Jan 172016
 
 January 17, 2016  Posted by at 9:28 am Finance Tagged with: , , , , , , , , ,  Comments Off on Debt Rattle January 17 2016


DPC Madison Avenue, Memphis, Tennessee 1906

Why Are We Looking On Helplessly As Markets Crash All Over The World? (Hutton)
China’s Stock Market Value Plummets By $600 Billion In One Week (Xinhua)
The Ugly Subtext Beneath China’s Two-Track Economy Tale (FT)
Buckle Your Seatbelts: China Could Rock Markets Next Week (CNBC)
China’s Economy Grew By Around 7% In 2015, Premier Li Says (Reuters)
The Fantasy And The Reality Of China’s Economic Rebalancing (CNBC)
China Stocks Watchdog Acknowledges Flaws in Equities Regulation (BBG)
China-Led AIIB Development Bank Aims to Swiftly Approve Loans (AP)
Dallas Fed Quietly Suspends Energy Mark-To-Market On Loss Contagion Fears (ZH)
Wall Street Braces for Bigger Shale Losses After Oil Drops Below $30 (BBG)
With Liftoff Done, the Fed Revisits a $4.5 Trillion Quandary (BBG)
Saudi Aramco – $10 Trillion Mystery At The Heart Of The Gulf State (Guardian)
Market Meltdown Rattles Canadian Investors, Panic Sets In (BBG)
German Lawmakers Urge Merkel To Tell Draghi: End Record-Low Rates (BBG)
The Business Case For Helping Refugees (Gillian Tett)
Schäuble Proposes Special EU Tax On Gasoline To Finance Refugee Costs (Reuters)
Five Bodies Wash Up On Shore Of Samos (AP)

“The Chinese economy is a giant Ponzi scheme. Tens of trillions of dollars are owed to essentially bankrupt banks – and worse, bankrupt near-banks that operate in the murky shadowlands of a deeply dysfunctional mix of Leninism and rapacious capitalism. “

Why Are We Looking On Helplessly As Markets Crash All Over The World? (Hutton)

There has always been a tension at the heart of capitalism. Although it is the best wealth-creating mechanism we’ve made, it can’t be left to its own devices. Its self-regulating properties, contrary to the efforts of generations of economists trying to prove otherwise, are weak. It needs embedded countervailing power – effective trade unions, law and public action – to keep it honest and sustain the demand off which it feeds. Above all, it needs an ordered international framework of law, finance and trade in which it can do deals and business. It certainly can’t invent one itself. The mayhem in the financial markets over the last fortnight is the result of confronting this tension. The oil price collapse should be good news. It makes everything cheaper. It puts purchasing power in the hands of business and consumers elsewhere in the world who have a greater propensity to spend than most oil-producing countries. A low oil price historically presages economic good times. Instead, the markets are panicking.

They are panicking because what is driving the lower oil price is global disorder, which capitalism is powerless to correct. Indeed, it is capitalism running amok that is one of the reasons for the disorder. Profits as a share of national income in Britain and the US touch all-time highs; wages touch an all-time low as the power of organised labour diminishes and the gig economy of short-term contracts takes hold. The excesses of the rich, digging underground basements to house swimming pools, cinemas and lavish gyms, sit alongside the travails of the new middle-class poor. These are no longer able to secure themselves decent pensions and their gig-economy children defer starting families because of the financial pressures.

The story is similar if less marked in continental Europe and Japan. Demand has only been sustained across all these countries since the mid-1980s because of the relentless willingness of banks to pump credit into the hands of consumers at rates much faster than the rate of economic growth to compensate for squeezed wages. It was a trend only interrupted by the credit crunch and which has now resumed with a vengeance. The result is a mountain of mortgage and personal debt but with ever-lower pay packets to service it, creating a banking system that is fundamentally precarious. The country that has taken this further than any other is China. The Chinese economy is a giant Ponzi scheme. Tens of trillions of dollars are owed to essentially bankrupt banks – and worse, bankrupt near-banks that operate in the murky shadowlands of a deeply dysfunctional mix of Leninism and rapacious capitalism.

The Chinese Communist party has bought itself temporary legitimacy by its shameless willingness to direct state-owned banks to lend to consumers and businesses with little attention to their creditworthiness. Thus it has lifted growth and created millions of jobs. It is an edifice waiting to implode. Chinese business habitually bribes Communist officials to put pressure on their bankers to forgive loans or commute interest; most loans only receive interest payments haphazardly or not at all. If the losses were crystallised, the banking system would be bust overnight. On top, huge loans have been made to China’s vast oil, gas and chemical industries on the basis of oil being above $60 a barrel, so more losses are in prospect.

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Some $600 billion lost in one week.

China’s Stock Market Value Plummets (Xinhua)

China’s declining stock market has resulted in a sharp decrease in the market capitalization of the two bourses in Shanghai and Shenzhen. The market value of the Shanghai and Shenzhen bourses plummeted to 42.74 trillion yuan (about 6.5 trillion U.S. dollars) on Friday’s closing of market, down nearly 9% from the previous week. There are 1,081 and 1,747 listed companies in the Shanghai and Shenzhen stock markets, where the price-earnings ratio were 14.54 and 41.38 respectively. China’s has the world’s second-most capitalized stock market behind the United States, after overtaking Japan a year ago. After a bearish week, the Shanghai and Shenzhen bourses were valued at 24.26 trillion yuan and 18.48 trillion yuan respectively by the close of market on Friday.

Amid global market turbulence accompanying lackluster domestic economic data, the benchmark Shanghai index lost 8.96% to end at 2,900.97 points, and the Shenzhen index shrank 8.18% to close at 9,997.92 points over the week. On Saturday, China’s securities watchdog vowed to learn a lesson from the stock market rout. “Wild market swings revealed our supervision and management loopholes,” said Xiao Gang, head of the China Securities Regulatory Commission, at a national conference on securities market regulation. “We will improve regulation mechanisms, intensify supervision and guard against risks so as to create a stable and sound market,” Xiao said.

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Reconfirming what I’ve written on China earlier: “Coal miners do not become internet programmers overnight, or even delivery men.”

The Ugly Subtext Beneath China’s Two-Track Economy Tale (FT)

This week the Chinese government will attempt to take back control of the narrative. The release of its 2015 economic growth estimate on January 19 provides an opportunity for Beijing to argue that a renewed outburst of stock market chaos and currency policy confusion over recent weeks was just surface noise, while the underlying economy remains sound. That China’s once vaunted economic managers suddenly find themselves in this position is a reminder of how dramatically they too can be wrong-footed by events, albeit ones that were under their control until a series of self-inflicted policy errors. Until China’s stock market bubble burst on June 15 — President Xi Jinping’s birthday of all days — the rest of the world was obsessed with the country’s downwards economic growth trajectory.

An ill-advised stock market rescue in July, followed by a poorly communicated currency policy adjustment in August, gave the world a bigger issue to worry about — the competence of China’s leadership, or lack thereof. In this context, the second and third quarter gross domestic product estimates, in line with the government’s 7% growth target, were reassuring. Chinese officials now freely admit that the country’s growth story is a tale of two economies. There is the bad old industrial economy — credit-fuelled and investment-led, resulting in chronic overcapacity and unsold apartment blocks. And there is the good new services economy — innovative and consumption-driven. Their key point is that the rise of the latter will balance the decline of the former, as has been the case this year.

As a result, they argue, the overall economy will hum along at a “sustainable” rate of about 6.5% over the next five years. This spells trouble for the African, Australian, Russian and South American commodity producers who have grown fat off Chinese demand over the past 20 years. But it should benefit European and US service providers, market access permitting, as well as Japanese and South Korean gadget makers. If only it were that simple. There are at least two known unknowns that could disrupt China’s smooth glide path. The first is what happens to rust-belt regions that have plenty of the old economy but not much of the new. “It will be very difficult for those who work in the old economy to transition into the new economy,” says Chen Long, China economist at Gavekal Dragonomics.

“Coal miners do not become internet programmers overnight, or even delivery men.” The second is a potential debt crisis of historic proportions, stemming in part from the government’s fears about the consequences for coal country if they were to turn off the credit taps. In 2007, on the eve of the global financial crisis, China’s overall debt to GDP ratio was 147%. Now it is at 231% and climbing. “They absolutely have no room left for further debt accumulation,” says Rodney Jones at Wigram Capital, an economic advisory firm. “That’s the central issue — not the exchange rate, not the stock market. These are symptoms. The problem is unsustainable growth and continued rapid accumulation of debt, leverage and credit.”

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“China is expected to release fourth-quarter GDP, industrial production and retail sales data Tuesday morning.”

Buckle Your Seatbelts: China Could Rock Markets Next Week (CNBC)

Global markets are poised for more volatility next week with key economic data from China expected to show that the world’s second-largest economy continues to grow at its slowest pace since the financial crisis, despite aggressive measures taken by the central bank to boost growth. “There has been ongoing fear bubbling since August that the China slowdown is worse than expected. Investors are nervous that we’ll see a massive downside correction in China’s economy. That’s why this data is so important to markets,” said James Rossiter at TD Securities. China is expected to release fourth-quarter GDP, industrial production and retail sales data Tuesday morning. Wasif Latif at USAA Investments agrees.

“These data reports next week could be very important in their power to either confirm or refute the current narrative that China is experiencing a very bad slowdown,” said Latif. The kick-off to 2016 has been challenging to say the least for China which continues to show signs of weakness, particularly on the manufacturing and services front. This downbeat data has pushed investors to alter their global forecasts, readjust earnings expectations and talk about what life with a slowing China means for trading stocks bonds and commodities this year. Markets around the world have been under pressure due in part to China worries. The Shanghai Composite is already down 18% this year and down over 40% from its June 2014 high.

Barclays strategists wrote that China remains a key source of turmoil as it affects currencies, commodities and financial volatility. Analysts also point to Beijing’s unpredictable nature in addressing the country’s economic woes and market structure. For instance in the last week, China reversed a new rule on circuit breakers that had brought stocks to a complete halt after just minutes of trading. Questions remain over whether the central bank of China will respond to weak data through its currency, or if the government will intervene in new ways if stocks continue to fall on the domestic markets.

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Li Keqiang decided to give us the good news a few days early. Curious.

China’s Economy Grew By Around 7% In 2015, Premier Li Says (Reuters)

China’s economy grew by around 7% in 2015, with the services sector accounting for half of GDP, Premier Li Keqiang said on Saturday. The premier also said that employment had expanded more than expected and that consumption contributed nearly 60% of economic growth. Li made theremarks at the opening ceremony for the China-backed Asian Infrastructure Investment Bank (AIIB) in Beijing. China’s fourth-quarter and full-year 2015 GDP figures are expected to be released on Jan. 19. Analysts polled by Reuters have forecast 2015 growth cooled to 6.9%, down from 7.3% in 2014 and the slowest pace in a quarter of a century. China does not intend to use a cheaper yuan as a way to boost exports and has the tools to keep the currency stable, the premier said, state news agency Xinhua had reported earlier Saturday.

“China has no intention of stimulating exports via competitive devaluation of currencies,” the premier said at the meeting in Beijing, which marks China’s previously announced official entry into the bank. Li added that China is capable of keeping the yuan’s exchange rate basically stable at an appropriate and balanced level, Xinhua reported. After a nearly 3% devaluation in mid August 2015 which rattled markets, China’s yuan has fallen over 1% so far in 2016, as the nation has struggled to contain capital outflows in the wake of a dramatic equity market collapse and weak economic data. Despite recent declines, China has the world’s largest foreign exchange reserves, and policymakers have repeatedly said they have the firepower to keep the yuan stable.

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From January 11.

The Fantasy And The Reality Of China’s Economic Rebalancing (CNBC)

China’s economic expansion may be far less than official estimates of 6.8% and could be closer to 2.4%, according to a new report. The GDP growth of the world’s second-largest economy has slowed steadily since 2010, although levels remain far higher than those achieved by most developed and many developing economies. Last month, China’s central bank forecast that GDP would slow to 6.8% in 2016 from an estimated in 6.9% in 2015. However, Fathom, a macro research consultancy based in London, claimed in a report that China’s economy is only expanding at 2.4% per annum.

“We have long questioned the legitimacy of China’s official GDP statistics. Pointing to only a mild growth deceleration, we find these impossible to reconcile with a whole host of alternative evidence, not least our own measure of China’s economic activity which suggests that growth could be as low as 2.4%,” Fathom said in the report published Friday entitled “The fantasy and the reality of China’s economic rebalancing.” This year, global markets remain alert to any hints that China’s economic slowdown might be accelerating. Major U.S. stock indexes lost around 6% or more last week, as these fears helped fuel a rout in global stocks. International analysts and economists have long suspected that Chinese official GDP figures were inflated. Not many have suggested that annual growth could actually be as low as 2.4%, however. The IMF, for instance, estimates that China’s economy grew by 6.8% in 2015 and forecasts it will expand by 6.3% in 2016.

“While there is evidence that the old growth engine, powered by manufacturing, investment and exports, has started to stutter, we find far fewer indicators that point to a pickup in consumption. This is contrary to China’s official GDP breakdown, which suggests that activity in the tertiary sector is not only the largest as a share of nominal GDP but also the fastest growing, with annual growth outpacing that of both primary and secondary industries,” Fathom said. The official GDP data reported by Chinese regional government is particularly questionable. In December, China official news agency, Xinhua, reported that economic levels in parts of China’s northeastern rust belt were overstated. One county in Liaoning province posted extra fiscal revenue of 847 million yuan ($129 million) in 2013, 127% higher than the real figure, according to media reports.

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“The slumping stock market, fleeing liquidity, speedy deleveraging activities, augmented by self-defeating redemption at mutual funds and selloffs in futures, spiraled into a full-scale crisis like a domino effect..”

China Stocks Watchdog Acknowledges Flaws in Equities Regulation (BBG)

The Chinese equities watchdog has acknowledged loopholes and ineptitude within its regulatory system after a review of the turmoil that’s shaken markets since last June. An immature bourse and participants, incomplete trading rules, an inadequate market system and an inappropriate regulatory system were to blame and regulators will learn from their mistakes, Xiao Gang, chairman of China Securities Regulatory Commission, said in a transcript of an internal meeting of the regulator that was posted on the agency’s website on Saturday. Chinese shares fell into a bear market again on Friday, wiping out gains from an unprecedented state rescue amid waning confidence in the government’s ability to manage the country’s financial markets.

The initial collapse in June, which came after cheerleading by state media helped fuel an unprecedented boom in mainland equities, triggered stock purchases by the government, restrictions on trading and a temporary ban on initial public offerings. Xiao was criticized for helping to talk up the market as the bubble developed. “The slumping stock market, fleeing liquidity, speedy deleveraging activities, augmented by self-defeating redemption at mutual funds and selloffs in futures, spiraled into a full-scale crisis like a domino effect,” Xiao said in the transcript. “During the abnormal volatility in the stock market, some institutions let illegal and irregular activities ride instead of taking responsibility to stabilize the market.”

It’s been a wild ride for Chinese stock investors. The Shanghai Composite Index more than doubled in the 12 months through May before losing 34% by the end of September as regulators failed to manage a surge in leveraged bets by individual investors. A state-sponsored market rescue campaign sparked a rally toward the end of the year but those gains have been wiped out this month. “The stock market developed so fast that the regulations failed to catch up,” said Ronald Wan, chief executive of Partners Capital International Ltd., an investment bank in Hong Kong. “Only when the laws and regulations improve, can the market develop in a healthy way. That cannot be done in one or two months.”

Losses this year were fueled by a controversial circuit-breaker system, which authorities scrapped in the first week of January after finding that it spurred investors to rush for the exits on big down days. The turbulence in China has rippled through global markets this year, contributing to a 8.5% drop in the MSCI All-Country World Index. The CSRC will try to learn from its overseas counterparts but will avoid wholesale adoption of another nation’s regulatory system, said Xiao. IPO reforms will be gradual and the registration system for offerings won’t be settled in one step, he said. China plans to shift to a registration-based system for IPOs, loosening the grip of the CSRC, which has controlled the timing and pricing of listings.

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Peanuts.

China-Led AIIB Development Bank Aims to Swiftly Approve Loans (AP)

The head of the newly opened Asia Infrastructure Investment Bank said the China-led group is aiming to approve its first loans before the end of the year, part of Beijing’s efforts to weave together regional trade partners and solidify its global status. The AIIB officially opened at a ceremony on Saturday in Beijing, formalizing the emergence of a competitor to the Washington-led World Bank and strengthening China’s influence over global development and finance. AIIB’s inaugural president, the Chinese banker Jin Liqun, said Sunday that Asia still faces “severe connectivity gaps and significant infrastructure bottlenecks.” The bank would welcome the US and Japan, two economic powers that have declined invitations to join the organization, said Jin, who was previously a high-ranking official at both the World Bank and Japan-led Asian Development Bank.

Washington has said it welcomes the additional financing for development but had expressed concern looser lending standards might undercut efforts by existing institutions to promote environmental and other safeguards. Chinese officials have said the bank will complement existing institutions and promised to adhere to international lending standards. Chinese President Xi Jinping has outlined a broad plan called “One Belt One Road” to deepen trade relations with neighboring countries and open new markets, with the AIIB a key component of that strategy. Leaders in the world’s No. 2 economy have long felt they don’t have proportional influence inside international financial institutions dominated by Western powers. China pledged to put up most of the bank’s $50 billion in capital and says the total will eventually be as high as $100 billion. Xi on Saturday unveiled an additional $50 million fund for infrastructure projects in less-developed countries.

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Fed sees recession.

Dallas Fed Quietly Suspends Energy Mark-To-Market On Loss Contagion Fears (ZH)

We can now make it official, because moments ago we got confirmation from a second source who reports that according to an energy analyst who had recently met Houston funds to give his 1H16e update, one of his clients indicated that his firm was invited to a lunch attended by the Dallas Fed, which had previously instructed lenders to open up their entire loan books for Fed oversight; the Fed was shocked by with it had found in the non-public facing records. The lunch was also confirmed by employees at a reputable Swiss investment bank operating in Houston. This is what took place: the Dallas Fed met with the banks a week ago and effectively suspended mark-to-market on energy debts and as a result no impairments are being written down.

Furthermore, as we reported earlier this week, the Fed indicated “under the table” that banks were to work with the energy companies on delivering without a markdown on worry that a backstop, or bail-in, was needed after reviewing loan losses which would exceed the current tier 1 capital tranches. In other words, the Fed has advised banks to cover up major energy-related losses. The reason for such unprecedented measures by the Dallas Fed? Our source notes that having run the numbers, it looks like at least 18% of some banks’ commercial loan book are impaired, and that’s based on just applying the 3Q marks for public debt to their syndicate sums.

In other words, the ridiculously low increase in loss provisions by the likes of Wells and JPM suggest two things: i) the real losses are vastly higher, and ii) it is the Fed’s involvement that is pressuring banks to not disclose the true state of their energy “books.” Naturally, once this becomes public, the Fed risks a stampeded out of energy exposure because for the Fed to intervene in such a dramatic fashion it suggests that the US energy industry is on the verge of a subprime-like blow up. Putting this all together, a source who wishes to remain anonymous, adds that equity has been levitating only because energy funds are confident the syndicates will remain in size to meet net working capital deficits. Which is a big gamble considering that as we firsst showed ten days ago, over the past several weeks banks have already quietly reduced their credit facility exposure to at least 25 deeply distressed (and soon to be even deeper distressed) names.

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Bail-in or bail-out?

