a presentation for the bank’s private banking clients. He cited the 30-year U.S. Treasury’s around 40 basis point drop in yield in the first three trading days of this year, saying it may be the biggest drop in the 30-year’s yield since records began.

“U.S. oil production rose again—to 9.132 million barrels a day, on par with the largest output in more than three decades.”

• Why Oil Will Go Even Lower (CNBC)

New data showing a surge in U.S. gasoline and diesel fuel supplies spell more trouble for oil prices but is good news for consumers. The Energy Information Administration on Wednesday reported that U.S. gasoline stocks rose by 8.1 million barrels last week, compared with expectations for a 3.4 million barrel build. Distillate stocks, including diesel fuel and heating oil, rose by 11.2 million barrels, more than five times the amount expected. Gasoline futures for February slumped more than 2% on the Nymex to $1.32 per gallon, but West Texas Intermediate oil futures rose slightly to $48.62 per barrel even though the large supply of refined products means lower demand for oil in coming weeks.

The data showed a bigger-than-expected drop of 3.1 million barrels in crude inventories last week, but it also showed that U.S. oil production rose again—to 9.132 million barrels a day, on par with the largest output in more than three decades. Production was at 9.12 million barrels a day last week, and has been above 9 million barrels daily since early November. The surge in U.S. production, largely from shale drilling, is what set off a price war between OPEC and other producers as U.S. crude displaced that of other competitors. OPEC, at its last meeting on Thanksgiving, adopted a strategy of standing back and letting the market determine price. That has helped drive oil down further and faster than many analysts had expected.

Analysts see oil prices weakening further through the second quarter before leveling off and rising in the fourth quarter. “Despite the falling rig count, we tend to hover near 30-year highs in output,” said John Kilduff of Again Capital. He said Wednesday’s weekly data reaffirmed his negative outlook for oil prices. U.S. oil production is expected to continue to grow over the next several months, as producers pump at current levels and some even more, particularly if they are cash strapped. Analyst say it will be several months before cutbacks in capital spending start to show up in decreased oil output. “My outlook’s pretty bearish. I don’t know if it can possibly get more bearish,” Kilduff said. “I still think we’re going to punch the clock on $33 and see what happens from there.”

Decline rates even worse than thought.

• The Worrying Math From US Shale Plays (Ron Patterson)

There has been considerable dispute over how many new wells required to keep production flat in the Bakken and Eagle Ford. One college professor posted, over on Seeking Alpha, figures that it would take 114 rigs in the Bakken and 175 in Eagle Ford to keep production flat. He bases his analysis on David Hughes’ estimate that the legacy decline rate for Bakken wells is 45% and 35% for Eagle Ford wells. And he says a rig can drill 18 wells a year, or about one well every 20.3 days. The EIA has come up with different numbers. The data for the chart below was taken from the EIA’s Drilling Productivity Report. The EIA has current legacy decline at about 6.3% per month for Bakken wells and about 7.7% per month for Eagle Ford wells. That works out to be about 54% per year for the Bakken and 62% per year for Eagle Ford. I believe the EIA’s estimate of legacy decline, in this case, is fairly accurate.

“If you look at what’s going on in the market and actions that the Department took, I think that … there’s not a lot of pressure to do more.”

• White House Doesn’t Feel Pressure To Expand US Crude Exports (Reuters)

The White House does not feel pressure to loosen restrictions on U.S. oil exports further and views debate over the issue as resolved for now, John Podesta, a top aide to President Barack Obama, told Reuters in an interview. The drop in oil prices and the Commerce Department’s move to allow companies to ship as much as a million barrels per day of ultra-light U.S. crude to the rest of the world has taken pressure off the administration to do more. “At this stage, I think that what the Commerce Department did in December sort of resolves the debate. We felt comfortable with where they went,” Podesta said from his West Wing office in the most substantive comments yet from a White House official on the contentious issue of exporting abundant U.S. shale oil. “If you look at what’s going on in the market and actions that the Department took, I think that … there’s not a lot of pressure to do more.”

His comments may disappoint some Republicans and energy companies such as Hess Corp. which have lobbied for more relief from a ban they view as a relic of the 1970s Arab oil embargo. While few analysts expected Obama to make a serious effort to repeal the ban – a delicate political topic due to widespread fears among Americans that doing so could inflate gasoline prices – some had hoped that further modest measures to ease its impact might emerge this year. By standing pat, however, Obama may avoid clashing with his environmentalist supporters who have begun to campaign against lifting the restrictions, hoping that might keep a lid on domestic oil drilling by depressing local prices. Some refiners such as PBF Energy, which have benefited from the abundance of U.S. shale oil, also oppose easing the ban. Podesta, who plans to leave the administration in early February and help Hillary Clinton if she decides to run for president, has played a critical role on energy and climate policy during his one-year tenure with Obama.

Well, if you need to gamble ..

• Oil Investors Pour Most Money Into Funds in 4 Years (Bloomberg)

Investors betting oil will rebound from the lowest prices in 5 1/2-years poured the most money in more than four years into funds that track crude. The four biggest oil exchange-traded products listed in the U.S. received a combined $1.23 billion in December, the most since May 2010, according to data compiled by Bloomberg. Another $109.9 million was added this month through Jan. 5. Investors are piling into oil ETFs even after West Texas Intermediate crude tumbled the most since 2008 last year amid signs of rising supply and weak demand. Shares outstanding of the four funds surged to the highest since 2009. “Commodity investors can be contrarian investors,” said Matt Hougan, president of research firm ETF.com. “There are a lot of true believers in the commodity space. A lot of people are attached to the idea that oil’s natural price should be $100, not $50.”

The U.S. Oil Fund (USO), the biggest oil ETF, attracted $629.9 million in December and $100.4 million so far this month. The fund (DBO), which follows WTI prices, added 1.8% to $18.369 yesterday on the New York Stock Exchange. The number of U.S. Oil Fund shares on loan to short sellers was 3.93 million on Jan. 5, down from as high as 9.53 million last month, data compiled by Markit and Bloomberg show. Money is pouring into oil ETFs even as commodity-linked index liquidations surged to a record $17 billion in the first 11 months of last year, Barclays said in a report yesterday. Total commodity assets under management fell to $276 billion in November, the lowest since early 2010, according to the bank.

“There is a risk of a real economic vicious cycle: less investment, which in turn reduces potential growth, the future becomes even grimmer and investment is reduced even further ..”

• Eurozone Deflation Is The Final Betrayal Of Southern Europe (AEP)

The eurozone has let it happen. Europe’s authorities have so mismanaged monetary and fiscal strategy that the whole currency bloc has tipped into deflation. The drop in the eurozone’s headline price index to -0.2% in December scarcely captures the significance of what is happening. Deflationary forces have been gaining a grip on all the crisis states of the South for 18 months. A chorus of economists began warning two years ago that the region was sailing close to the wind by letting inflation drift ever lower, leaving itself one shock away from a loss of policy traction. That shock is now hitting in successive waves: the Russia crisis; China’s over-investment glut; and now the collapse of oil prices. Textbook theory suggests that a halving of energy costs should be cause for celebration, a tax cut for consumers. It is very different calculus when inflation is already zero, bond yields are plummeting to 14th century lows across the world, and market psychology is becoming “unhinged” – to use central banking vernacular.

“Normally, any central bank would prefer to look through a positive supply shock,” said Peter Praet, the European Central Bank’s chief economist. “But we may not have that luxury at present. Shocks can change: in certain circumstances supply shocks can morph into demand shocks via second-round effects.” Mr Praet said families and firms are already adapting pre-emptively to the new order, describing what amounts to a classic deflation trap. “There is a risk of a real economic vicious cycle: less investment, which in turn reduces potential growth, the future becomes even grimmer and investment is reduced even further,” he told Börsen-Zeitung. Mr Praet warned that an “underemployment equilibrium” is setting in, invoking the term used by Keynes in the 1930s. He exhorted “all the authorities”, including governments, to step up to their responsibilities and take “urgent action”. This is a man who knows that monetary union is in deep crisis.

His boss, Mario Draghi, has been bending every sinew for a long time to head off this awful moment. He went to Berlin as far back as November 2013 to plead for understanding from Germany’s economic elites, warning even then that radical measures were needed to secure a “safety margin against deflationary risks”. He feared that the downward slide was pushing EMU crisis countries into a deeper rut as they tried to claw back competitiveness. “Real debt burdens rise,” he said. Mr Draghi did not invoke Irving Fisher’s classic text published in 1933 – Debt-Deflation Theory of Great Depressions – but his message was the same. Falling prices are not benign in highly-leveraged economies. There comes a point when the sailing ship does not right itself by the normal swing of the cycle. It tips too far and capsizes. Try to right it then. The Japanese are still trying 15 years later.

Zero Hedge noticed the same phenomenon I did earlier in yesterday’s I Follow Charlie. As I said: “If the European economy doesn’t magically recover, the north will – continue to – save its economies by strangling the south.”

• A Tale Of Two Record Unemployments: Italy vs Germany (Zero Hedge)

For the first time ever, Italy’s unemployment rate is more than twice that of its European Union (one region, one monetary policy) neighbor Germany. As Germany’s jobless rate fell for the 3rd month in a row to 6.5% (the lowest level in records going back more than two decades), Italian unemployment unexpectedly rose to a record high at 13.4% (well above the euro-region rate of 11.5%). Of course, while these two nations ‘economic’ state diverges by the most on record, bond yields are at record lows in both – leaving us (and everyone else) questioning, just what it is that ECB QE will do to help Europe’s economies?

Here’s the German part:

German Unemployment Falls to Record Low on Strengthening Economic Recovery (Bloomberg)

German unemployment fell for a third month in December to a record low, signaling that growth in Europe’s largest economy will accelerate in 2015. The number of people out of work fell a seasonally adjusted 27,000 to 2.841 million in December, the Federal Labor Agency in Nuremberg said today. The adjusted jobless rate dropped to 6.5%, the lowest level in records going back more than two decades.

The rest of that article is just a whole load of nonsense, hubris and whale blubber. But then you contrast it with this:

Italy Jobless Rate Rises to Record Amid Growth Outlook Concerns (Bloomberg)

Italy’s unemployment rate increased more than forecast to a new high of 13.4% in November as companies failed to hire on concern the country’s longest recession on record isn’t about to end. The jobless rate rose from a revised 13.3% in October, the Rome-based national statistics office Istat said in a preliminary report today. The November reading is the highest since the quarterly series began in 1977.

Two more weeks of this endless discussion …

• Greek Crisis Jolts QE Juggernaut as ECB Ponders Deflation (Bloomberg)

Mario Draghi has more evidence than ever to start quantitative easing as soon as this month – if only he can find a way to deal with Greece. Two weeks before the first monetary-policy meeting of the year on Jan. 22, governors gathered yesterday and discussed the decision over dinner. Hours earlier, data showed the first annual drop in consumer prices since 2009 and stubbornly high unemployment, handing the European Central Bank president a stronger case for buying government bonds. Overshadowing their meal was the return of Greek tensions, with the prospect that elections three days after the meeting will bring a party to power that wants to restructure the nation’s debt. That threat adds a new dimension to the argument for Draghi, whose chief challenge in convincing opponents of quantitative easing is to show it won’t turn into a bailout for recalcitrant governments.

“The case for further ECB action is strong and the negative rates of inflation will provide great mood music for Draghi to push QE through the Governing Council,” said Nick Kounis, head of macro research at ABN Amro Bank NV in Amsterdam. “The Greek issue could complicate the announcement and the ECB may well hold off from providing the details until March, giving it a chance to see how the situation turns out.” Euro-area consumer prices dropped an annual 0.2% in December as oil costs plunged, and November unemployment remained near a record at 11.5%. Draghi has argued that slumping energy prices may worsen inflation expectations, a development the ECB won’t be able to ignore. A decision in favor of large-scale government-bond purchases still has hurdles to overcome.

Policy makers including Bundesbank President Jens Weidmann have spoken publicly against them, citing legal risks and the likelihood that a program would reduce the incentive for governments to reform their economies. The treatment of Greek bonds, which are rated junk by the three major credit-rating companies, demands particular attention by officials. The ECB already owns 8% of the nation’s debt, and has committed to accept it as collateral in refinancing operations as long as the country stays in a program to ensure its reform efforts stay on track. Greek opposition party Syriza, which leads in opinion polls, has campaigned on an anti-austerity platform that includes relief on the nation’s debt. That leaves the ECB facing a dilemma over whether to buy the bonds.

Greece can get anything it wants, as long as Germany’s interests are secured. And that’s the whole problem.

• German Lawmakers Say Greek Debt Talks Possible After Vote (Bloomberg)

Germany is leaving the door open to discussing debt relief with Greece’s next government, lawmakers in Chancellor Angela Merkel’s coalition said, signaling a more flexible stance than her administration has taken publicly. While writing off Greek debt isn’t on the table, talks on easing the repayment terms on aid that Greece received from European governments are possible after the country’s parliamentary elections on Jan. 25, the lawmakers from Germany’s two biggest governing parties said. The condition is that Greece sticks to its austerity commitments, they said.

The potential opening reflects scenarios under discussion in Merkel’s coalition for how to respond if Greek voters oust Prime Minister Antonis Samaras, a Merkel ally who has enforced German-led demands for austerity, and elect anti-austerity leader Alexis Tsipras’s Syriza party. “There should be talks with any government that emerges from the election,” Ingrid Arndt-Brauer, a Social Democrat who chairs the lower house’s finance committee, said in an interview. “You can talk about extending maturities and easing the interest rate on loans with a left-wing government, too.” A senior lawmaker from Merkel’s Christian Democratic Union said Germany will talk with any elected Greek government, including about an easing of aid conditions, as long as Greece doesn’t renege on its austerity commitments.

If the creditors are willing to forgive enough debt, this shouldn’t be a problem. 😉

• ECB Wants New Greek Government To Quickly Reach Deal With Creditors (Reuters)

The European Central Bank wants Greece’s new government to soon reach an agreement with its European partners to enable the country’s banks to continue to have access to funding, Greek newspaper Kathimerini reported on Thursday. “The ECB sent clear and stern messages to Athens yesterday through Bank of Greece Governor Yannis Stournaras asking for an agreement with European partners soon after the election so that liquidity access to banks can continue,” the paper said. ECB funding to Greek banks rose 2.3% to €44.85 billion in November. Banks have reduced their exposure but still depend on ECB funding for liquidity.

Citing the country’s central banker, the paper said the ECB will maintain its funding access to the nation’s lenders as long as Athens remains under a bailout program and continues to meet its obligations. “As regards the upcoming election, the ECB is not taking any side but wants whatever government emerges to be formed soon and complete negotiations with the (EU/IMF/ECB) troika so that there is agreement on the day after,” Kathimerini said. The paper said business and household deposits dropped by about €2.5 billion in December, according to estimates by bankers who do not see the situation as a cause for concern.

“.. preparations must be made in secret by a small group of officials and then acted on more or less straightaway ..”

• Here’s One Road Map For A Greek Eurozone Exit (MarketWatch)

Remember Grexit? Looming elections in Greece have people again talking about the possibility of a country leaving the euro. If it were to come to that, it wouldn’t be a simple task. And some economists fear the turmoil that would surround a breakup could trigger another global financial crisis. While financial markets aren’t exactly up in arms over the prospect, it’s worth a closer look at exactly how a Greek exit might play out. One possible path was detailed by economist Roger Bootle, the founder of London-based research firm Capital Economics. In fact, the plan won the 2012 Wolfson Economics Prize, which was a contest for proposals on how to dismantle the eurozone. Here are some of the plan’s highlights:

Secret preparations, capital controls: This would be necessary because word of an exit would prompt a run on the banks. After all, who would want to leave their euros parked in a Greek bank to see them converted overnight into drachmas? “Accordingly, preparations must be made in secret by a small group of officials and then acted on more or less straightaway,” wrote Bootle and his associates. Temporary capital controls, including temporary closure of the banks, would be essential just before departure. Parity with the euro (at first): In order to maintain price transparency and boost confidence, it would be best to introduce the new currency at parity with the euro. In other words, if the price of an item was €1.35, it would now be 1.35 drachmas. They note that the drachma would, of course, be free to fall on foreign exchange markets and that it is actually crucial that it does so.

Redenominated debt, substantial default: The government should redenominate its debt in the new currency and make clear it plans to renegotiate the terms, which would likely include a “substantial default,” they wrote, while also making clear the intention to resume servicing remaining debt as soon as possible. Bootle and his team offered several other recommendations, including a call for the national central bank of an exiting country to implement inflation-targeting and stand ready to inject liquidity into its own banking system, using quantitative easing, if necessary. They must also make clear they’re ready to recapitalize banks, the plan recommends.

“.. the idea that such things can happen despite a consensus of social and geopolitical health does not seemed to have soaked into the thick skulls of average people.”

• We Are Entering An Era Of Shattered Illusions (Alt-Market)

The structure of history is held together by two essential and distinct kinds of links, two moments in time to which no one is immune: moments of epiphany, and moments of catastrophe. Sometimes, both elements intermingle at the birth of a singular epoch. Men often awaken to understanding in the midst of great crisis; and, invariably, great crises can erupt when men awaken. These are the moments when social gravity vanishes, when the kinetic glue of normalcy melts away, and we begin to see the true foundations of our world, if a foundation exists at all. Catastrophe occurs when too many people refuse to accept that around us always are two universes at work. There is the cold, hard reality that underlies everything. And on the surface is a veil of deceit and compromise. The more humanity compromises vital truths in order to enjoy the comfort of illusions, the more mind-shattering it will be when those illusions fall away. These two worlds can coexist only for short periods of time, and they will always and eventually collide. There is no other possible outcome.

I think it could be said that the more polarized our realities become, the more explosive and disastrous the reaction will be when the separation is removed. I feel it absolutely necessary to relate this danger because today humanity is living so historically far from the bedrock of reality, political reality, social reality and economic reality that the stage has been set for a kind of full spectrum destabilization that has never been seen before. Though my analysis tends to lean toward the economic side of things, I am not only speaking of shattered illusions in the financial realm. In my next article, one last time I plan to go over nearly every mainstream economic statistic used today to misdirect the public (from national debt to unemployment to inflation to retail sales and corporate profits) and expose why they are false while giving you the real numbers. For now, I want to discuss the core problem of self-deception, the problem that makes all the rest of our problems possible.

When the initial phase of the global collapse was triggered in 2007 and 2008, there was a substantial explosion in interest and education in terms of liberty issues and alternative economic awareness. I remember back in 2006 when I had just begun writing for the movement that the ratio of people on any given Web forum or in any given public discussion was vastly opposed to alternative viewpoints and information — at least 50-1 by my observations. We were at the height of the real estate frenzy; everyone was buying houses with money they didn’t have and borrowing on their mortgages to purchase stuff they didn’t need. Life was good. The shock of the credit crisis came quickly and abruptly for most people, and there has been a considerable shift in the kinds of discussions many are willing to entertain about our future. Yet the idea that such things can happen despite a consensus of social and geopolitical health does not seemed to have soaked into the thick skulls of average people.

