May 092018
 


Edgar Degas Two laundresses 1876

 

Fed Chair Powell To Emerging Markets: You Are On Your Own (ZH)
Argentina Seeks IMF Aid ‘To Avoid Crisis’ (BBC)
Europe On Collision Course With US Over Iran Deal (AFP)
Mnuchin: Revoking Boeing, Airbus Licenses To Sell Jets To Iran (R.)
Pompeo, In North Korea, To Return With Detained Americans (R.)
Central Banks Rigged The Cost Of Money And The State Of The Markets (Prins)
US Student Debt Just Hit $1.5 Trillion (MW)
The State of the American Debt Slaves, Q1 2018 (WS)
UK PM May Suffers Upper House Defeat Over Plans To Leave EU Single Market (R.)
UK Retailers Suffer Sharpest Sales Drop For 22 Years In April (G.)
Sharp Drop In UK Retail Job Vacancies As High Street Crisis Deepens (Ind.)
Cynthia Nixon: Marijuana Industry Could Be ‘A Form Of Reparations’ (Hill)
Record Drop In Greek Savings Last Year (K.)
Debt Repayment Feasible if Greece ‘Implements Reforms’ – Regling (AMNA)
British Diplomats: Saving The Rainforest Could Hurt Fighter Jet Sales (UE)

 

 

As the dollar keeps rising.

Fed Chair Powell To Emerging Markets: You Are On Your Own (ZH)

Over the weekend, when commenting on the ongoing rout in emerging markets, Bloomberg published an article titled “Rattled Emerging Markets Say: It’s Over to You, Central Bankers.” Well, overnight the most important central banker of all, Fed Chair Jay Powell responded to these pleas to “do something”, and it wasn’t what EMs – or those used to being bailed out by the Fed – wanted to hear. As Powell explained, speaking at a conference sponsored by the IMF and Swiss National Bank in Zurich, the Fed’s gradual push towards higher interest rates shouldn’t be blamed for any roiling of emerging market economies – which are well placed to navigate the tightening of U.S. monetary policy. In other words, with the Fed’s monetary policy painfully transparent, Powell’s message to EM’s was simple: “you’re on your own.”

Arguing that the Fed’s decision-making isn’t the major determinant of flows of capital into developing economies (which, of course, it is especially as the Fed gradually reverses the biggest monetary experiment in history) Powell said the influence of the Fed on global financial conditions should not be overstated, despite Bernanke taking the blame five years ago for the so-called taper tantrum. “There is good reason to think that the normalization of monetary policy in advanced economies should continue to prove manageable for EMEs,” Powell said, adding that “markets should not be surprised by our actions if the economy evolves in line with expectations.”

[..] Meanwhile, as the Fed refuses to change course, other policy makers have been forced to step in to counter the sharp, sudden capital outflows, with Argentina’s central bank abruptly raising rates three times, to 40% to halt a sell-off in the peso. Russia has also put the brakes on further monetary easing. Turkey, which is a unique basket case in that Erdogan is expressly prohibiting the central bank from doing the one thing it should to ease the ongoing panic, i.e., raise rates, is seeking to bring down its current account deficit. Overnight, we learned that Indonesia was burning reserves to prop up its currency.

Meanwhile, also overnight, JPM CEO Jamie Dimon said it’s possible U.S. growth and inflation prove fast enough to prompt the Fed to raise interest rates more than many anticipate, and it would be wise to prepare for benchmark yields to climb to 4%. Such a scenario would be a disaster for EMs: “A sustained move higher would pressure local currencies and lure away foreign investors. The IMF warned last month that risks to global financial stability have increased over the past six months.” “Central banks may have to respond with interest rate hikes if the sell-off intensifies,” said Chua Hak Bin, a senior economist at Maybank Kim Eng Research in Singapore. Those most vulnerable include Ukraine, China, Argentina, South Africa and Turkey according to the Institute for International Finance.

Read more …

IMF demand: austerity. Back to the hoovervilles.

Argentina Seeks IMF Aid ‘To Avoid Crisis’ (BBC)

Argentina is to start talks about a financing deal with the International Monetary Fund (IMF) on Wednesday amid reports it is seeking $30bn (£22bn). Finance minister Nicolas Dujovne is due to fly to the IMF’s Washington offices. After recent turmoil that saw interest rates hit 40%, President Mauricio Macri said IMF aid would “strengthen growth” and help avoid crises of the past. The talks come 17 years after Argentina defaulted on its debts and 12 years since it severed ties with IMF. Mr Macri said in an address to the nation on Tuesday: “Just a few minutes ago I spoke with (IMF) director Christine Lagarde, and she confirmed we would start working on an agreement.”

“This will allow us to strengthen our program of growth and development, giving us greater support to face this new global scenario and avoid crises like the ones we have had in our history,” he said. Local media and Bloomberg reported that Argentina was seeking $30bn, although the government declined to comment. The peso has lost a quarter of its value in the past year amid President Macri’s pro-market reforms. Last week the central bank raised interest rates from 33.25% to 40%. Many people still blame IMF austerity requirements for policies that led to a financial and economic meltdown in 2001 to 2002 that left millions of middle class Argentines in poverty. Argentina eventually defaulted on its debts. And although its last IMF loan was paid down in 2006, the country severed ties with the Washington-based body.

Read more …

“US sanctions will target critical sectors of Iran’s economy. German companies doing business in Iran should wind down operations immediately,” tweeted the US ambassador in Berlin, Richard Grenell.

Europe On Collision Course With US Over Iran Deal (AFP)

Donald Trump’s decision to pull out of the landmark 2015 deal curbing Iran’s nuclear programme is a bitter pill to swallow for European leaders and risks a creating a major transatlantic rift. French President Emmanuel Macron, who has spent the past year cultivating the closest ties with Trump among EU leaders, made saving the Iran deal one of his priorities during his state visit to Washington last month. German Chancellor Angela Merkel had also travelled to the US in late April and she worked closely with Macron and British Prime Minister Theresa May right up to the last minute.

In a joint statement issued shortly after Trump walked away from 2015 accord, they said they noted the decision with “regret and concern” but they said they would continue to uphold their commitments. “Our governments remain committed to ensuring the agreement is upheld, and will work with all the remaining parties to the deal to ensure this remains the case,” they said. They noted that this included the “economic benefits to the Iranian people that are linked to the agreement,” which means European firms would in theory continue to invest and operate there. This would appear to set the three countries, all signatories along with Russia, China and the EU, on a direct collision course with Washington.

European leaders have clashed with the White House already on issues ranging from climate change to trade and Trump’s decision to move the US embassy in Israel to Jerusalem. Trump’s hawkish National Security Advisor John Bolton said that European firms would have a “wind down” period to cancel any investments made in Iran under the terms of the accord. “US sanctions will target critical sectors of Iran’s economy. German companies doing business in Iran should wind down operations immediately,” tweeted the US ambassador in Berlin, Richard Grenell. Under the 2015 deal, Iran was meant to benefit from increased trade and contracts with foreign firms in exchange for accepting curbs on its nuclear activity and stringent monitoring.

Read more …

Airbus? But it’s European. Oh: “All the deals are dependent on U.S. licenses because of the heavy use of American parts in commercial planes.”

Mnuchin: Revoking Boeing, Airbus Licenses To Sell Jets To Iran (R.)

Licenses for Boeing Co and Airbus to sell passenger jets to Iran will be revoked, U.S. Treasury Secretary Steven Mnuchin said on Tuesday after President Donald Trump pulled the United States out of the 2015 Iran nuclear agreement. Trump said he would reimpose U.S. economic sanctions on Iran, which were lifted under the agreement he had harshly criticized. The pact, worked out by the United States, five other world powers and Iran, lifted sanctions in exchange for Tehran limiting its nuclear program. It was designed to prevent Iran from obtaining a nuclear bomb. IranAir had ordered 200 passenger aircraft – 100 from Airbus SE, 80 from Boeing and 20 from Franco-Italian turboprop maker ATR.

All the deals are dependent on U.S. licenses because of the heavy use of American parts in commercial planes. Boeing agreed in December 2016 to sell 80 aircraft, worth $17 billion at list prices, to IranAir under an agreement between Tehran and major world powers to reopen trade in exchange for curbs on Iran’s nuclear activities. The U.S. Treasury Department, which controls licensing of exports, said the United States would no longer allow the export of commercial passenger aircraft, parts and services to Iran after a 90-day period. “The Boeing and (Airbus) licenses will be revoked,” Mnuchin told reporters at the Treasury. “Under the original deal, there were waivers for commercial aircraft, parts and services and the existing licenses will be revoked.”

Read more …

Are they going to say they were well treated?

Pompeo, In North Korea, To Return With Detained Americans (R.)

U.S. Secretary of State Mike Pompeo is expected to return from North Korea with three American detainees, as well as details of an upcoming summit between leader Kim Jong Un and U.S. President Donald Trump, a South Korean official said on Wednesday. Pompeo arrived in Pyongyang on Wednesday from Japan and headed to the Koryo Hotel in the North Korean capital for meetings, a U.S. media pool report said. Trump earlier broke the news of Pompeo’s second visit to North Korea in less than six weeks and said the two countries had agreed on a date and location for the summit, although he stopped short of providing details. An official at South Korea’s presidential Blue House said Pompeo was expected to finalize the date of the summit and secure the release of the three American detainees.

While Trump said it would be a “great thing” if the American detainees were freed, Pompeo told reporters en route to Pyongyang he had not received such a commitment but hoped North Korea would “do the right thing”. “We’ll talk about it again today,” he said. “I think it’d be a great gesture if they would choose to do so.” The pending U.S.-North Korea summit has sparked a flurry of diplomacy, with Japan, South Korea and China holding a high-level meeting on Wednesday. Chinese Premier Li Keqiang said concerned parties should seize the opportunity to promote denuclearization of the Korean peninsula, the official Xinhua news agency reported.

Read more …

More Nomi.

Central Banks Rigged The Cost Of Money And The State Of The Markets (Prins)

Nomi Prins: The word “collusion” has come to be associated with Russia, Trump and the US election. My book is about something entirely different, much more global: the collusion (or coordination) that the US central bank (the Federal Reserve) forged with other major countries to fabricate an abundance of money in the wake of the 2008 financial crisis to support the US financial system at first, and banks and select companies and markets worldwide, as well, since. The Fed conjured up this money to provide liquidity for Wall Street banks. The policy was then exported to the major central banks who acted as a lender and supplier of last resort to the world.

Some of the most notable central banks include the European Central Bank (ECB), the Bank of Japan and the Bank of England. Collusion is about these powerful institutions’ relationships with each other. The book dives into how central banks rigged the cost of money and the state of the markets, and ultimately created more inequality and instability as a result. They did all of this in order to subsidize private banks at the expense of people everywhere. The book reveals the people in charge of these strategies, their elite gatherings and public and private communications. It uncovers how their policies rerouted economies, geopolitics, trade wars and elections.

How do central banks relate to the world’s markets? Central banks have several functions from an official standpoint. The first is to regulate the smooth and orderly operation of private banks or public banks within a particular country or region (the ECB is responsible for many countries in Europe). The other function they are tasked with is setting interest rates (the cost of borrowing money) so that there’s adequate economic balance between full employment and a select inflation rate. The idea is that if the cost of money is cheap enough, private banks will lend to the general population and businesses. The ultimate goal is that the money can be used to expand enterprise, hire people and develop a strong economic posture.

Read more …

What cannot be repaid will not be.

US Student Debt Just Hit $1.5 Trillion (MW)

America’s student loan problem just surpassed a depressing milestone. Outstanding student debt reached $1.521 trillion in the first quarter of 2018, according to the Federal Reserve, hitting $1.5 trillion for the first time. Though the marker is somewhat arbitrary, it offers a reminder of how quickly student debt has grown—jumping from about $600 billion 10 years ago to more than $1.5 trillion today—and that the factors fueling the increase aren’t likely to disappear any time soon. “People pay attention to milestones,” said Mark Kantrowitz, a financial aid expert. When student debt surpassed $1 trillion in 2012, “it definitely caused a shift in coverage of student loans in the news media,” he said.

In theory, that helps raise awareness of the issue for student advocates, lawmakers and, in particular, borrowers when considering what college to attend. But Kantrowitz added, “What’s more important is the impact on individual borrowers.” And they are feeling it. College graduates leave school with about $37,000 in debt on average, according to Kantrowitz’s data, a sum that can be bearable for many, given that the average starting salary for a new college graduate last year hovered around $50,000. But a large share—as many as one in six college graduates, Kantrowitz estimates—will leave school with debt that exceeds their income. That will make it challenging for those borrowers to pay off their loans on a standard 10-year repayment plan, he said.

Read more …

Now let’s throw in some rate hikes, see what happens.

The State of the American Debt Slaves, Q1 2018 (WS)

Total consumer credit rose 5.1% in the first quarter, compared to a year earlier, or by $184 billion, to $3.824 trillion (not seasonally adjusted), according to the Federal Reserve. This includes credit-card debt, auto loans, and student loans, but not mortgage-related debt. That 5.1% year-over-year increase isn’t setting any records – in 2011, year-over-year increases ran over 11%. But it does show that Americans are dealing with the economy and their joys and woes the American way: by piling on debt faster than the overall economy is growing. The chart below shows the progression of consumer debt since 2006. In line with seasonal patterns for first quarters, consumer credit (not seasonally adjusted) edged down from Q4, as the spending binge of the holiday shopping season turned into hangover, an annual American ritual:

Note how the dip after the Financial Crisis – when consumers deleveraged mostly by defaulting on those debts – didn’t last long. Over the 10 years since Q1 2008, consumer debt has now surged 47%. Over the same period, the consumer price index has increased 16.9%: Auto loans and leases for new and used vehicles rose by 3.8% from a year ago, or by $41 billion, to $1.118 trillion. It was one of the smaller increases since the Great Recession: The peak year-over-year jumps occurred at the peak of the new vehicle sales boom in the US in Q3 2015 ($87 billion or 9%). However, the still standing records were set in Q1 and Q2 2001 near the end of the recession, with each quarter adding around $93 billion, or 16%, year-over-year.

Read more …

It really makes no difference; the EU will say no anyway to all plans acceptable to the UK.

UK PM May Suffers Upper House Defeat Over Plans To Leave EU Single Market (R.)

Britain’s upper house of parliament on Tuesday inflicted another embarrassing defeat on Prime Minister Theresa May’s government on Tuesday, challenging her plan to leave the European Union’s single market after Brexit. May, who has struggled to unite the government behind her vision of Brexit, has said Britain will also leave the European Union’s single market and customs union after it quits the bloc next March. That stance has widened divisions not only within her own Conservative Party but also across both houses of parliament, which like Britons at large, remain deeply split over the best way to leave the EU after more than four decades of membership.

By a vote of 245 to 218, the unelected upper chamber, the House of Lords, supported an amendment to her Brexit blueprint, the EU withdrawal bill, requiring ministers to negotiate continued membership of the European Economic Area, meaning that it would remain in the single market. “The time has come over Brexit, really, for economic reality and common sense to prevail over political dogma and wishful thinking,” said Peter Mandelson, a member of the House of Lords from the main opposition Labour Party, who backed the amendment.

His comments drew criticism from pro-Brexit peers, including Conservative member Michael Forsyth who described the amendment as part of an attempt by “a number of people in this house who wish to reverse the decision of the British people”. Those proposing the amendment deny the charge. This is the 13th time in recent weeks that the government has been defeated in the House of Lords on the draft legislation that will formally terminate Britain’s EU membership.

Read more …

Must have been the weather.

UK Retailers Suffer Sharpest Sales Drop For 22 Years In April (G.)

Britain’s retailers suffered the sharpest drop in business in more than two decades last month as bad weather, the squeeze on household budgets and the timing of Easter led to a hefty cut in consumer spending. In the latest evidence of the slowdown in the economy since the turn of the year, the latest health check from the British Retail Consortium (BRC) and KPMG found that sales were down by 3.1% in April, the biggest decline since the survey was launched in 1995. Spending on non-food items has been particularly hard hit over the last three months, and retailers are braced for tough trading conditions to continue for the rest of the year even though wages have now started to rise more quickly than prices.

Retailers have been hit hard by a combination of problems on top of the squeeze on spending, including higher labour costs as a result of increases in the minimum wage, the shift to online shopping and rapidly changing spending patterns. Toys R Us and the electricals retailer Maplin collapsed in February and a number of retailers, including House of Fraser, New Look, Carpetright and Poundworld, are all pursuing agreements with their landlords to cut their rents and close stores. The industry had been expecting that year-on-year comparisons would look poor for April, but the BRC’s chief executive, Helen Dickinson, said the problem ran deeper.

Read more …

Pickers and packers.

Sharp Drop In UK Retail Job Vacancies As High Street Crisis Deepens (Ind.)

Wages rose in April amid strong demand for candidates, but the number of retail vacancies dropped sharply as the crisis on the high street worsened, a recruitment industry survey has found. Growth of overall job vacancies picked up to a three-month high in April, the Recruitment and Employment Confederation said. Demand for permanent staff increased in the “vast majority” of job categories during the month, with the notable exception of retail, the REC said. The study of 400 recruitment consultancies found that engineering and IT saw the steepest increases in vacancies. REC director of policy Tom Hadley said the high-profile struggles of many retailers indicated it was a good time for staff to consider how they could transfer their skills into other roles, such as in the technology sector or as pickers and packers in distribution centres. “Helping people make career transitions will become increasingly important in this fast-changing business and employment landscape,” he said.

Read more …

Smart.

“..In New York in 2017, 86% of fifth-degree marijuana arrests were of people of color, while only 9% of those arrested were white..”

Cynthia Nixon: Marijuana Industry Could Be ‘A Form Of Reparations’ (Hill)

New York gubernatorial candidate and actress Cynthia Nixon on Saturday expanded on her calls for marijuana legalization, saying that the industry could provide a form of “reparations” for communities of color. Nixon, who expressed her support for legalizing marijuana earlier this year, told Forbes that she views marijuana as a racial justice issue. “We’re incarcerating people of color in such staggering numbers,” she said. She expressed support for what is known as an “equity” program, which would prioritize giving marijuana business licenses to people who have received marijuana convictions in the past. “Now that cannabis is exploding as an industry, we have to make sure that those communities that have been harmed and devastated by marijuana arrests get the first shot at this industry,” she told Forbes.

“We [must] prioritize them in terms of licenses. It’s a form of reparations.” In New York in 2017, 86% of fifth-degree marijuana arrests were of people of color, while only 9% of those arrested were white, despite data showing that black and white people are about equally likely to use marijuana. “Arresting people — particularly people of color — for cannabis is the crown jewel in the racist war on drugs and we must pluck it down,” she said. “We must expunge people’s records; we must get people out of prison.” “The use of marijuana has been effectively legal for white people for a really long time,” she told Forbes. “It’s time that we legalize it for everybody else.”

Read more …

Everything keeps going down. It’s guaranteed.

Record Drop In Greek Savings Last Year (K.)

Household savings shrank by 32.5 billion euros in total in the period from 2011 to 2017, as families increasingly resorted to dipping into their deposits after finding that disposable incomes are no longer enough to cover their outgoings. Last year the drop in savings reached an historic high of 8.3 billion euros in current prices, according to an analysis by Eurobank. In addition, households have resorted to liquidating assets such as properties, deposits, shares and bonds, among other investments. Notably consumption shrank by almost a quarter from 2008 to 2017, falling from 163.3 billion euros to 123.3 billion last year, which was the sixth in a row with negative savings for Greek households; this means that disposable income was less than consumption.

Eurobank data showed that the wealth of the country’s households has been in constant decline since 2011, falling at an average rate of 6.6 billion euros per year, which is transformed from various forms of savings into consumption. The report by Eurobank’s analysis department highlighted that the economic recession, the stagnation in investments and the major fiscal adjustment Greece experienced from 2009 to 2017 have compressed households’ saving capacity, both in terms of incomes and their obligations to the state through taxes and social security contributions.

The figures reveal that Greek households’ net annual savings amounted to 11.4 billion euros in 2009, or 7% of their gross disposable income, while last year the balance was negative by 8.3 billion, or 6.7% of households’ gross disposable income. Shrinking private consumption has had a direct impact on investments: In 2009 investments had amounted to 18.3% of GDP and were 31.8% funded by domestic consumption and the rest from borrowing. In 2017 the investment rate slipped to 11.6% of GDP, with domestic consumption accounting for 91.1%.

Read more …

Delusional or lying to our faces?

Debt Repayment Feasible if Greece ‘Implements Reforms’ – Regling (AMNA)

“If the government in Athens implements all the remaining reforms decisively, Greece can successfully emerge from the ESM program in August 2018,” Klaus Regling, president of the European Stability Mechanism, has said. The ESM chief spoke at en event held in Aachen, Germany on the occasion of the awarding of the 60th International Charlemagne Prize to French President Emmanuel Macron. Regling expressed confidence that Greece could repay its loans, provided the maturity times are sufficiently extended and the obligations do not exceed 15-20% of the country’s economic performance. The ESM chief said that if the latest report on Greece’s bailout program is positive, there will be a final disbursement from the ESM, and then decisions will be made on possible further debt relief.

He argued that there was absolutely no alternative to the establishment of the rescue mechanism, without which, as he said, Greece, Portugal and Ireland would have probably come out of Economic and Monetary Union under “chaotic conditions,” while at the same time other countries such as Germany, would have problems. Regling also stressed that ESM interest rates are clearly below the level that countries would have to pay in the markets, and that is why they save a lot of money. In the case of Greece, “we estimate that ESM loans lead to savings of almost €10 billion [$11.8 billion] each year for the Greek budget”, he said and stressed that this is happening costing nothing to the European taxpayer.

“These savings are an expression of the solidarity shown by the member states of the euro zone,” he said, and referred to “great efforts” that Greece is making to fulfill the strict reform conditions. “Overall, Greece now has impressive adaptation efforts behind it. The budget deficit at the start of the 2009 crisis was above 15% of GDP. For two years, the country has been generating a budget surplus. Such a success is only possible with profound reforms,” Regling noted and said that if Greece implements all reforms, eurozone finance ministers would give Greece further debt relief, namely longer repayment times.

Finally, explaining the reasons why Greece remains in a program while the other countries have completed their own, referred to the country as a “special case” for three reasons: “Firstly, the Greek economy has had problems that are deeper rooted than for other countries in a program. Secondly, the country suffered from a much weaker public administration than the other eurozone member states. “And thirdly, the Greek government in the first half of 2015 went in the wrong direction with then finance minister (Yanis Varoufakis): major reforms were revoked and an effort was made to stop the agreed reform program. “As a result, the Greek economy had fallen into a recession. Grexit suddenly became a realistic scenario. The Bank of Greece estimates that this wrong move cost Greece €86 billion.”

Read more …

How we think.

British Diplomats: Saving The Rainforest Could Hurt Fighter Jet Sales (UE)

British government officials warned a proposed EU ban on palm oil in biofuels could harm UK defence sales to Malaysia, specifically Typhoon fighter jets, according to government emails obtained by Unearthed. The correspondence reveals that the British high commission in Kuala Lumpur even expected Malaysian Prime Minister Najib Razak to lobby Theresa May personally on the issue at last month’s Commonwealth Heads of Government meeting. In the event, Razak did not attend the meeting in London, a Number 10 spokeswoman told Unearthed. Correspondence between the Ministry of Defence, the Department for Environment, Food and Rural Affairs and the British high commission reveals British officials were concerned that EU moves to ban palm oil in biofuels could result in Malaysian trade reprisals against the UK.

MEPs voted in January to phase out the use of palm oil in biofuels, citing environmental concerns. The move sparked a furious response from the governments of Indonesia and Malaysia, which produce most of the world’s palm oil. The debate over palm oil is playing a significant role in the run-up to Malaysia’s general election, which will be held tomorrow. On the morning of 5 February, an official at the British high commission in Malaysia sent an email warning that the EU decision was “a big issue for Malaysia and, if not handled correctly, has the potential to impact on bilateral trade, particularly defence sales (Typhoon)”.

Read more …

May 072018
 


John French Sloan Sunday, Women Drying Their Hair 1912

 

Behold The Sudden Stop. Risk of Emerging Markets Collapse (Lacalle)
Dollar Surge Bringing Emerging Market Rate Cut Cycle To A Halt (R.)
WTF Just Happened to Argentina’s Peso? (Fernet)
Remedies Trump Prescribes For Trade Problems Harm US (Xinhua)
In the Coming Crash We’ll be Falling from a Higher Height – Nomi Prins (USAW)
Mueller Investigation is In Jeopardy (ZH)
Why The Justice Department Defies Congress (WSJ)
Merkel Allies Reject Idea Of European Finance Minister (R.)
Weak Foreign Demand Pushes Down German Industrial Orders (R.)
A Million More UK Children In Poverty Than In 2010 (G.)
Air France Survival In Doubt Over Strikes (BBC)
Greece’s Incredibly Shrinking Middle Class (K.)
Conoco Moves To Take Over Venezuelan PDVSA’s Caribbean Assets (R.)

 

 

Argentina, Turkey, Indonesia. Brazil in a bit. The list will grow. As the dollar rises, emerging countries need more dollars to pay their debt, pushing the dollar up even more. And investors pull their money out of these countries. Vicious circles everywhere.

Behold The Sudden Stop. Risk of Emerging Markets Collapse (Lacalle)

Argentina even issued a one-hundred-year bond at a spectacularly low rate (8.25%) with a very high demand, more than 3.5 times bid-to-cover. That $ 2.5 billion issuance seemed crazy. A one-hundred-year bond from a nation that has defaulted at least six times in the previous hundred years! Worse of all, those funds were used to finance current expenditure in local currency. The extraordinary demand for bonds and other assets in Argentina or Turkey was justified by expectations of reforms and a change that, as time passed, simply did not happen. Countries failed to control inflation, deliver lower than expected growth and imbalances soared just as the U.S. started to see some inflation, rates started to rise.

Suddenly, the yield spread between the U.S. 10-year bond and emerging markets debt was unattractive, and liquidity dried up faster than the speed of light even with a modest decrease of the Federal Reserve balance sheet. Liquidity disappears because of extremely leveraged bets on one single trade – a weaker dollar, higher global growth- unwind. However, another problem exacerbates the reaction. An aggressive increase in the monetary base by the Argentine central bank made inflation rise above 23%. With an increase in the monetary base of 28% per year, and seeking to finance excess spending by printing money and raising debt to “buy time”, the seeds of the disaster were planted. Excess liquidity and the US dollar weakness stopped. Local currencies and external funding face risk of collapse.

The Sudden Stop. When most of the emerging economies entered into twin deficits -trade and fiscal deficits- and consensus praised “synchronized growth”, they were sealing their destiny: When the US dollar regains some strength, US rates rise due to an increase in inflation, the flow of cheap money to emerging markets is reversed. Synchronized indebted growth created the risk of synchronized collapse.

Read more …

Is this really the end of cheap debt? It’s dangerous too: if Turkey gets into real trouble, Erdogan will seek a scapegoat.

Dollar Surge Bringing Emerging Market Rate Cut Cycle To A Halt (R.)

A resurgent dollar and higher borrowing costs are smashing through Argentina and Turkey’s currencies like a wrecking ball and raising the likelihood more broadly that emerging markets’ three-year long interest rate cutting cycle is at an end. Emerging markets came into the year flying, riding on the back of a healthy global economy and rising commodity prices alongside tame inflation and a weak dollar. It looked more than likely that a wave of rate cuts would keep rolling, allowing a bond rally to continue. From Brazil and Russia to Armenia and Zambia, developing countries, big and small, have been on a rate cutting spree. With hundreds of rate cuts since Jan. 2015, the average emerging market borrowing cost fell under 6% earlier this year from over 7% at the time.