Wall Street Braces for Bigger Shale Losses After Oil Drops Below $30 (BBG)

The Wall Street banks that financed the U.S. shale boom are facing growing losses as oil falls below $30 a barrel. Losses are spreading from bondholders to banks amid the worst oil crash in a generation. Wells Fargo, Citigroup and JPMorgan have set aside more than $2 billion combined to cover souring energy loans and will add to that safety net if prices remain low, the companies reported this week. Losses are mounting as more oil and natural gas producers default on debt payments and declare bankruptcy. Wells Fargo lost $118 million on its energy portfolio in the fourth quarter and Citigroup lost $75 million. “It takes time for losses to emerge, and at current levels we would expect to have higher oil and gas losses in 2016,” John Stumpf, Wells Fargo’s chairman and CEO, said during a Friday earnings call.

Oil plunged 36% in the past year, putting an end to the debt-fueled drilling spree that pushed U.S. oil production to the highest in more than 40 years. After years of spending more than they made, shale companies have parked drilling rigs and fired thousands of workers in an effort to conserve cash. In 2015, 42 oil and and gas producers went bust owing more than $17 billion, according to law firm Haynes & Boone. The weakness in oil and gas lending was a hot topic during bank earnings calls this week, and it’s clear that the potential for losses is snowballing the longer prices remain low. Wells Fargo’s energy reserves of $1.2 billion are enough to cover 7% of the $17 billion of the bank’s outstanding oil and gas loans.

JPMorgan Chase boosted energy loan-loss reserves by $550 million last year and said it will add another $750 million if oil stays at $30 for 18 months. Citigroup increased reserves by $250 million and that will go up by an additional $600 million in the first half of 2016 if oil prices remain at $30. If oil falls to $25, that number may double. Lenders are walking a tightrope between helping their clients stay afloat and looking out for their own bottom line. Borrowers with risky credit typically put up their oil and gas properties as collateral for their loan. Historically, lenders managed to get all of their money back, even in bankruptcy, by liquidating the assets. However, foreclosing on a troubled borrower comes with the risk that the properties will sell for less than is owed to the bank.

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With no credibility left, Fed options are limited.

With Liftoff Done, the Fed Revisits a $4.5 Trillion Quandary (BBG)

Federal Reserve officials who spent months debating their first interest-rate increase in almost a decade are turning next to the thorny question of what to do with a balance sheet equivalent to the size of Japan’s economy. A month after liftoff, turmoil in global financial markets has pushed out expectations for more rate hikes and raised concern about what tools are available to fight the next downturn. Vice Chairman Stanley Fischer has suggested the $4.5 trillion balance sheet could be maintained as a way to hold down longer-term Treasury yields while the short-term policy rate was lifted. Fischer’s idea – discussed in a Jan. 3 speech partly on strategies for pulling the short-term rate away from zero – was taken up in more practical terms by New York Fed President William C. Dudley Friday.

Reinvesting maturing bonds and putting off a reduction in the balance sheet until the federal funds rate is raised somewhat higher “makes sense,” Dudley said. “Having more ‘dry powder’ in the form of higher short-term interest rates seems more desirable than less dry powder and a smaller balance sheet,” he said. Fed Chair Janet Yellen made similar comments in her Dec. 16 press conference, meaning the three most senior officials still view the central bank’s vast holdings of debt as an active policy tool rather than a relic of the financial crisis that needs to be shrunk as soon as possible. “Dudley’s view is if we get to choose our tool” to tighten policy, “then we are going to choose interest rates,” said Michael Hanson, senior economist at Bank of America.

That’s the safer choice, Hanson said, because officials are highly uncertain what shrinking the balance sheet would do to financial markets. The preference to maintain trillions in bond holdings for months to come, however, isn’t likely to be popular with all Federal Open Market Committee participants. Richmond Fed President Jeffrey Lacker favors an “expeditious” unwinding of the Fed’s bond holdings. The Fed’s balance sheet swelled to $4.5 trillion in 2014 from about $900 billion in 2008 on purchases of Treasuries and mortgage-backed securities, during three stages of a strategy known as quantitative easing.

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IPO looks silly.

Saudi Aramco – $10 Trillion Mystery At The Heart Of The Gulf State (Guardian)

The possible selloff of at least part of Aramco, previously considered the country’s crown jewel, has stunned the global energy and investment sectors as much as locals. One Wall Street report claimed an American financial adviser was forced to stop his car because he was laughing so much from sheer incredulity when the Aramco float news broke. But plans for an initial public offering by what may be most secretive – but almost certainly the most valuable – company in the world have been confirmed by its chairman, Khalid al-Falih. “We are considering … a listing of the main company and obviously the main company will include upstream,” he said last week, thereby indicating that the flotation plan could give access to the country’s 260bn barrels of oil reserves and 263 trillion cubic feet of gas.

Among the more than 100 oil and gas fields controlled by Aramco – which began life as the California-Arabian Standard Oil Company in 1933 – are Ghawar, the world’s largest onshore oil location, plus Safaniya, the biggest offshore field in the world. The scale of the Aramco empire dwarfs every other corporation in the world. Its oil assets alone are 10 times more than those held by the world’s largest publicly quoted oil company, ExxonMobil. If the Texas-based business has a stock market value of $400bn, that would make Aramco’s oil assets potentially worth $4tn. Energy analysts admit they find it impossible to accurately calculate the exact worth of a company that boasts of producing 9.5m barrels of oil a day – one in every eight of the world’s production.

But some estimates go as high as $10tn. That is 10 times the combined value of Apple and Alphabet (the new parent company of Google). They know Aramco has huge oil and gas reserves, a raft of refineries and other business interests, but details are scant. The company does not publish its accounts or even its revenues, never mind its profits.

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Panic should have started long ago.

Market Meltdown Rattles Canadian Investors, Panic Sets In (BBG)

A record losing streak in the loonie, plunging bond yields and about $150 billion wiped out in the stock market have left Canadian investors hanging by a thread. Panic is starting to set in. “The word fear is finally starting to come up,” said Martin Pelletier, managing director and portfolio manager at TriVest Wealth Counsel in Calgary. “Clients and people are starting to panic. It’s sinking in, but no one knows what to do.” North American stock markets wrapped up one of their most turbulent weeks in recent memory Friday as oil prices and the dollar plunged further. The commodity-sensitive loonie plumbed depths not seen since 2003 as it fell for an 11th-straight day, losing 0.81 of a U.S. cent to close at 68.82 cents US.

The benchmark Standard & Poor’s/TSX Composite Index dropped 262.57, or 2.13%, to 12,073.46 — its lowest close since June 2013 — after rebounding more than 165 points on Thursday. Yields on five-year government bonds fell to a record low of 0.511% Wednesday as speculation builds the Bank of Canada will cut interest rates next week. Canada’s economy, heavily weighed toward resource industries, has been rocked by concerns about the slowdown in China that has pushed the price of West Texas Intermediate crude below $30 for the first time since 2003. Prices for Canada’s heavy crude, which trades at a discount to the U.S. benchmark, have sunk to around $15 a barrel.

The February contract for WTI crude fell $1.78 to US$29.42 on Friday, while February natural gas fell four cents to US$2.10 per mmBTU. “Right now … people are looking at oil and saying the price of oil is dropping, ergo the economic outlook doesn’t look good. I think it’s as simple as that,” said Ian Nakamoto, director of research at 3Macs. “If oil rallies like it did (Thursday), I think the markets rise here.” But Nakamoto isn’t betting we’ve seen the bottom for oil just yet. “One thing we do know is the supply is greater than demand, so structurally it looks likes prices still have further to go here on the downside.”

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What independent central bank?

German Lawmakers Urge Merkel To Tell Draghi: End Record-Low Rates (BBG)

Lawmakers allied with German Chancellor Angela Merkel say it’s time for the ECB to outline an exit strategy from record-low interest rates and she should tell Mario Draghi so. As Merkel hosted the ECB president for a private meeting in Berlin on Friday, German banks, her party bloc and Bundesbank head Jens Weidmann are pushing for Draghi to explain how he’ll get out of quantitative easing. Designed to counter “economic malaise” as Europe’s debt crisis recedes, the policy is seen by critics as hurting German savers and retail investors, who tend to prefer low-risk investments. “I trust that the chancellor will clearly address the concerns related to the ECB’s policy” when she hosts Draghi at the chancellery, said Alexander Radwan, a member of the German parliament’s finance committee and lawmaker from Merkel’s party bloc.

Merkel should help to ensure “that Europe recognizes the limits of central-bank policy,” he said. While ECB policy is out of Merkel’s hands, low borrowing costs for the 19 euro-area nations are adding to dissatisfaction among members of her party, whose loyalty is already strained by euro-area bailouts and a record influx of refugees to Germany. Draghi argues that the central bank’s €1.5 trillion bond-buying program is needed to try to revive inflation and he’s pledged to do more if prices don’t pick up. Merkel and Draghi held what Steffen Seibert, Merkel’s chief spokesman, described as an “informal and confidential” meeting. The chancellor’s office declined to comment on what they discussed.

That reticence hasn’t stopped Wolfgang Schaeuble, Merkel’s finance minister since 2009 and one of her key allies, from publicly prodding the ECB and portraying its policies as a threat to financial stability. Monetary policy has fueled a tendency toward “exaggeration in financial markets,” with liquidity spurring nervousness “that’s materializing in China now,” Schaeuble said in Brussels on Thursday. “I will not deny that the low interest rates are worrying us,” Antje Tillmann, the finance-policy spokeswoman of Merkel’s party bloc, said in an interview. Germany can manage the low-rate environment only in the short term “and I hope therefore that this will change. I believe Mr. Draghi knows that we’re waiting for this.” Weidmann warned on Tuesday in Paris that low rates over an extended period squeeze bank profits and risk fueling financial bubbles.

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Help for refugees will have to come from the people, not government or business. That’s why our AE for Athens Fund works. No side issues.

The Business Case For Helping Refugees (Gillian Tett)

Last year Hamdi Ulukaya, a Kurdish entrepreneur who created the billion-dollar US-based Chobani yoghurt empire, travelled to Greece to see the swelling refugee crisis with his own eyes. Unsurprisingly, he was horrified by the human suffering that he witnessed, particularly as he shares a cultural affinity with many of the refugees — he grew up near the Syrian border in Turkey, before moving to the US as a student. But Ulukaya was also appalled by something else: the hopelessly bureaucratic and old-fashioned nature of the organisations running the aid efforts. “The refugee issue is being dealt with using [methods from] the 1940s and it’s in the hands of the UN and mostly government and you don’t see a lot of private sector and entrepreneurs involved,” he told me last week.

“I decided we have got to hack this — we have got to bring another perspective into this issue, there are technologies that can be used.” So Ulukaya decided to act. Last year he established a foundation, Tent, to channel financial aid and innovation efforts into refugee work. He also declared that he would give half his fortune to refugee causes (he has made an eye-popping $1.4bn from his wildly popular Chobani yoghurts in recent years). And he has stepped up efforts to hire as many refugees as he can at his yoghurt plants, where they currently account for 30 per cent of the total workforce, or 600 people. “There are 11 or 12 languages spoken in our factories,” says Ulukaya. “We have translators 24 hours a day.”

Now, however, Ulukaya wants to take his campaign further. At next week’s World Economic Forum (WEF) meeting in Davos, he will call on other CEOs to join a campaign to channel corporate money, lobbying initiatives, services and jobs to refugees. Five companies have already signed up: Ikea, MasterCard, Airbnb, LinkedIn and UPS — and Ulukaya says more are poised to join. I daresay some FT readers will shrug their shoulders at this; indeed, as a journalist, part of me feels a little cynical. Over the past couple of years, there has been a string of philanthropy initiatives from American billionaires. And this year’s WEF meeting is likely to produce another wave of pious pledges, not least because many corporate elites will be arriving in Switzerland keenly aware that they need to do more to quell a popular backlash over income inequality.

But what makes Ulukaya’s move unusual — and admirable — is his unashamed embrace of the refugee cause. And that illustrates a bigger point: the voice of business has been extraordinarily muted, if not absent, from this wider policy debate. To be sure, some companies, such as American Express, Starbucks, Google and Uniqlo, have made donations to humanitarian groups involved in helping refugees. Others have offered practical services: Daimler, for example, has provided buildings and medical devices. Most companies, however, have avoided getting too embroiled in the issue, preferring to concentrate on less political causes such as medical aid. “With few exceptions, the business community has been absent from the debate about how to best deal with the refugee crisis, not only in the short term but, importantly, in the long term,” says Ioannis Ioannou, a professor at London Business School.

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More talk of a ‘coalition of the willing’. More division in Europe.

Schäuble Proposes Special EU Tax On Gasoline To Finance Refugee Costs (Reuters)

German Finance Minister Wolfgang Schaeuble has proposed the introduction of a special tax on gasoline in European Union member states to finance refugee-related costs such as strengthening the continent’s joint external borders. Schaeuble’s proposal drew criticism from members of his own conservative party, the Christian Democratic Union (CDU), as well as from the Social Democrats (SPD), junior partner in Chancellor Angela Merkel’s ruling coalition. “I’ve said if the funds in the national budgets and the European budget are not sufficient, then let us agree for instance on collecting a levy on every liter of gasoline at a specific amount,” Schaeuble told Sueddeutsche Zeitung newspaper in an interview published on Saturday.

“We have to secure Schengen’s external borders now. The solution of these problems must not founder due to a limitation of funds,” the veteran politician said. Asked if all EU countries should increase their payments to Brussels to finance joint refugee-related costs, Schaeuble said: “If someone is not willing to pay, I’m nonetheless prepared to do it. Then we’ll build a coalition of the willing.” Schaeuble gave no details on how high the extra levy on gasoline should be and whether Brussels or the EU member states would be in charge of collecting it. Schaeuble’s was met with criticism across the party political spectrum. “I’m strictly against any tax increase in light of the good budgetary situation,” said CDU deputy Julia Kloeckner who wants to win a regional election in the western state of Rhineland-Palatinate in March.

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When describing dead bodies they know nothing about, AP chooses to go with “most likely migrants”. Whereas, obviously, they’re at least as likely to be refugees. They know it, we know it, but the bias is too strong to overcome. Plus, it’s like saying all refugees are migrants. And if you repeat it often enough… Does any of you people ever think about the lack of respect for the dead you promote?

Five Bodies Wash Up On Shore Of Samos (AP)

Five people, most likely migrants, have been found dead off the eastern Greek island of Samos, Greek authorities report. The Greek coast guard has recovered the bodies of two men and three women, and are trying to recover the sixth in rough seas, a coast guard spokeswoman told AP. No vessel has been recovered yet. The rescue operation continues, said the spokeswoman, who was not authorized to be identified because of the continuing operation. Samos, which lies very close to the Turkish coast, is one of the main points of entry for migrants, most refugees from Syria and Iraq.

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Jun 112015
 
 June 11, 2015  Posted by at 2:06 pm Finance Tagged with: , , , , , , , ,  


G.G. Bain Auto polo, somewhere in New York 1912

There’s a Reuters article by Paul Taylor today that’s thought provoking, but not along the same line of thought that the writer follows (or the twist he gives to it). Taylor concludes that the IMF would love to wash its hands off Greece, but can’t because it’s subservient to German and Brussels interests (a junior partner). However, he also describes, without realizing it, why and how the Fund can rectify that.

Not that we’re not under the illusion the IMF is prone to latch on to the following, but that it would nevertheless be an extremely wise move for the Fund, and especially for its reputation. Which, no matter how you see it, is under threat from its Asian ‘competitor’, the Asian Infrastructure Investment Bank (AIIB), not in the least because the non-western world has long found that the west has far too much power in the IMF, which after all is a global organization.

In that vein, let’s start off with an article the FT published in April 2013, by Ousmène Mandeng, who also features in Taylor’s piece. This former IMF deputy division chief pointed out what unease the IMF role in Greece caused, and how that role undermined its role as an international institution. Today, nothing has changed.

The IMF Must Quit The Troika To Survive

There are many victims of the eurozone crisis but one loser is seldom mentioned: the IMF has suffered considerable collateral damage. It has been dragged along in an unprecedented set-up as a junior partner within Europe, used as a cover for the continent’s policy makers and its independence lost. The monetary fund was set up as a technocratic institution. That, indeed, is why it was brought into Europe: it was felt that a neutral broker was needed to fix the eurozone’s problems.

It is an outsider that would seem less biased in its assessments of peripheral eurozone countries than, say, the chancellor of Germany or the president of the European Commission. While the distribution of voting power within the IMF has been controversial for some time, it is a consensus-driven body. Its independence from any one region or power has provided the basis for efficient decision-making – and is essential to it.

That last sentence sounds more like wishful dreaming than an assessment of reality.

So the fact that decisions about IMF-supported adjustment programmes are seemingly being taken in Berlin, Frankfurt and Brussels should horrify its members.

The commission and the ECB are not even members of the IMF yet they seem to be running the show.

Together with the IMF, they are the troika running the continent’s rescues. Being part of this approach means political meddling has been institutionalised. The approach to the eurozone crisis also undermines the long-running efforts to reform the governance of the IMF, which were, after all, intended to reduce the disproportionate influence of western European governments.

The interests of other eurozone countries or institutions dominate proceedings unduly, so it is often unclear whether the interests of the IMF, the global economy, the eurozone or individual countries are being protected by its work.

For the neutral observer, it seems very clear whose interests the IMF ‘protects’.

[..] troika adjustment programmes have been guided often by the needs of neighbouring European governments rather than global economic considerations. It would surely already have walked away from Greece had it not been held back by political inconvenience. The eurozone has further undermined the IMF by setting up its own crisis resolution institution. The European Stability Mechanism is for all practical purposes a European monetary fund.

Proposals for an Asian monetary fund during the Asian crisis were attacked with good reason: there was real concern that a regional fund would reduce the effectiveness of multilateral co-operation. These concerns seem to have been forgotten.

Well, those concerns are back.

It is not hard to imagine a scenario where a country has suffered a considerable economic shock and requires significant financial resources to avoid a painful and disruptive adjustment – say a large debt restructuring. In such circumstances, the interests of that nation, the world and neighbouring countries might not be aligned.

The fund cannot be seen as neutral and at the same time serve the immediate interests of the eurozone. [..] the eurozone debacle risks destroying the credibility of the IMF – and therefore the foundations for multilateral economic co-operation.

The IMF’s potential effectiveness has suffered and countries may be less willing to seek assistance from the fund, possibly prolonging future economic pain. This will come to matter a great deal if a larger eurozone country should come to require its help. To save itself, the IMF needs to leave the troika.

The main take-away from this should perhaps be that the IMF has not even so much served the interests of the eurozone, but exclusively those of its richest members, Germany, Britain and France. That this can be damaging in the long term is obvious. But there may be a way it can redeem itself, as we will argue. First, though, let’s go to Taylor’s article today:

IMF’s ‘Never Again’ Experience In Greece May Get Worse

For the IMF, five years of playing junior partner in European bailouts for Greece has been a “never again” experience, and the worst may be yet to come. The global lender has lent far more to Athens than to any other borrower, contributing nearly one-third of the total €240 billion.

But it has sat uncomfortably in the side-car of the Greek rescue. Called in by EU paymaster Germany to try to keep the European institutions and the Greeks honest, the IMF has never had control of the program.

Critics say the IMF has damaged its credibility by going along with political fudges to keep Greece in the euro zone rather than insisting on write-offs, first by private creditors and now by European governments..

Keep that in mind: uncharacteristically, the IMF has not made restructuring debts a priority for Greece. Or, one could argue, debts were restructured, but too late and in the wrong way. That, too, may prove very damaging for the Fund.

“One of the most important lessons for the IMF from the Greek program should be that a multilateral institution should not institutionalize special interests of a subset of its membership,” said Ousmene Mandeng, a former IMF official.. “The interest of the IMF is not necessarily aligned with the EU/ECB,” he said.

In 2013, the IMF published a critical evaluation of its own role in the first Greek bailout in 2010, arguing that it should have insisted on a “haircut” on Greece’s debt to private creditors from the outset. Instead it went along with European governments frightened of a Lehman-style market meltdown and keen to shield their banks from losses.