Setting the stage for rate hikes.

• Fed Bullish On US Recovery (Reuters)

U.S. central bankers have looked beyond a global deflation threat, fear of energy-sector bond defaults, and a surge of oil patch layoffs to reach what appears to be a firm conclusion: the U.S. recovery is here to stay. New trade data released on Wednesday and signs of ever-stronger consumer spending confirmed the United States remains the bright spot in a global economy plagued by uncertainty. The trade deficit shrank in November to less than $40 billion, providing a boost to growth as Americans spent less on imported oil. Meanwhile, the first corporate reports from the Christmas season showed at least some of that money trickling into stores as J.C. Penney said same-store sales rose 3.7% in November and December, pushing the company’s stock up nearly 20%.

At its December policy-setting meeting, according to minutes released on Wednesday, the Federal Reserve took close stock of plunging world oil prices and turmoil in Europe and decided that those negative trends would not undo that underlying strength. “Several participants … suggested that the real economy may end up showing more momentum than anticipated, while a few others thought that the boost to domestic spending coming from lower energy prices could turn out to be quite large.” The minutes set the stage for what could be a key economic theme this year: how the global system will react as Fed policy diverges from that of other major central banks. The European Central Bank and the Bank of Japan are expected to further loosen monetary conditions in coming weeks or months, while the luster has fallen from emerging markets that had been attracting record levels of investment in recent years.

“These minutes defined the environment post-tapering,” said Robert Tipp, chief investment strategist at Prudential Fixed Income in New Jersey. “If the Fed moves aggressively it would suck up capital from emerging markets.” Global conditions have arguably weakened since the Fed’s Dec. 16-17 meeting, and the minutes note that the United States would not be immune if the world economy turns sharply down. There is already fallout. Credit analysts have honed in on the debts of companies involved in oil and gas exploration and production, with Standard & Poor’s downgrading half a dozen firms at the end of 2014 and concluding the entire sector will be under pressure if prices remain so low.

Abecomics has been far worse than a mere failure.

• Japan Household Mood Worsens To Levels Before ‘Abenomics’ (Reuters)

Japanese households’ sentiment worsened in December to levels last seen before premier Shinzo Abe unleashed radical stimulus policies two years ago, a central bank survey showed, underscoring the challenges he faces reviving the economy. The diffusion index measuring how households felt about the current state of the economy stood at minus 32.9 in December, down 12.5 points from September, the Bank of Japan’s quarterly survey on people’s livelihood showed on Thursday. Abe’s ruling party won a landslide victory in a snap poll in December last year, giving the premier a fresh mandate to proceed with his “Abenomics” mix of massive fiscal, monetary stimulus and structural reforms dubbed “Abenomics.”

That is the lowest level since December 2012, when Abe won the previous election and launched his radical program aimed at breaking the economy free of a long deflationary phase. While the policies helped weaken the yen and boost stock prices, the effect on the economy has been disappointing as companies remain hesitant over boosting wages and capital spending. Another index gauging households’ livelihood fell 3.1 points to minus 47.2, the worst level since 2011, the survey showed. A negative reading means respondents who feel they are worse off than three months ago exceed those who fell better off.

Many of those who replied that they are worse off complained of rising costs of living and stagnant wage growth, a sign households are feeling the pinch from a sales tax hike in April 2014 and rising import costs due to the weak yen. The weak reading suggests Abe’s decision last November to delay a second sales tax hike, initially planned for October 2015, did little to brighten sentiment. It also highlights the dilemma of the BOJ, which is printing money aggressively to achieve its 2% inflation target sometime during the fiscal year beginning in April. More than 80% of respondents expect prices to rise a year from now, roughly unchanged from September. But 83.8% of households consider rising prices as undesirable, up from 78.8% in September, the survey showed.

More than happy to.

• China Steps In To Support Venezuela, Ecuador As Oil Prices Tumble

China stepped up its courtship of Latin American countries Thursday, promising to double trade with the region by 2025 and offering fresh loans to support left-wing governments in Venezuela and Ecuador. At a meeting in Beijing with the Community of Latin American and Caribbean States, or CELAC, President Xi Jinping said that annual bilateral trade would rise to $500 billion over the next 10 years, and that China would invest some $250 billion in the region in that period. That would threaten the U.S.’s traditional pre-eminence as the region’s biggest trading partner, inevitably diluting its political clout there. However, it’s not clear quite how Xi arrived at his figures. Although trade and investment have rocketed in the last 20 years as China has sucked up natural resources from around the world to fuel its industrialization, growth slowed sharply in the first 11 months of last year, as China refocused its economy on domestic demand.

According to CELAC figures, trade volumes grew only 1.3% year-on-year in the first 11 months of 2014. Despite that, China remains the biggest buyer for Venezuelan oil, Chilean copper and Argentinian soybeans, among other things. Of more immediate impact than Xi’s promises Thursday were agreements to bankroll the governments of Venezuela and Ecuador, two of the most viscerally anti-U.S. regimes in the region and two oil exporters who are struggling with the consequences of the 60% drop in oil prices since the start of last year. Venezuelan President Nicolas Maduro was reported as saying that he had secured over $20 billion in investment from the state-owned institutions Bank of China and China Development Bank, adding to over $45 billion in the last 10 years. He didn’t give details of the loans’ terms. Ecuador, meanwhile, said it had agreed a new $5.3 billion credit line with China’s Export-Import Bank and $2.2 billion in other funding.

Saudi involvement in the attacks.

• Lawmakers Up Pressure On Obama To Release Secret 9/11 Documents (Fox)

Congressional lawmakers on Wednesday ramped up efforts to get President Obama to release 28 top-secret pages from a 9/11 report that allegedly detail Saudi Arabia’s involvement in the terror attacks. Lawmakers and advocacy groups have pushed for the declassification for years. The effort already had bipartisan House support but now has the backing of retired Florida Democratic Sen. Bob Graham, a former Senate Intelligence Committee chairman whom supporters hope will help garner enough congressional backing to pressure Obama into releasing the confidential information. “The American people have been denied enough,” North Carolina GOP Rep. Walter Jones said on Capitol Hill. “It’s time for the truth to come out.”

Jones has led the effort with Massachusetts Democratic Rep. Stephen Lynch, among the few members of Congress who have read the 28 redacted pages of the joint House and Senate “Inquiry into Intelligence Activities Before and After the Terror Attacks,” initially classified by President George W. Bush. They introduced a new resolution on Wednesday urging Obama to declassify the pages. Jones and other lawmakers have described the documents’ contents as shocking. That 15 of the 19 hijackers were Saudi Arabian citizens is already known. But Graham and the congressmen suggested the documents point to Saudi government ties and repeatedly said Wednesday that the U.S. continues to deny the truth about who principally financed the attacks – covering up for Saudi Arabia, a wealthy Middle East ally.

Don’t be surprised if France moves quickly on this.

• ‘France Wants To Mend Ties With Russia’ (RT)

France intends to take a lead in de-escalating the confrontation with Russia as a face-saving measure while the EU is facing big economic challenges, John Laughland, Director of studies at the Institute of Democracy and Cooperation in Paris, told RT.

RT: Francois Hollande on Monday said that sanctions against Russia “must stop now.” What does this statement from the French leader mean for the upcoming talks?

John Laughland: I think that means that France is intending to take a lead in deescalating the confrontation with Russia and in seeing an end to sanctions, in seeing the sale of the Mistral helicopter carrier ships and also in seeing a de facto – at least – recognition of the annexation of Crimea. I said this back in December when Francois Hollande, the French president visited Vladimir Putin on the way back from Kazakhstan. It was clear that he was taking the lead then, taking a lead against Germany and against Mrs. Merkel of who many people thought that she would be pro-Russian force in Europe. She’s turned out to be very opposite. And we are seeing France assuming a relatively traditional position now in foreign policy and reassuming and reasserting its traditional friendship with Russia. So I’m relatively optimistic about these latest statements.

RT: Hollande added that progress has to be made at the talks. Moscow has been actively engaged in the peace process in eastern Ukraine. The latest talks saw hundreds of prisoners returned by both Kiev and eastern militias, but the sanctions still remain. So what exactly constitutes progress?

JL: He is saying that he wants to sell the Mistral, he wants to get rid of the problem, he would like, as he said, the end of the sanctions and so on. He assured himself, extremely understanding for the Russian position. He didn’t mention Crimea. He implied that Crimean annexation would be accepted, and he showed understanding as well for Russian opposition to NATO membership for Ukraine. When he says “progress” I regard that as purely a face-saving phrase. The fact is that Ukraine is off the headlines now. We haven’t had much news from Ukraine for many weeks now in the Western media. Quite frankly it is off people’s radar screen. Providing it stays off the radar screen, providing it stays off headlines it would be a good time – if that is indeed his intention – to move on from this unfortunate episode.

As I said: why bother?

• Fight Over Keystone Pipeline is Completely Divorced From Reality (Bloomberg)

In the six years since TransCanada Corp. first sought U.S. approval to build the pipeline, the debate over Keystone XL pipeline has, somewhat strangely, become one of the central fights in U.S. politics. It’s about to get even bigger. On Wednesday, Republicans will inaugurate the new Congress by taking up a Senate bill to approve the Keystone XL pipeline that would connect oil producers in Western Canada to U.S. refineries on the Gulf Coast. The House will vote on the measure on Friday. Several years ago, liberals looking for a cause to rally around settled on Keystone because the oil it would transport, extracted from tar sands, is especially damaging to the environment. James Hansen, then the director of NASA’s Goddard Institute for Space Studies, famously declared that if the pipeline goes forward and Canada develops its oil sands “it will be game over for the planet.”

Conservatives seized on Keystone because it offered a clear example of liberals prioritizing the environment over the jobs the pipeline’s construction would create, an effective political attack in a lousy economy. President Obama’s anguish over whether or not to approve it only added to the appeal. As a result, Keystone has attained tremendous symbolic importance for both Democrats and Republicans. But this is the opposite of how it should be — the political fight has become completely divorced from reality. The pipeline’s actual importance to oil markets, the economy and the environment has steadily diminished. Whoever wins, the “victory” will be pointless and hollow. The liberal claim that blocking Keystone would limit Canadian oil sands development, or even slow Canadian oil exports to the United States, has turned out to be wrong.

Over the last four years, Canadian exports to the Gulf Coast have risen 83%. Last year, U.S. oil imports from Canada hit a record. This year, Canadian oil producers expect shipments to double. One way producers achieved this is by building new pipelines, such as the Flanagan South pipeline, which can transport 600,000 barrels a day of heavy crude, and expanding old ones. At the same time, the Canadian government has approved two new lines as a fallback to Keystone—one running east to Quebec, the other west to the Pacific—that avoid the U.S. entirely. Collectively, these projects dwarf Keystone’s 800,000 barrel-a-day capacity. “Keystone is kind of old news,” Sandy Fielden, director of energy analytics at Austin, Texas-based RBN Energy, told Bloomberg News. “Producers have moved on and are looking for new capacity from other pipelines.”

“Policy makers must realise that their instincts to completely use the fossil fuels within their countries are wholly incompatible with their commitments to the 2C goal.”

• Most Fossil Fuels Are ‘Unburnable’ (BBC)

Most of the world’s fossil fuel reserves will need to stay in the ground if dangerous global warming is to be avoided, modelling work suggests. Over 80% of coal, 50% of gas and 30% of oil reserves are “unburnable” under the goal to limit global warming to no more than 2C, say scientists. University College London research, published in Nature journal, rules out drilling in the Arctic. And it points to heavy restrictions on coal to limit temperature rises. “We’ve now got tangible figures of the quantities and locations of fossil fuels that should remain unused in trying to keep within the 2C temperature limit,” said lead researcher Dr Christophe McGlade, of the UCL Institute for Sustainable Resources.

“Policy makers must realise that their instincts to completely use the fossil fuels within their countries are wholly incompatible with their commitments to the 2C goal.” Past research has found that burning all of the world’s fossil fuel resources would release three times more carbon than that required to keep warming to no more than 2C. The new study uses models to estimate how much coal, oil and gas must go unburned up to 2050 and where it can be extracted to stay within the 2C target regarded as the threshold for dangerous climate change. The uneven distribution of resources raises huge dilemmas for countries seeking to exploit their natural resources amid attempts to strike a global deal on climate change:
• The Middle East would need to leave about 40% of its oil and 60% of its gas underground
• The majority of the huge coal reserves in China, Russia and the United States would have to remain unused
• Undeveloped resources of unconventional gas, such as shale gas, would be off limits in Africa and the Middle East, and very little could be exploited in India and China
• Unconventional oil, such as Canada’s tar sands, would be unviable.

The research also raises questions for fossil fuel companies about investment in future exploration, given there is more in the ground than “we can afford to burn”, say the UCL scientists. “We shouldn’t waste a lot of money trying to find fossil fuels which we think are going to be more expensive,” co-researcher Prof Paul Ekins told the BBC. “That almost certainly includes Arctic resources. It will certainly include a lot of the shale gas resources in Europe, which have not really been explored or exploited at all.”

Different take on same story.

• The ‘Untouchable Reserves’ (BBC)

Is the “carbon bubble” wobbling in the face of a new assault? A paper in the journal Nature has lent support to the notion that combating climate change and developing more fossil fuels are mutually contradictory. Its key message is that keeping global temperature rise within 2C means leaving in the ground 80% of known coal reserves, 50% of gas and 30% of oil. The University College London authors invite investors to ponder whether $670bn, the amount they say was spent last year on seeking and developing fossil fuels, is a wise use of money if we can’t burn all the fuel we’ve already found.

The movement to divest from fossil fuel companies is being prompted by the small but increasingly influential NGO Carbon Tracker, which argues that investment has created a carbon bubble of fossil fuel assets that will be worthless if climate change is taken seriously. The managers of the Rockefeller fortune have heard its message and already divested from coal. The University of Glasgow’s investment fund will avoid fossil fuels altogether. NGO 350.org is gathering support for a similar campaign in the US, and Norway’s vast government pension fund is seeking to pressure companies to take their climate responsibilities more seriously.

Surprisingly, the Bank of England has also chipped in. It is conducting an enquiry into the risk of an economic crash if future climate change rules render coal, oil and gas assets worthless. The findings will be interesting; even if the enquiry team are alarmed by the potential extent of stranded assets, they can hardly make their case bluntly for fear of creating a stampede. To heap on the pressure, the talks leading to the prospective climate deal in Paris in December will debate whether fossil fuels can be completely phased out by 2050. Oil firms like Shell have stated their confidence in the energy status quo that has formed the economic bedrock of modern society and helped billions out of poverty. They say they see no risk to their business model (because executives privately do not believe that politicians will keep their promises on carbon limits). And they have hopes that technology to capture and store carbon will give their products a new lease of life.

This would save a lot of lives in the future. Then again, we’d start feeing them to farm animals, and restart the whole cycle.

• US Antibiotics Discovery Labelled ‘Game Changer’ For Medicine (BBC)

The decades-long drought in antibiotic discovery could be over after a breakthrough by US scientists. Their novel method for growing bacteria has yielded 25 new antibiotics, with one deemed “very promising”. The last new class of antibiotics to make it to clinic was discovered nearly three decades ago. The study, in the journal Nature, has been described as a “game-changer” and experts believe the antibiotic haul is just the “tip of the iceberg”. The heyday of antibiotic discovery was in the 1950s and 1960s, but nothing found since 1987 has made it into doctor’s hands. Since then microbes have become incredibly resistant. Extensively drug-resistant tuberculosis ignores nearly everything medicine can throw at it. The researchers, at the Northeastern University in Boston, Massachusetts, turned to the source of nearly all antibiotics – soil. This is teeming with microbes, but only 1% can be grown in the laboratory.

The team created a “subterranean hotel” for bacteria. One bacterium was placed in each “room” and the whole device was buried in soil. It allowed the unique chemistry of soil to permeate the room, but kept the bacteria in place for study. The scientists involved believe they can grow nearly half of all soil bacteria. Chemicals produced by the microbes, dug up from one researcher’s back yard, were then tested for antimicrobial properties. The lead scientist, Prof Kim Lewis, said: “So far 25 new antibiotics have been discovered using this method and teixobactin is the latest and most promising one. “[The study shows] uncultured bacteria do harbour novel chemistry that we have not seen before. That is a promising source of new antimicrobials and will hopefully help revive the field of antibiotic discovery.”

Debt Rattle November 18 2014

Nov 182014

November 18, 2014 Posted by Raúl Ilargi Meijer at 1:09 pm Finance Tagged with: Abenomics, aquifer, CDS, corruption, deficit, Draghi, ebola, pension, qualms, Shale, slavery, volatility 1 Response »

Dorothea Lange Saturday afternoon, Pittsboro, North Carolina Jul 1939

• Japan PM Abe Calls Snap Election, Delays Sales Tax Hike (CNBC)

• Japan Prepares Stimulus to Strengthen 2015 Growth After Recession Hit (Bloomberg)

• Japan’s ‘Abenomics’ Can Survive Quadruple-Dip Recession (AEP)

• ‘Godfather’ Of Abenomics Admits It’s A Ponzi Game, Taxpayers May Revolt (ZH)

• ECB’s Draghi: Buying Sovereign Bonds Is An Option (CNBC)

• Draghi Says ECB Measures May Entail Buying Government Bonds (Bloomberg)

• Draghi Seen Bypassing QE Qualms to Hit Balance-Sheet Goal (Bloomberg)

• Industrial Output in U.S. Unexpectedly Fell in October (Bloomberg)

• Deutsche Bank Scales Back Trading in Credit Derivatives (Bloomberg)

• Flash Boys Invade $12.4 Trillion Treasury Market in New Era of Volatility (Bloomberg)

• Wall Street to Reap $316 Million From Day of Mega Deals (Bloomberg)

• Australia’s Record-Low Rates To Head Further South (CNBC)

• US Pension Insurer Ran Record $62 Billion Deficit (AP)

• All Aboard The Instability Express (James Howard Kunstler)

• The Secret History Of Corruption In America (Stoller)

• UK Grocery Sales In Decline For First Time In 20 Years (Guardian)

• 1 in 5 UK Supermarkets Must Close To Restore Profit Growth (Guardian)

• Putin Warns He Won’t Let Ukraine Annihilate Eastern Rebels (Bloomberg)

• Shale Drillers Plan Output Increases Despite Oil Price Decline (Bloomberg)

• 3 Billion Gallons Of Fracking Wastewater Pumped Into Clean CA Aquifers (ZH)

• Modern Slavery Affects More Than 35 Million People (Guardian)

• Ebola Doctors: The Last Working Consciences In The Western World (Guardian)

It’ll give him the power to totally sink the nation. All that’s missing is a few nuke plants and a major quake.