Fund managers’ profits too have soared in this time, with emerging local currency debt among the best performing asset classes, with dollar-based returns of 14% last year. Even in the first quarter of 2018, returns were a buoyant 4.3% Now though, almost exactly five years since the so-called taper tantrum shook an emerging market rally, these gains appear to be on the cusp of reversal. Argentina has jacked up its interest rates to 40% in response to a rout in its peso currency, while Turkey was also forced into a rate rise as its lira hit record lows against the dollar. Indonesia, after heavy interventions to stem rupiah bleeding, has also said it could resort to policy tightening.

Read more …

Déja vu.

WTF Just Happened to Argentina’s Peso? (Fernet)

If you’re watching Argentina’s economy, it hasn’t been a banner week. This week, Argentina had to raise its key interest rate three times to keep the Argentine peso from losing even more value against the dollar. Three interest rate hikes in one week is a lot – it implies the first two didn’t work, and the Central Bank is not in control. The interest rate currently sits at 40%. That means the Central Bank pays 40% per year on peso-denominated debt, which can imply that they expect the value of the peso to fall somewhere in the ballpark of 40% over a one year period. A year ago in April, the rate was closer to 26%. Yikes. And the exchange rate kicked off the week at around 20.5 ARS/USD. It jumped almost to 23 ARS/USD, and is currently hovering around 21.8 ARS/USD.

[..] When the US dollar increases in value, emerging market currencies decrease, meaning in Argentina’s case it will take increasingly more pesos to buy dollars. This then amplifies the risk that emerging markets will be unable to make payments on dollar denominated debt, causing investors to sell their emerging market investments, further amplifying the currency stress. The timing specifically in the case of Argentina is uncannily bad. Until this week, non-residents investing in Argentina were exempt from paying the equivalent of capital gains taxes across the board, including local-currency peso-denominated central bank notes, or LEBACs. This Tuesday, this exemption on LEBACs officially no longer applied, meaning foreign holders of these notes now incur a tax equal to 5% on profits.

Read more …

“Increased American consumption born of an overstimulated economy..”

Remedies Trump Prescribes For Trade Problems Harm US (Xinhua)

Remedies the Trump administration is prescribing for U.S. trade problems won’t work, and forays in trade disputes with China will harm the United States, a veteran China expert with decades of experience in bilateral relations said [in Silicon Valley] on Saturday. “I believe that Washington has misdiagnosed our trade problems, that its remedies for them won’t work, and that what it is doing will harm the United States and other countries as much or more than it does China,” said Chas Freeman, senior fellow at Brown University’s Watson Institute, when addressing the annual conference of a prominent Chinese American group, the Committee of 100 (C100).

“The United States and China are each too globalized and dynamic to contain, too big and influential to ignore, and too successful and entangled with each other to divorce without bankrupting ourselves and all associated with us,” Freeman, also former U.S. assistant secretary of defense, said in an opening keynote speech. Pointing out that there are many reasons for the United States to seek cooperative relations with a rising China, Freeman added that the Trump administration has decided “to pick a fight — to confront China both militarily and economically.” “The fact that we Americans consume more than we save means that we import more than we produce. That creates an overall trade deficit. Ironically, the Trump administration has just taken steps guaranteed to increase this deficit,” he said.

“It has reduced tax revenues and boosted deficit spending, mostly on military research, development, and procurement. These actions take the national savings rate even lower while inflating domestic demand for goods and services. They cause imports to surge,” he added. “Increased American consumption born of an overstimulated economy explains why China’s trade surplus with the United States is again rising even as its surplus with the rest of the world falls,” he said. “Unless Americans boost our national savings rate by hiking taxes or cut our consumption by falling into recession, our overall trade deficit is sure to bloat,” he said.

Read more …

The Market Will Plummet if Global Central Banks Pull Plug

“..the reality is when a financial crisis happens, banks close their doors to depositors..”

In the Coming Crash We’ll be Falling from a Higher Height – Nomi Prins (USAW)

Join Greg Hunter as he goes One-on-One with two-time, best-selling author Nomi Prins, who just released “Collusion: How Central Bankers Rigged The World.” Will the next crash be worse than the last one? Prins says, “Yes, it will because we will be falling from a higher height. The idea here is you are sinking on the Titanic as opposed to sinking on a canoe somewhere. All of this artificial conjured money is puffing up the system, along with money that is borrowed cheaply is also puffing up the system and creating asset bubbles everywhere. So, when things pop, there is more leakage to happen. The air in all these bubbles has created larger bubbles than we have had before.”

How does the common man protect himself? Prins says, “They have to own things, and by that I mean real assets, hard assets like silver and gold. That’s not as liquid, so taking cash out of banks and sort of keeping it in real things and keeping it on site . . . keeping cash physically. You need to extract it from the system because the reality is when a financial crisis happens, banks close their doors to depositors. . . . Also, basically try to decrease your debt.”

Read more …

Did Flynn plead guilty because he couldn’t pay the legal bills?

How much longer until Mueller is whistled back by his superiors? Can Rosenstein keep silent as one judge after another slams the Special Counsel?

Mueller Investigation In Jeopardy (ZH)

A funny thing happened on the way to impeaching Donald Trump. After two-years of investigations by a highly politicized FBI and a Special Counsel stacked with Clinton supporters, Robert Mueller’s probe has resulted in the resignation of National Security Advisor Michael Flynn, the arrests of Paul Manafort and Rick Gates, and the indictment of 13 Russian nationals on allegations of hacking the 2016 election – along with the raid of Trump’s personal attorney, Michael Cohen.

The nation has been on the edge of insanity waiting for that much-promised and long awaited link tying President Trump to Vladimir Putin we were all promised, only to find out that there is no link, the deck appears to have been heavily stacked against Donald Trump by bad actors operating at the highest levels of the FBI, DOJ, Obama admin and Clinton camp, and the real Russian conspiracy in the 2016 election was the participation of high level Kremlin sources used in the anti-Trump dossier that Hillary Clinton paid for. Now, as the out-of-control investigation moves from the headlines and into court, the all-encompassing “witch hunt,” as Trump calls it, may be in serious jeopardy.

As of Friday, three separate Judges have rendered harsh setbacks to the Mueller investigation – demanding, if you can believe it, facts and evidence to back up the Special Counsel’s claims – in unredacted format as one Judge demands, or risk having the cases tossed out altogether. [..] And as we noted yesterday, some have suggested that Flynn pleaded guilty due to the fact that federal investigations tend to bankrupt people who aren’t filthy rich – as was the case with former Trump campaign aide Michael Caputo, who told the Senate Intelligence Committee “God damn you to hell” after having to sell his home due to mounting legal fees over the inquiry. “Your investigation and others into the allegations of Trump campaign collusion with Russia are costing my family a great deal of money — more than $125,000 — and making a visceral impact on my children.”

Read more …

Quite strong for the Wall Street Journal: “Mr. Comey, Peter Strzok, Lisa Page, Andrew McCabe – they have already shattered the FBI’s reputation and public trust.”

Why The Justice Department Defies Congress (WSJ)

Until this week, Deputy Attorney General Rod Rosenstein and fellow institutionalists at the department had fought Congress’s demands for information with the tools of banal bureaucracy – resist, delay, ignore, negotiate. But Mr. Rosenstein took things to a new level on Tuesday, accusing House Republicans of “threats,” extortion and wanting to “rummage” through department documents. A Wednesday New York Times story then dropped a new slur, claiming “Mr. Rosenstein and top FBI officials have come to suspect that some lawmakers were using their oversight authority to gain intelligence about [Special Counsel Bob Mueller’s ] investigation so that it could be shared with the White House.”

Mr. Rosenstein isn’t worried about rummaging. That’s a diversion from the department’s opposite concern: that it is being asked to comply with very specific – potentially very revealing – demands. Two House sources confirm for me that the Justice Department was recently delivered first a classified House Intelligence Committee letter and then a subpoena (which arrived Monday) demanding documents related to a new line of inquiry about the Federal Bureau of Investigation’s Trump investigation. The deadline for complying with the subpoena was Thursday afternoon, and the Justice Department flouted it. As the White House is undoubtedly monitoring any new congressional demands for information, it is likely that President Trump’s tweet Wednesday ripping the department for not turning over documents was in part a reference to this latest demand.

Republicans also demand the FBI drop any objections to declassifying a section of the recently issued House Intelligence Committee report that deals with a briefing former FBI Director James Comey provided about former national security adviser Mike Flynn. House Republicans say Mr. Comey told them his own agents did not believe Mr. Flynn lied to them. On his book tour, Mr. Comey has said that isn’t true. Someone isn’t being honest. Is the FBI more interested in protecting the reputations of two former directors (the other being Mr. Mueller, who dragged Mr. Flynn into court on lying grounds) than in telling the public the truth?

We can’t know the precise motivations behind the Justice Department’s and FBI’s refusal to make key information public. But whether it is out of real concern over declassification or a desire to protect the institutions from embarrassment, the current leadership is about 20 steps behind this narrative. Mr. Comey, Peter Strzok, Lisa Page, Andrew McCabe – they have already shattered the FBI’s reputation and public trust. There is nothing to be gained from pretending this is business as usual, or attempting to stem continued fallout by hiding further details.

Read more …

And debt pooling. So much for closer integration.

Merkel Allies Reject Idea Of European Finance Minister (R.)

Leading politicians from Chancellor Angela Merkel’s conservatives want to pass a resolution at a meeting this week to reject any pooling of debts in Europe and any fiscal policy without national parliamentary controls, Handelsblatt reported. The daily business newspaper, citing sources from the conservative bloc’s parliamentary leadership, said the senior politicians also oppose European Commission plans for a European finance minister. The group includes the parliamentary leaders of the conservative bloc in the Bundestag, the European Parliament as well as from Germany’s 16 states, Handelsblatt reported.

Merkel will join them on Monday for a meeting in Frankfurt. The report highlights the resistance among Merkel’s conservatives to any euro zone reforms that could see more German taxpayers’ money being used to fund other member states. The conservatives are nervous about European Union reform after bleeding support to the anti-euro Alternative for Germany (AfD) party at national elections last September. Last month, Merkel called for a spirit of compromise on reforming the euro zone at a meeting with French President Emmanuel Macron, who pressed for solidarity among members of the currency union.

Read more …

No smooth sailing.

Weak Foreign Demand Pushes Down German Industrial Orders (R.)

German industrial orders unexpectedly dropped for the third month running in March due to weak foreign demand, data showed on Monday, suggesting factories in Europe’s largest economy are shifting into a lower gear. Contracts for German goods fell 0.9% after a downwardly revised drop of 0.2% the previous month, data from the Federal Statistics Office showed. Analysts polled by Reuters had on average predicted a 0.5% rise in orders. “The economy is slowing down, that’s the sure take-away from today’s industrial orders data,” VP Bank Group analyst Thomas Gitzel said, adding that some growth forecasts would soon have to be revised down.

The government last month cut its 2018 growth forecast to 2.3% from 2.4% and expressed concern about international trade tensions. “The debate about tariffs has probably created great uncertainty in Europe’s export-driven industry,” Gitzel added. As Europe’s biggest exporter to the United States, Germany is desperate to avoid an EU trade war with the United States. In the run-up to a June 1 deadline for U.S. President Donald Trump to decide on whether to impose steel and aluminum tariffs on the EU, Berlin is urging its European partners to be flexible and pursue a broad deal that benefits both sides. The drop in industrial orders was led by foreign orders which fell by 2.6%, while domestic orders rose 1.5%, the data showed.

Read more …

But the government says there a million LESS people in poverty.

A Million More UK Children In Poverty Than In 2010 (G.)

The number of children growing up in poverty in working households will be a million higher than in 2010, a new study has found. Research for the TUC estimates that 3.1 million children with working parents will be below the official breadline this year. About 600,000 children with working parents have been pushed into poverty because of the government’s benefit cuts and public sector pay restrictions, according to the report by the consultancy Landman Economics. The east Midlands will have the biggest increase in child poverty among working families, followed by the West Midlands and Northern Ireland, the research found. Frances O’Grady, the TUC general secretary, said child poverty in working households had shot up since 2010.

“Years of falling incomes and benefit cuts have had a terrible human cost. Millions of parents are struggling to feed and clothe their kids,” she said. “The government is in denial about how many working families just can’t make ends meet. We need ministers to boost the minimum wage now, and use the social security system to make sure no child grows up in a family struggling to get by.” [..] A government spokeswoman said it did not recognise the TUC’s figures. She said: “The reality is there are now 1 million fewer people living in absolute poverty compared with 2010, including 300,000 fewer children. “We want every child to get the very best chances in life. We know the best route out of poverty is through work, which is why it’s really encouraging that both the employment rate and household incomes have never been higher.”

Read more …

Shares down 13% this morning.

Air France Survival In Doubt Over Strikes (BBC)

The survival of strike-hit Air France is in the balance, according to the country’s economy minister. Bruno Le Maire’s warning that Air France could “disappear” comes as staff begin another round of industrial action over a pay dispute. Despite the French state owning 14.3% of the Air France-KLM parent group, the loss-making airline would not be bailed out, he said. On Friday Air France-KLM’s chief executive quit over the crisis. Air France-KLM is one of Europe’s biggest airlines, but has seen a series of strikes in recent weeks. Monday’s walk-out is the 14th day of action, as staff press for a 5.1% salary increase this year. The government’s response is seen as a test of labour reforms launched by French President Emmanuel Macron. There have also been strikes at the state-owned SNCF rail company.

On Sunday, Mr Le Maire told French news channel BFM: “I call on everyone to be responsible: crew, ground staff, and pilots who are asking for unjustified pay hikes. “The survival of Air France is in the balance,” he said, adding that the state would not serve as a backstop for the airline’s debts. “Air France will disappear if it does not make the necessary efforts to be competitive,” he warned. Despite the strike, the airline insisted that it would be able to maintain 99% of long-haul flights on Monday, 80% of medium-haul services and 87% of short-haul flights. On Friday, Jean-Marc Janaillac, chief executive of parent company Air France-KLM, resigned after staff rejected a final pay offer from him, which would have raised wages by 7% over four years.

Read more …

That’s about 1 in 20: “From the 8.8 million individual taxpayers who submitted a declaration last year, no more than 450,000 showed a net annual income of 18,000 euros or more..”

Greece’s Incredibly Shrinking Middle Class (K.)

For salaried workers to bring home 1,500 euros per month net on a 12-month basis, or 18,000 euros per year not including holiday bonuses, their employers need to pay 2,610 euros a month or over 31,300 euros a year, given Greece’s particularly high taxes and social security contributions. For a self-employed professional to pocket the same amount , about 18,000 euros per annum, he or she would have to earn at least 50,000 euros on a yearly basis so as to cover professional expenses, taxes and contributions. As for new pensioners, a net income of 1,500 euros/month or 18,000 euros/year can only be achieved if they worked without pause for 40 years at an average monthly salary of 2,400 euros over that entire period.

The framework that has emerged in the last three years with tax and contribution hikes, in particular, as well as the new way pensions are being calculated are drastically reducing the chances of any worker or pensioner to have a decent monthly salary or pension. Official figures already highlight the shrinking of the so-called middle class: From the 8.8 million individual taxpayers who submitted a declaration last year, no more than 450,000 showed a net annual income of 18,000 euros or more, down from 840,000 in 2010. The shrinking trend of the middle class is expected to continue both for taxation and for practical reasons.

An employer will face the same cost hiring five or six part-timers offering a total of 20-24 working hours per day as in hiring one full-timer offering eight hours of work. Particularly in sectors where there is no need for highly skilled workers, such as retail commerce or tourism, the trend to replace well paid positions has already become dominant. Among the self-employed, overtaxation is this year anticipated to reduce the number of those declaring a taxable income of over 30,000 euros per year. As for pensioners, already the first pensions issues on the basis of the new system of calculation prove that the chances for anyone to secure a benefit of 1,500 euros after retirement are next to zero, and will shrink further in the years to come.

Read more …

Curious. Bonaire and St. Eustatius are part of the Dutch Kingdom. Conoco can’t move without their permission.

Conoco Moves To Take Over Venezuelan PDVSA’s Caribbean Assets (R.)

U.S. oil firm ConocoPhillips has moved to take Caribbean assets of Venezuela’s state-run PDVSA to enforce a $2 billion arbitration award over a decade-oil nationalization of its projects in the South American country, according to two sources familiar with its actions. The U.S. firm targeted Caribbean facilities on the islands of Bonaire and St. Eustatius that play critical roles in PDVSA’s oil exports, the country’s main source of revenue. PDVSA relies on the terminals to process, store and blend its oil. “We will work with the community and local authorities to address issues that may arise as a result of enforcement actions,” ConocoPhillips said in a statement to Reuters.

Read more …

May 052018
 


Edgar Degas Landscape with Path Leading to a Copse of Trees 1890-92

 

40% Unemployment Ain’t Awesome (Stockman)
The Next Recession Is Closer Than You Think (Cook)
US Lays Down A List Of Trade Demands To China (CNBC)
Theresa May Under Pressure To Ditch New Immigration Clampdown (Ind.)
150,000 UK ‘Mortgage Prisoners’ Need Help To Escape Expensive Deals (Ind.)
Argentina Hikes Interest Rates To 40% Amid Inflation Crisis (Ind.)
Judge In Manafort Case Rebukes Mueller For Exceeding Authority (G.)
The Horsefly Cometh (Jim Kunstler)
Chemical Weapons Watchdog Backtracks On ‘100g Of Novichok’ Claim (Ind. )
Greek Unpaid Taxes Build Up Again As Taxpayers Are Unable To Pay (K.)
Monsanto Appeals To India Supreme Court Over GMO Cotton Patents (R.)
Congo To Drill For Oil In Parks Home To Endangered Mountain Gorilla (Ind.)

 

 

“..at some point it gets pretty hard to hide 16.6 million missing workers..”

40% Unemployment Ain’t Awesome (Stockman)

[..] the Awesome Economy narrative gets more threadbare by the month. As Jeff Snider astutely observed in his commentary on today’s report—at some point it gets pretty hard to hide 16.6 million missing workers. What he means is that if the labor force participation rate had not plunged from more than 67.0% to the 62.8% level reported again for April, there would be 16.6 million more persons employed in the US economy today at the ostensible 3.9% unemployment rate.

“Here in the United States, the Bureau of Labor Statistics (BLS) sends us another farce. These payroll Friday’s were always a little overwrought, but in the past four years they have become ridiculous spectacles. It’s not the fault of the BLS (apart from questions about their estimates for 2014), mainly it is the same issue as in Japan. What should be obvious is misinterpreted sometimes intentionally. According to the latest figures, the unemployment rate in the US is now down to 3.9%. The reason it crossed the 4% line in April was perfect. Not in the manner of what a 3.9% unemployment should indicate, rather it was all the wrong things that expose the unemployment rate for what it is – meaningless. The primary reason for its drop was another monthly subtraction from the labor force. Down for a second month in a row, in April by 236k, the HH Survey managed to increase by all of 3k. The result: a perfectly representative decline to 3.9%.”

The Keynesian gummers reject Snider’s point entirely, of course, on the vague theory that retirements and the aging demographics of the US explain away much of the change in the participation rate. As a matter of fact, they don’t. And, besides, the whole BLS employment/unemployment reporting framework and model is essentially a pile of garbage that might have been relevant during the days of your grandfather’s economy, if even then. That is, it is built on the flawed notion that labor inputs can be accurately measured by a unit called a “job” and that an economic trend in motion tends to stay in motion.

To the contrary, in today’s world labor is procured by the hour and by the gig—meaning that the “job” units counted in both the establishment and household surveys are a case of apples, oranges and cumquats. The household survey, for example, would count as equally “employed” a person holding: • a 10-hour per week gig with no benefits; • a worker holding three part-time jobs adding to less than 36 hours per week with some benefits; and • a 50-hour per week manufacturing job (with overtime) providing a cadillac style benefit package.

Read more …

How about Kondratieff?

The Next Recession Is Closer Than You Think (Cook)

Business cycles run for periods of years, not days, weeks, or months. So business cycle analysis is different from the common definition of market-timing because it is concerned with a much longer time horizon. It is difficult for anyone other than politicians to deny the existence of a business cycle, which includes both an expansion and a recession phase because they are a fact of economic life. A recent Goldman Sachs research piece not only acknowledges the existence of cycles but divides them into four phases and produces recommended asset allocations for each phase, as shown below.

Goldman’s investment recommendation for 2018 is based on the belief that 2018 lies within Phase 3, in which the economy is operating above capacity and growing. More broadly, Goldman’s chart and table show that identifying the Phases is a crucial determinant of investment success. For example, if 2018 truly lies within Phase 4, cash and bonds would outperform commodities and equities. \The Fed appears to agree with Goldman’s analysis of Phase 3, based on its simultaneous campaigns to lift the Fed Funds rate and to reduce the size of its bond holdings that were acquired during its QE experiment. In another admission that business cycles exist, Bank of America/Merrill Lynch (BAML) produces a monthly Fund Manager Survey, in which it asks the largest institutional investment managers a simple question; where are we in the business cycle?

[..] The BAML survey extends further back than 2008, so we can get a better idea of investors’ beliefs leading to the recession of 2008-09, as shown below. During these years, investors were given two other choices to describe the economy; early-cycle or recession. A majority of investors believed the economy was late-cycle beginning in 2005, with a peak in that belief occurring in late 2007 (thin black line), which coincided with a continuous decline in the percentage believing the economy was mid-cycle. During the period 2005-2007, almost no investors believed that the economy was in either in its early-cycle or recession.

Read more …

China is negotiating.

US Lays Down A List Of Trade Demands To China (CNBC)

The U.S. stands ready to impose further trade tariffs on Chinese products if Beijing walks away from agreed-upon commitments, according to a reporter at the Wall Street Journal. Trade representatives from the U.S. and China entered a second day of trade discussions on Friday, as the world’s two largest economies sought to find a way to stave off global concerns of a full-blown trade war. The discussions, led by Treasury Secretary Steven Mnuchin and Chinese Vice Premier Liu He, are expected to cover a wide range of U.S. complaints about alleged unfair trade practices in Beijing. A major breakthrough deal to fundamentally change China’s economic stance was widely viewed as highly unlikely.

In a tweet posted Friday, Lingling Wei, a China economics correspondent at the Wall Street Journal, said the U.S asked China to reduce its trade surplus by at least $200 billion by year-end 2020, citing a document issued to the Chinese before the talks. President Donald Trump has often called on China to reduce its bilateral trade deficit by $100 billion a year. The U.S. trade envoy also wanted China not to target U.S. farmers and agricultural products and sought assurances from the Asian giant that it would not retaliate over restrictions on investments from Beijing, Wei said.

Read more …

The entire British press seems set on ignoring Labour’s win. Which, true enough, isn’t big enough.

Theresa May Under Pressure To Ditch New Immigration Clampdown (Ind.)

Theresa May is under mounting pressure to ditch a fresh immigration clampdown dubbed “the next Windrush”, ahead of a crucial Commons vote next week. Thirty-four organisations have joined forces to urge the prime minister not to repeat the blunders that sparked the scandal by preventing other immigrants from proving their right to be in the UK. Under planned new data laws, people will be denied access to the personal information the government holds about them if releasing it would “undermine immigration control”. Leading lawyers have warned that withholding potentially vital proof would lead to people being wrongly deported, detained or denied health treatment – in a mirror image of the treatment of the Windrush generation.

On Wednesday, Labour and the Liberal Democrats will join forces to try to throw out the exemption, arguing it is the “first test” of Ms May’s promise to learn the lessons of the Windrush debacle. Now, the joint letter – seen by The Independent – brings together human rights campaigners, trade unions, migrant support groups and law firms to warn it will “foster fear within minority communities”. Unless halted, the plan will make it “near-impossible” to prevent the “disposing of information that could help people prove their right to reside in the UK – as it did with the Windrush landing cards”, they say. People would also avoid using essential public services “for fear that their medical or school records will be secretly passed to the Home Office”.

Read more …

The lenders don’t own the loans anymore, they’ve been packaged and sold.

150,000 UK ‘Mortgage Prisoners’ Need Help To Escape Expensive Deals (Ind.)

Tens of thousands of people are “mortgage prisoners”, trapped on expensive deals and not allowed to switch, the financial regulator has said. The Financial Conduct Authority urged for more innovation to help around 150,000 people who signed up for deals before interest rates plummeted after the financial crisis. They have since been switched to more expensive “reversion rates” once their previous deal expired and are unable to switch because they do not meet stricter affordability rules which have been brought in. Christopher Woolard, director of strategy and competition at the FCA, said: “For many, the market is working well, with high levels of consumer engagement. “However, we believe that things could work better with more innovative tools to help consumers.

“There are also a number of long-standing borrowers that have kept up-to-date with their mortgage repayments but are unable to get a new mortgage deal; we want to explore ways that we, and the industry, can help them.” The FCA said it will consider seeking an industry-wide agreement to approve applications from those who are affected and are up-to-date with payments. However, this will only help 30,000 people who are with authorised mortgage lenders. The remaining 120,000 are with firms who are not authorised to lend, often because the lender has sold on a batch of mortgages. These firms are outside the FCA’s remit, which is set by parliament, meaning new legislation would be required to enable the regulator take action.

Read more …

“..large twin budget and current account deficits, a heavy dollar debt burden, entrenched high inflation and an overvalued currency..”

Argentina Hikes Interest Rates To 40% Amid Inflation Crisis (Ind.)

Argentina has jacked up its interest rates to 40 per cent in a drastic attempt to keep a lid on domestic inflation and stabilise its currency. The Latin American country’s central bank announced the hike on Friday, the third in seven days, saying it would keep using the tools at its disposal to get inflation back down to it 15 per cent target. Inflation in the country is currently running at 25.4 per cent, despite the investor-friendly economic reforms of President Mauricio Macri. Argentina is one of several emerging market economies that have suffered from currency pressure in recent weeks as the US dollar has strengthened and foreign capital has been withdrawn.

“Investors are moving out of [emerging markets], frontier [economies], and other risky assets and so countries like Argentina remain at heightened risk,” said Win Thin of Brown Brothers Harriman. The value of the Argentinian peso has declined from 18.6 against the greenback in January to 23 this week. President Macri succeeded the Peronist Cristina Fernandez de Kirchner in 2015 and has been seeking to reverse her policies of protectionism and high government spending. “This crisis looks set to continue unless the government steps in to reassure investors that it will take more aggressive steps to fix Argentina’s economic vulnerabilities,” said Edward Glossop of Capital Economics.

“Risks to the peso have been brewing for a while – large twin budget and current account deficits, a heavy dollar debt burden, entrenched high inflation and an overvalued currency. The real surprise is how quickly and suddenly things seem to be escalating.”

Read more …

“It’s unlikely you’re going to persuade me the special prosecutor has power to do anything he or she wants. ..”

Judge In Manafort Case Rebukes Mueller For Exceeding Authority (G.)

A federal judge has rebuked the special counsel investigating alleged collusion between Trump aides and Russia, for overstepping his bounds in a criminal case against the president’s former campaign manager. Robert Mueller last year brought tax and bank fraud charges against Paul Manafort, the first indictment in the Russia investigation. Manafort maintains his innocence. On Friday TS Ellis, a judge in the eastern district of Virginia, suggested that Mueller’s real motivation for pursuing Manafort was to compel him to “sing” against Trump. “You don’t really care about Mr Manafort’s bank fraud,” the judge, reportedly losing his temper, challenged lawyers from the office of special counsel.

“You really care about getting information Mr Manafort can give you that would reflect on Mr Trump and lead to his prosecution or impeachment.” The comments, at a tense court hearing in Alexandria, were a boost for Manafort’s lawyers who contend that the charges against him are outside Mueller’s mandate to investigate Russian interference in the 2016 election. Ellis added: “I don’t see what relationship this indictment has with anything the special counsel is authorised to investigate. “We don’t want anyone in this country with unfettered power. It’s unlikely you’re going to persuade me the special prosecutor has power to do anything he or she wants. The American people feel pretty strongly that no one has unfettered power.”

