May 232017
 
 May 23, 2017  Posted by at 8:45 am Finance Tagged with: , , , , , , , , , ,  


Henri Matisse Bathers by a River 1910

 

Trump Seeks $3.6 Trillion in Cuts to Reshape Government (BBG)
The US Economy Has Left 10s Of Millions Of Forgotten Americans Behind (Snyder)
UK General Election Campaigning Suspended After Manchester Attack (G.)
US Healthcare Industry Blames Trump And GOP For Obamacare Rate Hikes (F.)
China Pushes Public to Accept GMO as Syngenta Takeover Nears (BBG)
China Spins a Global Food Web From Mozambique to Missouri (BBG)
Auto Lender Santander Checked Income on Just 8% in Subprime ABS (BBG)
Germany Commemorates The 500th Anniversary Of Luther’s Reformation (AFP)
Do You, Mr. Jones…? (Jim Kunstler)
Getting Julian Assange: The Untold Story (John Pilger)
EU Ministers Fail To Reach Greek Debt Deal, Delay Release Of Bailout (Tel.)
Macron Tells Tsipras France Hopes To Ease Greek Debt (K.)
German Government At Odds With Itself Over Greek Debt Relief (R.)
1.2 Million Greek Pensioners Live on Less than €500 a Month (GR)
Amnesty Urges Greece to Provide Safe Housing to Elliniko Refugees (GR)

 

 

Congress will never accept this.

Trump Seeks $3.6 Trillion in Cuts to Reshape Government (BBG)

President Donald Trump would dramatically reduce the U.S. government’s role in society with $3.6 trillion in spending cuts over the next 10 years in a budget plan that shrinks the safety net for the poor, recent college graduates and farmers. Trump’s proposal, to be released Tuesday, claims to balance the budget within a decade. But it relies on a tax plan for which the administration has provided precious little detail, the elimination of programs backed by many Republican lawmakers, and heavy use of accounting gimmicks. Trump’s fiscal 2018 budget proposal has already been declared dead on arrival by many of his Republican allies in Congress. The plan would slash Medicaid payments, increase monthly student loan payments and cut food stamps and agricultural subsidies, each backed by powerful constituencies.

The administration is unbowed. “We’re no longer going to measure compassion by the number of programs or the number of people on those programs,” White House budget director Mick Mulvaney said. “We’re going to measure compassion and success by the number of people we help get off those programs and back in charge of their own lives.” Senate Republican Leader Mitch McConnell has already said he expects the Republican-led Congress to largely ignore the proposal, saying in an interview last week with Bloomberg News that early versions reflected priorities that “aren’t necessarily ours.” The president’s proposal would fulfill his campaign promise of leaving Social Security retirement benefits and Medicare untouched while increasing national security spending. He’s also proposing severe cuts to foreign aid and tighter eligibility for tax cuts that benefit the working poor. He also seeks cuts in food stamps and disability insurance.

The plan calls for some new domestic spending, including $25 billion over 10 years for nationwide paid parental leave – a cause championed by First Daughter Ivanka Trump – and an expansion of the Pell Grant program for low-income students. The Department of Homeland Security’s budget would increase $3 billion versus the final full year of President Barack Obama’s term, while the Pentagon’s budget would see a $6 billion increase over that same time. The sheer ambition of the president’s plan, which would cut domestic agencies by 10% in 2018 and by 40% in 2027, make the budget even less likely to gain traction on Capitol Hill, where lawmakers regularly flout the annual blueprint offered by the executive branch. But lawmakers are also likely to view some of the administration’s accounting gimmicks with extreme skepticism.

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Now add another financial crisis to that.

The US Economy Has Left 10s Of Millions Of Forgotten Americans Behind (Snyder)

The evidence that the middle class in America is dying continues to mount. As you will see below, nearly half the country would be unable “to cover an unexpected $400 expense”, and about two-thirds of the population lives paycheck to paycheck at least part of the time. Of course the economy has not been doing that well overall in recent years. Barack Obama was the only president in all of U.S. history not to have a single year when the economy grew by at least 3%, and U.S. GDP growth during the first quarter of 2017 was an anemic 0.7%. During the Obama era, it is true that wealthy enclaves in New York, northern California and Washington D.C. did thrive, but meanwhile most of the rest of the country has been left behind. Today, there are approximately 205 million working age Americans, and close to half of them have no financial cushion whatsoever.

In fact, a new survey conducted by the Federal Reserve has found that 44% of Americans do not even have enough money “to cover an unexpected $400 expense”… “Nearly eight years into an economic recovery, nearly half of Americans didn’t have enough cash available to cover a $400 emergency. Specifically, the survey found that, in line with what the Fed had disclosed in previous years, 44% of respondents said they wouldn’t be able to cover an unexpected $400 expense like a car repair or medical bill, or would have to borrow money or sell something to meet it.” Not only that, the same survey discovered that 23% of U.S. adults will not be able to pay their bills this month…

“Just as concerning were other findings from the study: just under one-fourth of adults, or 23%, are not able to pay all of their current month’s bills in full while 25% reported skipping medical treatments due to cost in the prior year. Additionally, 28% of adults who haven’t retired yet reported to being grossly unprepared, indicating they had no retirement savings or pension whatsoever.” But just because you can pay your bills does not mean that you are doing well. Tens of millions of Americans barely scrape by from paycheck to paycheck each and every month. In fact, a survey by CareerBuilder discovered that 75% of all Americans live paycheck to paycheck at least some of the time…

“Three-quarters of Americans (75%) are living paycheck-to-paycheck to make ends meet, according to a survey from CareerBuilder. 38% of employees said they sometimes live paycheck-to-paycheck, 15% said they usually do and 23% said they always do. While making ends meet is a struggle for many post-recession, those with minimum wage jobs continue to be hit the hardest. Of workers who currently have a minimum wage job or have held one in the past, 66% said they couldn’t make ends meet and 50% said they had to work more than one job to make it work.” So please don’t be fooled into thinking that the U.S. economy is doing well because the stock market has been hitting new record highs. The stock market was soaring just before the financial crisis of 2008 too, and we remember how that turned out.

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Politicians can only react to tragedies in regurgitated bland terminology. Only, they now do it on Twitter. Progress?

UK General Election Campaigning Suspended After Manchester Attack (G.)

Theresa May and the leaders of other political parties have suspended campaigning for the general election following the terrorist attack in Manchester, which has killed at least 22 people. The prime minister, who had been due to speak at a campaign event in southwest England, will instead chair a meeting of the government’s emergency Cobra committee. May said the incident at Manchester Arena was being treated by police as an “appalling terrorist attack”. She added: “All our thoughts are with the victims and the families of those who have been affected.”

The Labour leader, Jeremy Corbyn, who was to have spoken in the West Midlands, said it was a “terrible incident”. He tweeted: “My thoughts are with all those affected and our brilliant emergency services.” In a later statement, Corbyn said: “I would like to pay tribute to the emergency services for their bravery and professionalism in dealing with last night’s appalling events. “I have spoken with the prime minister and we have agreed that that all national campaigning in the general election will be suspended until further notice.” The Scottish National party was due to unveil its election manifesto on Tuesday, but it has now postponed the event.

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Saved by the terror attack?

Theresa May Ditches Manifesto Plan With ‘Dementia Tax’ U-Turn (G.)

Theresa May has announced a U-turn on her party’s social care policy by promising an “absolute limit” on the amount people will have to pay for their care but is not planning to say what level the cap will be set at before the election. The prime minister’s decision came after Conservative party proposals to make people pay more of the costs of social care were branded a “dementia tax” – but she insisted it was simply a clarification. “Since my manifesto was published, the proposals have been subject to fake claims made by Jeremy Corbyn. The only things he has left to offer in this campaign are fake claims, fear and scaremongering,” she said, during a speech in Wrexham to launch the Welsh Tory manifesto. “So I want to make a further point clear. This manifesto says that we will come forward with a consultation paper, a government green paper. And that consultation will include an absolute limit on the amount people have to pay for their care costs.”

The prime minister said key elements of her party’s social care policy – to limit winter fuel allowance to the poorest and take people’s properties into account in the means test for social care at home – would remain in place. It is understood that the party will not pre-empt the consultation with a figure, not least because the level will depend on where the means test is set for winter fuel allowance. But the Conservative manifesto and a briefing for journalists on the policy had made no mention of a cap, with the policy only announced after days of backlash and amid a slight tightening in the opinion polls. May immediately faced a string of difficult questions from reporters, with one saying the announcement amounted to a “manifesto of chaos”. A testy prime minister responded by insisting that there was always going to be a consultation and the “basic principles” of the policy were unchanged.

“Nothing has changed, nothing has changed,” she added tersely, raising her voice when asked towards the end of the session if anything else in the Tory manifesto was likely to be altered. The prime minister accused a Guardian journalist of borrowing a term from the Labour party after it was suggested that the “dementia tax” would still mean a wide disparity between the children of Alzheimer’s and cancer sufferers. “This is a system that will ensure that people who are faced by the prospect of either requiring care in their own home or go into a home are able to see that support provided for them and don’t have to worry on that month by month basis about where that funding is coming from. They won’t have to sell their family home when they are alive, and they will be able to pass savings on to their children,” she said.

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Yeah, curious.

US Healthcare Industry Blames Trump And GOP For Obamacare Rate Hikes (F.)

The healthcare industry is beginning to shift blame for Obamacare’s 2018 rate hikes and an unstable individual insurance market to Donald Trump and the Republican-led Congress. An alliance of health insurers, doctors and employers are urging the Trump administration and Congress to fund cost-sharing subsidies for millions of Americans under the Affordable Care Act. Politico reported Friday that Trump is telling “advisers he wants to end key Obamacare subsidies.” If cost-sharing reductions (CSRs) aren’t funded through 2018, Trump and Republicans will be responsible for more insurers leaving public exchanges and a rate hike of nearly 20% on average, reports indicate.

The cost-sharing reductions (CSRs) are used to help 7 million Americans pay less out of pocket for healthcare services. “There now is clear evidence that this uncertainty is undermining the individual insurance market for 2018 and stands to negatively impact millions of people,” several powerful groups representing hospitals, doctors, patients, insurance companies and U.S. employers wrote in a letter to Republican Senate Majority Leader Mitch McConnell and GOP Majority Whip John Cornyn of Texas.

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The worst idea in a long time. But since they bought Syngenta, probably inevitable.

China Pushes Public to Accept GMO as Syngenta Takeover Nears (BBG)

China will carry out a nationwide poll next month to test the public’s acceptance of genetically-modified food, a technology the government says would boost yields and sustainable agriculture in a country that’s seen consumption soar. [..] China is the world’s fourth-largest grower of GMO cotton and the top importer of soybeans, most of which are genetically modified and used for cooking oil and animal feed for pigs and chickens. But public concern over food safety issues and skepticism about the effects of consuming GMO foods have made the government reluctant to introduce the technology for staple crops. A 2012 trial of so-called Golden Rice – a yellow GMO variant of the grain that produces beta-carotene – caused a public storm after reports that the rice was fed to children without the parents being aware that it was genetically modified.

“Many Chinese turn pale when you mention the GMO word,” said Jin in his small office. Some still believe GMO food can cause cancer and impair childbirth, due to misleading reports in newspapers and social media, he said. A recent decision by a local legislative body against growing GMO crops has added to public confusion, Jin said. The national survey aims to discover what the public’s concerns are so that the government can resolve the confusion, Jin said. “If the government pushes ahead before the public is ready to accept the technology, it would be embarrassing – like offering a pot of half-cooked rice to eat.” Jin said he expected the poll result to show that the general public’s perception of GMO is still negative, but “as more people get to know the technology, more would be willing to accept it.”

The lack of an authoritative scientific institution to answer questions, the widespread illegal cultivation of GMO crops, and public mistrust of government authorities after a series of food scandals have all contributed to skepticism about GMO, Jin said. [..] Syngenta, which produces genetically modified seeds for corn, is gearing up for rapid expansion in the country after shareholders accepted a $43 billion offer for the Swiss agribusiness by China National Chemical. The Chinese state-owned company is expected to complete the deal this month. The American Chamber of Commerce in China had complained that U.S. strains of GMO suffered from slower and less predictable approval for import into China. Chinese and U.S. officials have agreed to evaluate pending U.S. biotechnology product applications by the end of the month, including corn and cotton.

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The GMOs will be used globally.

China Spins a Global Food Web From Mozambique to Missouri (BBG)

Faced with a shrinking area of good arable land and a population of 1.4 billion people who are eating more, Chinese agriculture companies have been buying or leasing farms abroad for decades. After the world food crisis, when grain prices soared from 2006 to 2008, that investment went into overdrive. But many projects were plagued by corruption, mistrust, local resistance and trade restrictions. “By and large, they have not achieved the goals they have set,” said Shenggen Fan, an agricultural economist who grew up on a farm near Shanghai and now heads the Washington-based International Food Policy Research Institute. “The general conclusion was that it was not a good investment—it was too quick.”

[..] China will still need to source an increasing amount of food from overseas as its growing middle class eats more and demands better quality and variety. The nation already consumes about half of the world’s pork and whole milk powder, and about a third of its soybeans and rice. So, as the global food crisis abated, Chinese companies turned their attention elsewhere—to finding farms with quality producers in more developed countries whose products would sell for a premium in Shanghai and Beijing. “China is just getting started,” said Kartini Samon, who runs the Asia program for Grain, a non-profit focused on farmers’ rights that tracks Chinese farm deals. “They’re slowly building their power and their supply chains.”

Chinese firms have spent almost $52 billion on overseas agriculture deals since 2005 and food industry-related transactions have quadrupled over the past six years, according to data compiled by the American Enterprise Institute and the Heritage Foundation. “More and more of what we’re seeing is Chinese companies wanting to buy really good food businesses, as opposed to buying any food businesses,” said Ian Proudfoot, the Auckland-based global head of agribusiness for KPMG. They include WH Group’s 2013 purchase of Virginia-based Smithfield Foods Inc., the world’s biggest pork producer, and China National Chemical’s $43 billion agreement to take over Swiss pesticide maker Syngenta.

In a key rural policy statement issued by the Communist Party in February, the government said it supports Chinese companies investing in agriculture overseas, from production and processing to storage and logistics. “They won’t just want the production facilities, they’ll be looking for the story and the brand,” said Proudfoot. Of the 17 agricultural deals made by Chinese companies over the past two years, only two were in developing countries—Cambodia and Brazil—and six were in Australia, according to the AEI/Heritage Foundation data. Shanghai Pengxin, which has dairy-farming interests in New Zealand and a Brazilian grain-trading business, is looking for well-known brands in developed countries that can generate fast returns in markets like Shanghai, said a spokesman..

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This is based on ‘findings’ by Moody‘s, but it rated Santander ABS as high as AAA as late as February. We’ve definitely seen this before.

Auto Lender Santander Checked Income on Just 8% in Subprime ABS (BBG)

Santander Consumer USA, one of the biggest subprime auto finance companies, verified income on just 8% of borrowers whose loans it recently bundled into $1 billion of bonds, according to Moody’s. The low level of due diligence on applicants compares with 64% for loans in a recent securitization sold by General Motors Financial’s AmeriCredit unit. The lack of checks may be one factor in explaining higher loan losses experienced by Santander Consumer in bond deals that it has sold in recent years, Moody’s analysts Jody Shenn and Nick Monzillo wrote in a May 17 report, which reviewed data required of asset-backed bond issuers that’s recently been made available. Limited verification of loan applicants’ stated incomes and employment “creates more uncertainty around whether borrowers will be able to afford their monthly payments, which becomes particularly important if they have poor credit records and risky loan terms,” the analysts wrote.

Andrew Kang, Dallas-based Santander Consumer’s treasurer, acknowledged Moody’s findings and said the company’s practice on income verification has been consistent over time even if it’s lower than levels reported among competitors. The higher losses in the loans backing the bonds have been visible to investors, Kang said. Investors have been protected because Santander Consumer included extra loans in the securities in case some went bad, for example, creating a buffer against losses, he said. The Moody’s analysts didn’t make any claim that noteholders were at risk as the bond-grader simply looked at the new data available in the deals to provide analysis on how lenders underwrite. Moody’s rated the Santander deal as high as Aaa in February. Investors who bought into the securities included Massachusetts Mutual Life, according to data.

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Martin Luther rubber duckies. Nothing is holy. Our crisis is spiritual too.

Germany Commemorates The 500th Anniversary Of Luther’s Reformation (AFP)

From burgers to rubber duckies to liquor, Wittenberg is cashing in on its 16th century resident, who changed Christendom forever. It is on a door of a church here that Luther is said to have nailed his 95 theses in 1517, leading to a split with the Roman Catholic Church and giving birth to Protestantism. As Germany commemorates the 500th anniversary of the Reformation, the seismic theological shift started by Luther, Wittenberg is decked out in full Luther regalia. On arrival at the town’s main train station, visitors are greeted with a giant rectangular block labelled “The Bible – Luther’s translation”. Walk a few metres and a billboard seeks to tempt the weary with a “Luther Burger”. In the display windows of shops running one kilometre through the centre of the old town, there is something for everyone – a toddler-sized Luther teddy bear, bags of Luther pasta and Luther tea.

Born in Eisleben on November 10, 1483, Luther moved to Wittenberg in 1511. It was in the eastern town where he married Katharina von Bora, became a father of six children, and published his ideas attacking papal abuses and questioning the place of saints. The theologian, who died in 1546, argued that Christians could not buy or earn their way into heaven but only entered by the grace of God, marking a turning point in Christian thinking. But Luther also came to be linked to Germany’s darkest history, as his later sermons and writings were marked by anti-Semitism – something that the Nazis used to justify their horrific persecution of the Jews. Yet the theologian’s part in reshaping the religious order has unequivocally secured his place as one of the most important figures in European history.

For the 500th Reformation anniversary, Germany has declared an exceptional public holiday on October 31. And tens of thousands of Christians from across the world are descending on the town of 47,000 inhabitants where history was made. [..] going by the number of tourists carrying jute bags featuring Luther’s image, or the steady stream of people picking up Luther cookies, it is clear that the crowd just can’t get enough of the theologian. The boom in Luther souvenirs has been driven by this year’s celebrations, Ruske noted. “There are Luther noodles, Luther tomatoes, Luther chocolate and also Luther coffee. There are many great products that we sell… but there are also bizarre souvenirs. But as long as the demand is there, there’ll always be offers,” said Ruske. The tourism office itself has been stocking 500 Playmobil figurines of Luther every month over the past year. “But they keep selling out,” she said.

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“The nation suffers desperately from an absence of leadership and perhaps even more from the loss of faith that leadership is even possible..”

Do You, Mr. Jones…? (Jim Kunstler)

In case you wonder how our politics fell into such a slough of despond, the answer is pretty simple. Neither main political party, or their trains of experts, specialists, and mouthpieces, can construct a coherent story about what is happening in this country — and the result is a roaring wave of recursive objurgation and wrath that loops purposelessly towards gathering darkness. What’s happening is a slow-motion collapse of the economy. Neither Democrats or Republicans know why it is so remorselessly underway. A tiny number of well-positioned scavengers thrive on the debris cast off by the process of disintegration, but they don’t really understand the process either — the lobbyists, lawyers, bankers, contractors, feeders at the troughs of government could not be more cynical or clueless.

The nation suffers desperately from an absence of leadership and perhaps even more from the loss of faith that leadership is even possible after years without it. Perhaps that’s why so much hostility is aimed at Mr. Putin of Russia, a person who appears to know where his country stands in history, and who enjoys ample support among his countrymen. How that must gall the empty vessels like Lindsey Graham, Rubio, Schumer, Feinstein, Ryan, et. al. So along came the dazzling, zany Trump, who was able to communicate a vague sense-memory of what had been lost in our time of American life, whose sheer bluster resembled something like conviction as projected via the cartoonizing medium of television, and who entered a paralysis of intention the moment he stepped into the oval office, where he proved to be even less authentic than the Wizard of Oz.

Turned out he didn’t really understand the economic collapse underway either; he just remembered an America of 1962 and though somehow the national clock might be turned back. The industrial triumph of America in the 19th and 20th century was really something to behold. But like all stories, it had a beginning, a middle, and an end, and we’re closer to the end of that story than the middle. It doesn’t mean the end of civilization but it means we have to start a new story that provides some outline of a life worth living on a planet worth caring about.

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Pilger is the source to turn to.

Getting Julian Assange: The Untold Story (John Pilger)

Julian Assange has been vindicated because the Swedish case against him was corrupt. The prosecutor, Marianne Ny, obstructed justice and should be prosecuted. Her obsession with Assange not only embarrassed her colleagues and the judiciary but exposed the Swedish state’s collusion with the United States in its crimes of war and “rendition”.