• Japan PM Abe Calls Snap Election, Delays Sales Tax Hike (CNBC)

Japanese Prime Minister Shinzo Abe called a snap election and announced a delay in the second sales tax hike by 18 months after the country fell into recession. The move announced on Tuesday comes after growth numbers on Monday showed the world’s third-largest economy shrunk by an annualized 1.6% in the third quarter after a 7.3% contraction in the second quarter, shocking the markets. “I have decided not to raise the consumption tax to 10% next October and I have decided to delay a consumption tax hike for 18 months,” Abe said at a press conference. Japan has suffered since the first consumption tax hike from 5 to 8% in April.

Abe said the rise in the sales tax “acted as a heavy weight and offset a rise in consumption”. A second consumption tax hike was set for October 2015 which would have seen a 2% increase to 10%. Abe also said the lower house of parliament would be dissolved on November 21 and an election would be called in a move to strengthen his mandate for “Abenomics” – his set of economic policies. The Japanese Prime Minister admitted that it will be a “difficult election” but said he wanted the public to back his package of reforms. “There are differing opinions on the structural reforms we have proposed and I have decided that I need to hear the voice of the Japanese public on whether or not we should go forward with these reforms,” Abe said.

There are still ‘analysts’ around who actually believe this stuff: “Household sentiment should be relaxed thanks to the delay in another VAT hike, helping improve spending attitude and facilitate consumption recovery”. Spending in Japan has been down for years, nothing to do with sales taxes.

• Japan Prepares Stimulus to Strengthen 2015 Growth After Recession Hit (Bloomberg)

With Japan’s slump into its fourth recession since 2008 threatening the failure of the Abenomics reflation program, Prime Minister Shinzo Abe’s administration is taking steps to shore up growth for the coming year. Economy Minister Akira Amari told reporters yesterday in Tokyo there’s a high chance of a stimulus package. Etsuro Honda, an adviser to Abe, said a 3 trillion yen ($26 billion) program was appropriate and should go toward measures that directly help households, such as child care support. Abe, who holds a news conference later today, is also considering a postponement of an October sales-tax increase until 2017 – a move that would add 0.3 percentage point to growth in the coming fiscal year, according to the median estimate of economists surveyed by Bloomberg.

At stake for the prime minister is assuring re-election in a likely snap vote next month that may serve as a referendum on his policies. “Household sentiment should be relaxed thanks to the delay in another VAT hike, helping improve spending attitude and facilitate consumption recovery,” Kazuhiko Ogata, chief Japan economist at Credit Agricole SA in Tokyo, wrote in a note to clients yesterday, referring to the sales, or value-added, tax. “If Abe’s Liberal Democratic Party wins in the election, ‘Abenomics’ would be set” to be sustained until as long as until 2018, when he would run up against term limits as LDP head, according to Ogata.

Less than two years into Abenomics – a three-pronged strategy to pull Japan out of two decades of stagnation through monetary stimulus, fiscal flexibility and structural deregulation – the program has yet to spark sustained growth. An April sales-tax rise saw the economy sink into two straight quarters of contraction, a government report showed yesterday. Abe, 60, has yet to implement growth-strategy items from labor-market liberalization to the securing of a free-trade deal within the U.S.-led Trans-Pacific Partnership talks. Corporate-tax cut discussions have yet to see legislation enacted. In other areas, Abenomics has stirred Japan, achieving the end of 15 years of sustained deflation and spurring focus in the stock market on corporate returns on equity. The Topix index of shares has jumped 79% in the past two years.

Once again, Ambrose is out of his league. And not as sure as the title suggests, since he also says: “This is a formidable task and may ultimately fail.” The rest is not arguments, but exclusively wishful thinking. And harking back to what Japan did in 1932 is cute, but also entirely hollow.

• Japan’s ‘Abenomics’ Can Survive Quadruple-Dip Recession (AEP)

Abenomics is alive and well. Japan’s crash into its fourth recession since 2008 is a nasty surprise for premier Shinzo Abe but it tells us almost nothing about the central thrust of his reflation blitz The mini-slump is chiefly due to a one-off fiscal shock in April. Mr Abe defied warnings from Keynesian critics and unwisely stuck to plans drawn up by a previous (DPJ) government to raise the consumption tax from 5pc to 8pc. The essence of Abenomics is monetary reflation a l’outrance to lift the country out of deflation after two Lost Decades. The unstated purpose of this “First Arrow” is to lower real interest rates and raise the growth of nominal GDP to 5pc, deemed the minimum necessary to stop Japan’s debt trajectory from spiralling out of control. This is a formidable task and may ultimately fail. Public debt is already 245pc of GDP. Debt payments are 43pc of fiscal revenues. The population is expected to fall to from 127m to 87m by 2060. Given the grim mathematics of this, the inertia of the pre-Abe era was inexcusable.

Takuji Aida from Societe Generale said the tax rise was an “unnecessary diversion from Mr Abe’s reflationary goals” but will not have a lasting effect. The contraction of Japanese GDP by 0.4pc in the third quarter – following a 1.8pc crash in the second quarter – is certainly a public relations embarrassment, but less dreadful than meets the eye. The economy expanded by 0.2pc when adjusted for inventory effects. Machinery orders rose for a fourth month in September to 2.9pc. Retail sales jumped by 2.3pc. Danske Bank’s Fleming Nielsen says Japan’s economy will be growing at a 3pc rate again this winter. Mr Abe has shrugged off the tax debacle without much political damage. He is likely to call a snap election for December, win heartily, and suspend plans for a further rise in the sales tax to 10pc next October, ditching a policy he never liked anyway.

Besides, Ambrose, the guy who thought it all up has this: ” .. there are always new taxpayers, so this is a feasible Ponzi game”. How bad can you get it when, as Ambrose himself said, ” .. the population is expected to fall to from 127m to 87m by 2060″? It’s a hopeless game.

• ‘Godfather’ Of Abenomics Admits It’s A Ponzi Game, Taxpayers May Revolt (ZH)

Koichi Hamada is a special adviser to prime minister Shinzo Abe and one of his closest confidants. That makes his comments, as The Telegraph reports, even more stunningly concerning. Focusing his attention on the fact that Japan must delay the 2nd stage of its planned consumption tax hike – for fear of derailing the ‘recovery’ – Hamada unwittingly, it seems, explains the terrible reality behind the so-called “godfather” of Abenomics’ perspective on the extreme monetary policy he has unleashed… Select stunning quotes that everyone should ignore and just BTFPonziD in Japan…

“The consumption tax hike is a great big turbulence to the Japanese economy. It may have erased almost two thirds of the benefits of Abenomics,” he told the Telegraph. “At the very least, a third of this great experiment is gone.” [..] “I used to say that we should wait until the third quarter figures are out. However, by various economic indicators, the GDP figures cannot be very optimistic,” he added. [..] “We should increase the consumption tax in the intermediate future,” he said. “This first shock starting in April has been countered by a monetary counter-move. But can we risk another shock in this way?” He also said that while he fully supported the Bank of Japan’s bond buying spree, he said there would be diminishing returns from quantitative easing the longer it went on. “I completely agree with Kuroda’s direction of policy, as well as his strategy of keeping quiet and surprising the market. Of course, if you repeat the same kind of action then the impact will be weaker,” he said.

[..] Marc Faber, the famous Swiss investor, has accused Japan of “engaging in a Ponzi scheme” because the BoJ is hoovering up most of the debt that has been issued by the government. While Mr Hamada agreed that Japan had created a “mild ponzi game”, he also said it was a “feasible” one because of Japan’s huge foreign reserves. “In a Ponzi game you exhaust the lenders eventually, and of course Japanese taxpayers may revolt. But otherwise there are always new taxpayers, so this is a feasible Ponzi game, though I’m not saying it’s good.” Mr Hamada said it was important that Japanese policymakers sent a clear signal that the government was willing to do whatever it takes to smash deflation and pave the way for wage increases for millions of workers. “I’m optimistic about wages, but the uncertainty is how long it takes,” he said. Business is still in doubt about whether Abenomics will continue. If they know it will continue and the profits of export firms are really soaring, they will start to share that with their employees.”

So to sum up… as long as the BoJ keeps buying stocks and bonds in ever-greater amounts (and Japan has more taxpayers to foot the bill) then the ponzi scheme can survive in its fiscally unsustainable way… what a total farce.

Tell ‘im ee’s dreamin’.

• ECB’s Draghi: Buying Sovereign Bonds Is An Option (CNBC)

The euro zone’s growth has weakened over the summer months, European Central Bank (ECB) President Mario Draghi told European lawmakers Monday, but stressed that he was willing to do more to stimulate the economy—including the purchase of government bonds. Speaking at the European Union’s Parliament, Draghi reiterated that the bank’s governing council remained “unanimous in its commitment to using additional unconventional instruments if needed.” He added: “The other unconventional measures might entail the purchase of a variety of assets, one of which is sovereign bonds.” The comments helped the pan-European FTSEurofirst 300 close 0.5% higher on the day.

The central bank has already launched a slew of stimulus in an effort to boost the economy by easing credit conditions. These include cutting interest rates to record lows and announcing plans to purchase covered bonds and asset-backed securities (ABS) – and there are calls for the ECB to do more by launching a U.S. Federal Reserve-style sovereign bond-buying program. Further measures, “could include changes to the size and composition to the Eurosystem balance sheet, if warranted, to achieve price stability over the medium term,” Draghi added.

“Data released today showed that officials accelerated covered-bond buying last week, with the total settled rising by more than €3 billion – up from €2.629 billion the week before.” Ahem: the goal is $1 trillion. At this rate, that’ll take 6 years.

• Draghi Says ECB Measures May Entail Buying Government Bonds (Bloomberg)

ECB President Mario Draghi explicitly cited government-bond buying as a policy tool officials could use to stimulate the economy if the outlook worsens. “Other unconventional measures might entail the purchase of a variety of assets, one of which is sovereign bonds,” Draghi said in Brussels today during quarterly testimony to lawmakers at the European Parliament. In opening remarks both today and after the ECB’s monthly policy decision, Draghi stopped short of mentioning government bonds when he said that officials had been tasked with the preparation of further stimulus measures. His comments today come weeks before the institution’s critical December meeting, when it will publish new forecasts that are likely to incorporate a lower outlook for the economy and inflation. Draghi will succeed in boosting the ECB’s balance sheet back toward €3 trillion ($3.74 trillion), though he’ll have to override some policy makers’ qualms on quantitative easing to do so, according to a majority of economists in Bloomberg’s monthly survey published today.

Until now, the ECB has restricted purchases of assets to covered bonds, though asset-backed securities are now on its shopping list too. Data released today showed that officials accelerated covered-bond buying last week, with the total settled rising by more than €3 billion – up from €2.629 billion the week before. As Draghi spoke, Italian and Spanish bonds rose. The ECB president began his comments in the parliament by presenting European lawmakers with a list of policy resolutions for them to pursue in 2015 as he insisted his institution alone can’t fix the economy. “2015 needs to be the year when all actors in the euro area, governments and European institutions alike, will deploy a consistent common strategy to bring our economies back on track,” Draghi said today. “Monetary policy alone will not be able to achieve this.” “Monetary policy has done a lot,” Draghi said. “It can do more if structural reforms are implemented. It can’t do everything.”

Not sure the Bundesbank and Nowotny will look favorable on being called ‘qualms’. 60% of Bloomberg ‘experts’ think Draghi will win, and they’re hardly ever right about anything.

• Draghi Seen Bypassing QE Qualms to Hit Balance-Sheet Goal (Bloomberg)

Mario Draghi will succeed in boosting the European Central Bank’s balance sheet back toward 3 trillion euros ($3.75 trillion), though he’ll have to override some policy makers’ qualms on quantitative easing to do so. That’s the majority view of economists in Bloomberg’s monthly survey, who have become more optimistic that the ECB president will meet his goal. Most predicted he’ll have to buy more than covered bonds and asset-backed securities though, and 72% said any stimulus expansion will be against the wishes of some national central-bank governors. Draghi, who has faced opposition to his most recent measures, told European lawmakers today that an expanded purchase program could include government bonds, as he insisted the ECB alone can’t fix the region’s economy. He also reiterated his pledge to be ready with further steps should the outlook worsen, and 95% of respondents in the survey said he’ll act on that promise either this year or in 2015.

“If private-sector asset purchases are insufficient, then sovereign bonds will then likely be included,” said Alan McQuaid, chief economist at Merrion Capital in Dublin. “This will be a hard sell internally.” Resistance to Draghi’s recent loosening of policy has come primarily from Germany. Bundesbank President Jens Weidmann has repeatedly warned of the risks of large-scale asset purchases, known as quantitative easing, and Executive Board member Sabine Lautenschlaeger has said the balance between cost and benefit for some non-standard tools is currently negative. Austria’s Ewald Nowotny joined Weidmann in opposing the ABS plan. That didn’t stop a fresh reference by Draghi on Nov. 6 to driving the balance sheet back toward its March 2012 level via asset purchases and targeted loans to banks. 60% of the economists surveyed said he’ll succeed, which implies that close to €1 euros of assets will be added. In last month’s survey just 39% said he’ll achieve his aim.

Yup, that’s that strong revovered economy for you.

• Industrial Output in U.S. Unexpectedly Fell in October (Bloomberg)

Industrial production in the U.S. unexpectedly dropped in October, weighed down by declines at utilities, mines and automakers that signal manufacturing started the fourth quarter on soft footing. Output fell 0.1% after a 0.8% increase in September that was smaller than previously estimated, figures from the Federal Reserve in Washington showed today. The median forecast in a Bloomberg survey of 83 economists projected a 0.2% gain. Factory production rose 0.2%, matching the prior month’s advance that was also revised down. A pickup in manufacturing is needed to help bolster the expansion, now is its sixth year, as global growth from Europe and Japan to emerging markets cools. Rising consumer confidence and the drop in gasoline prices are brightening the outlook for holiday sales, indicating factories will get a lift in the next few months.

When CDS dries up, there will be major problems in the markets. It’s in the size: ” .. the market that shrank to less than $11 trillion from $32 trillion before the financial crisis”. So much money is evaporating it’s scary: “requiring large swaths of credit swaps to be backed by clearinghouses, which are capitalized by banks and require traders to set aside collateral, or margin, to cover losses”.

• Deutsche Bank Scales Back Trading in Credit Derivatives (Bloomberg)

Deutsche Bank will stop trading most credit-default swaps tied to individual companies, exiting a business that new banking regulations have made costlier, according to a spokeswoman. The lender will instead focus on transactions in corporate bonds, while maintaining trading in the more active market for credit swaps tied to benchmark indexes, Michele Allison, a spokeswoman for the bank said today. The firm also will continue trading swaps tied to emerging-market borrowers and distressed companies, she said. The derivatives are used by hedge funds, banks and other institutional investors to protect against losses or to speculate on the ability of companies to repay their obligations. Deutsche Bank is exiting a part of the market that shrank to less than $11 trillion from $32 trillion before the financial crisis, data from the Bank for International Settlements show.

Dealing in credit swaps, which have been blamed for exacerbating the 2008 financial crisis, has become more expensive for lenders like Deutsche Bank as regulators across the U.S. and Europe require banks to hold more capital to back trades, reducing the returns for shareholders. “When liquidity providers leave the market, it becomes really questionable if the market is functioning efficiently,” Jochen Felsenheimer, founder of XAIA Investment said in a telephone interview. “Regulators continue to dry out the CDS market by putting more and more constraints.” Among measures that regulators have enacted since the crisis is requiring large swaths of credit swaps to be backed by clearinghouses, which are capitalized by banks and require traders to set aside collateral, or margin, to cover losses if they can’t make good on the transactions. Much of the market, where the privately negotiated trades have typically been done over phone calls and e-mails, is also being shifted to electronic systems.

What could go wrong?

• Flash Boys Invade $12.4 Trillion Treasury Market in New Era of Volatility (Bloomberg)

In a flash, the bond market went wild. What began on Oct. 15 as another day in the U.S. Treasury market suddenly turned into the biggest yield fluctuations in a quarter century, leaving investors worrying there will be turbulence ahead. The episode exposed a collision of forces – the rise of high-frequency trading and the decline of Wall Street dealers – that are reshaping the world’s biggest and most important bond market. Money managers say the $12.4 trillion Treasury market is becoming less liquid, meaning securities can no longer be traded as quickly and easily as they used to be, thanks in part to the Federal Reserve’s bond-buying program.

“The way the market is set up right now, we’ll see instances like we did on that day,” said Michael Lorizio, senior trader Manulife Asset Management, which oversees $281 billion. “There’s going to be a learning curve as to how to handle that.” The development reflects unintended consequences of new financial regulation, as well as steps the Fed has taken to breath life into the U.S. economy. The implications, however, extend far beyond Wall Street, because the Treasury market determines borrowing costs for governments, companies and consumers around the world. When the day began on Oct. 15, an unprecedented number of investors were betting that interest rates would rise and U.S. government debt would lose value. The news that morning seemed ominous. Ebola was spreading. So was war in the Middle East.

At 8:30 a.m. in Washington, the Commerce Department announced a decline in retail sales. The shift came all at once. The sentiment that the Fed would raise rates reversed. Traders who’d bet against, or shorted, Treasury bonds had to buy as many as they could as quickly as they could to limit their losses. By 9:38 a.m., 10-year Treasury yields plunged 0.34 percentage point, the most in five years. Analysts such as Jim Bianco, president of Bianco Research LLC in Chicago, blame the herd mentality of electronic traders. “A lot of these guys are focused on speed,” Bianco said. “They’re all uncreative and write the same program. When the stimulus comes in a certain way, every one of them comes to the same conclusion at exactly the same moment.”

And we’ll see this as a positive, shall we?

• Wall Street to Reap $316 Million From Day of Mega Deals (Bloomberg)

The five Wall Street banks that advised on $100 billion of takeovers announced yesterday by Halliburton and Actavis could reap as much as $316 million in fees for their work. Goldman Sachs and Bank of America will take home the lion’s share of that, with roles on both the $34.6 billion purchase of Baker Hughes Inc. by Halliburton, and the $66 billion acquisition of Allergan by Actavis. Goldman Sachs was the sole adviser to Baker Hughes, while Bank of America and Credit Suisse advised Halliburton. The three banks are set to receive as much as $143 million in total, Freeman & Co. said. Halliburton, the second-biggest oilfield services provider, agreed to buy No. 3 Baker Hughes, taking advantage of plunging crude prices to set up the biggest takeover of a U.S. energy company in three years. Actavis’s deal to acquire Allergan, meanwhile, will help the target rebuff a hostile approach from Valeant Pharmaceuticals International Inc.