[..] Ellis withheld ruling on dismissal of the indictment. He asked the special counsel’s office to share privately with him a copy of deputy attorney general Rod Rosentein’s August 2017 memo elaborating on the scope of Mueller’s Russia investigation. The current version has been heavily redacted, he said. Leaving the White House on his way to Texas on Friday, Trump claimed he would welcome an interview with Mueller. “So I would love to speak,” he told reporters. “I would love to go. Nothing I want to do more, because we did nothing wrong. We ran a great campaign. We won easily.” But he added: “I have to find that we’re going to be treated fairly, because everybody sees it now, and it is a pure witch-hunt. Right now, it’s a pure witch-hunt.”

Read more …

The FBI is far from squeaky clean.

The Horsefly Cometh (Jim Kunstler)

You can see where this Mueller thing is going: to the moment when the Golden Golem of Greatness finally swats down the political horsefly that has orbited his glittering brainpan for a whole year, and says, “There! It’s done.”

It suggests that Civil War Two will end up looking a whole lot more like the French Revolution than Civil War One. The latter unfurled as a solemn tragedy; the former as a Coen Brothers style opéra bouffe bloodbath. Having executed the presidential swat to said orbiting horsefly, Trump will try to turn his attention to the affairs of the nation, only to find that it is insolvent and teetering on the most destructive workout of bad debt the world has ever seen. And then his enemies will really go to work. In the process, they’ll probably wreck the institutional infrastructure needed to run a republic in constitutional democracy mode.

They got a good start in politicizing the upper ranks of the FBI, a fatal miscalculation based on the certainty of a Hillary win, which would have enabled the various schemers in the J. Edgar Hoover building to just fade back into the procedural woodwork of the agency and get on with life. Instead, their shenanigans were exposed and so far one key player, Deputy Director Andrew McCabe, was hung out to dry by a committee of his fellow agency execs for lying about his official conduct. Long about now, you kind of wonder: is that where it ends for him? Seems like everybody else (and his uncle) is getting indicted for lying to the FBI. How about Mr. McCabe, since that is exactly why his colleagues at the FBI fired him?

Perhaps further resolution of this murky situation awaits Inspector General Michael Horowitz’s forthcoming report, which the media seems to have forgotten about lately. An awful lot of the mischief at the FBI and its parent agency, the Department of Justice, is already on the public record, for instance the conflicting statements of Andrew McCabe and his former boss James Comey concerning who illegally leaked what to the press. On the face of it, it looks pretty bad when at least one of these Big Fish at the top of a supposedly incorruptible agency is lying. There are at least a dozen other Big Fish in there who still have some serious ‘splainin’ to do, and why not in the grand jury setting?

Read more …

There goes the OPCWs credibility.

Chemical Weapons Watchdog Backtracks On ‘100g Of Novichok’ Claim (Ind. )

The international chemical weapons watchdog has backtracked on a suggestion that as much as 100 grams of nerve agent may have been used in the poisoning of former Russian spy Sergei Skripal and his daughter Yulia. Ahmet Uzumcu, director general of the Organisation for the Prohibition of Chemical Weapons (OPCW), had said the relatively large quantities of novichok used suggested it had been created as a weapon rather than for research purposes. But a new OPCW statement said the organisation was not able to “estimate or determine the amount of the nerve agent that was used” in the incident. Mr Uzumcu had said samples collected suggested the nerve agent used to poison the Skripals was of “high purity”.

He said: “For research activities or protection you would need, for instance, five to 10 grams or so, but even in Salisbury it looks like they may have used more than that. “Without knowing the exact quantity, I am told it may be 50, 100 grams or so, which goes beyond research activities for protection. “It’s not affected by weather conditions. That explains, actually, that they were able to identify it after a considerable time lapse.” It came as Czech President Milos Zeman said his country had produced small quantities of novichok. Britain has argued the use of Novichok – which was developed by the former Soviet Union in the 1980s – meant there was no “plausible alternative” explanation other than the Russian state was behind the attack.

However Mr Zeman’s comments were seized on by President Vladimir Putin’s spokesman Dmitry Peskov, who said they were a “clear illustration of the groundless stance the British authorities have taken”.

Read more …

And they want you to believe the economy is growing.

Greek Unpaid Taxes Build Up Again As Taxpayers Are Unable To Pay (K.)

Concerns are growing in the Finance Ministry as expired debts to the tax authorities grew at an unexpectedly high rate in March – a month with no major obligations. Unpaid taxes came to 776 million euros in March, taking total new arrears to the state in the first quarter of the year to 3.55 billion euros. According to figures released on Friday by the tax administration, the sum of old and new debts to the state amounted to 101.6 billion euros at end-March. Out of the 3.55 billion created in Q1, 3.3 billion euros was in the form of unpaid taxes. Ministry officials argue that the increase in tax debts is due to the fact that many taxpayers missed the deadlines for them to pay installments as part of debt settlement programs concerning the revelation of previously undeclared incomes.

Other reasons cited are that taxpayers have failed to pay fines, as well as many individuals and enterprises having exhausted all means for paying taxes. If this situation continues in the following months, the hole in budget revenues will grow considerably, given that the submission process for income tax statements has just begun and the first tranche is payable by end-July. The state’s response to this phenomenon is confiscations, which in March alone numbered 21,275. This takes the sum of taxpayers who have suffered confiscations to 1,109,971, while the total number of Greeks owing to the state has risen to 3,907,847.

Read more …

“..agricultural products, including seeds, cannot be patented in India..”

Monsanto Appeals To India Supreme Court Over GMO Cotton Patents (R.)

Monsanto has appealed to the Supreme Court against a ruling by the Delhi High Court which decreed last month that the world’s biggest seed maker cannot claim patents on its genetically modified or GM cotton seeds, a company spokesman said on Friday. The Delhi High Court on April concurred with Indian seed company Nuziveedu Seeds Ltd (NSL), which argued that the Patent Act does not allow Monsanto any patent cover for its genetically modified cotton seeds. Monsanto has appealed to the Supreme Court, said a Monsanto India spokesman. “In the Supreme Court, we’ll maintain our stand that agricultural products, including seeds, cannot be patented in India,” said Narne Murali Krishna, a company secretary for NSL.

“The judgement of the Delhi High Court has already vindicated our stand.” New Delhi approved Monsanto’s GM cotton seed trait, the only lab-altered crop allowed in India, in 2003 and an upgraded variety in 2006, helping transform the country into the world’s top producer and second-largest exporter of the fibre. Monsanto’s GM cotton seed technology went on to dominate 90 percent of India’s cotton acreage. But for the past few years Monsanto has been at loggerheads with NSL, drawing in the Indian and US governments, Reuters revealed last year.

Read more …

Gorilla’s, bonobos, dwarf chimpanzees, Congo peacocks and forest elephants…

Congo To Drill For Oil In Parks Home To Endangered Mountain Gorilla (Ind.)

The Democratic Republic of Congo is planning to reclassify two protected national parks to allow oil exploration. Documents seen by The Independent show the government wants to redraw the boundaries of the Salonga and Virunga national parks, which are home to critically endangered species such as mountain gorillas, to remove protected status from certain areas. Both parks are UNESCO World Heritage sites, a status which in theory should protect them from oil exploration and other extractive activities. In a letter, Congo’s oil minister Aime Ngoi Muken invited the environment minister and the minister for scientific research to a special commission meeting to discuss the plans on 27 April.

Minutes and notes of the meeting give more details about the areas in which the Congolese government wants to allow exploration. In another series of letters seen by NGO Global Witness, Congo’s oil minister Ngoi Muken argued for the need to open up the protected sites for oil exploration and set out the legal procedures to do so. Global Witness said the plans would be a violation of the UNESCO World Heritage Convention to which the Democratic Republic of Congo is a signatory. The Virunga park is one of the most biologically diverse areas on the planet and is home to about a quarter of the world’s remaining mountain gorillas. According to UNESCO, the Salonga park is Africa’s largest tropical rainforest, home to many endangered species such as bonobos, dwarf chimpanzees, Congo peacocks and forest elephants.

Read more …

Mar 052016
 
 March 5, 2016  Posted by at 9:42 am Finance Tagged with: , , , , , , , , ,  1 Response »


DPC Country store, Venezuela 1905

China Intervenes in Stock Markets Ahead of Annual Policy Meeting (BBG)
China’s Rebalancing Is Overrated (Balding)
China Lays Out Its Vision To Become A Tech Power (Reuters)
Jim Rogers: There’s a 100% Probability of a US Recession Within a Year (BBG)
US Watchdog To Probe Fed’s Lax Oversight Of Wall Street (Reuters)
It Begins: Palace Revolt Against ECB’s NIRP (WS)
What’s Best For UK Savers Who’ve Lost £160 Billion Of Interest In 7 Years? (G.)
Argentina To Issue $11.68 Billion In Bonds To Pay For Defaulted Bonds (Reuters)
Brazil Ex-President Lula Detained In Corruption Probe (Reuters)
Brazil’s Ruling Party To Tap FX Reserves As Policy Fight Escalates (AEP)
Giant California Pension Funds To Sue VW Over Diesel Scandal (LA Times)
BP CEO Gets 20% Pay Rise Despite 2015 Record Loss, 1000s of Jobs Lost (Ind.)
Turkey Seizes Control Of Anti-Erdogan Daily In Midnight Raid (AFP)
What The NY Times Won’t Tell You About The US Adventure In Ukraine (Salon)
The Syrian Exodus: Epic In Scale, Inconceivable Till You Witness It (Flanagan)
Athens Given Deadlines For Schengen Requirements (Kath.)
Tsipras Says Greece Can’t Stop Migrants Headed For Northern Europe (AFP)
Europe Yanks Welcome Mat Out From Under Its War Refugees (Sputnik)

Saw that coming from miles away.

China Intervenes in Stock Markets Ahead of Annual Policy Meeting (BBG)

China intervened to support its stock market on Friday, helping the benchmark index cap its best weekly gain of 2016 before policy makers meet to approve a five-year road map for the economy, according to two people with direct knowledge of the situation. State-backed funds bought primarily bank shares, while some local branches of the securities regulator asked listed companies, mutual funds and brokerages to stabilize the market during the National People’s Congress and the Chinese People’s Political Consultative Conference, said the people, who asked not to be named because the matter isn’t public. China’s biggest banks, seen as prime targets for state support because of their large weightings in benchmark indexes, paced gains in the $5.5 trillion market on Friday even as small-capitalization shares tumbled.

Authorities have been known to intervene in markets before key national events, with government funds stepping in to boost share prices last August before a military parade celebrating the 70th anniversary of the World War II victory over Japan. “It looks like the national team has been buying as large caps of the Shanghai index jumped, while small caps fell,” said Steve Wang at Reorient Financial Markets in Hong Kong. China’s stock market has become one of the most visible symbols of anxiety toward Asia’s largest economy after a $5 trillion crash last summer rattled global investors. By publicly intervening to support equity prices in 2015, President Xi Jinping’s government has staked some of its credibility as a steward of the economy on the state’s ability to stabilize one of the world’s most volatile markets.

Read more …

It’s just word, really: “..by helping keep afloat those state-owned zombie companies in order to boost GDP, Chinese banks are further delaying the process of rebalancing.”

China’s Rebalancing Is Overrated (Balding)

The optimists’ case for China is fairly straightforward. Yes, the world’s second-largest economy is grinding to its slowest pace in decades. But as investment and manufacturing – traditionally the key drivers of Chinese growth – decline in importance, domestic consumption and services are playing a bigger role: For the first time, services accounted for just over 50% of GDP last year. This much-desired rebalancing should move China toward a far more sustainable growth model. New economy companies in technology, health-care, finance and retail are more productive and less polluting than smokestack industries. Robust consumption – rail traffic is growing at 10% as Chinese spend more on leisure travel, while mobile Internet traffic has doubled – is key to weaning the economy off its addiction to investment.

As unproductive coal mines and steel factories shed workers, labor-intensive services should pick up the slack. A closer look at the data, however, paints a different and decidedly gloomier picture. Take travel. While overall rail traffic is up, total passenger turnover, which accounts for the number of kilometers traveled, grew only 3.1% in 2015. Moreover, it’s important to remember that only 11% of trips are done by rail. (International air travel, which grew 34% last year, only covers 0.2% of trips.) The vast majority of travel takes place by road and highway traffic actually declined last year. If so many more Chinese are going on pleasure trips, why is hotel revenue flat? Similarly, sales at the 100 biggest retailers in China, which one would expect to be thriving if the economy were rebalancing, were down 0.1% in 2015.

Luxury brands have been hit particularly hard (in part because of the ongoing anti-corruption campaign) and sales of even basic consumer durables such as TVs, refrigerators, audio equipment and washing machines are flat or declining. Services are certainly growing faster than manufacturing and real estate. But much of that growth comes from two sectors. The first, financial services, got a major boost in 2015 from the stock-market boom in the first half of the year and from the continuing flood of lending encouraged by the government. If one strips out the contribution made by the sector, consumption continued to slow last year. The bursting of the equity bubble is sure to crimp growth, as may a souring of loans, many of which are going to loss-making heavy industries. Indeed, by helping keep afloat those state-owned zombie companies in order to boost GDP, Chinese banks are further delaying the process of rebalancing.

Read more …

By exercising more state control…

China Lays Out Its Vision To Become A Tech Power (Reuters)

China aims to become a world leader in advanced industries such as semiconductors and in the next generation of chip materials, robotics, aviation equipment and satellites, the government said in its blueprint for development between 2016 and 2020. In its new draft five-year development plan unveiled on Saturday, Beijing also said it aims to use the internet to bolster a slowing economy and make the country a cyber power. China aims to boost its R&D spending to 2.5% of GDP for the five-year period, compared with 2.1% of GDP in 2011-to-2015. Innovation is the primary driving force for the country’s development, Premier Li Keqiang said in a speech at the start of the annual full session of parliament.

China is hoping to marry its tech sector’s nimbleness and ability to gather and process mountains of data to make other, traditional areas of the economy more advanced and efficient, with an eye to shoring up its slowing economy and helping transition to a growth model that is driven more by services and consumption than by exports and investment. This policy, known as “Internet Plus”, also applies to government, health care and education. As technology has come to permeate every layer of Chinese business and society, controlling technology and using technology to exert control have become key priorities for the government.

China will implement its “cyber power strategy”, the five-year plan said, underscoring the weight Beijing gives to controlling the Internet, both for domestic national security and the aim of becoming a powerful voice in international governance of the web. China aims to increase Internet control capabilities, set up a network security review system, strengthen cyberspace control and promote a multilateral, democratic and transparent international Internet governance system, according to the plan. Since President Xi Jinping came to power in early 2013, the government has increasingly reined in the Internet, seeing the web as a crucial domain for controlling public opinion and eliminating anti-Communist Party sentiment.

Read more …

“..if markets around the world are crashing, let’s just say that scenario happens, everybody’s going to put their money in the U.S. dollar—it could turn into a bubble.”

Jim Rogers: There’s a 100% Probability of a US Recession Within a Year (BBG)

Rogers Holdings Chairman Jim Rogers is certain that the U.S. economy will be in recession in the next 12 months. During an interview on Bloomberg TV with Guy Johnson, the famous investor said that there was a 100% probability that the U.S. economy would be in a downturn within one year. “It’s been seven years, eight years since we had the last recession in the U.S., and normally, historically we have them every four to seven years for whatever reason—at least we always have,” he said. “It doesn’t have to happen in four to seven years, but look at the debt, the debt is staggering.” Most Wall Street economists see a much smaller chance of a U.S. recession within this span, with odds typically below 33%.

Rogers was not specific on what could trigger a disorderly deleveraging process and recession but claimed that sluggish or slowing economies in China, Japan, and the euro zone mean that there are many possible channels of contagion. The former partner of George Soros suggested that if investors focus on the right data, there are signs that the U.S. economy is already faltering. “If you look at the … payroll tax figures [in the U.S.], you see they’re already flat,” he concluded. “Don’t pay attention to the government numbers, pay attention to the real numbers.” In light of the economic turmoil envisioned by Rogers, he is long the U.S. dollar.

“It might even turn into a bubble,” he said of the greenback. “I mean, if markets around the world are crashing, let’s just say that scenario happens, everybody’s going to put their money in the U.S. dollar—it could turn into a bubble.” Rogers added that a strengthening U.S. dollar has historically been negative for commodities—the asset class that the investor is best-known for. While the yen is often designated as a risk-off currency, it won’t benefit in the event of a flight to safety due to the massive, continued expansion of the Bank of Japan’s balance sheet, according to Rogers, who said he exited his position in the yen last Friday.

Read more …

Don’t hold your breath.

US Watchdog To Probe Fed’s Lax Oversight Of Wall Street (Reuters)

A U.S. watchdog agency is preparing to investigate whether the Federal Reserve and other regulators are too soft on the banks they are meant to police, after a written request from Democratic lawmakers that marks the latest sign of distrust between Congress and the central bank. Ranking representatives Maxine Waters of the House Financial Services Committee and Al Green of the Subcommittee on Oversight and Investigations asked the Government Accountability Office on Oct. 8 to launch a probe of “regulatory capture” and to focus on the New York Fed, according to a letter obtained by Reuters. In an interview, the congressional agency said it has begun planning its approach. The probe, which had not been previously reported or made public, is the first by an outside agency into the perception that government regulators are “captured” by and too deferential toward the bankers they supervise, so that Wall Street benefits at the public’s expense.

Such perceptions have dogged the U.S. central bank since it failed to head off the 2007-2009 financial crisis that sparked a global recession. The Fed’s biggest critics have since been Republicans looking to curb its policy independence, but the request by Democrats could cool its somewhat warmer relationship with the left. “We currently do have some ongoing work looking at the concept known as regulatory capture. We’re in initial stages of outlining that engagement,” Lawrance Evans, director of the GAO’s financial markets and community investment division, said in an interview. The agency will conduct “an assessment across all financial regulators, and the Federal Reserve will be one institution,” he said. It was unclear whether the majority Republicans on the House committee, including Chairman Jeb Hensarling, backed the request from the minority Democrats.

Read more …

This is how simple it is. The NIRP boomerang.

It Begins: Palace Revolt Against ECB’s NIRP (WS)

The Association of Bavarian Savings Banks, which represents 71 savings banks in the German State of Bavaria, has had it with the ECB’s negative deposit-rate absurdity, and it’s now instigating a palace revolt. In 2014, when negative interest rates first hit Eurozone banks and ricocheted out from there, Germans called it “punishment interest” (Strafzinsen) because these rates were designed to flog banks and savers until their mood improves. But inexplicably, their mood hasn’t improved. Bank stocks have gotten clobbered as their profits have gotten hit by the negative interest rate environment. Stocks of Eurozone companies in general have come down hard, and the Eurozone economy simply hasn’t responded very well though the ECB is flogging it on a daily basis with its punishment interest.

And so Bavarian savings banks have had enough. The Frankfurter Algemeine has obtained a memo by the Association of Bavarian Savings Banks that openly encourages its member banks to stash cash in their own vaults rather than depositing it at the ECB and paying the penalty interest of 0.3% to the ECB on these deposits. The savings banks therefore are asking if it might be more economical for them to keep high cash values in their safes and not -as usual- store them at the ECB, the memo said. To estimate total costs and determine which would be the better deal -hang on to the cash or send it to the ECB- the association analyzed the costs of additional insurance coverage needed for these higher levels of cash-in-vault and further discussed some options concerning this insurance coverage, or as it says, for ECB-cash protection.

According to its analysis, insurance coverage on cash costs 0.15%, plus insurance tax, in total 0.1785%. This is below the ECB’s punishment rate of 0.3%. Each additional €1,000 of cash in its vault would therefore cost the bank €1.785 per year. But if the bank deposited that €1,000 at the ECB, it would cost €3.00 per year. Multiply the difference of €1.21 by tens or hundreds of millions, and pretty soon you’re talking about some real money. Banks have a total of €245 billion deposited at the ECB. At a deposit rate of negative 0.3%, extrapolated over a year, it costs them €735 million in punishment interest. “Punishment interest is already costing real money,” is how a senior central bankers explained it to the Frankfurter Algemeine.

Read more …

More interest rate manipulation damage.

What’s Best For UK Savers Who’ve Lost £160 Billion Of Interest In 7 Years? (G.)

Not many experts thought that the “emergency” base rate cut to 0.5% on March 5, 2009 would last for long. But seven years later savers have lost around £160bn in interest, while the prospect of rate rises are slipping further into the distance. In the immediate aftermath of the cut to 0.5%, rates for savers remained relatively high. Our analysis shows how cash Isas were offering 3%, and notice accounts 3.5%, in March 2009, and for the next couple of years they hovered around this level. After all, most banks and building societies were desperate for deposits after the great financial crash, so they were willing to pay far above the Bank of England base rate. The real villain turns out to be the Funding for Lending government programme introduced in July 2012, which effectively provided cheap money for cash-strapped lenders.

The effect was almost instantaneous: banks no longer needed to attract cash from savers, so they cut the rates on offer. Susan Hannums of Savingschampion.co.uk says: “While the base rate hitting the record 0.5% was bad enough, it was Funding for Lending that had one of the biggest impacts. Almost overnight, best-buy rates for savers dropped like a stone, followed by an unprecedented number of reductions on existing rates. “Today we’ve hit over 4,000 rate reductions for existing savers, with little sign of this slowing down. This means all savers would be wise to keep checking the rate they are getting, and to switch to improve returns when they are no longer competitive. “With almost 50% of easy-access accounts paying 0.5% or less, and the best-paying 1.55%, it’s easy to see why so many need to switch.”

Read more …

Bizarro.

Argentina To Issue $11.68 Billion In Bonds To Pay For Defaulted Bonds (Reuters)

Argentina plans to return to international credit markets in April with three bonds sales totaling $11.68 billion under U.S. law if Congress swiftly approves a debt deal for holdout creditors, top finance ministry officials told Congress on Friday. Finance Minister Alfonso Prat-Gay said the bonds, which will be used to finance the payouts to investors holding unpaid debt stemming from the country’s 2002 default, would carry maturities of five, ten and thirty years. Prat-Gay and his deputy, Luis Caputo, on Friday presented a package of debt agreements brokered with creditors, including a $4.65 billion cash payout to the main holdouts suing in a Manhattan court led by billionaire Paul Singer. Argentina has now reached provisional settlements with about 85% of bondholders and says negotiations continue with the rest.

“If the deal extends to all holdout investors, the bond issue will be for $11.684 billion. That’s what we need to close this chapter definitively,” Prat-Gay said. The debate in Congress is the first major political test of President Mauricio Macri’s ability to garner cross-party support for his economic reform package, the success of which hinges on ending the festering 14-year debt battle. Legislators will also be asked to repeal two laws blocking settlement of the debt case. Macri’s government is confident it can corral the votes needed to win approval even though the opposition holds a majority in the Senate and Macri holds only the largest minority in the lower chamber. Caputo told legislators the bonds would carry an interest rate of about 7.5%. While debt brokers see healthy appetite for Argentine debt after its prolonged absence from global debt markets, the gloomy global context may weigh.

Read more …

“News of Lula’s brief detention sparked a rally in Brazilian assets as traders bet that the political upheaval could empower a more market-friendly coalition.”

Brazil Ex-President Lula Detained In Corruption Probe (Reuters)

Former Brazilian President Luiz Inacio Lula da Silva was briefly detained for questioning on Friday in a federal investigation of a vast corruption scheme, fanning a political crisis that threatens to topple his successor, President Dilma Rousseff. Lula’s questioning in police custody was the highest profile development in a two-year-old graft probe centered on the state oil company Petrobras, which has rocked Brazil’s political and business establishment and deepened the worst recession in decades in Latin America’s biggest economy. The investigation threatens to tarnish the legacy of Brazil’s most powerful politician, whose humble roots and anti-poverty programs made him a folk hero, by putting a legal spotlight on how his left-leaning Workers’ Party consolidated its position since rising to power 13 years ago.

Police picked up Lula at his home on the outskirts of Sao Paulo and released him after three hours of questioning. They said evidence suggested Lula had received illicit benefits from kickbacks at the oil company, Petrobras, in the form of payments and luxury real estate. The evidence against the former president brought the graft investigation closer to his protege Rousseff. She is already fighting off impeachment for allegedly breaking budget rules, weakening her efforts to pull the economy out of recession. Rousseff expressed her disagreement with the police taking her mentor into custody, saying it was “unnecessary” after his voluntary testimony. But she repeated her backing for institutions investigating corruption and said the probe must continue until those responsible were punished. News of Lula’s brief detention sparked a rally in Brazilian assets as traders bet that the political upheaval could empower a more market-friendly coalition.

Read more …

Yeah, do fear for the Olympics.

Brazil’s Ruling Party To Tap FX Reserves As Policy Fight Escalates (AEP)

The ruling party in Brazil has drawn up crisis plans to tap the country’s foreign exchange reserves to fight recession and prevent a surge in unemployment, heightening fears of a populist lurch as the economic crisis deepens. Any such move by Brazil would mark an escalation in the emerging market crisis, leading to intense scrutiny of other countries across the world facing similar difficulties following the collapse of the commodity boom and the end of cheap dollar liquidity from the US Federal Reserve. The plan is in direct conflict with the policies of president Dilma Rousseff and implies a head-on clash between the government and its own political base in the Workers Party (PT), with serious implications for the stability of the currency and Brazil’s debt markets.

It came as official data showed Brazil’s economy contracted sharply in 2015 as businesses slashed investment plans and laid off more than 1.5 million workers, setting the stage for what could be the country’s deepest recession on record. Brazil’s gross domestic product shrank 3.8pc in 2015, capped by another steep contraction in the fourth quarter. It was the steepest annual drop for the country’s GDP since 1990, when hyperinflation and debt default blighted the country’s recent return to democracy. Rui Falcão, the PT’s president, personally drafted the crisis document known as the National Emergency Plan. He reportedly has the backing of former president Lula, Luiz Inacio da Silva. It calls for a draw-down on the country’s $371bn foreign reserves to finance a development and jobs fund, as well as demanding a sharp cut in interest rates, a move that would effectively strip the central bank of its independence.

The 16 proposals together mark a dramatic shift back to the party’s Marxist roots and a rejection of its free-market concordat over recent years. While investors might be willing to accept use of the reserves to back up a stabilisation policy and radical reform, they would be horrified if it was used to finance a last-ditch populist agenda. “If the PT taps the reserves, they risk setting off a run on the currency. This is very dangerous,” said one economist, dismissing the scheme as complete madness. While the reserves are large, they are also opaque since the central bank has taken out $115bn in currency swaps, partly in order to support companies struggling to cope with dollar debts that have suddenly doubled in local terms due to the devaluation of the Brazilian real.

Lisa Schineller, a director of sovereign ratings at Standard & Poor’s, said Brazil’s safety margin on external debt is weaker than it looks, a key reason why the agency downgraded the country deeper into junk status in late February. Total external debt is $470bn, but on top of this there are $200bn of inter-company loans that have a “debt-like” character. “This is a very large order of magnitude. Brazil’s situation is not as strong as some people suggest,” she told The Daily Telegraph. “Their external assets do not exceed their external debts. They are much lower than they have been historically.”

Read more …

“There’s lots of precedent in the U.S., but I don’t think the precedent is anywhere near as well established in Germany,” he said. “It’s going to be interesting to watch where this goes.”