Had Assange not sought refuge in the Ecuadorean embassy in London, he would have been on his way to the kind of American torture pit Chelsea Manning had to endure. This prospect was obscured by the grim farce played out in Sweden. “It’s a laughing stock,” said James Catlin, one of Assange’s Australian lawyers. “It is as if they make it up as they go along”. It may have seemed that way, but there was always serious purpose. In 2008, a secret Pentagon document prepared by the “Cyber Counterintelligence Assessments Branch” foretold a detailed plan to discredit WikiLeaks and smear Assange personally. The “mission” was to destroy the “trust” that was WikiLeaks’ “centre of gravity”. This would be achieved with threats of “exposure [and] criminal prosecution”. Silencing and criminalising such an unpredictable source of truth-telling was the aim.

Perhaps this was understandable. WikiLeaks has exposed the way America dominates much of human affairs, including its epic crimes, especially in Afghanistan and Iraq: the wholesale, often homicidal killing of civilians and the contempt for sovereignty and international law. These disclosures are protected by the First Amendment of the US Constitution. As a presidential candidate in 2008, Barack Obama, a professor of constitutional law, lauded whistle blowers as “part of a healthy democracy [and they] must be protected from reprisal”. In 2012, the Obama campaign boasted on its website that Obama had prosecuted more whistleblowers in his first term than all other US presidents combined. Before Chelsea Manning had even received a trial, Obama had publicly pronounced her guilty.

Few serious observers doubt that should the US get their hands on Assange, a similar fate awaits him. According to documents released by Edward Snowden, he is on a “Manhunt target list”. Threats of his kidnapping and assassination became almost political and media currency in the US following then Vice-President Joe Biden’s preposterous slur that the WikiLeaks founder was a “cyber-terrorist”. Hillary Clinton, the destroyer of Libya and, as WikiLeaks revealed last year, the secret supporter and personal beneficiary of forces underwriting ISIS, proposed her own expedient solution: “Can’t we just drone this guy.” According to Australian diplomatic cables, Washington’s bid to get Assange is “unprecedented in scale and nature”. In Alexandria, Virginia, a secret grand jury has sought for almost seven years to contrive a crime for which Assange can be prosecuted. This is not easy.

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The Troika has no intention of solving the issue. They demand a 3.5% surplus for years to come, making sure Greece can’t grow.

EU Ministers Fail To Reach Greek Debt Deal, Delay Release Of Bailout (Tel.)

Eurozone finance ministers failed to agree on a deal which would have released vital rescue funds for Athens on Monday night, after Greece’s creditors rejected calls for an upfront commitment to reduce the country’s debt burden. Jeroen Dijsselbloem, who leads the Eurogroup of finance ministers, said the ministers had held an “in-depth discussion” on debt sustainability and said they were “very close” to an agreement. However, he added that they had “not reached an overall agreement on that part of the discussion”. “Tonight we were unable to close a possible gap between what could be done and what some of us had expected should be done or could be done. We need to close that by looking at additional options or by adjusting our expectations.”

“Both are possible and both perhaps should be done, and that I think will bring us to a more positive and definite positive conclusion at the next Eurogroup in June,” Mr Dijsselbloem said. Talks are expected to continue over the coming weeks ahead of the next meeting on June 15. Prior to the meeting, Eurozone finance ministers had said they were confident that a political agreement could be reached on Monday evening. This would have paved the way for a fresh tranche of financial aid to ensure Greece avoids a summer cash crunch. However, officials were at odds with the IMF over the critical issue of debt relief, which is a condition of the Fund’s participation in Greece’s third, €86bn bail-out. The IMF had stressed that debt relief was necessary to ensure the country can return to fiscal health, and had called for details on the scope and timing of relief before it joined the programme.

Ahead of the meeting in Brussels, Mr Dijsselbloem had said he was optimistic that creditors would release new loans to Athens after the Greek parliament passed fresh austerity measures last week, including pension cuts. Greece’s debt share currently stands at around 180pc of GDP, but Mr Dijsselbloem said detailed relief measures would not be thrashed out until 2018. Insiders said talks aimed at bridging the gap between the IMF and some of Greece’s creditors would be difficult. “Discussions are going to be long, and I am not sure they will be successful,” said one. Others said everyone was working hard to secure a deal that included the Fund. “If we lose the IMF now, we lose the IMF forever,” said one source.

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Macron is nothing but Merkel’s little helper.

Macron Tells Tsipras France Hopes To Ease Greek Debt (K.)

French President Emmanuel Macron says his new administration will push for an international debt relief deal for austerity-weary Greece. Macron’s office says that he spoke Monday with Greek Prime Minister Alexis Tsipras and stressed “his determination to find an accord soon to lighten the burden of Greek debt over the long term.” The phone conversation was the first contact between the two since Macron’s election earlier this month. French Finance Minister Bruno Le Maire, named last week, is joining EU finance ministers for talks Monday and Tuesday expected to focus on Greece’s debt problems. Athens hopes that the ministers will agree this week on a deal on easing Greece’s debt repayment terms. Successive Greek governments have slashed spending in return for bailout money to avoid bankruptcy.

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But no-one has the guts to stand up to Merkel and Schäuble.

German Government At Odds With Itself Over Greek Debt Relief (R.)

Germany’s coalition government split along party lines on Monday over the question of debt relief for Greece ahead of a crunch meeting in Brussels to tackle the thorny issue. Euro zone finance ministers and the International Monetary Fund are meeting to seek a deal on Greek debt relief that balances the IMF’s demand for a clear “when and how” with Berlin’s preference for “only if necessary” and “details later”. Foreign Minister Sigmar Gabriel, a Social Democrat, caused the divergence in views by demanding that the euro zone make a firm commitment on granting debt relief to Greece, effectively criticising conservative Finance Minister Wolfgang Schaeuble’s tough stance. “Greece has been promised debt relief over and over again if reforms are carried out,” Gabriel told the Sueddeutsche Zeitung paper. “Now we must stand by this promise.” “This must not fail due to German resistance,” said Gabriel.

Without the deal no new loans can be granted to Athens, even though the bailout is now handled only by euro zone governments and Greece needs new credit to repay some €7.3 billion worth of maturing loans in July. Schaeuble later described reforms agreed by Greece as “remarkable” but said the Greek economy was not yet competitive and that Athens must press ahead with implementing its existing reforms-for-aid program. “We are not talking about a new program but the implementation of the program agreed in 2015,” Schaeuble said. “At the end of the program, in 2018, we will, if necessary, put in place additional measures that we have defined.” “It is about one goal – namely to help Greece become competitive,” Schaeuble said, adding Greece was not there yet. Speaking at a regular government news conference, Foreign Ministry spokesman Martin Schaefer said institutions such as the IMF and the EC were not far apart in their assessment on Greece. “Germany should have an interest in not isolating itself too much,” Schaefer said.

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So obviously, more cuts are needed to make Greece ‘competitive’ again. Contradiction in terms.

1.2 Million Greek Pensioners Live on Less than €500 a Month (GR)

The report of the Unified System of Control and Payment of Pensions “ILIOS” made public by the Labor Ministry shows that 1.2 million Greek pensioners live on less than €500 per month. The figures date from December 2016 and show analytical pension data after Greece’s creditors have asked that pension data calculated with the new methodology should be made public at regular intervals. According to the “ILIOS” report, the average main pension is €722 per month, the average supplementary pension is 170 euros and the average dividend to State pensioners is €97 per month. The report shows that there are 2,892,259 main pensions paid each month, 1,252,241 supplementary pensions and 409,620 dividends with a total cost of €2,342,431,276.95. The figures show that 1.2 million pensioners are paid less than €500 per month.

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Elliniko is the site of the former main airport. It’s horrific. But cynically, it is being evacuated not because of the refugees’ conditions, but because there are plans to develop the site from a consortium of Greek, Chinese and Arab investors.

Amnesty should address Berlin on this, not Athens.

Amnesty Urges Greece to Provide Safe Housing to Elliniko Refugees (GR)

Greek authorities must ensure that refugees and migrants expected to start being evacuated from three Elliniko camps on Tuesday, are provided with safe, adequate, alternative housing, Amnesty International said in a press release on Monday. “Whilst no one will mourn the closure of these uninhabitable, unsafe camps, the failure to provide people living there with information about their imminent removal has only served to increase their fears and anxieties,” said Monica Costa Riba, Amnesty International’s Regional Campaigner. “There has been no consultation with Ellinko residents who have been kept in the dark as to when and where they will be moved to. The authorities must urgently guarantee that no one will be rendered homeless or placed at risk as a result of the closure. Safe and secure adequate alternative housing which takes account of the particular needs of women and girls must be made available,” she said.

Speaking to the Athens-Macedonian News Agency, an Amnesty International member said: “All NGOs active in Elliniko were asked to leave the area, except the two that provide medical help.” Sources from the ministry of Migration Policy denied the report on an imminent evacuation, saying that authorities will instead begin an “information campaign for the people who live in Elliniko,” adding that “misinformation doesn’t help in the real handling of the issue.” Amnesty International had requested to visit the camps between May 21 and 23 but was refused, however, its researchers managed to interview residents outside the camp. One Afghan man told Amnesty International: “They don’t give us information, which creates a lot of anxiety…They want to confuse us so that we cannot decide and they’ll decide for us.” An Afghan woman said: “We talked with everyone but no one tells us anything. I am really worried about ending up on the street.”

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Apr 282016
 
 April 28, 2016  Posted by at 9:01 am Finance Tagged with: , , , , , , , , , , ,  


G. G. Bain Goose Creek, houses on the water, Jamaica Bay, Long Island 1910

The European Union Always Was A CIA Project (AEP)
Yen Surges, Nikkei Plunges As BOJ Keeps Policy Steady (CNBC)
Japan Consumer Prices Fall At Fastest Pace In 3 Years (R.)
America’s Earnings Recession Just Got Worse (CNN)
America’s Trade Deficit Begins at Home (Roach)
China Trades Enough Cotton in One Day to Make Jeans for Everyone (BBG)
IMF Warns Chinese Response To Debt Needs To Be More Comprehensive (FT)
China Struggles As Oil Losses Climb (EM)
US Oil Woes Start To Hit Workers Hard (WSJ)
Dan Loeb: We’re In The ‘First Inning’ Of A ‘Washout’ In Hedge Funds (CNBC)
The Bad Smell Hovering Over The Global Economy (G.)
Europe’s Securitisation Industry’s Sales At Lowest For 5 Years (FT)
Merkel Attacks Draghi Over Interest Rates Policy, Cites Risks To Banks (R.)
Tusk Rejects Tsipras Request For EU Summit On Greece Bailout (G.)
Athens Under Pressure To Clear Piraeus Refugee Camp Before Tourists Arrive (G.)
More Than A Million People In UK Living In Destitution (G.)
Papua New Guinea To Close Aussie Refugee Detention Camp (AFP)

Ambrose dives into history. A shame he can’t see beyond the Cold War when assessing Russia.

The European Union Always Was A CIA Project (AEP)

Brexiteers should have been prepared for the shattering intervention of the US. The European Union always was an American project. It was Washington that drove European integration in the late 1940s, and funded it covertly under the Truman, Eisenhower, Kennedy, Johnson, and Nixon administrations. While irritated at times, the US has relied on the EU ever since as the anchor to American regional interests alongside NATO. There has never been a divide-and-rule strategy. The eurosceptic camp has been strangely blind to this, somehow supposing that powerful forces across the Atlantic are egging on British secession, and will hail them as liberators. The anti-Brussels movement in France – and to a lesser extent in Italy and Germany, and among the Nordic Left – works from the opposite premise, that the EU is essentially an instrument of Anglo-Saxon power and ‘capitalisme sauvage’.

France’s Marine Le Pen is trenchantly anti-American. She rails against dollar supremacy. Her Front National relies on funding from Russian banks linked to Vladimir Putin. Like it or not, this is at least is strategically coherent. The Schuman Declaration that set the tone of Franco-German reconciliation – and would lead by stages to the European Community – was cooked up by the US Secretary of State Dean Acheson at a meeting in Foggy Bottom. “It all began in Washington,” said Robert Schuman’s chief of staff. It was the Truman administration that browbeat the French to reach a modus vivendi with Germany in the early post-War years, even threatening to cut off US Marshall aid at a furious meeting with recalcitrant French leaders they resisted in September 1950.

Truman’s motive was obvious. The Yalta settlement with the Soviet Union was breaking down. He wanted a united front to deter the Kremlin from further aggrandizement after Stalin gobbled up Czechoslovakia, doubly so after Communist North Korea crossed the 38th Parallel and invaded the South. For British eurosceptics, Jean Monnet looms large in the federalist pantheon, the eminence grise of supranational villainy. Few are aware that he spent much of his life in America, and served as war-time eyes and ears of Franklin Roosevelt. General Charles de Gaulle thought him an American agent, as indeed he was in a loose sense. Eric Roussel’s biography of Monnet reveals how he worked hand in glove with successive administrations. It is odd that this magisterial 1000-page study has never been translated into English since it is the best work ever written about the origins of the EU.

Nor are many aware of declassified documents from the State Department archives showing that US intelligence funded the European movement secretly for decades, and worked aggressively behind the scenes to push Britain into the project. As this newspaper first reported when the treasure became available, one memorandum dated July 26, 1950, reveals a campaign to promote a full-fledged European parliament. It is signed by Gen William J Donovan, head of the American wartime Office of Strategic Services, precursor of the CIA. The key CIA front was the American Committee for a United Europe (ACUE), chaired by Donovan. Another document shows that it provided 53.5% of the European movement’s funds in 1958. The board included Walter Bedell Smith and Allen Dulles, CIA directors in the Fifties, and a caste of ex-OSS officials who moved in and out of the CIA.

Papers show that it treated some of the EU’s ‘founding fathers’ as hired hands, and actively prevented them finding alternative funding that would have broken reliance on Washington. There is nothing particularly wicked about this. The US acted astutely in the context of the Cold War. The political reconstruction of Europe was a roaring success. There were horrible misjudgments along the way, of course. A memo dated June 11, 1965, instructs the vice-president of the European Community to pursue monetary union by stealth, suppressing debate until the “adoption of such proposals would become virtually inescapable”. This was too clever by half, as we can see today from debt-deflation traps and mass unemployment across southern Europe.

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Japan cannot take an ever rising yen. It will need to plummet, and quite soon.

Yen Surges, Nikkei Plunges As BOJ Keeps Policy Steady (CNBC)

Japanese shares sold off and the yen surged against the dollar Thursday after the Bank of Japan’s (BOJ) decision to keep monetary policy steady disappointed a section of the market betting on further stimulus. The benchmark Nikkei 225 was down 3.24%, compared to a 1.41% gain before the decision. The Topix index fell 2.15%. The yen moved sharply higher, with the dollar/yen pair dropping 2.10% to 109.11 as of 12:45 p.m. HK/SIN, compared with the 111 level it traded at before the decision. Australia’s ASX 200 was up 0.54%, boosted by advances in the energy and materials sub-indexes. In South Korea, the Kospi fell 0.61%. In Hong Kong, the Hang Seng index was up 0.50%. Chinese mainland markets retreated, with the Shanghai composite down 0.68%, while the Shenzhen composite dropped 1.04%.

Following the BOJ’s decision and the yen’s strength, major Japanese exporters saw their shares tumble, with Toyota, Nissan and Honda down between 2.74 and 3.55%. A stronger yen is usually a negative for exporters as it reduces their overseas profits when converted into local currency. “However, in the last ten years, Japan’s exporters’ currency sensitivity has been reduced,” Masakazu Takeda at Hennessy Japan Fund told CNBC’s “Capital Connection.” Takeda said as an example, every time the dollar weakened by 10 yen, Toyota’s operating profits declined by about 13%. “That’s down from 20% ten years ago,” he said, adding, “Companies have been making efforts to reduce the currency sensitivity.” Japanese banking stocks also sold off sharply, with shares of Mitsubishi UFJ down 5.06%, SMFG down 5.21% and Nomura tumbling 9.41%. Nikkei index heavyweight Fast Retailing sold off 5.05%.

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Where Abenomics fails most spectacularly: “..Household spending in March fell 5.3% from a year earlier..” Note: this was reported prior to the BOJ decision to hold off on stimulus.

Japan Consumer Prices Fall At Fastest Pace In 3 Years (R.)

Japan’s consumer prices fell in March at the fastest pace in three years and household spending declined at the fastest pace in a year, keeping the Bank of Japan under pressure to implement more stimulus to support the economy. Separate data showed industrial output rose more than expected and labor demand rose to the highest in two decades, but renewed worries about weak private consumption are likely to temper any optimism about the economy. The BOJ is likely to debate expanding monetary stimulus at a policy meeting ending later on Thursday, as sluggish global demand hurts exports and weak wage growth undermines private consumption, sources have told Reuters.. “Oil prices falls and the waning effect from a weak yen pushed down core CPI,” said Hidenobu Tokuda, senior economist at Mizuho Research Institute.

“We expect the BOJ will ease policy today. It will probably be difficult politically for the BOJ to further cut negative interest rates, so we expect the central bank will focus on qualitative easing such as increasing ETF buying.” The core consumer price index (CPI), which includes oil products but excludes volatile fresh food prices, fell 0.3% in March from a year earlier, more than the median forecast for a 0.2% annual decline. That marked the fastest decline since April 2013 due to lower prices for gasoline and slowing gains in prices for durable goods and overseas travel. The core-core CPI, which excludes food and energy, rose 0.7% in the year to March, slower than a 0.8% annual increase in the previous month. Household spending in March fell 5.3% from a year earlier due to lower spending on clothes, leisure activities and gasoline. That was more than the median estimate for a 4.2% annual decline and marked the fastest decline since March 2015.

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It’s not just Apple.

America’s Earnings Recession Just Got Worse (CNN)

Apple, Chipotle and Twitter each got thumped Wednesday after reporting weak or disappointing earnings. Twitter and Chipotle have their own distinct failures, but Apple, like many, is also a victim of the global slowdown. Overall, S&P 500 earnings so far this quarter are down 8%. That marks the third quarterly decline in a row and the worst since 2009, according to S&P Global Market Intelligence. Weak global growth is closing consumers’ wallets, while the strong dollar is only making iPhones and other American goods more expensive for foreign buyers. Add on still-low oil prices and Corporate America is facing major headwinds. “It’s like these companies are trying to play basketball but the tar is melting and sticking to their sneaks. Not fun to watch,” says Jack Kramer, co-founder of MarketSnacks, a financial newsletter.

Apple’s stock quickly fell more than 7% when markets opened Wednesday after it revealed its first annual sales growth decline since 2003. Reeling from its E. coli scare late last year, Chipotle reported its first quarterly loss ever and its stock dropped about 5%. And Twitter’s stock spiraled 15% lower on Wednesday after its results missed estimates. They’re not alone. Big oil, tech and other former bull market studs like Starbucks are getting burned this quarter too. Earnings for energy companies are down a whopping 110% compared to a year ago. Consider this: seven of the 10 major sectors in the S&P 500 are in the red so far this quarter. A year ago, only two sectors suffered profit drops, according to S&P. Tech companies’ earnings are down nearly 6% this quarter. Embodying the trend is Google. It got pounded by the strong dollar, which hurt overseas sales. Microsoft also lost overseas revenue due to the strong dollar.

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Stephen Roach says Americans should save more. But the entire economy still ‘stands’ exactly because they either don’t or can’t.

America’s Trade Deficit Begins at Home (Roach)

Thanks to fear mongering on the US presidential campaign trail, the trade debate and its impact on American workers is being distorted at both ends of the political spectrum. From China-bashing on the right to the backlash against the Trans-Pacific Partnership (TPP) on the left, politicians of both parties have mischaracterized foreign trade as America’s greatest economic threat. In 2015, the United States had trade deficits with 101 countries – a multilateral trade deficit in the jargon of economics. But this cannot be pinned on one or two “bad actors,” as politicians invariably put it. Yes, China – everyone’s favorite scapegoat – accounts for the biggest portion of this imbalance. But the combined deficits of the other 100 countries are even larger.

What the candidates won’t tell the American people is that the trade deficit and the pressures it places on hard-pressed middle-class workers stem from problems made at home. In fact, the real reason the US has such a massive multilateral trade deficit is that Americans don’t save. Total US saving – the sum total of the saving of families, businesses, and the government sector – amounted to just 2.6% of national income in the fourth quarter of 2015. That is a 0.6-percentage-point drop from a year earlier and less than half the 6.3% average that prevailed during the final three decades of the twentieth century. Any basic economics course stresses the ironclad accounting identity that saving must equal investment at each and every point in time. Without saving, investing in the future is all but impossible.

And yet that’s the position in which the US currently finds itself. Indeed, the saving numbers cited above are “net” of depreciation – meaning that they measure the saving available to fund new capacity rather than the replacement of worn-out facilities. Unfortunately, that is precisely what America is lacking. So why is this relevant for the trade debate? In order to keep growing, the US must import surplus saving from abroad. As the world’s greatest economic power and issuer of what is essentially the global reserve currency, America has had no trouble – at least not yet – attracting the foreign capital it needs to compensate for a shortfall of domestic saving. But there is a critical twist: To import foreign saving, the US must run a massive international balance-of-payments deficit.

The mirror image of America’s saving shortfall is its current-account deficit, which has averaged 2.6% of GDP since 1980. It is this chronic current-account gap that drives the multilateral trade deficit with 101 countries. To borrow from abroad, America must give its trading partners something in return for their capital: US demand for products made overseas.