Goldman Sachs and Bank of America were also advisers to Allergan, for which they may share as much as $92 million, according to Freeman. JPMorgan, meanwhile, may receive as much as $81 million as adviser to Actavis. Yesterday’s deals firmed up Goldman Sachs’s status as the No. 1 adviser on M&A, with almost $814 billion of total value to its credit. Morgan Stanley which didn’t have a role on either of the two large deals, ranks second with $653 billion of deals to its credit. Citigroup, which also didn’t have a role on either deal, slipped a spot in the rankings to No. 4, while Bank of America rose to third from fifth. The ranking lists, called league-tables, are used by banks when they pitch their services to clients. A strong track record can help them convince companies to hire them as advisers. “We are extremely proud of the performance and momentum of our M&A franchise and the strategic advice and solutions that we have delivered to our clients in 2014,” Citigroup spokesman Robert Julavits wrote.

Fingers in your ears, a big bang is coming.

• Australia’s Record-Low Rates To Head Further South (CNBC)

Australia’s economy faces myriad headwinds that could trigger interest rate cuts from the central bank, taking borrowing rates further south from current historic lows. “Leading indicators suggest that a case can be made for further cuts: Confidence is low and consistent with weak growth, inflation expectations are falling and the unemployment rate is rising,” Credit Suisse wrote in a note Friday, arguing that rates could fall to 1.5%. Consumer confidence slumped over 12% on year in November, according to a joint survey from the Melbourne Institute and Westpac, marking the ninth straight month of pessimists outnumbering optimists – the longest slump since the global financial crisis.

Meanwhile, Australia’s official jobless rate rose to a 12-year high of 6.2%in October. Lower inflation also paves the way for rate cuts, Credit Suisse said. Headline consumer price inflation cooled to an annual 2.3% during the third-quarter, the lower end of the central bank’s 2-3% target band. Most importantly, markets have started to price in cuts, it said. The dominant view among major banks is still for the Reserve Bank of Australia to hike interest rates in 2015, but Credit Suisse says the behavior of the spread between 10-year bond yields and the cash rate is “abnormal” and doesn’t reflect that view.

One of multiple problems in US pensions.

• US Pension Insurer Ran Record $62 Billion Deficit (AP)

The federal agency that insures pensions for about 41 million Americans saw its deficit nearly double in the latest fiscal year. The agency said the worsening finances of some multi-employer pension plans mainly caused the increased deficit. At about $62 billion for the budget year ending Sept. 30, it was the widest deficit in the 40-year history of the Pension Benefit Guaranty, which reported the data Monday. That compares with a $36 billion shortfall the previous year. Multi-employer plans are pension agreements between labor unions and a group of companies, usually in the same industry. The agency said the deficit in its multi-employer insurance program jumped to $42.4 billion from $8.3 billion in 2013. By contrast, the deficit in the single-employer program shrank to $19.3 billion from $27.4 billion.

“The global economy has caught the equivalent of financial Ebola: deflation ..”

• All Aboard The Instability Express (James Howard Kunstler)

The mentally-challenged kibitzers “out there” — in the hills and hollows of the commentary universe, cable news, the blogosphere, and the pathetic vestige of newspaperdom — are all jumping up and down in a rapture over cheap gasoline prices. Overlay on this picture the fairy tale of coming US energy independence, stir in the approach of winter in the North Dakota shale oil fields, put an early November polar vortex cherry on top, and you have quite a recipe for smashed expectations. Plummeting oil prices are a symptom of terrible mounting instabilities in the world. After years of stagnation, complacency, and official pretense, the linked matrix of systems we depend on for running our techno-industrial society is shaking itself to pieces.

American officials either don’t understand what they’re seeing, or don’t want you to know what they see. The tensions between energy, money, and economy have entered a new phase of destructive unwind. The global economy has caught the equivalent of financial Ebola: deflation, which is the recognition that debts can’t be repaid, obligations can’t be met, and contracts won’t be honored. Credit evaporates and actual business declines steeply as a result of all those things. Who wants to send a cargo ship of aluminum ore to Guangzhou if nobody shows up at the dock with a certified check to pay for it? Financial Ebola means that the connective tissues of trade start to dissolve, and pretty soon blood starts dribbling out of national economies.

One way this expresses itself is the violent rise and fall of comparative currency values. The Japanese yen and the euro go down, the dollar goes up. It happens in a few months, which is quickly in the world of money. Foolish US cheerleaders suppose that the rising dollar is like the rising score of an NFL football team on any given Sunday. “We’re numbah one!” It’s just not like that. The global economy is not some stupid football contest. When currencies change value quickly, as has happened since the past summer, big banks get into big trouble. Their revenue streams are pegged to so-called “carry trades” in which big blobs of money are borrowed in one currency and used to place bets in other currencies. When currency values change radically, carry trades blow up.

So do so-called “derivatives” such as bets on interest rate differentials. When the sums of money involved are grotesquely large, the parties involved discover that they never had any ability to pay off their losing bet. It was all pretense. In fact, the chance that the bet might go bad never figured into their calculations. The net result of all that foolish irresponsibility is that banks find themselves in a position of being unable to trust each other on virtually any transaction. When that happens, the flow of credit, a.k.a. “liquidity,” dries up and you have a bona fide financial crisis. Nobody can pay anybody else. Nobody trusts anybody. Fortunes are lost. Elephants stomp around in distress, then keel over and die, and a lot of “little people” get crushed in the dusty ground.

Looks like a good book to get.

• The Secret History Of Corruption In America (Stoller)

If there s one way to summarize Zephyr Teachout’s extraordinary book Corruption in America: From Benjamin Franklin’s Snuff Box to Citizens United, it is that today we are living in Benjamin Franklin’s dystopia. Her basic contention, which is not unfamiliar to most of us in sentiment if not in detail, is that the modern Supreme Court has engaged in a revolutionary reinterpretation of corruption and therefore in American political life. This outlook, written by Supreme Court Justice Anthony Kennedy in the famous Citizens United case, understands and celebrates America as a brutal and Hobbesian competitive struggle among self-interested actors attempting to use money to gain personal benefits in the public sphere.

What makes the book so remarkable is its scope and ability to link current debates to our rich and forgotten history. Perhaps this has been done before, but if it has, I have never seen it. Liberals tend to think that questions about electoral and political corruption started in the 1970s, in the Watergate era. What Teachout shows is that these questions were foundational in the American Revolution itself, and every epoch since. They are in fact questions fundamental to the design of democracy.

Teachout starts her book by telling the story of a set of debates that took place even before the Constitution was ratified – whether American officials could take gifts from foreign kings. The French King, as a matter of diplomatic process, routinely gave diamond-encrusted snuff boxes to foreign ambassadors. Americans, adopting a radical Dutch provision banning such gifts, wrestled with the question of temptation to individual public servants versus international diplomatic norms. The gifts ban, she argues, was evidence of a particular demanding notion of corruption at the heart of American legal history. These rules, bright-line rules versus corrupt-intent rules, govern temptation and structure. They cover innocent and illicit activity, as opposed to bribery rules which are organized solely around quid pro quo corruption.

However you slice and dice it, that’s not a number from a recovering economy.

• UK Grocery Sales In Decline For First Time In 20 Years (Guardian)

UK grocery sales have gone into decline for the first time in at least 20 years as a raging price war and the falling cost of food commodities hit Britain’s supermarkets. In good news for shoppers, the average price of a basket of everyday essentials such as milk, bread and vegetables now costs 0.4% less than it did a year ago, according to the latest figures from market research firm Kantar Worldpanel. But the figures highlight a painful few months for the UK’s biggest retailers with all of the “big four” supermarkets seeing sales fall back in the 12 weeks to 9 November. Tesco continues to be the worst performer with sales dropping by 3.7%, but Morrisons’ performance deteriorated at the fastest rate, with the slump in sales accelerating to 3.3%, from 1.3% a month ago.

Sainsbury’s trading figures also worsened, with sales down 2.5%. Asda’s sales also went into decline, for the first time in some months, although the Walmart-owned group was the only one of the big four to hold market share. Fraser McKevitt, head of retail and consumer insight at Kantar Worldpanel said: “The declining grocery market will be of concern to retailers as they gear up for the key Christmas trading season.” In a pattern that has continued throughout this year, the German discounters Aldi and Lidl continued to grow strongly, as did the up-market grocer Waitrose. But only Waitrose picked up the pace of growth, to 5.6%, shoring up its spot at the UK’s sixth largest supermarket. Aldi’s growth slowed to 25.5% from 29.1% last month, and more than 30% earlier this year, while Lidl’s growth slowed to 16.8% from 17.7% last month.

Complaceny and hubris pay off.

• 1 in 5 UK Supermarkets Must Close To Restore Profit Growth (Guardian)

Supermarket chiefs need to take drastic action by shutting one in five of their stores if the financial health of the mainstream grocery chains is to recover from the damage being wreaked by altered shopping habits and the onslaught of the discounters, according to analysts at Goldman Sachs. A large closure programme is the only viable solution to bring about a return to profitable growth for the UK supermarket industry, the analysts said in a report. With 56% of Tesco’s stores bigger than 40,000 sq ft, the report concludes the market leader has the biggest problem on its hands. Profits at the three listed chains, Tesco, Sainsbury’s and Morrisons, have gone into reverse as weak food sales are exacerbated by the runaway growth of Aldi and Lidl. Further pressure is coming from structural changes in the market such as the growth of online and convenience store retailing.

Last week Sainsbury’s reported a first half loss of £290m as it counted the cost of pulling the plug on 40 new supermarket projects and wrote down the value of its underperforming stores. Goldman Sachs analyst Rob Joyce was gloomy about the ability of the major players to bounce back if the fight was based on price cuts alone. “We believe that any major price investments by Morrisons, Sainsbury’s or Tesco can be exceeded by the discounters,” he wrote. The unhealthy industry dynamic prompted him to predict large stores would suffer like-for-like sales declines of 3% a year until 2020, unless the big chains embrace the need for major surgery. Too much focus on profitability allowed the “discounters to get too strong”, with incumbents, until recently, reliant on pushing up prices to combat falling sales?, according to the report. But even Asda, which was the first of the big four to take on the discounters with a £1bn price cuts campaign, has started to show signs of strain.

It’s a simple story.

• Putin Warns He Won’t Let Ukraine Annihilate Eastern Rebels (Bloomberg)

Russian President Vladimir Putin warned he won’t allow rebels in eastern Ukraine to be defeated by government forces as European Union ministers met to consider imposing more sanctions on the separatists. “You want the Ukrainian central authorities to annihilate everyone there, all of their political foes and opponents,” Putin said in an interview yesterday with Germany’s ARD television. “Is that what you want? We certainly don’t. And we won’t let it happen.” German Chancellor Angela Merkel said yesterday the EU will keep its economic sanctions on Russia “for as long as they are needed.”

EU foreign ministers convened today in Brussels to discuss adding to sanctions that have limited access to capital markets for some Russian banks and companies and blacklisted officials involved in the conflict. New measures will likely target pro-Russian separatist leaders, the EU said. “Sanctions in themselves are not an objective, they can be an instrument if they come together with other measures,” European Union foreign policy chief Federica Mogherini told reporters before the meeting. She said the EU’s three-track strategy consists of sanctions, encouragement of reforms in Ukraine and dialogue with Russia. “We are very concerned about any possible ethnic cleansings and Ukraine ending up as a neo-Nazi state,” Putin said according to an English translation of his remarks published by the Kremlin.

They’re afraid if they cut production, investors may pull out. So they keep on the treadmill until they blow up the entire thing.

• Shale Drillers Plan Output Increases Despite Oil Price Decline (Bloomberg)

Shale drillers are planning on production growth with fewer rigs despite a worldwide glut that has sent crude prices to a four-year low. Companies including Devon Energy, Continental Resources and EOG Resources said they expect to pump more from their prime properties while cutting back in their least productive prospects. That puts the onus on OPEC nations, led by Saudi Arabia, to cut output if they want to stem the slide in global oil prices. “There’s a lot more production coming online this year and in the first half of 2015,” said Jason Wangler, an analyst at Wunderlich Securities. “This isn’t a machine that you can turn on and off with a switch. It’s going to take months, if not quarters, to turn it around.”

Domestic output topped 9 million barrels a day for the first time since at least 1983, the U.S. Energy Information Administration said Nov. 13. West Texas Intermediate crude, the U.S. benchmark oil contract, sank 18 cents yesterday to settle at $75.64 a barrel. Prices fell to $74.21 on Nov. 13, the lowest since 2010. “Certainly if prices fall even further than they are now, it’ll have some impact, and it may slow the growth rate of U.S. production,” said Jason Bordoff, founding director of Columbia University’s Center on Global Energy Policy in New York. “I still think, unless they fall significantly further, U.S. production is going to see dramatic increases in growth.”

Lower prices aren’t stopping U.S. shale drillers. Devon Energy, which pumped 136,000 barrels a day of crude in the third quarter, will boost output by as much as 25% next year, said John Richels, the company’s CEO, in a Nov. 5 earnings call. That rivals this year’s expansion, even though Devon will idle four of its six rigs in Oklahoma’s Mississippi Lime prospect. Continental Resources, which produced 128,000 barrels a day in the third quarter, trimmed $600 million from its 2015 drilling budget by shelving plans to add new rigs. Nonetheless, the Oklahoma City-based company said in its Nov. 6 earnings call it will increase output as much as 29%. Pioneer Natural Resources in Irving, Texas, the most active driller in West Texas’s Permian Basin, said in its Nov. 5 third-quarter call that it plans to add as much as 21%.

Anything for a buck.

• 3 Billion Gallons Of Fracking Wastewater Pumped Into Clean CA Aquifers (ZH)

Dear California readers: if you drank tapwater this morning (or at any point in the past few weeks/months), you may be in luck as you no longer need to buy oil to lubricate your engine: just use your blood, and think of the cost-savings. That’s the good news. Also, the bad news, because as the California’s Department of Conservation’s Chief Deputy Director, Jason Marshall, told NBC Bay Area, California state officials allowed oil and gas companies to pump up to 3 billion gallons (call it 70 million barrels) of oil fracking-contaminated waste water into formerly clean aquifiers, aquifiers which at least on paper are supposed to be off-limits to that kind of activity, and are protected by the government’s EPA – an agency which, it appears, was richly compensated by the same oil and gas companies to look elsewhere.

And the scariest words of admission one can ever hear from a government apparatchik: “In multiple different places of the permitting process an error could have been made.” Because nothing short of a full-blown disaster prompts the use of the dreaded passive voice. And what was unsaid is that the “biggest error that was made” is that someone caught California regulators screwing over the taxpayers just so a few oil majors could save their shareholders a few billion dollars in overhead fees. And now that one government agency has been caught flaunting the rules, the other government agencies, and certainly private citizens and businesses, start screaming: after all some faith in the well-greased, pardon the pun, government apparatus has to remain:

“It’s inexcusable,” said Hollin Kretzmann, at the Center for Biological Diversity in San Francisco. “At (a) time when California is experiencing one of the worst droughts in history, we’re allowing oil companies to contaminate what could otherwise be very useful ground water resources for irrigation and for drinking. It’s possible these aquifers are now contaminated irreparably.”

Our own countries are replete with mental slaves.

• Modern Slavery Affects More Than 35 Million People (Guardian)

More than 35 million people around the world are trapped in a modern form of slavery, according to a report highlighting the prevalence of forced labour, human trafficking, forced marriages, debt bondage and commerical sexual exploitation. The Walk Free Foundation (WFF), an Australia-based NGO that publishes the annual global slavery index, said that as a result of better data and improved methodology it had increased its estimate 23% in the past year. Five countries accounted for 61% of slavery, although it was found in all 167 countries covered by the report, including the UK. India was top of the list with about 14.29 million enslaved people, followed by China with 3.24 million, Pakistan 2.06 million, Uzbekistan 1.2 million, and Russia 1.05 million.

Mauritania had the highest proportion of its population in modern slavery, at 4%, followed by Uzbekistan with 3.97%, Haiti 2.3%, Qatar 1.36% and India 1.14%. Andrew Forrest, the chairman and founder of WFF – which is campaigning for the end of slavery within a generation – said: “There is an assumption that slavery is an issue from a bygone era. Or that it only exists in countries ravaged by war and poverty. “These findings show that modern slavery exists in every country. We are all responsible for the most appalling situations where modern slavery exists and the desperate misery it brings upon our fellow human beings.

That’s an excellent way to look at them.

• Ebola Doctors: The Last Working Consciences In The Western World (Guardian)

Patients arrive at the Médecins Sans Frontières treatment centre in Sierra Leone 10 to an ambulance. The overcrowding means that by the time they get there, even those whose original symptoms may not have been Ebola will have been sufficiently exposed to catch it on the way in. Such is life in West Africa in the midst of the worst outbreak of the disease since it was first identified 38 years ago. Ebola Frontline – Panorama (BBC1) followed MSF doctor Javid Abdelmoneim – who, along with his colleagues, you can’t help but feel must be the owners of the last working consciences in the western world – on his month-long volunteer posting to the centre, treating some of the tens of thousands of people who have contracted Ebola since the epidemic began nine months ago.

Furnished with a specially adapted camera fitted to his goggles, one that can survive the chlorine sprayings and sluicings as part of the good doctor’s 20 minute decontamination procedure every time he leaves the tent full of his suffering and dying charges, we watch along with him as the disease plots its course through bodies, through families and through entire communities. People die quietly, for the most part. The loudest noise we hear is the wailing in grief of a woman who loses her sister. Their parents died before the cameras got there. Eleven-month-old Alfa is an Ebola orphan too, one of the estimated 10.3 million children directly or indirectly affected by the crisis. She dies alone, relieved of physical pain, Abdelmoneim hopes, by the morphine he gives her as her little body starts to fail, but “she looked frightened at the end”.

She is buried in a cemetery purpose-built for bodies that remain biohazards after death, one of hundreds of people marked only by patient ID numbers scrawled on paper labels attached to sticks driven into the ground. While the volunteer doctors, nurses and staff try to hold the line at the treatment centre – whose name they change to “case management centre” in recognition that all they can give is supportive, not curative care – the voiceover keeps us abreast of the rising death toll in Africa and the ponderous reactions and non-reactions of other nations to the crisis, and the delivery and non-delivery of promises and aid to the stricken regions. Last month the UN called for a twentyfold increase in help. Half of that has so far been donated. A plague on all our houses.