A 2010 IMF staff position note described default on any debt in advanced economies as “unnecessary, undesirable and unlikely”, yet 18 months later the IMF advocated a 70% “haircut” on Greek government debt as a condition for continued involvement in lending to Athens.

Now IMF chief Christine Lagarde is hinting that European governments need to give Greece debt relief to make the numbers add up, but since this is politically unacceptable in Germany, she has had to talk in code in public. “Clearly, if there were to be slippages from those (fiscal) targets, for the whole program to add up, then financing has to be considered,” Lagarde told a news conference last week.

In other words, politically unacceptable in Germany trumps politically unacceptable in Greece by seven leagues and a boot and a half. That is not just damning for the IMF’s image, it damages that of the EU just as much. The leaders of neither seem to care much. But internally in the IMF, the discussions have always been there, and always provided the right approaches. It’s just that third-party considerations prevailed.

Behind closed doors, IMF officials are telling the Europeans that Greece will not survive without a third bailout program, which will require debt restructuring by European governments. The IMF insists on being repaid in full and is not expected to lend any more to Athens. But Berlin and its allies want the Fund to remain involved..

[..]The Fund prefers to see its role as that of a truth-teller, making an objective assessment of a country’s ability to sustain its debt based on economic criteria such as interest rates and loan maturities, growth, productivity and the fiscal balance. Insiders say privately it would love to get out of the Greek program for good, but the Europeans may not let it.

Summarized: the IMF is a political tool. Nothing new there. But it’s being a tool that threatens for the Fund to become a bit-player in the global scene. China and Russia have seen enough, as, obviously, has Greece. Though Athens whould have been justified in venting a lot more anger about what happened to it than it has, even to this -Syriza- day.

In its various ‘critical evaluations’, the IMF will probably use a term like ‘mistake’. But there is a large difference between ‘mistake’ and fault’ or ‘blunder’ or even ‘criminal neglicence’. And the IMF needs to admit that it has been at fault, and seek to retroactively rectify that fault. If it wants to undo the damage to its reputation, that is.

The 2010 -first- Greek bailout, worth €110 billion, happened without any debt restructuring. Of course that should never have been accepted inside the IMF offices. It was a gross departure from established policy.

But the reason why is crystal clear: 90% of the money didn’t go to Greece, it went to save German, Dutch and French banks who had gambled and lost big-time, largely with loans to an Athens government serving the interests of the country’s existing oligarchic elite. The proper term is ‘collusion’.

After the troika had bailed out the European banks and thus further indebted the Greek people to the tune of another €100 billion, obviously a second bailout became necessary. After all, Greek debt had neither been relieved not restructured. It took just 18 months for that second bailout to enter the scene, stage left.

Meanwhile, those same European banks, handily helped along by the €100 billion they received courtesy of the Greek people, had reduced their exposure to Greek debt from €122 billion to €66 billion. Which put a further € 56 billion pressure on Athens.

In July 2011, Dominique Strauss-Kahn, who had overseen the first bailout, was forced out of the IMF governor role through some ‘bizarre incidents’, and in came Wall Street darling Christine Lagarde. A second bailout package for € 100 billion was agreed, but Greek PM Papandreou didn’t feel secure enough politically to accept its terms without calling a referendum. The EU, though, doesn’t like referendums (it tends to lose out in those).

In short order, Berlin/Paris/London had Papandreou replaced by Yale and Federal Reserve clone Lucas Papademos as Greek PM on November 10 2011. Just 6 days later, they also toppled Silvio Berlusconi as Italian PM, and replaced him with another banking technocrat, Mario Monti. Europe and democracy, it’s a strange-bed-fellows relationship.

That second bailout, agreed to in October 2011, but ratified only in February 2012, included a 53.5% face value loss for bondholders. But since the big ‘foreign’ banks had pulled out, that loss was mainly forced upon Greek banks and funds. Dragging the country’s economy even further down. The pattern is deceptively simple and even almost elegant in its destructiveness.

And that is why we find ourselves where we are today.

The whole point of this long history lesson is that what the IMF can do today to restore its reputation, its independence and indeed its very relevance, is to go back to the first Greek bailout of 2010 – it can simply claim that any deals agreed to under Strauss-Kahn were illegal for, by lack of a better term, pimping reasons-, and to retroactively undo the damage done by any and all deals under the troika umbrella.

That is to say, since the IMF is on the hook for €80 billion, a third of the €240 billion Greece ‘owes’, it can go to the ‘systemic’ European banks that were the recipients of this unjustified largesse, and demand its money back from them, instead of from the Greek people.

That would instantly solve the whole Greek debt issue everyone’s been talking about for forever and a day, the Athens government could go to work on reforms aimed at alleviating the misery forced upon its people instead of having to focus on troika talks 24/7, and all the false narratives about lazy Greeks living above their means could be thrown out the window in one fell swoop.

And the IMF could, make that would, regain its reputation, its credibility and its -global- relevance. Just like that. Overnight.

Like stated at the beginning, we don’t expect it to happen. But the opportunity is there. And it makes a lot more sense than just about anyone in the west will be willing to admit. The IMF can’t just serve only the EU and US and their banking sectors, or its days are numbered. It can either try and restore its reputation by doing what’s right or it can become yet another ingredient in history’s long gone and forgotten alphabet pea soup.

Mar 292015
 
 March 29, 2015  Posted by at 9:49 am Finance Tagged with: , , , , , , , ,  


Unknown Butler’s dredge-boat, sunk by Confederate shell, James River, VA 1864

QE Will Permanently Impair Living Standards For Generations To Come (Guggenheim)
Fed Chases Equilibrium Phantom, Has Not Learnt From The Crisis (Steve Keen)
Fears Of A New Global Crash As Debts And Dollar’s Value Rise (Guardian)
Investors Flee Market At Crisis-Level Pace (CNBC)
China Banks on Sharing Wealth to Shape New Asian Order (WSJ)
China Wants To Compel US To Engage It As An Equal Partner In AIIB (ATimes)
Russia To Apply For China-Led Infrastructure Bank AIIB (RT)
Netherlands Seeks To Join Asian Infrastructure Investment Bank (Reuters)
Australia to Join China-Led Development Bank, Says Finance Minister (WSJ)
Eurozone Can’t Survive In Current Form, Says PIMCO (Telegraph)
Greek Energy Minister To Visit Moscow, Hits Out At Germany (Reuters)
Greece Submits Reform Proposals To Eurozone Creditors – With A Warning (Guardian)
Fitch Downgrades Greece Amid Bailout Uncertainty (AP)
Opposition Tells Tsipras To Get Control Of His Party (Kathimerini)
Troika Expects Greece To Miss Primary Surplus Target This Year (Reuters)
Ukraine’s $3 Billion Debt To Russia Puts IMF Package At Risk (RT)
Andorra On The Brink Of Europe’s Next Banking Crisis (Telegraph)
Ex-Chancellor Schroeder Criticizes Merkel’s Russia Policy (RT)
Brazil Police Arrest Businessmen Linked to Petrobras Scandal (Reuters)

Just so you can feel rich for a while longer.

QE Will Permanently Impair Living Standards For Generations To Come (Guggenheim)

Essentially, monetary authorities around the globe are levying a tax on investors and providing a subsidy to borrowers. Taxation and subsidies, as well as other wealth transfer payment schemes, have historically fallen within the realm of fiscal policy under the control of the electorate. Under the new monetary orthodoxy, the responsibility for critical aspects of fiscal policy has been surrendered into the hands of appointed officials who have been left to salvage their economies, often under the guise of pursuing monetary order. The consequences of the new monetary orthodoxy are yet to be fully understood. For the time being, the latest rounds of QE should support continued U.S. dollar strength and limit increases in interest rates. Additionally, risk assets such as high-yield debt and global equities should continue to perform strongly.

Despite ultra-loose monetary policies over the past several years, incomes adjusted for inflation have fallen for the median U.S. family. With the benefits of monetary expansion going to a small share of the population and wage growth stagnating, incomes have been essentially flat over the past 20 years. In the long run, however, classical economics would tell us that the pricing distortions created by the current global regimes of QE will lead to a suboptimal allocation of capital and investment, which will result in lower output and lower standards of living over time. In fact, although U.S. equity prices are setting record highs, real median household incomes are 9% lower than 1999 highs. The report from Bank of America Merrill Lynch plainly supports the conclusion that QE and the associated currency depreciation is not leading to higher global output.

The cost of QE is greater than the income lost to savers and investors. The long-term consequence of the new monetary orthodoxy is likely to permanently impair living standards for generations to come while creating a false illusion of reviving prosperity.

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“..Yellen has fallen back on the core concept—that a market economy reaches “equilibrium”—rather than part of the fantasy mechanism by which The Fed believes equilibrium is achieved. Equilibrium. What nonsense!”

Fed Chases ‘Equilibrium’, Has Not Learnt From The Crisis (Steve Keen)

The Financial Crisis of 2007 was the nearest thing to a “Near Death Experience” that the Federal Reserve could have had. One ordinarily expects someone who has such an experience—exuberance behind the wheel that causes an almost fatal crash, a binge drinking escapade that ends up in the intensive care ward—to learn from it, and change their behaviour in some profound way that makes a repeat event impossible. Not so the Federal Reserve. Though the event itself gets some mention in Yellen’s speech yesterday, the analysis in that speech shows that the Fed has learnt nothing of substance from the crisis. If anything, the thinking has gone backwards. The Fed is the speed driver who will floor the accelerator before the next bend, just as he did before the crash; it is the binge drinker who will empty the bottle of whiskey at next year’s New Year’s Eve, just as she did before she woke up in intensive care on New Year’s Day.

So why hasn’t The Fed learnt? Largely because of a lack of intellectual courage. As it prepares to manage the post-crisis economy, The Fed has made no acknowledgement of the fact that it didn’t see the crisis itself coming. Of course, the cause of a financial crisis is far less obvious than the cause of a crash or a hangover: there are no skidmarks, no empty bottle to link effect to cause. But the fact that The Fed was caught completely unawares by the crisis should have led to some recognition that maybe, just maybe, its model of the economy was at fault. Far from it. Instead, if anything is more visible in Yellen’s technical speech than it was in Bernanke’s before the crisis, it’s the inappropriate model that blinded The Fed—and the economics profession in general—to the dangers before 2007.

In fact, that model is so visible that its key word—“equilibrium”—turns up in a word cloud of Yellen’s speech. “Equilibrium” is the 17th most frequent word in the document, and the only significant words that appear more frequently are “Inflation” and “Monetary”. In contrast, “Crisis” gets a mere 6 mentions, and household debt gets only one. What’s evident, when one compares Yellen’s speech to one to a similar audience by Bernanke in July 2007—the month before the crisis began—is that The Fed is just as much in the grip of conventional economic thinking as it was before the crisis.

The only difference is that Bernanke’s speech focused on the “inflation expectations” aspect of The Fed’s model—which would be rather hard for Yellen to focus on, given that inflation is running at zero (versus 4% when Bernanke spoke). So Yellen has fallen back on the core concept—that a market economy reaches “equilibrium”—rather than part of the fantasy mechanism by which The Fed believes equilibrium is achieved. Equilibrium. What nonsense! But the belief that the economy reaches equilibrium—that it can be modelled as if it is in equilibrium—is a core delusion of mainstream economics. There was some excuse for looking at the world prior to the crisis and seeing equilibrium—though the more sensible people saw “Bubble”. But after it? How can one look back on that carnage and see equilibrium?

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Poor nations fall first. Nothing has changed.

Fears Of A New Global Crash As Debts And Dollar’s Value Rise (Guardian)

Greek ministers are spending this weekend, almost five grinding years since Athens was first bailed out, wrangling over the details of the spending cuts and economic reforms they have drawn up to appease their creditors. As the recriminations fly between Europe’s capitals, campaigners are warning that the global community has failed to learn the lessons of the Greek debt crisis – or even of Argentina’s default in 2001, the consequences of which are still being contested furiously in courts on both sides of the Atlantic. As Janet Yellen’s Federal Reserve prepares to raise interest rates, boosting the value of the dollar, while the plunging price of crude puts intense pressure on the finances of oil-exporting countries, there are growing fears of a new debt crisis in the making.

Ann Pettifor of Prime Economics, who foreshadowed the credit crunch in her 2003 book The Coming First World Debt Crisis, says: “We’re going to have another financial crisis. Brazil’s already in great trouble with the strength of the dollar; I dread to think what’s happening in South Africa; then there’s Malaysia. We’re back to where we were, and that for me is really frightening.” Since the aftershocks of the global financial crisis of 2008 died away, the world’s policymakers have spent countless hours rewriting the banking rulebook and rethinking monetary policy. But next to nothing has been done about the question of what to do about countries that can’t repay their debts, or how to stop them getting into trouble in the first place.

Developing countries are using the UN to demand a change in the way sovereign defaults are dealt with. Led by Bolivian ambassador to the UN Sacha Sergio Llorenti, they are calling for a bankruptcy process akin to the Chapter 11 procedure for companies to be applied to governments. Unctad, the UN’s Geneva-based trade and investment arm, has been working for several years to draw up a “roadmap” for sovereign debt resolution. It recommends a series of principles, including a moratorium on repayments while a solution is negotiated; the imposition of currency controls to prevent capital fleeing the troubled country; and continued lending by the IMF to prevent the kind of existential financial threat that roils world markets and causes severe economic hardship.

If a new set of rules could be established, Unctad believes, “they should help prevent financial meltdown in countries facing difficulties servicing their external obligations, which often results in a loss of market confidence, currency collapse and drastic interest rates hikes, inflicting serious damage on public and private balance sheets and leading to large losses in output and employment and a sharp increase in poverty”. It calls for a once-and-for-all write-off, instead of the piecemeal Greek-style approach involving harsh terms and conditions that knock the economy off course and can ultimately make the debt even harder to repay. The threat of a genuine default of this kind could also help to constrain reckless lending by the private sector in the first place.

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“Outflows from equity-based funds in 2015 have reached their highest level since 2009..”

Investors Flee Market At Crisis-Level Pace (CNBC)

Recent market volatility has sent stock market investors rushing for the exits and into cash. Outflows from equity-based funds in 2015 have reached their highest level since 2009, thanks to a seesaw market that has come under pressure from weak economic data, a stronger dollar and the the prospect of monetary tightening. Funds that invest in stocks have seen $44 billion in outflows, or redemptions, year to date, according to Bank of America Merrill Lynch. Equity funds have seen outflows in five of the last six weeks, including $6.1 billion in just the last week. U.S. equities have been particularly hard-hit, with the group surrendering $10.8 billion last week, BofAML reported.

To be sure, the trend could be interpreted as a buy signal. In 2009, the stock market was in the throes of a 60% Great Recession plunge that led to unprecedented levels of stimulus from the Federal Reserve—and the birth of a huge bull market that has pushed stocks up more than 200%. The moves out of equities come as the S&P 500 has been essentially flat for the year, though getting there has seen numerous dips and spikes. The Dow industrials are off about 0.8% in 2015, while the Nasdaq tech barometer has been the strongest of the three major indexes, gaining 2.7%.

Funds focused on cash and investment-grade and government bonds gathered $12 billion in assets last week. Money market funds have just shy of $2.7 trillion in assets despite their promise of basically zero yield, according to the Investment Company Institute. That number has stayed essentially flat over the past year. Bond funds have seen 12 straight weeks of inflows; those focused on higher-quality debt have had 66 straight weeks of inflows. Trends in the $2.1 trillion exchange-traded fund industry help show investors’ mentality.

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China has a plan. The US only has neocons.

China Banks on Sharing Wealth to Shape New Asian Order (WSJ)

President Xi Jinping sketched out China’s vision for a new security and economic order in Asia, offering to spread the benefits of Chinese prosperity and cooperation across the region. In a speech to a regional forum Saturday, Mr. Xi presented China as a partner willing to “jointly build a regional order that is more favorable to Asia and the world.” He highlighted a new China-led infrastructure bank and other initiatives designed to leverage hundreds of billions of dollars to finance railways, ports and other development projects, and foster regional economic integration. Throughout the 30-minute speech, Mr. Xi stressed that China’s vision, while centered on Asia, was open to participation by all countries.

He was careful not to place China at the center of this emerging order, as some regional politicians and security experts have warned could happen. But Mr. Xi said given China’s size, it will naturally play a larger role. “Being a big country means shouldering greater responsibilities for the region, as opposed to seeking greater monopoly over regional and world affairs,” Mr. Xi told the Boao Forum for Asia, an annual China-sponsored conference named for the southern seaside town where it is held. The speech was the latest by Mr. Xi to articulate his government’s plans to use China’s growing power to reshape economic and security arrangements in the region—a change from recent decades when Beijing largely worked within a U.S. and Western-dominated international system.

At the center of these efforts is the new Asian Infrastructure Investment Bank and plans to build infrastructure across Asia and along the maritime routes that historically connected China to the Middle East, Africa and Europe. The plans have been welcomed by many countries and companies throughout the region, which the Asian Development Bank estimates is in need of trillions of dollars of infrastructure. Close U.S. allies and other governments have signed on to the infrastructure bank, despite concerns from Washington about the way the bank will be run.

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“..Beijing has a much bigger game plan of scattering the U.S.’ containment strategy.”

China Wants To Compel US To Engage It As An Equal Partner In AIIB (ATimes)

The AIIB Charter is still under discussion. The media report that China is not seeking a veto in the decision-making comes as a pleasant surprise. Equally, China is actively consulting other founding members (who now include U.K., Germany, France, Italy, etc). These would suggest that Beijing has a much bigger game plan of scattering the U.S.’ containment strategy. Clearly, the Trans-Pacific Partnership free-trade deal is already looking more absurd if China were to be kept out of it. The point is, AIIB gives financial underpinning for the ‘Belt and Road’ initiative, which now the European countries and Russia have embraced, as they expect much business spin-off. China has said that its Silk Road projects are not to be confused as a latter-day Marshal Plan for developing countries, and that, on the contrary, the projects will be run on commercial terms.

Which opens up enormous opportunities for participation by western companies. In geopolitical terms, therefore, China hopes that the ‘win-win’ spirit that permeates the AIIB and ‘Belt and Road’ will render ineffectual the American attempts to hem it in on the world stage and compel Washington to revisit a ‘new type of relations’ with China. As for Bretton Woods, to my mind, China hopes that AIIB will force the pace of IMF reforms (which are stalled at the U.S. Congress for the past 4 years). China’s intention is not to destroy the current financial system but to seek a greater role for it in the decision-making and running of the institutions such as World Bank and IMF. China hopes to force a rethink on the part of the US as regards the IMF (ie, expand and reform the institution, accommodate the renminbi and so on.)

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“I would like to inform you about the decision to participate in the AIIB..”

Russia To Apply For China-Led Infrastructure Bank AIIB (RT)

Russia decided to apply to join the China-led Asian Infrastructure Investment Bank (AIIB), the country’s Deputy Prime Minister Igor Shuvalov said on Saturday. “I would like to inform you about the decision to participate in the AIIB,” which was made by Russian President Vladimir Putin, Shuvalov said at the Boao Forum for Asia. Shuvalov added that Russia welcomes China’s Silk Road Economic Belt initiative and is happy about stepping up cooperation. “We are delighted to be able to step up cooperation in the format of the Eurasian Economic Union (EEU) and China…the free movement of goods and capital within the EEU brings economies of Europe and Asia closer. This is intertwined with the Silk Road Economic Belt initiative, launched by the Chinese leadership,” he said. Britain and Switzerland have been formally accepted as founding members of the AIIB, China’s Finance Ministry confirmed Saturday.