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Some day soon we’ll hear a very loud bang in the Chinese commodities craze. It has effectively turned exchanges into bookmakers. Many ‘investors’ don’t know what they’re buying, they’re just afraid -again- of being left behind.

China Trades Enough Cotton in One Day to Make Jeans for Everyone (BBG)

It’s not just metals caught up in China’s commodity fever. The equivalent of 41 million bales of cotton traded in a single day on the Zhengzhou Commodity Exchange last week, the most in more than five years and enough to make almost 9 billion pairs of jeans, or at least one for every person on the planet. Prices that had slumped to the lowest on record in February surged almost 19% in the four days leading up to the trading spike on Friday. Traders have piled in to Chinese commodity markets, sending volumes of everything from steel to coking coal soaring and prompting exchanges to boost margins and fees or issue warnings to investors. The surge in trading is reminiscent of last year’s equities rally that boosted the stock market before a rout erased $5 trillion. China is the world’s largest consumer of cotton and second-biggest producer.

“Record low levels in February and March sparked buying interest from both inside and outside of the cotton industry and also triggered speculation, which resulted in mounting bets in Zhengzhou futures,” said Liu Qiannan at Galaxy Futures. “With massive investment and encouragement from the crazy steel and iron ore market in China, sentiment then turned to bullish from bearish.” More than 3.6 million contracts of 5 metric tons apiece traded in Zhengzhou on Friday. With Chinese exchanges double counting volume to account for the long and short side of a trade, that’s still about 9 million tons, or 41 million bales. One bale can make 215 pairs of jeans, according to the National Cotton Council of America. On the same day, about 1.6 billion pounds traded on ICE Futures U.S. in New York. That’s about 3.3 million bales, or more than 700 million pairs of jeans, enough to dress only the U.S., Brazil and Japan in denim.

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Hollow rhetoric (since there’s no solution), but it does confirm once again how dire China’s situation is : “..one in six of the business loans on Chinese banks’ books — was owed by companies who brought in less in revenues than they owed in interest payments alone.”

IMF Warns Chinese Response To Debt Needs To Be More Comprehensive (FT)

China’s leaders need to look beyond the current solutions being floated to tackle the country’s mounting corporate debt problems and come up with a bigger plan to do so, the IMF’s top China expert has warned. The IMF has been expressing growing concern about China’s debt issues and pushing for an urgent response by Beijing to what the fund sees as a serious problem for the Chinese economy. It warned in a report earlier this month that $1.3tn in corporate debt — or almost one in six of the business loans on Chinese banks’ books — was owed by companies who brought in less in revenues than they owed in interest payments alone.

In a paper published on Tuesday, James Daniel, the fund’s China mission chief, and two co-authors, went further and warned that Beijing needed a comprehensive strategy to tackle the problem. They warned that the two main responses Beijing was planning to the problem — debt-for-equity swaps and the securitisation of non-performing loans — could in fact make the problem worse if underlying issues were not dealt with. “Converting NPLs into equity or securitising them are techniques that can play a role in addressing these problems and have been used successfully by some other countries,” Mr Daniel and his co-authors wrote.

“But they are not comprehensive solutions by themselves — indeed, they could worsen the problem, for example, by allowing zombie firms [non-viable firms that are still operating] to keep going.” The plan for debt-for-equity swaps could end up offering a temporary lifeline to unviable state-owned companies, they warned. It could also leave them managed by state-owned banks or other officials with little experience in doing so. Pooling non-performing loans and selling them as securities also presented other potential problems. While it could help clear up debt problems quickly it could also end up helping to prop up struggling state-owned enterprises. Some 60% of non-performing loans in China are owed by SOEs “and are concentrated in a few distressed industries”, they wrote.

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This is why China is stockpiling like nuts.

China Struggles As Oil Losses Climb (EM)

China’s biggest oilfield is suffering huge losses as the government seeks to avoid layoffs despite prices that have dropped below production costs. On April 8, the official Xinhua news agency reported that the Daqing oilfield in northern Heilongjiang province lost over 5 billion yuan (U.S. $769 million) in the first two months of the year. In spite of the costs, production in the first quarter held steady at year-earlier levels of 9.28 million tons (755,800 barrels per day), according to PetroChina, the listed subsidiary of state-owned China National Petroleum Corp. (CNPC). Output has been declining for years at Daqing, China’s mainstay oil resource, which has fueled the economy for over six decades. Annual production of 50 million metric tons (1 million barrels per day) lasted 27 years until 2003 before slipping to the 40-million-ton range, the official English-language China Daily and Global Times said.

In December 2014, PetroChina announced plans to cut output by 1.5 million tons and scale back production at the depleted field to 32 million tons by 2020. But even at lower levels, production at Daqing with enhanced recovery methods is proving uneconomic. Production costs stand at U.S. $45 (292 yuan) per barrel, said Jiang Wanchun, Communist Party secretary of the oilfield, according to The Wall Street Journal. China’s average production cost is $40 (260 yuan) per barrel, China Daily said. With benchmark oil prices falling below $45 since early December, Daqing has been losing money on every barrel it pumps. Prices dipped below U.S. $28 (182 yuan) per barrel in February before staging a partial recovery. Even after international prices approached the $45 range last week, the prospects for profits at Daqing appeared marginal at best.

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As a bubble pops.

US Oil Woes Start To Hit Workers Hard (WSJ)

The slump in crude prices is starting to show up as missed payments by consumers in the oil patch. In states from Oklahoma and Texas to North Dakota and Wyoming, rising unemployment in the energy sector is pushing up loan delinquencies and raising the risk of new losses for banks. Wells Fargo this month reported an increase in borrowers falling behind on payments in areas including Houston and parts of Alaska. J.P. Morgan said auto-loan delinquency rates picked up in some energy-related markets. Overall, energy-dependent states are posting delinquency rates that in many cases exceed the national average, according to data prepared for The Wall Street Journal by credit bureau TransUnion. “In these energy states, we are clearly seeing the impact of the loss of oil jobs,” said Ezra Becker, senior vice president and head of research at TransUnion.

“We don’t expect to see any kind of material improvement in the short term.” Some 119,600 oil and gas jobs nationwide have been eliminated—22% of the total—since September 2014, according to the Federal Reserve Bank of Dallas. The price of U.S.-traded oil, while on the rise this year, has dropped 28% since June. Some analysts have warned that persistent crude oversupply could prevent further price gains. Car loans and credit cards have been affected the most, and there are some early signs of delinquency-rate increases in borrowers who can’t make mortgage payments. Moody’s Investors Service said the share of borrowers in oil-focused areas falling 30 days behind on a pool of Freddie Mac mortgages, while low at 0.38% in December, began to exceed the average elsewhere in the country last summer. The average for other areas was 0.29% in December.

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And now hit hard by Apple too.

Dan Loeb: We’re In The ‘First Inning’ Of A ‘Washout’ In Hedge Funds (CNBC)

Hedge funds are getting killed, says hedge fund manager Dan Loeb. Loeb’s Third Point Capital put out its quarterly letter to investors on Tuesday, calling the first three months of 2016 “one of the most catastrophic periods of hedge fund performance that we can remember since the inception of this fund.” Third Point was down 2.3% during the first quarter, which compares with a 1.3% gain for the S&P 500 over the same period. (As bad as that may be, though, it could have been worse — Bill Ackman’s Pershing Square was down more than 25% in the quarter.) Despite the weak performance, Third Point believes it is positioned to do well the rest of the year.

“There is no doubt that we are in the first innings of a washout in hedge funds and certain strategies,” Third Point said. “We believe we are well-positioned to seize the opportunities borne out of this chaos and are pleased to have preserved capital through a period of vicious swings in treacherous markets.” What caused the catastrophe? “Volatility across asset classes and a reversal of certain trends that started last summer caught many investors flat-footed in Q1 2016,” the firm added.

More specifically, Loeb said:
• China is all over the map.
• Hedge funds were long the “FANG” stocks — Facebook, Amazon, Netflix and Google — and those stocks are not doing well.
• “The Valeant debacle in mid-March decimated some hedge fund portfolios.” (The stock lost almost three-quarters of its value during the quarter).
• The collapsed Pfizer-Allergan deal hurt investors.
• A “huge asset rotation” into a “market neutral” strategy.
• He thinks the dollar has peaked, and oil has hit a bottom.

“We believe that the past few months of increasing complexity are here to stay and now is a more important time than ever to employ active portfolio management to take advantage of this volatility,” Loeb concluded. As an industry, hedge funds bounced back in March after a miserable start to 2016. The HFRI Fund Weighted Composite Index gained 1.8% in March, its strongest performance since February 2015. However, hedge funds saw investor redemptions in the first quarter. Investors withdrew $14.3 billion, leaving total assets under management at $3.1 trillion, according to industry tracker Preqin.

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What happens when central banks lose the illusion of control, and stocks start falling for real?!

The Bad Smell Hovering Over The Global Economy (G.)

All is calm. All is still. Share prices are going up. Oil prices are rising. China has stabilised. The eurozone is over the worst. After a panicky start to 2016, investors have decided that things aren’t so bad after all. Put your ear to the ground though, and it is possible to hear the blades whirring. Far away, preparations are being made for helicopter drops of money onto the global economy. With due honour to one of Humphrey Bogart’s many great lines from Casablanca: “Maybe not today, maybe not tomorrow but soon.” But isn’t it true that action by Beijing has boosted activity in China, helping to push oil prices back above $40 a barrel? Has Mario Draghi not announced a fresh stimulus package from the ECB designed to remove the threat of deflation?

Are hundreds of thousands of jobs not being created in the US each month? In each case, the answer is yes. China’s economy appears to have bottomed out. Fears of a $20 oil price have receded. Prices have stopped falling in the eurozone. Employment growth has continued in the US. The International Monetary Fund is forecasting growth in the global economy of just over 3% this year – nothing spectacular, but not a disaster either. Don’t be fooled. China’s growth is the result of a surge in investment and the strongest credit growth in almost two years. There has been a return to a model that burdened the country with excess manufacturing capacity, a property bubble and a rising number of non-performing loans. The economy has been stabilised, but at a cost.

The upward trend in oil prices also looks brittle. The fundamentals of the market – supply continues to exceed demand – have not changed. Then there’s the US. Here there are two problems – one glaringly apparent, the other lurking in the shadows. The overt weakness is that real incomes continue to be squeezed, despite the fall in unemployment. Americans are finding that wages are barely keeping pace with prices, and that the amount left over for discretionary spending is being eaten into by higher rents and medical bills. For a while, consumer spending was kept going because rock-bottom interest rates allowed auto dealers to offer tempting terms to those of limited means wanting to buy a new car or truck.

In an echo of the subprime real estate crisis, vehicle sales are now falling. The hidden problem has been highlighted by Andrew Lapthorne of the French bank Société Générale. Companies have exploited the Federal Reserve’s low interest-rate regime to load up on debt they don’t actually need. “The proceeds of this debt raising are then largely reinvested back into the equity market via M&A or share buybacks in an attempt to boost share prices in the absence of actual demand,” Lapthorne says. “The effect on US non-financial balance sheets is now starting to look devastating.” He adds that the trigger for a US corporate debt crisis would be falling share prices, something that might easily be caused by the Fed increasing interest rates.

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And this is while the ECB has been buying ABS since 2014. Where would the ‘industry’ be without the ECB? It’s the ‘little things’ that tell the story of where we are, best.

Europe’s Securitisation Industry’s Sales At Lowest For 5 Years (FT)

Europe’s securitisation market has experienced its worst quarter for new sales in nearly five years, underscoring the industry’s ongoing decline in spite of efforts from policymakers to revive the sector. During the first three months of the year, €14.3bn of securitisations were sold, marking the lowest quarterly level since mid-2011. Public issuance fell from €19.7bn over the same period a year earlier, according to data from the Association for Financial Markets in Europe. Securitisation — which takes mortgages and other loans, and packages them into bond-like instruments of varying risks — was once a booming industry in Europe but has struggled since the financial crisis. The slide in activity comes in spite of efforts from Brussels to revive the asset class, which it sees as a key source of funding across Europe’s economies.

The ECB has been buying asset-backed securities since late 2014 as part of its asset purchase programmes designed to stimulate the region’s economy. “The market is languishing,” said Richard Hopkin, head of fixed income at the Association for Financial Markets in Europe. “Firms are restructuring and scaling back their securitisation businesses.” Earlier in April, Nomura became the latest investment bank to pare back its securitisation team, amid broader cuts to its European investment banking business. Last summer, Barclays announced job cuts in its team. Market participants have pointed to stringent regulation on the asset class, in particular the capital charges against the products for banks and insurance companies, as a central factor in its decline.

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There’s a High Noon fight brewing between Draghi and all of Germany.

Merkel Attacks Draghi Over Interest Rates Policy, Cites Risks To Banks (R.)

The ECB’s ultra-low interest rates could worsen problems for already weak banks in Europe, German Chancellor Angela Merkel said on Wednesday, calling for a tightening of monetary policy. The ECB unveiled a large stimulus package in March that included cutting its deposit rate deeper into negative territory and increasing asset buys, despite the objections of Germany, the largest economy in the euro zone. The ECB stimulus prompted a fresh wave of criticism from German politicians who fear the ultra-easy monetary policy is eroding both the savings of thrifty citizens and also bank margins, putting the banking system at risk. “The risks remain high. There are still too many weak banks in Europe and the low interest rates … will tend to make this problem worse over the coming years,” Merkel said at an event in Duesseldorf for German savings banks.

ECB head Mario Draghi says the policy of printing money and keeping borrowing costs at rock bottom is working and that interest rates will stay at current record lows for a long time. The ECB targets inflation of close to 2% over the medium-term but it is running at just below zero. Merkel said politicians need to press for more structural reforms to help generate stronger growth and private investment, thereby freeing up central banks to pursue a tighter monetary policy. “Central banks, including the ECB, are independent so I think politicians must focus on stimulating growth,” she said.

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The likes of Tusk and Dijsselbloem simple enjoy holding a gun to Greece’s head so much they can’t help themselves. It’s what sociopaths derive their pleasures from. So no emergency meeting because of a non-reason: ““There are practical issues that many countries have, with national holidays next week.”

That’s like the old joke of a country being invaded and telling the attackers to come back next week.

Tusk Rejects Tsipras Request For EU Summit On Greece Bailout (G.)

Mounting urgency has returned to Greece with the country’s financial predicament igniting fears of a re-run of last summer’s nail-biting drama. Rejecting a Greek request for an extraordinary EU summit to discuss its troubled bailout programme, European council president Donald Tusk instead urged eurozone finance ministers to resume talks that would avert further turmoil. The nation faces default if it fails to receive the necessary loans to cover €3.5 bn in maturing debt in July. “We have to avoid a situation of renewed uncertainty for Greece,” he told reporters after speaking with prime minister Alexis Tsipras on Wednesday. “We need a specific date for a new Eurogroup meeting in the not-so-distant future and I am talking not about weeks but about days.”

In a repeat of last year’s heady days, Athens’ leftist-led government is scrambling to raise funds to ensure payment of salaries and pensions in May. The reserves of state entities and pension funds have effectively been sequestered with officials demanding deposits be placed in the central bank on short-term loan to cover looming shortfalls. “The government is behaving as if it has already run out of money,” said prominent political commentator Pantelis Kapsis. “That in itself signifies there will be no agreement soon. There is great uncertainty. All scenarios are on the table including early elections.” Greece’s embattled prime minister appealed for the emergency EU summit after Athens and its creditors failed late Tuesday to resolve differences over the extent of budget cuts and reforms the debt-stricken state must make in return for rescue loans.

The lack of headway prompted Dutch finance minister and Eurogroup chairman, Jeroen Dijsselbloem, who oversees negotiations, to cancel a scheduled meeting at which it was hoped the talks would finally be concluded on Thursday. Speaking in Paris after talks with his French counterpart Michel Sapin on Wednesday, Dijsselbloem said a new meeting would be lined up in the weeks ahead. “I don’t have a deadline, although there is a sense of urgency that we all share, so we’ll have to see whether it can be next week or ultimately the week after,” he told reporters. “There are practical issues that many countries have, with national holidays next week.”

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A bad tourist season could be the last straw for Greece, and another reason for Europe to add more demands.

Athens Under Pressure To Clear Piraeus Refugee Camp Before Tourists Arrive (G.)

[..] At its peak last month, close to 14,000 refugees had amassed in Piraeus, posing serious challenges for public order and health. By mid-April, however, attention had turned increasingly to the capital’s erstwhile international airport in Elliniko. Once poised to become Europe’s biggest metropolitan park, the disused airport was transformed into an “official” shelter in March, when it became clear that countries further north had cut off access to Europe for good. If there was a semblance of order to the chaos of Piraeus, there is none here: outside derelict buildings, children play barefoot around overflowing rubbish bins; officialdom comes in the form of a single police car, parked alongside a fence clad with clothes, while up a flight of stairs inside the departure terminal, roughly 2,000 men, women and children – almost double the centre’s capacity – sleep side by side.

Lack of heat or air-conditioning means it is cold at night and stifling during the day; sanitation amounts to five toilets for men and five for women, with showers installed earlier this month. A further 3,000 refugees are crammed into two former Olympic venues – the old hockey and baseball stadiums – at Elliniko, where conditions are said to be so poor that access for NGOs or the media is rare. With hunger reputed to be on the rise, volunteers have openly voiced fears of offering services to people who are increasingly desperate. Last week, following the death of a 17-year-old Afghan girl in the camp, irate local mayors felt compelled to write a letter to prime minister Alexis Tsipras deploring the conditions as unacceptable and inhumane. Calling for immediate measures, the Athens Medical Association warned of a public health emergency.

“So far, Greece has been very lucky,” Papayiannakis noted before news of the Afhgan girl’s death broke. “There have been no serious incidents – but luck, you know, can run out.” Despite record unemployment and poverty levels, Greeks have responded to the influx with compassion and solidarity. Many have brought food and clothes to public squares, harking back to their families’ own experience as refugees when thousands were forcibly expelled from the Anatolian heartland after Greece’s ill-fated attempt to invade Turkey in 1922. For immigrants like Arif Rahman, a businessman who heads the Bangladeshi Chamber of Commerce, that reaction has been heartening – even if the government’s own response has been bungled and chaotic.

A slender man who first came to Greece in the late 1980s, Rahman has all too often witnessed his adopted country’s tough immigration policies – not least its steadfast refusal to offer citizenship to the children of emigres. “Now is the time for Greeks to show what civilisation and democracy means,” he says. “These people don’t want to stay here. We keep telling the government, as foreign community leaders, ‘Ask us for help, we know our people, we know what they need. Don’t let it get uglier than it already has.’”

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What a crazy country it is turning into. All in an eery silence. Where are the protests?

More Than A Million People In UK Living In Destitution (G.)

More than a million people in the UK are so poor they cannot afford to eat properly, keep clean or stay warm and dry, according to a groundbreaking attempt to measure the scale of destitution in Britain. A study by the Joseph Rowntree Foundation (JRF) found that 184,500 households experienced a level of poverty in a typical week last year that left them reliant on charities for essentials such as food, clothes, shelter and toiletries. More than three-quarters of destitute people reported going without meals, while more than half were unable to heat their home. Destitution affected their mental health, left them socially isolated and prone to acute feelings of shame and humiliation.

Although the study could not demonstrate that destitution had increased in recent years, it said this would be a plausible conclusion because of related evidence showing austerity-era rises in severe poverty, food bank use, homelessness and benefit sanction rates. In 2015, there were 668,000 destitute households containing 1,252,000 people, including 312,000 children. The study said this was an underestimate because the data did not capture poor households who eschewed charity handouts or used only state-funded welfare services Julia Unwin, chief executive of JRF, said: “It is simply unacceptable to see such levels of severe poverty in our country in the 21st century. Governments of all stripes have failed to protect people at the bottom of the income scale from the effects of severe poverty, leaving many unable to feed, clothe or house themselves and their families.”

Researchers called on the government to monitor destitution levels annually to better understand how people in poverty slipped into extreme hardship and to examine what could be done to close the holes in the welfare safety net. Destitution was defined by researchers as reliance on a weekly income so low (£70 for a single adult, £140 for a couple with children after housing costs) that basic essentials were unaffordable. People who met at least two of six measures over the course of a month, including eating fewer than two meals a day for two or more days, inability to heat or light their home for five days or sleeping rough for one or more nights, were also deemed to be destitute.

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Australia is trying to outdo the EU in becoming the wasteland of of international law, morals, decency and human values.

Papua New Guinea To Close Aussie Refugee Detention Camp (AFP)

Australia’s hardline immigration policy was thrown into turmoil yesterday after Papua New Guinea (PNG) ordered a processing camp to close, leaving the fate of hundreds of asylum-seekers hanging in the balance. The move to shutter the Australian-funded Manus island facility follows a Supreme Court ruling on Tuesday that holding people there was unconstitutional and illegal. Piling further pressure on Canberra, just weeks away from an expected election campaign, an Iranian refugee set himself on fire during a visit by UN officials to Nauru, the other Pacific nation where Australia sends boat people. And four others on the tiny outpost reportedly attempted suicide by drinking washing powder on Tuesday.