Debt Rattle October 6 2014

Oct 062014

October 6, 2014 Posted by Raúl Ilargi Meijer at 10:45 am Finance Tagged with: Abenomics, buybacks, ebola, EU, oil prices, US dollar Comments Off

Marjory Collins New York Times linotype operatots Sep 1942

• Surging Dollar May Be Triple Whammy For US Earnings (Reuters)

• Can The US Dollar Save The World? (CNBC)

• Betting On Massive Central Bank Puts (CNBC)

• The $100 Trillion Global Bond Market Is Much More Fragile Than You Think (AP)

• Tumbling Oil Prices Punish Hedge Funds Betting on Gains (Bloomberg)

• The Surprising Impact Of Plunging Oil Prices (CNBC)

• S&P 500 Companies Spend Almost All Profits on Buybacks, Payouts (Bloomberg)

• German Orders Post Biggest Drop Since Start Of 2009 In August (Reuters)

• Faltering Demand Weighs On Eurozone Business Growth In September (Reuters)

• EU Prepares to Reject France’s 2015 Budget, Set Up Clash Over Deficit (WSJ)

• Have The Aussie Dollar Bears Won The Argument? (CNBC)

• Your Winter Heating Bills: It Won’t Be Pretty (CNBC)

• RIP Abenomics: ‘This Week Japan Will State It Is In Recession’ (Zero Hedge)

• Catalan Standoff to Hit Spanish Economy, Whoever Wins (Bloomberg)

• WWF International Accused Of ‘Selling Its Soul’ To Corporations (Observer)

• Economists Are Blind to the Limits of Growth (Bloomberg)

• The New Washington Consensus – Time To Fight Rising Inequality (Guardian)

• Carmen Segarra, The Whistleblower Of Wall Street (Guardian)

• ‘In 1976 I Discovered Ebola, Now I Fear An Unimaginable Tragedy’ (Observer)

• Ebola Is In America – And, Finally, Within Range Of Big Pharma (Observer)

You better move to a domestic industry.

• Surging Dollar May Be Triple Whammy For US Earnings (Reuters)

The suddenly unstoppable U.S. dollar is posing a triple threat to American companies’ profits: driving up the costs of doing business overseas, suppressing the value of non-U.S. sales and, perhaps most worryingly, signaling weak international demand. The dollar has been on a tear, with an index tracking it against six other major currencies notching roughly an 8% gain since the end of June. Few analysts see its breakout performance stalling out anytime soon since the U.S. economy stands on much firmer footing than most others around the world, Europe’s in particular. For companies in the benchmark S&P 500, that’s a big headwind because so many are multinationals, and as a group they derive almost half of their revenue from international markets. “You will get some companies that have failed to meet expectations based on the weakness we’re seeing overseas, so it is going to be a source of disappointment,” said Carmine Grigoli, chief investment strategist at Mizuho Securities in New York.

Moreover, that weakness, especially in Europe, “is going to be critical here,” he said. “It’s an important component of (U.S.) earnings going forward.” And while investors and analysts have begun to figure in the negative effects of a fast-strengthening dollar with regard to the approaching third-quarter reporting period, the risk to the fourth quarter and 2015 remains largely unaccounted for. For instance, third-quarter profit-growth expectations for S&P 500 companies have fallen back to 6.4% from about 11% two months ago, Thomson Reuters data showed. By contrast, the fourth-quarter growth forecast is down just slightly, to 11.1% from a July 1 forecast of 12.0%. And profit-growth estimates for 2015 have actually increased in that time from 11.5% to 12.4%. “If you try and extrapolate out to the fourth quarter and how much that currency effect is going to be, your guidance is probably going to come down for a good slug of the multinationals on the S&P,” said Art Hogan, chief market strategist at Wunderlich Securities in New York.

No, but it will save the banks. Again.

• Can The US Dollar Save The World? (CNBC)

The U.S. dollar rally has much further to run, and could help out countries dealing with excessively low inflation, a report from HSBC argues. The dollar index, which measures the strength of the greenback against the major currencies, has risen near 7% this year, amid positive economic data out of the U.S. and increased expectations that as the U.S. Federal Reserve ends its massive bond-buying program, it will hike interest rates. But the rally has only just begun, analysts at HSBC said in a note published this week, who argue the greenback should rein supreme as the world’s strongest currency both this year and next. “The current U.S. dollar rally is unlike any we have seen before…[the rally] so far has only been roughly 5% yet history shows a 20% rise would not be implausible,” the analysts said.

And the dollar’s relative strength could be the perfect antidote for other global economies, such as the euro zone, struggling to fend off the threat of deflation, said HSBC. The single currency union this week saw its annual inflation rate fall further below the European Central Bank’s target of 2% in September to 0.3%. The idea is that if U.S. goods start to look too expensive due to the stronger dollar, buyers of those goods will start to look at alternatives nearer home, therefore increasing demand and consequently leading to a rise in prices. “While the scale of a U.S. dollar rally required to bring inflation all the way back to target in the likes of the euro zone would likely be unpalatable to U.S. policymakers, U.S. dollar strength will still help stave off the deflation threat,” added the HSBC analysts. “The U.S. dollar on its own may not be able to save the world but it will certainly buy these economies time,” they added.

How much longer will Draghi be able to keep his post after his plans are shot down?

• Betting On Massive Central Bank Puts (CNBC)

Here is a bet based on the latest episode in a long-running policy dispute. Last Thursday (October 2), the meeting of the governing council of the European Central Bank (ECB) in the splendors of the Capodimonte (“top of the hill”) Palace in Naples, Italy, reaffirmed with overwhelming majority the zero (0.05%) interest rate policy and a program of security purchases that could expand the bank’s balance sheet by an estimated €1 trillion. Policy deliberations at this regal venue were greeted by some 2,000 protesters clashing with police and braving waves of teargas in a city (Naples) whose unemployment rate of 25% is exactly double Italy’s average, and whose per capita economic output is more than 30% below that of the country as a whole. True to form, Germany continued to strongly oppose this ECB policy. The German member of the ECB’s governing council maintains that the euro area banks don’t need virtually free loanable funds and security purchases that will, in his view, again lead to banks’ mischief requiring bailouts with taxpayers’ money.

His position was supported by his Austrian colleague (16:2, in case you want to keep the score). Who will win? Can Germany again bull its way through this one as it did with the widely condemned austerity policies? (Hint: if you look at the euro’s exchange rate, you will see that markets have already voted.) Staying within the policy mandate, the vast majority of the ECB’s governing council is inclined to look for additional measures that would restore the transmission mechanism (i.e., the financial intermediation system) between easy credit conditions and real economy. The ECB’s purchases of asset-backed securities are aiming to achieve that, because they are designed to provide incentives to the banking system to significantly expand lending to euro area businesses and households.

Bond volatility is set to cause great damage. What does ‘fixed income’ mean anymore?

• The $100 Trillion Global Bond Market Is Much More Fragile Than You Think (AP)

A bottleneck is building in the global market for bonds. Main Street investors have poured a trillion dollars into bonds since the financial crisis, and helped send prices soaring. As fund managers and regulators fret about an inevitable sell-off, the bigger fear is that when people go to unload, there won’t be anyone to buy. Too many funds own the same bonds, making them difficult to sell in a sudden downturn. On top of that, the banks that used to bring bond buyers and sellers together have pulled back from the role. Investors looking to sell would be slow to find buyers, spreading fear through the $100 trillion global bond market and sending prices tumbling. It’s a situation known as “liquidity risk” and some bond pros are scrambling to prepare for it. Portfolio managers are hoarding cash. BlackRock, the world’s largest fund manager, is suggesting regulators consider new fees for investors pulling out of funds. Apollo Management, famous for profiting from a bond collapse 25 years ago, is launching a fund to bet against bonds.

Mohamed El-Erian, former CEO of bond fund giant Pimco, thinks ordinary investors are too blase about the flaws in the trading system. Investors today are like homeowners who only discover there’s a clog under the sink when it’s too late and they’re staring at a mess. “It’s only when you try to put a lot of things through the pipes that you realize” you’ve got a problem, says El-Erian, now chief economic adviser to global insurer Allianz. “You get an enormous backup.” What’s at risk is more than money in retirement accounts. Big investors often borrow when buying bonds and so losses can be magnified. Trillions of dollars of bets using derivatives ride on bonds, too. A small fall in prices could lead to losses that reverberate throughout the financial system. “The market is so tightly wound,” says JPMorgan’s William Eigen, head of its Strategic Income Opportunities fund, who has put 63% of his portfolio in cash. “There’s no place to hide.” In such a fragile situation, even news with no bearing on bond fundamentals can trigger losses.

[..] Since the financial crisis, the Federal Reserve’s efforts to hold down borrowing costs for businesses and consumers have pushed interest payments on many bonds to record lows. That’s set off a rush by investors into riskier ones offering higher payments. The buying has pushed up prices, and added to the risk. Since the start of 2009, funds invested in junk bonds have returned an average 14% each year and municipal bond funds 6%, according to the Investment Company Institute, double their averages in the prior six years. Even seemingly “safe” government debt looks dangerous now, according to a September report by Deutsche Bank. Many bonds sold by wealthy countries like France, Australia and Britain recently are so high-priced you’d have to go back centuries to find more expensive ones, the report notes. And since corporate bonds are priced off government ones, much of that market is also at risk for a fall.

The energy casino.

• Tumbling Oil Prices Punish Hedge Funds Betting on Gains (Bloomberg)

Hedge funds increased bets on rising oil prices just before crude futures tumbled to a 17-month low on signs that global supply is outstripping demand. Prices capped the biggest weekly decline in two months after money managers boosted net-long positions in West Texas Intermediate by 4.1% in the seven days ended Sept. 30. Long positions climbed 2.7%, U.S. Commodity Futures Trading Commission data show. WTI sank below $90 on Oct. 2 after Saudi Arabia, the world’s largest oil exporter, cut its prices to Asia. U.S. production is the highest since 1986, while OPEC output expanded to the most in a year. The International Energy Agency last month reduced its projections for demand growth this year and in 2015, citing a weakening economic outlook.

“Oil isn’t looking like a good bet anymore,” Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts, said by phone Oct. 3. “Production continues to rise, flooding the market, while on a good day the demand picture looks anemic.” Crude declined 0.4% to $91.16 a barrel on the New York Mercantile Exchange in the period covered by the CFTC report. Futures were little changed in today’s electronic trading after sliding $1.27 to close at $89.74 on Oct. 3, the lowest settlement since April 2013. Saudi Arabia reduced the price for Arab Light to Asia by $1 a barrel to a discount of $1.05 to the average of Oman and Dubai crude, the lowest since December 2008. Official selling prices are regional adjustments Aramco makes to price formulas to compete against oil from other countries.

Production by the 12-member Organization of Petroleum Exporting Countries rose to 30.935 million barrels a day in September, the highest since August 2013, a Bloomberg survey of oil companies, producers and analysts showed. U.S. crude output reached 8.867 million barrels a day in the week ended Sept. 19, the most since March 1986. Production will climb to 9.53 million in 2015, a 45-year high, the Energy Information Administration said in its monthly Short-Term Energy Outlook on Sept. 9. “Earlier this week there was a debate over whether prices had reached a bottom,” John Kilduff, a partner at Again Capital, a New York-based hedge fund that focuses on energy, said by phone Oct. 3. “Investors took a chance and gathered length. Sometimes when you put your toe in the water it gets snapped off.”

But who understands what’s happening?

• The Surprising Impact Of Plunging Oil Prices (CNBC)

Sliding crude oil prices are giving consumers relief at the pump, which is bound to provide a fillip for consumer spending. But whether that is good news for the stock market is another story. Crude oil futures have been demolished over the last four months, falling some 17% from their June highs, and settling at a 17-month low on Friday. And as oil prices have fallen, consumer gasoline prices have dropped to a nationwide average of $3.32 a gallon, the lowest since February, according to AAA. The motor club group also notes that in 26 states, gas can be found for cheaper than $3.00 per gallon. And AAA predicts that gas prices will continue to fall in October. Given the massive role gasoline plays in American life (in a February 2013 report, the U.S. Energy Information Administration estimated that Americans spend about 4% of their pre-tax income on gasoline) the drop in gas prices is naturally expected to have an impact on consumer spending.

“The per capita usage is about 400 gallons of gas used per year for each person in this country. That’s a lot of money going back into the economy when you have cheaper gas,” said Jim Iuorio of TJM Institutional Services. “Gasoline is down noticeably, and I know it’s noticeable, because I noticed it when I filled up my car,” remarked Jonathan Golub, chief U.S. market strategist at RBC Capital Markets. “That is a big deal, and it immediately hits consumption.” But that doesn’t necessarily mean it’s time to buy stocks. Golub notes that between oil stocks, the materials sector, and industrial and utilities names in commodity-related businesses, “17 or 18% of the S&P is a loser with falling oil prices.” rom a market perspective, then, the benefit to the consumer is “100% offset” by losses in oil-exposed names, making it a mere “rotation issue.” In other words, the market as a whole shouldn’t be expected to rise or sink on a big drop in energy prices, but those oily names should sink, and consumer-exposed names should get a boost.

The perversion of ultra-low rates and central banks buying and pushing up stocks. There will be a huge price to pay.

• S&P 500 Companies Spend Almost All Profits on Buybacks, Payouts (Bloomberg)

Companies in the Standard & Poor’s 500 Index really love their shareholders. Maybe too much. They’re poised to spend $914 billion on share buybacks and dividends this year, or about 95% of earnings, data compiled by Bloomberg and S&P Dow Jones Indices show. Money returned to stock owners exceeded profits in the first quarter and may again in the third. The proportion of cash flow used for repurchases has almost doubled over the last decade while it’s slipped for capital investments, according to Jonathan Glionna, head of U.S. equity strategy research at Barclays. Buybacks have helped fuel one of the strongest rallies of the past 50 years as stocks with the most repurchases gained more than 300% since March 2009.

Now, with returns slowing, investors say executives risk snuffing out the bull market unless they start plowing money into their businesses. “You can only go so far with financial engineering before you actually have to have a business with real growth,” Chris Bouffard, chief investment officer who oversees $9 billion at Mutual Fund Store, said. “Companies have done about all that they can in terms of maximizing the ability to do those buybacks.” S&P 500 constituents will probably say earnings rose 4.9% in the third quarter when they begin reporting results this week, according to more than 10,000 analyst estimates compiled by Bloomberg. Alcoa, Yum! Brands. and Monsanto are among nine companies scheduled to announce financial details.

While the ratio to earnings shows how buybacks and dividends compare to past economic expansions, it doesn’t indicate companies are struggling to fund them. Five years of profit growth have left S&P 500 constituents with $3.59 trillion in cash and marketable securities and they’ve raised almost $1.28 trillion in 2014 through bond sales, headed for a record. “Buybacks are something corporations can take control of and at low borrowing costs, they’re a viable option,”Randy Bateman, chief investment officer of Huntington Asset Advisors, which manages about $2.8 billion, said by phone on Oct. 1. At the same time, he said, “If management can’t unearth future opportunities for growth, as a shareholder, I lose confidence.”

It’s called ‘recession’.

• German Orders Post Biggest Drop Since Start Of 2009 In August (Reuters)

German industrial orders posted their biggest drop in August since the height of the global financial crisis in 2009 due to the subdued euro zone economy and uncertainty caused by crises abroad, data from the Economy Ministry showed on Monday. Contracts plunged by 5.7% on the month, undershooting by far the Reuters consensus forecast for a 2.5% drop. Bookings from the euro zone slumped by 5.7% while domestic orders decreased by 2.0%. The data for July was revised up to a rise of 4.9% from a previously reported gain of 4.6%.

Growth? We’re still talking growth in Europe?

• Faltering Demand Weighs On Eurozone Business Growth In September (Reuters)

Euro zone business grew at its slowest rate this year in September on tumbling demand, surveys showed on Friday, as the bloc struggles to add momentum to its fragile economic recovery. Germany’s private sector expanded at a robust pace last month, pointing to an economic rebound between July-September after Europe’s biggest economy unexpectedly shrank the quarter before. However, business growth in the euro zone’s number two and three economies – France and Italy – contracted, suggesting stagnation or worse there could continue. Despite firms cutting prices more deeply, the common thread across most of the surveys in the euro zone was that of weak demand, with businesses and consumers lacking the confidence to spend in economies plagued by high unemployment and years of austerity.

This mirrors order book conditions for factories in much of Asia as well. The data are likely to disappoint policymakers yet again, a day after the European Central Bank outlined its plans to buy securitised debt in a bid to revive lending and boost demand. “The PMIs reflect a familiar dangerous trend of low demand and weak producer pricing power which reinforces concerns on the effectiveness of the ECB’s stimulus,” said Lena Komileva, chief economist at G+ Economics in London. “The ECB does not have much room for error with the starting point of close to zero rate of inflation and growth.”

“What people underestimate is that what’s at stake is the entire credibility of the rules …”

• EU Prepares to Reject France’s 2015 Budget, Set Up Clash Over Deficit (WSJ)

The European Union is preparing to reject France’s 2015 budget, according to European officials, setting up a clash that would be the biggest test yet of new powers for Brussels that were designed to prevent a repeat of the eurozone’s sovereign-debt crisis. French Finance Minister Michel Sapin said last month that his country would run a budget deficit of 4.3% of gross domestic product next year—far from the 3% deficit it had previously pledged. Stripping out the effects of the weak economy, the government’s planned cost cuts would amount to just 0.2% of GDP, falling short of cuts worth 0.8% that it had agreed upon with Brussels.

That could put France’s budget in “serious noncompliance” with tightened EU deficit rules, likely leading the commission to send it back to Paris for revisions, European officials said. So far, the French government has said it won’t take any extra belt-tightening measures beyond what it proposed in the spring, indicating it is ready to risk a public clash with Brussels. “People are ready to let the big boys in Brussels reject the budget,” a European official said. The conflict with France could be joined by a budget fight with Italy, which has also said that it will miss budget targets. Italy has more leeway because its past budgets have run lower deficits than France’s, but a senior EU official called a decision about whether to confront Italy “borderline.”

The credibility of Brussels’ new powers threatens to be seriously undermined if big countries such as France and Italy are able to flout the new rules—which give the European Commission the right to demand changes to proposed budgets before they are presented to national parliaments. It would signal the tough budget regime can only be imposed on the eurozone’s smaller economies, such as Greece and Portugal. Some European officials have drawn parallels with the way France and Germany ignored deficit limits a decade ago without consequences, a step that they believe fatally weakened budget discipline in the bloc. “What people underestimate is that what’s at stake is the entire credibility of the rules,” one of the officials said.

Currencies around the world are going through a major reset, courtesy of the buck. Many will have a hard time with the transition, few are prepared.

• Have The Aussie Dollar Bears Won The Argument? (CNBC)

Despite a long downtrend in commodity prices, the Australian dollar has managed to keep a loyal set of diehard fans among currency traders and analysts — but now some of them are throwing in the towel. “We’ve been constructive on Australian dollar throughout 2014, consistently forecasting it to be the relative G-10 outperformer after the U.S. dollar,” Geoffrey Kendrick and Vandit Shah, analysts at Morgan Stanley, said in a note last week. But since the payrolls data release last month, the bank’s bullish assumptions have been called into question. Morgan Stanley cut its forecast for the Australian dollar to $0.84 by the end of 2014 and $0.76 by the end of 2015, a sharp drop from its previous expectation of $0.95 by the end of this year and $0.88 by the end of next. A number of analysts have long been calling for the Aussie to fall as low as 80 cents – a level it hasn’t seen since 2009 – as economic fundamentals come back into play, and the central bank continues to talk the currency lower.