Giant California Pension Funds To Sue VW Over Diesel Scandal (LA Times)

Two giant California pension funds plan to sue Volkswagen in a German court, joining other institutional investors who argue the automaker should pay for losses they experienced since the revelation last year that VW cheated on emissions tests. The California State Teachers’ Retirement System, or CalSTRS, on Friday announced plans to join in a securities case against VW. A spokesman for the California Public Employees’ Retirement System, or CalPERS, confirmed that fund is separately pursuing a similar action. CalSTRS owned about 354,000 common and preferred shares of VW as of Dec. 31. Common shares fell by as much as 37%, and preferreds by as much as 43%, in the first weeks of the mushrooming scandal that began in September. Shares have since recovered somewhat.

CalSTRS said its holdings are now worth $52 million, though the pension fund has not said how much it believes it has lost. Its VW investment is a tiny fraction of the fund’s roughly $180 billion portfolio. “The emissions cheating scandal has badly hurt [VW’s] value,” CalSTRS Chief Executive Jack Ehnes said in a statement Friday. “Volkswagen’s actions are particularly heinous since the company marketed itself as a forward-thinking steward of the environment.” Ehnes said the pension fund hopes to recover money, as well as send a message to VW and the auto industry “that we will not tolerate these illegal actions.” CalPERS, the nation’s largest pension fund, with assets of $279 billion, also holds VW shares, though it has not publicly reported the number of shares since the summer of 2014.

It is not clear whether either pension fund has sold or acquired shares since the emissions scandal. It’s relatively common in the United States for investors to sue public companies following scandal-driven stock slumps, but such suits are less common in Europe, said Bruce Simon, a partner at law firm Pearson Simon & Warshaw, which specializes in class-action and securities litigation. He said the big question for the pension funds and other U.S. investors in VW is how much they’ll be able to recover under German securities law. “There’s lots of precedent in the U.S., but I don’t think the precedent is anywhere near as well established in Germany,” he said. “It’s going to be interesting to watch where this goes.”

Read more …

“The oil price is outside BP’s control, but executives performed strongly in managing the things they could control and for which they are accountable..”

BP CEO Gets 20% Pay Rise Despite 2015 Record Loss, 1000s of Jobs Lost (Ind.)

The pay package for BP chief executive Bob Dudley jumped by $3.2m (£2.1m) last year, despite profits plunging at the oil giant and thousands more staff facing the axe. His total package rose by 20% from $16.4m to $19.6m and was condemned by critics for being the latest example of a company losing “contact with reality” – after BP said a further 3,000 workers would lose their jobs on top of 4,000 gone in January. A further 4,000 went last year, with BP predicting that the oil price downturn would be long-lasting. About 250,000 jobs have been cut in the sector in 18 months. Mr Dudley’s base salary was unchanged at $1.85m but his annual cash bonus rose by $300,000 to $1.3m. Pension contributions soared from $3m to $6.5m.

But the biggest contributor to his package was $7.1m worth of vested performance shares, which he will receive during the current year. BP said one third of this award was based on total shareholder returns, one third on “strategic imperatives”, including safety and operational risk, and the final third on operating cashflow. The company added that the executive directors had “responded early and decisively to the lower oil price environment” – and said Mr Dudley deserved his extra cash because of his performance in a difficult period. “Despite the very challenging environment,” it stated, “BP delivered strong operating and safety performance throughout 2015.

“The oil price is outside BP’s control, but executives performed strongly in managing the things they could control and for which they are accountable. BP surpassed expectations on most measures ,and directors’ remuneration reflects this.” The pay boost came as the falling oil price and continuing liabilities related to the Gulf of Mexico oil spill in 2010 led BP to report a record 2015 deficit of $6.5bn.

Read more …

As talks with EU are ongoing. Too much.

Turkey Seizes Control Of Anti-Erdogan Daily In Midnight Raid (AFP)

Turkish police on Friday raided the premises of a daily newspaper staunchly opposed to President Recep Tayyip Erdogan, using tear gas and water cannon to disperse supporters and enter the building to impose a court order placing the media business under administration. Police fired the tear gas and water cannon to move away a hundreds-strong crowd that had formed outside the headquarters of the Zaman newspaper in Istanbul following the court order that was issued earlier in the day, an AFP photographer said. Zaman, closely linked to Erdogan’s arch-foe the US-based preacher Fethullah Gulen, was ordered into administration by the court on the request of Istanbul prosecutors, the state-run Anatolia news agency said.

There was no immediate official explanation for the court’s decision. The move means the court will appoint new managers to run the newspaper, who will be expected to transform its editorial line. Hundreds of supporters had gathered outside the paper’s headquarters in Istanbul awaiting the arrival of bailiffs and security forces after the court order. “We will fight for a free press,” and “We will not remain silent” said placards held by protestors, according to live images broadcast on the pro-Gulen Samanyolu TV. “Democracy will continue and free media will not be silent,” Zaman’s editor-in-chief Abdulhamit Bilici was quoted as saying by the Cihan news agency outside its headquarters. “I believe that free media will continue even if we have to write on the walls. I don’t think it is possible to silence media in the digital age,” he told Cihan, part of the Zaman media group.

[..] The court order had already aroused the concern of the United States, which said it was “the latest in a series of troubling judicial and law enforcement actions taken by the Turkish government targeting media outlets and others critical of it.” “We urge Turkish authorities to ensure their actions uphold the universal democratic values enshrined in their own constitution, including freedom of speech and especially freedom of the press,” State Department spokesman John Kirby said.

Read more …

Somehow it’s hard to believe this still continues.

What The NY Times Won’t Tell You About The US Adventure In Ukraine (Salon)

This column has cheered for an American failure in Ukraine since first forecasting one in the spring of 2014. Brilliant that it is upon us at last. Forcing a nation to live under a neoliberal economic regime so that American corporations can exploit it freely, as the Obama administration proposed when it designated Arseniy Yatsenyuk as prime minister in 2014, is never to be cheered. Turning a nation of 46 million into a bare-toothed front line in America’s obsessive campaign against Russia is never to be cheered. Forcing the Russian-speaking half of the country to live under a government that would ban Russian as a national language if it could is never to be cheered. The only regret, a great regret of mind and heart, is that American failures almost always prove so costly in consequence of the blindness and arrogance of the policy cliques.

Readers may remember when, with a defense authorization bill in debate last June, two congressmen advanced an amendment banning military assistance to “openly neo-Nazi” and “fascist” militias waging war against Ukraine’s eastern regions. John Conyers and Ted Yoho got two things done in a stroke: They forced public acknowledgment that “the repulsive neo-Nazi Azov battalion,” as Conyers put it, was active, and they shamed the (also repulsive) Republican House to pass their legislative amendment unanimously. Obama signed the defense bill then at issue into law just before Thanksgiving. The Conyers-Yoho amendment was deleted but for a single phrase. The bill thus authorizes, among much, much else, $300 million in aid this year to “the military and national security forces in Ukraine.” In a land ruled by euphemisms, the latter category designates the Azov battalion and the numerous other fascist militias on which the Poroshenko government is wholly dependent for its existence.

An omnibus spending bill Obama signed a month later included an additional $250 million for the Ukraine army and its rightist adjuncts. This is your money, taxpayers, should you need reminding. As Obama signed these bills, the White House expressed its satisfaction that “ideological riders” had been stripped out of them. No, you read next to nothing of this in any American newspaper. Yes, you now know what the often-lethal combination of blindness and arrogance looks like in action. Yes, you can now see why American policy in Ukraine must fail if this crisis is ever to come to a rational, humane resolution.

The funds just noted are in addition to a $1 billion loan guarantee—in essence another form of aid—that Secretary of State Kerry announced with fanfare last year. And that is in addition to the International Monetary Fund’s $40 billion bailout program, a $17.5 billion tranche of which is now pending. Since the I.M.F. is the external-relations arm of the U.S. Treasury (and Managing Director Christine Lagarde thus the Treasury’s public-relations face) this is a big commitment on the Obama administration’s part (which is to say yours and mine).

Read more …

“Then something happened. Ramadan looks up. He seems 70 but is 54. “We lost track of where the children were,” Ramadan says.”

The Syrian Exodus: Epic In Scale, Inconceivable Till You Witness It (Flanagan)

“Yesterday was the funeral,” Ramadan says. “It was very cold. We make sure Yasmin always has family around her.” Yasmin wears a red scarf, maroon jumper and blue jeans. She is small and slight. Her face seems unable to assemble itself into any form of meaning. Nothing shapes it. Her eyes are terrible to behold. Blank and pitiless. Yet, in the bare backstreet apartment in Mytilini on the Greek island of Lesbos in which we meet on a sub-zero winter’s night, she is the centre of the room, physically, emotionally, spiritually. The large extended family gathered around Yasmin – a dozen or more brothers, sisters, cousins, nephews, nieces, her mother and her father, Ramadan, an aged carpenter – seem to spin around her. And in this strange vortex nothing holds.

Yasmin’s family has come from Bassouta, an ancient Kurdish town in Afrin, near Aleppo, and joined the great exodus of our age, that of 5 million Syrians fleeing their country to anywhere they can find sanctuary. Old Testament in its stories, epic in scale, inconceivable until you witness it, that great river of refugees spills into neighbouring countries such as Lebanon, Jordan and Turkey, and the overflow – to date more than a million people – washes into Europe across the fatal waters of the Aegean Sea. “We were three hours in a black rubber boat,” Ramadan says. “There were 50 people. We were all on top of each other.” The family show me. They entwine limbs and contort torsos in strange and terrible poses. Yasmin’s nine months pregnant sister, Hanna, says that people were lying on top of her.

I am told how Yasmin was on her knees holding her four-year-old son, Ramo, above her. The air temperature just above freezing, the boat was soon half sunk, and Yasmin wet through. But if she didn’t continue holding Ramo up he might have been crushed to death or drowned beneath the compressed mass of desperate people. Then something happened. Ramadan looks up. He seems 70 but is 54. “We lost track of where the children were,” Ramadan says.

Read more …

But how do they see this? How is this not as hollow as can be?

Athens Given Deadlines For Schengen Requirements (Kath.)

Greece was handed Friday a timeline for the improvements it has to make in its border controls by May, as the European Commission presented a step-by-step plan to implement measures, including a new EU border and coast guard, to curb the influx of refugees and migrants to Europe. “We cannot have free movement internally if we cannot manage our external borders effectively,” Migration Commissioner Dimitris Avramopoulos said, as he presented the report ahead of Monday’s summit between the EU and Turkey. According to the Commission’s document, Greece has by March 12 to present its action plan to address concerns about its border controls and explain what action it is taking to correct failings discovered during an inspection in November.

Exactly a month later, Brussels will deliver its assessment on the Greek action plan. A new Schengen evaluation will be carried out by EU experts, who will inspect Greece’s land and sea borders, from April 11-17. Finally, Athens will have to report to the European Council by May 12 on the steps it has taken to meet its recommendations. The report presented Friday estimates that the collapse of passport-free travel in the 26-nation Schengen zone could cost the European economy up to €18 billionß a year.

Read more …

10,000 kilometers of coastline.

Tsipras Says Greece Can’t Stop Migrants Headed For Northern Europe (AFP)

Greek Prime Minister Alexis Tsipras said Friday his country can’t stop migrants who want to head to northern Europe, and sharply criticized Balkan countries for shutting their borders. “How can we stop people if they want to keep going?” Tsipras, whose country has faced a major refugee influx via Turkey, told Germany’s top-selling Bild daily. “We cannot imprison people, that would contravene international agreements. We can only help to rescue these people at sea, to supply and register them. Then they all want to move on. That’s why a resettlement process is the only solution.” “They have been bombed in their homes, have risked their lives to escape to come to Greece, the gateway to Europe. But the refugees’ ‘Mecca’ lies to the north.”

Tsipras’s comments came a day after Austria’s foreign minister urged Greece to stop migrants from pursuing their journey to northern Europe, saying Athens should hold new arrivals at registration “hot spots.” Sebastian Kurz told the Sueddeutsche Zeitung in an interview that “those who manage to arrive in Greece should not be allowed to continue on their journey.” But Tsipras retorted that while Greece, as Europe’s main gateway for refugees, had “met more than 100% of our obligations, others haven’t even met 10% and love to criticize us”. “What some countries have agreed and decided goes against all the rules, against the whole of Europe, and we consider it an unfriendly act.” “These countries are destroying Europe!” he charged, according to the German translation.

Athens has been seething over a series of border restrictions along the migrant trail, from Austria to the Former Yugoslav Republic of Macedonia, that has caused a bottleneck in Greece. “Greece is the only country that is fulfilling its obligations,” the leftist leader said, adding that it was now hosting 30,000 refugees. While Greece can protect its land borders, it can’t do the same for some 10,000 kilometers (6,000 miles) of coastline, he said. Tsipras said that “in the end those who are now putting up barbed wire, expelling refugees by force and turning their countries into fortresses, will be isolated in Europe. “We, however, are in an alliance with the countries showing solidarity,” he added, in an apparent reference to Germany, Europe’s top destination for migrants. “And these are the countries with which we had very big problems during the financial crisis,” he said, hinting at Berlin’s tough austerity demands from Greece in return for international bail-out loans.

Read more …

Somone better stop Tusk. “..if you insist that these people are refugees then you have a duty to welcome them under all EU constitutions.” By contrast, “if you refer to them as migrants then you have no duty towards them..”

Europe Yanks Welcome Mat Out From Under Its War Refugees (Sputnik)

On Thursday, European Council President Donald Tusk, dismissing refugees fleeing war-torn Syria as “economic migrants,” stated, “Do not come to Europe.” Middle East analyst Hafsa Kara-Mustapha sat down with Sputnik’s Brian Becker to discuss the dire status of Middle Eastern refugees in Europe. What will be the impact of European Council President Tusk’s Statements? “First of all, I have to talk about the wording he used,” Kara-Mustapha told Loud & Clear. “He insisted on using the word migrant and specifically using the phrase ‘economic migrant’ when all the people presently coming into Europe are actually war refugees fleeing conflict.” Kara-Mustapha expressed concern that by rebranding the refugees as economic migrants, the EU aims to alter the requirements of member states to provide asylum.

“In effect, when he says that Europe should stop welcoming economic migrants he is actually changing the whole subject and making the issue about economy and migration when simply it is about refugees,” she noted, adding that, “if you insist that these people are refugees then you have a duty to welcome them under all EU constitutions.” By contrast, “if you refer to them as migrants then you have no duty towards them because these people are just coming for financial gain and nobody owes them anything,” observed Kara-Mustapha. In reality, however, “these people are coming to Europe for safety and to avoid the horrors of war.” She also noted that the current aim of European leadership appears to be to fundamentally change public opinion toward refugees by referring to them as “migrants.” The wording, she said, “makes the topic less acceptable to ensure people turn against these refugees… the underlying meaning is that they are coming here for the benefits, to raid the welfare system, and to make money.”

Read more …

Jul 182015
 
 July 18, 2015  Posted by at 10:26 am Finance Tagged with: , , , , , , , , ,  1 Response »


Harris&Ewing State, War & Navy Building, Washington DC 1917

Those In Power Will Risk War And Civil Unrest To Preserve It (Martin Armstrong)
Irish €14.3 Billion Payments To Bank Bondholders May Have Been Avoidable (TFM)
Why Argentina Consistently, and Unapologetically, Refuses to Pay Its Debts (BBG)
China Unleashes $483 Billion to Stem the Market Rout (Bloomberg)
China Destroyed Its Stock Market In Order To Save It (Patrick Chovanec)
Greece’s Tsipras Shakes Up Cabinet in Bid to Rebuild Government (Bloomberg)
Wolfgang Schäuble, The Trust Troll (Steve Keen)
Alice In Schäuble-Land: Where Rules Mean What Wolfgang Says They Mean (Whelan)
Greece, Europe, and the United States (James K. Galbraith)
The Euro Is A Disaster Even For The Countries That Do Everything Right (WaPo)
Blame the Banks (The Atlantic)
Greece’s Debt Can Be Written Off – Whatever Wolfgang Schäuble Says (Guardian)
Greece And Europe: Is Europe Holding Up Its End Of The Bargain? (Ben Bernanke)
Why Is Germany So Tough On Greece? Look Back 25 Years (Guardian)
Greece Made The Wrong Choice (John Lloyd)
The Greek Crisis Represents The Humiliation Of European Democracy (Andrea Mammone)
The End Of Capitalism Has Begun (Paul Mason)
The Freakish Year in Broken Climate Records (Bloomberg)

Absolutely must see Farage video.

Those In Power Will Risk War And Civil Unrest To Preserve It (Martin Armstrong)

Nigel Farage may be the only practical politician these days because he came from the trading sector. He explains the Euro-Project and its failures. He makes it clear that the Greek people never voted to enter the euro, and explains that it was forced upon them by Goldman Sachs and their politicians. Nigel also explains that the Euro project idea that a trade and economic union would then magically produce a political union – the United States of Europe and eliminate war. He has warned that the idea of a political union would end European wars has actually turned Europe into a rising resentment in where there is now a new Berlin Wall emerging between Northern and Southern Europe.

The Euro project was a delusional dream for it was never designed to succeed but to cut corners all in hope of creating the United States of Europe to challenge the USA and dethrone the dollar, That dream has turned into a nightmare and will never raise Europe to that lofty goal of the financial capitol of the world. The IMF acts as a member of the Troika, yet has no elected position whatsoever. The second unelected member is Mario Draghai of the ECB. Then the head of Europe is also unelected by the people. The entire government design is totally un-Democratic and therein lies the crisis.

Not a single member of the Troika ever needs to worry about polls since they do not have to worry about elections. This is authoritarian government if we have ever seen one. The ECB attempts by sheer force to manipulate the economy with zero chance of success employing negative interest rates and defending banks as the (former?) Goldman Sachs man Mario Draghai dictates. Now, far too many political jobs have been created in Brussels. This is no longer about what is best for Europe, it is what is necessary to retain government jobs. The Invisible Hand of Adam Smith works even in this instance – those in power are only interested in their self-interest and will risk war and civil unrest to maintain their failed dreams of power.

Read more …

If true, a main argument for Greece.

Irish €14.3 Billion Payments To Bank Bondholders May Have Been Avoidable (TFM)

The legal advisor to the former government has said it WOULD have been legally possible to burn the bondholders of Ireland’s banks, without customers having to lose their deposits. The advice from the former attorney general Paul Gallagher appears to contradict the claims of some former ministers. Ministers in the former administration have consistently claimed that it would have been impossible to ‘burn’ bondholders without also enforcing a haircut on deposits, because the two were considered legally equal. However today Mr Gallagher has said that although it would have been difficult, it was legally possible to break this link and enforce losses on bondholders without depositors also taking a hit.

He said this had also been accepted by the Troika – but that the lenders simply refused to allow any burden-sharing under the bailout programme, making the prospect obsolete. Unsecured senior bondholders were paid around €14.3 billion under the period of the bank guarantee – much of it as a result of the state’s huge investment in the banking sector. Mr Gallagher’s evidence seems to suggest that these payments could have been avoided without depositors also facing any losses, but for the Troika’s stance.

Read more …

If Argentina can do it…

Why Argentina Consistently, and Unapologetically, Refuses to Pay Its Debts (BBG)

Argentina’s fight with foreign banks and bondholders is more than just business. It’s part of the national psyche, enshrined in a special museum at the business school at the University of Buenos Aires. The Museum of Foreign Debt is nothing fancy. There are a few flimsy panels plastered with grainy photos, dates, text, and graphs. Oh, but the saga portrayed on those panels! Banks, bond investors, and the International Monetary Fund flood crooked regimes with overpriced credit. The Argentine economy collapses, and the people suffer. International markets are roiled. It happens time and time again. The story has all the emotions of a good tango. Argentina has reneged on foreign debt obligations at least seven times, starting in 1827.

The latest was in July 2014, when Argentina defaulted rather than give in to pressure from Paul Singer of Elliott Management. The fight with Singer has been going on for a dozen years, and the term vulture investor—rather esoteric in much of the world—is now pretty much universally known in Argentina. It’s so much on people’s minds that Buenos Aires toy stores carry a homegrown board game called Vultures, packaged in a box depicting a pair of the birds picking at a pile of dollars. “We planted the anti-vulture flag in the world,” President Cristina Fernández de Kirchner said in a speech in mid-May. “We gave a name to international usury and despotism.” One May morning at the debt museum, guide Antonella Fagnano, a 21-year-old business major, describes Argentines’ attitude toward default.

She pauses by a black-and-white photo of the late General Jorge Videla, who led a 1976 coup that ushered in a seven-year dictatorship. Successive presidents in that period loaded up on foreign debt to finance, among other things, the 1982 Falklands War with the U.K. Today’s Argentina, Fagnano says, has no moral obligation to make good on debts like those. In fact, it would be wrong to pay. “Foreigners financed a lot of leaders, like these dictators. They didn’t do what they were supposed to do with the money, and left future generations the debt,” she says, shaking her head. “So, of course, you cannot allow that.” Fernandez is nearing the end of her term, and it doesn’t look like things will change under the next president. Daniel Scioli, the front-runner for October elections, vows to carry on the fight against paying the vultures in full.

Read more …

And counting.

China Unleashes $483 Billion to Stem the Market Rout (Bloomberg)

China has created what amounts to a state-run margin trader with $483 billion of firepower, its latest effort to end a stock-market rout that threatens to drag down economic growth and erode confidence in President Xi Jinping’s government. China Securities Finance Corp. can access as much as 3 trillion yuan of borrowed funds from sources including the central bank and commercial lenders, according to people familiar with the matter. The money may be used to buy shares and provide liquidity to brokerages, the people said, asking not to be named because the information wasn’t public. While it’s unclear how much CSF will ultimately deploy into China’s $6.6 trillion equity market, the financing is up to 25 times bigger than the support fund started by Chinese brokerages earlier this month.

That’s probably enough to restore confidence among China’s 90 million individual investors, says Bocom International Holdings Co. The Shanghai Composite Index jumped 3.5 % on Friday, capping a two-week rally that’s turned it into one of the world’s best-performing equity gauges. “It doesn’t have to use up all the money, as long as it can make the rest of the market believe that it has enough ammunition,” said Hao Hong, a China strategist at Bocom International in Hong Kong. “It is a game of chicken. For now, it seems to be working.” CSF, founded in 2011 to provide funding to the margin-trading businesses of Chinese brokerages, has transformed into one of the key government vehicles to combat a 32 % selloff in the Shanghai Composite from mid-June through July 8.

At 3 trillion yuan, its funding would be about five times bigger than the new proposed bailout for Greece and exceed China’s 2.3 trillion yuan of regulated margin financing during the height of the stock-market boom last month. “What the authorities are demonstrating to the market is that if panic does take hold, they have the resources at their disposal to deal with that,” said James Laurenceson, the deputy director of the Australia-China Relations Institute at the University of Technology in Sydney. “Monetary authorities around the word regularly send the same signal in credit and foreign exchange markets.”

Read more …

“Chinese punters were borrowing in large sums, from both brokerages and more shadowy sources — like “umbrella trusts” and peer-to-peer lending websites — to buy shares, with the shares themselves as collateral.”

China Destroyed Its Stock Market In Order To Save It (Patrick Chovanec)

During the Vietnam War, surveying the shelled wreckage of Ben Tre, an American officer famously remarked, “It became necessary to destroy the town to save it.” His comment came to epitomize the sort of self-defeating “victory” that undoes what it aims to achieve. Last week, China destroyed its stock market in order to save it. Faced with a crash in share prices from a bubble of its own making, the Chinese government intervened ruthlessly, and recklessly, to turn those prices around. Its heavy-handed approach seemed to work, for the moment, but only by severely damaging far more important goals and ambitions. Prior to the crash, China’s stock market had enjoyed a blissful disconnect from reality. As China’s economy slowed and corporate profits declined, share prices soared, nearly tripling in just 12 months.

By the peak, half the companies listed on the Shanghai and Shenzhen exchanges were priced above a preposterous 85-times earnings. It was a clear warning flag — one that Chinese regulators encouraged people to ignore. Then reality caught up. At first, when prices began to fall, the central bank responded by cutting interest rates and bank reserve requirements — measures to inject more money that had never failed to juice the market. But prices continued to fall. Then the government rallied the major brokerages to form a $19 billion fund to buy shares and waded directly into the market to buy stocks too. A few stocks rose, but most fell even further. The relentless crash was intensified by a new factor in Chinese markets: margin lending.

Chinese punters were borrowing in large sums, from both brokerages and more shadowy sources — like “umbrella trusts” and peer-to-peer lending websites — to buy shares, with the shares themselves as collateral. At the peak, according to Goldman Sachs, formal margin lending alone accounted for 12% of the market float and 3.5% of China’s GDP, “easily the highest in the history of global equity markets.” Margin loans served as rocket fuel for the market on its way up, but prices began to fall and borrowers received “margin calls” that forced them to liquidate their positions, pushing prices down further in a kind of death spiral.

Chinese regulators, who had been trying (ineffectually) to rein in risky margin lending, now suddenly reversed course. They waved rules requiring brokerages to ask for more collateral when stock prices fall and allowed them to accept any kind of asset — including people’s homes — as collateral for stock-buying loans. They also encouraged brokerages to securitize and sell their margin-lending portfolios to the public so that they could go out and make even more loans. All these steps knowingly exposed major financial institutions, and their customers, to much greater risk. Yet no one will borrow if no one is confident enough to buy, and the market continued to fall, wiping out nearly all its gains since the start of the year.

Read more …

The deal “has an ownership problem for Tsipras and the Greeks in general..”

Greece’s Tsipras Shakes Up Cabinet in Bid to Rebuild Government (Bloomberg)

Greek Prime Minister Alexis Tsipras replaced some ministers in a cabinet reshuffle after almost a quarter of his lawmakers rejected measures he agreed on with creditors to keep the country in the euro. The prime minister’s office said Friday that Panagiotis Skourletis will replace Panagiotis Lafazanis, who heads the Left Platform fraction of Tsipras’s Syriza party, as energy minister. George Katrougalos will succeed Panagiotis Skourletis as labor minister. The Greek parliament in the early hours of Thursday backed the deal with creditors, needed to unblock further financing aid, with decisive votes from the opposition. With 38 of 149 Syriza lawmakers refusing to support further spending cuts and tax increases, that marked a blow for Tsipras, who came to power on an anti-austerity platform in January.

Tsipras told his associates after the parliament vote that he would be forced to lead a minority government until a final deal with creditors is concluded. The European Union finalized a €7.2 billion bridge loan to Greece on Friday that will help provide the debt-ravaged nation with a stop-gap until its full three-year bailout is settled. In all, 64 of the parliament’s 300 lawmakers voted against the bill. Half of the “no” votes came from Syriza, including from Lafazanis and former Finance Minister Yanis Varoufakis. Finance Minister Euclid Tsakalotos, called in by Tsipras to replace Varoufakis before the final bailout negotiations, discussed on Friday with Joseph Stiglitz, a Nobel-prize winning economist, about the difficulties expected in the implementation of the deal with Greece’s creditors.

The deal “has an ownership problem for Tsipras and the Greeks in general,” said Paolo Manasse, a professor of economics at the University of Bologna, Italy. “It’s a liberal program to be carried out by a radical-left premier and imposed on a country that’s just voted no in a referendum.”

Read more …

“To the Confidence Fairy we can now add the ‘Trust Troll’ : appease the Trust Troll, and all your macroeconomic ills will magically vanish.”