“Respecting this (court) ruling, Papua New Guinea will immediately ask the Australian government to make alternative arrangements for the asylum seekers at the regional processing centre,” Prime Minister Peter O’Neill said. Papua New Guinea’s former opposition leader Belden Namah had challenged the Manus arrangement in court, claiming it violated the rights of asylum seekers. The Supreme Court found that detaining them on the island was “contrary to their constitutional right of personal liberty”.

Despite this, Australian Immigration Minister Peter Dutton was adamant that none of the 850 or so men held there would enter his country and that Canberra’s policy – designed to deter others wanting to make the risky journey by boat – would not change. “As I have said, and as the Australian government has consistently acted, we will work with our PNG partners to address the issues raised by the Supreme Court of PNG,” he said in a statement after Mr O’Neill’s decision. Mr O’Neill did not set a timeframe for the closure. He said he did not anticipate asylum seekers being kept for so long at the Manus camp, which was reopened in 2012 by Australia after being closed five years earlier when the then Labor government abandoned offshore processing.

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Feb 152016
 
 February 15, 2016  Posted by at 9:05 am Finance Tagged with: , , , , , , , , ,  


John M. Fox Garcia Grande newsstand, New York 1946

Japan’s Economy Shrinks 1.4% As Abenomics Is Blown Off Course (Guardian)
China Imports Plunge -18.8% YoY In January, Exports Fall -11.2% (FT)
Yuan Rises Most Since 2005 as PBOC Voices Support, Raises Fixing (BBG)
PBoC Governor Zhou Breaks Long Silence (BBG)
Chinese Start to Lose Confidence in Their Currency (NY Times)
China Markets Brace for Wild Swings in Year of the Monkey (WSJ)
Selloff Plus A Market Holiday Make China Stocks Look Even More Expensive (BBG)
Hong Kong Land Price Plunges Nearly 70% in Government Tender (BBG)
Pakistan Default Risk Surges as $50 Billion Debt Bill Coming Due (BBG)
ECB In Talks With Italy Over Buying Bundles Of Bad Loans (Reuters)
Italy’s Banking Crisis Spirals Elegantly out of Control (WS)
Nuclear Fuel Storage in South Australia Seen as Economic Boon (BBG)
Oil Resumes Drop as Iran Loads Europe Cargo (BBG)
Condensate Vs Crude Oil: What’s Actually in Those Storage Tanks? (Westexas)
Renewables: The Next Fracking? (JMG)

So Nikkei up 7%, more mad stimulus expected.

Japan’s Economy Shrinks 1.4% As Abenomics Is Blown Off Course (Guardian)

Japan’s economy shrank at an annualised rate of 1.4% in the last quarter of 2015, new figures showed on Monday, dealing a further blow to attempts by the prime minister, Shinzo Abe, to lift the country out of stagnation. Last quarter’s contraction in the world’s third largest economy was bigger than the 1.2% decline that had been forecast, as slow exports to emerging markets failed to pick up the slack created by weak demand at home. The economy shrank 0.4% in October-December from the previous quarter, according to cabinet office figures. Slower exports and weak domestic demand were largely to blame for the contraction – a sign that Abe’s attempts to boost spending is failing to deliver.

Private consumption, the driving force behind 60% of GDP, slumped by 0.8% between October and December last year, a bigger fall than the median market forecast of 0.6%. Some analysts, though, expect domestic spending to pick up ahead of a planned rise on the consumption (sales) tax, from 8% to 10%, in April 2017. “However, this should be short-lived, as activity will almost certainly slump once the tax has been raised,” said Marcel Thieliant of Capital Economics. “The upshot is that the Bank of Japan still has plenty of work to do to boost price pressures.” The Nikkei benchmark index opened sharply higher on Monday, gaining more than 3% off the back of gains on Wall Street and in Europe on Friday, as well as encouraging US retail sales figures.

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Not much in imports left after 15 months in a row. Do note difference between dollar- and yuan terms.

China Imports Plunge -18.8% YoY In January, Exports Fall -11.2% (FT)

China’s exports and imports suffered larger-than-expected drops in the first month of this year in both renminbi- and dollar-denominated terms. Exports fell 6.6% year-on-year in January to Rmb1.14tn, following a 2.3% gain in December. Economists expected a gain of 3.6%. It was the biggest fall in exports since an 8.9% drop in July last year. The drop was even more pronounced measured in US dollars, with exports crashing 11.2% year-on-year last month to $177.48bn. That was from a 1.4% drop in December, and versus expectations for a 1.8% slide. It was the biggest drop since a 15% fall in March last year. The import side of the equation fared worse in both renminbi- and dollar-terms. Shipments to China cratered by 14.4% year-on-year to Rmb737.5bn in January. That’s from a 4% drop in December, and versus expectations for a 1.8% rise.

In dollar terms, imports plunged 18.8% last month to $114.19, from a 7.6% drop in January and versus an expected drop of 3.6%. This was the biggest monthly drop in imports since last September and also means shipments have contracted year-on-year for the past 15 months straight. The general weakness in the renminbi, which fell 1.3% in January and had weakened by 2.2% in the final quarter of 2015, is likely playing a part, by making overseas goods more expensive. However, exports have yet to receive a boost from the currency’s depreciation. China’s trade surplus grew to Rmb496.2bn last month from Rmb382.1bn in December. Economists expected it to inch higher to Rmb389bn. In dollar terms, China’s trade surplus rose to $63.29bn from $60.09 in December and versus expectations of $60.6bn.

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Whatever it takes revisited.

Yuan Rises Most Since 2005 as PBOC Voices Support, Raises Fixing (BBG)

China’s yuan surged by the most in more than a decade, catching up with dollar declines during a week-long holiday, after the central bank chief voiced support for the exchange rate and set its fixing at a one-month high. The currency advanced 0.9%, the most since the nation scrapped a peg to the dollar in July 2005, to 6.5170 a dollar as of 10:50 a.m. in Shanghai. The offshore yuan fell 0.16% to 6.5186 to almost match the onshore rate, compared with a 1% premium last week when mainland Chinese markets were shut for the Lunar New Year holidays. The People’s Bank of China on Monday raised its daily fixing against the greenback, which restricts onshore moves to a maximum 2% on either side, by 0.3%, the most since November, to 6.5118. A gauge of dollar strength declined 0.8% last week, while the yen rose 3% and the euro advanced 0.9%.

China’s balance of payments position is good, capital outflows are normal and the exchange rate is basically stable against a basket of currencies, PBOC Governor Zhou Xiaochuan said in an interview published Saturday in Caixin magazine. The nation’s foreign-exchange reserves shrank by $99.5 billion in January, the second-biggest decline on record, as the central bank sold dollars to fight off yuan depreciation pressure. An estimated $1 trillion of capital left China last year. “In the near term, the stronger fixing and Zhou’s comments reflect the PBOC’s consistent view of stabilizing the yuan,” said Ken Cheung at Mizuho. “Containing yuan depreciation expectations and capital outflows remain top-priority tasks. Mild depreciation could be allowed, but that would be done only after stabilizing depreciation expectations.”

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What is this, some sort of reverse psychology? By now nobody trusts him anymore.

PBoC Governor Zhou Breaks Long Silence (BBG)

China’s central bank has stepped up efforts to restore stability to the nation’s currency and economy, with Governor Zhou Xiaochuan breaking his long silence to argue there’s no basis for continued yuan depreciation. The nation’s balance of payments is good, capital outflows are normal and the exchange rate is basically stable against a basket of currencies, Zhou said in an interview published Saturday in Caixin magazine. That’s an escalation in verbal support after such comments have been left in recent months to deputies and the central bank research department’s chief economist. Zhou dismissed speculation that China plans to tighten capital controls and said there’s no need to worry about a short-term decline in foreign-exchange reserves. The country has ample holdings for payments and to defend stability, he said.

“He’s desperately trying to make sure that all of his work in the past few years on capital liberalization does not go to waste,” said Victor Shih, a professor at the University of California at San Diego who studies China’s politics and finance. “He’s trying hard to instill investor confidence in the renminbi so that the Chinese government does not have to resort to the extreme measure of unwinding all of the progress on offshore renminbi in the past few years.” The comments come as Chinese financial markets prepare to reopen Monday after the week-long Lunar New Year holiday. The weakening exchange rate and declining Chinese share markets have fueled global turmoil and helped send world stocks to their lowest levels in more than two years. The PBoC set the daily fixing against the dollar, which restricts onshore moves to a maximum 2% on either side, 0.3% higher at 6.5118, the strongest since Jan. 4. The Shanghai Composite Index dropped 2.3% as of 9:39 a.m. local time.

Lost amid the angst over China’s stocks, currency and sliding foreign exchange reserves is the flush liquidity situation at home. The People’s Bank of China has been putting its money where its mouth is, pumping cash into the financial system to offset record capital outflows amid fears the yuan could weaken further. Data that could come as soon as Monday is expected to show China’s broadest measure of new credit surged in January on a seasonal uptick in lending, and as companies borrowed to pay off foreign debt. Aggregate financing likely grew 2.2 trillion yuan ($335 billion), according to the median forecast of a Bloomberg survey of economists. [..] Even as foreign exchange reserves have declined since mid 2014 – to a four-year low of $3.23 trillion in January – M1 money supply has continued to rise.

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No-one has a clue where it’ll be in a week, a month.

Chinese Start to Lose Confidence in Their Currency (NY Times)

As the Chinese economy stumbles, wealthy families are increasingly trying to move large sums of money out of the country, worried that the value of the currency will fall and their savings will be worth less. To get around the country’s cash controls, individuals are asking friends or family members to carry or transfer out $50,000 apiece, the annual legal limit in China. A group of 100 people can move $5 million overseas. The practice is called Smurfing, named after the blue, mushroom-dwelling cartoon characters, and it is part of an exodus of capital that is casting doubt on China’s economic prospects and shaking global markets. Over the last year, companies and individuals have moved nearly $1 trillion from China.

Some methods are perfectly legal, like investing in real estate elsewhere, buying businesses overseas and paying off debts owed in dollars. Others, like Smurfing, are more dubious, and in certain cases, outright illegal. Chinese customs officials caught a woman last year trying to leave the mainland with $250,000 strapped to her chest and thighs and hidden inside her shoes. If the government cannot keep citizens from rushing to the financial exits, China’s outlook could darken. The swell of outflows is a destabilizing force in China’s slowing economy, threatening to undermine confidence and hurt a banking system that is struggling to deal with a decade-long lending binge. The capital flight is already putting significant pressure on the country’s currency, the renminbi.

The government is trying to prevent a free fall in the currency by stepping into the markets and tapping its huge cash hoard to shore up the renminbi. But a deep erosion of those reserves may set off further outflows and create turbulence in the markets. China is also trying to put the brakes on outflows, by tightening its grip on the country’s links to the global financial system. The government, for example, just started to clamp down on people’s use of bank cards to buy overseas life insurance policies. Such moves have trade-offs. The limits create concerns that the government is pulling back on reform efforts that China needs to keep growth humming in the decades to come. But the near-term pressure also requires serious attention, given the global shock waves.

“The currency has become a very near-term threat to financial stability,” said Charlene Chu, an economist at Autonomous Research. Navigating such problems is fairly new for China. For years, China soaked up much of the world’s investment money, as the economy grew at annual rates in the double digits. A largely closed financial system kept China’s own money corralled inside the country. Now, with growth slowing, money is gushing out of the country. And the government has a looser grip on the spigot, because China dismantled some currency restrictions to open up its economy in recent years. “Companies don’t want renminbi and individuals don’t want renminbi,” said Shaun Rein, the founder of the China Market Research Group. “The renminbi was a sure bet for a long time, but now that it’s not, a lot of people want to get out.”

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Huh? What is that?: “There will be an incredible amount of strong psychological pessimism in China this week..”

China Markets Brace for Wild Swings in Year of the Monkey (WSJ)

Investors in Chinese stocks are facing a tumultuous return to action Monday after a weeklong holiday in mainland markets for the Lunar New Year shielded them from the global market turmoil. Chinese shares are already among the world’s worst-performing this year, with the main benchmark Shanghai Composite Index down 21.9% at 2763.49. The market has almost halved in value since its peak last June, dropping some 47% since then. But analysts say both the Shanghai and Shenzhen stock exchanges could face further sharp losses at Monday’s open, as they catch up with the past week’s mostly gloomy global markets. Japanese stocks sank 11% last week and the yen shot up, defying a recent move by the Bank of Japan to introduce negative interest rates, partly designed to keep the local currency weaker and help Japanese exporters.

Markets in Europe and the U.S. whipsawed as investors lost faith in banking stocks, while Australian shares entered bear market territory, having fallen more than 20% since their most recent peak in late April. Meanwhile, Chinese stocks trading in Hong Kong lost 6.8% and the city’s benchmark Hang Seng Index fell 5% in the two days markets were open here at the end of last week. “There will be an incredible amount of strong psychological pessimism in China this week,” said Richard Kang at Emerging Global Advisors. “[Global assets] are going up and down together, it’s very macro-driven right now.” China was at the epicenter of market mayhem at the start of 2016, as shares fell sharply and the country’s currency, the yuan, dipped in value. Before last summer, Chinese market slumps had little impact beyond the country’s borders, mainly because stock-buying there remains largely driven by local retail investors.

Foreign investors still account for a small amount of stock ownership in China. But the Chinese selloff early this year was met with a confused response from Beijing policy makers, who flip-flopped on new measures to stem the market bleeding and were criticized for failing to communicate clearly a change in currency strategy. That contributed to a perception among global investors that Chinese leaders have lost their grip on the country’s economy. The nervousness in markets around the world has now taken on new dimensions. Central banks are struggling to boost growth, despite the Bank of Japan joining the European Central Bank in setting negative interest rates for the first time. Bank profits face a squeeze as the margin between what they pay out on deposits and what they make on lending narrows.

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Not a small detail.

Selloff Plus A Market Holiday Make China Stocks Look Even More Expensive (BBG)

For once, it wasn’t China’s fault. With the country’s markets closed for lunar new year holidays last week, global equity investors found plenty of other reasons to sell – everything from sliding oil prices to shrinking bank profits and crumbling faith in global monetary policy. The MSCI All-Country World Index plunged 2.6%, entering bear-market territory for the first time in more than four years. While the rout may help Communist Party officials counter perceptions that China is the biggest risk for global markets, investors in yuan-denominated A shares will find little to cheer about as trading resumes Monday. Valuations in the $5.3 trillion market, already inflated by a record-breaking bubble last year, now look even more expensive versus their beaten-down global peers.

The Shanghai Composite Index trades at a 34% premium to MSCI’s emerging-markets index – up from an average gap of 10% over the past five years – and equities in the tech-heavy Shenzhen market are almost four times more expensive than their developing-nation counterparts. Shares with dual listings, meanwhile, are valued at a 46% premium on the mainland relative to Hong Kong, near the widest gap since 2009. “There’s been a lot of embedded selling pressure in the A-share market,” said George Hoguet at State Street Global Advisors, which has $2.4 trillion under management. “I don’t think the market is fully cleared yet.” While the Shanghai Composite has dropped 22% in 2016, the gauge is still up 31% over the past two years, a period when the MSCI Emerging Markets Index sank 22%.

The Chinese stock measure is valued at 15 times reported earnings, versus 11 for the developing-nation gauge. Chinese markets will be volatile when they reopen as investors determine where they “sit in the global marketplace,” Garrett Roche, a global investment strategist at Bank of America Merrill Lynch, said by phone from New York. The firm oversees $2.5 trillion in client assets. “From the Chinese perspective, we are relatively nervous about it anyway, so it won’t change our view that the selloff hurts,” he said. Investors shouldn’t read too much into what happens in global markets when assessing the outlook for Chinese equities because the country still has a relatively closed financial system, said Eric Brock at Clough Capital Partners. The Shanghai Composite’s correlation with the MSCI All-Country index over the past 30 days was less than half that of the Standard & Poor’s 500 Index.

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Stick a fork in it?!

Hong Kong Land Price Plunges Nearly 70% in Government Tender (BBG)

In the latest sign that Hong Kong’s property correction is deepening, a piece of land sold by the government in the New Territories sold for nearly 70% less per square foot than a similar transaction in September. The 405,756 square foot (37,696 square meter) parcel of land in Tai Po sold for HK$2.13 billion ($274 million) or HK$1,904 per square foot, in a tender that closed on Feb. 12, according to the Hong Kong Lands Department website. The buyer was Asia Metro Investment, a subsidiary of China Overseas Land & Investment.

The plunge in the price of land comes amid weaker appetite from Hong Kong developers against the backdrop of a nearly 11% drop in housing prices since their September high, according to the Centaline Property Centa-City Leading Index. In January, sales of new and secondary homes reached their lowest monthly level since Centaline started tracking data in January 1991. Hong Kong home prices surged 370% from their 2003 trough through the September peak before the correction began, spurred by a rising supply of housing and a slowdown in China. Lower prices paid for land could eventually lead to cheaper home prices down the road, and are viewed as a leading indicator of the negative sentiment on the market.

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Asia’s troubles are sure to spread. Reporting on it is slow, that’s all.

Pakistan Default Risk Surges as $50 Billion Debt Bill Coming Due (BBG)

Bets are rising that Pakistan will default on its debt just as it starts to revive investor interest with a reduction in terrorist attacks. Credit default swaps protecting the nation’s debt against non-payment for five years surged 56 basis points over the past week amid the global market sell-off, the steepest jump after Greece, Venezuela and Portugal among more than 50 sovereigns tracked by Bloomberg. About 42% of Pakistan’s outstanding debt is due to mature in 2016 – roughly $50 billion, equivalent to the size of Slovenia’s economy. Prime Minister Nawaz Sharif has worked to make Pakistan more investor-friendly since winning a $6.6 billion IMF loan in 2013 to avert an external payments crisis. The economy is forecast to grow 4.5%, an eight-year high, as a crackdown on militant strongholds helps reduce deaths from terrorist attacks.

“Pakistan’s high level of public debt, with a large portion financed through short-term instruments, does make the sovereign’s ability to meet their financing needs more sensitive to market conditions,” Mervyn Tang, lead analyst for Pakistan at Fitch said by e-mail. Since Sharif took the loan, Pakistan’s debt due by end-2016 has jumped about 79%. He’s also facing resistance in meeting IMF demands to privatize state-owned companies, leading to a strike this month at national carrier Pakistan International Airlines. The bulk of this year’s debt, some $30 billion, is due between July and September, and repayments will get tougher if borrowing costs rise more. The spread between Pakistan’s 10-year sovereign bond and similar-maturity U.S. Treasuries touched a one-year high on Thursday.

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Making it up as they go along. Not a confidence booster.

ECB In Talks With Italy Over Buying Bundles Of Bad Loans (Reuters)

The ECB is in talks with the Italian government about buying bundles of bad loans as part of its asset-purchase program and accepting them as collateral from banks in return for cash, the Italian Treasury said. The move could give a big boost to a recently approved Italian scheme aimed at helping banks offload some of their €200 billion ($225 billion) of soured credit and free up resources for new loans. Nonetheless, it would likely fuel a debate in other countries about whether the ECB is taking on too much risk by buying asset-backed securities (ABS) based on loans that have not been repaid for roughly three months. Italian Treasury officials told reporters the ECB may buy these securities as part of its €1.5 trillion asset-purchase program or accept them as collateral from banks in return for cash, in so called repurchase agreements.

In November last year, an ECB source said that buying rebundled non-performing loans could be an extreme option if the euro zone’s economic situation became “really bad”. The bank has been struggling to revive inflation and is likely to cut its deposit rate again next month. Italy’s high stock of bad loans has been a drag on the euro zone’s third-largest economy and is a growing concern for investors, who have been selling shares in Italian banks heavily since the start of the year. The ECB has been buying an average of €1.19 billion of ABS every month since November 2014, Datastream data showed, and prefers securities backed by performing loans. Under existing rules, the ECB can buy ABS as long as they have a credit rating above a certain threshold, thereby ensuring it only buys high-quality securities.

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Nothing stops the ECB, least of all its own rules.

Italy’s Banking Crisis Spirals Elegantly out of Control (WS)

Italy, the Eurozone’s third largest economy, is in a full-blown banking crisis. Four small banks were rescued late last year. The big ones are teetering. Their stocks have crashed. They’re saddled with non-performing loans (defined as in default or approaching default). We’re not sure that the full extent of these NPLs is even known. The number officially tossed around is €201 billion. But even the ECB seems to doubt that number. Its new bank regulator, the Single Supervisory Mechanism, is now seeking additional information about NPLs to get a handle on them. Other numbers tossed around are over €300 billion, or 18% of total loans outstanding. The IMF shed an even harsher light on this fiasco. It reported last year that over 80% of the NPLs are corporate loans. Of them, 30% were non-performing, with large regional differences, ranging from 17% in some of the northern regions to over 50% in some of the southern regions. The report:

High corporate NPLs reflect both weak profitability in a severe recession as well the heavy indebtedness of many Italian firms, especially SMEs, which are among the highest in the Euro Area. This picture is consistent with corporate survey data which shows nearly 30% of corporate debt is owed by firms whose earnings (before interest and taxes) are insufficient to cover their interest payments.