This comes a day after Brazil accepted an invitation to join the bank. “We should push forward with the creation of a regional hub for financial cooperation,” Chinese President Xi Jinping said Saturday, Reuters reported. China should “strengthen pragmatic cooperation in monetary stability, investment, financing, credit rating and other fields,” Xi said. AIIB has 30 founding members with applications still coming in, according to China’s Finance Ministry. Australia has recently applied to join the bank. The application deadline has been set for March 31. Other nations will still be able to join the AIIB after the deadline expires, but only as common members, Chinese Finance Minister Lou Jiwei said last week. China wants to see the AIIB operational before the end of 2015.

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The Netherlands is home to a disproportionately large number of international construction companies..”

Netherlands Seeks To Join Asian Infrastructure Investment Bank (Reuters)

The Netherlands intends to join the Asian Infrastructure Investment Bank (AIIB), Prime Minister Mark Rutte said on Saturday, becoming the latest U.S. ally to seek membership in the China-led institution despite Washington’s misgivings. Rutte announced the decision on his official Facebook page during a visit to China and after a meeting with President Xi Jinping. “There is a great shortage of financing for infrastructure in Asia,” Rutte said. “An investment bank such as the AIIB can meet this demand, and the Netherlands has much expertise in this area”. The United States had warned against the new institution, but after Britain announced it would join, European allies France, Germany and Italy quickly followed suit this month.

South Korea has said it will join, while Japan is still deciding. The AIIB has been seen as a challenge to the World Bank and Asian Development Bank, and a significant setback to U.S. efforts to extend its influence in the Asia Pacific region to balance China’s growing financial clout and assertiveness. Rutte said joining is in the Netherlands’ interests as a trading nation, and said he hoped it would ultimately create jobs. The Netherlands is home to a disproportionately large number of international construction companies, including many with a focus on dredging and maritime construction such as Boskalis , VolkerWessels, Ballast Nedam, Van Oord and BAM, among others.

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“We want this bank to be the best possible bank with the best possible structure..”

Australia to Join China-Led Development Bank, Says Finance Minister (WSJ)

Australia intends to join the new Asian infrastructure bank China is setting up, becoming the latest U.S. ally to announce its participation despite Washington’s concerns about the way the bank may operate. Australian Finance Minister Mathias Cormann said Saturday that Prime Minister Tony Abbott will make an announcement Sunday about Australia’s application for membership in the Asian Infrastructure Investment Bank. Mr. Cormann, speaking at a conference in China, said the decision comes after “very good” discussions on Friday with Chinese Finance Minister Lou Jiwei. He said Australia had been urging that the bank adopt best practices in lending and operations. “We want this bank to be the best possible bank with the best possible structure,” Mr. Cormann said.

Australia’s decision was expected. China had set a deadline for the end of March for countries to become founding members of the bank. Chinese officials have said that founders’ status that would allow some say over setting rules for the bank, which is expected to start operating by the end of the year with $100 billion in capital. Australia had come under pressure from Washington last year not to join the bank, according to U.S. and Australian officials. Washington has expressed concern that the bank, if not governed properly, would contribute to corruption and indebtedness and supplant institutions such as the World Bank and the Asian Development Bank. But with the March deadline looming, other U.S. allies, from Britain and Germany to South Korea, have in recent weeks gone ahead and announced their intention to join.

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EU countries will never give up independence. So they might as well stop pretending this union thing.

Eurozone Can’t Survive In Current Form, Says PIMCO (Telegraph)

The eurozone is “untenable” in its current form and cannot survive unless countries are prepared to cede sovereignty and become a “United States of Europe”, the manager of the world’s biggest bond fund has warned. The Pacific Investment Management Company (PIMCO) said that while the bloc was likely to stay together in the medium term, with Greece remaining in the eurozone, the single currency could not survive if countries did not move closer together. Persistently weak growth in the eurozone had led to voter unrest and the rise of populist parties such as Podemos in Spain, Syriza in Greece, and Front National in France, said PIMCO managing directors Andrew Bosomworth and Mike Amey. “The lesson from history is that the status quo we have now is not a tenable structure,” said Mr Bosomworth.

“There’s no historical precedent that this sort of structure, which is centralised monetary policy, decentralised fiscal policy, can last over multiple decades.” PIMCO said the rise of populist parties demonstrated how uneasy some people had become about the euro. “[Persistently low growth] manifests itself in a lack of support in the common currency, so then it leads to the rise to power of political parties that want to end it,” said Mr Bosomworth. “That’s what we seen in the last few years. [Populist parties have] risen from zero to be a considerable force. In Greece’s case to form a government. ‘This means we’re in a critical situation, because you cannot just plaster over these people’s concerns, there needs to be a political response as well, which involves addressing the question: what is the ultimate future of the monetary union?”

PIMCO used the example of the Latin and Scandinavian unions in the 19th century, which lasted an average of 50 years before breaking up, to illustrate how monetary unions were incompatible with sovereignty. “You need to reach some sort of political agreement about how to share fiscal resources around the zone. We’re a long, long, long way from designing that and getting the political backing for it,” he said. “So while you’re waiting for that and you’ve got low growth, and high unemployment, you run the risk of letting these anti-euro parties to the forefront.” “Will we get the United States of Europe? It’s not impossible, but Europe could also spend many decades in a hybrid form of a political and fiscal federation. While there might not be one government, one passport and one army, we could be moving closer towards that – but not yet.”

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“No list should go over the will and sovereignty of the people..”

Greek Energy Minister To Visit Moscow, Hits Out At Germany (Reuters)

Greece’s Energy Minister Panagiotis Lafazanis will meet his Russian counterpart and the CEO of energy giant Gazprom in Moscow on Monday, as he hit out at the EU and Germany for tightening a ‘noose’ around the Greek economy. Outspoken Lafazanis, on the left wing of Greece’s co-ruling Syriza party, will meet Russian Energy Minister Alexander Novak and Gazprom Chief Executive Alexei Miller as well as other senior government officials, the energy ministry said on Saturday. But as Athens battles to have a list of reforms accepted by its EU partners in order to secure much-needed funds to stave off bankruptcy, Lafazanis criticized Berlin and said the government must not roll back on its commitments.

“No list should go over the will and sovereignty of the people,” he told Kefalaio newspaper in an interview on Saturday. “The Germanized European Union is literally choking our country and tightening week by week the noose around the economy,” he said. Greece will run out of money by April 20, a source familiar with the matter told Reuters on Tuesday, unless it manages to unlock aid by agreeing on a list of reforms with EU-IMF partners with Lafazanis opposed to several energy privatizations.

The previous center-right government had planned to accelerate the sale of a 65% stake in gas utility DEPA, after an initial attempt to sell to Gazprom in 2013 failed. Within days of Syriza taking power in January, Lafazanis said he would scrap the sale. DEPA has previously negotiated with Gazprom in a bid to get cheaper gas supplies and was one of the first European companies to obtain a rebate in 2011. Lafazanis’ visit will come just over a week before Tsipras is due to meet Russian President Vladimir Putin in Moscow although the Greek government has stressed it is not seeking funding from the Kremlin.

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“..we want a solution, but if things don’t go well you have to bear the bad scenario in mind as well. That is the nature of negotiations.”

Greece Submits Reform Proposals To Eurozone Creditors – With A Warning (Guardian)

Greece submitted a long-awaited list of structural reforms to its creditors on Friday as its leftist-led government warned it would stop meeting debt obligations if negotiations failed and aid was not forthcoming. As officials from the EU, the ECB and the IMF prepared to pore over Athens’s latest proposals, the country’s international economic affairs minister, Euclid Tsakalotos, raised the stakes, saying while Greece wanted an agreement it was prepared to go its own way “in the event of a bad scenario”. He told the Guardian: “We are working in the spirit of compromise, we want a solution, but if things don’t go well you have to bear the bad scenario in mind as well. That is the nature of negotiations.” The government, dominated by the anti-austerity Syriza party, had assembled a package of 18 reforms in the hope of unlocking £7.2bn in financial assistance.

The desire was for a positive outcome, Tsakalotos said, but Athens’s new administration was not willing to abandon its anti-austerity philosophy. Two months after assuming office, the government’s priority remained to alleviate the plight of those worst affected by Greece’s catastrophic five-year-long crisis. The British-trained economist said: “Our top priority remains payment of salaries and pensions. If they demand a 30% cut in pensions, for example, they do not want a compromise.” mThe reform-for-cash deal, the latest twist in Greece’s battle to keep bankruptcy at bay, did not – and would not – include any recessionary measures, a government official said, adding it was hoped the proposals would bolster state coffers with €3bn (£2.2bn) in badly needed revenues.

“The actions proposed though the reforms list foresee revenues of €3bn for 2015, which under no circumstances will come from wage or pension cuts,” he said. “The list does not include recessionary measures.” [..] With the country shut out of international capital markets, economists and officials have warned Athens could run out of money by 9 April, when it must pay €450m to the IMF. “The government is not going to continue servicing public debt with its own funds if lenders do not immediately proceed with the disbursement of funds which have been put on hold since 2014,” said government aides. “The country has not taken receipt of an aid instalment from the EU or IMF since August 2014 even though it has habitually fulfilled its obligations.”

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“Lack of market access, uncertain prospects of timely disbursement from official institutions, and tight liquidity conditions in the domestic banking sector..”

Fitch Downgrades Greece Amid Bailout Uncertainty (AP)

Ratings agency Fitch has downgraded Greeces sovereign rating amid growing uncertainty over the new government’s pledge to overhaul reforms needed to restart bailout loan payments and avoid default. The agency late on Friday said it had lowered the country’s rating deeper into non-investment grade status from B to CCC, citing «extreme pressure on Greek government funding.” Rescue lenders are expected this weekend to start reviewing reforms overhauled by Prime Minister Alexis Tsipras’s new left-wing government. The government has promised to ax austerity measures that cut chronic deficits but kept Greece in a punishing recession for six years. “Lack of market access, uncertain prospects of timely disbursement from official institutions, and tight liquidity conditions in the domestic banking sector have put extreme pressure on Greek government funding,” Fitch said.

“We expect that the government will survive the current liquidity squeeze without running arrears on debt obligations, but … the damage to investor, consumer, and depositor confidence has almost certainly derailed Greece’s incipient economic recovery.” Greece has been unable to borrow on international markets since 2010 due to high borrowing rates that reflect a lack of investor confidence in the country. It has relied since then on funds from a €240 billion bailout from other eurozone countries and the IMF. But its creditors are refusing to release the last installments, worth more than €7 billion, unless the government produces an acceptable list by Monday of reforms aiming to restore the country’s tattered economy.

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Tsipras doesn’t care about the old guard.

Opposition Tells Tsipras To Get Control Of His Party (Kathimerini)

Opposition parties called on Prime Minister Alexis Tsipras over the weekend to get a firmer control on his party, claiming that some sections of SYRIZA are seeking a confrontation with lenders. With talks between technical teams from Greece and the institutions under way in Brussels, Tsipras was due to hold a cabinet meeting on Sunday night to brief his ministers about the content of the government’s proposals and the course of discussions in the Belgian capital. However, opposition parties had earlier expressed concern about Tsipras’s apparent inability to get his party to support a compromise with creditors.

“He does not want to cause a rift because he does not have a mandate from voters for such a move and he knows the consequences would be catastrophic,” PASOK leader Evangelos Venizelos said in an interview with Agora newspaper. “On the other hand, he does not have the parliamentary majority needed to support a clean and honest turn toward responsibility.” To Potami also voiced its concern about the comments from some government members after Energy Minister Panayiotis Lafazanis claimed in an interview with Kefalaio weekly that the only way for Greece to exit the crisis is through “a tough confrontation, if not a clash with German Europe.” “Mr Tsipras has to advise his ministers not to play with fire just so they are liked by the minority within his party and the drachma lobby,” said the centrist party in a statement.

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Nice negotiating partners.

Troika Expects Greece To Miss Primary Surplus Target This Year (Reuters)

The three institutions or troika representing Greece’s official creditors expect Athens could miss its goal of a primary budget surplus this year, German magazine Der Spiegel reported on Saturday citing a source within the group of lenders. Greece’s former conservative government said last year it would achieve a primary surplus of 3.0% of GDP in 2015, but the magazine quoted the source as saying: “Probably nothing will remain from that.” It added Greece’s financial situation had worsened since January due to a lack of reforms under leftist Prime Minister Alexis Tsipras. A spokesman for German Finance Minister Wolfgang Schaeuble declined to comment on the report, that also estimated Greece’s funding gap had grown to up to €20 billion.

Greece has sent its creditors a long-awaited list of reforms with a pledge to produce a small budget surplus this year in the hope that this will unlock badly needed cash, Greek government officials said on Friday. The list estimates a primary budget surplus of 1.5 pct for 2015, below the 3% target included in the country’s existing EU/IMF bailout, and growth of 1.4%, the official said. The Greek finance ministry recently revised last year’s primary budget surplus to 0.3%, from 1.5% of GDP as estimated by the former conservative government and agreed with the country’s international lenders. The finance ministry said its estimate was based on preliminary data and was partly due to a shortfall of €3.9 billion in state revenue late last year. Greece’s deputy prime minister was quoted as saying by China’s official Xinhua news agency that Greece will sell its majority stake in the port of Piraeus within weeks, a u-turn by the government as it seeks funds from its creditors.

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“If the debt is considered official, it will breach the terms of providing financial assistance..”

Ukraine’s $3 Billion Debt To Russia Puts IMF Package At Risk (RT)

Ukraine’s $3 billion debt to Russia could undermine the IMF’s four-year multibillion dollar bailout program. If the debt is considered official, it will breach the terms of providing financial assistance, said IMF spokesperson William Murray. The Ukraine debt includes $3 billion in Eurobonds lent by Russia to the country’s previous government in December 2013. IMF rules say a bailout cannot be provided to a country if it defaulted on a loan from a state institution. “We have a non-tolerance policy,” William Murray told reporters at a news conference on Thursday, adding that Ukraine’s debt to Russia should be considered state debt. “If I’m not mistaken, the $3 billion Eurobond comes from the Russian sovereign wealth fund, so it’s official debt,” he said.

However, the IMF hasn’t yet clarified its attitude towards the whole matter, Murray said. If Russia rejects the possibility of restructuring Ukraine could face imminent default, placing the IMF in an awkward situation. Russia’s Finance Minister Anton Siluanov said Friday he considers Ukraine’s $3 billion debt official. “Russia is definitely acting as the official creditor in this case,” Siluanov said. Siluanov also said that Russia isn’t ready to restructure the Ukrainian debt, as “it is in a difficult situation itself.” Talking about the possibility of settling Ukraine’s debt to lenders through the Paris club of creditor nations, he said that Russia received no official information about Ukraine talking to the club.

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“After international banks cut off links, withdrawals were capped at €2,500 a week, a limit many people are maxing out.”

Andorra On The Brink Of Europe’s Next Banking Crisis (Telegraph)

Andorra, the tiny Catalan principality nestling in the foothills of the Pyrenees between France and Spain, tends to conjure up images of scenic ski resorts, medieval churches and duty-free shopping. The country has for many years enjoyed the benefits of European borders without the restrictions of EU membership, allowing light-touch regulation that has brought in tourism and wealthy expats from its bordering countries. However, in the last three weeks, the state has been gripped by a banking crisis that threatens to take it to the brink. Bankers have been thrown in jail, savers’ deposits have been restricted, and the country’s government is scrambling to convince powerful regulators thousands of miles away that the country is not a haven for tax evasion.

On Tuesday March 10, the US Treasury Department’s financial crime body, FinCEN, accused Banca Privada d’Andorra (BPA), the country’s fourth-largest bank, of money-laundering. The authority said “corrupt high–level managers and weak anti–money-laundering controls have made BPA an easy vehicle for third–party money-launderers”. Three senior managers at the bank accepted bribes to help criminals in Russia, Venezuela and China, to funnel money through the Andorran system, according to FinCEN. The next day, the state took charge of BPA, dismissing three directors. On the Friday, the bank’s chief executive, Joan Pau Miquel, was arrested and detained. Mr Miquel remains in a jail cell in La Comella, the country’s only prison, with a capacity of 145.

At BPA, the Andorran authorities have installed new management. After international banks cut off links, withdrawals were capped at €2,500 a week, a limit many people are maxing out. Banco Madrid, the Spanish subsidiary of BPA acquired as part of an expansion spree in recent years, filed for administration on Wednesday. The Andorran government insists that BPA is an isolated case, saying it is committed to transparency and that the rest of the sector is clean. For its sake, it had better be right, but many experts fear this is not the case. The state’s banks have assets under management 17 times bigger than the economy, and the sector accounts for a fifth of GDP – almost all of the rest is from tourism.

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“..he understands Moscow’s foreign policy concerns and sees no reason to fear a possible Russian threat in Eastern Europe..”

Ex-Chancellor Schroeder Criticizes Merkel’s Russia Policy (RT)

German ex-Chancellor Gerhard Schroeder has slammed Angela Merkel’s policy towards Russia, saying he understands Moscow’s foreign policy concerns and sees no reason to fear a possible Russian threat in Eastern Europe. Schroeder, the chancellor of Germany from 1998-2005, fully recognized Russia’s concerns, which are linked to the growing isolation of the country. “The Warsaw Pact ceased to exist with the end of the Soviet Union, while NATO not only survived, but also has extensively expanded to the East,” he said in a Saturday interview to Der Spiegel. Schroeder said he knows “no one, not even in Russia, who would be so mad as to just consider placing in question the territorial integrity of Poland or the Baltic states,” he said, seeking to lessen the fears of Russia’s Eastern European neighbors.

The Social Democrat also criticized the attitude of Chancellor Angela Merkel towards Russia. He pointed out that Berlin shouldn’t let the EU Commission “have talks about the EU-association only with Ukraine, and not with Russia,” also stressing that “Ukrainian culture is split itself.” Schroeder has insisted that the attempt of the international isolation of Russia is “wrong,” as responsibility for the Ukraine crisis is “on all parties.” He said that “in this conflict, mistakes have been made by all the sides, and they have led to a spiral of threats, sanctions and the resort to force.” However, he said that Crimea joining Russia last year was a “violation of the international law.” Still, commenting on the expulsion of Russia from the G8 group in 2014, he said that “during a crisis talks are absolutely necessary.”

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And you thought your country was corrupt.

Brazil Police Arrest Businessmen Linked to Petrobras Scandal (Reuters)

Brazilian police on Friday arrested two businesspeople in connection to corruption probe focused on state-owned oil firm Petroleo Brasileiro SA (Petrobras). Dario Galvao, chief executive of a construction group, and Guilherme Esteves, a lobbyist who is being investigated for funneling bribe money, were taken to federal police headquarters in the southern city of Curitiba, a court spokesperson said. Federal judge Sergio Moro ordered the arrests after a request by investigators looking into the Petrobas scandal. Investigators said they were led to Galvao by Shinko Nakandakari, an import figure implicated in the scandal who has been cooperating with the investigation.

Judge Moro called Galvao the mastermind of his company’s criminal activity and said he posed a risk of committing more crimes. “There is evidence of crimes for extended periods, starting at least from 2008 to 2014,” Moro wrote in a court decision. Moro said that a search of Esteves’ home “revealed evidence of corruption crimes and money laundering, with the use of secret accounts abroad by Guilherme Esteves de Jesus to make bribe payments… to leaders of Petrobras and (oil rig maker) SeteBrazil.” In a statement, Grupo Galvao said Galvao’s arrest was “without legal grounding” and he had “not committed any crime.” It also said that Galvao Engenharia, its building subsidiary which filed for bankruptcy this week, rejects vehemently any accusations of being part of a corrupt cartel.