Over the past year, Reserve Bank of Australia Governor Glenn Stevens repeatedly voiced his opinion that he would like to see the Aussie at 85 cents against the U.S. dollar. The Australian dollar is fetching $0.8655 in early Monday trade, down a bit more than 7% since the beginning of September, touching its lowest levels since January. Morgan Stanley’s bullish call had been premised on the assumption that non-resident buyers of Australian government debt and Japanese buyers of Australian-dollar assets would remain keen, as well as an expectation that the country’s terms of trade would stabilize. But with U.S. yields starting to rise again and increased volatility in markets, Australian government bonds became less attractive, Morgan Stanley said adding that it expected the Aussie dollar to depreciate further “especially with G-10 foreign exchange becoming increasingly sensitive to moves in the belly of the U.S. curve.”

There we go again.

• Your Winter Heating Bills: It Won’t Be Pretty (CNBC)

The ongoing U.S. energy boom may be driving gasoline prices lower, but homeowners who heat with natural gas may be in for another winter of sticker shock. “It is now looking almost certain that stocks of natural gas in the U.S. will be significantly lower than the five-year average” when temperatures begin falling in November,” said Tom Pugh, commodities economist for Capital Economics. “Another cold winter, combined with lower stocks than last year, could lead to even higher price spikes than last year.” Thanks to big surges in seasonal demand, natural gas producers are busy this time of year building up supplies. But despite record production, natural gas storage levels are still below their five-year range heading into the winter heating season. The latest data from the Energy Department shows that producers are playing catch-up, with storage levels more than 10% lower than last year’s levels.

That means homeowners who heat with gas could see the same price spikes they saw last winter during cold snaps. Despite mild weather so far this fall, the gas storage shortfall already has helped nudge natural gas higher, well before households begin nudging up the thermostat despite mild temperatures. Last winter’s record demand for natural gas included a single day in January that sent demand to nearly double the average daily consumption, according to the American Gas Association. That pushed the average bill for gas customers up 10% over the year before—mostly due to gas furnaces working overtime, the AGA said. But the cold weather demand surge also produced a big jump in prices. The average weekly spot price peaked in February more than 80% higher than the end of November.

In reality, Abenomics died before it was conceived.

• RIP Abenomics: ‘This Week Japan Will State It Is In Recession’ (Zero Hedge)

We have been waiting for this particular bolded sentence ever since we predicted it would take place back in December 2012 when a bunch of Keynesians, a disgraced former/current prime minister with a diarrhea problem and, of course, the Goldman Sachs’ corner suite, first unleashed Abenomics. From Goldman’s Naohiko Baba, previewing this week’s key Japanese economic events

The Cabinet Office makes an assessment of the state of the economy based on the trend in the coincident CI, using a set of objective criteria. The August coincident CI is set to print negative mom. In this case, the Cabinet Office’s economic assessment will likely shift downward to “signaling a possible turning point” from the current level of “weakening”. According to the Cabinet Office, such a change in assessment provisionally indicates a likelihood that the economy has already fallen into recession. This is effectively akin to the government acknowledging that the economy is in recession.

And because every Keynesian lunacy has to end some time, RIP Abenomics: December 2012 – October 2014.

For the sake of all of Europe, Rajoy must be careful not to incite violence.

• Catalan Standoff to Hit Spanish Economy, Whoever Wins (Bloomberg)

Spanish Prime Minister Mariano Rajoy is battling to keep his country together, facing down Catalan separatists. Even if he wins, the standoff risks weakening the economy that the two sides are fighting over. Catalan President Artur Mas, backed by about two-thirds of the region’s lawmakers, is defying orders from Spain’s highest court and pressing ahead with a vote on independence on Nov. 9. The wrangling last week pushed the gap between Spanish and German bond yields to the widest since Scotland voted to remain in the U.K. “Investors are pricing the risk of political instability in Catalonia,” said Francesco Marani, a fixed-income trader at Auriga Global Investors SA in Madrid, who trades government and regional debt. “The independence issue has already been hurting the Spanish economy, and it’s not over.” Spain’s economy is losing momentum amid a slowdown in its European trading partners.

Uncertainty over the future of Catalonia, whose contribution to the Spanish economy is twice that of Scotland’s to the U.K., risks undermining investment as well as pushing up borrowing costs and distracting politicians from tackling the 24% jobless rate. “Boosting growth requires an ambitious policy mix as political tensions over Catalonia may last for months, maybe till the next general elections, weighing on confidence and investment,” said Frederik Ducrozet, an economist at Credit Agricole CIB in Paris. Rajoy’s four-year mandate finishes at the end of next year. “Now is where the uncertainty begins,” Justin Knight, a London-based European rates strategist at UBS said in a telephone interview after the Constitutional Court declared the vote illegal last week. Despite that ruling, a poll commissioned by the Catalan regional government and published on Oct. 3 showed 71% of Catalans want the independence vote to be held next month.

A big problem with most of the big charities: “On the one hand it protects the forest; on the other it helps corporations lay claim to land not previously in their grasp.”

• WWF International Accused Of ‘Selling Its Soul’ To Corporations (Observer)

WWF International, the world’s largest conservation group, has been accused of “selling its soul” by forging alliances with powerful businesses which destroy nature and use the WWF brand to “greenwash” their operations.The allegations are made in an explosive book previously barred from Britain. The Silence of the Pandas became a German bestseller in 2012 but, following a series of injunctions and court cases, it has not been published until now in English. Revised and renamed Pandaleaks, it will be out next week. Its author, Wilfried Huismann, says the Geneva-based WWF International has received millions of dollars from its links with governments and business.

Global corporations such as Coca-Cola, Shell, Monsanto, HSBC, Cargill, BP, Alcoa and Marine Harvest have all benefited from the group’s green image only to carry on their businesses as usual. Huismann argues that by setting up “round tables” of industrialists on strategic commodities such as palm oil, timber, sugar, soy, biofuels and cocoa, WWF International has become a political power that is too close to industry and in danger of becoming reliant on corporate money. “WWF is a willing service provider to the giants of the food and energy sectors, supplying industry with a green, progressive image … On the one hand it protects the forest; on the other it helps corporations lay claim to land not previously in their grasp.

WWF helps sell the idea of voluntary resettlement to indigenous peoples,” says Huismann. WWF’s conservation philosophy has changed considerably in 50 years, but until recently it was widely thought that people and wildlife could not live together, which led to the group being accused of complicity in evictions of indigenous peoples from Indian and African forests. The book also argues that WWF, which was set up by Prince Philip and Prince Bernhart of the Netherlands in 1961, runs an elite club of 1,001 of the richest people in the world, whose names are not revealed. Industrialists, philanthropists and ultra-conservative, upper-class naturalists, they are said to make up an “old boys’ network with influence in the corridors of global and corporate and policy-making power”.

Rehash of 100 different Automatic Earth articles.

• Economists Are Blind to the Limits of Growth (Bloomberg)

For all their calculating nature, economists are surprisingly optimistic about humanity’s ability to have as much prosperity as it wants. Express concern about the negative impact of excessive growth on our planet’s ecosystems, and many will simply chuckle and say you don’t understand what growth means. Nobel laureate Paul Krugman, for example, chides natural scientists for thinking of growth as a “crude, physical thing, a matter simply of producing more stuff.” They fail to appreciate, he suggests, that growth is about innovation and deciding which technologies and resources to use. Allow me to explain why I am one of those scientists who are preoccupied with the physical. Economists are correct in saying that growth doesn’t necessarily require more pollution, more carbon pumped into the atmosphere or more deforestation, even though we’re getting all of the above today. Humans can learn, and we might figure out how to grow differently in the future, separating the benefits from the environmental costs. There’s just one crucial exception: energy.

Growth inevitably entails doing more stuff of one kind or another, whether it’s manufacturing things or transporting people or feeding electricity to Facebook server farms or providing legal services. All this activity requires energy. We are getting more efficient in using it: The available data suggest that the U.S. uses about half as much per dollar of economic output as it did 30 years ago. Still, the total amount of energy we consume increases every year. Data from more than 200 nations from 1980 to 2003 fit a consistent pattern: On average, energy use increases about 70% every time economic output doubles. This is consistent with other things we know from biology. Bigger organisms as a rule use energy more efficiently than small ones do, yet they use more energy overall. The same goes for cities. Efficiencies of scale are never powerful enough to make bigger things use less energy. I have yet to see an economist present a coherent argument as to how humans will somehow break free from such physical constraints.

Standard economics doesn’t even discuss how energy is tied into growth, which it sees as the outcome of interactions between capital and labor. Why does using ever more energy matter? For one, it feeds directly into all the bad things we’re trying to stop doing – polluting, destroying forests, wiping out habitats, covering the planet with an ever-denser network of roads. Our energy use – either by design or by accident – always ends up changing the environment in one way or another. Then there’s the issue of climate change. Even if by some miracle we act to fix carbon-dioxide levels soon, that won’t actually be a lasting solution. If energy consumption follows the historical trend, by 2150 or so the waste heat alone will warm the Earth as much as carbon dioxide is doing now. We’ll have yet another global warming problem. I’m not sure how economics broke free from the laws of physics and biology. Maybe we’ll eventually leave the planet and live among the stars, escaping the limits of our Earth. Those dreams aside, the physical limits to growth apply as much to us as they would to a colony of bacteria expanding into a jar of sugar water.

The wrong people for the right cause. Watch out.

• The New Washington Consensus – Time To Fight Rising Inequality (Guardian)

The theme of this week’s annual meetings of the International Monetary Fund and the World Bank is shared prosperity. In years gone by, the Washington consensus was all about opening up markets and cutting public spending. The new Washington consensus is the need to tackle inequality. Everybody is getting in on the act. Justin Welby, the archbishop of Canterbury, will share a platform with Christine Lagarde, the head of the IMF, and Mark Carney, the governor of the Bank of England, next weekend to discuss how to make global capitalism more inclusive. The World Economic Forum – the body that organises the Davos shindig – thinks it can go one better. It is angling to get the pope along for its annual meeting in January. No question, 2014 has been the year when the need to tackle inequality has gone mainstream. Oxfam kicked it off with the report showing that 85 billionaires owned as much wealth as half the world’s population.

Thomas Piketty’s Capital in the 21st Century provided some intellectual underpinning, with its thesis that a rawer, 19th-century version of capitalism was reasserting itself. It’s not hard to see why both struck a chord: a tepid global economy, high unemployment, stagnant living standards and trickle up to those at the top have created an environment of sullen unease. No political speech these days is complete without a reference to the need to ensure that a rising tide lifts all boats. But talk is one thing, action another. How does Lagarde’s pledge to fight inequality square with the wage cuts and austerity the IMF has imposed on Greece and Portugal as part of its bailout packages? Is there not a disparity between the commitment of the World Bank president, Jim Kim, to raise the incomes of the bottom 40% of the world’s population with his organisation’s Doing Business report, an annual study that ranks countries by the progress they are making in cutting corporate taxes, keeping minimum wages at low levels and ensuring that paid holidays and sick pay are not excessive?

“If wealthy, guilty people have to remain free to make money, and the living standards of working people have to decline, so be it. It’s just livelihoods on the line.”

• Carmen Segarra, The Whistleblower Of Wall Street (Guardian)

The key implications from this exposé are twofold. First, it shows who’s really running the country. The Fed is supposed to be working for the people, not the banks. Goldman is a private institution rescued by public money that has paid billions in settlements after selling dubious products that contributed to a major financial crisis. Segarra is told to show some humility; in reality that is an attribute Goldman would do well to acquire. Instead its chief executive still believes it is doing “God’s work”. So the state genuflects before capital, with those sole task it is to enforce the law deferring to those whose sole task is to make money.

Second, it indicates that America has apparently learned nothing from the financial crisis. As recently as 2012, a Goldman employee wrote on the day he left the company: “I don’t know of any illegal behaviour, but will people push the envelope and pitch lucrative and complicated products to clients even if they are not the simplest investments or the ones most directly aligned with the client’s goals? Absolutely. Every day, in fact.” When terrorists strike, we are told nothing will ever be the same. The full power of the state is marshalled to prevent a recurrence. If innocent people have to go to jail and basic human rights are violated, so be it. Lives are on the line. But when banks defraud the country into crisis, precious little changes. The bonuses keep coming. Profits keep rising. Regulation remains weak. If wealthy, guilty people have to remain free to make money, and the living standards of working people have to decline, so be it. It’s just livelihoods on the line.

Very interesting interview.

• ‘In 1976 I Discovered Ebola, Now I Fear An Unimaginable Tragedy’ (Observer)

Professor Piot, as a young scientist in Antwerp, you were part of the team that discovered the Ebola virus in 1976. How did it happen?

I still remember exactly. One day in September, a pilot from Sabena Airlines brought us a shiny blue Thermos and a letter from a doctor in Kinshasa in what was then Zaire. In the Thermos, he wrote, there was a blood sample from a Belgian nun who had recently fallen ill from a mysterious sickness in Yambuku, a remote village in the northern part of the country. He asked us to test the sample for yellow fever.

These days, Ebola may only be researched in high-security laboratories. How did you protect yourself back then?

We had no idea how dangerous the virus was. And there were no high-security labs in Belgium. We just wore our white lab coats and protective gloves. When we opened the Thermos, the ice inside had largely melted and one of the vials had broken. Blood and glass shards were floating in the ice water. We fished the other, intact, test tube out of the slop and began examining the blood for pathogens, using the methods that were standard at the time.

But the yellow fever virus apparently had nothing to do with the nun’s illness.

No. And the tests for Lassa fever and typhoid were also negative. What, then, could it be? Our hopes were dependent on being able to isolate the virus from the sample. To do so, we injected it into mice and other lab animals. At first nothing happened for several days. We thought that perhaps the pathogen had been damaged from insufficient refrigeration in the Thermos. But then one animal after the next began to die. We began to realise that the sample contained something quite deadly.

And that’s supposed to be a good thing.

• Ebola Is In America – And, Finally, Within Range Of Big Pharma (Observer)

As the Ebola epidemic continues to rage in west Africa, with more than 3,000 dead and infections doubling every few weeks, the first confirmed case in the US last week stepped up global fears over the rapid spread of the incurable virus. But behind the gruesome headlines, the scale of the outbreak has been raising hopes that it could focus minds at the world’s biggest pharmaceutical groups, boosting research on other devastating tropical diseases that have been neglected for years by the drugs makers. There are already an estimated 12 million Americans suffering from life-threatening or debilitating infections such as Chagas disease, dengue fever or West Nile virus.

“Ebola helps us realise we are a global planet: the health of one region affects the rest of us,” says Julie Jacobson, senior programme officer for infectious diseases at the Bill and Melinda Gates Foundation. Mike Turner, head of infection and immunobiology at the Wellcome Trust, says that “almost certainly, Ebola will increase the visibility” of tropical diseases. The worst Ebola outbreak in history has infected more than 6,500 people, mainly in Guinea, Liberia and Sierra Leone. The World Health Organisation (WHO) has declared the outbreak an international health emergency, warning that the deadly virus could infect up to 20,000 people by November. When last week a man was hospitalised with the disease in Dallas, Texas, it was the first case diagnosed outside Africa.

GlaxoSmithKline has started making 10,000 doses of its experimental Ebola vaccine – the most advanced product around – and could supply it to the WHO for an emergency vaccination programme early next year, assuming clinical trials go well. The vaccine has been rushed into tests on healthy human volunteers in the UK and US. Other Ebola vaccines in development, from Johnson & Johnson’s Crucell division and NewLink Genetics, are close to entering the laboratory. ZMapp, made by a San Diego-based company, is the most advanced of the experimental treatments and has cured some patients, including the British nurse Will Pooley, but stocks have now run out. ZMapp’s development was supported by the US military’s main biodefence research facility, amid fears that the virus could be turned into a biological weapon.

Debt Rattle Apr 21 2014: The Twilight Of The Rising Sun

Apr 212014

April 21, 2014 Posted by Raúl Ilargi Meijer at 1:32 pm Finance Tagged with: Abenomics, economy, Japan 4 Responses »

Detroit Publishing Co. Nightfall on the Ohio River at Cincinnati 1910

US President Barack Obama begins a three-day visit to Japan on Wednesday. As for what he’s going to be talking about, I can give you a hint or two. First of all, there are ongoing tensions between Japan and China, something both nations have a very long history of. And second, these tensions risk flaring up as they move towards intensifying domestic economic troubles, as their exports dwindle.

Prime Minister Shinzo Abe may himself be a nationalist, for what that’s worth, but there can be no doubt that his latest move in connection to the Yasukuni war shrine is also at least in part a piece of political opportunism. Abe knows he needs all the votes and support he can get, and badly.

Outrage Over Abe’s Gift To War Shrine

Japan’s Prime Minister Shinzo Abe’s gift to the controversial Yasukuni war shrine has sparked a Chinese charge that he was offering ‘a slap in the face’ to US President Barack Obama days ahead of his visit. The unapologetically nationalist Abe on Monday donated a sacred masakaki tree to coincide with the start of a three-day festival, a shrine official said. The sending of a gift has been seen as a sign that Abe does not intend to go to the shrine – as he did on December 26, sparking fury in Asia and earning him a diplomatic slap on the wrist from the United States, which said it was disappointed. Yasukuni Shrine honours Japan’s war dead, including some senior military and political figures convicted of serious crimes in the wake of the country’s World War II defeat.

But given the latest developments in the Japanese economy, any support he can get from appealing to nationalistic Japanese sentiments may be too little and too late. One gets the impression from the numbers released to day that Japan has hit sort of a financial perfect storm. The scariest number is probably that its trade deficit QUADRUPLED(!) from a year ago. All you can really say about that is it’s insane. Where the storm gets perfect is in the fact that although the yen fell close to 20% since Abe took the reins 17 months ago, exports are hardly up if at all. That is one huge defeat for Shinzo, since he caused that drop on purpose with the explicit goal of boosting exports. The flipside of that intentional devaluation is of course that imports get much more expensive, and the fall-out, pun intended, of the Fukushima disaster means the country needs to import a lot more – relatively expensive – oil and gas. Bloomberg:

Japan’s Trade Deficit Widens as Export Growth Weakens

Japan’s weakest export growth in a year spurred a wider-than-forecast trade deficit in March, adding to challenges for Prime Minister Shinzo Abe in steering the economy through the aftermath of an April 1 sales-tax rise. The 1.8% rise in the value of shipments overseas from a year earlier, reported today by the Ministry of Finance, compared with a 6.5% median estimate of 27 economists in a Bloomberg News survey. An 18.1% jump in imports helped widen the deficit to the biggest ever for the month. [..]