Wolfgang Schäuble, The Trust Troll (Steve Keen)

Paul Krugman invented the term “confidence fairy” to characterize the belief that all that was needed for growth to resume after the Global Financial Crisis was to restore ‘confidence’. Impose austerity and the economy will not shrink, but will instead grow immediately, because of the boost to confidence:

.. don’t worry: spending cuts may hurt, but the confidence fairy will take away the pain. The idea that austerity measures could trigger stagnation is incorrect, declared Jean-Claude Trichet, the president of the European Central Bank, in a recent interview. Why? Because confidence-inspiring policies will foster and not hamper economic recovery. ( Myths of Austerity , July 1 2010)

To the Confidence Fairy we can now add the ‘Trust Troll’ : appease the Trust Troll, and all your macroeconomic ills will magically vanish. The identity of the Confidence Fairy was never revealed, but the identity of the Trust Troll is obvious. It‘s German Finance Minister Wolfgang Schäuble. Schäuble was clearly the primary architect of the Troika’s dictat for Greece. One only has to compare its language to that used by Schäuble in his OpEd in the New York Times three months ago (Wolfgang Schäuble on German Priorities and Eurozone Myths , April 15 2015). There he stated that ‘My diagnosis of the crisis in Europe is that it was first and foremost a crisis of confidence, rooted in structural shortcomings , and that the essential factor in ending the crisis was the restoration of trust:

The cure is targeted reforms to rebuild trust in member states finances, in their economies and in the architecture of the European Union. Simply spending more public money would not have done the trick nor can it now.

Compare this to the first line of the communique:

The Eurogroup stresses the crucial need to rebuild trust with the Greek authorities as a pre requisite for a possible future agreement on a new ESM programme.

The policies in the document match those in Schäuble’s OpEd as well. Schäuble called for:

.. more flexible labor markets; lowering barriers to competition in services; more robust tax collection; and similar measures.

The Troika’s document forces these measures upon Greece. These include ‘the broadening of the tax base to increase revenue’, ‘rigorous reviews of collective bargaining, industrial action and collective dismissals’ and ‘ambitious product market reforms’. At the same time, Greece is required to aim to achieve a government surplus equivalent to 3.5% of GDP -the opposite of ‘spending more public money’ which Schäuble rejected in his OpEd. Rather than debt reduction and rescheduling as even the IMF now calls for, “The Euro Summit acknowledges the importance of ensuring that the Greek sovereign can clear its arrears to the IMF and to the Bank of Greece and honour its debt obligations”.

This cannot in any sense be seen as an economic document, since an economic document would have to assess the feasibility of its proposals. Instead it simply states Schäuble s ideology: regardless of your economic circumstances, simply implement these (so-called) market-oriented reforms, restore trust, and your economy will grow. With the government debt that Greece currently labours under, this is a fantasy. Even if Greece were to pay a mere 3% on its debt, interest payments alone would absorb over 5% of GDP. To do that, and run a primary surplus of 3.5% of GDP in an economy where 25% of the population is unemployed is simply impossible.

Read more …

Karl Whelan makes much the same point as Steve Keen: “..the truth is it is really Grade-A concern trolling (“I’d love to help you guys but I can only do it if you leave the euro”) dressed up as legal argumentation.”

Alice In Schäuble-Land: Where Rules Mean What Wolfgang Says They Mean (Whelan)

After trying his best to chuck Greece out of the euro last weekend, Germany’s finance minister Schäuble has continued to openly undermine the deal that was agreed by European leaders and endorsed by the Greek parliament. A key argument he has been putting forward is that a debt write-down for Greece “would be incompatible with the currency union’s rules” but that such a write-down would be possible if Greece left the euro. While this claim is being widely repeated in the German press, the truth is it is really Grade-A concern trolling (“I’d love to help you guys but I can only do it if you leave the euro”) dressed up as legal argumentation.

The rules of the EU and Eurozone are so byzantine that it is quite easy to make false claims about these rules and get away with it. However, I do not believe there is anything in the European Union or Eurozone rules that would preclude a debt write-down inside the euro. The basis for Schäuble’s argument appears to be Article 125.1 of the consolidated treaty on the functioning of the EU. Here is the article in full.

The Union shall not be liable for or assume the commitments of central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of any Member State, without prejudice to mutual financial guarantees for the joint execution of a specific project. A Member State shall not be liable for or assume the commitments of central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of another Member State, without prejudice to mutual financial guarantees for the joint execution of a specific project.

This is the article that used to be called “the no bailout clause”. However, it is nothing of the sort. It simply says that member states cannot take on the debts of another member state. This did not rule out member states “bailing out” other countries by making loans to them. And indeed, the European Court of Justice in its Pringle decision established that the European Stabilisation Mechanism bailout fund was consistent with Article 125. Also worth noting about Article 125 are all the things it doesn’t mention. It doesn’t rule out loans being member states and doesn’t discuss these loans being restructured. And it makes no mention whatsoever of the Eurozone. So there is simply no legal basis for the idea that Greek debt being written down is illegal while they remain in the Eurozone but is fine if they leave the euro.

It is conceivable that someone could still take a case to the ECJ objecting to a write-off on the grounds that the granting and write-off of loans to Greece would result in more debt for European countries and allowed Greece to pay off other creditors. So you could argue that this was effectively the same thing as the other member states assuming Greece’s other debt commitments. To my mind, this line of argumentation moves far away from the simple and clear language of Article 125.1. I also don’t see much in the Pringle decision to suggest the ECJ would uphold such a case. There would be even less case for a legal argument against an “effective write-off” involving postponing interest payments and principal payments for some very long period of time, such as 100 years.

So there is no “Eurozone rule” against a writing off Greek debt. Conversely, despite Schäuble’s enthusiastic support, the rules don’t allow for a euro exit. Rules it appears, mean whatever Mr. Schäuble wants them to mean.

Read more …

“After all, Poland, the Czech Republic, Croatia, and Romania (not to mention Denmark and Sweden, or for that matter the United Kingdom) are still out and will likely remain so—yet no one thinks they will fail or drift to Putin because of that.”

Greece, Europe, and the United States (James K. Galbraith)

SYRIZA was not some Greek fluke; it was a direct consequence of European policy failure. A coalition of ex-Communists, unionists, Greens, and college professors does not rise to power anywhere except in desperate times. That SYRIZA did rise, overshadowing the Greek Nazis in the Golden Dawn party, was, in its way, a democratic miracle. SYRIZA’s destruction will now lead to a reassessment, everywhere on the continent, of the “European project.” A progressive Europe—the Europe of sustainable growth and social cohesion—would be one thing. The gridlocked, reactionary, petty, and vicious Europe that actually exists is another. It cannot and should not last for very long.

What will become of Europe? Clearly the hopes of the pro-European, reformist left are now over. That will leave the future in the hands of the anti-European parties, including UKIP, the National Front in France, and Golden Dawn in Greece. These are ugly, racist, xenophobic groups; Golden Dawn has proposed concentration camps for immigrants in its platform. The only counter, now, is for progressive and democratic forces to regroup behind the banner of national democratic restoration. Which means that the left in Europe will also now swing against the euro.

As that happens, should the United States continue to support the euro, aligning ourselves with failed policies and crushed democratic protests? Or should we let it be known that we are indifferent about which countries are in or out? Surely the latter represents the sensible choice. After all, Poland, the Czech Republic, Croatia, and Romania (not to mention Denmark and Sweden, or for that matter the United Kingdom) are still out and will likely remain so—yet no one thinks they will fail or drift to Putin because of that. So why should the euro—plainly now a fading dream—be propped up? Why shouldn’t getting out be an option? Independent technical, financial, and moral support for democratic allies seeking exit would, in these conditions, help to stabilize an otherwise dangerous and destructive mood.

Read more …

The story comes from everywhere now: non-euro countries fare much better than euro nations. Even in Germany, workers are being stiffed.

The Euro Is A Disaster Even For The Countries That Do Everything Right (WaPo)

The euro might be worse for you than bankruptcy. That, at least, has been the case for Finland and the Netherlands, which have actually grown less than Iceland has since 2007. Iceland, you might recall, went bankrupt in 2008. Now, it’s true that Finland and the Netherlands have had their fair share of economic problems, but those should have been manageable. Neither country is a basket case, and both have done what they were supposed to do. In other words, they’ve followed the rules, and the results have still been a catastrophe. That’s because the euro itself is. Or, if you want to be polite, the common currency is “imperfect, and being imperfect is fragile, vulnerable, and doesn’t deliver all the benefits it could.” That was ECB chief Mario Draghi’s verdict on Thursday.

So what’s happened to them? Well, just your run-of-the-mill bad economic news. It’s only a slight exaggeration to say that Apple has kneecapped Finland’s economy. Its two biggest exports were Nokia phones and paper products, but, as the country’s former prime minister Alex Stubb has said, the iPhone killed the former and the iPad killed the latter. Now, the normal way to make up for this would be to cut costs by devaluing your currency, except that Finland doesn’t have a currency to devalue anymore. It has the euro. So instead it’s had to cut costs by cutting wages, which not only takes longer, but also causes more economic damage since you have to fire people to convince them to take pay cuts. The result has been a recession longer than anything in Finland’s living memory, longer even than its great depression in the early 1990s. It hasn’t helped, of course, that the rules of the euro zone have forced Finland’s government to cut its budget at the same time that all this has been happening.

It’s been a different kind of story in the Netherlands. Its goods are more than competitive abroad—its trade surplus is an absurd 10 % of economic output—but its domestic spending is a problem. The Netherlands had a huge housing bubble, fueled, in part, by the fact that interest payments are fully tax deductible, that has since deflated some 20%. That’s left Dutch households with a bigger debt burden than anyone else in the euro zone. On top of that, there’s been the usual austerity to keep its recovery from being much—or any—of one. Indeed, the Netherlands’ economy was slightly smaller at the end of 2014 than it was at the end of 2007. That’s a lot better than Finland, whose economy has shrunk 5.2% during that time, but it still lags the 1.1% growth Iceland has eked out.

Read more …

Excellent.

Blame the Banks (The Atlantic)

In buying various assets European banks were doing what banks are supposed to do: lending. But by doing so without caution they were doing exactly what banks are not supposed to do: lending recklessly. The European banks weren’t lending recklessly to only the U.S. They were also aggressively lending within Europe, including to the governments of Spain, Portugal, and Greece. In 2008, when the U.S. housing market collapsed, the European banks lost big. They mostly absorbed those losses and focused their attention on Europe, where they kept lending to governments—meaning buying those countries’ debt—even though that was looking like an increasingly foolish thing to do:

Many of the southern countries were starting to show worrying signs. By 2010 one of those countries—Greece—could no longer pay its bills. Over the prior decade Greece had built up massive debt, a result of too many people buying too many things, too few Greeks paying too few taxes, and too many promises made by too many corrupt politicians, all wrapped in questionable accounting. Yet despite clear problems, bankers had been eagerly lending to Greece all along. That 2010 Greek crisis was temporarily muzzled by an international bailout, which imposed on Greece severe spending constraints. This bailout gave Greece no debt relief, instead lending them more money to help pay off their old loans, allowing the banks to walk away with few losses.

It was a bailout of the banks in everything but name. Greece has struggled immensely since then, with an economic collapse of historic proportion, the human costs of which can only be roughly understood. Greece needed another bailout in 2012, and yet again this week. While the Greeks have suffered, the northern banks have yet to account financially, legally, or ethically, for their reckless decisions. Further, by bailing out the banks in 2010, rather than Greece, the politicians transferred any future losses from Greece to the European public. It was a bait-and-switch rife with a nationalist sentiment that has corrupted the dialogue since: Don’t look at our reckless banks; look at their reckless borrowing.

Read more …

Legalese.

Greece’s Debt Can Be Written Off – Whatever Wolfgang Schäuble Says (Guardian)

A vote in the Greek parliament means little to Germany’s finance minister, Wolfgang Schäuble. The self-appointed guardian of the EU’s financial rulebook says Athens can vote as many times as it likes in favour of a deal that promises, even in the vaguest terms, to write off some of its colossal debts, but that doesn’t mean the rules allow it. In fact, as Schäuble delights in pointing out, any attempt at striking out Greek debt is, according to his advice, illegal. Yet Schäuble knows Greece’s debts are unsustainable unless some of them are written off – he has said as much on several occasions. So faced with its internal contradictions, he posits that the deal must fail and the poorly led Greeks exit the euro.

As a compromise, he repeated his suggestion on Tuesday that Greece leave the euro temporarily. Those who care more for maintaining the current euro currency bloc as a 19-member entity immediately spotted this manoeuvre as a one-way ticket with no way back for Greece. The Austrian chancellor, Werner Faymann, a centre-left social democrat, said Schäuble was “totally wrong” to create the impression that “it may be useful for us if Greece falls out of the currency union, that maybe we pay less that way”. Faymann, who has consistently taken a sympathetic line on Greece, showed his growing irritation at the German minister’s stance: “It’s morally not right, that would be the beginning of a process of decay … Germany has taken on a leading role here in Europe and in this case not a positive one.”

Greece and Faymann’s problem is that there are plenty of other forces at play pulling at the loose threads of the latest bailout deal. The IMF has said a big debt write-off is needed to prevent a proposed €86bn deal collapsing under the sheer weight of future liabilities and a reluctance in Greece to carry through reforms.

Read more …

Bernanke weighs in.

Greece And Europe: Is Europe Holding Up Its End Of The Bargain? (Ben Bernanke)

This week the Greek parliament agreed to European demands for tough new austerity measures and structural reforms, defusing (for the moment, at least) the country’s sovereign debt crisis. Now is a good time to ask: Is Europe holding up its end of the bargain? Specifically, is the euro zone’s leadership delivering the broad-based economic recovery that is needed to give stressed countries like Greece a reasonable chance to meet their growth, employment, and fiscal objectives? Over the longer term, these questions are evidently of far greater consequence for Europe, and for the world, than are questions about whether tiny Greece can meet its fiscal obligations.

Unfortunately, the answers to these questions are also obvious. Since the global financial crisis, economic outcomes in the euro zone have been deeply disappointing. The failure of European economic policy has two, closely related, aspects: (1) the weak performance of the euro zone as a whole; and (2) the highly asymmetric outcomes among countries within the euro zone. The poor overall performance is illustrated by Figure 1 below, which shows the euro area unemployment rate since 2007, with the U.S. unemployment rate shown for comparison.

In late 2009 and early 2010 unemployment rates in Europe and the United States were roughly equal, at about 10% of the labor force. Today the unemployment rate in the United States is 5.3%, while the unemployment rate in the euro zone is more than 11%. Not incidentally, a very large share of euro area unemployment consists of younger workers; the inability of these workers to gain skills and work experience will adversely affect Europe’s longer-term growth potential. The unevenness in economic outcomes among countries within the euro zone is illustrated by Figure 2, which compares the unemployment rate in Germany (which accounts for about 30% of the euro area economy) with that of the remainder of the euro zone.

Currently, the unemployment rate in the euro zone ex Germany exceeds 13%, compared to less than 5% in Germany. Other economic data show similar discrepancies within the euro zone between the “north” (including Germany) and the “south.” The patterns illustrated in Figures 1 and 2 pose serious medium-term challenges for the euro area. The promise of the euro was both to increase prosperity and to foster closer European integration. But current economic conditions are hardly building public confidence in European economic policymakers or providing an environment conducive to fiscal stabilization and economic reform; and European solidarity will not flower under a system which produces such disparate outcomes among countries.

Read more …

How Wolfie asset-stripped East Germany.

Why Is Germany So Tough On Greece? Look Back 25 Years (Guardian)

It was 25 years ago, during the summer of 1990, that Schäuble led the West German delegation negotiating the terms of the unification with formerly communist East Germany. A doctor of law, he was West Germany’s interior minister and one of Chancellor Helmut Kohl’s closest advisers, the go-to guy whenever things got tricky. The situation in the former GDR was not too dissimilar from that in Greece when Syriza swept to power: East Germans had just held their first free elections in history, only months after the Berlin Wall fell, and some of the delegates from East Berlin dreamed of a new political system, a “third way” between the west’s market economy and the east’s socialist system – while also having no idea how to pay the bills anymore.

The West Germans, on the other side of the table, had the momentum, the money and a plan: everything the state of East Germany owned was to be absorbed by the West German system and then quickly sold to private investors to recoup some of the money East Germany would need in the coming years. In other words: Schäuble and his team wanted collateral. At that time almost every former communist company, shop or petrol station was owned by the Treuhand, or trust agency – an institution originally thought up by a handful of East German dissidents to stop state-run firms from being sold to West German banks and companies by corrupt communist cadres. The Treuhand’s mission: to turn all the big conglomerates, companies and tiny shops into private firms, so they could be part of a market economy.

Schäuble and his team didn’t care that the dissidents had planned to hand out shares of companies to the East Germans, issued by the Treuhand – a concept that incidentally led to the rise of the oligarchs in Russia. But they liked the idea of a trust fund because it operated outside the government: while technically overseen by the finance ministry, it was publicly perceived as an independent agency. Even before Germany merged into a single state in October 1990, the Treuhand was firmly in West German hands. Their aim was to privatise as many companies as possible, as soon as possible – and if you were to ask most Germans about the Treuhand today they would say it achieved that objective. It didn’t do so in a way that was popular with the people of East Germany, where the Treuhand quickly became known as the ugly face of capitalism. It did a horrible job in explaining the transformation to shellshocked East Germans who felt overpowered by this strange new agency. To make matters worse, the Treuhand became a hotbed of corruption.

Read more …

“As for the future of the euro, it would no longer be the Greeks’ problem. What, they may say, has the euro done for us?”

Greece Made The Wrong Choice (John Lloyd)

Former Greek Finance Minister Yanis Varoufakis has, as Macbeth put it, “strutted and fretted his hour upon the stage.” But he will still be heard some more. While Prime Minister Alexis Tsipras pleaded for support Wednesday for a European Union “rescue” plan in which he said he didn’t believe, Varoufakis was busy ripping it apart. In a widely circulated blog, Varoufakis boiled down his belief to this: Greece had been reduced to the status of a slave state. While his words were clearly driven by anger and spite, he’s not entirely out of line. The agreement is, as Tsipras said, a kind of blackmail. The economist Simon Tilford described it as an order to “acquiesce to all our demands or we will evict you from the currency union.”

Pensions will be cut further, labor markets liberalized, working lives extended, collective bargaining “modernized,” and hiring and firing made easier. For a government that takes its inspiration from Karl Marx, this is a neo-liberal dousing. There are few enthusiasts for the deal: the most important of the skeptics is the IMF, which called for the euro zone creditors to allow a partial write-off of its €300+ billion debt, or at least permit a repayment pause for 30 years. In an ironic twist, the IMF, the creditor the Tsipras government most despised, is now its (partial) friend. Skeptics have focused not just on the impossibility of debt repayment, but also on the deepening poverty that will result from the agreement.

Francois Cabeau, an economist in Barclays Bank, told the French daily Figaro that the economy would continue to shrink by between 6 and 8% a year. Because the Greek economy has so few sectors where significant value is added other than shipping and tourism, it depends heavily on consumption — which is being further cut, thus prompting a vicious cycle and a further immiseration of the poor, elderly and sick. These conditions validate Varoufakis’ analysis. Greece is a country so firmly under the unremitting pressure of its creditors and so tied to foreign demands, that it may soon resemble an East European communist state in the high tide of Soviet power. Like two of these states — Hungary in 1956, Czechoslovakia in 1968 — Syriza made a failed attempt at a revolt, and was crushed.

[..] So should it leave the euro zone? The objections to a Grexit are twofold: first, that its currency — presumably a newly issued drachma — would be walloped by an unfavorable exchange rate as a result. Foreign goods and foreign travel would be priced out of many families’ reach. At the same time, as euro zone leaders have warned continually, a Grexit would also shake the euro to its foundations — and though the remaining 18 members could be protected, a precedent would be set that this is a contingent currency, with membership dependent on national conditions. That it would be bad is certain: but how much worse than staying in and swallowing bitter medicine? As for the future of the euro, it would no longer be the Greeks’ problem. What, they may say, has the euro done for us?

Read more …

“The key (overlooked) question here is: Is this EU reflecting Europeans’ will? ”

The Greek Crisis Represents The Humiliation Of European Democracy (Andrea Mammone)

Fears, disillusionment, uncertainty, and astonishment are mixed together by the hot wind blowing from Greece and the cold rain coming from some of Northern Europe. No, it is not a weather forecast. After the Greek referendum and the recent night-long negotiations, these are the feelings of many people across Europe. Even if the reality will probably be less apocalyptic, the truth is that democracy is being ridiculed around the EU. Some media from all around the world are, in fact, suggesting that Greece has been excessively humiliated and there is a strong attempt to force it out from the Eurozone. And this is not merely because one of the proposals from the summit stated that €50bn of Greek assets had to be handed over to an institution fundamentally controlled by Berlin.

These days Greece has been constantly at the centre of Europe’s microcosm. The “mother” of western democracy and inner culture, according to some, has to learn the lesson. It is a matter of mere power. They rejected austerity, potentially provoking another European downturn, and a default with unclear outcomes. Stories of poverty and unemployment are indeed in the eyes of everyone willing to see them. The situation is undermining the future of the European community. It is not simply opening the way for member states to be essentially pushed out by the strongest ones. Referring to the Greek early approach and a possible “exit”, EU Commission president Jean-Claude Juncker said that he could not “pull a rabbit out of a hat”. This is very true.

But early post-war politicians pulled many rabbits out when Europe had to be rebuilt after the war, and so one would expect a similar proficiency. This contemporary generation of European leaders might be instead remembered like the one leading to the disappearance of many transnational bonds established by Europeans. Europe is, then, really navigating with no compass. It has not a single voice. Socially, there seems to be no concern with people’s living standards. Politically, they lack any preoccupations with geo-politics, as some of the Mediterranean might fall under Putin’s influence. Budget and austerity are the main interests. As Pierre Moscovici, the socialist EU economic commissioner, in fact, put it, the “integrity” of the Eurozone has been saved with the novel agreement.

The key (overlooked) question here is: Is this EU reflecting Europeans’ will? Its image (and also Germany’s image) is seriously damaged even if all Greeks voted yes. For this reason the statement by the German European MP and chairman of the leading centre-right European People’s Party, Manfred Weber, that Europe is “based on solidarity, not a club of egoists” looks highly paradoxical, especially after what it is happening to Greece.

Read more …

From Mason’s upcoming new book. Lots of technohappiness.

The End Of Capitalism Has Begun (Paul Mason)

The 2008 crash wiped 13% off global production and 20% off global trade. Global growth became negative – on a scale where anything below +3% is counted as a recession. It produced, in the west, a depression phase longer than in 1929-33, and even now, amid a pallid recovery, has left mainstream economists terrified about the prospect of long-term stagnation. The aftershocks in Europe are tearing the continent apart. The solutions have been austerity plus monetary excess. But they are not working. In the worst-hit countries, the pension system has been destroyed, the retirement age is being hiked to 70, and education is being privatised so that graduates now face a lifetime of high debt. Services are being dismantled and infrastructure projects put on hold.

Even now many people fail to grasp the true meaning of the word “austerity”. Austerity is not eight years of spending cuts, as in the UK, or even the social catastrophe inflicted on Greece. It means driving the wages, social wages and living standards in the west down for decades until they meet those of the middle class in China and India on the way up. Meanwhile in the absence of any alternative model, the conditions for another crisis are being assembled. Real wages have fallen or remained stagnant in Japan, the southern Eurozone, the US and UK. The shadow banking system has been reassembled, and is now bigger than it was in 2008. New rules demanding banks hold more reserves have been watered down or delayed. Meanwhile, flushed with free money, the 1% has got richer.

Neoliberalism, then, has morphed into a system programmed to inflict recurrent catastrophic failures. Worse than that, it has broken the 200-year pattern of industrial capitalism wherein an economic crisis spurs new forms of technological innovation that benefit everybody. That is because neoliberalism was the first economic model in 200 years the upswing of which was premised on the suppression of wages and smashing the social power and resilience of the working class. If we review the take-off periods studied by long-cycle theorists – the 1850s in Europe, the 1900s and 1950s across the globe – it was the strength of organised labour that forced entrepreneurs and corporations to stop trying to revive outdated business models through wage cuts, and to innovate their way to a new form of capitalism.

Read more …

“This El Niño hasn’t peaked yet, but by some measures it’s already the most extreme ever recorded for this time of year and could lead 2015 to break even more records than last year.”

The Freakish Year in Broken Climate Records (Bloomberg)

The annual State of the Climate report is out, and it’s ugly. Record heat, record sea levels, more hot days and fewer cool nights, surging cyclones, unprecedented pollution, and rapidly diminishing glaciers.
The U.S. National Oceanic and Atmospheric Administration (NOAA) issues a report each year compiling the latest data gathered by 413 scientists from around the world. It’s 288 pages, but we’ll save you some time. Here’s a review, in six charts, of some of the climate highlights from 2014.

1. Temperatures set a new record It’s getting hot out there. Four independent data sets show that last year was the hottest in 135 years of modern record keeping. The map above shows temperature departure from the norm. The eastern half of North America was one of the few cool spots on the planet.

2. Sea levels also surge to a record The global mean sea level continued to rise, keeping pace with a trend of 3.2 millimeters per year over the last two decades. The global satellite record goes back only to 1993, but the trend is clear and consistent. Rising tides are one of the most physically destructive aspects of climate change. Eight of the world’s 10 largest cities are near a coast, and 40 % of the U.S. population lives in coastal areas, where the risk of flooding and erosion continues to rise.

3. Glaciers retreat for the 31st consecutive year Data from more than three dozen mountain glaciers show that 2014 was the 31st straight year of glacier ice loss worldwide. The consistent retreat of glaciers is considered one of the clearest signals of global warming. Most alarming: The rate of loss is accelerating over time.

4. There are more hot days and fewer cool nights Climate change doesn’t just increase the average temperature—it also increases the extremes. The chart above shows when daily high temperatures max out above the 90th %ile and nightly lows fall below the lowest 10th %ile. The measures were near their global records last year, and the trend is consistently miserable.

5. Record greenhouse gases fill the atmosphere By burning fossil fuels, humans have cranked up concentrations of carbon dioxide in the atmosphere by more than 40 % since the Industrial Revolution. Carbon dioxide, the most important greenhouse gas, reached a concentration of 400 parts per million for the first time in May 2013. Soon we’ll stop seeing concentrations that low ever again.
The data shown are from the Mauna Loa Observatory in Hawaii. Data collection was started there by C. David Keeling of the Scripps Institution of Oceanography in March 1958. This chart is commonly referred to as the Keeling curve.

6. The oceans absorb crazy amounts of heat The oceans store and release heat on a massive scale. Over shorter spans of years to decades, ocean temperatures naturally fluctuate from climate patterns like El Niño and what’s known as the Pacific Decadal Oscillation. Longer term, oceans are absorbing even more global warming than the surface of the planet, contributing to rising seas, melting glaciers, and dying coral reefs and fish populations. In 2015 the world has moved into an El Niño warming pattern in the Pacific Ocean. El Niño phases release some of the ocean’s stored heat into the atmosphere, causing weather shifts around the world. This El Niño hasn’t peaked yet, but by some measures it’s already the most extreme ever recorded for this time of year and could lead 2015 to break even more records than last year.

Read more …

Aug 082014
 
 August 8, 2014  Posted by at 1:26 pm Finance Tagged with: , , , , ,  10 Responses »


Dorothea Lange Family of 4 from Taos Junction, resettled at Bosque Farms, NM Dec 1935

The Nikkei lost 2.98% overnight, European exchanges continue their fall, hundreds of trucks carrying European produce are turned back at the Russian border, and high yield bond funds saw record high outflows in the past week. And in that world, China reports it highest trade balance surplus ever, a ‘fact’ that’s duly parroted by ‘news’ services around the globe.

Meanwhile, the WHO declares the Ebola outbreak an ‘international public health emergency’ and Barack Obama goes on national TV to announce he’s ordered targeted airstrikes in Iraq, ostensibly to prevent a massacre. Is this the US trying to clean up some of the mess and the vacuum it’s left behind?

Don’t bet on it, creating messes, vacuums and chaos is an integral part of American foreign policy. Perhaps seeing ISIS militants take over Iraq’s biggest hydroelectric dam earlier in the week was the proverbial straw. There’s a Pentagon report that says “a failure at the dam could send a 65-foot wave across parts of northern Iraq.”