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Mar 252015
 
 March 25, 2015  Posted by at 7:39 am Finance Tagged with: , , , , , , , , ,  Comments Off on Debt Rattle March 25 2015


William Henry Jackson Jupiter & Lake Worth R.R., Florida 1896

The Long-Distance Relationship Between Americans and Jobs (WSJ)
American Cash Is Flooding Into European Stocks (CNN)
Bank of Canada, Government and Others Face Lawsuit for IMF Conspiracy (Epoch T.)
ECB Said to Limit Greek Lenders’ Treasury-Bill Holdings (Bloomberg)
Greeks Celebrate Independence as EU Creditors Discuss Their Fate (Bloomberg)
Next Task For Tsipras Is To Convince His Party (Kathimerini)
Greece: Fascists At The Gate (Hallinan)
China’s Influence Poised To Climb In Revamp Of Postwar Order (Bloomberg)
The New Chinese Dream (Pepe Escobar)
Gulf Should Be More Worried About Yemen Than Oil (CNBC)
Oil Stand-Off In Ukraine Shows Oligarchs Won Maidan Revolution (Sputnik)
Fiscal Virtue And Fiscal Vice – Macroeconomics At A Crossroads (Skidelsky)
Pension Funds Seek Shelter From Dollar’s Rise (WSJ)
Brazil Investigates Deficit-Ridden Pension Fund (Bloomberg)
Money May Make The World Go Round, But At What Cost? (BBC)
Obama Snubs NATO Chief as Crisis Rages (Bloomberg)
Paulson and Warren: The Unlikely Twin Towers of Dodd-Frank (Bloomberg)
Presidents, Bankers, the Neo-Cold War and the World Bank (Nomi Prins)
Financial Feudalism (Dmitry Orlov)
Antibiotics In Meat Rising Fast Worldwide, Especially Bacon (UPI)
Monsanto Bites Back at Roundup Findings (WSJ)

3 trillion kilometers driven last year.

The Long-Distance Relationship Between Americans and Jobs (WSJ)

For more Americans, jobs are moving out of reach, literally. The number of “nearby jobs”–jobs within a typical commute for residents in a major metropolitan area–dropped 7% between 2000 and 2012, according to a new study of census data by Elizabeth Kneebone and Natalie Holmes of the Metropolitan Policy Program at the Brookings Institution. Minorities and poor Americans, who have moved to the suburbs in droves, fared worse. The number of nearby jobs fell 17% for Hispanic residents and 14% for blacks over this time period, compared with a drop of 6% for whites. Typical poor residents saw a drop in job proximity of 17%, versus 6% for the nonpoor. The growing distance between Americans and job opportunities is a discouraging trend amid what’s become the strongest job creation in two decades.

Last month, U.S. employers added a seasonally adjusted 295,000 jobs, the 12th straight month of 200,000-plus net job creation. That’s the best streak since 1995. Most of those jobs are full-time. (In 2012, where the Brookings analysis ends, overall U.S. employment in America’s largest metros was about 2% higher than in 2000, following the Great Recession’s catastrophic job losses.) But what matters for Americans’ employment prospects isn’t just the number of job opportunities, or even how “good” they are, but where they are. People near jobs are more likely to work, and have shorter job searches and periods of joblessness—especially black Americans, women and older workers, Brookings says. Among the poor, being near a job increases the chances of leaving welfare.

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The world gets more distorted by the day.

American Cash Is Flooding Into European Stocks (CNN)

American cash is pouring into European stocks. Last week alone, U.S.-based funds sent a record amount -$3.9 billion – into Europe equities. That’s according to EPFR Global, a research firm that tracks fund flow data. “The trend is definitely accelerating,” says Cameron Brandt, director of research at EPFR. U.S. investments going to Europe thru mid-March have already outpaced February’s total and are triple the size of January’s figure. Here’s why investors are flocking to Europe:

• Europe’s stock success: It’s no secret that European stocks are hot right now. Since the ECB announced its stimulus plan for the continent in January, markets have surged. The STOXX index (SXXL) is up 16% this year while Germany’s DAX has risen 21% in 2015. Markets in Belgium, Sweden and even Spain – yes, Spain! – are doing great so far too. That’s a lot better than the U.S. markets, which are up just over 1% so far this year. As U.S. stocks look pricey, investors see more upside potential across the pond.
“It’s time for Europe to play catch up,” says Kevin Kelly at Recon Capital. “That’s why you’re seeing investors and funds flow into Europe.”

The stimulus plan has weakened the value of the euro, and at the same time the U.S. dollar is gaining value. The euro has rallied a bit this week, but it’s still near 12-year lows. Many believe the dollar and euro could be equal later this year. The currency situation makes European companies more attractive to investors because their products are cheaper to sell than American companies’ products. European exports are on the rise, and the eurozone economy is showing signs of a pick up.

• Expect the trend to continue: The flood of money into Europe is unlikely to stop any time soon. Sixty-three% of fund managers want to invest more in Europe this year, according to the most recent BofA Merrill Lynch fund manager survey. That’s the highest rate since 2001. One of the hot-ticket items right now for investors is exchange-traded fund (ETF) that own European stocks. Investment in those ETFs so far this year has doubled compared to the same time a year ago, according to BlackRock.

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Intriguing.

Bank of Canada, Government and Others Face Lawsuit for IMF Conspiracy (Epoch T.)

It would be easy to assume the people suing the Queen of England, the Bank of Canada, and three ministers for a conspiracy against “all Canadians” wear tinfoil hats. They don’t. They may be conspiracy theorists, but they are also intelligent, thoughtful people who have a lawyer with a history of winning unlikely cases. And despite the government’s best efforts to have this case thrown out, it’s going ahead after winning an appeal that overturned a lower court’s ruling to have it tossed and surviving a follow-up motion to have it tossed again. The government has one more chance to have it thrown out through an appeal at the Supreme Court, but that has to be filed by Mar. 29 and that looks unlikely. That means the Committee on Monetary and Economic Reform (COMER) is going to have its day in federal court.

This little think-tank alleges that the Bank of Canada, the Queen, the attorney general, the finance minister, and minister of national revenue are engaging in a conspiracy with the International Monetary Fund (IMF), the Financial Stability Board (FSB), and the Bank for International Settlements (BIS) to undermine Canada’s financial and monetary sovereignty. No major media have covered this story. That could be because of the powerful vested interests the suit targets, as Rocco Galati, the lawyer trying the case, suggests. Or it could be because there are parts of the statement of claim that read like they were pulled from the dark corners of some Internet conspiracy forum. They weren’t. These are serious people with wide knowledge of the financial and monetary system. And their lawyer is no slouch.

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Dangerous games.

ECB Said to Limit Greek Lenders’ Treasury-Bill Holdings (Bloomberg)

The ECB banned Greek banks from increasing holdings of short-term government debt, two people familiar with the matter said. The decision, approved by the ECB Governing Council, comes five days after the same body stalled a previous proposal by the institution’s supervisory arm, pending legal review. In the intervening days, Greek Prime Minister Alexis Tsipras met high-level euro-area officials, including ECB President Mario Draghi and German Chancellor Angela Merkel. Tsipras agreed to submit a comprehensive list of policy measures aimed at securing more financial aid from European partners.

Euro-area finance officials will hold a call on Wednesday to discuss progress on Greece, amid concerns that the country will run out of money by early April. The Governing Council decision makes previous supervisory recommendations legally binding, and reflects increasing concern at the ECB’s bank oversight body, the SSM, about Greek lenders’ exposure to the state and the accompanying default risk. The ban echoes decisions already made on the monetary policy side, such as a €3.5 billion limit on accepting Greek treasury bills as collateral, one of the people said.

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Independence Day. But not a lot of independence.

Greeks Celebrate Independence as EU Creditors Discuss Their Fate (Bloomberg)

Greeks celebrate their independence Wednesday with a military parade and a folk-music festival sponsored by the Ministry of Defense, as European officials more than 1,000 miles away review the financial aid that will shape their future. The ECB Governing Council will hold a weekly call to assess the Emergency Liquidity Assistance keeping Greece’s banking system afloat while euro-area finance ministry officials will have a separate discussion on the progress of the country’s economic policy program. Without access to capital markets, or the ECB’s normal financing operations, Greek banks rely on almost €70 billion of ELA to cover a financing shortfall exacerbated by steep deposit withdrawals.

While inspectors are gauging the case for continuing financial support for Europe’s most-indebted nation, many Athenians will be watching a parade of battle tanks and fighter jets to mark the beginning in 1821 of the war that won independence from the Ottoman Empire. The government of George Papandreou scaled down military parades to cut costs after the Greek debt crisis erupted in 2010. Fighter jets made a comeback to the skies of Athens last year at a cost of about €500,000, according to a defense ministry official from the previous administration.

With government cash supplies running out and negotiations on financial aid only inching forwards, European officials have said that Greece could default on its obligations within weeks unless there’s a breakthrough. The government has to pay about €1.5 billion of salaries and pensions by the end of March and Prime Minister Alexis Tsipras is at loggerheads with its creditors over the conditions attached to its emergency loans. Revenue from taxes also missed budget targets by about €1 billion in the first two months of the year, the country’s Ministry of Finance said Tuesday, further depleting cash buffers.

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Will Syriza blow it all up?

Next Task For Tsipras Is To Convince His Party (Kathimerini)

Returning from his official visit to Germany, one of Prime Minister Alexis Tsipras’s main tasks will be to ensure his party’s support for the reform list his government is compiling and preparing to send to lenders, possibly by the end of the week. Sources said that Tsipras will take it upon himself to convince SYRIZA members and MPs to back the reform plan, which should secure Greece the funding it needs to survive until the end of June, when the government will have to reach a new agreement with its lenders. The prime minister’s first port of call in this effort to sell the current package will be the party’s political secretariat. A meeting is expected to take place in the next few days.

This will be followed by a gathering of SYRIZA’s parliamentary group, where Tsipras will try to persuade the party’s 149 MPs to back the reforms when they come to Parliament. The content of the reform package is not yet known but the government is concerned that it will contain a number of items that will not go down well within SYRIZA. This could include the retention of the contentious ENFIA property tax for another year, albeit adjusted so that the less well-off pay less, as well as labor and pension reforms. The coalition has already sought to defuse any tension over privatizations by saying that it will only seek strategic partnerships that allow the state to retain a controlling majority.

An area of increasing friction is what the government plans to do with value-added tax. Lenders want the special 30% reduction on VAT enjoyed by islands to be scrapped. Alternate Finance Minister Nadia Valavani told ANT1 TV yesterday that one option might be to adopt regular VAT rates on the most popular islands, such as Santorini and Myconos. However, this runs counter to what government sources have been saying so far. It is believed the coalition is examining the option of adopting an across-the-board VAT rate of 15%, which means some goods will become cheaper and others more expensive, but with possible exceptions for some basic items such as medicines.

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Next in line if Syriza fails?!

Greece: Fascists At The Gate (Hallinan)

When some 70 members of the neo-Nazi organization Golden Dawn go on trial sometime this spring, there will be more than street thugs and fascist ideologues in the docket, but a tangled web of influence that is likely to engulf Greece’s police, national security agency, wealthy oligarchs, and mainstream political parties. While Golden Dawn—with its holocaust denial, its swastikas, and Hitler salutes—makes it look like it inhabits the fringe, in fact the organization has roots deep in the heart of Greece’s political culture Which is precisely what makes it so dangerous. Golden Dawn’s penchant for violence is what led to the charge that it is a criminal organization. It is accused of several murders, as well as attacks on immigrants, leftists, and trade unionists. Raids have uncovered weapon caches.

Investigators have also turned up information suggesting that the organization is closely tied to wealthy shipping owners, as well as the National Intelligence Service (EYP) and municipal police departments. Several lawyers associated with two victims of violence by Party members—a 27-year old Pakistani immigrant stabbed to death last year, and an Afghan immigrant stabbed in 2011— charge that a high level EYP official responsible for surveillance of Golden Dawn has links to the organization. The revelations forced Dimos Kouzilos, director of EYP’s third counter-intelligence division, to resign last September. There were several warning flags about Kouzilos when he was appointed to head the intelligence division by rightwing New Democracy Prime Minister Antonis Samaras.

Kouzilos is a relative of a Golden Dawn Parliament member, who is the Party’s connection to the shipping industry. Kouzilos is also close to a group of police officers in Nikea, who are currently under investigation for ties to Golden Dawn. Investigators charge that the Nikea police refused to take complaints from refugees and immigrants beaten by Party members, and the police Chief, Dimitris Giovandis, tipped off Golden Dawn about surveillance of the Party. In handing over the results of their investigation, the lawyers said the “We believe that this information provides an overview of the long-term penetration ands activities of the Nazi criminal gang with the EYP and the police.” A report by the Office of Internal Investigation documents 130 cases where Golden Dawn worked with police.

It should hardly come as a surprise that there are close ties between the extreme right and Greek security forces. The current left-right split goes back to 1944 when the British tried to drive out the Communist Party—the backbone of the Greek resistance movement against the Nazi occupation. The split eventually led to the 1946-49 civil war when Communists and leftists fought royalists and former German collaborationists for power.

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What if a big recession hits?

China’s Influence Poised To Climb In Revamp Of Postwar Order (Bloomberg)

Seven decades after the end of World War II, the international economic architecture crafted by the U.S. faces its biggest shakeup yet, with China establishing new channels for influence to match its ambitions. Three lending institutions with at least $190 billion are taking shape under China’s leadership, one of them informally referred to as a Marshall Plan – evoking the postwar U.S. program to rebuild an impoverished Europe. Also this year, China’s yuan may win the IMF’s blessing as an official reserve currency, a recognition of its rising use in trade and finance. China’s clout has been expanding for decades, as its rapid growth allowed it to snap up a rising share of the world’s resources, its exports penetrated global markets, and its bulging financial assets gave it power to make big individual loans and purchases.

Now, the creation of international lending institutions is leveraging that economic influence closer to the political and diplomatic arenas, as U.S. allies defy America to back China’s initiative. “This is the beginning of a bigger role for China in global affairs,” said Jim O’Neill, formerly at Goldman Sachs, who coined the term BRICs in 2001 to highlight the rising economic power of Brazil, Russia, India and China. Chinese President Xi Jinping’s vision of achieving the same great-power status enjoyed by the U.S. received a major boost this month when the U.K., Germany, France and Italy signed on to the Asian Infrastructure Investment Bank. The AIIB will have authorized capital of $100 billion and starting funds of about $50 billion.

Canada is considering joining, which would leave the U.S. and Japan as the only Group of Seven holdouts as they question the institution’s governance and environmental standards. Australian Prime Minister Tony Abbott’s cabinet approved negotiations to join too, according to a government official who asked not to be identified as the decision hasn’t been made public. “China’s economic rise is acting as a huge pull factor forcing the existing architecture to adapt,” said James Laurenceson, deputy director of the Australia-China Relations Institute in Sydney. “The AIIB has shown the U.S. that a majority in international community support China’s aspirations for taking on greater leadership and responsibility, at least on economic initiatives.”

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It’s still all just printed Monopoly cash, Pepe.

The New Chinese Dream (Pepe Escobar)

It’s no wonder top nations in the beleaguered EU have gravitated to the AIIB – which will play a key role in the New Silk Road(s). A German geographer – Ferdinand von Richthofen – invented the Seidenstrasse (Silk Road) concept. Marco Polo forever linked Italy with the Silk Road. The EU is already China’s number one trade partner. And, once again symbolically, this happens to be the 40th year of China-EU relations. Watch the distinct possibility of an emerging Sino-European Fund that finances infrastructure and even green energy projects across an integrated Eurasia. It’s as if the Angel of History – that striking image in a Paul Klee painting eulogized by philosopher Walter Benjamin – is now trying to tell us that a 21st century China-EU Seidenstrasse synergy is all but inevitable.

And that, crucially, would have to include Russia, which is a vital part of the New Silk Road through an upcoming, Russia-China financed $280 billion high-speed rail upgrade of the Trans-Siberian railway. This is where the New Silk Road project and President Putin’s initial idea of a huge trade emporium from Lisbon to Vladivostok actually merge. In parallel, the 21st century Maritime Silk Road will deepen the already frantic trade interaction between China and Southeast Asia by sea. Fujian province – which faces Taiwan – will play a key role. Xi, crucially, spent many years of his life in Fujian. And Hong Kong, not by accident, also wants to be part of the action.

All these developments are driven by China being finally ready to become a massive net exporter of capital and the top source of credit for the Global South. In a few months, Beijing will launch the China International Payment System (CIPS), bound to turbo-charge the yuan as a key global currency for all types of trade. There’s the AIIB. And if that was not enough, there’s still the New Development Bank, launched by the BRICs to compete with the World Bank, and run from Shanghai.

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.. the Saudi Arabian foreign minister said the GCC would take “necessary measures” to resolve the Yemeni conflict..”

Gulf Should Be More Worried About Yemen Than Oil (CNBC)

Civil strife and terrorism in Yemen could pose a greater threat to the Gulf countries of the Middle East than tumbling oil prices, a major bank said on Tuesday. “We can’t help but think that the turmoil in Yemen is the emerging and underappreciated risk for investors in GCC (Gulf Cooperation Council) stocks,” said Citi analysts Josh Levin and Rahul Bajaj in a research note. Despite worries about Islamic insurgency and destabilization in the Middle East and North Africa, investors in the oil-exporting GCC countries of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates (UAE) have focused on the potential hit from the slump in energy prices, with crude oil down around 50% since a peak in June 2014.

However, Levin and Bajaj said that increasing strife in Yemen—which borders Saudi Arabia to the south and Oman to the west— could be an “underappreciated risk” to the GCC. “One of the key takeaways from our GCC trip in early February came from an executive in Qatar who observed that while most people are focused on the price of oil, the recent instability in Yemen posed a greater and underappreciated risk to the GCC. Recent events appear to bear out this executive’s observation,” they said on Tuesday. Yemen is in the grips of a worsening civil war, with fighting intensifying between ousted Sunni President Abd-Rabbuh Mansuh Hadi and the Shiite, anti-American rebels who seized power in a coup in January.

The rebels also face violent resistance from Sunni tribesman and competing Islamist extremists in the south. Last week, suicide bombers opposed to the rebels killed 137 people and injured more than 300 others during Friday prayers in the Yemini capital of Sana’a. On Monday, the Saudi Arabian foreign minister said the GCC would take “necessary measures” to resolve the Yemeni conflict, according to media reports. This is in response to requests for military assistance from Hadi, who belongs to the same Muslim Sunni sect as Saudi Arabia’s leaders. Levin and Bajaj warned that the turmoil in Yemen had the potential to spill over into nearby countries. “We have no edge or ability to predict whether or not the conflict in Yemen will spill over into neighboring countries or impact other GCC countries,” they said.

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Kolomoysky ‘resigned’ after the article was written.

Oil Stand-Off In Ukraine Shows Oligarchs Won Maidan Revolution (Sputnik)

Whatever the outcome of the stand-off between President Petro Poroshenko and his subordinate Igor Kolomoysky may be, their conflict over Ukrainian oil giant Ukrnafta reveals realities about post-Maidan Ukraine which mainstream media manages to circumvent. Firstly, the country is still ruled by oligarchs, not by the people, even though Igor Kolomoysky is formally governor of Dnepropetrovsk region. Kolomoysky’s private army simply took control first of Ukrtransnafta (Ukraine’s oil transportation monopoly) and later of Ukrnafta. What does this tell us about the Ukrainian state? Secondly, Ukraine’s oligarchs are not at peace with each other; the country is bracing for a major ‘war for assets’ between the country’s richest men (Kolomoysky is worth $2.4 billion on the Forbes list and Poroshenko is worth $1.3 billion).