Export volumes fell 2.5% in March from a year earlier. At the same time, the Japanese currency’s 19% drop since Abe came to power in December 2012 has boosted import values, contributing to 21 straight monthly deficits – the longest slide in comparable data back to 1979. [..] The [trade] deficit quadrupled from a year earlier to 1.45 trillion yen ($14.1 billion), larger than a 1.08 trillion yen projection by economists. On a seasonally adjusted basis, the deficit grew to 1.71 trillion yen.

There may have been an 1.8% increase in export values from a year ago, but in Q1 2014 exports were even down from Q4 2013. Now, it’s obvious that the Japanese people may have spent more than they otherwise would have to avoid the April 1st sales tax hike, and that may have driven imports a little higher. But that also means that domestic consumption will fall going forward, and that’s another perfect hit against Abenomics, where the intended idea was to increase spending, in order to escape deflation. And who will seriously claim that the Japanese are likely to spend more when they see these numbers?

Many have seen their salaries plunge, and are looking worriedly at their savings. That started the entire deflation scenario in the first place, and Abenomics has been a gigantic failure in turning it around. As I predicted many times. If memory serves, the sales tax hike, from 5% to 8%, was supposed to bring $80 billion in revenues, meant to pay off national debt, but Abe spent $50 billion on measures to offset it, leaving a – hope for – extra $30 billion. Which is not a giant sum for the world’s third-biggest economy, and one that hardly seems worth scaring the pajamas off of all the sweet little elderly ladies for, kept up at night by nightmares about their pensions and savings.

Maybe Obama will come mainly to tell Abe goodbye, using some diplomatic version of “See ya, wouldn’t want to be ya”. Remember, Abenomics has not exactly been a free piece of policy, it’s involved a barrage of stimulus measures, and while people may lose count somewhere in between a 200% debt to GDP ratio and one way north of that, just wait till interest rates go up. Tokyo relies on those same elderly ladies to buy its sovereign bonds, but they won’t do that forever. FT:

Japan Posts Largest-Ever Trade Deficit (FT)

Japan suffered its largest-ever trade deficit last fiscal year, underlining a wrenching structural shift for an economy long renowned as an export powerhouse. The gap between the value of Japan’s exports and that of its imports grew by more than two-thirds in the 12 months through March, to Y13.7tn ($134 billion), according to government data released on Monday. It was the third consecutive fiscal year of deficits, the longest streak since comparable records began in the 1970s. Toyota, Hitachi and other large Japanese companies have enjoyed soaring profits as a result of the weaker yen, which has fallen by a fifth against other major currencies since November 2012.

But the improvement has come less from increased exports than from flattered exchange rates on overseas sales. Japanese export volumes have barely risen and the yen value of goods shipped to foreign markets has increased much more slowly than the value of imports. Exports actually declined slightly by volume in January-March compared with the previous quarter, by 0.2% on a seasonally adjusted basis, according to calculations by Credit Suisse, even as imports grew by 4.5%. “Import volume growth appeared stronger than we had envisaged,” said Hiromichi Shirakawa, the Swiss bank’s chief Japan economist. [..] National fuel imports jumped by 18% by value last year, according to Monday’s trade data…

Japan resembles a sinking ship more than anything else these days. The only parties that make out like bandits from Abenomics are the usual suspects, banks and other multinational corporations. And while they may be inclined to, or coerced into, invest their additional profits in Abe bonds for a while, they can buy Greek and Italian paper that has much higher yields that Japan’s 0.6% or so, and is implicitly guaranteed by the EU. And then Abe has another headache:

Fukushima No. 1 Boss Admits Water Woes Out Of Control

The manager of the Fukushima No. 1 nuclear power plant admits to embarrassment that repeated efforts have failed to bring under control the problem of radioactive water, eight months after Prime Minister Shinzo Abe told the world the matter had been resolved. Tokyo Electric Power Co., the plant’s operator, has been fighting a daily battle against contaminated water since Fukushima was wrecked by the March 2011 earthquake and tsunami. Abe’s government pledged half a billion dollars last year to tackle the issue, but progress has been limited. “It’s embarrassing to admit, but there are certain parts of the site where we don’t have full control,” Akira Ono told reporters touring the plant last week.

He was referring to the latest blunder at the plant: channeling contaminated water into the wrong building. Ono also acknowledged that many difficulties may have been rooted in Tepco’s focus on speed since the 2011 disaster. “It may sound odd, but this is the bill we have to pay for what we have done in the past three years,” he said.

Three years after the quake, Japan still blunders its way through the aftermath. When is that going to change? When the sea water off Seattle and Vancouver turns radio-active? Wonder what Obama will have to tell Abe about this, and what part us proles will be allowed to hear about? Also wonder what the Japanese people will say when Abe, inevitably because of the dismal economic numbers, starts suggesting firing up the nukes again, and someone suggest it might have been a better idea to evacuate Tokyo after all.

Then again, I doubt it’ll all be Abe’s worry much longer anymore. Still, maybe we ourselves should worry a bit more about what happens when a nation and economy the size of Japan must begin sending out Mayday signals. By the looks of it, it will soon have its back against the wall. And that can lead to desperate things. Which I would think Abenomics already is/was, but that was domestic. What if the desperation starts looking beyond the Japanese borders?

• Japan Posts Largest-Ever Trade Deficit (FT)

Japan suffered its largest-ever trade deficit last fiscal year, underlining a wrenching structural shift for an economy long renowned as an export powerhouse. The gap between the value of Japan’s exports and that of its imports grew by more than two-thirds in the 12 months through March, to Y13.7tn ($134 billion), according to government data released on Monday. It was the third consecutive fiscal year of deficits, the longest streak since comparable records began in the 1970s. Toyota, Hitachi and other large Japanese companies have enjoyed soaring profits as a result of the weaker yen, which has fallen by a fifth against other major currencies since November 2012.

But the improvement has come less from increased exports than from flattered exchange rates on overseas sales. Japanese export volumes have barely risen and the yen value of goods shipped to foreign markets has increased much more slowly than the value of imports. Exports actually declined slightly by volume in January-March compared with the previous quarter, by 0.2% on a seasonally adjusted basis, according to calculations by Credit Suisse, even as imports grew by 4.5%. “Import volume growth appeared stronger than we had envisaged,” said Hiromichi Shirakawa, the Swiss bank’s chief Japan economist.

Japan’s energy import bill has risen sharply in the wake of the Fukushima nuclear accident in 2011. All of the country’s operable atomic reactors are offline pending safely reviews, robbing Japan of a power source that provided 30% of its electricity before the disaster. Utilities have been forced to buy more foreign oil and gas to make up the difference, and a weaker yen has made each barrel that much pricier. National fuel imports jumped by 18% by value last year, according to Monday’s trade data. Japan’s economy has been growing for more than a year, but a dependence on domestic consumer spending has left it vulnerable, experts say, particularly given an increase in the national sales tax that took effect on April 1.

Experts expect gross domestic product to contract in the current quarter, in part because many consumers brought purchases forward to beat the tax rise, and the question is how quickly the economy will shake off the effects of the tax increase. Pre-tax-hike demand was likely responsible for some of the unusually sharp increase in imports, experts said, suggesting growth in the trade deficit could slow beginning this month. March’s deficit was Y1.45tn, higher than the roughly Y1tn average forecast of economists surveyed by Bloomberg.

• Japan’s Trade Deficit Widens as Export Growth Weakens (Bloomberg)

Japan’s weakest export growth in a year spurred a wider-than-forecast trade deficit in March, adding to challenges for Prime Minister Shinzo Abe in steering the economy through the aftermath of an April 1 sales-tax rise. The 1.8% rise in the value of shipments overseas from a year earlier, reported today by the Ministry of Finance, compared with a 6.5% median estimate of 27 economists in a Bloomberg News survey. An 18.1% jump in imports helped widen the deficit to the biggest ever for the month.

Exports by volume fell the most since June last year, suggesting external demand may fail to provide much support for an economy set to contract this quarter. A spending spree ahead of the tax increase boosted imports, already swollen by a surge in energy costs due to the yen’s slide and nuclear shutdowns. “In spite of the continued weaker yen, the performance of Japanese exporters is quite weak compared to competitors like Korea or Taiwan,” said Junko Nishioka, chief Japan economist at Royal Bank of Scotland Group Plc in Tokyo. The trade balance will deteriorate “unless the government decides to restart nuclear power plants,” she said.

The rush demand ahead of the tax increase could have prompted companies to divert shipments to the domestic market, rather than overseas, crimping export growth, said Hiroaki Muto, a senior economist at Sumitomo Mitsui Asset Management Co. in Tokyo. Abe’s drive to shake off more than a decade of deflation and economic drift helped drive down the yen, boosting profits of exporters such as Toyota Motor Corp. even as shipment volumes remain sluggish. Export volumes fell 2.5% in March from a year earlier. At the same time, the Japanese currency’s 19% drop since Abe came to power in December 2012 has boosted import values, contributing to 21 straight monthly deficits – the longest slide in comparable data back to 1979. [..] The [trade] deficit quadrupled from a year earlier to 1.45 trillion yen ($14.1 billion), larger than a 1.08 trillion yen projection by economists. On a seasonally adjusted basis, the deficit grew to 1.71 trillion yen.

• Fukushima Manager Admits To ‘Embarrassing Failure’ (RT)

The manager of the stricken Fukushima nuclear power plant has admitted not having full control of the facility. Contrary to the statements of the Japanese PM, TEPCO’s Akira Ono said attempts to plug the leaks of radioactive water had failed. “It’s embarrassing to admit, but there are certain parts of the site where we don’t have full control,” Ono told reporters touring the plant this week, reported Reuters. Last year, the Japanese PM attempted to assure the world that the situation at the stricken nuclear power plant was under control. However, over the last couple of months the clean-up procedure at the plant has been fraught with difficulties.

Tokyo Electric Power Co (TEPCO), the plant’s operator, has consistently faced contaminated water leaks at the Fukushima plant.Water has to be pumped over the facilities stricken reactors in order to keep them from overheating, but this process creates large quantities of contaminated water which has to be stored in tanks on the site. Ono acknowledged to press that in TEPCO’s rush to deal with the stricken facility following the earthquake-triggered tsunami in 2011, the company may have made mistakes. “It may sound odd, but this is the bill we have to pay for what we have done in the past three years,” he said. “But we were pressed to build tanks in a rush and may have not paid enough attention to quality. We need to improve quality from here.”

• Fukushima No. 1 Boss Admits Water Woes Out Of Control (Japan Times)

The manager of the Fukushima No. 1 nuclear power plant admits to embarrassment that repeated efforts have failed to bring under control the problem of radioactive water, eight months after Prime Minister Shinzo Abe told the world the matter had been resolved. Tokyo Electric Power Co., the plant’s operator, has been fighting a daily battle against contaminated water since Fukushima was wrecked by the March 2011 earthquake and tsunami. Abe’s government pledged half a billion dollars last year to tackle the issue, but progress has been limited. “It’s embarrassing to admit, but there are certain parts of the site where we don’t have full control,” Akira Ono told reporters touring the plant last week.

He was referring to the latest blunder at the plant: channeling contaminated water into the wrong building. Ono also acknowledged that many difficulties may have been rooted in Tepco’s focus on speed since the 2011 disaster. “It may sound odd, but this is the bill we have to pay for what we have done in the past three years,” he said. “But we were pressed to build tanks in a rush and may have not paid enough attention to quality. We need to improve quality from here.” The Fukushima No. 1 plant, some 220 km northeast of Tokyo, suffered three reactor core meltdowns in the world’s worst nuclear disaster since Chernobyl in 1986.

The issue of contaminated water is at the core of the clean-up. Japan’s nuclear regulator and the International Atomic Energy Agency say a new controlled release into the sea of contaminated water may be needed to ease stretched capacity as the plant runs out of storage space. But this is predicated on the state-of-art ALPS (Advanced Liquid Processing System) project, which removes the most dangerous nuclides, becoming fully operational. The system has functioned only during periodic tests.

China lets banks fail, even small ones, and it risks bank runs up the wazoo. Will they risk it?

• Moving to Protect Depositers, China Signals Some Banks Could Fail (Bloomberg)

Chinese Premier Li Keqiang’s plan to introduce deposit insurance is meant to comfort the nation’s savers as bad loans mount. In the bond market, it’s fueling speculation he’s preparing to let some banks collapse. Authorities may tolerate failures of smaller banks once depositor safeguards are in place, Kwong Li, chief executive officer of China Lianhe Credit Rating Co. said. Among lender bonds rated at or below AA, the extra yield investors demand to hold the 2022 securities of China Bohai Bank in the northern city of Tianjin surged to an 11-month high of 245 basis points on April 17. The premium on the notes due 2019 of Harbin Bank, a lender near China’s border with Russia, has jumped 41 basis points in the past year to 217.

“With the deposit insurance coming online, the government is signaling they may be willing to let some of the smaller banks default or be consolidated,” Li said in an interview in Shanghai on April 15. Bank defaults “probably won’t happen until deposit insurance is in place.” Lianhe Credit is Fitch Ratings Ltd.’s China joint venture. Premier Li pledged last month to introduce protection for savers this year as he shifts toward letting the market set rates, a move that may push up borrowing costs for smaller lenders even as it forces them to pay higher interest to depositors. Almost 1,000 customers rushed to outlets of Jiangsu Sheyang Rural Commercial Bank on March 24 amid rumors the lender may go bankrupt, Xinhua News Agency reported March 26.

Beijing wants full banking power, but it’s llike trying to hold on to an eel with your hands. Slippery stuff.

• China Heightens Alert Over Illegal Funds As Internet Finance Booms (Reuters)

The fast development of internet finance in China is driving an increase in cases of illegal fund raising, a situation that could worsen if regulation does not catch up, a senior official at the country’s banking sector watchdog said on Monday. Liu Zhangjun, a director at the China Banking Regulatory Commission (CBRC) in charge of combating illegal fund-raising, said some of the recent cases have been disguised as normal online financial services, requiring tighter scrutiny. He particularly singled out cases conducted in the name of “crowd funding” and “P2P lending”, two types of internet finance that are gaining increasing popularity among China’s vast number of depositors.

“As internet finance is developing rapidly, many illegal funding activities are moving from offline to online,” Liu told a media briefing jointly held with the Ministry of Public Security and the Supreme Court. “Some lawbreakers are seeking loopholes left by a regulatory vacuum and blurred legal boundaries for new forms of financing,” he added. Beijing has consistently taken a very harsh stance towards illegal fund-raising, a term usually used to describe deposit-taking from the public by people without licences to do so, because it can lead to financial market disorder and threaten social stability.

An inter-family feud?

• China Signals Change As It Investigates A Family’s Riches (NY Times)

His son landed contracts to sell equipment to state oil fields and thousands of filling stations across China. His son’s mother-in-law held stakes in pipelines and natural gas pumps from Sichuan Province in the west to the southern isle of Hainan. And his sister-in-law, working from one of Beijing’s most prestigious office buildings, invested in mines, property and energy projects. In thousands of pages of corporate documents describing these ventures, the name that never appears is his own: Zhou Yongkang, the formidable Chinese Communist Party leader who served as China’s top security official and the de facto boss of its oil industry.

But President Xi Jinping has targeted Mr. Zhou in an extraordinary corruption inquiry, a first for a Chinese party leader of Mr. Zhou’s rank, and put his family’s extensive business interests in the cross hairs. Even by the cutthroat standards of Chinese politics, it is a bold maneuver. The finances of the families of senior leaders are among the deepest and most politically delicate secrets in China. The party has for years followed a tacit rule that relatives of the elite could prosper from the country’s economic opening, which rewarded loyalty and helped avert rifts in the leadership. Whether to wipe out Mr. Zhou’s influence or to send an unmistakable signal to the entire party elite, Mr. Xi appears to be rewriting the rules. He has widened the inquiry into Mr. Zhou to include his wife, a son, a brother, a sister-in-law, a daughter-in-law and the son’s father-in-law, all of whom have been taken away by the authorities in recent months, according to relatives and witnesses. [..]

Some political analysts argue that a leader of Mr. Zhou’s status would not face an inquiry of this kind unless Mr. Xi regarded him as a direct threat to his power. In other words, Mr. Zhou is the loser in a political struggle. His family’s financial dealings lost their immunity only because Mr. Zhou fell from favor, not because elite business dealings were being criminalized. But another school of thought is that Mr. Xi considers the enormous agglomeration of wealth by spouses, children and siblings of top-ranking officials a threat to China’s stability by encouraging mercenary corruption and harming the party’s public standing.

• Ukraine Must Solve Crisis Itself To Avoid Bloodshed, IMF Debt Slavery (RT)

Mediation won’t resolve the crisis in Ukraine, as all international players have their own interests there, Wide Awake News founder Charlie McGrath told RT, adding that only the Ukrainians can drag their country out of the current “quagmire.” The document on de-escalation – which Russia, the US, the EU, and Ukraine agreed on – is unlikely to fulfill its purpose and bring peace to the crisis-hit country, McGrath stressed. With all the international players involved in the Geneva deal and having their own interests in Ukraine, the country finds itself “caught in the middle of an old school-style, Cold War-type battle,” the Wide Awake News founder explained.

Moscow is looking for greater influence in its neighbor state because “there’s a lot of wealth that’s transferred to Ukraine via Russia through natural gas pipelines,” he said. “NATO wants to step up and get that much closer to Russia; they want more presence inside Eastern Europe,” the journalist said, adding that Poland is already using the accession of Ukraine’s Republic of Crimea into Russia “as a great excuse” to put US troops on its territory. According to McGrath, the International Monetary Fund “is eager to get its claws into Ukraine and sap the natural resources and the natural trade routes” that the former Soviet state possesses. What Washington really wants is “to implement austerity on Ukraine,” as it keeps “dangling this carrot of foreign aid” before the coup-imposed authorities in Kiev, he said.

If financial support from the IMF arrives in Ukraine, it will only help the banks – turning the population into “nothing more than debt slaves, like we’ve seen in other nations throughout Europe,” the journalist warned. McGrath also reminded that the events in Ukraine “aren’t an accident,” with the US contributing largely to the turmoil. “You don’t need to take a journalist’s word for it on RT. You can listen to Dennis Kucinich, the Congressman for the US, he pointed out on a recent interview with Bill O’Reilly on FOX News that there were quasi-government agencies that spent billions of dollars, 65+ programs to destabilize the elected government of Ukraine,” he stressed.