Talking about Obama, journalist Greg Palast, who knows a thing or two about vulture funds, writes one of the most damning articles about the president that I’ve seen in a while. Palast contends that it would be very easy for Obama to halt Argentina’s default – and the credit event it would result in – by simply invoking one single clause from the US Constitution.

In fact, George W. did just that, and used it against the very same hedge fund that now threatens Argentina. Moreover, the very same judge who rules over the present case was warned over the “Separation of Powers” clause 30 years ago. But Obama hasn’t moved an inch.

How Barack Obama Could End Argentina Debt Crisis

The “vulture” financier now threatening to devour Argentina can be stopped dead by a simple note to the courts from Barack Obama. But the president, while officially supporting Argentina, has not done this one thing that could save Buenos Aires from default. Obama could prevent vulture hedge-fund billionaire Paul Singer from collecting a single penny from Argentina by invoking the long-established authority granted presidents by the US constitution’s “Separation of Powers” clause.

Under the principle known as “comity”, Obama only need inform US federal judge Thomas Griesa that Singer’s suit interferes with the president’s sole authority to conduct foreign policy. Case dismissed. Indeed, President George W Bush invoked this power against the very same hedge fund now threatening Argentina. Bush blocked Singer’s seizure of Congo-Brazzaville’s US property, despite the fact that the hedge fund chief is one of the largest, and most influential, contributors to Republican candidates.

Notably, an appeals court warned this very judge, 30 years ago, to heed the directive of a president invoking his foreign policy powers. In the Singer case, the US state department did inform Judge Griesa that the Obama administration agreed with Argentina’s legal arguments; but the president never invoked the magical, vulture-stopping clause. Obama’s devastating hesitation is no surprise. It repeats the president’s capitulation to Singer the last time they went mano a mano.

It was 2009. Singer, through a brilliantly complex financial manoeuvre, took control of Delphi Automotive, the sole supplier of most of the auto parts needed by General Motors and Chrysler. Both auto firms were already in bankruptcy. Singer and co-investors demanded the US Treasury pay them billions, including $350m (£200m) in cash immediately, or – as the Singer consortium threatened – “we’ll shut you down”. They would cut off GM’s parts. Literally.

GM and Chrysler, with no more than a couple of days’ worth of parts to hand, would have shut down, permanently; forced into liquidation. Obama’s negotiator, Treasury deputy Steven Rattner, called the vulture funds’ demand “extortion” – a characterisation of Singer repeated last week by Argentina President Cristina Fernández de Kirchner. But while Fernández declared “I cannot as president submit the country to such extortion,” Obama submitted within days. Ultimately, the US Treasury quietly paid the Singer consortium a cool $12.9 billion in cash and subsidies from the US Treasury’s auto bailout fund.

I recommend you read the rest of Palast’s piece as well, there are still people in the world who know how to do investigative journalism. Here’s one more paragraph:

In the case of Argentina, Obama certainly has reason to act. The US State Department warned the judge that adopting Singer’s legal theories would imperil sovereign bailout agreements worldwide. Indeed, it is reported that, in 2012, Singer joined fellow billionaire vulture investor Kenneth Dart in shaking down the Greek government for a huge payout during the euro crisis by threatening to create a mass default of banks across Europe.

Best remember who your friends are. Argentina has filed a complaint against the US with the International Court Of Justice, but it may be of little use, since the US doesn’t recognize its jurisdiction (it’s too afraid some former Washington hotshots would be called to stand trial for, among other things, war crimes).

Mario Draghi yesterday reiterated his intention to prepare for launching QE, but that may not just be impossible, it may be too late as well, since even Germany is rumored to be near a recession. What global central banks have pulled out of their hats so far has already resulted in such a distorted marketplace that German and Dutch 10-year bonds yield 1% or less, and the German 2-year even briefly went negative yesterday. Draghi QE would only exacerbate the very situation that has led to this distortion, and we must hope at least some heads are clear enough to recognize that.

But don’t bet on that either. Draghi may have to save his native country first, and urgently:

The ECBs Next Problem: Saving Italy

Since Matteo Renzi grabbed the Italian premiership in February, Rome has fallen off the radar of most crisis watchers. Renzi’s promise to institute sweeping reforms to business and labour markets appeared to be more than hot air following the appointment of Pier Carol Padoan as finance minister. The heavy-hitting former chief economist of the OECD appeared to give the youthful Renzi the intellectual ballast and political clout needed to push through an ambitious agenda.

This narrative was allied to figures showing Italy was already close to achieving a balanced budget and its banks were in better shape than many of France’s famous names. Maybe it is too soon to judge, but figures showing the country has fallen back into recession will dent the new government’s plans along with its image.

Fathom Consulting, run by former Bank of England economist Danny Gabay, warns that Rome may rank as another of Europe’s Black Swans. It has flirted with disaster before and always pulled back. Without an ECB rescue, in the form of large-scale quantitative easing, maybe a full-blown run on its debt is inevitable, possibly next year.

But Mario thinks it’s a good idea to chastise his fellow countrymen, especially new PM Renzi, first. Perhaps his dreams of one day becoming Prime Minister himself have something to do with that.

Draghi Takes Aim at Italy as Recession Scars Euro Area

Mario Draghi says Italy can only blame itself for its third recession since 2008. The day after data showed the euro-area’s third-biggest economy unexpectedly contracted last quarter, the European Central Bank president singled out his country’s lack of structural reform and the disincentive for investment it engenders. [..] “I keep on saying the same thing, really – I mean, of reforms in the labor market, in the product markets, in the competition, in the judiciary, and so on and so forth [..] “These would be the reforms which actually have shown to have a short-term benefit.”

The ECB president’s comments on his homeland are blunter than normal, adding to the contrast with countries such as Spain that have engaged in more structural adjustments. “Draghi made a strong call for structural reforms, noting that there is now ample evidence to suggest that countries that have reformed their economies are showing a stronger economic performance than the rest of the euro zone,” said Riccardo Barbieri [at Mizuho]. “This sounds like a strong rebuttal of the approach taken by Italy’s new prime minister.”

Still, as Wolf Richter states, things are not as easy as an IMF style reform or two here and there. Italy has a hidden pile of debt to suppliers it would rather see go bankrupt.

Italy’s Unrecovery: GDP Negative In 11 Of Last 12 Quarters

In the second quarter, Italy’s economy contracted 0.2% from the first quarter, which surprised economists who’d expected, somehow, more growth now that the Italian economy – in parallel with the grander Eurozone economy – is recovering so nicely. However, reality is not playing along. Crummy exports and a refusal by businesses to pile on inventories were blamed.

Not blamed, of course, was the Italian government, which refuses to pay its suppliers. The arrears, according to the most recent data by the Bank of Italy, amounted to €75 billion ($102 billion). Italy could just issue more bonds to fund what it owes, but that would show to the rest of the world that its debt is actually much higher than the current pretenses. So no way.

Successive politicians have promised for years to pay it, only to push the date when payment would be considered seriously out further and further. So far, no one has forced the government to pay its bills, and so they don’t get paid. The past dues have been sucked out of the working capital of businesses. They strangle the private sector, lead to layoffs, and wreak general havoc in an already very fragile economy. Based on the government’s failure to comply with Europe’s Late Payments Directive, which requires governments to cut payment delays to a maximum of 60 days, the European Commission commenced an infringement procedure against Italy. But that too may just be decoration. The way it looks, it may never be paid.

The (in)famous Martin Armstrong, in his own unique style, takes things a step further:

Italy’s Recession Means ‘The End Of Democracy’

Italy has entered that phase of zero-point growth. Italy’s people have been beaten by Europe and no longer expect recovery. But then, yesterday, the Statistical Office of the economic data for the second quarter of 2014 released economic numbers that froze a dumb look even on the faces of the hardcore pessimists. For the second time this year, Italy experienced a slump of its GDP by 0.3% year on year. The economic data is so bad, not seen for 14 years, that everyone no matter what side of the political fence is whispering or shouting the same world – “Recession!”

The advantage of Italy and its legendary corruption has been its equally inefficient government that has allowed the people to just ignore it and get along with life in the real world of the underground economy. When you look at the numbers at the gross level, one cannot imagine how Italy has functioned economically. However, looking closer one sees the vibrant underground economy that has allowed the people to make their own living and still prices, taxes and debt per capita are much lower than everywhere else in Europe[..] The solution for Italy? The politician’s dream. Brussels wants to take away the right of the Italian people to vote on anything meaningful.

The Senate in Italy was rather unique. All legislation had to go through the Senate which was elected by the people and had the power to dismiss the government. This was actually a very good idea. However, it prevents tyranny from Brussels and this is the real problem. Renzi has succeeded against the resistance of the deputies. The Senate, the second chamber of Parliament, today or at the latest on Friday will decide to self-disempowerment. [..]

Italy is where the Republic was born in 509 BC that sparked a contagion that spread with the overthrow of monarchy giving birth to Democracy in Athens in 508 BC. The land that had inspired the American Revolution against monarchy is now itself surrendering the last vestige of democratic process yield to the growing tyranny of Brussels under the pretense of saving the Euro.

I’ve said it often: the only thing that would actually benefit Italy is for it to leave the Eurozone. But with people like Draghi, Monti and Renzi, plus the very extensive cabal that has held the reins for ages, that will not happen. The country will have to default, and see extensive rioting in the streets, before something fundamental will change. Until then, an ongoing parade of technocrats and bureaucrats will be elected to rule the ruins of the dramatically tragic, and dramatically beautiful, nation.

Whether the old style Senate was as great as Armstrong makes it out to be, I’m not so sure, there’s too many pictures on my retina of 95 year old life long senators soaked in ties to much less than squeaky clean segments of Italian society. Italy needs a truly fresh start, and while it’s hard to see how it will get there, it won’t get it inside the eurozone. As for democracy, Beppe Grillo’s M5S was the single largest party in the last general elections, and the system still manages to ignore him.

As for American democracy, you tell me. Who amongst ordinary Americans is happy with what the US does in Ukraine? The only voice I’ve seen consistently make sense on the topic is Ron Paul. That’s not much. Who wants to see the US go back into Iraq, as Obama has decided it will?

And who’s happy to see the President not use the powers very evidently at his disposition, to call a halt to an attack on yet another sovereign nation, this one from behind desks and courtrooms in New York and Washington? Shouldn’t the President be the one to decide on foreign policy, and is President Obama still the one making those decisions? Is he the one who went looking for a new cold war?

Democracy in America, you tell me. A few last words from Greg Palast:

Singer has certainly earned his vulture feathers. His attack on Congo-Brazzaville in effect snatched the value of the debt relief paid for by US and British taxpayers and, says Oxfam, undermined the nation’s ability to fight a cholera epidemic.

[..] since taking on Argentina, Singer has unlocked his billion-dollar bank account, becoming the biggest donor to New York Republican causes. He is a founder of Restore Our Future, a billionaire boys club, channeling the funds of Bill Koch and other Richie Rich-kid Republicans into a fearsome war-chest dedicated to vicious political attack ads. And Singer recently gave $1 million to Karl Rove’s Crossroads operation, another political attack machine.

In other words, there’s a price for crossing Singer. And, unlike the president of Argentina, Obama appears unwilling to pay it.

How Obama Could End Argentina Debt Crisis, And Why He Doesn’t (Greg Palast)

The “vulture” financier now threatening to devour Argentina can be stopped dead by a simple note to the courts from Barack Obama. But the president, while officially supporting Argentina, has not done this one thing that could save Buenos Aires from default. Obama could prevent vulture hedge-fund billionaire Paul Singer from collecting a single penny from Argentina by invoking the long-established authority granted presidents by the US constitution’s “Separation of Powers” clause. Under the principle known as “comity”, Obama only need inform US federal judge Thomas Griesa that Singer’s suit interferes with the president’s sole authority to conduct foreign policy. Case dismissed. Indeed, President George W Bush invoked this power against the very same hedge fund now threatening Argentina. Bush blocked Singer’s seizure of Congo-Brazzaville’s US property, despite the fact that the hedge fund chief is one of the largest, and most influential, contributors to Republican candidates.

Notably, an appeals court warned this very judge, 30 years ago, to heed the directive of a president invoking his foreign policy powers. In the Singer case, the US state department did inform Judge Griesa that the Obama administration agreed with Argentina’s legal arguments; but the president never invoked the magical, vulture-stopping clause. Obama’s devastating hesitation is no surprise. It repeats the president’s capitulation to Singer the last time they went mano a mano. It was 2009. Singer, through a brilliantly complex financial manoeuvre, took control of Delphi Automotive, the sole supplier of most of the auto parts needed by General Motors and Chrysler. Both auto firms were already in bankruptcy. Singer and co-investors demanded the US Treasury pay them billions, including $350m (£200m) in cash immediately, or – as the Singer consortium threatened – “we’ll shut you down”. They would cut off GM’s parts. Literally.

GM and Chrysler, with no more than a couple of days’ worth of parts to hand, would have shut down, permanently;forced into liquidation. Obama’s negotiator, Treasury deputy Steven Rattner, called the vulture funds’ demand “extortion” – a characterisation of Singer repeated last week by Argentina President Cristina Fernández de Kirchner. But while Fernández declared “I cannot as president submit the country to such extortion,” Obama submitted within days. Ultimately, the US Treasury quietly paid the Singer consortium a cool $12.9bn in cash and subsidies from the US Treasury’s auto bailout fund.

Read more …

Argentina Files Legal Action Against US Over Debt Default (Reuters)

Argentina has asked the International Court Of Justice (ICJ) in The Hague to take action against the United States over an alleged breach of its sovereignty as it defaulted on its debt. Argentina defaulted last week after losing a long legal battle with hedge funds that rejected the terms of debt restructurings in 2005 and 2010. A statement issued by the ICJ, the United Nation’s highest court for disputes between nations, said Argentina’s request had been sent to the US government. It added that no action will be taken in the proceedings “unless and until” Washington accepts the court’s jurisdiction.

The US has recognised the court’s jurisdiction in the past, but it was not immediately clear if it would do so in Argentina’s case. The default came after Argentina failed last week to strike a deal with the main holdouts among investors, hedge funds NML Capital and Aurelius Capital Management. Buenos Aires maintains it has not defaulted because it made a required interest payment on one of its bonds due in 2033, but a judge in the US district court in Manhattan blocked that deposit in June, saying it violated an earlier ruling. Argentina said in its application to the court that the United States had “committed violations of Argentinian sovereignty and immunities and other related violations as a result of judicial decisions adopted by US tribunals.”

Read more …

Any questions?

Checkers Vs Chess: Why Europe Implodes On ‘Russian’ Sanctions (Zero Hedge)

The West’s leaders are full of lawyers, Putin is ex-KGB. If ever there was an example of him playing chess while the West plays checkers, the following chart is it. Despite Western protestations that its sanctions will hurt Russia more than Europe this morning, one look at Europe’s huge net trade balance with Russia for food and it’s clear who is really going to feel the pain. As Martin Armstrong noted previously, “Putin has responded to [Western] sanctions as any really smart chess-player would – you get the supporters of your adversary to jump-ship.” What better way to crack the ‘stop-Putin’ alliance than to force Europe into trade deficits and squeeze their economies (especially Germany)?

Read more …

Ban? What ban?

Russia’s Import Ban Means Big Business For Latin America (RT)

Russia’s 1-year ban on food products from the EU, US, Canada, and Norway will force Russia to increase food imports from Latin America, specifically Ecuador, Brazil, Chile, and Argentina. Russia will ban meat, dairy, fruit, and vegetable imports from countries that have imposed sanctions on Russia over the Ukraine conflict, which opens the door to Russia’s partners on the other side of the world.

Russia will have to fill an 8% gap in its total agricultural imports that it sources from the EU, USA, Canada, Australia, and Norway. The Netherlands, Germany and Poland are currently Russia’s biggest food suppliers in the EU. Meat and dairy products from Ecuador, Chile and Uruguay may appear on Russian supermarket shelves as early as September, said Julia Trofimova, a at Rosselkhoznadzor, Russia’s consumer watchdog. On Wednesday the three countries confirmed they are ready to start supplying Russia with agricultural goods and Moscow will soon hold meetings with ambassadors from Brazil and Argentina.

Read more …

“NML Capital, a subsidiary of the hedge fund Elliot Management, headed by Paul Singer, spent $48m on bonds in 2008; thanks to Griesa’s ruling, NML Capital should now receive $832m – a return of more than 1,600%.”

Argentina Default? Griesafault Is Much More Accurate (Stiglitz/Guzman)

On 30 July Argentina’s creditors did not receive their semi-annual payment on the bonds that were restructured after the country’s last default in 2001. Argentina had deposited $539m (£320m) in the Bank of New York Mellon a few days before. But the bank could not transfer the funds to the creditors: US federal judge Thomas Griesa had ordered that Argentina could not pay the creditors who had accepted its restructuring until it fully paid – including past interest – those who had rejected it. It was the first time in history that a country was willing and able to pay its creditors, but was blocked by a judge from doing so. The media called it a default by Argentina, but the Twitter hashtag #Griesafault was much more accurate. Argentina has fulfilled its obligations to its citizens and to the creditors who accepted its restructuring. Griesa’s ruling, however, encourages usurious behaviour, threatens the functioning of international financial markets, and defies a basic tenet of modern capitalism: insolvent debtors need a fresh start.

Sovereign defaults are common events with many causes. For Argentina, the path to its 2001 default started with the ballooning of its sovereign debt in the 1990s, which occurred alongside neoliberal “Washington Consensus” economic reforms that creditors believed would enrich the country. The experiment failed, and the country suffered a deep economic and social crisis, with a recession that lasted from 1998 to 2002. By the end, a record-high 57.5% of Argentinians were in poverty, and the unemployment rate skyrocketed to 20.8%. Argentina restructured its debt in two rounds of negotiations, in 2005 and 2010. More than 92% of creditors accepted the new deal, and received exchanged bonds and GDP-indexed bonds. It worked out well for both Argentina and those who accepted the restructuring. The economy soared, so the GDP-indexed bonds paid off handsomely.

But so-called vulture investors saw an opportunity to make even larger profits. The vultures were neither long-term investors in Argentina nor the optimists who believed that Washington Consensus policies would work. They were simply speculators who swooped in after the 2001 default and bought up bonds for a fraction of their face value from panicky investors. They then sued Argentina to obtain 100% of that value. NML Capital, a subsidiary of the hedge fund Elliot Management, headed by Paul Singer, spent $48m on bonds in 2008; thanks to Griesa’s ruling, NML Capital should now receive $832m – a return of more than 1,600%.

Read more …

Wow!

US High Yield Bond Funds See Shocking, Record $7.1B Cash Outflow

Retail-cash outflows from high-yield funds ballooned to a shocking, record $7.07 billion in the week ended Aug. 6, with ETFs representing just 18% of the sum, or roughly $1.28 billion, according to Lipper. The huge redemption blows out past the prior record outflow of $4.63 billion in June 2013. With four straight weeks of outflows from the asset class totaling $12.6 billion, the four-week trailing average expands to negative $3.15 billion per week, from $1.4 billion last week. This reading is also a record, eclipsing a prior record at $2.8 billion, also in June 2013.

The full-year reading is now deeply in the red, at $5.9 billion, with 43% of the withdrawal tied to ETFs. One year ago at this time outflows were $3.9 billion, with 15% linked to the ETF segment. In addition to the huge outflow, the change due to market conditions was negative $1.24 billion, also the greatest negative move dating to June 2013. The change this past week is nearly negative 1% against total assets, which stood at $176.3 billion at the end of the observation period, with 19% tied to ETFs, or $34.1 billion. Total assets are up $6.5 billion in the year to date, reflecting a gain of roughly 4% this year.

Read more …

ECB Ready To Pump Cash Into Eurozone As Fears Rise Over Recovery (Guardian)

The European Central Bank is accelerating plans to unleash fresh growth-boosting measures as the eurozone’s recovery loses steam and the risk increases of a geopolitical shock from the Ukraine crisis. Mario Draghi, president of the ECB, said that the Bank had “intensified preparatory work” on quantitative easing as a potential new weapon in its battle against deflation and economic stagnation. He revealed that the eurozone’s policymakers were closer to using QE – which would inject cash into the eurozone by acquiring assets such as bonds from financial institutions – amid worrying signs that weak growth in the 18-member currency bloc is slowing further still. “The recovery remains weak, fragile and uneven. In recent weeks, the data shows growth momentum is slowing down. It is quite clear that if geopolitical risks materialise, the next two quarters will show lower growth.”

Recovery in the region is barely established, with GDP increasing by only 0.2% in the first quarter of the year. Speaking at a press conference in Frankfurt, Draghi said sanctions and counter sanctions between the west and Russia were among the biggest risks facing the eurozone economy, with the potential to drive energy prices higher and depress exports. He stressed it was too early to say what the precise impact sanctions would have on the region. “We are just at the beginning. We are still assessing what impact sanctions might have on the economy. “Geopolitical risks are heightened. And some of them, like the situation in Ukraine and Russia will have a greater impact on the euro area than they … have on other parts of the world.” Earlier, the ECB’s governing council left rates on hold at its July policy meeting, as expected.

Read more …

Germany Close To Recession As ECB Admits Recovery Is Weak (AEP)

German bonds yields plunged to a historic low and two-year rates briefly fell below zero on Thursday on fears of widening recession in the eurozone, and a flight to safety as Russian troops massed on the Ukrainian border. Yields on 10-year Bunds dropped to 1.06% after a blizzard of fresh data showed that recovery has stalled across most of the currency bloc, with even Germany now uncomfortably close to recession. Commerzbank warned that the German economy may have contracted by 0.2% in the second quarter and is far too weak to pull southern Europe out of the doldrums. Industrial output fell 1.5% over the three months. The DAX index of equities in Frankfurt has dropped 10% over the past month and is threatening to break through the psychological floor of 9,000.

Mario Draghi, head of the ECB, said the recovery remained “weak, fragile and uneven”, with a marked slowdown in recent weeks on escalating geopolitical worries over Russia and the Middle East. He said the ECB, which on Thursday held benchmark interest rates at 0.15%, “stands ready” to inject money through purchases of asset-backed securities and quantitative easing if needed, but would not take further action yet even though inflation had fallen to 0.4%. The debt markets are pricing in 0.5% inflation in Germany and Italy over the next five years through so-called “break-even” rates, evidence that investors think the ECB is falling far behind the curve. Mr Draghi insisted that a string of measures unveiled in June were starting to work and should be enough to stave off deflation.

The ECB ignored pleas from leading economists for pre-emptive action to bolster the eurozone’s defences before an external shock hit and before the US Federal Reserve tightened monetary policy, an inflection point that risks sending tremors through the global system, according to a paper by the Chicago Fed. Hopes for a swift rebound in Germany are fading. The economics ministry said new orders in manufacturing fell 3.2% in June, with orders from the rest of the eurozone collapsing by 10.4%. “What this shows is that Europe is nowhere close to recovery. Monetary policy has run out of traction,” said Steen Jakobsen from Saxo Bank.

Read more …

Draghi Takes Aim at Italy as Recession Scars Euro Area (Bloomberg)

Mario Draghi says Italy can only blame itself for its third recession since 2008. The day after data showed the euro-area’s third-biggest economy unexpectedly contracted last quarter, the European Central Bank president singled out his country’s lack of structural reform and the disincentive for investment it engenders. That followed an opening statement that lamented the region’s “uneven” recovery. “I keep on saying the same thing, really – I mean, of reforms in the labor market, in the product markets, in the competition, in the judiciary, and so on and so forth,” Draghi, the former Bank of Italy governor, said in Frankfurt yesterday after keeping ECB interest rates unchanged at record lows. “These would be the reforms which actually have and have shown to have a short-term benefit.”

The comments may increase pressure on Italian Prime Minister Matteo Renzi to turn around an economy with youth unemployment above 40% and a recession that threatens the 18-nation currency bloc’s nascent revival. The ECB president’s comments on his homeland are blunter than normal, adding to the contrast with countries such as Spain that have engaged in more structural adjustments. “Draghi made a strong call for structural reforms, noting that there is now ample evidence to suggest that countries that have reformed their economies are showing a stronger economic performance than the rest of the euro zone,” said Riccardo Barbieri, the London-based chief European economist at Mizuho International Plc. “This sounds like a strong rebuttal of the approach taken by Italy’s new prime minister.”

Read more …

Without ECB Rescue, ‘Full-Blown Run On Italian Debt Is Inevitable’ (Guardian)

Since Matteo Renzi grabbed the Italian premiership in February, Rome has fallen off the radar of most crisis watchers. Renzi’s promise to institute sweeping reforms to business and labour markets appeared to be more than hot air following the appointment of Pier Carol Padoan as finance minister. The heavy-hitting former chief economist of the Organisation of Economic Co-operation and Development (OECD) appeared to give the youthful Renzi the intellectual ballast and political clout needed to push through an ambitious agenda. This narrative was allied to figures showing Italy was already close to achieving a balanced budget and its banks were in better shape than many of France’s famous names. Maybe it is too soon to judge, but figures showing the country has fallen back into recession will dent the new government’s plans along with its image.

Fathom Consulting, run by former Bank of England economist Danny Gabay, warns that Rome may rank as another of Europe’s Black Swans. It has flirted with disaster before and always pulled back. Without a European Central Bank (ECB) rescue, in the form of large-scale quantitative easing, maybe a full-blown run on its debt is inevitable, possibly next year. Mario Draghi, the ECB president, is expected to tell his audience today that he is waiting to see how his previous attempts at offering cheap credit are faring before considering QE. Interest rates will be kept on hold alongside further monetary easing. The view from Draghi’s Frankfurt base is that Italy is one of Europe’s children and must be parented with an iron rod. Any hand-outs or relaxation in tough fiscal constraints will be spent by Rome on the equivalent of sweets and sugary drinks, is his view. And he is not alone. The Germans, Dutch and Brussels elite think the same way.

Read more …

Italy’s Unrecovery: GDP Negative In 11 Of Last 12 Quarters (WolfStreet)

In the second quarter, Italy’s economy contracted 0.2% from the first quarter, which surprised economists who’d expected, somehow, more growth now that the Italian economy – in parallel with the grander Eurozone economy – is recovering so nicely. However, reality is not playing along. Crummy exports and a refusal by businesses to pile on inventories were blamed. Not blamed, of course, was the Italian government, which refuses to pay its suppliers. The arrears, according to the most recent data by the Bank of Italy, amounted to €75 billion ($102 billion). Italy could just issue more bonds to fund what it owes, but that would show to the rest of the world that its debt is actually much higher than the current pretenses. So no way.

Successive politicians have promised for years to pay it, only to push the date when payment would be considered seriously out further and further. So far, no one has forced the government to pay its bills, and so they don’t get paid. The past dues have been sucked out of the working capital of businesses. They strangle the private sector, lead to layoffs, and wreak general havoc in an already very fragile economy. Based on the government’s failure to comply with Europe’s Late Payments Directive, which requires governments to cut payment delays to a maximum of 60 days, the European Commission commenced an infringement procedure against Italy. But that too may just be decoration. The way it looks, it may never be paid. Meanwhile, businesses are suffocating. And it shows: over the last 12 quarters, 11 quarters were contractions, with the sole errant quarter being Q1 2014, when the economy booked a tiny growth of 0.1% from the prior quarter and gave rise to an avalanche of hope, now obviated by events.

Read more …

Italy’s Recession Means ‘The End Of Democracy’ (Martin Armstrong)

Italy has entered that phase of zero-point growth. Italy’s people have been beaten by Europe and no longer expect recovery. But then, yesterday, the Statistical Office of the economic data for the second quarter of 2014 released economic numbers that froze a dumb look even on the faces of the hardcore pessimists. For the second time this year, Italy experienced a slump of its gross domestic product by 0.3% year on year. The economic data is so bad, to the point it has not been seen for 14 years, that everyone no matter what side of the political fence is whispering or shouting the same world – “Recession!”