Thirdly, the Maidan revolution not only left the country without any meaningful legal opposition in the parliament or in the media – as Kost Bondarenko, director of the Kiev-based Foundation for Ukrainian Politics, put it in his article for the Moscow-based Nezavisimaya Gazeta – but the revolution also left Ukraine in a situation of complete lawlessness, when neither laws nor even the words of the president mean much before brutal force and big money (the main weapons of oligarchs). The story of the weekend conflict between Ukraine’s president and the governor of Ukraine’s most important industrial region is a perfect illustration of all these sad truths. Kolomoysky’s men with submachine guns not only took control of Ukrtransgaz on Friday, but the governor of Dnepropetrovsk was apparently untroubled by President Poroshenko’s reprimand for his “unethical behavior” issued the next day.

Kolomoysky’s response to this “scolding” from Poroshenko was widely reported, along with an officially unconfirmed freeze on the accounts of Poroshenko’s companies in Kolomoysky’s bank (Privat-bank). Adding armed insult to the financial injury, Kolomoysky’s men on Sunday took control of Ukrnafta, the country’s biggest oil company, presenting themselves as members of the “voluntary battalion Dnieper” (a Kolomoysky-sponsored paramilitary group known for its atrocities against civilians in the rebellious Donetsk Region). Despite Poroshenko’s order to disarm the gunmen and the president’s promise that “there will be no pocket armies in Ukraine,” Kolomoysky’s men did not leave the building on Monday; instead, they started to put up metal fences around it.

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“..fiscal tightening has cost developed economies 5-10 percentage points of GDP growth since 2010..”

Fiscal Virtue And Fiscal Vice – Macroeconomics At A Crossroads (Skidelsky)

Until a few years ago, economists of all persuasions confidently proclaimed that the Great Depression would never recur. In a way, they were right. After the financial crisis of 2008 erupted, we got the Great Recession instead. Governments managed to limit the damage by pumping huge amounts of money into the global economy and slashing interest rates to near zero. But, having cut off the downward slide of 2008-2009, they ran out of intellectual and political ammunition. Economic advisers assured their bosses that recovery would be rapid. And there was some revival; but then it stalled in 2010. Meanwhile, governments were running large deficits – a legacy of the economic downturn – which renewed growth was supposed to shrink.

In the eurozone, countries such as Greece faced sovereign-debt crises as bank bailouts turned private debt into public debt. Attention switched to the problem of fiscal deficits and the relationship between deficits and economic growth. Should governments deliberately expand their deficits to offset the fall in household and investment demand? Or should they try to cut public spending in order to free up money for private spending? Depending on which macroeconomic theory one held, both could be presented as pro-growth policies. The first might cause the economy to expand, because the government was increasing public spending; the second, because they were cutting it. Keynesian theory suggests the first; governments unanimously put their faith in the second.

The consequences of this choice are clear. It is now pretty much agreed that fiscal tightening has cost developed economies 5-10 percentage points of GDP growth since 2010. All of that output and income has been permanently lost. Moreover, because fiscal austerity stifled economic growth, it made the task of reducing budget deficits and national debt as a share of GDP much more difficult. Cutting public spending, it turned out, was not the same as cutting the deficit, because it cut the economy at the same time. That should have ended the argument. But it did not. Some economists claim that governments faced a balance of risk in 2010: cutting the deficit might have slowed growth; but not committing to cut it might have made things even worse.

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Reinforce your local infrastructure!

Pension Funds Seek Shelter From Dollar’s Rise (WSJ)

The soaring U.S. dollar is driving pension funds into the currency markets, in part to protect their overseas investments but also to take advantage of some of the biggest price swings in the financial world. In January, the California State Teachers Retirement System, the nation’s second-largest public pension fund with $190.8 billion under management, handed $500 million to a pair of specialist currency funds as part of an effort to limit losses on their international investments, which fall in value as the dollar rises against other currencies. Late last year, the $150.2 billion Florida State Board of Administration expanded its currency investments by more than 10%, to $2.25 billion.

Last June, the $29 billion Connecticut Retirement Plans & Trust Funds hired two managers to help reduce the foreign-currency risks in its international stock investments. And the $14.3 billion Kansas Public Employees Retirement System is now looking to hire a currency manager. The clamor to protect against currency swings marks a return to a strategy that pension funds have tried on and off for years, with mixed results. While it is good news for the money managers that provide the strategies, which stand to reap tens of thousands of dollars in fees for every pension plan that signs up, it also adds to the risks taken on by pensions. Currency markets are among the most volatile, raising the potential for big profits, but also big losses.

“The pickup since December has been extraordinary,” said Adrian Lee, who manages Adrian Lee & Partners hedge fund. “We’ve had more funds interested in our strategies in the last three months than we’ve had in the last three years.” The fund’s assets have grown 30% in the past year, as existing clients raised their allocations, Mr. Lee said. At their most basic, currency strategies come in two flavors. A passive currency-overlay program that seeks to hedge against foreign-exchange losses typically costs between 0.05% and 0.1% of assets, based on a pension’s exposure to foreign markets, according to NEPC, a consultant to pension plans.

Active strategies that seek to profit from currency swings tend to be several times more expensive, as they include higher management fees and allow hedge funds to keep a share of profits. The rising dollar has re-energized interest in both strategies. While the U.S. Federal Reserve is expected to raise interest rates as soon as June, both Europe and Japan are pumping out economic stimulus at unprecedented levels, seeking to stimulate their economies by keeping rates low. The divergence in borrowing costs has sparked an exodus of capital, as investors quit euro and yen-denominated assets and head into the greenback.

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From one scandal to the next.

Brazil Investigates Deficit-Ridden Pension Fund (Bloomberg)

The deficit-ridden pension fund for Brazilian postal workers is being investigated for alleged reckless management after several years of money-losing bets ranging from investments in Lehman Brothers bonds to Argentine debt, two people with knowledge of the matter said. Pension-fund agency Previc, securities regulator CVM, the central bank and federal prosecutors are collaborating on the probe and meeting weekly to conclude a report on Postalis, Brazil’s third-largest retirement system by number of beneficiaries, said one of the people, who asked not to be named because the issue is private. The findings may be released in coming days, the person said. Under Brazilian law, the agencies may seek penalties that may include fines of as much as 1 million reais ($320,200) and a 10-year ban from managing pension funds.

Postalis has been running a deficit every year since 2011 and the shortfall of 5.6 billion reais now eclipses its 5 billion reais in assets, public records show. Now, the pension fund created in 1981 to take care of Brazil’s more than 100,000 postal workers is requiring those same employees to boost contributions so it can keep making payments to beneficiaries. “They threw us under the bus,” said 36-year-old Douglas Melo, who is required to pitch in an extra 40 reais a month on top of the 55 reais he already contributes to guarantee future benefits of 200 reais a month. “The fund’s investments that later defaulted or were involved in scandals make no sense.”

Postalis amassed billions of reais in losses pursuing risky bets while its peers flocked to the relative safety and high yields of Brazilian government debt. Brazil’s pension funds allocated 15% of their combined 641.7 billion-real portfolio to Brazil local sovereign debt in 2012, according to the nation’s association that tracks the industry. Postalis held less than 1% in 2012. Postalis bet on a fund that booked 18 million reais of Lehman Brothers debt in August 2008, one month before the New York investment bank filed for bankruptcy, according to data from Brazil’s securities regulator. It bought bonds or invested in funds of mid-sized Brazilian banks that were liquidated by the central bank in 2012 amid fraud allegations and lack of capital.

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Rage against the monopoly. And then create another one just as fast.

Money May Make The World Go Round, But At What Cost? (BBC)

Banks once had a near monopoly on moving money around the world, and they charged a pretty penny for it. But since the 2008 financial crisis, their reputations have taken an almighty battering, and a growing number of technology-focused start-ups are intent on getting a slice of the action. Cost has become the battleground and technology the weapon in this huge business: people send more than $500bn (£334bn) abroad each year. TransferWise, for example, says banks and independent money transfer giants such as Western Union and MoneyGram, charge about 5-8% in fees when transferring money abroad, and these fees are often concealed within the exchange rate. It charges just 0.5% of the amount being converted. This can equate to a £100-£150 saving on a £5,000 international money transfer.

Founded by Estonians Taavet Hinrikus and Kristo Kaarman, the firm achieves this by matching people transferring money in one direction with people transferring it in the other – so called peer-to-peer transfers. In other words, you are in effect buying your currency from other individuals, thereby cutting out a big chunk of exchange rate and “foreign transaction” charges normally levied by banks. “We didn’t understand why transferring money had to be so expensive,” says Mr Hinrikus, who was one of the first employees of Skype, the online communications company. “With us, it’s all about transparency – that’s really important. We choose the mid-market rate when we transfer money.” Another key to their success – TransferWise has shifted more than £3bn of customers’ money since 2011 – is the simplicity of design, he says.

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Does he do this of his own accord?

Obama Snubs NATO Chief as Crisis Rages (Bloomberg)

President Barack Obama has yet to meet with the new head of NATO, and won’t see Secretary General Jens Stoltenberg this week, even though he is in Washington for three days. Stoltenberg’s office requested a meeting with Obama well in advance of the visit, but never heard anything from the White House, two sources close to the NATO chief told me. The leaders of almost all the other 28 NATO member countries have made time for Stoltenberg since he took over the world’s largest military alliance in October. Stoltenberg, twice the prime minister of Norway, met Monday with Canadian Prime Minister Stephen Harper in Ottawa to discuss the threat of the Islamic State and the crisis in Ukraine, two issues near the top of Obama’s agenda. Kurt Volker, who served as the U.S. permanent representative to NATO under both President George W. Bush and Obama, said the president broke a long tradition.

“The Bush administration held a firm line that if the NATO secretary general came to town, he would be seen by the president … so as not to diminish his stature or authority,” he told me. America’s commitment to defend its NATO allies is its biggest treaty obligation, said Volker, adding that European security is at its most perilous moment since the Cold War. Russia has moved troops and weapons into eastern Ukraine, annexed Crimea, placed nuclear-capable missiles in striking distance of NATO allies, flown strategic-bomber mock runs in the North Atlantic, practiced attack approaches on the UK and Sweden, and this week threatened to aim nuclear missiles at Denmark’s warships. “It is hard for me to believe that the president of the United States has not found the time to meet with the current secretary general of NATO given the magnitude of what this implies, and the responsibilities of his office,” Volker said.

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Barney Frank memoirs.

Paulson and Warren: The Unlikely Twin Towers of Dodd-Frank (Bloomberg)

On the surface, Henry Paulson, the former CEO of Goldman Sachs and Secretary of the Treasury under President George W. Bush, and Senator Elizabeth Warren, the populist Democrat from Massachusetts, seem an unlikely team. But former Representative Barney Frank, co-author of the Dodd-Frank financial reform legislation enacted in 2010, said he views Paulson and Warren as twin pillars protecting the financial system. In an interview this week on the Charlie Rose television program, Frank, who was chairman of the House Financial Services Committee during the 2008-2009 financial crisis, recalled former Federal Reserve Chairman Ben Bernanke and Paulson telling Congressional Democratic leaders, “The economy is about to fall apart and we have got to do something the public isn’t going to like.”

Frank worked with Bernanke and Paulson to push through the unpopular but ultimately successful financial bailout known as the Troubled Asset Relief Program. Paulson, Frank said, remained helpful even after leaving government, assisting in the drafting and passing of Dodd-Frank. While Paulson helped establish Dodd-Frank, Frank said, “Elizabeth Warren is helping safeguard it” from Republicans eager to scuttle the law. He acknowledged that Dodd-Frank is complex. But Frank insisted it was neither politically nor substantively possible to make the legislation, which overhauls some regulations dating to the 1930s, less complicated. “In the thirties, there was no such thing as credit default swaps and collateralized loan obligations and collateralized debt obligations,” he said.

Frank’s memoir – titled “Frank” – chronicles his more than four decades in public life. For the first two decades, he said, he felt it necessary to hide his sexuality while celebrating his advocacy of liberal policies. Now, he says, it’s easier to be gay — he was married during his final term in Congress – and harder to champion liberal policies.

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The World Bank as a power tool.

Presidents, Bankers, the Neo-Cold War and the World Bank (Nomi Prins)

At first glance, the neo-Cold War between the US and its post WWII European Allies vs. Russia over the Ukraine, and the stonewalling of Greece by the Troika might appear to have little in common. Yet both are manifestations of a political-military-financial power play that began during the first Cold War. Behind the bravado of today’s sanctions and austerity measures lies the decision-making alliance that private bankers enjoy in conjunction with government and multinational entries like NATO and the World Bank. It is President Obama’s foreign policy to back the Ukraine against Russia; in 1958, it was the Eisenhower Doctrine that protected Lebanon from a Soviet threat. For President Truman, the Marshall Plan arose partly to guard Greece (and other US allies) from Communism, but it also had lasting economic implications.

The alignment of political leaders and key bankers was more personal back then, but the implications were similar to the present day. US military might protected its major trading partners, which in turn, did business with US banks. One power reinforced the other. Today, the ECB’s QE program funds swanky Frankfurt headquarters and prioritizes Germany’s super-bank, Deutschebank and its bond investors above Greece’s future. These actions, then and now, have roots in the American ideology of melding military, political and financial power that flourished in the haze of World War II. It’s not fair to pin this triple-power stance on one man, or even one bank; yet one man and one bank signified that power in all of its dimensions, including the use of political enemy creation to achieve financial goals.

That man was John McCloy, ‘Chairman of the Establishment’ as his biographer, Kai Bird, characterized him. The relationship between McCloy and Truman cemented a set of public-private practices that strengthened private US banks globally at the expense of weaker, potentially Soviet (now Russian) leaning countries. [..] During the Cold War, the World Bank provided funds for countries that leaned toward capitalism versus communism. Political allies of the United States got better treatment (and still do). The Nations that private bankers coveted for speculative and lending purposes saw their debt loads increase substantially and their industries privatized. Equally, the bankers decided which bonds they could sell to augment public aid funds, which meant they would have control over which countries the World Bank would support. The World Bank did more to expand US banking globally than any treaty or entity that came before it.

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Good read.

Financial Feudalism (Dmitry Orlov)

Once upon a time—and a fairly long time it was—most of the thickly settled parts of the world had something called feudalism. It was a way of organizing society hierarchically. Typically, at the very top there was a sovereign (king, prince, emperor, pharaoh, along with some high priests). Below the sovereign were several ranks of noblemen, with hereditary titles. Below the noblemen were commoners, who likewise inherited their stations in life, be it by being bound to a piece of land upon which they toiled, or by being granted the right to engage in a certain type of production or trade, in case of craftsmen and merchants. Everybody was locked into position through permanent relationships of allegiance, tribute and customary duties: tribute and customary duties flowed up through the ranks, while favors, privileges and protection flowed down.

It was a remarkably resilient, self-perpetuating system, based largely on the use of land and other renewable resources, all ultimately powered by sunlight. Wealth was primarily derived from land and the various uses of land. Feudalism was essentially a steady-state system. Population pressures were relieved primarily through emigration, war, pestilence and, failing all of the above, periodic famine. Wars of conquest sometimes opened up temporary new venues for economic growth, but since land and sunlight are finite, this amounted to a zero-sum game. But all of that changed when feudalism was replaced with capitalism. What made the change possible was the exploitation of nonrenewable resources, the most important of which was energy from burning fossilized hydrocarbons: first peat and coal, then oil and natural gas.

Suddenly, productive capacity was decoupled from the availability of land and sunlight, and could be ramped up almost, but not quite, ad infinitum, simply by burning more hydrocarbons. Energy use, industry and population all started going up exponentially. A new system of economic relations was brought into being, based on money that could be generated at will, in the form of debt, which could be repaid with interest using the products of ever-increasing future production. Compared with the previous, steady-state system, the change amounted to a new assumption: that the future will always be bigger and richer—rich enough to afford to pay back both principal and interest.

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A tragic species killing itself:”..antibiotic use in livestock will likely rise 67% by 2030 if livestock conditions don’t improve. About 80% of antibiotics sold in the United States go to livestock”.

Antibiotics In Meat Rising Fast Worldwide, Especially Bacon (UPI)

In the next 15 years, countries around the world will see a major increase in antibiotic use in livestock, a new study finds. “The invention of antibiotics was a major public health revolution of the 20th century,” said senior author Ramanan Laxminarayan, a senior research scholar at the Princeton Environmental Institute and director of the Center for Disease Dynamics, Economics and Policy. “Their effectiveness – and the lives of millions of people around the world – are now in danger due to the increasing global problem of antibiotic resistance, which is being driven by antibiotic consumption.” The study was done by researchers at the Center for Disease Dynamics, Economics and Policy, Princeton University, the International Livestock Research Institute and the Université Libre de Bruxelles.

The researchers found antibiotic use in livestock will likely rise 67% by 2030 if livestock conditions don’t improve. About 80% of antibiotics sold in the United States go to livestock. Antibiotic resistance not only applies to the animals, but it can affect the humans eating the meat. The researchers found pig farmers producing pork and bacon use four times as many antibiotics as cattle farmers. One of the major reasons farmers are having to use more and more antibiotics is that demand for meat is going up, and animals are often subjected to smaller and smaller living quarters, where disease can spread.

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Feel the power.

Monsanto Bites Back at Roundup Findings (WSJ)

Monsanto Co. escalated its criticism of a World Health Organization agency’s finding last week that a commonly used herbicide probably has the potential to cause cancer in humans. The St. Louis-based agribusiness giant—a major seller of the weed killer—sought a meeting with senior WHO officials on the International Agency for Research on Cancer’s finding, while a WHO agency official defended what he called an “exhaustive” review of eligible data. The IARC’s classification of glyphosate, the U.S.’s most commonly used weedkiller, as “probably carcinogenic” in a report published Friday reignited debate over a chemical that environmental groups have long criticized and the agricultural industry has defended as safe for humans and less harsh on the environment than others.

“We are outraged with this assessment,” Robert Fraley, Monsanto’s chief technology officer, said Monday, arguing that the finding was derived from “cherry picking” data based on an “agenda-driven bias.” Monsanto, which markets glyphosate under the Roundup brand, sent letters to WHO members seeking to discuss the IARC classification, which Monsanto officials said ran counter to many other findings, including those by other WHO programs, according to Philip Miller, the company’s vice president of global regulatory affairs. Dana Loomis, deputy head of the monographs section for the IARC, said the agency’s classification of glyphosate as “probably carcinogenic” was based on an examination of peer-reviewed research and completed government reports on the herbicide.

“We feel confident that our process is transparent and rigorous, based on the best available scientific data, and that it’s free from conflicts of interest,” Mr. Loomis said. He also said it was “categorically not true” that the IARC overlooked research on glyphosate, as Monsanto and other agriculture groups alleged. He said the IARC seeks to find and review all publicly available, peer-reviewed research and government documents in their final form. That excludes draft research, he said, which can change before it is completed.

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 March 23, 2015  Posted by at 8:49 am Finance Tagged with: , , , , , , , ,  


Gottscho-Schleisner Fishing boat at Fulton Market Pier, NY 1933

World Faces 40% Water Shortfall In 15 Years: UN (MarketWatch)
Liquidity Crisis Could Spark The Next Financial Crash (Telegraph)
Strong Dollar Hammers Profits at US Multinationals (WSJ)
How Europe And US Stumbled Into Spat Over China-Led Bank (CNBC)
Lagarde Says IMF ‘Delighted’ To Co-operate With China-Led AIIB Bank (BBC)
US to Seek Collaboration With China-Led Investment Bank (WSJ)
France Is Europe’s ‘Big Problem’, Warns Mario Monti (Telegraph)
Draghi Cheerleads for Economy as Greek Risk Looms Over Euro Area (Bloomberg)
Greece And Germany Move Towards Crossroads Of The Eurozone (Guardian)
Greece’s Leader Warns Merkel Of ‘Impossible’ Debt Payments (FT)
Tsipras Letter To Merkel: The Annotated Text (FT)
Greek Ministers Set For Charm Offensives In Moscow, Beijing (Kathimerini)
Asleep At The Euro-Wheel (Al-Jazeera)
Greek Government Forced To Cooperate With Technocrats (Kathimerini)
OPEC Won’t Bear Burden Of Propping Up Oil Price – Saudi Minister (Reuters)
Shell Oil Drilling In Arctic Set To Get US Government Permission (Guardian)
US Spies Feel ‘Comfortable’ In Switzerland, Afraid Of Nothing: Snowden (RT)
Great Barrier Reef: Scientists Call For Scrapping Of Coal Projects (Guardian)
China Top Weather Scientist Warns On Climate Change Devastation (SR)
The Men Who Uncovered Assyria (BBC)

In just 15 years! Wrap your head around that!