The reason these NPLs piled up over the years is because banks have been slow to, or have refused to, write them off or sell them to third parties at market rates. Recognizing the losses would have eaten up the banks’ scarce capital. Reality would have been too ugly to behold. The study found that the average time for writing off bad loans has jumped to over six years by 2014. And this:

In 2013, on average less than 10% of bad debt, despite already being in a state of insolvency, was written off or sold. The bad debt write-off rate varies significantly across the major banks, with banks with the highest NPL ratios featuring the lowest write-off rates. The slow pace of write-offs is an important factor in the rapid buildup of NPLs.

Now, to keep the banks from toppling, the ECB has an ingenious plan: it’s going to buy these toxic assets or accept them as collateral in return for cash. That’s what the Italian Treasury told reporters, according to Reuters. Oh, but the ECB is not going to buy them directly. That would violate the rules; it can only buy assets that sport a relatively high credit rating. And this stuff is toxic. So these loans are going to get bundled into structured Asset Backed Securities (ABS) and sliced into different tranches. The top tranches will be the last ones to absorb losses. A high credit rating will then be stamped on these senior tranches to make them eligible for ECB purchases, though they’re still backed by the same toxic loans, most of which won’t ever be repaid.

The ECB then buys these senior tranches of the ABS as part of its €62.4-billion per-month QE program that already includes about €2.2 billion for ABS (though it has been buying less). Alternatively, the ECB can accept these highly rated, toxic-loan-backed securities as collateral for cash via so-called repurchase agreements. But buying even these senior tranches would violate the ECB’s own rules, which specify:

At the time of inclusion in the securitisation, a loan should not be in dispute, default, or unlikely to pay. The borrower associated with the loan should not be deemed credit-impaired (as defined in IAS 36).

Hilariously, the NPLs, by definition, are either already in “default” or “unlikely to pay,” most of them have been so for years, and the borrower is already “deemed credit impaired” if the entity even still exists. But hey, this is the ECB, and no one is going to stop it. Reuters: “The move could give a big boost to a recently approved Italian scheme aimed at helping banks offload some of their €200 billion of soured credit and free up resources for new loans.” But the scheme would limit ECB purchases to only the top tranches, and thus only a portion of the toxic loans. So there too is a way around this artificial limit.

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Might as well move out now. There is no safe storage for nuclear waste.

Nuclear Fuel Storage in South Australia Seen as Economic Boon (BBG)

The storage and disposal of nuclear waste in South Australia would probably deliver significant economic benefits to the state, generating more than A$5 billion ($3.6 billion) a year in revenue, according to the preliminary findings by a royal commission. Such a facility would be commercially viable, with storage commencing in the late 2020s, the Nuclear Fuel Cycle Royal Commission said in its tentative findings released Monday. It doesn’t make economic sense to generate electricity from a nuclear power plant in the state in the “foreseeable future” due to costs and demand, the report found. “The storage and disposal of used nuclear fuel in South Australia would meet a global need and is likely to deliver substantial economic benefits to the community,” the commission said. “

Such a facility would be viable and highly profitable under a range of cost and revenue assumptions.” South Australia, where BHP Billiton operates the Olympic Dam mine, set up the commission last year to look at the role the state should play in the nuclear industry — from mining and enrichment to energy generation and waste storage. While Australia is home to the world’s largest uranium reserves, it has never had a nuclear power plant. Concerns over climate change have prompted debate about whether to reverse Australia’s nuclear policy. Longer term, “Australia’s electricity system will require low-carbon generation sources to meet future global emissions reduction targets,” the commission said in its report. “Nuclear power may be necessary, along with other low carbon generation technologies.”

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A ways to go.

Oil Resumes Drop as Iran Loads Europe Cargo (BBG)

Oil resumed its decline below $30 a barrel as Iran loaded its first cargo to Europe since international sanctions ended and Chinese crude imports dropped from a record. West Texas Intermediate futures fell 0.5% in New York after surging 12% on Friday, while Brent in London slid 0.2%. A tanker for France’s Total was being loaded Sunday at Kharg Island while vessels chartered for Chinese and Spanish companies were due to arrive later the same day, an Iranian oil ministry official said. Chinese imports in January decreased almost 20% from the previous month, according to government data. “Iran is going to add headwinds to the market,” David Lennox, an analyst at Fat Prophets in Sydney, said. “We still have 500 million barrels of U.S. inventories and shale producers are still pumping. Until there are significant cuts to output, the rally is not sustainable.”

Oil in New York is down 21% this year amid the outlook for increased Iranian exports and BP Plc predicts the market will remain “tough and choppy” in the first half as it contends with a surplus of 1 million barrels a day. Speculators’ long positions in WTI through Feb. 9 rose to the highest since June, according to data from the U.S. Commodity Futures Trading Commission. WTI for March delivery slid as much as 49 cents to $28.95 a barrel on the New York Mercantile Exchange and was at $29.28 at 2:50 p.m. Hong Kong time. The contract gained $3.23 to close at $29.44 on Friday after dropping 19% the previous six sessions. Total volume traded was about 12% above the 100-day average. WTI prices lost 4.7% last week. Brent for April settlement declined as much as 69 cents, or 2.1%, to $32.67 a barrel on the ICE Futures Europe exchange. The contract climbed $3.30 to close at $33.36 on Friday. The European benchmark crude was at a premium of $1.59 to WTI for April.

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Our old friend and oil expert Jeffrey Brown with an interesting take.

Condensate Vs Crude Oil: What’s Actually in Those Storage Tanks? (Westexas)

After examining available regional and global production data (using EIA, OPEC and BP data sources), in my opinion actual global crude oil production – generally defined as 45 API Gravity or lower crude oil – has probably been on an “Undulating Plateau” since 2005. At the same time, global natural gas production and associated liquids, condensate and natural gas liquids (NGL), have so far continued to increase. Schlumberger defines condensate as: “A low-density, high-API gravity liquid hydrocarbon phase that generally occurs in association with natural gas.” The most common dividing line between crude oil and condensate is 45 API Gravity, but note that the upper limit for WTI crude oil is 42 API Gravity. However, the critical point is that condensate is a byproduct of natural gas production.

Note that what the EIA calls “Crude oil” is actually Crude + Condensate (C+C). When we ask for the price of oil, we generally get the price of either WTI or Brent crude oil, which both have average API gravities in the high 30’s, and the maximum upper limit for WTI crude oil is 42 API Gravity. However, when we ask for the volume of oil, we get some combination of crude oil + partial substitutes, i.e., condensate, NGL and biofuels. From 2002 to 2005, as annual Brent crude oil prices approximately doubled from $25 in 2002 to $55 in 2005, global natural gas production, global NGL production and global C+C production all showed similar rates of increase. For example, from 2002 to 2005 global natural gas production increased at a rate of 3.2%/year, as global C+C production increased at a rate of 3.3%/year.

From 2005 to the 2011 to 2013 time frame, annual Brent crude oil prices doubled again, from $55 in 2005 to an average of $110 for 2011 to 2013 inclusive, remaining at $99 in 2014. From 2005 to 2014, global natural gas production increased at 2.4%/year, while global C+C production increased at only 0.6%/year. Given that condensate production is a byproduct of natural gas production, the only reasonable conclusion in my opinion is that increasing global condensate production accounted for all, or virtually all, of the post-2005 slow rate of increase in global C+C production [..]

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Haha! So glad Greer does it for us, so we don’t get the hate mail. But he’s right, obviously. Only thing is, he forgets a whole group of people. He says there are those who believe in renewables vs those who actually live with them. A third group are those who plan to make a killing off of renewables. And they drive the discussion.

Renewables: The Next Fracking? (JMG)

I’d meant this week’s Archdruid Report post to return to Retrotopia, my quirky narrative exploration of ways in which going backward might actually be a step forward, and next week’s post to turn a critical eye on a common but dysfunctional habit of thinking that explains an astonishing number of the avoidable disasters of contemporary life, from anthropogenic climate change all the way to Hillary Clinton’s presidential campaign. Still, those entertaining topics will have to wait, because something else requires a bit of immediate attention. In my new year’s predictions a little over a month ago, as my regular readers will recall, I suggested that photovoltaic solar energy would be the focus of the next big energy bubble. The first signs of that process have now begun to surface in a big way, and the sign I have in mind—the same marker that provided the first warning of previous energy bubbles—is a shift in the rhetoric surrounding renewable energy sources.

Broadly speaking, there are two groups of people who talk about renewable energy these days. The first group consists of those people who believe that of course sun and wind can replace fossil fuels and enable modern industrial society to keep on going into the far future. The second group consists of people who actually live with renewable energy on a daily basis. It’s been my repeated experience for years now that people belong to one of these groups or the other, but not to both. As a general rule, in fact, the less direct experience a given person has living with solar and wind power, the more likely that person is to buy into the sort of green cornucopianism that insists that sun, wind, and other renewable resources can provide everyone on the planet with a middle class American lifestyle.

Conversely, those people who have the most direct knowledge of the strengths and limitations of renewable energy—those, for example, who live in homes powered by sunlight and wind, without a fossil fuel-powered grid to cover up the intermittency problems—generally have no time for the claims of green cornucopianism, and are the first to point out that relying on renewable energy means giving up a great many extravagant habits that most people in today’s industrial societies consider normal. Debates between members of these two groups have enlivened quite a few comment pages here on The Archdruid Report. Of late, though—more specifically, since the COP-21 summit last December came out with yet another round of toothless posturing masquerading as a climate agreement—the language used by the first of the two groups has taken on a new and unsettling tone.

Climate activist Naomi Oreskes helped launch that new tone with a diatribe in the mass media insisting that questioning whether renewable energy sources can power industrial society amounts to “a new form of climate denialism.” The same sort of rhetoric has begun to percolate all through the greenward end of things: an increasingly angry insistence that renewable energy sources are by definition the planet’s only hope, that of course the necessary buildout can be accomplished fast enough and on a large enough scale to matter, and that no one ought to be allowed to question these articles of faith.

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Nov 212014
 
 November 21, 2014  Posted by at 12:47 pm Finance Tagged with: , , , , , , , , , ,  


Russell Lee Hammond Ranch general store, Chicot, Arkansas Jan 1939

Americans, With Record $3.2 Trillion Consumer Debt, Borrow More (Guardian)
How Wall Street Banks Traded Lending For Oil, Gas And Nukes (MarketWatch)
Citigroup Ejected From ECB FX Group for Rigging (Bloomberg)
China ‘Triple Bubble’ Points To Long Slide For Commodities (MarketWatch)
ECB Dips Toe Into Dead Sea Of Rebundled Debt (Reuters)
ECB’s Draghi: ‘Strong Recovery Unlikely’ (CNBC)
Draghi Says ECB Must Raise Inflation as Fast as Possible (Bloomberg)
Greece To Submit Contentious Budget For 2015 (CNBC)
Hanging Around: Why Abe’s Holding an Election in a Recession (Bloomberg)
Abe Listening to Krugman After Tokyo Limo Ride on Abenomics Fate (Bloomberg)
US Federal Reserve To Review How It Supervises Major Banks (Reuters)
Hugh Hendry: “QE ‘Worked’ By Redistributing Wealth Not Creating It” (Zero Hedge)
Britain Abandons Banker Bonus Fight After EU Court Blow (Bloomberg)
Russia Warns US Against Supplying ‘Lethal Defensive Aid’ To Ukraine (RT)
EuroMaidan Anniversary: 21 Steps From Peaceful Rally To Civil War (RT)
Dutch Government Refuses To Reveal ‘Secret Deal’ Into MH17 Crash Probe (RT)
Creativity, Companies, And The Wisdom Of Crowds (Robert Shiller)
China Starts $2 Trillion Leap Forward to Slash Pollution (Bloomberg)
The Magical Thought That’s Assumed in Climate Studies (Bloomberg)
Rhino Poaching Death Toll Reaches Record in South Africa (Bloomberg)
Growth First. Then These Other Things Can Be Dealt With (Clarke&Dawe)

This is going to end well, right?

Americans, With Record $3.2 Trillion Consumer Debt, Borrow More (Guardian)

Americans are borrowing more even as they have racked up enormous amounts of consumer debt, Federal Reserve data show. The newly released minutes of the last Federal Reserve meeting in October give a wider picture of the US economy. A weak housing market weighed on the US economy, while the fear of Ebola put some brief pressure on the stock markets, the Fed found. The interesting trend, however, is the growing indebtedness of US consumers now that banks have loosened the spigots on lending. The Federal Reserve customarily releases the minutes of its meetings, where the board of governors and staff discuss the major forces at work in the US economy, including employment, housing, borrowing and inflation. The Fed took a positive view of overall economic progress, noting a low unemployment rate, low inflation and, generally, “a continued improvement in labor market conditions”. While the minutes provide a big-picture view of the economy, there are some specific – and strange – worries that make it into the Fed’s discussions.

“Worries about a possible spread of Ebola also appeared to weigh on market sentiment somewhat at times,” the Fed said. The Fed’s meeting was shortly after the first American Ebola patients were being admitted to hospitals. Elsewhere in the economy, the Fed acknowledged that the housing market had slowed. After new home prices hit record highs in 2013, prices have been drifting downward as homeowners still struggle to get mortgages. “Housing market conditions seemed to be improving only slowly,” the central bank said, noting that new home sales were flat in September after moving up in August, and sales of existing single-family homes had not showed much progress and “moved essentially sideways” over the past several months. Banks also loosened the reins and started extending more credit to consumers, particularly through credit cards and auto loans, which some have suggested may be a bubble.

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“The three financial holding companies chose to engage in commodity-related businesses that carried potential catastrophic event risks.”

How Wall Street Banks Traded Lending For Oil, Gas And Nukes (MarketWatch)

A U.S. Senate subcommittee investigation into bank commodities trading has produced some eye-popping findings: Goldman Sachs owned a uranium business that carried the liability of a nuclear accident. J.P. Morgan operated as if it were Con Edison. It owned multiple power-generation plants, exposing it to potential accidents there. Morgan Stanley played the role of Exxon Mobil, stockpiling storage, pipelines, and other natural gas and oil infrastructure.

Together, the report found that banks not only were out of their comfort zone, but put the financial system at risk because they turbo-charged these investments with derivative contracts. They ended up with “huge commodity inventories and participating in outsized transactions,” the Senate Permanent Subcommittee for Investigations said. “The three financial holding companies chose to engage in commodity-related businesses that carried potential catastrophic event risks.” The overreaching foray into commodities underscores how bank “innovation” can take simple services for clients and create massive risk. Banks entered the commodities markets to provide hedges for providers, traders and other market participants. They ended up with huge stakes and, according to the committee, were able to corner at least parts of the market.

This is a far cry from simple brokerage services and investment banking. It is a quantum leap from deposit-taking and lending institutions that are backed by the Federal Reserve and the Federal Deposit Insurance Corp. And it all took place in a market supposedly regulated by the Commodity Futures Trading Commission, which should have at least raised red flags, even if its powers were limited by Congress. While many banks have either left, reduced or signaled they want to exit commodities, the pattern in which simple banking and brokerage products become suddenly dangerous and enormous quagmires may be the larger problem. Regulators can’t put a cop in every division and office on Wall Street, much less every power plant across the country.

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“Citigroup is the world’s biggest foreign-exchange dealer ..”

Citigroup Ejected From ECB FX Group for Rigging (Bloomberg)

The European Central Bank ejected Citigroup from its foreign-exchange market liaison group after the U.S. bank was fined for rigging the institution’s own currency benchmark, two people with knowledge of the move said. The ECB removed Citigroup from the panel, which advises the central bank on market trends, after regulators fined the lender $1 billion for rigging currency benchmarks including the ECB’s 1:15 p.m. fix, said the people, who asked not to be identified because the decision hasn’t been made public. Citigroup was one of six banks fined $4.3 billion by U.S. and U.K. regulators last week and is the only one that also sits on the ECB Foreign Exchange Contact Group. About 20 firms with large foreign-currency operations, ranging from Airbus to Deutsche Bank sit on the committee. The panel’s agenda includes how to improve currency benchmarks.

Citigroup is the world’s biggest foreign-exchange dealer, with a 16% market share, according to a survey by London-based Euromoney Institutional Investor Plc. A spokesman for the New York-based bank declined to comment. The panel isn’t involved in how the ECB’s daily fix is calculated. Currency benchmarks such as the ECB fix and the WM/Reuters rates are used by asset managers and pension funds to value their holdings, including $3.6 trillion in index tracker funds around the world. According to documents released with the settlements, senior traders at the firms shared information about their positions with each other and coordinated trading strategies to the detriment of their clients. They’d congregate in electronic chat rooms an hour or so before benchmark rates were set to discuss their orders and how to execute them to their mutual benefit.

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China’s share for some commodities is insane. And it won’t last.

China ‘Triple Bubble’ Points To Long Slide For Commodities (MarketWatch)

The “commodity super cycle” is dead. Now, it’s time to get used to the “commodity super down cycle, and China is the biggest reason why, warn strategists at Credit Suisse in a Thursday note. Commodity demand tends to be very cyclical. Commodities, however, have been underperforming cyclical indicators of growth, including industrial production and new manufacturing orders (as measured by Institute for Supply Management survey data), they say. Much of the blame is on China, the strategists argue, noting that the country remains the “most significant source” of demand for most industrial commodities. Moreover, they see China on track for a “hard landing” at some point in the next three years. The report adds to some of the recent gloom around China, where the fate of the economy remains a topic for debate.

Standard & Poor’s Ratings Services on Wednesday said its negative outlook for Chinese property developers is casting a pall on the rest of the Asia-Pacific region, though it sees prospects for the sentiment to recover next year thanks to looser government policies, particularly on mortgages. The Credit Suisse strategists, meanwhile, see a “triple bubble” in credit, real estate and investment. On credit, they highlight a private-sector to GDP ratio that is 30%age points above trend. China’s investment share of GDP is 48%, much higher than Japan or Korea at similar stages of industrialization, Credit Suisse says. Real estate, meanwhile, is in a “classic bubble.” Prices have dropped six months in a row. A drop of another 20% or more will make for a “hard landing,” they write.

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The headline tells the story.

ECB Dips Toe Into Dead Sea Of Rebundled Debt (Reuters)

The European Central Bank is set to embark this week on a scheme to buy the kind of rebundled debt that sparked the global economic crash. With sparse investor interest its efforts could fall short. Asset backed securities (ABS), reparcelled debt that mixes high-risk loans with safer credit, gained notoriety when rebundled home loans in the United States unravelled to spark financial turmoil. Seven years on, seeking to pump money into a moribund euro zone economy, the ECB believes the same type of debt may make it easier to get credit to companies. It will be safe, the ECB argues, because such European debt, whether car loans or credit cards, is typically repaid and its repackaging should be simpler to understand. The programme is one plank in a strategy which ECB chief Mario Draghi hopes will increase its balance sheet by up to €1 trillion.

If it falls short and fails to boost the economy significantly, pressure to launch full quantitative easing will reach fever pitch. Regulators and investors are sceptical and even within the ECB expectations are muted, people familiar with its thinking say. To limit its risk, the ECB will buy only the most secure part of such loans in the hope that others pile in behind it to buy riskier credit. It is a strategy with little prospect of success, says Jacques de Larosiere, the former head of the International Monetary Fund who has pushed for the repackaging and sale of loans. “While I welcome the ECB’s initiative … it cannot work if it is alone in buying the senior tranches,” he told Reuters. “That is the very area where there is no problem in finding buyers. In order to have an impact, the ECB or other buyers must also be able to buy the lower-quality riskier tranches of ABS.”

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Gee, we had no idea.

ECB’s Draghi: ‘Strong Recovery Unlikely’ (CNBC)

TThe euro zone economy is likely to remain stagnant in the short-to-medium term and the European Central Bank stands ready to act fast to combat low inflation, President Mario Draghi said on Friday. “A stronger recovery is unlikely in the coming months,” Draghi said in an opening speech at the Frankfurt European Banking Congress, referring to the latest flash euro area Purchasing Managers Index (PMI). The PMI, published on Thursday, showed that new orders in the euro zone fell this month for the first time since July 2013. The composite index read 51.4—below forecasts and below October’s final reading of 52.1.

The ECB has launched a slew of measures to ease credit conditions in the region in order to boost growth and combat dangerously low inflation. These include cutting interest rates to record lows and announcing plans to purchase covered bonds and asset-backed securities (ABS). The latest reading for headline inflation in the euro zone was 0.4%—well below the close to 2% level targeted by the ECB and down from 0.9% a year ago. “The inflation situation in the euro area has also become increasingly challenging,” said Draghi on Friday. “We see that it has been essential that the ECB has acted —and is continuing to act—to bring inflation back towards 2%.” Speculation has been rife as to if and when the ECB will start a U.S -style sovereign bond-buying program, as a further measures to ease monetary conditions.