The advantage of Italy and its legendary corruption has been its equally inefficient government that has allowed the people to just ignore it and get along with life in the real world of the underground economy. When you look at the numbers at the gross level, one cannot imagine how Italy has functioned economically. However, looking closer one sees the vibrant underground economy that has allowed the people to make their own living and still prices, taxes and debt per capita are much lower than everywhere else in Europe, Italy’s real problem – it joined the Euro which did not benefit the Italians and only increased their national debt in “real terms” as the Euro rallied to excessively high levels in this wave of deflation. The solution for Italy? The politician’s dream. Brussels wants to take away the right of the Italian people to vote on anything meaningful. Prime Minister Matteo Renzi had hoped to celebrate his “epochal success” in the parliamentary reform in practice.

The Senate in Italy was rather unique. All legislation had to go through the Senate which was elected by the people and had the power to dismiss the government. This was actually a very good idea. However, it prevents tyranny from Brussels and this is the real problem. Renzi has succeeded against the resistance of the deputies. The Senate, the second chamber of Parliament, today or at the latest on Friday will decide to self-disempowerment. [..] Italy is where the Republic was born in 509BC that sparked a contagion that spread with the overthrow of monarchy giving birth to Democracy in Athens in 508BC. The land that had inspired the American Revolution against monarchy is now itself surrendering the last vestige of democratic process yield to the growing tyranny of Brussels under the pretense of saving the Euro.

Read more …

And that’s just the Fed polling.

Fed Survey Finds 4 in 10 Americans in Financial Stress in 2013 (Bloomberg)

Almost four in 10 Americans were suffering financial stress in September 2013 and more than a third said they were worse off than they were five years earlier, a new Federal Reserve report on U.S. household finances showed today. One-fourth of respondents reported they were “just getting by” financially and another 13% said they were struggling to do so, the Fed said. Thirty-four% were worse off financially than in 2008, 34% were about the same, and 30% were better off, according to the report. “The survey found that many households were faring well, but that sizable fractions of the population were at the same time displaying signs of financial stress,” researchers wrote. “For some, perceived credit availability remains low.”

One-third of those who applied for credit were denied or given less credit than they requested, the survey showed. Twenty-four% reported having education debt of some kind, with an average unpaid balance of $27,840. The central bank said its Report on the Economic Well-Being of U.S. Households is a snapshot of financial and economic well-being of U.S. households to help monitor their recovery from the recession and “identify perceived risks to their financial stability.” It aimed to gather household data not readily available from other sources.

Read more …

HELOCs will make a big comeback in the news.

Default Risk Rises on 20% of Boom-Era Home-Equity Loans (Bloomberg)

As much as 20% of home equity lines of credit worth $79 billion are at increased risk of default as their payments jump a decade after the loans were made during the U.S. housing boom, according to TransUnion Corp. Borrowers face rate shocks as payments on the credit lines, known as HELOCs, switch from interest-only to include principal, causing monthly bills to surge more than 50%, according to a report today by the Chicago-based credit information company. The 20% of borrowers most in danger of default are property owners with low credit scores, high debt-to-income ratios and limited home equity, said Ezra Becker, TransUnion’s vice president of research.

Maturing home equity lines, which allow borrowers to use the value of their home as collateral on loans for personal spending, are the last wave of resetting debt from the era of high property values and easy credit before the 2008 financial crisis. The three biggest home equity lenders – Bank of America, Wells Fargo, JPMorgan Chase – held 36% of the $691.5 billion debt as of the first quarter, according to Federal Reserve data. [..] About $23 billion in HELOCs will have payment increases this year as the interest-only phase ends, rising to a projected peak of $56 billion in 2017, according to a June report by the Treasury Department’s Office of the Comptroller of the Currency.

Read more …

Haha!

China Trade Balance At Highest Ever – EVER! (Zero Hedge)

Filed in the “are you kidding us” folder… Chinese exports rose an astounding 14.5% YoY in July (the biggest surge since April 2013 and double the 7.0% YoY expectations). Chinese imports plunged 1.6% to 4-month lows, dramatically missing expectations of a 2.6% YoY gain. These miracles of goalseek.xls and fake trade invoicing left the Chinese Trade Balance for July at $47.3 Billion – its highest ever (ever) and almost double the $27.4bn expectations. In the midst of collapsing European economies, plunging Russia, and stumbling ‘hard’ US macro data, the Chinese government would have us believe the world (net) bought the most stuff ever from them in July… Yes, your eyes are not deceiving you…

It would appear – as we noted previously, that China is up to its old tricks… China’s exports have been overstated by Chinese data…

We cannot show just how crazy this data is because US and more importantly Hong Kong imports from China data is not updated to end July yet… but it is noteworthy that the hub of fake invoicing – Hong Kong – saw a 13.3% YoY jump – its most in 16 months… after being totally flat for 4 months

Read more …

“One figure stands out: the $343 billion these nonbank lenders owe in interest and principal repayments this quarter alone.”

China’s $343 Billion Q3 Payments Due in the Shadows (Bloomberg)

China’s “trust companies” are a growth industry, notable not for imparting stability to the $9.2 trillion economy, but for the red flags they raise. One figure stands out: the $343 billion these nonbank lenders owe in interest and principal repayments this quarter alone. This topic may not sound very exciting to those far removed from the mechanics of China Inc. and President Xi Jinping’s efforts to rein in credit and investment bubbles. But these nonbank lenders are at the core of the shadow-banking industry that makes China’s financial system both opaque and fragile. The greater the repayment requirements, the greater the risk of a miss and the turmoil that might follow. That’s why the latest report from Hu Yifan of Haitong International Securities, titled “Day of Reckoning for China Trusts,” is so troubling. From now through 2015, Hu says, such repayments will be at elevated levels.

The odds of missed payments and headline-making credit events is increasing as data suggest government stimulus measures are gaining less traction than in years past. “The brisk development of trust funds is leading to a dead-end,” Hu says. The “uncertainties surrounding their regulatory requirements have led to an accumulation and concentration of risk in this sector.” And even as Chinese regulators try to curb trust-company indebtedness, they find new ways to expand. This “liquidity binge,” Hu says, is fueling excessive leverage and risk in real estate, infrastructure and mining. “Current payment difficulties of trust fund companies are only the tip of the iceberg,” he warns. Here, the reference is to the part of the problem we can see. What’s worrying outside observers, including the IMF, is what we can’t. At the top of any wish list for economists in Washington is discerning China’s true debt profile – national, local and financial.

Until we know for sure, if we even can, the IMF can do little more than urge China to address its “web of vulnerabilities” inherent in its credit-and-investment-fueled growth. Hu’s iceberg comment has me thinking back to Bill Gross’s oft-quoted China analogy about “mystery meat.” “Nobody knows what’s there and there’s a little bit of bologna,” the bond-fund manager said in a Feb. 4 Bloomberg Television interview. “So we’re just going to have to wonder going forward through this year as to the potential problems in China and other emerging markets.” Make that next year, too. The lack of transparency that pervades Beijing makes it harder to know which of Xi’s planned reforms are being carried out and which aren’t. China’s grow-fast-at-any-cost ethos, rampant corruption and the lack of a free press conspire to make second-biggest economy more of a black box than investors like Gross and policy makers at the IMF would prefer.

Read more …

23 months inventory …

China Home Glut Worsens as Developers Won’t Sell at Lower Prices (Bloomberg)

The biggest immediate risk facing China’s economy is about to get worse. A reluctance among some developers to sell units at prices lower than they could fetch just months ago threatens to cause a swelling in unsold properties. The worsening glut would extend a slide in construction that’s already put a drag on the world’s second-largest economy, and counter policy makers’ efforts to stimulate the real-estate industry with loosened rules. In Nanjing, eastern China, nine housing projects originally planned for sale in the first half of 2014 were held for later this year, consulting firm Everyday Network Co. says. The number of homes added to the market in July in 21 major cities dropped 25% from June, according to Centaline Group, parent of China’s biggest real-estate brokerage.

“The completed apartments will be in the marketplace sooner or later, and potential buyers will continue to expect prices to fall,” said Hua Changchun, China economist at Nomura Holdings Inc. in Hong Kong. “The property-market weakness hasn’t changed, despite the policy adjustments.” July economic data due over the next week, starting with tomorrow’s trade numbers, will give a sense of how well growth is holding up after accelerating to 7.5% in the second quarter from a year earlier. The statistics bureau releases inflation figures Aug. 9, followed by industrial production, fixed-asset investment and retail sales on Aug. 13. The central bank reports lending and money-supply figures by the middle of August.

China’s broadest measure of new credit rose in June to the highest level for the month since 2009, underscoring the role of debt in supporting expansion. Home-price data for cities are due from the statistics bureau on Aug. 18, after June prices fell from the previous month in 55 of 70 cities tracked by the government. China’s home sales slumped 9.2% in the first half of this year from a year earlier, following a full-year 26.6% increase in 2013, while new-property construction plunged 16.4%. Developers are responding with sales delays and discounts as well as incentives including no-down-payment purchases and buyback guarantees. Developers’ sales delays in the first half were “very widespread” because prospects were poor given weak demand and tight credit conditions, said Donald Yu, a Shenzhen-based analyst at Guotai Junan Securities Co. “Will the increased supply lead to declines in prices in the second half? That for sure will happen.”

Read more …

But we’ll do it anyway.

Mining the Bottom of the Ocean Is as Destructive as it Sounds (Vice)

Have you ever wondered how much the ocean floor is worth? The answer is in the trillions. Metals and materials are the foundation of our life, but with seven billion people occupying the earth, supplies are rapidly dwindling. So mining industries have set their sights miles deep under the sea. It’s estimated there are billions of tonnes worth of valuable metals and minerals on the seabed. However, marine biologists and researchers have raised concerns that those doing deep sea mining don’t appreciate the delicate and fragile ecosystem of the deep-ocean, and how their actions could affect it. Andrew Thurber, a researcher at the College of Earth, Ocean and Atmospheric Sciences at Oregon State University, talked to me about the issue. Thurber’s review on the deep sea’s relationship to us on land and our duty to protect it was recently published in Biogeosciences, a journal of the European Geosciences Union.

In their report, Thurber and his colleagues pointed out the many important uses of the deep sea. The deep sea is used as a dumping ground to absorb waste; it contains many life forms, some of which are being looked at for new medicines; and it serves as an environment for fish to breed. I asked Thurber about the implications of deep sea mining. “It’s really not different from clear-cutting a forest of redwoods, except instead of majestic trees there are many small organisms that, together and en masse, gain their importance to the planet,” he said. “We also know that many of the services that are provided by this habitat are connected.”

Read more …

What else would you expect?

Massive Toxic Tailings Pond Spill Floods Canadian Waterways (eNews)

A middle-of-the-night breach of the tailings pond for an open-pit copper and gold mine in British Columbia sent a massive volume of toxic waste into several nearby waterways on Monday, leading authorities to issue a water-use ban. Slurry from Mount Polley Mine near Likely, B.C. breached the earthen dam around 3:45 am on Monday, with hundreds of millions of gallons — equivalent to 2,000 Olympic-sized swimming pools, according to Canada’s Global News — gushing into Quesnel Lake, Cariboo Creek, Hazeltine Creek and Polley Lake. An estimated 300 homes, plus visitors and campers, are affected by the ban on drinking and bathing in the area’s water.

Chief Anne Louie of the Williams Lake Indian band told the National Post the breach was a “massive environmental disaster.” With salmon runs currently making their way to their spawning grounds, “Our people are at the river side wondering if their vital food source is safe to eat,” said Garry John, aboriginal activist and member of the board of directors of the Council of Canadians, in a press release.

Read more …

Not the last word on this.

WHO Declares Ebola Outbreak ‘International Public Health Emergency’ (DW)

The World Health Organization says the Ebola epidemic in West Africa constitutes a public health emergency of international proportions. More than 900 people have died since the virus broke out earlier this year. In a press conference on Friday, the WHO said the Ebola epidemic required an extraordinary response to stop its spread. “Countries affected to date simply do not have the capacity to manage an outbreak of this size and complexity on their own,” said WHO Director General Dr. Margaret Chan. She called on the international community to provide urgent support to countries affected by the crippling virus. The WHO previously declared similar emergencies for polio in May, and for the swine flu pandemic in 2009. The agency had convened an expert committee this week for an emergency session to assess the severity of the ongoing Ebola epidemic in West Africa. The virus was first identified in Guinea in March, before it spread to Sierra Leone and Liberia. All three countries have already implemented states of emergency.

The WHO has described the current outbreak as unprecedented. So far, it has killed 932 people and infected more than 1,700, with the death rate hovering around 50%. Medical charity Doctors Without Borders has warned that the virus is “out of control,” while US health authorities acknowledges on Thursday that the pathogen’s spread outside Africa was inevitable. The first European Ebola victim, Spanish Roman Catholic priest, Miguel Pajares, was flown out of Liberia on Thursday. Authorities said the 75-year-old’s condition was stable. Meanwhile two Americans who are being treated in Atlanta, Georgia, after being infected in Liberia are showing signs of improvement. Ebola was first discovered in 1976 in what is now the Democratic Republic of Congo. The virus causes severe fever, headaches, vomiting and bleeding, and is spread via bodily fluids.

Read more …

Aug 052014
 
 August 5, 2014  Posted by at 8:08 pm Finance Tagged with: , , ,  2 Responses »


Jack Delano Thirst Stops Here: Durham, North Carolina May 1940

I should maybe start off by saying that we’ve seen so many blatant lies lately we might want to be careful what we label a ‘lie’ and what not. I want to point out a bunch of things that are perhaps more misinterpretations, or just different interpretations, than blatant lies. But the difference between the two is often paper thin and slippery. I just simply noticed a few issues on which opinions vary, for whatever reason. And it doesn’t always matter whether that originates in innocence, ignorance or purposeful deceit.

First, I was my impression lately that everyone could agree the lack of volatility in the financial markets was not a good thing. That we don’t have actual markets if and when these don’t reflect what happens in the economies they ‘represent’. That plane loads full of central bank largesse makes price discovery impossible, so nobody knows what anything is worth anymore.

Which is a bad thing, because you can’t tell whether you’re buying something really valuable or of you’re being ripped off. Ultra low interest rates enable individuals and companies to purchase certain things at such low prices, and at so little risk even if the underlying risk is massive, that everyone’s view gets distorted.

An individual can buy a home or a car at an ultra low rate that (s)he could never have bought otherwise, and that they will default on overnight when rates rise. Do that car and that home have the value paid for them in the situation distorted by the low interest rate? Not when rates go up they don’t, and rates can only go up from here.

Ultra low interest rates also allow companies to buy back their shares, and engage in all sorts of mergers and acquisitions, even if their balance sheets wouldn’t let them with higher rates. We’ll get to see yet, and soon, how corrupting and perverting the past 10-20 years of central bank policies have been. Not just the Fed, China and Japan have done more than their share too.

One thing that’s certain is the policies killed off volatility. Something investors may hate, but something without which markets can’t function. This lack of volatility has created fat paychecks for some, and years of added misery for the rest. Someone always has to pay. And in the end it’s always the men in the street who do.

Last week, volatility came back. And it’s here to stay. US/EU sanctions against Russia, combined with the unproven – and likely unfounded – accusations they are based on, make sure of that. Throw in the continuing Fed taper, and the dollar demand it will cause, and you got a situation the world won’t come out of for a while. The market’s no longer Mr. Nice Guy.

Anyone who had a return of volatility on their bucket list – and there were many – can cross that one off now. You’ll have so much volatility you’re going to wonder what you were thinking when you wished for it. Anything you saw last week was nothing compared with what’s ahead.

Predictable financial markets that set records against the backdrop of deteriorating real economies were never seen as long term viable, but the speed at which the tables turn will catch most of us off guard. As this silly CNBC bit proves:

Why Markets Are Drowning In Uncertainty?

Just as life guards warn not to swim in water you don’t know, does the same apply to guardians of funds, as the markets they’re being asked to trade look murky and unfamiliar? Central banks haven’t made decision-making any easier. Is the Federal Reserve still buoying asset prices to nurture recovery, or is it turning into a monster of the sea as it slows asset purchases and considers interest rate hikes? Historians know it is never a smooth ride as rates climb. “The number of times that the Federal Reserve has hiked interest rates without a negative economic or market impact has been exactly zero,” said Lance Roberts of STA Wealth Management.

What a load of baloney. As if a central bank’s task is to help investors make money. As if anyone has the right to demand that. People sure get used to things soon. What they mean is actually not ‘drowning in uncertainty’, but back to what it should have been all along. Where investing is a risk, not a handout. Where investors can lose their shirts, not taxpayers. Well, a lot of shirts will be lost, but taxpayers will still be on the hook.

But what a strange perception of reality that article demonstrates. Like a baby crying when its silver sugar spoon gets taken away.

Another issue in which points of view vary widely is that of the Argentina bonds. There is a sort of consensus in the western press that Argentina did it all to themselves, that they engaged in irresponsible government policies, and did so for the umpteenth time. The crucial issue at this point, from where I’m sitting, is whether the vulture funds led by Paul Singer’s Elliott bought credit default swaps to cash in even bigger on an Argentine default. Something Elliott representatives have denied in front of a judge.

The government in Buenos Aires seems convinced that was a lie. And has asked the Securities and Exchange Commission to investigate. But what are their chances there? The ISDA, the international body that decides whether something is a credit event, has ruled Argentina’s failure to pay its creditors is. It is of course at least a little suspect, or is that just unfortunate(?!), that the Elliott fund is on the board of ISDA, along with JPMorgan, Morgan Stanley et al. What’s impartial about that?

As the Telegraph reports, Argentina has chosen the attack, it accuses the vulture funds, the court appointed mediator, the judge and the US government and threatens to take the case before the and the International Court of Justice.

Argentina Accuses Default Hedge Funds Of ‘Fraudulent Manoeuvres’

Argentina will ask the US markets watchdog to probe two hedge funds involved in its $1.5bn default, saying that they used “fraudulent manoeuvres” to make “incredible profits”. Cabinet chief Jorge Capitanich has said he will urge the Securities and Exchange Commission to act after the unnamed funds allegedly made money from “privileged information”. [..] Mr Capitanich also called on “bondholders, trustees and clearing agencies” to take legal action against what his country has labelled “vulture funds”.

Last week, a US judge told Argentina to stop spouting “half truths” about its second default in 12 years and return to talks with bondholders. The South American nation has repeatedly denied it has defaulted, blaming the US government for stopping it agreeing a deal with creditors that would draw a line under its last default in 2002. “Let’s cool down any idea of mistrust [and] let’s go back to work,” US District Judge Thomas Griesa, who has jurisdiction over the bonds after Argentina agreed to hold talks under New York law, said on Friday.

He also ordered President Cristina Fernandez de Kirchner’s government to return to the negotiating table with bondholders, adding that the disparaging remarks should stop because nothing will eliminate Argentina’s obligations to pay bondholders – a fact that its government is ignoring.

Argentine officials deny the country has defaulted because they deposited $539m for creditors in a bank intermediary. But Mr Griesa blocked that deposit in June, saying it violated his ruling that Argentina must first pay $1.5bn to settle its dispute with holdout investors first. “To say that Argentina is in technical default is a ridiculous hoax,” Mr Capitanich said after last week’s deadline for talks had passed. He accused Judge Griesa of acting as an “agent” for what the country has labelled “vulture funds”.“There’s been mala praxis here by the US justice system, for which all three branches of the government are responsible. Argentina has tried to negotiate in good faith,” he added.

Mr Capitanich has previously warned that Argentina is considering calling for a debate at the United Nations and launching an appeal at the International Court of Justice in The Hague. “We can’t hold any positive expectations because [Mr Griesa] has always held the view of someone who is partial,” Mr Capitanich said on Friday. Mr Capitanich also announced on Monday that Buenos Aires has formally asked Mr Griesa to dismiss the mediator in the case, Daniel Pollack, accusing him of failing to be impartial.

Isn’t that cute? Depending on the beholder, where would you personally think the lie is?

I noticed a third intriguing case of differing interpretations this morning with regards to the failed Portuguese bank Espírito Santo, and its bail out by the government in Lisbon with EU funds. First, Bloomberg has this, an an article whose title magically changed to “What Crisis? EU Rules on Banks Lauded as Right After All” during the day, as if to hammer in their satisfaction a bit more.

Espirito Santo Sets Benchmark for Creditor Pain in EU Bank Rules

Portugal’s rescue of Banco Espirito Santo SA may have eased some doubts about Europe’s banking industry by showing investors how the European Union’s thinking has evolved on handling failing lenders. The decision shielding some creditors spurred a rally in bank stocks and Portuguese assets yesterday by demonstrating authorities were able to shutter a bank without sparking a fresh bout of market tensions that have roiled Europe since 2009.

Instead of forcing losses on unsecured depositors and other senior creditors, as was required of Cyprus, Portugal is following Spain’s gentler approach that focused losses on junior debt and stockholders. “This is bad for the bank’s shareholders and creditors, but it’s good for the wider banking industry,” said Stefan Bongardt, a European banking analyst at Independent Research GmbH in Frankfurt. “Everyone knows the rules of the game now and that draws uncertainty out of the market.” The yield on Portugal’s 2-year bonds closed at a record low yesterday.

“The systemic euro crisis is over,” Holger Schmieding, chief economist at Berenberg Bank in London, said in a note to clients. “While the euro zone still has issues, it now has a well-oiled machine to deal with them. The vicious contagion risks, which were the hallmark of the euro crisis, can be kept at bay.” The Bank of Portugal unveiled a €4.9 billion ($6.6 billion) bailout over the weekend that will leave shareholders and junior bondholders with losses, while sparing senior creditors and unsecured depositors. Banco Espirito Santo, once the country’s largest lender by market value, will be split in two, with depositors and healthy assets joining the newly formed Novo Bank while bad loans and junior creditors stay with the old bank until it can be shut down.

The bank of the Holy Spirit, it turns out, has been a private and family led disaster for decades, and allegedly not always this side of the law. And that bail out, too, in a completely different take from what Bloomberg says, smells of last year’s sardines, says Ambrose Evans-Pritchard in a hard hitting piece. And not just him either:

Europe’s Tough New Regime For Banks Fails First Test In Portugal (AEP)

Portugal’s rescue of Banco Santo Espirito has left taxpayers on the hook for large potential losses, sparing senior bondholders in the first serious test of the EU’s tougher rules for bank failures. The controversial €4.9bn bailout over the weekend set off a relief rally on the Lisbon bourse, with bank stocks soaring.

It also set off a political furore as opposition parties accused premier Pedro Passos Coelho of bending to the banking elites. “We live in a democracy, not a bankocracy. It is unacceptable for the prime minister to take money from the salaries of workers and pensions, and funnel it to a private bank,” said Catarina Martins, leader of the Left Bloc.

European officials pledged last year that taxpayers will never again face losses from a bank failure until all creditors and unsecured depositors have been wiped out first. They seem to have backed away at the first sign of trouble, opting for soft terms rather than the draconian measures imposed on Cyprus.

The EU’s new “bail-in” rules do not come into force until 2016, but it was assumed the broad principle would be followed. Portugal’s decision to protect senior bondholders is incendiary in a country already near austerity fatigue. The rescue comes three weeks after the central bank said Espirito Santo’s problems were safely contained. Carlos Costa, the central bank’s governor, said Lisbon was forced to act after the crippled lender revealed shock losses from exposure to the Espirito Santo family empire.

He accused the management of “fraudulent schemes” involving the rotation of funds across the world to deceive regulators. “International experience shows that schemes of this kind are very hard to detect before they collapse,” he said. The rescue raises fresh doubts about the underlying health of the banks as Portugal grapples with debt deflation and a private and public debt burden near 380% of GDP, the highest ratio in Europe.

The plan splits Espirito Santo into a bad bank that retains the toxic assets, and a Banco Novo for normal depositors. The state will inject €4.5bn of public money, dipping into EU-IMF funds left over for bank recapitalisations. This will raise Portugal’s net debt by 3% of GDP. Mr Passos Coelho said the money would be recouped when the new bank is sold off, insisting that there will be no extra costs for the taxpayer. Other Portuguese banks will have to cover any shortfall through a resolution fund.

Megan Greene, from Maverick Intelligence, said this is wishful thinking: “The losses could be much larger than people think. This is eerily similar to what happened in Ireland, and I think taxpayers will end up footing the bill.” Frances Coppola, a banking expert at Pieria, said the plan fails to tackle moral hazard and will come back to haunt the Portuguese state. “Those who brought down Banco Espirito Santo will walk away with the proceeds, and ordinary people will pay,” she said.

João Rendeiro, former head of BPP bank, said the collapse of Espirito Santo will do far more damage than claimed. “The economic impact is gigantic. It could lead to a contraction of GDP by 7.6%. I don’t know of any parallel to this in our economic history,” he said.

Mr Passos Coelho took a major gamble by going for a “clean exit” at the end of Portugal’s EU-IMF Troika programme in April, refusing to accept a backstop credit line. He brushed aside warnings from the IMF, worried about debt redemptions over the next two years. He insisted that the country is safely out of the woods, able to borrow cheaply from the markets without having to accept dictates from Brussels.

It’s like a game of spot the differences, isn’t it? Given the evidence, I’m inclined to give Ambrose the game. An initial $6 billion in EU taxpayer funds (and perhaps more), a potentially much higher number from the Portuguese people, and an economy that could lose as much again as it did in the depths of the crisis. Plus, obviously, regulators who’ve been asleep for many years, not exactly a confidence booster either. But still, what was Bloomberg thinking when they published their take?

We’re going to see a lot of spectacle and theater as the Fed and PBoC are forced to wind down their insanity. And we’ll see tons of different interpretations coming from all angles. As you’ve seen from what happened and happens in Ukraine, and from so many other events, you can’t trust your governments or media to tell you the truth. There’s a lot of plain dumb asses among them, and even more lying bastards with agendas. So keep your eyes and your nose open. A lot of things will look good at first sight but come with a nasty odor.

The US is Bankrupt: Liabilities Exceed Household Net Worth (TrimTabs)

There are many ways to look at the United States government debt, obligations, and assets.  Liabilities include Treasury debt held by the public or more broadly total Treasury debt outstanding.  There’s unfunded liabilities like Medicare and Social Security.  And then the assets of all the real estate, all the equities, all the bonds, all the deposits…all at today’s valuations.  But let’s cut straight to the bottom line and add it all up…$89.5 trillion in liabilities and $82 trillion in assets.  There.  It’s not a secret anymore…and although these are all government numbers, for some strange reason the government never adds them all together or explains them…but we will.

The $89.5 trillion in liabilities include:

  • $20.69 trillion
    • $12.65 trillion public Treasury debt (interest rate sensitive bonds sold to finance government spending)
      • Fyi – $5.35 trillion of “intra-governmental” Treasury debt are not included as they are considered an asset of the particular programs (SS, etc.) and simultaneously a liability of the Treasury
  • $6.54 trillion civilian and Military Pensions and Benefits payable
  • $1.5 trillion in “other” liabilities https://www.fms.treas.gov/finrep13/note_finstmts/fr_notes_fin_stmts_note13.html.
  • $69 trillion (present value terms what should be saved now to make up the present and future anticipated tax shortfalls vs. present and future payouts).
    • $3.7 trillion SMI (Supplemental Medical Insurance)
    • $39.5 trillion Medicare or HI (Hospital Insurance) Part B / D
    • $25.8 trillion Social Security or OASDI (Old Age Survivors Disability Insurance)
      • Fyi – $5+ trillion of additional unfunded state liabilities not included.