World Faces 40% Water Shortfall In 15 Years: UN (MarketWatch)

As the global economy grows, the world is going to get a lot more thirsty in 2030 if steps aren’t taken to cut back on fresh water use now, the United Nations says. At current usage rates, the world will have 40% less fresh water than it needs in 15 years, according to the United Nations World Water Assessment Program in its 2015 report, which came out ahead of the U.N.’s World Water Day on Sunday. “Strong income growth and rising living standards of a growing middle class have led to sharp increases in water use, which can be unsustainable, especially where supplies are vulnerable or scarce and where its use, distribution, price, consumption and management are poorly managed or regulated,” the report said.

Factors driving up demand for water include increased meat consumption, larger homes, more cars and trucks on the road, more appliances and energy-consuming devices, all staples of middle -class life, the report noted. Population growth and increased urbanization also contribute to the problem. Water demand tends to grow at double the rate of population growth, the report said. The global population is expected to grow to 9.1 billion people by 2050, up from the current 7.2 billion. More people living in cities also put strain on water supplies.

The report estimates that 6.3 billion people, or about 69% of the world’s population, will be living in urban areas by 2050, up from the current 50%. The biggest drain on water resources is agriculture, which uses about 70% of the world’s fresh water supplies. Tapping into groundwater supplies to make up for surface-water deficits strains resources. The report said that 50% of the world relies solely on groundwater to meet basic daily needs and that 20% of the world’s aquifers are already over-exploited.

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“..liquidity in the US credit markets has dropped by about 90% since 2006..”

Liquidity Crisis Could Spark The Next Financial Crash (Telegraph)

[..].. it is the corporate bond market where worries about trading conditions are most acute. The ultra-loose monetary policies pursued by the Fed, the Bank of England and the European Central Bank has resulted in a torrent of bond issuance in recent years from companies seeking to capitalise on rock bottom interest rates. “Now is the perfect time to borrow if you’re a company,” says Gary Jenkins, a credit strategist at LNG Capital. European and British companies, excluding banks, sold a combined $435.3bn of investment-grade debt last year, and $458.5bn in 2013, according to Dealogic. The level of issuance is much greater than before the financial crisis. In 2005, for example, $155.7bn was raised from corporate bond sales and $139.8bn the year before that.

Companies issuing riskier, high-yield debt have been similarly prolific. Last year, European businesses sold $131.6bn of so-called junk bonds, up from $104.4bn in 2013, the Dealogic data show. In 2005, they issued $20.4bn. At the same time that issuance in the primary market has grown, trading of company bonds by investors in the secondary market has dried up, a liquidity shortage that ironically has been caused by regulators’ attempts to avert a repeat of the crisis that shook the financial system in 2008. “Bank regulation is generally a good thing, but one of the unintended consequences has been the reduction in market liquidity,” says John Stopford, co-head of multi-asset investing at Investec Asset Management.

“And that could come back to haunt us. People need to be aware of that risk and be prepared for it.” Unlike shares, which are traded on exchanges, bonds are typically traded over-the-counter and investment banks traditionally played a key role in facilitating the buying and selling of bonds issued by companies. But the regulatory crackdown on proprietary trading and increasingly stringent capital requirements, which have hit market-making activities, have forced banks to retreat from the market. “Tighter bank regulation makes it more expensive for banks to hold bond inventories, which reduces their desire to provide liquidity to the market,” says Stopford. As a result, it has become much harder for investors to trade corporate debt.

“If you’re working a €50m block of bonds, there’s no way you’re going to get a price. So instead you have to chip away and sell €2m to €3m per day,” according to Andy Hill, ICMA’s director of market practice and regulatory policy. “A few years ago, you would go to your favoured bank with a large block, they would show you a price, they would take it onto their balance sheet, hedge it and then trade out of it. Banks can’t do that any more.” The impact of the fall-back by banks on trading has been dramatic. According to the Royal Bank of Scotland, liquidity in the US credit markets has dropped by about 90pc since 2006. Jenkins at LNG Capital says that the poor liquidity has prompted some fund managers to alter their investment behaviour altogether and buy and hold bonds until maturity, rather than selling them on and booking the gains.

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“..companies that generate more than 50% of sales outside the U.S. are expected to post an earnings decline of 11.6% in the first quarter..”

Strong Dollar Hammers Profits at US Multinationals (WSJ)

The soaring dollar is crunching profits at giant U.S. multinationals, prompting Wall Street analysts to make their deepest cuts to earnings forecasts since the financial crisis and boosting the appeal of smaller, domestically focused companies. The dollar has jumped 12% in 2015 against the euro and is up 27% from a year ago. The WSJ Dollar Index, which measures the dollar against a basket of currencies, is up 5.3% this year. The dollar’s surge against the euro has been driven by an aggressive ECB monetary-easing program that has come as the U.S. central bank is preparing to raise interest rates. Analysts, citing the dollar’s strength as a key factor, are predicting that profits at S&P 500 firms for the first quarter will show their biggest annual decline since the third quarter of 2009.

As a result, investors are keeping a continued bias toward U.S.-based stocks that do less business abroad, such as shares of small companies that tend to be more domestically focused, and on companies outside the U.S. that stand to benefit from a weakening of their home currency as the dollar strengthens, particularly European manufacturers. “What is remarkable is the speed with which the dollar has accelerated, and that speed brings with it some complications,” said Anwiti Bahuguna, senior portfolio manager on Columbia Management’s global asset allocation team, which oversees $68 billion. “The dollar strength is moving at a much, much faster pace than you’ve seen in history.”

Many investors say the dollar’s rise is behind the relatively strong performance of smaller-company stocks, which are often more domestically focused than large-company stocks. The Russell 2000 index of small-capitalization shares is up 5.1% this year and 10% in the last six months. That compares with gains in the S&P 500 index of 2.4% in 2015 and 4.9% over six months. The dollar’s jump has come as the ECB embarked on a new, aggressive easing of monetary policy. Investors expect the Fed to respond to a healthier U.S. economy by raising rates later this year, though many analysts are expecting later, slower increases following Wednesday’s dovish Fed policy statement. [..]

Goldman Sachs expects the euro to fall another 12% against the dollar over the next 12 months. [..] According to FactSet, companies that generate more than 50% of sales outside the U.S. are expected to post an earnings decline of 11.6% in the first quarter when results start rolling in next month. Companies that generate less than half of sales outside the U.S. are expected to post flat earnings for the quarter. Companies in the S&P earned 46% of their sales outside the U.S. in 2014, according to S&P Dow Jones Indexes. By contrast, 19% of sales for Russell 2000 companies comes from outside the U.S., according to Bank of America Merrill Lynch.

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“Sour grapes over the AIIB makes America look isolated and hypocritical..”

How Europe And US Stumbled Into Spat Over China-Led Bank (CNBC)

Sometimes geopolitical shifts happen by accident rather than design. Historians may record March 2015 as the moment when China’s checkbook diplomacy came of age, giving the world’s number two economy a greater role in shaping global economic governance at the expense of the United States and the international financial institutions it has dominated since WWII. This month European governments chose, in an ill-coordinated scramble for advantage, to join a nascent, Chinese-led Asian Infrastructure Investment Bank (AIIB) in defiance of Washington’s misgivings. British finance minister George Osborne, gleeful at having seized first-mover advantage, stressed the opportunities for British business in a pre-election budget speech to parliament last week.

“We have decided to become the first major western nation to be a prospective founding member of the new Asian Infrastructure Investment Bank, because we think you should be present at the creation of these new international institutions,” he said after rebuffing a telephone plea from U.S. Treasury Secretary Jack Lew to hold off. The move by Washington’s close ally set off an avalanche. Irked that London had stolen a march, Germany, France and Italy announced that they too would participate. Luxembourg and Switzerland quickly followed suit. The trail of transatlantic and intra-European diplomatic exchanges points to fumbling, mixed signals and tactical differences rather than to any grand plan by Europe to tilt to Asia.

That is nevertheless the way it is seen by some in Washington and Beijing. As recounted to Reuters by officials in Europe, the United States and China who spoke on condition of anonymity because of the sensitivity of the subject, the episode reveals the paucity of strategic dialogue among what used to be called “the West”. It also highlights how the main European Union powers sideline their common foreign and security policy when national commercial interests are at stake. China’s official Xinhua news agency reflected Beijing’s delight. “The joining of Germany, France, Italy as well as Britain, the AIIB’s maiden G7 member and a seasoned ally, has opened a decisive crack in the anti-AIIB front forged by America,” it said in a commentary. “Sour grapes over the AIIB makes America look isolated and hypocritical,” it said.

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Thrilled, I tell ya… Couldn’t be happier!

Lagarde Says IMF ‘Delighted’ To Co-operate With China-Led AIIB Bank (BBC)

International Monetary Fund chief Christine Lagarde has said the IMF would be “delighted” to co-operate with the China-led Asian Infrastructure Investment Bank (AIIB). The AIIB has more than 30 members and is envisaged as a development bank similar to the World Bank. Mrs Lagarde said there was “massive” room for IMF co-operation with the AIIB on infrastructure financing. The US has criticised the UK and other allies for supporting the bank. The US sees the AIIB as a rival to the World Bank, and as a lever for Beijing to extend its influence in the region.

The White House has also said it hopes the UK will use “its voice to push for adoption of high standards”. Countries have until 31 March to decide whether to seek membership of the AIIB. As well as the UK, other nations backing the venture include New Zealand, Germany, Italy and France. Mrs Lagarde, speaking at the opening of the China Development Forum in Beijing, also said she believed that the World Bank would co-operate with the AIIB, China established the Asian lending institution in 2014 and has put up most of its initial $50bn (£33.5bn) in capital.

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Wankers ‘R ‘Us: “Co-financing projects with existing institutions like the World Bank or the Asian Development Bank will help ensure that high quality, time-tested standards are maintained.”

US to Seek Collaboration With China-Led Investment Bank (WSJ)

The Obama administration, facing defiance by allies that have signed up to support a new Chinese-led infrastructure fund, is proposing the bank work in a partnership with Washington-backed development institutions such as the World Bank. The collaborative approach is designed to steer the new bank toward economic aims of the world’s leading economies and away from becoming an instrument of Beijing’s foreign policy. The bank’s potential to promote new alliances and sidestep existing institutions has been one of the Obama administration’s chief concerns as key allies including the U.K., Germany and France lined up in recent days to become founding members of the new Asian Infrastructure Investment Bank.

The Obama administration wants to use existing development banks to co-finance projects with Beijing’s new organization. Indirect support would help the U.S. address another long-standing goal: ensuring the new institution’s standards are designed to prevent unhealthy debt buildups, human-rights abuses and environmental risks. U.S. support could also pave the way for American companies to bid on the new bank’s projects. “The U.S. would welcome new multilateral institutions that strengthen the international financial architecture,” said Nathan Sheets, U.S. Treasury Under Secretary for International Affairs. “Co-financing projects with existing institutions like the World Bank or the Asian Development Bank will help ensure that high quality, time-tested standards are maintained.”

Mr. Sheets argues that co-financed projects would ensure the bank complements rather than competes with existing institutions. If the new bank were to adopt the same governance and operational standards, he said, it could both bolster the international financial system and help meet major infrastructure-investment gaps. No decision has been made by the new Chinese-led bank about whether it will partner with existing multilateral development banks, as the facility is still being formed, though co-financing is unlikely to face opposition from U.S. allies.

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“We’ve seen that the strong axis is no longer so strong.”

France Is Europe’s ‘Big Problem’, Warns Mario Monti (Telegraph)

France has become Europe’s “big problem”, according to the former prime minister of Italy, who warned that anti-Brussels sentiment and the rise of populist parties in the Gallic nation threatened to blow the bloc’s Franco-German axis apart. Mario Monti – who was dubbed “Super Mario” for saving the country from collapse at the height of the eurozone debt crisis – said France’s “unease” with the single currency had already created tensions between Europe’s two largest economies. “In the last few years we have seen France receding in terms of actual economic performance, in terms of complying with all the European rules, and above all in terms of its domestic public opinion – which is turning more and more against Europe,” he told The Telegraph.

France’s strained relationship with Brussels has been borne out through its persistent defiance of EU budget targets and the rise of Marine Le Pen’s far-right Front National party, “France is the big problem of the European Union because the whole construct has been leveraged on the foundation of a solid Franco-German entente. If it isn’t there then there is a poor destiny for Europe,” said Mr Monti. “We’ve seen that the strong axis is no longer so strong.” Jens Weidmann, the president of Germany’s Bundesbank, recently attacked the EU’s decision to give France extra time to sort out its budget. Mr Weidmann said countries such as France, which has failed to meet a 3pc deficit target for several years, should not be allowed to “perpetually put off” belt-tightening.

Mr Monti said Germany’s willingness “to exercise certain responsibilities” as the bloc’s hegemon had eased the eurozone’s problems. The respected economist, whose technocratic government was swept into power in 2011, also said the anti-Brussels sentiment in France was greater than many believed. “I’m always struck when I participate in debates in France – even the elite is so uneasy about the governance of the eurozone. “I would not be surprised to hear this tone in Athens or in Lisbon, but I’m very surprised to hear this in Paris.” France will vote in local elections on Sunday. A recent poll conducted by Le Figaro newspaper put Ms Le Pen’s party out in the lead, with 30pc of the vote.

In a warning to France, Mr Monti said: “Maybe you forgot, but we all remember that France was the country that wanted the euro, not Germany. “Germany reluctantly accepted the euro to get approval of the other countries for its reunification process. It would have much rather kept to the Deutsche Mark. It was France who insisted to have the single currency and now it’s so uneasy with it.” Mr Monti, a Brussels veteran who is currently president of Bocconi University, also said the “humiliating” diktats of the so-called “troika” had caused more damage to the Greek economy and should not continue.

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Draghi is an ancient Bulgarian word for spin doctor. Which was old-Hungarian for BS.

Draghi Cheerleads for Economy as Greek Risk Looms Over Euro Area (Bloomberg)

Mario Draghi can gauge this week whether his optimism in the economy is well-founded. From business confidence in Germany to manufacturing in France and consumer spending in Italy, a smattering of data from across the 19-nation euro area will provide a glimpse at the state of the recovery. The ECB president, who has become more upbeat on the economy since announcing his quantitative-easing program two months ago, will get a chance to present his view on Monday when he addresses the European Parliament in Brussels. His words will come only days after protesters vented their anger outside the ECB’s new headquarters in Frankfurt over the institution’s perceived role in imposing fiscal austerity and economic hardship throughout Europe.

With unemployment still near record highs and strong support for populist parties like Greece’s Syriza threatening to tear apart the currency bloc, pressure is building on Draghi to ensure that monetary stimulus reaches beyond banks’ balance sheets. “Draghi will continue to cheerlead the effects of the ECB’s QE but warn that you need reforms to make the recovery extended and long-lasting,” said Thomas Harjes, senior European economist at Barclays Plc in Frankfurt. “There is still a significant amount of discontent in states that saw a surge in unemployment, and for this to change you really need a turn in employment dynamics.”

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Helena Smith is quite good from Athens.

Greece And Germany Move Towards Crossroads Of The Eurozone (Guardian)

When the red carpet is rolled out for Alexis Tsipras in Berlin on Monday, the euro debt drama will come to a potentially decisive turning point. His host will be none other than Angela Merkel, Europe’s mother, its powerbroker par excellence and the queen of austerity, defender of the very policies the left-wing firebrand has vowed to dismantle. For many, it will be the long anticipated moment of truth. There has been much that is familiar on the great Greek crisis train. For those on board, it has been a rollercoaster ride, one that seems to have arrived at the place it began. In five years of recession and austerity, seeing their country argue with creditors and bargain over reforms, Greeks have had an added sense of deja vu. Athens, in many ways, is still where it was when the crisis exploded in late 2009.

Merkel’s olive branch could change that. European solidarity is on the line but so, too, is the future of Greece and the single currency bloc to which it belongs. Historians will see a meeting of minds or deduce that the euro crisis ultimately crashed on the buffers of immovable object meeting irresistible force. The stakes could not be higher. Speculation of a Greek default and exit from the eurozone has resurfaced with a vengeance. And in Greek-German relations – amid renewed talk of war reparations and Nazi crimes – the climate couldn’t be worse. So bad have bilateral ties become that, on Sunday, Manolis Glezos, the second world war hero and symbol of national resistance, appealed to both countries for calm and logic to prevail.

Toxic nationalism – the affliction the European Union was created to quell – was, he said, at risk of once again rearing its ugly head. “I am worried by the climate of division, intolerance and hostility that some are seeking to create between,” said the 92-year-old adding that Greeks in no way blamed today’s Germans for the atrocities of the Third Reich. As an icon of the left – and leading Euro MP of Tsipras’ radical left Syriza party – the plea was seen as a direct message to the Greek premier.

The anti-austerity leader flies into Berlin as the crisis moves from the chronic stage back into the acute. Money and time for Athens is running out. Greece is faced with some €1.6 billion in debt repayments by the end of March with another €2 billion maturing next month. There are real – and growing concerns – that with cash reserves drying up, the government will have to issue IOUs to pay pensions and public sector salaries next week. The euro zone’s weakest link has never been more dependent on Teutonic goodwill.

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“He blames ECB limits on Greece’s ability to issue short-term debt as well as eurozone bailout authorities refusal to disburse any aid before Athens adopts a new round of economic reforms.”

Greece’s Leader Warns Merkel Of ‘Impossible’ Debt Payments (FT)

Alexis Tsipras, the Greek prime minister, has warned Angela Merkel that it will be “impossible” for Athens to service its debt obligations if the EU fails to distribute any short-term financial assistance to the country. The warning, contained in a letter sent by Mr Tsipras to the German chancellor and obtained by the Financial Times, comes as concerns mount that Athens will struggle to make pension and wage payments at the end of this month and could run out of cash before the end of April. The letter, dated March 15, came just before Ms Merkel agreed to meet Mr Tsipras on the sidelines of an EU summit last Thursday and invited him for a one-on-one session in Berlin, scheduled for Monday evening. In the letter, Mr Tsipras warns that his government will be forced to choose between paying off loans, owed primarily to the IMF, or continue social spending.

He blames ECB limits on Greece’s ability to issue short-term debt as well as eurozone bailout authorities refusal to disburse any aid before Athens adopts a new round of economic reforms. Given that Greece has no access to money markets, and also in view of the spikes in our debt repayment obligations during the spring and summer…it ought to be clear that the ECB’s special restrictions when combined with disbursement delays would make it impossible for any government to service its debt, Mr Tsipras wrote. He said servicing the debts would lead to a sharp deterioration in the already depressed Greek social economy a prospect that I will not countenance. With this letter, I am urging you not to allow a small cash flow issue, and a certain institutional inertia, to not turn into a large problem for Greece and for Europe, he wrote. [..]

Mr Tsipras’s five-page letter is particularly critical of the ECB, which he said had forbidden Greek banks from holding more short-term government debt than they did when they requested an extension of the current bailout last month — a cap that has prevented Athens from relying on Treasury bills to fill its urgent cash needs because Greek banks have become nearly the only buyer of such debt. The Greek prime minister insisted the ECB should have returned to “the terms of finance of the Greek banks” that existed immediately following his government’s election — when ECB rules were more lenient — once the deal to extend Athens’ €172bn bailout through June was agreed last month.