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Mario must be needing tranquilizers by now.

Draghi Says ECB Must Raise Inflation as Fast as Possible (Bloomberg)

Mario Draghi said the European Central Bank must drive inflation higher quickly, and will broaden its asset-purchase program if needed to achieve that. “We will do what we must to raise inflation and inflation expectations as fast as possible, as our price-stability mandate requires,” the ECB president said at a conference in Frankfurt today. Shorter-term inflation expectations “have been declining to levels that I would deem excessively low,” he said. Any new action would follow a flurry of activity since June that has included interest-rate cuts, long-term bank loans, and covered-bond purchases, with buying of asset-backed securities due to start as soon as today.

Draghi has declined to rule out large-scale government-bond buying and said after this month’s monetary policy meeting that staff are studying further measures to boost the economy if needed. “Draghi is sending a clear signal that more stimulus is coming,” said Lena Komileva, chief economist at G Plus Economics . in London. “If the ECB’s current measures prove underwhelming and inflation expectations fail to recover, the ECB will act to expand quantitative easing.”

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When will the next bond attack start?

Greece To Submit Contentious Budget For 2015 (CNBC)

Greece’s proposed budget for 2015 has put it at loggerheads again with the “Troika” of international monitors, who are worried the plan will land it with a bigger fiscal gap than forecast. The coalition government led by Antonis Samaras has promised the budget will include no further austerity measures—on which its bailout is contingent— in an effort to combat the risk of snap national elections next year. The latest polls show that the anti-austerity left-wing opposition party SYRIZA would win an election, if it was held now. Greek Finance Minister Gikas Hardouvelis will submit the final plan for 2015 to the President of the Parliament at 10 a.m. GMT on Friday. Negotiations in Parliament on the Greek budget for 2015 will then start December 4.

The Troika—the European Commission, International Monetary Fund and European Central Bank – is worried that the budget will land Greece with a much bigger fiscal gap next year than the government says. The disagreement has already delayed the country’s review by the Troika and Greece risks missing a December 8 deadline to receive the final instalment of its bailout from Europe, which is worth 144.6 billion euros. This completion of the review would also pave the way for talks on a possible financial backstop for Greece after the European part of its bailout expires at the end of this year.”Only once a staff-level agreement has been reached for the conclusion of the review can discussions on the follow-up to the program take place. The full staff mission will return to Athens as soon as the conditions are there,” Margaritis Schinas, chief spokesperson of the European Commission told CNBC.

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Power games save faces, but not countries.

Hanging Around: Why Abe’s Holding an Election in a Recession (Bloomberg)

The economy’s in recession, his support is sliding, and he has two years left in office with a big majority. Hardly surprising Japanese voters say they don’t understand why Prime Minister Shinzo Abe has called an election. Abe dissolved the lower house of parliament today for the vote to be held in mid-December. His coalition isn’t likely to lose its majority as the opposition is in disarray. A solid win now would snuff out potential threats from within his own party in a leadership election set for next year. Abe is taking a page out of his family’s history. His great-uncle Eisaku Sato, the longest-serving prime minister since the war, twice called early elections during his eight years in office from 1964-1972 to consolidate his grip on power.

While Abe has already closed the revolving door of one-year prime ministers that began with his own resignation in 2007, he needs to be seen as keeping his pledges to revive the economy to be able to challenge Sato’s record. “Tradition is that as soon as a prime minister’s popularity goes down, you put in another guy,” said Steven Reed, professor of political science at Chuo University in Tokyo. Each of the last six prime ministers “lost popularity rapidly because they didn’t keep any promises,” he said. The risk is that Abe’s plan backfires and he loses enough seats to fuel a challenge from his own allies, who in Japanese politics are often a more formidable threat to a sitting prime minister than the opposition. 63% of respondents in a Kyodo News poll yesterday said they didn’t understand his reasons for calling an election.

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Say sayonara Nippon.

Abe Listening to Krugman After Tokyo Limo Ride on Abenomics Fate (Bloomberg)

When Japanese economist Etsuro Honda heard that Paul Krugman was planning a visit to Tokyo, he saw an opportunity to seize the advantage in Japan’s sales-tax debate. With a December deadline approaching, Prime Minister Shinzo Abe was considering whether to go ahead with a 2015 boost to the consumption levy. Evidence was mounting that the world’s third-largest economy was struggling to shake off the blow from raising the rate in April, which had triggered Japan’s deepest quarterly contraction since the global credit crisis. Honda, 59, an academic who’s known Abe, 60, for three decades and serves as an economic adviser to the prime minister, had opposed the April move and was telling him to delay the next one. Enter Krugman, the Nobel laureate who had been writing columns on why a postponement was needed.

“That nailed Abe’s decision – Krugman was Krugman, he was so powerful,” Honda said in an interview yesterday in the prime minister’s residence, where he has an office. “I call it a historic meeting.” It was in a limousine ride from the Imperial Hotel — the property near the emperor’s palace that in a previous construction was designed by Frank Lloyd Wright — that Honda told Krugman, 61, what was at stake for the meeting. The economist, who’s now heading to the City University of New York from Princeton University, had the chance to help convince the prime minister that he had to put off the 2015 increase. Confronting Honda and fellow members of Abe’s reflationist brain-trust – such as Koichi Hamada, a former Yale University economist, and Kozo Yamamoto, a senior ruling-party lawmaker — were Ministry of Finance bureaucrats.

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Timing is everything. What year is today?

US Federal Reserve To Review How It Supervises Major Banks (Reuters)

The U.S. Federal Reserve said on Thursday it has launched a review of how it oversees major banks, calling on its inspector general to help with the probe after a series of critical reports. Separate studies to be undertaken by the Fed’s Washington-based Board of Governors and its Office of Inspector General are meant to ensure that “divergent views” about the state of large banks are adequately aired. The reviews will determine whether frontline supervisors and other officials at the regional Federal Reserve banks, as well as at the board level, “receive the information needed to ensure consistent and sound supervisory decisions,” the Fed said in a press release.

That includes being made aware of “divergent views” about a bank’s operations, a reference to criticism that supervisors at the Fed’s regional banks have sometimes suppressed the views of staff members considered too critical of the banks they examine. The issue will be the focus of a Senate Banking committee hearing on Friday that features New York Fed President William Dudley as the chief witness. Several Fed regional banks are involved in supervising the country’s 15 largest financial institutions, including Citigroup and Bank of America, that generally have more than $50 billion in assets. But the New York Fed in particular has come under fire for being lax with the banks it oversees and for not reacting forcefully enough in the run-up to the 2007-2009 financial crisis.

A recent inspector general’s report said supervision at the New York Fed was hampered by the loss of key personnel and an inadequate plan for succession into important positions. Secret recordings made by former New York Fed supervisor Carmen Segarra also portrayed the bank as cozy with major institutions like Goldman Sachs. In testimony prepared for the Senate hearing but released on Thursday afternoon, Dudley said “it is undeniable that banking supervisors could have done better in their prudential oversight of the financial system” in advance of the financial crisis.

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More Hugh. He has very original insights.

Hugh Hendry: “QE ‘Worked’ By Redistributing Wealth Not Creating It” (Zero Hedge)

Hendry: This is almost unparalleled in being the most exciting moment for global macro today. And I predicate that upon making an analogy with the Central Bank coordinated policy intervention, in the foreign exchange markets, after the Plaza Accord in, I believe, 1985. There was a profound unease at the current account and particularly the trade deficit that America was running up, especially against the Japanese, which was deemed to be contentious. The real economy is composed of slow-moving prices, wages are slow and the notion of having to wait for productivity improvements and wage price negotiations to work their course, via the U.S. corporate landscape in Japan, such as those deficits would be resolved successfully and become less politically contentious. It was just too long. Politicians just don’t have that time and so they jumped into the world of macro. Macro’s all about fast-moving prices. Foreign exchange is fast. Stock markets prices are fast.

So the notion then was that the Yen and the Deutschmark would appreciate. Now for hedge funds that was amazing. This is the period of the alchemy of finance, as George Soros has celebrated in very successful financial adventures. They just run the biggest long positions. No one stopped to say “Well, the Deutschmark’s getting expensive.” It didn’t really enter into the vernacular of trading in that market. It was macro, there was a policy impulse, a sponsorship by the world’s monetary authorities and you were trending and you had to have that position. By and large it succeeded. So what I would said to you today is that the policy response can’t be found in foreign exchange markets. It’s been muted somewhat by the “Beggar thy neighbour” way that everyone can pursue the same policy. So currencies, up until very lately, haven’t really moved that much. Instead the drama is unfolding in the stock market.

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Cameron keeps on losing against the EU.

Britain Abandons Banker Bonus Fight After EU Court Blow (Bloomberg)

Britain abandoned a bid to overturn a European Union ban on banker bonuses of more than twice fixed pay after it suffered a setback in the EU’s top court. Chancellor of the Exchequer George Osborne said he wouldn’t “spend taxpayers’ money” pursuing the legal challenge any further after Britain’s arguments were rebuffed by a senior official at the EU Court of Justice yesterday. The U.K. government will instead redirect its efforts toward countering the effects of the “badly designed rules,” which include an increase in bankers’ overall pay, Osborne said in a statement. The U.K. Treasury said it may be necessary to “develop standards that ensure that non-bonus or fixed pay is put at risk,” echoing remarks this week by Bank of England Governor Mark Carney.

U.K. banks face a running battle with regulators over the EU remuneration rules, with Barclays, HSBC, Lloyds and Royal Bank of Scotland among more than 30 lenders that have tried to circumvent it by introducing so-called role-based pay. The four banks declined to comment on the court opinion. The European Banking Authority, which brings together financial watchdogs from throughout the 28-nation EU, said in October that role-based allowances violate EU rules in “most cases,” and urged regulators to ensure compliance. Osborne and Carney have criticized the EU bonus curb as counterproductive. Britain started the legal fight against the measure last year.

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“Lethal assistance “remains on the table. It’s something that we’re looking at …”

Russia Warns US Against Supplying ‘Lethal Defensive Aid’ To Ukraine (RT)

Moscow has warned Washington a potential policy shift from supplying Kiev with “non-lethal aid” to “defensive lethal weapons”, mulled as US Vice President visits Ukraine, would be a direct violation of all international agreements. A Russian Foreign Ministry spokesperson said that reports of possible deliveries of American “defensive weapons” to Ukraine would be viewed by Russia as a “very serious signal.” “We heard repeated confirmations from the [US] administration, that it only supplies non-lethal aid to Ukraine. If there is a change of this policy, then we are talking about a serious destabilizing factor which could seriously affect the balance of power in the region,” Russian Foreign Ministry spokesman Aleksandr Lukashevich cautioned.

His remarks follow US deputy National Security Advisor Tony Blinken Wednesday’s statement at a hearing before the Senate Committee for Foreign Affairs, in which he said that Biden may offer the provision of “lethal defensive weapons” as he visits Ukraine. Lethal assistance “remains on the table. It’s something that we’re looking at,” Blinken said. “We paid attention not only to such statements, but also to the trip of representatives of Ukrainian volunteer battalions to Washington, who tried to muster support of the US administration,” Lukashevich said.

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Useful timeline.

EuroMaidan Anniversary: 21 Steps From Peaceful Rally To Civil War (RT)

Protesters who went out to Kiev’s Maidan Square exactly a year ago have their goal – a deal with the EU – achieved. However, they hardly expected the protest would also trigger a bloody civil war which has already claimed 4,000 lives. RT takes a look at the milestone events of the past 365 days, which brought Ukraine – and the world – to where it is now.

1) Then-President Victor Yanukovich’s unwillingness to sign an Association Agreement with the EU led to Maidan (Independence Square) in Ukraine’s capital Kiev filling with protesters on November 21, 2013. The rally participants were holding hands, waving flags and chanting slogans like “Ukraine is Europe!”

2) The brutal dispersal of a protest camp on the morning of November 30 was a turning point in the ensuing events. It’s still unclear whose idea it was to use force against demonstrators. Yanukovich laid the blame on the city’s police chief and sacked him. But that was not enough for the Maidan protesters, who switched from demands of signing the EU deal to calls for the toppling of the government.

3) Over the course of several weeks, which followed the face of Maidan started to change – peaceful protesters were more and more giving way to masked and armed rioters, often from far-right groups. A collective of radicals called the Right Sector were among the most prominent. Peaceful protests evolved into a continuous stand-off between the rallying people and riot police.

4) The deadliest day of the Maidan protests came on February 20 when over a hundred people were killed in the center of Kiev, most of them by sniper fire. The ongoing official investigation blamed a group of elite soldiers from the Berkut riot police for the killings. But there is a lingering suspicion that the massacre was committed by somebody among the anti-government forces.

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More secrets, just what the situation needed.

Dutch Government Refuses To Reveal ‘Secret Deal’ Into MH17 Crash Probe (RT)

The Dutch government has refused to reveal details of a secret pact between members of the Joint Investigation Team examining the downed Flight MH17. If the participants, including Ukraine, don’t want information to be released, it will be kept secret. The respected Dutch publication Elsevier made a request to the Dutch Ministry of Security and Justice under the Freedom of Information Act to disclose the Joint Investigation Team (JIT) agreement, along with 16 other documents. The JIT consists of four countries – the Netherlands, Belgium, Australia and Ukraine – who are carrying out an investigation into the MH17 disaster, but not Malaysia. Malaysian Airlines, who operated the flight, has been criticized for flying through a war zone.

Part of the agreement between the four countries and the Dutch Public Prosecution Service, ensures that all these parties have the right to secrecy. This means that if any of the countries involved believe that some of the evidence may be damaging to them, they have the right to keep this secret. “Of course [it is] an incredible situation: how can Ukraine, one of the two suspected parties, ever be offered such an agreement?” Dutch citizen Jan Fluitketel wrote in the newspaper Malaysia Today. Despite the air crash taking place on July 17 in Eastern Ukraine, very little information has been released about any potential causes. However, rather than give the public a little insight into the investigation, the Dutch Ministry of Security and Justice is more worried about saving face among the members of the investigation.

“I believe that this interest [international relations] is of greater importance than making the information public, as it is a unique investigation into an extremely serious event,” the Ministry added, according to Elsevier. Other reasons given for the request being denied included protecting investigation techniques and tactics as well as naming the names of officials who are taking part in the investigation. The Ministry said it would be a breach of privacy if they were revealed. “If the information was to be released then sensitive information would be passed between states and organizations, which would perhaps mean they would be less likely to share such information in the future,” said the Ministry of Security and Justice. Dutch MP Pieter Omtzigt, who is a member of the Christian Democratic Party, has made several requests for the information to be released to the public. “We just do not know if the Netherlands has compromised justice,” he said in reaction to the ministry’s decision. The MP was surprised that this agreement was even signed, never mind kept secret.

Read more …

Shiller is a blind man: “If we are to encourage dynamism, we need Keynesian stimulus and other policies that encourage creativity”.

Creativity, Companies, And The Wisdom Of Crowds (Robert Shiller)

Economic growth, as we learned long ago from the works of economists like MIT’s Robert M. Solow, is largely driven by learning and innovation, not just saving and the accumulation of capital. Ultimately, economic progress depends on creativity. That is why fear of “secular stagnation” in today’s advanced economies has many wondering how creativity can be spurred. One prominent argument lately has been that what is needed most is Keynesian economic stimulus – for example, deficit spending. After all, people are most creative when they are active, not when they are unemployed. Others see no connection between stimulus and renewed economic dynamism. As German Chancellor Angela Merkel recently put it, Europe needs “political courage and creativity rather than billions of euros.” In fact, we need both. If we are to encourage dynamism, we need Keynesian stimulus and other policies that encourage creativity – particularly policies that promote solid financial institutions and social innovation.

In his 2013 book Mass Flourishing, Edmund Phelps argues that we need to promote “a culture protecting and inspiring individuality, imagination, understanding, and self-expression that drives a nation’s indigenous innovation.” He believes that creativity has been stifled by a public philosophy described as corporatism, and that only through thorough reform of our private institutions, financial and others, can individuality and dynamism be restored. Phelps stresses that corporatist thinking has had a long and enduring history, going back to Saint Paul, the author of as many as 14 books of the New Testament. Paul used the human body (corpus in Latin) as a metaphor for society, suggesting that in a healthy society, as in a healthy body, every organ must be preserved and none permitted to die. As a public-policy credo, corporatism has come to mean that the government must support all members of society, whether individuals or organizations, giving support to failing businesses and protecting existing jobs alike.

Read more …

Throw a big number out there and see if it sticks.

China Starts $2 Trillion Leap Forward to Slash Pollution (Bloomberg)

China, which does nothing in small doses, is planning an environmental makeover in keeping with the political, cultural and market revolutions it has pursued over the past six decades. In his agreement last week with President Barack Obama, Chinese President Xi Jinping committed to cap carbon emissions by 2030 and turn to renewable sources for 20% of the country’s energy. His pledge would require China to produce either 67 times more nuclear energy than the country is forecast to have at the end of 2014, 30 times more solar or nine times more wind power – – more non-fossil fuel energy than almost the entire U.S. generating capacity. That means building roughly 1,000 nuclear reactors, 500,000 wind turbines or 50,000 solar farms. The cost will run to almost $2 trillion, holding out the potential of vast riches for nuclear, solar and wind companies that get in on the action.

“China is in the midst of a period of transition, and that calls for a revolution in energy production and consumption, which will to a large extent depend on new energy,” Liang Zhipeng, deputy director of the new energy and renewable energy department under the National Energy Administration, said at a conference in Wuxi outside of Shanghai this month. “Our environment is facing pressure and we must develop clean energy.” By last year, China had already become the world’s largest producer of wind and solar power. Now, with an emerging middle class increasingly outspoken about living in sooty cities reminiscent of Europe’s industrial revolution, China is looking at radical changes in how its economy operates. “China knows that their model, which has done very well up until recent times, has run its course and needs to shift, and they have been talking about this at the highest levels,” said Paul Joffe, senior foreign policy counsel at the World Resources Institute.

Read more …

Interesting concept: to meet official goals, ‘We’ll have to suck the carbon out of the air’. We won’t.

The Magical Thought That’s Assumed in Climate Studies (Bloomberg)

Here’s one way to phrase the basic climate change conundrum: There’s a huge gap between the volume of pollution emitted every year and how much scientists say we can safely send aloft. This has a weird implication for potential fixes governments may need in the future. Emission levels in 2020 could end up about 23% higher than what scientists suggest is safe, according to an annual study of the so-called “emissions gap” put out by the UN Environment Program. The carbon overshoot could grow by 2030 to 40%. “Safe” means what the UN-led climate negotiators have defined it to mean: warming of less than two degrees Celsius above global average temperatures from the beginning of the record, or around 1880. But two degrees doesn’t say much to normal people when you’re talking about the temperature of a planet. That’s why scientists have been beating their heads against walls the last several years to translate “two degrees Celsius” into something incrementally more intelligible – more intelligible even than 3.6 degrees Fahrenheit.

They’ve come up with the idea of a carbon budget, or the volume of pollution we can put into the atmosphere and still have a halfway decent chance of containing the problem. At the rate we’re going, the budget may burn up by the 2040s. Now, in finance, the notion of a budget deficit make sense. When someone overspends, he pays the money back at a later date. Ecological deficits make less sense. How do you pay the ground back in carbon minerals once they’ve been vaporized and are hanging in the atmosphere? Here’s what’s weird, what the Emissions Gap report calls out. It has to do with these “carbon deficits” that result. We’re burning through so much of the budget today that in “safe” projections of the 2070s and 2080s, greenhouse gas emissions must go negative for the climate to stay safe. Smokestacks will have to start inhaling rather than exhaling. We’ll have to suck the carbon out of the air, through reforestation or some as-yet unproven airborne-carbon removal technology.

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This is who we are. This is mankind.

Rhino Poaching Death Toll Reaches Record in South Africa (Bloomberg)

A record 1,020 rhinos have been killed by poachers for their horns in South Africa this year, more than all of 2013 and triple the number four years ago. Kruger National Park, a reserve the size of Israel, has seen 672 rhinos killed since Jan. 1. A total of 1,004 were slaughtered throughout the country in 2013, the Department of Environmental Affairs said today in a statement. The horns are more valuable than gold by weight. Prices for a kilogram of rhino horn range from $65,000 to as much as $95,000 in Asia. “The South African government recognizes that the ongoing killing of the rhino for its horns is part of a multi-billion dollar worldwide illicit wildlife trade and that addressing the scourge is not simple,” the department said. Demand for rhino horns has climbed in Asian nations including China and Vietnam because of a belief that they can cure diseases such as cancer.