“I guess it still doesn’t occur to most that housing had its Fed, new-era investor, and liquidity induced ‘short squeeze’, which pulled everybody into the pool at the same time … “

• It’s Back Again – Housing Stimulus Hangover! (Mark Hanson)

Bank Of America Merryl Lynch kinda shocked me last week by lowering its resi investment GDP growth forecast by 33%, citing this is “not a v-shaped recovery” and “we must be patient”. Say what?!? For the past two years house prices — on the heels of nuclear-option rates intervention and the new-era, all-cash investor class — have “vee’d” greater than any time in history, even 2003 to 2007. Moreover, years of headlines of “lines around corner”, and “50 bidders on every house” were either on, or never far from, any front page worldwide. So, now BOAML is back-peddling, saying that we are in the early stages of a recovery and have to be ‘patient’ for the real-deal, durability and escape velocity to take place??? This is twilight zone stuff.

I guess it still doesn’t occur to most that housing had its Fed, new-era investor, and liquidity induced ‘short squeeze’, which pulled everybody into the pool at the same time, filled all the pent-up demand and pulled even more forward. And now, just like in 2007 and again following the tax-credit in 2010, the sector is in the midst of a “stimulus hangover” at which time housing “resets to end-user fundamentals”, meaning much lower volumes and prices. We are already seeing the demand destruction, which always precedes lower prices.

BOAML reduced its residential investment’s contribution to GDP by 33% for 2014. However, this is still a best case scenario. Moreover, they failed to include the GDP headwind from the loss of foreclosures and short sales, which require the exact same labor and materials as builders use to start houses and which dwarfed the ML’s 100k starts reduction for years leading into 2014. Lastly, they still need to downgrade Existing Sales, on which the broker commission component to GDP by itself is 60% of total builder residential investment.

• Wall Street Deregulation Pushed By Clinton Advisers (Guardian)

Wall Street deregulation, blamed for deepening the banking crisis, was aggressively pushed by advisers to Bill Clinton who have also been at the heart of current White House policy-making, according to newly disclosed documents from his presidential library. The previously restricted papers reveal two separate attempts, in 1995 and 1997, to hurry Clinton into supporting a repeal of the Depression-era Glass Steagall Act and allow investment banks, insurers and retail banks to merge.

A Financial Services Modernization Act was passed by Congress in 1999, giving retrospective clearance to the 1998 merger of Citigroup and Travelers Group and unleashing a wave of Wall Street consolidation that was later blamed for forcing taxpayers to spend billions bailing out the enlarged banks after the sub-prime mortgage crisis. The White House papers show only limited discussion of the risks of such deregulation, but include a private note which reveals that details of a deal with Citigroup to clear its merger in advance of the legislation were deleted from official documents, for fear of it leaking out. “Please eat this paper after you have read this,” jokes the hand-written 1998 note addressed to Gene Sperling, then director of Clinton’s National Economic Council.

Earlier, in February 1995, newly-appointed Treasury secretary Robert Rubin, his deputy Bo Cutter and senior advisers including John Podesta gave the president three days to decide whether to back a repeal of Glass-Steagall. In what Cutter described as “an action forcing event”, he wrote to Clinton on 21 February, telling him Rubin wanted to announce the policy before it was raised by the House banking committee on 1 March. “In order to position Secretary Rubin – rather than any of the regulators – as the Administration’s chief spokesman on this issue, the Secretary intends to discuss the Administration’s position at a speech which will be covered by the press in New York on 27 February,” wrote Cutter on 21 February.

Excerpt from – former Reagan Tresury department – Stockman’s book. Very good reading. Who needs a fantasy horror story when you have this?

• FDR’s Hayseed Coalition: Roots Of Modern Money Printing (Stockman)

It was not the anti-gold fulminations of J. M. Keynes at the time of the British crisis in 1931 that finally brought down the gold standard and sound money. Instead, its real demise came two years later in the form of the Thomas Amendment, a powerful expression of the monetary populism which animated FDR’s hayseed coalition. The amendment was hatched at midnight on April 18 1933, during FDR’s famous White House rendezvous with the fiery leader of the hard-scrabble farm belt, and embodied four “discretionary” presidential options to debauch the gold dollar. These measures have been dismissed by historians as a casual sop by FDR to farm state radicals, but they could not be more mistaken.

The Thomas Amendment was a nascent version of today’s delusion that economic setbacks, shortfalls, and disappointments are caused by too little money. The true cause, both in the early 1930s and today, was actually an excess of debt. This explanation is never appealing to politicians because there is no real cure for the liquidation of excess debt, except the passage of time and the forfeiture of the ill-gotten gains from the financial bubbles preceding it. By contrast, the populists of the New Deal era believed that the state could easily and quickly remedy a shortage of money by printing more of it. In this respect they are in a line of descent that extends to the depredations of the Bernanke Fed in the present era.

The line of continuity started with FDR and Senator Thomas and included the latter’s guru, Professor Irving Fisher of Yale. It then extended into the present era via Professor Milton Friedman of Chicago, who embraced wholeheartedly Fisher’s quirky theory of deflation. The latter, in turn, became the virtual obsession of Friedman’s acolyte, Professor Bernanke of Princeton, whose academic work is based on Friedman’s erroneous interpretation of the Great Depression. Upon becoming chairman of the Fed, Bernanke then foisted the Fisher-Thomas-Friedman deflation theory upon the nation’s economy in a panicked response to the Wall Street meltdown of September 2008. Yet monetary deflation was no more the cause of the 2008 crisis than it had been the cause of the Great Depression.

The monetary populists of the 1920s and 1930s, including Professor Fisher, had “cause and effect” backward. The sharp reduction after 1929 in the money supply was an inexorable consequence of the liquidation of bad debt, not an avoidable cause of the depression. The measured money supply (M1) even in those times consisted mostly of bank deposit money rather than hand-to-hand currency. And checking account money had declined sharply as an arithmetic consequence of the collapse of what had previously been a fifteen-year buildup of bad loans and speculative credit.

During 1929–1933 commercial bank loans outstanding declined from $36 billion to $16 billion. Not surprisingly, as customer loan balances fell sharply, so did checking accounts or what can be termed “bank deposit money” as opposed to currency in circulation. The latter actually grew by $1.1 billion during the four years after 1929, to about $5.5 billion. By contrast, it was the loan-driven checking account portion of M1 which dried up, declining from $25 billion to $17 billion over the same period. And the reason was no mystery: the way banks create demand deposits is to first issue loan credits to their customers. Indeed, in the modern world money supply follows credit, and rarely do central bankers inordinately restrict the growth of the latter.

• Bleak Future For Australian Manufacturing (FT)

Ford’s normally busy factory is deserted and eerily quiet. For two weeks the carmaker and dozens of its component suppliers are on a temporary shutdown to cut costs amid slack demand. “Far worse is coming,” says Anthony Anderson, a shop steward who has worked for 30 years at the plant in Geelong, a coastal city of 225,000 people deep in Australia’s manufacturing heartland near Melbourne. “This assembly plant is closing in two years and with it will go thousands of jobs at component suppliers across the region,” he says.

It is almost a year since Ford said it would stop making cars in Australia, blaming a strong Aussie dollar, high labor costs and Asian competition. General Motors and Toyota followed when the new government declined to offer extra subsidies, declaring an end to an “era of entitlement” that saw carmakers gobble A$30 billion (US$28 billion) in taxpayer assistance between 1997 and 2012. Several thousand direct jobs will be lost by 2017 and a further 40,000 suppliers jobs are under threat as the curtain comes down on a century of car manufacturing Down Under. The demise of such an iconic industry is raising questions about the viability of other manufacturing sectors and whether Australia has become too expensive to make things.

“Australian manufacturing has been in relative decline as a share of the economy and of employment for the past 30 years, much like the UK,” says Ivan Colhoun, economist at ANZ bank. “That trend seems likely to continue.” Australia’s small market, high wages, a strong currency and Canberra’s decision to stop corporate handouts were negative forces affecting the sector, he says. The crunch in manufacturing intensified in the global financial crisis, with 77,000 jobs lost between 2007 and 2012, reducing employment in the sector to 967,000 or 8% of the workforce. The industry’s troubles, when combined with a sharp slowdown in mining investment, pose a threat to Australia’s record of 22 years of consecutive economic growth.

Nomi Prins has something to say.

• “We are in great danger”: Ex-Banker Details How Mega-Banks Destroyed America (Salon)

“It no longer matters who sits in the White House,” former Goldman Sachs managing director Nomi Prins writes in her new book “All the Presidents’ Bankers: The Hidden Alliances That Drive American Power.” “Presidents no longer even try to garner banker support for population-friendly policies, and bankers operate oblivious to the needs of national economies. There is no counterbalance to their power.” Prins, who also worked for Bear Stearns, Lehman Brothers and Chase Manhattan Bank, is now a fellow at the think tank Demos and a member of Sen. Bernie Sanders’ Federal Reserve Advisory Council. Salon spoke with Prins about a century of presidential coziness with bankers; Barney Frank’s defense of big banks’ power; and how to “break the alliances” before they “break us.” A condensed version of our conversation follows.

It’s no secret that big banks play a big role in shaping U.S. banking policy. Your book argues they play a big role in all kinds of areas, like foreign policy. How broad, deep and consistent is the role of big banks in U.S. policymaking?

Throughout the century that I examined, which began with the Panic of 1907 … what I found by accessing the archives of each president is that through many events and periods, particular bankers were in constant communication [with the White House] — not just about financial and economic policy, and by extension trade policy, but also about aspects of World War I, or World War II, or the Cold War, in terms of the expansion that America was undergoing as a superpower in the world, politically, buoyed by the financial expansion of the banking community.

And in what direction did that move policy? How did those policies become different than they would have without the bankers’ influence?

It was more a question of each group, in government and in the financial community, working together to push the same policies. So, for example, in the beginning of World War I, Woodrow Wilson had adopted initially a policy of neutrality. But the Morgan Bank, which was the most powerful bank at the time, and which wound up funding over 75% of the financing for the allied forces during World War I … pushed Wilson out of neutrality sooner than he might have done, because of their desire to be involved on one side of the war.

Now, on the other side of that war, for example, was the National City Bank, which, though they worked with Morgan in financing the French and the British, they also didn’t have a problem working with financing some things on the German side, as did Chase … When Eisenhower became president … the U.S. was undergoing this expansion by providing, under his doctrine, military aid and support to countries [under] the so-called threat of being taken over by communism … What bankers did was they opened up hubs, in areas such as Cuba, in areas such as Beirut and Lebanon, where the U.S. also wanted to gain a stronghold in their Cold War fight against the Soviet Union. And so the juxtaposition of finance and foreign policy were very much aligned.

My Twitter pen-pal and Automatic Earth devotee Jesse Colombo has made it to the pages of Forbes, where he wrote an assessment of New Zealand’s economy that wasn’t particularly likes, but got a lot of media.

• 12 Reasons Why New Zealand’s Economic Bubble Will End In Disaster (Colombo)

New Zealand’s economy has been hailed as one of world’s top safe-haven economies in recent years after it emerged from Global Financial Crisis relatively unscathed. Unfortunately, my research has found that many of today’s so-called safe-havens (such as Singapore) are experiencing economic bubbles that are strikingly similar to those that led to the financial crisis in the first place. [..] Here are the reasons why I believe that New Zealand’s economy is heading for a crisis:

1) Interest rates have been at all-time lows for almost a half-decade
2) Property prices have doubled since 2004
3) New Zealand has the world’s third most overvalued property market
4) New Zealand’s mortgage bubble grew by 165% since 2002
5) Nearly half of mortgages have floating interest rates
6) Mortgages account for 60% of banks’ loan portfolios
7) Finance, not agriculture, is New Zealand’s largest industry
8) New Zealand’s banks are exposed to Australia’s bubble
9) Australian and Chinese buyers are inflating the property bubble
10) New Zealand has a household debt problem
11) Government overseas debt has nearly tripled since 2008
12) The New Zealand dollar is overvalued

And Jesse even had the government react.

• It’s Not A Bubble Until It’s Officially Denied, New Zealand Edition (Colombo)

What an Easter weekend it’s been. On Thursday, I published a piece called “12 Reasons Why New Zealand’s Economic Bubble Will End In Disaster” in which I summarized my research on the Pacific island’s growing property and credit bubble. In just a few days, this article went viral and received over 85,000 views and nearly 8,000 shares on social media. This bubble warning created a media firestorm, making numerous news headlines, landed me a prime time appearance on TVNZ, and made the cover story of The Herald on Sunday.

My bubble warning also led to something that I’ve become quite familiar with lately: an official denial from Economic Development Minister Steven Joyce. This makes the fourth official bubble denial I’ve experienced in the past several months, with the first three coming from officials in Malaysia, the Philippines, and Singapore.

After having experienced official bubble denials before, I have stopped taking them seriously because I now realize that they are simply standard responses that add little intellectual substance to the discussion. While I bring facts and statistics to the table, the official bubble deniers typically attempt to attack my credibility and write me off as a “doom and gloomer.” In response to my warnings about credit and property prices doubling or tripling in just a decade, I receive pat answers such as “our banks have prudent lending standards” and “property prices are rising because of a shortage” (after all, it’s always a “shortage” – never a bubble). It doesn’t matter what country I’m warning about, the official bubble denials are essentially the same.

Lovely.

• US Court Denies Attorney-Client Privilege (Simon Black)

In the Land of the Free, people grow up hearing a lot of things about their freedom. You’re told that you live in the freest country on the planet. You’re told that other nations ‘hate you’ for your freedom. And you’re told that you have the most open and fair justice system in the world. This justice system is supposedly founded on bedrock principles– things like a defendant being presumed innocent until proven guilty. The right to due process and an impartial hearing. The right to counsel and attorney-client privilege. Yet each of these core pillars has been systematically dismantled over the years:

1. So that it can operate with impunity outside of the law, the federal government has set up its own secret FISA courts to rubber stamp NSA surveillance. According to data obtained by the Electronic Privacy Information Center, of the nearly 34,000 surveillance requests made to FISA courts in the last 35-years, only ELEVEN have been rejected. Unsurprising given that FISA courts only hear the case from the government’s perspective. It is literally a one-sided argument in FISA courts. Hardly an impartial hearing, no?

2. The concept of ‘innocent until proven guilty’ may officially exist in courts, but administratively it was thrown out long ago. These days there are hundreds of local, state, and federal agencies that can confiscate your assets, levy your bank account, and freeze you out of your life’s savings. None of this requires a court order. By the time a case goes to court, you have been deprived of the resources you need to defend yourself. You might technically be presumed innocent, but you have been treated and punished like a criminal from day one.

3. Attorney-Client privilege is a long-standing legal concept which ensures that communication between an attorney and his/her client is completely private. In Upjohn vs. the United States, the Supreme Court itself upheld attorney-client privilege as necessary “to encourage full and frank communication between attorneys and their clients and thereby promote broader public interests in the observance of law. . .” It doesn’t matter what you’re accused of – theft, treason, triple homicide. With very limited exceptions, an attorney cannot be compelled to testify against a client, nor can their communications be subpoenaed for evidence.

Yet in a United States Tax Court decision announced on Wednesday, the court dismissed attorney client privilege, stating that: “When a person puts into issue his subjective intent in deciding how to comply with the law, he may forfeit the privilege afforded attorney-client communications.” In other words, if a person works with legal counsel within the confines of the tax code to legitimately minimize the amount of taxes owed, that communication is no longer protected by attorney-client privilege. Furthermore, the ruling states that if the individuals do not submit attorney-client documentation as required, then the court would prohibit them from introducing any evidence to demonstrate their innocence.

All we need to see from here is polluted Chinese fire, and we’ll have all 4 basic elements corrupted for 1.3 billion people.

• China’s Water Is Worse Than Its Air (Bloomberg)

In recent months, Chinese leaders have pledged drastic steps to clear their nation’s smog-choked air. The bigger question, though, may be how far they’re willing to go to clean up its water. Say one thing for the lung-burning pollution that regularly blankets Beijing and other cities: At least everyone can see the problem. In contrast, a recent benzene spill that poisoned the water supply of Lanzhou – a city of more than 2 million people – was terrifyingly odorless and colorless. If anything, polluted water poses a more insidious threat to Chinese people than dirty air does. 70% of the groundwater in the heavily populated north China plain has become unfit for human touch, let alone drinking or irrigation. Because the area encompasses several of the country’s largest farming provinces, crops and livestock are exposed to dangerous contaminants as well. The 9 in 10 Chinese who say they’re “highly concerned” about the safety of their food and water have reason to be alarmed.

Authorities have shown they can restore blue skies, at least temporarily, as they did during the 2008 Beijing Olympics. Cleaning up China’s water will be more difficult, time-consuming and expensive. Industries that pollute water are not concentrated in a few places, as coal-fired power plants are, but spread out across thousands of localities. And dirty water is harder to assess than gritty air; discharges have to be measured near the source. In any case, industry accounts for only half of water pollution. The rest comes from millions of small farmers and livestock producers, whose fertilizers, pesticides and waste runoff leach undetected into the water table.

The sheer scale of the problem demands root-and-branch reforms — the kind that Chinese academics and activists have long promoted but the government has been reluctant to make. A new environmental law, for instance, may include tougher penalties: Violators who ordinarily pay cheap fines and then continue to pollute would be subject to daily, unlimited penalties and possible criminal charges. But this law is in its fourth draft and still undergoing revisions, and there’s no guarantee the stronger penalties will survive to the final version.

Even if they do, they will be of little use unless China’s Ministry of Environmental Protection is given greater power. As things stand, so many agencies have a say in environmental oversight, it’s almost impossible to take strong, swift action. Groundwater monitoring alone is overseen by three different ministries, as China Water Risk, a nonprofit watchdog based in Hong Kong, points out, and this makes enforcement slow and ineffective. Talk of merging ministries or responsibilities into the MEP has so far gone nowhere.

Street cams are so ubiquitous in the UK, nobody really thinks much about them anymore.

• Vast Network Of Street Cams Pose ‘Very Real Risk’ To Britons’ Privacy (Independent)

Members of the public face “a very real risk” to their privacy from the huge roadside surveillance network that captures millions of motorists every day, the Government’s Surveillance Commissioner has warned. In an interview with The Independent, Tony Porter urges that clear guidance be provided to ensure “innocent” people do not fall victim to roadside automatic number plate recognition (ANPR) cameras which have been the centre of concerns over the rise of surveillance in Britain. The regulator for Britain’s state-run security cameras has put police on notice over their use of personal data after a series of investigations into the ANPR system, which has been described by campaigners as the “biggest surveillance network that most people have never heard of”.

The use of the system is part of wider concerns over a growing “surveillance society” as Mr Porter revealed how cheap home CCTV cameras have led to a surge in snooping disputes between neighbours. Local authorities control more than 50,000 cameras while thousands of roadside cameras collect owner information on more than 18 million car journeys every day, in a swift and unregulated expansion over the past 30 years. Police have declined to say how many cameras are used for the ANPR system, but it has the capacity to check information on up to 50 million cars every day, and cross-check it with other police databases to trace wanted offenders.

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