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When I read this, I’m thinking: why bother any longer?

Tsipras Letter To Merkel: The Annotated Text (FT)

The letter starts off by referring to a February 20 agreement by the eurogroup – the committee of all 19 eurozone finance ministers which is responsible for overseeing the EU’s portion of Greece’s €172bn bailout. That was the meeting where ministers ultimately agreed to extend the Greek bailout into June; it was originally to run out at the end of February, and the prospect of Greece going without an EU safety net had spurred massive withdrawals from Greek bank deposits, which many feared was the start of a bank run. The letter’s first paragraph also refers to a February 18 letter sent by Yanis Varoufakis, the Greek finance minister, to Jeroen Dijsselbloem, the Dutch finance minister who chairs the eurogroup. A copy of that letter can be found here. Its purpose was to formally request an extension of the existing bailout, something Tsipras had resisted since coming into office.

Dear Chancellor, I am writing to you to express my deep concern about developments since the 20th February 2015 Eurogroup agreement, which was preceded two days earlier by a letter from our Minister of Finance outlining a number of issues that the Eurogroup ought to resolve, issues which I consider to be important, including the need:

(a) To agree the mutually acceptable financial and administrative terms the implementation of which, in collaboration with the institutions, will stabilise Greece’s financial position, attain appropriate fiscal surpluses, guarantee debt stability and assist in the attainment of fiscal targets for 2015 that take into account the present economic situation.

This is a fancy way of saying that the two sides can’t agree on what reform measures must be adopted before Greece can get some of the €7.2bn remaining in the existing bailout and Tsipras wants the terms clarified quickly.

(b) To allow the European Central Bank to re-introduce the waiver in accordance with its procedures and regulations.

Given the economic climate, Greek banks have needed to borrow from the ECB at extremely cheap rates since they frequently can’t raise money for their day-to-day operations on the open market. But the ECB needs collateral for these loans, and one of the forms of collateral has always been government bonds owned by the banks. Well, as Greece’s fiscal situation deteriorates, those bonds are worth less and less – until, in the view of many central bankers, they’re too risky to accept as collateral at all. That’s been the situation for Greek bonds for a while, but up until Tsipras was elected, the ECB had a waiver in place allowing the central bank to accept the bonds as collateral since Athens was part of a bailout that was aimed at getting its finances back on track. Within days of Tsipras forming a government, the ECB withdrew the waiver, arguing that Athens was no longer committed to completing the bailout. Tsipras wants the wavier reinstated, since Greek banks are now relying on more expensive emergency loans from the Greek central bank instead of the ECB’s normal lending window.

(c) To commence work between technical teams on a possible new Contract for Recovery and Development that the Greek authorities envisage between Greece, Europe and the International Monetary Fund, to follow the current Agreement.

Greece will need a third bailout once the current programme ends in June, and here Tsipras is asking for talks on a new rescue to begin.

(d) To discuss means of enacting the November 2012 Eurogroup decision regarding possible further debt measures and assistance for implementation after the completion of the extended Agreement and as a part of the follow-up Contract.

Seemingly forgotten by everyone but the Greek government (and a few pesky reporters), in November 2012 eurozone finance ministers agreed to grant Athens additional debt relief if the government achieved a primary budget surplus (meaning that it takes in more than it spends, when interest on debt is not counted). Well, Greece reached a primary surplus in 2013. And no debt relief has been agreed. Tsipras is asking for this to happen in the third bailout programme.

Based on the in-principle acceptance of this letter and its content, the President of the Eurogroup convened the 20th February meeting which reached a unanimous decision expressed in a communiqué. The latter constitutes a new framework for the relationship between Greece, its partners, and its institutions.

This may appear a rhetorical flourish, but it gets to something deeper that continues to plague the relationship: Tsipras regards the February 20 agreement as a break from what came before; other eurozone leaders, particularly in Germany, regard it as simply an extension of the existing bailout programme.

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Sell your physical assets to Moscow and Beijing? You’d be crazy to do that.

Greek Ministers Set For Charm Offensives In Moscow, Beijing (Kathimerini)

The government is said to be trying to bring Moscow and Beijing to the negotiation table for the privatization of Piraeus and Thessaloniki ports, the Thrassio transit center and rail service operator TRAINOSE in order to secure financial support. These are projects of high added value for the Greek economy and will be at the focus of top-level visits to Russia and China by Greek officials in the coming weeks. What is at issue is whether they will be conceded via international tender – as the government has said they will – or through bilateral agreements, which are allowed between European Union members and third countries but are subject to EU competition rules. Prime Minister Alexis Tsipras is due to visit Moscow on April 8 escorted by National Defense Minister Panos Kammenos, who will return to the Russian capital nine days later.

Their agenda, besides energy and defense issues, will include Russian interest in the port of Thessaloniki and in TRAINOSE. Meanwhile, while Beijing has repeatedly stated its desire for a strong and united eurozone, with Greece obviously a member, sources say that it is reluctant to risk harming ties with the EU by intervening in the Greek-European discourse. Deputy Prime Minister Yiannis Dragasakis, Foreign Minister Nikos Kotzias and State Minister Nikos Pappas will be visiting China with his in mind. The Greek mission is departing for Beijing on Tuesday on a five-day visit, but it is not yet known whether the Greek ministers will be able to meet with Chinese Premier Li Keqiang, in a rapidly deteriorating international climate for Greece.

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“It would involve national governments and banks bypassing the ECB’s undemocratic, supra-national stranglehold and so the ECB wants nothing to hear of it. Sadly, it appears that Greece’s new top finance ministers are willing to comply with the ECB’s dominance..”

Asleep At The Euro-Wheel (Al-Jazeera)

In this battle, as Berlin-based Greek blogger “Techiechan” observes, the Alexis Tsipras administration with the aid of Finance Minister Yanis Varoufakis so far succeeded on two points: they have introduced a slither of transparency to the notoriously opaque European way of doing political business and have exposed to an international public the dominance of the German government in European affairs, as an account of a meeting of top euro area officials by US economist James Galbraith proves. But this, in turn, has led to a stronger backlash against Greece with most Germans for the first time wanting it to leave the euro area. Surprisingly, on the extremely sensitive subject of Nazi-era war reparations, which Schauble dismisses as a ploy, certain German politicians have broken rank and want to come to an agreement with Greece.

The Greek government is less keen on making as concrete calculations when it comes to solving its side of the crisis and Tsipras’s brave rhetoric of refusing to succumb to what he calls “blackmail” is not enough. Unless the government finds ways around the ECB’s “nein” stance towards lending to Greece’s main banks and at the same time miraculously kick-starts income collection (taxes and social security contributions from those who so far have were not paying, from so-called oligarchs to professional and regional pressure groups), it might run out of money in the coming weeks. Greece might not leave the euro zone but default inside it, given its obligations, foreign and domestic.

Is there a way out? On the level of unconventional but common sense solutions to get Greece’s economy going, Richard Werner, a German academic with immense private-sector experience who has lived through Japan’s withering and South East Asia’s blooming, has proposed what he calls “Enhanced Debt Management”. There is a hitch, though. It would involve national governments and banks bypassing the ECB’s undemocratic, supra-national stranglehold and so the ECB wants nothing to hear of it. Sadly, it appears that Greece’s new top finance ministers are willing to comply with the ECB’s dominance, as an editorial they co-authored for the Financial Times illustrates.

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They should refuse.

Greek Government Forced To Cooperate With Technocrats (Kathimerini)

The agreement reached at a mini EU summit with Greek Prime Minister Alexis Tsipras and other high-level EU officials, could mark the beginning of a more constructive engagement between the government and official lenders. This should become obvious in the next 10 days or so because failure to do so may bring about unpleasant consequences, including a credit crunch. Greece bought some time at the recent meeting but the clock is ticking. The government has to present a full list of structural reforms to the lenders in the next few days, something that could have been done in previous weeks. The reforms will be evaluated and hopefully approved by the Eurogroup so that a portion of the €7.2 billion earmarked for Greece under the second adjustment program can be disbursed.

Government officials are hopeful of smoother cooperation with the technocrats of the so-called Brussels Group, comprised of senior officials from the European Commission, the IMF, the ECB and the ESM (European Stability Fund), who are on a fact-finding mission in Athens. However, third-party observers who are aware of the review process and the fundamental weaknesses of the Greek civil service are not that optimistic. Although communication between the two sides may be restored, helping reduce the frustration of the technical teams of the Brussels Group, the speed with which ministry officials and others can respond to queries about data remain a big question mark. Unless the Greek side has done some homework and is ready to deliver the figures requested, the observers say they would be surprised by a response in such a short period of time.

If they are right, the review process will not be completed before we get well into April and Greece will not even be able to get the €1.9 billion it is hoping for from the return of income from bonds held by the ECB by then. Politics aside, the observers also point out that the Greek side has underestimated the role of the technocrats involved in the review process. According to them, their role is not limited to mere fact-finding but extends to producing policy proposals sent to their superiors for approval or modifications if the Greek side objects. As far as we know, such engagement between the two sides has not taken place yet for fiscal and other data.

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“We tried, we held meetings and we did not succeed because countries (outside OPEC) were insisting that OPEC carry the burden and we refuse that OPEC bears the responsibility..”

OPEC Won’t Bear Burden Of Propping Up Oil Price – Saudi Minister (Reuters)

OPEC will not take sole responsibility for propping up the oil price, Saudi Arabia’s oil minister said on Sunday, signalling the world’s top petroleum exporter is determined to ride out a market slump that has roughly halved prices since last June. Last November, Organization of the Petroleum Exporting Countries kingpin Saudi Arabia persuaded members to keep production unchanged to defend market share. The move accelerated an already sharp oil price drop from peaks last year of more than $100 per barrel that was precipitated by an oversupply of crude and weakening demand. Since the oil price collapse, top OPEC exporter Saudi Arabia has said it wants non-OPEC producers to cooperate with the group. But Saudi oil minister Ali al-Naimi said on Sunday that plan had so far not worked.

“Today the situation is hard. We tried, we held meetings and we did not succeed because countries (outside OPEC) were insisting that OPEC carry the burden and we refuse that OPEC bears the responsibility,” Naimi told reporters on the sidelines of an energy conference in Riyadh. “The production of OPEC is 30% of the market, 70% from non-OPEC…everybody is supposed to participate if we want to improve prices.” Earlier, OPEC governor Mohammed al-Madi said it would be hard for oil to reach $100-$120 per barrel. Oil prices recovered since January to over $60 a barrel, but have fallen again in recent days following a bigger than expected crude stock build in the United States that fueled concerns of an oversupply in the world’s largest oil consumer.

Benchmark Brent crude settled at $55.32 a barrel on Friday. Oil companies, including U.S. shale producers, have slashed spending and jobs since the price of oil fell, and may face another round of spending cuts to conserve cash and survive the downturn. Naimi repeated on Sunday that politics played no role in the kingdom’s oil policy. Some producers such as Iran, a political regional rival of Saudi Arabia, have criticised Riyadh for its stance on maintaining steady production. “There is no conspiracy and we tried to correct all the things that have been said but nobody listens,” Naimi said. “We are not against anybody, we are with whoever wants to maintain market stability and the balance between supply and demand, and (with regards to) price the market decides it.”

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Desperation squared.

Shell Oil Drilling In Arctic Set To Get US Government Permission (Guardian)

The US government is expected this week to give the go-ahead to a controversial plan by Shell to restart drilling for oil in the Arctic. The green light from Sally Jewell, the interior secretary, will spark protests from environmentalists who have campaigned against proposed exploration by the Anglo-Dutch group in the Chukchi and Beaufort seas off Alaska. Jewell will make a formal statement backing the decision as soon as Wednesday, the earliest point at which her department can rubber-stamp an approval given last month given by the Bureau of Ocean Energy Management (BOEM).

The US Interior Department had been forced to replay the decision-making process after a US federal court ruled last year, in a case brought by environmental groups, that the government had made mistakes in assessing the environmental risks in the drilling programme. However, the BOEM, an arm of Jewell’s department, has backed the drilling after going through the process again, despite revealing in its Environmental Impact Statement “there is a 75% chance of one or more large spills” occurring. A leading academic, Prof Robert Bea, from the engineering faculty at the University of California in Berkeley, who made a special study of the Deepwater Horizon accident, has raised new concerns that the recent slump in oil prices could compromise safety across the industry as oil producers strive to cut costs.

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And just about anywhere else too.

US Spies Feel ‘Comfortable’ In Switzerland, Afraid Of Nothing: Snowden (RT)

US spies operate in Switzerland without much fear of being unmasked, because Swiss intelligence, though knowledgeable and very professional, poses no threat to them, former NSA contributor Edward Snowden told Swiss TV. “The reason that made Switzerland so interesting as the capital of espionage – particularly Geneva – has not changed,” Snowden said in an interview to Darius Rochebin on RTS, a Swiss broadcaster. The two spoke at the International Film Festival and Forum on Human Rights on March 5. The transcript of the interview waspublished in le Temps, a Swiss French-language newspaper, this Saturday.

“There have always been international headquarters, the United Nations, WTO, WHO, ICRC [in Geneva]. There are representations of foreign governments, embassies, international organizations, NGOs … A number of organizations, and all of them are in one city [Geneva]!” According to Snowden, other Swiss cities have also been “affected” by US spies. “You have exceptional flows of capital and money in Zurich. You have bilateral agreements and international trade in Bern,” he said. The ex-NSA man recalled the time he was working in Geneva as an undercover US agent. He said the Americans weren’t afraid of Swiss intelligence. “Swiss services were not considered as a threat. [They] are also very knowledgeable and very professional. But they are small in numbers.”

Snowden compared Swiss intelligence to spying agencies in France, saying they respected French spies who are known to be “sophisticated and aggressive.” He drew examples of CIA operations concerning weapons of mass destruction, adding that people “involved in nuclear proliferation” were violating the law in Switzerland, Germany and neighboring countries. And unfortunately, “political influence” was seen in these cases, which “rose to the highest level in the government.” “That’s why representatives of the US government, even when they violate the Swiss laws, have a certain level of comfort, knowing that there will be no consequences,” Snowden concluded.

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WIth the present OZ gov in charge, forget it.

Great Barrier Reef: Scientists Call For Scrapping Of Coal Projects (Guardian)

Australia’s leading coral reef scientists have called for huge coalmining and port developments in Queensland to be scrapped in order to avoid “permanent damage” to the Great Barrier Reef. The Australian Coral Reef Society (ACRS) report, compiled by experts from five Australian universities and submitted to the United Nations, warns that “industrialising the Great Barrier Reef coastline will cause further stress to what is already a fragile ecosystem.” The report notes that nine proposed mines in the Galilee Basin, in central Queensland, will produce coal that will emit an estimated 705m tonnes of carbon dioxide at capacity – making the Galilee Basin region the seventh largest source of emissions in the world when compared to countries.

Climate change, driven by excess emissions, has been cited as the leading long-term threat to the Great Barrier Reef. Corals bleach and die as water warms and struggle to grow as oceans acidify. “ACRS believe that a broad range of policies should be urgently put in place as quickly as possible to reduce Australia’s record high per capita carbon emissions to a much lower level,” the report states. “Such policies are inconsistent with opening new fossil fuel industries like the mega coalmines of the Galilee Basin. Doing so would generate significant climate change that will permanently damage the outstanding universal value of the Great Barrier Reef.”

As well as calling for a halt to the Galilee Basin mines, which have broad support from the Queensland and federal governments, the scientists urge a rethink on associated plans to expand the Abbot Point port, near the town of Bowen. The expansion would make Abbot Point one of the largest coal ports in the world, requiring the dredging of 5m tonnes of seabed to facilitate a significant increase in shipping through the reef. The report warns dredging will have “substantial negative impacts on surrounding seagrass, soft corals and other macroinvertebrates, as well as turtles, dugongs and other megafauna.” Research has shown that coral disease can double in areas close to dredging activity.

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Luckily the US has Sen. Imhofe…

China Top Weather Scientist Warns On Climate Change Devastation (SR)

By the end of our century, climate change could have many detrimental effects – including reduced agricultural output, prolonging droughts and damaging major infrastructure projects in China alone, according to Zheng Guogang, the country’s top weather scientist. Guogang made his statement to the Xinhua News Agency. While China has decided to cut emissions of greenhouse gasses and has also promoted an app exposing factories that are the biggest causes of air pollution, the government has abstained from discussions on the causes and effects of climate change. A documentary about the nation’s pollution problem called “Under the Dome,” was banned in China this week.

While Guogang’s statements indicate that the nation is willing to admit it has a problem, they have shied away from allowing the public to participate in the debate of what’s to be done about it. “To face the challenges from past and future climate change, we must respect nature and live in harmony with it. We must promote the idea of nature and emphasize climate security,” read the statement. Guogang maintained that global warming is a threat for major Chinese infrastructures, like their power station, the Three Gorges Dam, also the world’s largest.

As they have in the past, Chinese weather officials provided weather-related educational materials for schoolchildren, with supplements on how to plan for natural disasters. However, they have become more vocal about the impact of global warming and its impact on China. The country is publicly acknowledging that its rapidly moving economy is greatly affecting the environment. “By the end of the 21st century, there will be higher risks of extreme high temperatures, floods and droughts in China,” the China Meteorological Administration said last week in a statement. “The population growth and wealth accumulation in the 21st century is projected to have superposition and amplification effects on the risks of weather and climate disasters.”

China leads the world in its emissions of greenhouse gasses, overtaking the U.S. in 2006, and currently expects that its rate of carbon emissions will peak by the year 2030. It still has yet to reveal its goals for reducing greenhouse gases. Along with the U.S., it resolved to set carbon-emission limits this November. Like many other countries, however, China’s government said it needs to maintain its own economic development, that moving to alternative energy may impact the jobs of many of its citizens: “It is the basic right of the people to pursue a moderately comfortable life and improve their living standards. We need to balance many factors and move on step by step.”

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A fantastically fascinating story, set against the pillaging of ancient sites by IS.

The Men Who Uncovered Assyria (BBC)

Two of the ancient cities now being destroyed by Islamic State lay buried for 2,500 years, it was only 170 years ago that they began to be dug up and stripped of their treasures. The excavations arguably paved the way for IS to smash what remained – but also ensured that some of the riches of a lost civilisation were saved. In 1872, in a backroom of the British Museum, a man called George Smith spent the darkening days of November bent over a broken clay tablet. It was one of thousands of fragments from recent excavations in northern Iraq, and was covered in the intricate cuneiform script that had been used across ancient Mesopotamia and deciphered in Smith’s own lifetime.

Some of the tablets set out the day-to-day business of accountants and administrators – a chariot wheel broken, a shipment of wine delayed, the prices of cedar or bitumen. Others recorded the triumphs of the Assyrian king’s armies, or the omens that had been divined by his priests in the entrails of sacrificial sheep. Smith’s tablet, though, told a story. A story about a world drowned by a flood, about a man who builds a boat, about a dove released in search of dry land. Smith realised that he was looking at a version of Noah’s Ark. But the book was not Genesis.

It was Gilgamesh, an epic poem that had first been inscribed into damp clay in about 1800BC, roughly 1,000 years before the composition of the Hebrew Bible (the Christian Old Testament). Even Smith’s tablet, which had been dated to some point in the 7th Century BC, was far older than the earliest manuscript of Genesis. A month or so later, on 3 December, Smith read out his translation of the tablet to the Society for Biblical Archaeology in London. The Prime Minister, William Gladstone, was among those who came to listen. It was the first time an audience had heard the Epic of Gilgamesh for more than 2,000 years.

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