South Africa has taken measures including setting up an protection zone within Kruger Park, using new technology, intelligence, and moving rhinos to safe areas within South Africa and other countries where they live. Poachers killed 333 rhinos in 2010 and 668 in 2012, Albi Modise, spokesman for the Department of Environmental Affairs, said today in a mobile-phone text message. “Government will continue to strengthen holistic and integrated interventions and explore new innovative options to ensure the long-term survival of the species,” the department said. Authorities have made a record number of arrests for poaching and related activities, according to the department. A total of 344 alleged rhino poachers, couriers and poaching syndicate members have been apprehended this year, compared with 343 in all of last year, Modise said. Most rhinos in South Africa are white rhinos, the bigger of the two types of the animal found in Africa. They can weigh more than 2 metric tons. The horns are largely made up of keratin, a substance similar to human hair.

Read more …

The world’s best economic analysts are two Australian comedians. Fitting.

Growth First. Then These Other Things Can Be Dealt With (Clarke&Dawe)

Read more …

Sep 142014
 
 September 14, 2014  Posted by at 6:24 pm Finance Tagged with: , , , , ,  


Harris & Ewing Children at water fountain, Washington, DC 1922

Before I get going, let me recommend two wonderful articles I put in today’s Daily Links list at The Automatic Earth. Which is updated every day around 8am Eastern Time, located at the top of every TAE page, and in more elaborate form, at bottom of the day’s essay; they are links to the things we ourselves read at a daily basis.

The first article is a piece by Umair Haque called The Rupture, in which he tries to put on words what is changing in our lives and our world, and how what we see happen today differs from what we once expected, or what most still expect but can no longer obtain. How our dream of eternal progress and growth has been shattered.

Please don’t miss either of the two pieces, you’ll find them more than worth your time.

The Rupture

The future isn’t one of unalloyed, golden progress anymore. Tomorrow is a tale of decline, degeneration, decay. Rupture. The future isn’t flying cars and food pills and a smarthome and a stable career and comfortable prosperity for every family anymore. Rupture.

The future looks more like this. A story of a burning planet, of imploding middle classes, of lost generations, of empty decades, of mass unemployment, of the rule of law breaking, of democracy cracking, of nations splintering, of tribes warring, of broken dreams, of Greater Depressions, of unending Stagnations, of human possibility itself shattering into a million million pieces. Rupture. The future isn’t the steady, forward march of human advancement anymore.

The second, h/t Stockman, is from Peter St. Onge at Mises, in which he presents what I find a lovely take on the Scotland referendum issue. St. Onge, who, like yours truly, was living in Montréal during the last Québec referendum in 1995, draws parallels between the two votes, and suggests two nice lines of thought: 1) smaller countries tend to be richer, and 2) smaller countries tend not to get involved with truly awful ideas – like war-.

Is Scotland Big Enough To Go it Alone?

Even on physical area Scotland’s no slouch: about the size of Holland or Ireland, and three times the size of Jamaica. The fact that Ireland, Norway, and Jamaica are all considered sustainably-sized countries argues for the separatists here. So small is possible. But is it a good idea? The answer, perhaps surprisingly, is resoundingly “Yes!” Statistically speaking, at least.

Why? Because according to numbers from the World Bank Development Indicators, among the 45 sovereign countries in Europe, small countries are nearly twice as wealthy as large countries. The gap between biggest 10 and smallest 10 ranges between 84% (for all of Europe) to 79% (for only Western Europe).

[..] Even among linguistic siblings the differences are stark: Germany is poorer than the small German-speaking states (Switzerland, Austria, Luxembourg, and Liechtenstein), France is poorer than the small French-speaking states (Belgium, Andorra, Luxembourg, and Switzerland again and, of course, Monaco). Even Ireland, for centuries ravaged by the warmongering English, is today richer than their former masters in the United Kingdom, a country 15 times larger.

Why would this be? There are two reasons. First, smaller countries are often more responsive to their people. The smaller the country the stronger the policy feedback loop. Meaning truly awful ideas tend to get corrected earlier. Had Mao Tse Tung been working with an apartment complex instead of a country of nearly a billion people, his wacky ideas wouldn’t have killed millions. Second, small countries just don’t have the money to engage in truly crazy ideas.

When it comes to the going going gone European economy – or economies -, all we can really say is that Europe only goes through the motions by now, because that’s all that it’s got left. Essentially, the old continent now scrambles to find ways to borrow money without adding debt.

And that idea, absurd as it is, apparently seems attractive to the ‘leadership’, edged on by ultra low interest rates. If Draghi can solemnly declare that the ECB funds rate is now 0.05%, they all start concocting plans to borrow. Because without borrowing, without added debt, they know they’re, for lack of a better term, screwed. Whereas at 0.05%, would could go wrong?

And that’s how you get to these, for lack of a better term, kinds of weird things:

Show Us The Money: EU Seeks Billions Of Euros To Revive Economy

The European Union sought ways on Saturday to marshal billions of euros into its sluggish economy without getting deeper into debt [..] EU finance ministers tasked the European Commission, the EU executive, and the European Investment Bank (EIB) to draw up a list of projects that would create growth and decide how to finance them.

“We have given a mandate to the Commission and the EIB to swiftly present an initial report on practical measures that can be taken, on profitable investment projects that are justifiable,” Italy’s economy minister, Pier Carlo Padoan, said.

To finance them, the ministers discussed four ideas: an Italian paper on new financing tools for companies, a Franco-German proposal on how to boost private investments, a Polish proposal on creating a joint EU fund worth €700 billion ($907 billion) and a call from incoming European Commission President Jean-Claude Juncker for a €300 billion investment program to revive the European economy.

The European Central Bank’s plan to resurrect a market for asset-backed securities would be another financing tool. “We don’t have a magic wand but we need growth,we need to stimulate demand without taking on debt,” France’s finance minister, Michel Sapin, told reporters. “We need the right mix of public and private money.”

That is a real desperate statement, “We don’t have a magic wand but we need growth”, only it’s not presented as such. It’s presented as just another difficulty that those smart boys who floated to the top will solve for you, you being the much less smart ‘peuple’. The problem, though, is not just that they can’t generate growth, and it’s not just that they don’t have a magic wand, the problem is they’re so desperate they’re more then willing to lie outright to their voters until the cows come home, and then sacrifice them on the altar of their own blind ambitions. It’s all just words, and then you die.

Investment is the new buzz word among ministers, overriding the German mantra of budget cuts. [..] German Finance Minister Wolfgang Schaeuble strongly supports the search for investment, but this week rebuffed calls for Berlin to spend more to boost the euro zone economy…

In a speech to the EU finance ministers in Milan on Thursday, ECB President Mario Draghi described business investment as “one of the great casualties” of the financial crisis, saying it has fallen 20% since 2008. “We will not see a sustainable recovery unless this changes,” he said.

Poland wants a ‘European Fund for Investments’ that would be able to finance, through leveraging its own capital, €700 billion worth of investment. The fund could be a special-purpose vehicle under the umbrella of the European Investment Bank, the EU bank owned by European governments.

Italy’s proposal is a pan-European market, where smaller companies can raise capital, building on its “minibond” legislation in 2012 that allows unlisted companies to issue. That could be part of a EU capital-market union, building on the eurozone’s banking union, but that will need to closely involve London, the leading financial center in Europe.

Did you catch that? “Leveraging its own capital”. That means going to the casino, having $1 in your pocket and putting $1000 on red. That’s what that means. We need growth, and we don’t have a magic wand, but we know a casino. It’s 2014, and when I hear European officials mention terms like “special-purpose vehicle”, I get chills down my spine.

These guys have no idea what they’re doing, but they do it anyway. Because they can. And because there’s nothing else in sight that would let them keep their jobs. They’s rather take your money and put it down at the crap table, than lose their own jobs and cushy plush positions. That is all this is really about.

Europe sees plummeting investments, refuses to wonder why that is happening, and goes to the slot machines to achieve growth, whatever it may mean and however long it may last. Even 5 minutes is deemed acceptable.

And lo and behold, from the deep burrows of highly indebted nothingness, they pretend they’ve found $1.3 trillion. Which they don’t have. But hey, we need growth, right?

ECB Cash Boost May Near $1.3 Trillion, Ex-Official Says

Banks are likely to take close to €1 trillion ($1.3 trillion) in cash auctions at the European Central Bank that begin this year, former Executive Board member Jose Manuel Gonzalez-Paramo said. “I would not be surprised if we see between €700 billion and €900 billion,” in the so-called TLTRO (Targeted Long Term Refinance Operation ) operations that start on Sept. 18, said Gonzalez-Paramo [..]

“The banks are quite happy to request this money, and they are willing to lend. The take-up in Spain could be big.” [..] After a rate cut this month, the TLTRO offer, which is tied to banks’ lending performance, became even more attractive as the funds are lent for four years at the rate prevailing on auction day plus 10 basis points.

The first of two initial operations is alloted on Sept. 18, the second on Dec. 11, and thereafter banks can bid in quarterly operations until June 2016. “You see demand for credit increasing in the case of Spain,” Gonzalez-Paramo said in a Sept. 11 interview in Milan. The ECB’s latest rate cut is “positive, in terms of making the TLTROs more of a success, because now the takeup I think is assured to be on the high side.”

If by now you’re thinking this is absolute gibberish, don’t think there’s anything wrong with you. It is gibberish. Europe’s in a deep debt hole, and all this stuff will achieve is to dig it in deeper. It’s just that to acknowledge that would cost all these primate clowns their coveted seats high up there in the most coveted trees.

The TLTROs are the first shot in a volley of stimulus driven by ECB President Mario Draghi this year. In addition to the liquidity support, the ECB will also start buying asset-backed securities and covered bonds. Draghi said yesterday that the aim is to return the central bank’s balance sheet to the early-2012 level of about €3 trillion.

Right. The central bank balance sheet. It’s how Japan, China and the US keep their economies ‘presentable’ despite the mountains of debt they’re buried in, so why not Europe? Well, maybe because Germany, they only country left that’s not gone full retard Keynes, doesn’t want it.

But Germany may soon be moved out of position by a ‘clever’ redifining of terms, by Mario Draghi, jockeying for position to become Italy’s next best duce, in what can only be described as pure semantics.

Draghi Says ABS Plan Will Proceed Without Government Guarantees

Mario Draghi said his plan to purchase higher quality asset-backed securities will proceed even if support from EU leaders to extend it to riskier debt isn’t forthcoming. “The program is primarily oriented to the purchase of senior tranches; only if it’s going to be extended to mezzanine tranches is there going to be a need for guarantees,” he said at a press conference …

Translation: the ECB doesn’t need permission for what is still considered good assets. But they are actively thinking about moving into toilet paper. Why? Because that’s all there’s left. But they need governments (yes, that would be taxpayers) to guarantee losses on soiled toilet paper.

“It’s going to be much more effective at facilitating credit expansion with also the mezzanine component, and for that we’ll need a guarantee.” To boost slowing euro-area inflation and spur credit, the ECB said this month it will buy ABS and covered bonds in the latest of a series of stimulus measures that included rate cuts and cheap loans to banks. Draghi pledged to buy senior tranches of “simple” and “transparent” ABS, adding that lower-ranking mezzanine tranches could also be part of the purchase plan provided public guarantees were in place.

Translation: without toilet paper, no growth.

Draghi has said details of the ABS plan will be announced after the next monetary policy meeting on Oct. 2. While euro-area governments have expressed support for reviving securitization in the region, they’ve stopped short of pledging new fiscal backing for the ECB’s plan. “If I understand the program correctly, it’s non-discriminatory, it’s open to all countries and all financial institutions, so it could also open to Dutch banks,” Dutch finance minister Jeroen Dijsselbloem said at the same press conference. “Do I support additional guarantees from the government on these products? The answer would be no.”

Translation: Holland doesn’t want to buy used toilet paper.

If the central bank were to buy mezzanine tranches, it could mean banks have to hold lower provisions against the asset, increasing the amount of cash at their disposal. European regulators have required banks to treat ABS as relatively high-risk since the asset class was blamed for helping fuel the financial crisis. “In the meantime and independently, there will be some regulatory evolution in the way ABS are treated,” Draghi said. “The ABS program will be launched regardless of whether there are guarantees or not.”

But if Draghi buys the stuff, the banks who are loaded beyond their necks with the ‘asset’, can use it as collateral to borrow even more. And then house prices across Europe drop. And then all those rich people in Greece, Spain, Portugal etc. will have to make up the difference.

Sounds like a plan to me. All it takes is semantics: what you need is someone to change the definition of what a central bank, or pension fund, can buy, and you‘re off to the races. In the end, everything is just semantics. As long as Draghi is willing to buy worthless paper from banks, why would anyone think there’s a crisis at all?

For a while, it is indeed possible to transfer private debt to the public sector (and that’s what this is, obviously). You just call a spade a dinner table, and a cow a bathroom mirror. Semantics. But only the very thick amongst us will think that doesn’t make problems much worse down the road.

Draghi simply changes the definitions of what he can buy or not, and Angela Merkel lets it go until some clever kraut picks up on it and protests. Great basis for a strong and decisive economic policy. If and when Mario claims that someting, anything, is a ‘security’, it magically is. It’s the emperor’s new clothes all over again. And why does it work? Because the US, China and Japan do it too. All it really takes is access to your taxpayers’ wallets.

Big Guns Fail To Halt Scottish Independence Bandwagon (Guardian)

The 307-year-old union between Scotland and England hangs by a thread as a fresh Guardian/ICM poll put the yes vote in next week’s referendum just two percentage points behind those supporting no. Despite an intense week of campaigning by pro-union politicians and repeated warnings from business, the poll out on Friday found support for the no campaign on 51% and with yes on 49%, once don’t knows were excluded. The Guardian/ICM poll is based on telephone interviews conducted between Tuesday and Thursday, the first such survey ICM has conducted during the campaign. Previous polls suggesting that the race for Scotland was too close to call have been based on internet-based surveys. The headline figures exclude the 17% of voters in Scotland who ICM found were still undecided a mere week before polling day, a substantial proportion that gives the pro-UK campaign hope that it could arrest September’s surge in support for independence.

Alex Salmond, the SNP leader and first minister, said he was now “more confident than ever” that Scotland would vote yes on 18 September. “Despite Westminster’s efforts we’ve seen a flourishing of national self-confidence,” he said. “It’s this revival in Scottish confidence that tells me we’ll make a great success of an independent Scotland.” At a rally with former prime minister Gordon Brown in Glasgow on Friday night, Labour leader Ed Miliband reached out to the 29% of Labour voters who told ICM they planned to vote yes next week. He said only a no vote could guarantee that Scotland had the money to protect the NHS. “With a vote for no, change is coming with more powers on tax and welfare for a stronger Scotland,” he said. “Change is coming faster with a devolution delivery plan beginning the day after the referendum. And better change, faster change, safer change is the message we will take on to the streets and the doorsteps in the last few days of the campaign.”

Read more …

Free Nelson Mandela too!

Europe Fears Scottish Independence Contagion (AFP)

The prospect of Scottish independence is raising fears in Europe that it could inflame other separatist movements at a time when the continent’s unity and even its borders are under threat, analysts say. While nationalists from Catalonia to Flanders will watch Scotland’s referendum with hope, Brussels is nervous about the possibility of a major European Union member like Britain falling apart. The fear of contagion spreads as far as the EU’s eastern frontier, where the Baltic countries worry that Moscow will back their ethnic Russian citizens who could then claim more autonomy. But while the EU might initially make life difficult for a new Scottish nation, it would most likely allow it to join the bloc eventually, experts said. “It is a very difficult situation for the EU if Scotland becomes independent, it really is,” Pablo Calderon Martinez, Spanish and European Studies fellow at King’s College London, told AFP.

The EU already has a lot on its plate as it tackles a stalled economy and high unemployment, and has insisted in recent days that the Scottish vote is an “internal matter.” But European Commission chief Jose Manuel Barroso made the position clear in 2012: any newly independent country emerging from an EU nation would no longer be part of the bloc, and would have to reapply for membership. Barroso outraged nationalists in February when he said it would be “extremely difficult” for Scotland to gain automatic membership, comparing it to Kosovo, which broke away from Serbia. European Council president Herman Van Rompuy meanwhile weighed in on Catalonia in December, saying he was “confident” Spain would remain “united and reliable.”

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Never. Got that? Yes or no, there’s no way back.

After Thursday, Britain Will Never Be The Same Again (Observer)

On Thursday, Scotland will take a decision of seismic consequence for the 307-year-old union. Tempered and tested by the Industrial Revolution, the empire, the carnage of war, the birth of the welfare state, it is a union that has been strengthened by the mutual inventiveness and talents of complementary identities. It has been pluralistic, democratic, multicultural, tolerant (mostly), enlightened (for the most part), liberal. As political unions go, it has been a remarkably successful one. But whatever the decision on Thursday, the result should act as a catalyst for change, a harbinger of constitutional shifts for the whole of Great Britain. The Scottish people set out on this journey alone – but they have unwittingly taken on board passengers from the rest of the union. When Gordon Brown – backed by the three Westminster party leaders – last week promised Scotland “nothing less than a modern form of home rule” if the vote is no, it signalled that the constitutional make-up of these islands is about to change irrevocably.

Ed Miliband goes further: writing for this paper today, he suggests that were he to become prime minister the union would undergo fundamental change. “Scotland’s example will lead the way in changing the way we are governed in England too, with the devolution we need to local government from Cornwall to Cumbria.” Few, if any, people were talking about devolved powers to Cumbria or Cornwall two weeks ago. It is a sign that, regardless of the outcome on Thursday, the first minister, Alex Salmond, has already won a significant victory. The decision by the three main Westminster parties – spooked by a poll showing the yes campaign in the lead – to make significant promises of more devolved power revealed how remote they are from the political and cultural winds swirling in Scotland. Cameron, Miliband and Clegg had 18 months but they waited until the last 10 days to spell out just how profound devolution could be. It wasn’t a terrific advertisement for how well the union is working.

Read more …

Love it.

Is Scotland Big Enough To Go it Alone? (Mises.org)

As Scotland goes to the polls to decide on its separation from the United Kingdom, the tone of the campaign is, again, high on passion and, again, secessionists are inching toward the magical 50% line. But don’t uncork the single malt quite yet: as of today (September 2, 2014), bookies in London still put the odds at 4-to-1 against the non-binding referendum. But it remains a real possibility. One core debate is whether Scotland is too small and too insignificant to go it alone. During the Quebec referendum there was a nearly-identical debate, with secessionists arguing that Quebec has more people than Switzerland and more land than France, while federalists preferred to compare Quebec to the US or the “rest-of-Canada” (ROC, in a term from the day).

In a curious coincidence, 2014 Scotland and 1994 Quebec have nearly the same population: about 5–6 million. About the same as Denmark or Norway, and half-a-million more than Ireland. Even on physical area Scotland’s no slouch: about the size of Holland or Ireland, and three times the size of Jamaica. The fact that Ireland, Norway, and Jamaica are all considered sustainably-sized countries argues for the separatists here. So small is possible. But is it a good idea? The answer, perhaps surprisingly, is resoundingly “Yes!” Statistically speaking, at least. Why? Because according to numbers from the World Bank Development Indicators, among the 45 sovereign countries in Europe, small countries are nearly twice as wealthy as large countries. The gap between biggest-10 and smallest-10 ranges between 84% (for all of Europe) to 79% (for only Western Europe).

This is a huge difference: To put it in perspective, even a 79% change in wealth is about the gap between Russia and Denmark. That’s massive considering the historical and cultural similarities especially within Western Europe. Even among linguistic siblings the differences are stark: Germany is poorer than the small German-speaking states (Switzerland, Austria, Luxembourg, and Liechtenstein), France is poorer than the small French-speaking states (Belgium, Andorra, Luxembourg, and Switzerland again and, of course, Monaco). Even Ireland, for centuries ravaged by the warmongering English, is today richer than their former masters in the United Kingdom, a country 15 times larger. Why would this be? There are two reasons. First, smaller countries are often more responsive to their people. The smaller the country the stronger the policy feedback loop. Meaning truly awful ideas tend to get corrected earlier.

Had Mao Tse Tung been working with an apartment complex instead of a country of nearly a billion-people, his wacky ideas wouldn’t have killed millions. Second, small countries just don’t have the money to engage in truly crazy ideas. Like Wars on Terror or world-wide daisy-chains of military bases. An independent Scotland, or Vermont, is unlikely to invade Iraq. It takes a big country to do truly insane things. Of course there are many short-term issues for the Scots to consider, from tax and subsidy splits, to defense contractors relocating to England. And, of course, the deep historico-cultural issues that an America of Franco-British descent should best sit out. Still, as an economist, what we can say is that Scotland’s big enough to “survive” on its own, and indeed is very likely to become richer out of the secession. Nearer to the small-is-rich Ireland than the big-but-poor Britain left behind.

Read more …

Fate of United Kingdom Hangs In Balance After New Scotland Polls (Reuters)

The fate of the United Kingdom remained unclear five days before a historic referendum on Scottish independence as three new polls on Saturday showed a slight lead for supporters of the union, but one saying the separatist campaign was pulling ahead. On the final weekend of campaigning, tens of thousands of supporters of both sides took to the streets of the capital Edinburgh and Scotland’s largest city, Glasgow. Rival leaders worked across the country to convince undecided voters. At stake is not just the future of Scotland, but that of the United Kingdom, forged by the union with England 307 years ago. The battle also took a bitter turn on Saturday when a senior nationalist warned businesses such as oil major BP that they could face punishment for voicing concern over the impact of a secession.

The economic future of Scotland has become one the most fiercely debated issues in the final weeks of impassioned debate. Nationalists accuse British Prime Minister David Cameron of coordinating a scare campaign by business leaders aimed at spooking voters, while unionists say separation is fraught with financial and economic uncertainty. But former Scottish Nationalist Party deputy leader Jim Sillars went much further than separatist leader Alex Salmond, warning that BP’s operations in Scotland might face nationalisation if Scots voted for secession on Thursday. “This referendum is about power, and when we get a ‘Yes’ majority we will use that power for a day of reckoning with BP and the banks,” Sillars, a nationalist rival of Salmond’s, was quoted by Scottish media as saying.

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Word.

‘Cool’ London Is Dead, And The Rich Kids Are To Blame (Telegraph)

I have seen the future – and the future is Paris and Geneva. The future is a clean, dull city populated by clean, dull rich people and clean, dull old people. The future is joyless Michelin starred restaurants and shops selling £3,000 chandeliers. In the 1990s, we accidentally stumbled upon the formula for a perfect city. Exactly halfway between East and West, serious history, attractive (but not chocolate-boxy), English-speaking, and a capital for the creative industries and financial services. Better still, years of decline and depopulation had left vast central swathes of the city very affordable. So, the cool kids piled in. And, suddenly, a rather grey, down-at-heel capital, a place that had never quite quite recovered from losing an Empire (and winning a war) began to swing again. Back then we all lived in central London, because we all could. It was normal to leave university and get a flat with your mates in Marylebone or Maida Vale or Primrose Hill or Notting Hill. Not because we were rich, but because London was cheap.

And it felt fantastic. Here was a city whose fortunes were reviving and, as 20-somethings, ready to make our mark on the world, we really were bang in the middle of things. Two decades on and you can play a nostalgic little game where you remind yourself what groups London’s inner neighbourhoods were known for 20 years ago. Hampstead: intellectuals; Islington: media trendies; Camden: bohemians, goths and punks; Fulham: thick poshos who couldn’t afford Chelsea; Notting Hill: cool kids; Chelsea: rich people. Now, every single one of these is just rich people. If you want to own a house (or often just a flat) in these places, you need a six figure salary or you can forget it. And, for anyone normal, that means working in finance. As for the bits of London that always were rich – Mayfair, Chelsea and Kensington, they’ve moved up to the next level. Ultra-prime central London is fast becoming a ghost-town where absentee investors park their wealth. As some wag put it, houses in Mayfair are now bitcoins for oligarchs.

So, what does this have to do with Paris and Geneva? The answer is that both are places where the rich have socially cleansed the centres. Inner Paris is a fairytale for wealthy people in their fifties (and outer Paris looks like Stalingrad with ethnic strife) while Geneva has dispensed with the poor altogether. As a result, both cities are safe, pretty and rather boring places to live – and soon London will be too. Why? Because the financiers who can afford inner London neighbourhoods are not cool. Visit Canary Wharf at on any weekday lunchtime and watch the braying, pink-shirted bankers disporting themselves. Not cool. Peruse the shops at Canary Wharf. From Gap to Tiffany’s, they’re all chains stores and you could be anywhere wealthy, safe and dull in the world. Rich people like making money and spending it on dull, expensive things. That’s what they do – and they’re very good it. But being a high-end cog in the machine is not cool.

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Never’s a bit much, perhaps.

America’s Poor Have Never Been Deeper In Debt (Zero Hedge)

Ever since the Lehman bankruptcy, one of the main reasons given by the perpetual apologists about why i) the so-called “recovery” has been the worst in US history and ii) the Fed has been “forced” to conduct 6 years of wealth transferring policies, boosting the stock market to all time highs and creating a record wealth split in US society between the super rich and everyone else (one that surpasses even that seen during the roaring 20s) is that the US consumer, scarred by the economic crash, has been rushing to deleverage and dump as much debt as possible. There are two problems with that story:

First, as we first pointed out in 2012, US households are not deleveraging, they are defaulting, a huge difference which goes to motive and intent, and shows that instead of actively paying down debt households are instead loading up on as much debt as they can, which at some point they simply stop servicing (for a detailed analysis of this disturbing trend, read our series on the student loan bubble).

Second, when it comes to the poorest quartile of US society, some 14 million people, it is dead wrong. In fact, as the Fed’s triennial Survey of Consumer Finances, released last week showed, America’s poorest have never been more in debt! As usual, the full story is one of nuances. As Bloomberg reports, as a result of the first point – mass defaults – US household debt has indeed declined on an average basis. Indeed, average debt burden for all families stood at about 105% of pretax income in 2013, down from about 125% in 2010 and the lowest level since the 2001 survey. Of course, since economists are unable to grasp the difference between default and deleveraging, one look at the chart above gives them reason for hope. As Bloomberg summarizes:

The improved finances, along with more recent signs that consumers are feeling comfortable about borrowing again, has given some economists cause for optimism: The more progress households make in getting out from under their debts, the logic goes, the greater the chances that renewed spending will boost growth.

In reality, the “improved finances”, namely those tens of trillions in financial assets that have been artificially reflated courtesy of the Fed’s monetary policies, have benefited the tiniest sliver of US society – about 1% or less depending on whose calculations one uses. Everyone else, the bulk of US society, was forced to simply stop paying down their credit card and thus “delever.”

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Chinese Growth Slows Most Since Lehman; Electric Output Shrinks (Zero Hedge)

While China may have mastered the art of goalseeking GDP, always coming within 0.1% of the consensus estimate, usually to the upside, even if the bogey has seen dramatic declines in the past few years, dropping from double digit annualized growth to just 7.5% currently and the projections hockey stick long gone… it may need to expand its goalseek template to include the other far more important measure of Chinese economic activity, such as Industrial production, retail sales, fixed investment, and even more importantly – such key output indicators as Cement, Steel and Electricity, because based on numbers released overnight, the Q2 Chinese recovery is now history (as the credit impulse of the most recent PBOC generosity has faded, something we have discussed in the past), and the economy has ground to the biggest crawl it has experienced since the Lehman crash.

What’s worse, and what we predicted would happen when we observed the collapse in Chinese commodity prices ten days ago, capex, i.e. fixed investment, grew at the slowest pace in the 21st century: the number of 16.5% was the lowest since 2001, and suggests that the commodity deflation problem is only going to get worse from here. As JPM summarized earlier today, pretty much every economic data release was a disaster, missing consensus significantly, and suggesting GDP is now trending at an unprecedented sub-7%.

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Read her!

This Changes Everything: Capitalism vs. the Climate (Naomi Klein)

I denied climate change for longer than I care to admit. I knew it was happening, sure. But I stayed pretty hazy on the details and only skimmed most news stories. I told myself the science was too complicated and the environmentalists were dealing with it. And I continued to behave as if there was nothing wrong with the shiny card in my wallet attesting to my “elite” frequent-flyer status. A great many of us engage in this kind of denial. We look for a split second and then we look away. Or maybe we do really look, but then we forget. We engage in this odd form of on-again-off-again ecological amnesia for perfectly rational reasons. We deny because we fear that letting in the full reality of this crisis will change everything. And we are right. If we continue on our current path of allowing emissions to rise year after year, major cities will drown, ancient cultures will be swallowed by the seas; our children will spend much of their lives fleeing and recovering from vicious storms and extreme droughts. Yet we continue all the same.

What is wrong with us? I think the answer is far more simple than many have led us to believe: we have not done the things needed to cut emissions because those things fundamentally conflict with deregulated capitalism, the reigning ideology for the entire period we have struggled to find a way out of this crisis. We are stuck, because the actions that would give us the best chance of averting catastrophe – and benefit the vast majority – are threatening to an elite minority with a stranglehold over our economy, political process and media. That problem might not have been insurmountable had it presented itself at another point in our history.

But it is our collective misfortune that governments and scientists began talking seriously about radical cuts to greenhouse gas emissions in 1988 – the exact year that marked the dawning of “globalisation”. The numbers are striking: in the 1990s, as the market integration project ramped up, global emissions were going up an average of 1% a year; by the 2000s, with “emerging markets” such as China fully integrated into the world economy, emissions growth had sped up disastrously, reaching 3.4% a year. That rapid growth rate has continued, interrupted only briefly, in 2009, by the world financial crisis. What the climate needs now is a contraction in humanity’s use of resources; what our economic model demands is unfettered expansion. Only one of these sets of rules can be changed, and it’s not the laws of nature.

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Naomi Klein: Richard Branson Cheats On Climate Change Pledge (Guardian)

Richard Branson has failed to deliver on his much-vaunted pledge to spend $3bn (£1.8bn) over a decade to develop a low carbon fuel. Seven years into the pledge, Branson has paid out only a small fraction of the promised money – “well under $300m” – according to a new book by the writer and activist, Naomi Klein. The British entrepreneur famously promised to divert a share of the profits from his Virgin airlines empire to find a cleaner fuel, after a 2006 private meeting with Al Gore. Branson went on to found a $25m Earth prize for a technology that could safely suck 1bn tons of carbon a year from the atmosphere. In 2009, he set up the Carbon War Room, an NGO which works on business solutions for climate change. But by Klein’s estimate, Branson’s “firm commitment” of $3bn failed to materialise.

“So the sceptics might be right: Branson’s various climate adventures may indeed prove to have all been a spectacle, a Virgin production, with everyone’s favourite bearded billionaire playing the part of planetary saviour to build his brand, land on late night TV, fend off regulators, and feel good about doing bad,” Klein writes in This Changes Everything, Capitalism vs The Climate. Klein uses Branson and other so-called green billionaires – such as the former New York mayor, Michael Bloomberg – as case studies for her argument that it is unrealistic to rely on business to find solutions to climate change. Branson routed a first pay-out of his $3bn commitment, about $130m, through a new Virgin investment company into corn ethanol. The fuel has now been widely discredited as a greener alternative to fossil fuels, because of its climate change impacts and for driving up the cost of food.

Virgin went on to look at other biofuels, at one point exploring a project to develop jet fuel from eucalyptus trees. “But the rest of its investments are a grab bag of vaguely green-hued projects, from water desalination to energy efficient lighting, to an in-car monitoring system to help drivers conserve gas,” Klein writes. By last year, the total of those investments, in corn ethanol and elsewhere, amounted to about $230m, she estimates. Branson made an additional small investment in an algae fuel company, Solazyme. But Branson still puts the total spend at well under $300m – just a tenth of his $3bn pledge.

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Where’s my Trojan Horse?

Luhansk To Start Distributing Russian Aid Monday, Trucks Return Home (RT)

The last truck from Russia’s second humanitarian aid convoy to the Eastern Ukrainian city of Lugansk has returned home after delivering its cargo. All vehicles had reached the Ukrainian-Russian border without incidents and the last of them crossed the border in the direction of Russia at around 6:30 pm local time. Early on Saturday, a convoy of 245 trucks colored in white paint crossed the border and headed to Lugansk to bring much needed relief supplies to the residents of the war-torn city. The 2,000 tons of Russian humanitarian aid include food, power generators, water purification systems, medicine and blankets. The convoy was welcomed by the population of Lugansk as people lined up on the sides of the roads and waved Russian flags. After unloading in Lugansk, the trucks made their way back to Russia’s Rostov region, which is bordering Ukraine.

The second Russian convoy has arrived just in time as the city almost ran out of first batch of humanitarian aid delivered on August 22, Valery Potapov, deputy prime minister of the self-proclaimed People’s Republic of Donetsk, said. “The supplies from the first convoy have almost ended. We still have a small amount of canned meat, but we had to use our own stock to provide people with sugar and cereal,” Potapov told RIA-Novosti news agency. The handout of the aid to the people will begin in Lugansk on Monday, he said. Potapov added that its “more or less calm [in Lugansk] because of the so-called the cease-fire” and “people began returning (to their homes) en masse”, which makes it difficult to predict how long the aid will last.

Meanwhile, Ukraine claimed that the second Russian humanitarian aid convoy entered the country illegally. Ukrainian border officials were not allowed to inspect the cargo, Col. Andrey Lysenko, spokesman for Ukraine’s National Security Council, said. But Russia’s Federal Security Service has denied the claims, saying that it offered full cooperation to the Ukrainian side. “We repeatedly suggested that Ukrainian border guards and customs officers take part in inspections of a humanitarian convoy that was passing through border and customs control at the Donetsk border-crossing point, but the Ukrainian side rejected the offer,” Nikolay Sinitsyn, a spokesman for the FSB’s border department in the southern Russian Rostov region, said.

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Modern democracy.

Ukraine’s Party of Regions Refuses to Participate in Rada Elections (RIA)

The Ukrainian Party of Regions is not planning to take part in the elections to the country’s parliament, Verkhovna Rada, scheduled for October 26, the Ukrainian Party of Regions deputy Mykhailo Chechetov told RIA Novosti. “The Party of Regions made a decision not to participate in the elections. That is why if the elections will still take place and Donbas will not vote, than, in the given circumstances we will be saying that the level of legitimacy [of the elections] does not meet the people’s expectations,” Chechetov said.
On August 27, Ukrainian President Petro Poroshenko signed a decree, dissolving the country’s parliament and setting new elections for October 26. Following his election on May 25 Poroshenko has repeatedly highlighted the need to hold early parliamentary elections, saying the current composition fails to represent the interests of Ukrainian society. A

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Enron Buster Is Back at Justice and Taking Aim at Real People (Bloomberg)

Lawmakers, in what has become something of a Washington ritual, criticized the Justice Department this week for not holding individual bankers to account for the financial crisis. So, the Justice Department has given the job to Godzilla. Leslie Caldwell, the prosecutor who led the government’s prosecution of Enron Corp., took over the Justice Department’s Criminal Division in June after a decade in private practice. Among her priorities, she says, is focusing on the individual actors behind corporate wrongdoing. “Certainly, there are cases where you also want to prosecute the company,” Caldwell said in an interview last week. “But I think you get the best outcome – really across the board in terms of deterrence, in terms of the message to the public – when you prosecute individuals.” Caldwell’s predecessor was accused by lawmakers and the public of not doing enough to convict Wall Street bankers who securitized and sold low-quality mortgages, helping precipitate the financial crisis of 2008.

The government has won multibillion-dollar settlements from some of the world’s largest banks, only to see their shares rise and their executives win higher bonuses. Caldwell herself has been accused of getting the balance wrong between corporate and individual accountability. To hear critics tell it, it was an overzealous prosecution overseen by Caldwell that brought down accounting firm Arthur Andersen. Under Caldwell, the Justice Department’s Enron task force generated dozens of prosecutions. Early in that probe, federal prosecutors won an indictment of Arthur Andersen for shredding massive amounts of Enron-related paperwork — a move that led to the firm’s collapse and the loss of tens of thousands of jobs. When Caldwell returned to Justice in June, an editorial in Investor’s Business Daily declared: “The Justice Department Unleashes a Godzilla on business.”

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Uglier still.

NSA, GCHQ Have Secret Access To German Telecom Networks: Spiegel (RT)

US and UK intelligence services have secret access points for German telecom companies’ internal networks, Der Spiegel reports, citing slides created in the NSA’s ‘Treasure Map’ program used to get near-real-time visualization of the global internet. The latest scandal continues to evolve around the US’ NSA and the British GCHQ, both of which appear to be able to eavesdrop on German giants such as Deutsche Telekom, Netcologne, Stellar, Cetel and IABG network operators, according to Der Spiegel’s report based on material disclosed by Edward Snowden. The Treasure Map program, dubbed “the Google Earth of the Internet,” allows the agencies to expose the data about the network structure and map individual routers as well as subscribers’ computers, smartphones and tablets. The German telecoms had “access points” for technical supervision inside their networks, marked as red dots on such a map, shown on one of the leaked undated slides, Spiegel reports, warning it could be used for planning sophisticated cyber-attacks.

The Treasure map, first mentioned by the New York Times last year, provides “a near real-time, interactive map of the global Internet,” offering a “300,000 foot view of the Internet,” as it gathers Wi-Fi network and geolocation data as well as up to 50 million unique Internet provider addresses. The Federal Office for Information Security (BSI) spokesman told the DPA news agency that the Federal Office for the Protection of the Telekom has been informed, and that the authorities are analyzing the situation. One of the companies, Stellar, meanwhile voiced fury over US and British spying. “A cyber-attack of this kind clearly violates German law,” said one if its heads. Deutsche Telekom and Netcologne said they had not identified any data breaches but Deutsche Telekom’s IT security chief Thomas Tschersich said, that the “access of foreign secret services to our network would be totally unacceptable.” “We are looking into any indication of a possible manipulation. We have also alerted the authorities,” he stated.

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The Rupture (Umair Haque)

Every age has a story it tells about the end of the world. And every age’s story about the end of the world tells us something; not about how the world will end; but about how that age already is. We call those stories eschatologies. I want to tell you a story, too, in this little essay. Of an eschatology. Our eschatology. Remember our collective vision of the future? Imagine the Jetsons. Imagine high modernism. Imagine Mad Men. The perfect suits, the immaculate hair, the endless cocktails, the towering city, the secret affairs, the endless desire. The gleaming seduction of a better tomorrow. What is the future? We thought—no, we believed, with all our might—that the world would inexorably be moved, by our might. In a single direction. The direction of human progress. We were true believers in a faith. That the right, true, and inescapable trajectory of mankind was forward. It was an idea born in the high industrial age. The machine. The factory. The gear. The sudden, furious birth of plenty.

Like a supernova going off in the heart of a human world that hadn’t changed for millennia. Suddenly, we had more than we could imagine. And we thought: this was the future. The right, noble, just, future. Maybe Nietzsche was right. God was dead. But who needed God? We had forged this wondrous future. Through the sweat of our brows and the might of our faith. And so how was it anything less than destined? Fuck Providence. We were something bigger than providence. We were destiny. This was how the future was meant to be. And so this was how the future would surely always be. And then. Something went wrong. It’s hard to say how. But. The future broke. Rupture. The Rupture is the future slowing, stopping, winding down. Fracturing; splitting apart; coming undone. It is the future ending, collapsing, breaking. Once, we subscribed to a naive view of historical progress. That humanity marched forwards into a place we called the “future”. The future stopped happening. For most of us. We got left behind by it.

The future isn’t one of unalloyed, golden progress anymore. Tomorrow is a tale of decline, degeneration, decay. Rupture. The future isn’t flying cars and food pills and a smarthome and a stable career and comfortable prosperity for every family anymore. Rupture. The future looks more like this. A story of a burning planet, of imploding middle classes, of lost generations, of empty decades, of mass unemployment, of the rule of law breaking, of democracy cracking, of nations splintering, of tribes warring, of broken dreams, of Greater Depressions, of unending Stagnations, of human possibility itself shattering into a million million pieces. Rupture. The future isn’t the steady, forward march of human advancement anymore. What is “declining”? Constitutional democracy, opportunity, mobility, material prosperity, law, equity, fairness, a sense of meaning in life…hope for the future. Rupture.

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Quite a tale.

California Solar Projects Plan Undergoing Major Overhaul (SFGate)

With billions of dollars in federal stimulus money in hand, the Obama administration set out five years ago on a grand experiment in the California desert. The goal: Open public lands to renewable-energy development to wean the nation from fossil fuels. The results haven’t been pretty, a fact the administration has tacitly acknowledged by devising a new plan, expected to be released this month, to find better places to put industrial-scale solar farms in the California desert. Quoting songwriter Joni Mitchell in a speech describing the new approach, Interior Secretary Sally Jewell said, “You don’t know what you’ve got till it’s gone.” The solar plants were rushed through the environmental approval process. Miles of unspoiled desert lands were scraped and bulldozed to make way for sprawling arrays of solar panels.

Desert tortoises required mass relocation, and kit fox burrows were destroyed. Surprise troves of American Indian artifacts found in the Mojave Desert were moved to a San Diego warehouse, where they remain. And once it was built, the largest solar plant of its kind in the world – the Ivanpah installation in the Mojave – began igniting birds and monarch butterflies that fly through intensely concentrated, reflected sunbeams aimed at 40-story “power towers,” according to a confidential report by federal wildlife officials. Owned by BrightSource of Oakland, with investment partners Google of Mountain View and NRG Energy of Houston, the 5.4-square-mile, $2.2 billion facility was built with a $1.6 billion federal loan and went online last fall.

BrightSource underestimated how much natural gas it would need to run the Ivanpah plant when the sun doesn’t shine. And scientists now say desert soils contain vast stores of carbon that are unleashed by construction of solar facilities. Research at UC Riverside’s Center for Conservation Biology indicates that carbon-dioxide-emissions savings from many solar plants “will be compromised, or even negated, by the loss of stores of inorganic and organic carbon sequestered by desert native ecosystems.” Within the next few weeks, state and federal agencies plan to release the mammoth Desert Renewable Energy Conservation Plan, nearly five years in the making, that many hope will correct mistakes made when stimulus dollars and California’s quest to slash carbon emissions set off a solar land rush in the Mojave.

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