Source: 2013 OASDI and Medicare Trustees’ Reports. (pg. 183), https://www.gao.gov/assets/670/661234.p

These needs can be satisfied only through increased borrowing, higher taxes, reduced program spending, or some combination.  But since 1969 Treasury debt has been sold with the intention of paying only the interest (but never repaying the principal) and also in ’69 LBJ instituted the “Unified Budget” putting all social spending into the general budget reaping the gains in the present year absent calculating for the future liabilities. If you don’t know the story of how unfunded liabilities came to be and want to understand how this took place, please stop and read as USA Ponzi explains nicely… https://usaponzi.com/cooking-the-books.html

Read more …

Why Markets Are Drowning In Uncertainty (CNBC)

It’s been a hot summer for some, with U.S. stock markets breaking out to fresh highs in July, and European investors debating whether to dip a toe in the water on the back of more European Central Bank (ECB) action. But as thunder clouds roll in, and after Wall Street suffered its worst week since mid 2012, a solo swim does not seem all that appealing. Just as life guards warn not to swim in water you don’t know, does the same apply to guardians of funds, as the markets they’re being asked to trade look murky and unfamiliar? Central banks haven’t made decision-making any easier. Is the Federal Reserve still buoying asset prices to nurture recovery, or is it turning into a monster of the sea as it slows asset purchases and considers interest rate hikes? Historians know it is never a smooth ride as rates climb. “The number of times that the Federal Reserve has hiked interest rates without a negative economic or market impact has been exactly zero,” said Lance Roberts of STA Wealth Management.

Short-term trading is no easier, based on musings from the boss of the Fed. Janet Yellen caused sweat on the brows of those long technology stocks when she warned that there is too much heat in social media stocks. But taking Yellen’s advice would have meant missing an earnings-inspired spike in Facebook, Twitter and LinkedIn, perhaps one of the sauciest trading opportunities of the summer. Gautam Batra of Signia Wealth accuses central banks of messing with the seasonals. He said we’re still witnessing the usual market roll over. “It was just delayed after the ECB launched fresh stimulus.” The ECB’s actions were welcomed initially, but the fresh liquidity has not been enough. Confidence about the pace of recovery is waning, particularly after the latest data cast a shadow over the summer. The inflation rate risks dragging Europe under, while PMIs for France, Italy, Germany, even the U.K. indicate a cooler breeze, as all faced choppier manufacturing conditions.

Read more …

Espirito Santo Sets Benchmark for Creditor Pain in EU Bank Rules (Bloomberg)

Portugal’s rescue of Banco Espirito Santo SA may have eased some doubts about Europe’s banking industry by showing investors how the European Union’s thinking has evolved on handling failing lenders. The decision shielding some creditors spurred a rally in bank stocks and Portuguese assets yesterday by demonstrating authorities were able to shutter a bank without sparking a fresh bout of market tensions that have roiled Europe since 2009. Instead of forcing losses on unsecured depositors and other senior creditors, as was required of Cyprus, Portugal is following Spain’s gentler approach that focused losses on junior debt and stockholders. “This is bad for the bank’s shareholders and creditors, but it’s good for the wider banking industry,” said Stefan Bongardt, a European banking analyst at Independent Research GmbH in Frankfurt. “Everyone knows the rules of the game now and that draws uncertainty out of the market.” The yield on Portugal’s 2-year bonds closed at a record low yesterday.

“The systemic euro crisis is over,” Holger Schmieding, chief economist at Berenberg Bank in London, said in a note to clients. “While the euro zone still has issues, it now has a well-oiled machine to deal with them. The vicious contagion risks, which were the hallmark of the euro crisis, can be kept at bay.” The Bank of Portugal unveiled a €4.9 billion ($6.6 billion) bailout over the weekend that will leave shareholders and junior bondholders with losses, while sparing senior creditors and unsecured depositors. Banco Espirito Santo, once the country’s largest lender by market value, will be split in two, with depositors and healthy assets joining the newly formed Novo Bank while bad loans and junior creditors stay with the old bank until it can be shut down. EU leaders vowed in 2012 to create a banking union within the euro zone so that taxpayers would no longer shoulder the burden of repairing banks for investors’ benefit. Five of the currency bloc’s 18 members required aid during the worst of the crisis, which was fueled by bouts of contagion between sovereign debt and banks.

Read more …

Crédit Agricole Loses Big On 14.6% Espírito Santo Stake (MarketWatch)

Crédit Agricole has reported a slump in second-quarter net profit, hit by the crisis facing Portuguese lender Banco Espírito Santo SA, in which the French bank owns a 14.6% stake. France’s second largest listed bank by assets said on Tuesday it has booked a €502 million ($673 million) loss related to its stake in Banco Espírito Santo, which reported a record €3.49 billion second-quarter loss after its troubled parent found ways to use the bank to raise funds that are now largely unrecoverable. The French bank also wrote off the entire €206 million value of its stake in Banco Espírito Santo in its books after Portugal’s central bank late Sunday unveiled a plan to break up the local lender and pump in billions of euros of state money. The combined impact of Banco Espírito Santo’s woes on Crédit Agricole in the quarter was €708 million. The Paris-based lender reported a net profit of €17 million in the three months to end-June, compared with a EUR698 million net profit a year ago. Revenue fell by 6% to €3.93 billion in the second-quarter.

Crédit Agricole’s misadventure in Portugal points to yet another misstep by the French bank in southern Europe, where it once had big ambitions. After sinking billion of euros into extricating itself from an ill-fated acquisition in Greece, and unloading its stake in Spanish lender Bankinter. Under the central bank’s plan, Crédit Agricole, along with other shareholders, will stay with a bad bank, set up with toxic assets from the lender, including the loans given to Espírito Santo entities that could be unrecoverable. The bad bank will be wound down. The French lender said it didn’t expect to book additional losses related to its stake in the Portuguese lender. Crédit Agricole CEO Jean-Paul Chifflet said the bank would take part in any legal action Banco Espírito Santo’s new management may choose to bring against the Portuguese lender’s former management. “We can only deplore having being cheated by a family with whom Crédit Agricole tried to build a real partnership to create Portugal’s largest private bank,” said Mr. Chifflet [..]

Read more …

Europe’s Tough New Regime For Banks Fails First Test In Portugal (AEP)

Portugal’s rescue of Banco Santo Espirito has left taxpayers on the hook for large potential losses, sparing senior bondholders in the first serious test of the EU’s tougher rules for bank failures. The controversial €4.9bn (£3.9bn) bailout over the weekend set off a relief rally on the Lisbon bourse, with bank stocks soaring. It also set off a political furore as opposition parties accused premier Pedro Passos Coelho of bending to the banking elites. “We live in a democracy, not a bankocracy. It is unacceptable for the prime minister to take money from the salaries of workers and pensions, and funnel it to a private bank,” said Catarina Martins, leader of the Left Bloc.

European officials pledged last year that taxpayers will never again face losses from a bank failure until all creditors and unsecured depositors have been wiped out first. They seem to have backed away at the first sign of trouble, opting for soft terms rather than the draconian measures imposed on Cyprus.

The EU’s new “bail-in” rules do not come into force until 2016, but it was assumed the broad principle would be followed. Portugal’s decision to protect senior bondholders is incendiary in a country already near austerity fatigue. The rescue comes three weeks after the central bank said Espirito Santo’s problems were safely contained. Carlos Costa, the central bank’s governor, said Lisbon was forced to act after the crippled lender revealed shock losses from exposure to the Espirito Santo family empire. [..] João Rendeiro, former head of BPP bank, said the collapse of Espirito Santo will do far more damage than claimed. “The economic impact is gigantic. It could lead to a contraction of GDP by 7.6pc. I don’t know of any parallel to this in our economic history,” he said.

Read more …

Oh yes it is. But then, so is everybody’s.

Asia’s Next Crisis Is a Flood of Debt (Bloomberg)

Asia is still traumatized by the great financial crisis of 1997, when Thailand’s devaluation of the baht set off a region-wide collapse in markets. Could it happen here again? The mere question will strike many as odd, given Asia’s rapid growth and progress in strengthening financial systems, improving transparency and amassing trillions of dollars of currency reserves. But Asia now faces three risks that could quickly undo those gains: Federal Reserve tapering, a Chinese crash and an explosion of household debt. The danger of the Fed pulling too much liquidity out of markets has been well documented. So have China’s rising vulnerabilities. Debt, though, deserves far more scrutiny. As economists survey the scene, Thailand once again tops the worry list. Debt there has risen rapidly, underwriting standards appear loose and nonperforming loans are rising.

Thailand has plenty of company in Asia, Oxford Economics warns in a new report. Financially conservative Singapore has seen credit growth in the last six years exceed that of the U.S. in the run-up to its 2008 subprime meltdown. Several nations now have private-debt ratios of between 150% and 200% of gross domestic product. They include the higher-income set – Australia, Hong Kong, South Korea and Taiwan – as well as China, Malaysia, Thailand and Vietnam. Even where debt levels are lower, Indonesia and the Philippines, the trajectory is troublesome. “Debt surges of this kind often end badly,” says Oxford economist Adam Slater.

Even more worrisome than the absolute levels of debt, says Frederic Neumann, Hong Kong-based co-head of Asian economic research at HSBC, is the pace of increase. For all its rapid growth and buoyant markets, Asia isn’t as healthy as it appears on the surface, and might take on even more debt to support growth. As leverage exceeds the peak before the 1997 crash, is a sharp correction on the way? “The optimists argue that’s unlikely to occur in Asia, where people tend to be more prudent and save more of their monthly income,” Neumann says. “Well, not necessarily.” All this fresh debt leaves Asia highly exposed to financial shocks and economic shifts. Any destabilizing event – Fed Chairman Janet Yellen over-tightening, renewed turmoil in Europe, a Chinese credit crunch, surging oil prices, troubles in Japan’s bond market – could push Asia back to the brink. And it’s not as though export markets are booming to provide a cushion.

Read more …

Yeah, he has clout.

Hollande Calls On ECB To Fight Deflationary Risk In Europe (CityAM)

French President Francois Hollande has implored the European Central Bank (ECB) to do more to support growth and employment and combat a “real deflationary risk” in Europe. In an interview with LeMonde, Hollande argued that “weak inflation too has negative fiscal consequences on revenues as well as debt. A lot will depend on the level of the euro, which has weakened over the past few days but not enough.” Germany was also subjected to the French President’s pleas. “We are not asking for any leniency from Germany, but we are asking it to do more to boost growth,” Hollande said.

If Hollande is expecting a dramatic shift in ECB policy, he will most likely be disappointed, according to Bank of America Merrill Lynch. BoAML says it expects no action from ECB and believes Mario Draghi is likely to downplay the surprise in inflation on the downside. The French President said the time had come for the ECB to pump more liquidity into the European economy. The comments come only a day after Moody’s warned that measures being taken tackle France’s deficit and revive the stagnating economy were falling behind rivals such as the UK.

Read more …

Oh wait, he doesn’t.

ECB ‘Won’t Move A Muscle’ Despite Deflation Fears (CNBC)

The European Central Bank (ECB) is expected to hold fire at its monetary policy meeting this week, despite a shock fall in inflation reigniting deflation concerns. It came as something of a shock to most economists – and likely the ECB – when official figures released last week showed that euro zone inflation fell more than expected in July. Inflation rose by 0.4% compared to the same period last year, failing to match expectations of 0.5%. It was the lowest level seen since October 2009 and below last month’s reading of 0.5%. The region’s continuing sluggish growth saw the ECB unveil a host of measures at its June meeting designed to give the euro zone’s recovery a boost.

But July’s disappointing inflation data has boosted concerns that the region is heading towards a period of deflation, with even French President Francois Hollande telling Le Monde newspaper on Monday: “There is a real deflation risk in Europe… The ECB must take all the necessary measures to inject liquidity into the economy.” Despite calls for action by Hollande and numerous economists, ECB President Mario Draghi is unlikely to unveil any further stimulus at the bank’s policy meeting on Thursday, as he waits for June’s interest rate cuts and a new loan program – dubbed the TLTRO – to take effect. “The ECB seems bound to not move a muscle at the Thursday meeting following June’s easing package, whose centerpiece (the TLTRO program) starts in September,” Daiwa economists said in a note.

Read more …

Is it trying?

Can China Fight The Fed? (MarketWatch)

While global markets fret about the end of the U.S. Federal Reserve’s multi-year quantitative easing, China appears to be following its own path. Speculation is mounting its central bank has quietly launched its own version of quantitative easing, helping lift Chinese stocks to their biggest monthly gain since 2012. You might ask why shouldn’t China join in the QE party? But as the world’s second-largest economy still more or less pegs its currency to the U.S. dollar, moving in the opposite direction could set its financial and currency markets up for a shock. At the moment, analysts are trying to make sense of the chunky new 1 trillion yuan ($162 billion) loan in question, extended by the central bank to policy lender China Development Bank, as details trickle out in the press. But with the new pledged lending facility (PLF) reportedly directed at the ailing property sector, this at least offers timely relief; as worries over extended debt levels leading to a property unraveling can be pushed out for another day.

[..] Last weekend, the PBoC warned that debt is rising quickly and credit expansion is high, yet it is simultaneously choosing this moment to adopt unconventional monetary policy. Standard Chartered in a note last week said the PLF is technically quantitative easing, although there seems little clarity on whether loans have already been made and on what collateral has been pledged. The facility appears to offer China Development Bank access to funds at below-market rates, with the intent to target urban redevelopment and social housing. Standard Chartered reckons the ultimate beneficiaries of the new lending will likely be local governments’ investment vehicles. Economists at Société Générale see another role for the PLF, as it also helps the PBOC offer guidance on preferred long-term borrowing costs, indicating a push lower for funding costs.

[..] … what of the risk foreign capital flows will now not just slow, but reverse? This is a question that cannot be ignored as the Fed nears the end of QE. This would present the PBOC with a real policy headache, as it would have to choose between defending its de-facto peg to the U.S. dollar and contracting money supply, or else letting the currency weaken. But letting the currency weaken risks triggering an outflow of foreign exchange. Furthermore, arguments that China is immune to capital flows due to its closed capital account no longer hold. Its recent credit spree has also pulled in substantial foreign-exchange funding with, by some estimates, Hong Kong at the center of a $1.2-trillion carry trade to mainland Chinese companies. If we do reach a situation of a yuan under pressure, then QE is only likely to exacerbate matters. One way or another, China looks as if it is getting closer to the end-point of its debt party.

Read more …

Real Estate Oversupply Becoming Bigger Problem For China (Forbes)

If you build it they will come. Eventually. That’s been the mantra of Chinese real estate developers and their lenders who have been throwing them buckets filled with yuan for the past several years. Now, an oversupply problem in second and third tier cities promises to derail the economy by as much as one%age point, the International Monetary Fund has warned. How important is real estate to the Chinese economy? In the year 2000, real estate accounted for around 5% of China’s GDP. By 2012 it rose three times to 15%, according to the IMF’s calculations. It certainly did not decline in 2013 and 2014, despite Beijing working overtime in forcing a market correction. The IMF did not have data for the last two years. The real estate market appears to be undergoing a correction. While a slowing of investment and construction by as much as 10% would definitely reduce growth from 7.5% to 6.5%, an orderly adjustment is still factored into the IMF’s baseline scenario.

The IMF said in a report released on Friday that oversupply was already a big problem in the industrial northeast and in coastal cities in the north. China’s real estate bubble is different from the price inflation that took out the U.S. economy in 2008. There is no subprime or foreclosure crisis in China. And there is not the additional worry of a mortgage backed securities bubble in the works either. But despite those two key differences, China housing has undergone a major growth spurt in the last decade. Rich Chinese are buying up second homes as investments. And local LOCM +2.58% municipalities have been funding local builders to erect housing in order to create jobs. The problem is, Chinese urbanization trends have not sped up enough to account for the new high-rises, many of which are not fully sold. Unsold properties mean less money for developers who in turn have less revenue to pay off debts. For now, many municipal lenders have been either forgiving or rolling over those debts to extend the life of the loans.

Read more …

It’s market thing: it it pays, there’s demand.

Russia Scraps Ruble Bond Sale as Yields Jump to Five-Month High (BW)

Russia canceled its third ruble bond auction in a row as U.S. and European Union sanctions drive the nation’s borrowing costs to the highest levels since March. The Finance Ministry pulled tomorrow’s sale, citing “unfavorable market conditions” in a statement on its website. The yield on Russia’s 10-year bonds rose six basis points to reach 9.72%, the highest since March 14. The rate on the notes increased 109 basis points since a day before a Malaysian passenger jet crashed in Ukraine on July 17. The U.S. and EU last week expanded sanctions against Russia for what they see as President Vladimir Putin’s destabilizing role in Ukraine. Switzerland added new people and companies to its list of sanctions today.

Russia has now axed 11 auctions since the start of the year and voided four more after bidders sought higher yields than the ministry was prepared to offer.The government won’t sell bonds when borrowing costs are too high, Finance Minister Anton Siluanov said April 1. Russia has raised 124 billion rubles ($3.5 billion) from selling OFZ bonds this year and has placed 100 billion rubles in untraded GSO bonds with the Pension Fund. Next year the ministry plans to increase the gross borrowings on the local market to about 1 trillion rubles, Konstantin Vyshkovsky, head of the Finance Ministry’s debt department, said last month.

Read more …

Nouriel lives!

Russia’s Eurasian Vision Contest (Roubini)

The escalating conflict in Ukraine between the Western-backed government and Russian-backed separatists has focused attention on a fundamental question: what are the Kremlin’s long-term objectives? Though Russian President Vladimir Putin’s immediate goal may have been limited to regaining control of Crimea and retaining some influence in Ukrainian affairs, his longer-term ambition is much bolder. That ambition is not difficult to discern. Putin once famously observed that the Soviet Union’s collapse was the greatest catastrophe of the 20th century. Thus, his long-term objective has been to rebuild it in some form, perhaps as a supra-national union of member states like the European Union. This goal is not surprising: declining or not, Russia has always seen itself as a great power that should be surrounded by buffer states. Under the czars, imperial Russia extended its reach over time. Under the Bolsheviks, Russia built the Soviet Union and a sphere of influence that encompassed most of central and eastern Europe.

And now, under Putin’s similarly autocratic regime, Russia plans to create, over time, a vast Eurasian Union (EAU). While the EAU is still only a customs union, the European Union’s experience suggests that a successful free-trade area leads over time to broader economic, monetary, and eventually political integration. Russia’s goal is not to create another North American Free Trade Agreement (Nafta); it is to create another EU, with the Kremlin holding all of the real levers of power. The plan has been clear: start with a customs union – initially Russia, Belarus, and Kazakhstan – and add most of the other former Soviet republics. Indeed, now Armenia and Kyrgyzstan are in play. Once a broad customs union is established, trade, financial, and investment links within it grow to the point that its members stabilise their exchange rates vis-à-vis one another. Then, perhaps a couple of decades after the customs union is formed, its members consider creating a true monetary union with a common currency (the Eurasian ruble?) that can be used as a unit of account, means of payment, and store of value.

Read more …

It’s regulations that spoil the party.

Moody’s Downgrades Outlook On UK Banks To Negative (Reuters)

Moody’s Investors Service has revised down its outlook on British banks, citing new regulations designed to prevent taxpayers having to stump up funds to rescue failing banks. Moody’s said on Tuesday it had downgraded its view of the sector to ‘negative’ from ‘stable’. It also raised concerns over British banks’ continued exposure to litigation and misconduct charges.

Read more …

Argentina Accuses Default Hedge Funds Of ‘Fraudulent Manoeuvres’ (Telegraph)

Argentina will ask the US markets watchdog to probe two hedge funds involved in its $1.5bn default, saying that they used “fraudulent manoeuvres” to make “incredible profits”. Cabinet chief Jorge Capitanich has said he will urge the Securities and Exchange Commission to act after the unnamed funds allegedly made money from “privileged information”. Argentina officially defaulted on Friday after the International Swaps and Derivatives Association ruled that its failure to pay $539m to its creditors earlier this week constituted a “credit event”. The ISDA’s move will almost certainly trigger credit default swaps on Argentina’s debt worth $1bn. Mr Capitanich also called on “bondholders, trustees and clearing agencies” to take legal action against what his country has labelled “vulture funds”. Last week, a US judge told Argentina to stop spouting “half truths” about its second default in 12 years and return to talks with bondholders.

The South American nation has repeatedly denied it has defaulted, blaming the US government for stopping it agreeing a deal with creditors that would draw a line under its last default in 2002. “Let’s cool down any idea of mistrust [and] let’s go back to work,” US District Judge Thomas Griesa, who has jurisdiction over the bonds after Argentina agreed to hold talks under New York law, said on Friday. He also ordered President Cristina Fernandez de Kirchner’s government to return to the negotiating table with bondholders, adding that the disparaging remarks should stop because nothing will eliminate Argentina’s obligations to pay bondholders – a fact that its government is ignoring. “What occurred this week did not extinguish or reduce the obligations of the Republic of Argentina.”

Argentine officials deny the country has defaulted because they deposited $539m for creditors in a bank intermediary. But Mr Griesa blocked that deposit in June, saying it violated his ruling that Argentina must first pay $1.5bn to settle its dispute with holdout investors first. “To say that Argentina is in technical default is a ridiculous hoax,” Mr Capitanich said after last week’s deadline for talks had passed. He accused Mr Griesa of acting as an “agent” for what the country has labelled “vulture funds”. “There’s been mala praxis here by the US justice system, for which all three branches of the government are responsible. Argentina has tried to negotiate in good faith,” he added.

Read more …

Which side are we supporting, you said?

730,000 Have Left Ukraine For Russia Due To Conflict (Reuters)

About 730,000 people have left Ukraine for Russia this year due to the fighting in eastern Ukraine, UNHCR’s European director Vincent Cochetel said on Tuesday. That figure implies a far higher exodus than the 168,000 who have fled and applied to Russia’s Migration Service. A further 117,000 people are displaced inside Ukraine, a number that is growing by about 1,200 per day, he said. UNHCR stripped out the seasonal figures and numbers for people who would normally have crossed the border in the course of trade or tourism to arrive at the 730,000 figure, Cochetel told a U.N. news briefing.

Read more …

One lone voice of reason. One.

Why Won’t Obama Just Leave Ukraine Alone? (Ron Paul)

President Obama announced last week that he was imposing yet another round of sanctions on Russia, this time targeting financial, arms, and energy sectors. The European Union, as it has done each time, quickly followed suit. These sanctions will not produce the results Washington demands, but they will hurt the economies of the US and EU, as well as Russia. These sanctions are, according to the Obama administration, punishment for what it claims is Russia’s role in the crash of Malaysia Airlines Flight 17, and for what the president claims is Russia’s continued arming of separatists in eastern Ukraine. Neither of these reasons makes much sense because neither case has been proven. The administration began blaming Russia for the downing of the plane just hours after the crash, before an investigation had even begun. The administration claimed it had evidence of Russia’s involvement but refused to show it.

Later, the Obama administration arranged a briefing by “senior intelligence officials” who told the media that “we don’t know a name, we don’t know a rank and we’re not even 100% sure of a nationality,” of who brought down the aircraft. So Obama then claimed Russian culpability because Russia’s “support” for the separatists in east Ukraine “created the conditions” for the shoot-down of the aircraft. That is a dangerous measure of culpability considering US support for separatist groups in Syria and elsewhere. Similarly, the US government claimed that Russia is providing weapons, including heavy weapons, to the rebels in Ukraine and shooting across the border into Ukrainian territory. It may be true, but again the US refuses to provide any evidence and the Russian government denies the charge. It’s like Iraq’s WMDs all over again. Obama has argued that the Ukrainians should solve this problem themselves and therefore Russia should butt out.

I agree with the president on this. Outside countries should leave Ukraine to resolve the conflict itself. However, even as the US demands that the Russians de-escalate, the United States is busy escalating! In June, Washington sent a team of military advisors to help Ukraine fight the separatists in the eastern part of the country. Such teams of “advisors” often include special forces and are usually a slippery slope to direct US military involvement. On Friday, President Obama requested Congressional approval to send US troops into Ukraine to train and equip its national guard. This even though in March, the president promised no US boots on the ground in Ukraine. The deployment will be funded with $19 million from a fund designated to fight global terrorism, signaling that the US considers the secessionists in Ukraine to be “terrorists.” Are US drone strikes against these “terrorists” and the “associated forces” who support them that far off?

Read more …

There’s much more where this came from.

New Drilling Largely Financed With Debt, Deferred Taxes (Oilprice.com)

Major oil and gas companies are taking on an increasing share of debt in order to maintain drilling momentum, according to data from the U.S. Energy Information Administration. Beginning around 2010, energy companies have been increasing their spending, particularly in the United States, as the tight oil revolution took off. Major firms snatched up acreage in oil-rich shale formations like the Bakken and the Eagle Ford and began drilling at a frenzied pace. The significant outlays required to ramp up such an operation were offset by the rising price of oil, which allowed oil companies to expand their operations without having to take on substantial volumes of debt. But after several years of increases, global oil prices began to plateau in mid-2011 and have stayed relatively steady since then. In fact, 2013 experienced the least oil price volatility since 2006.

And oil prices in 2014 have remained remarkably consistent, especially taking into account record levels of global demand and the abundance of geopolitical tension around the globe, from Ukraine to Iraq and Syria. As a result of oil prices trading in a narrow band – roughly between $100 and $120 for Brent Crude and $90 and $105 for WTI – revenues for oil and gas companies flattened out even as their costs continued to rise. From 2012 through the beginning of 2014, average cash from drilling operations increased by $59 billion over the same average seen in 2010-2011. But spending rose at a faster clip: up more than $136 billion. The yawning gap that opened up between spending and revenues has largely been closed by the acquisition of more debt.

For shale drillers in particular, debt has doubled over the last four years while revenues grew at a meager 5.6%. As the EIA points out, taking on debt is not necessarily a bad thing, especially if it is used to invest in new sources of production and growth. But a new report from Taxpayers for Common Sense points to one other factor that may be contributing to the rise in spending long after earnings flat-line. Under the U.S. tax code, oil and gas companies can defer billions of dollars in taxes by maintaining elevated levels of spending. That is partly by design. Drilling new oil and gas wells is capital intensive, and thanks to a provision in the 2009 stimulus bill, energy companies can use what is known as “bonus depreciation” to write off all depreciation in a single year, as opposed to spreading it out over future tax cycles.

Read more …

And then there’s plain greed.

Colorado Fracking Opponents Losing Local Control Fight (Bloomberg)

Colorado’s compromise with drilling opponents has dealt a blow to environmentalists’ expanding battle to give local communities more control to limit fracking. Governor John Hickenlooper and Representative Jared Polis agreed to a deal that weakened the prospects for two proposed ballot initiatives aimed at restricting oil and gas activity, the two men said at a news conference in Denver yesterday. Polis, who was expected to help finance the campaign for the measures, agreed to withdraw his support after Hickenlooper promised to create a task force to study the industry’s impact on local communities.

“Responsible oil and gas development in Colorado is critical to our economy, our environment, our health and our future,” said Hickenlooper. The Democrat, who told a Senate committee last year that he drank fracking fluid to prove its safety, has been a strong proponent of drilling. Colorado crude output grew faster than in any other state in 2013. Ballot initiative proponents said they planned to proceed with their proposals to restrict fracking unless the backers of two competing measures supported by the energy industry agreed to drop their plans. “Until we receive confirmation that the industry is withdrawing Initiatives 121 and 137, we are continuing to move forward,” said Mara Sheldon, a spokeswoman for the anti-drilling group, Safe. Clean. Colorado.

Read more …

Great Farrell.

300 Million Self-Hating Americans Need A New Dr. Freud (Paul B. Farrell)

Yes, America has a deep, dark self-destructive secret: We hate ourselves. We hate America. Yes, Americans are consumed with self-hatred. Can’t face our demons. In denial, destroying our great nation. Basic psychology: A dangerous virus infects America’s collective unconscious. We project our self-hatred on our enemies, the world “out there,” blaming leaders, bosses, neighbors, family. American souls are in so much pain, we attack everyone, anyone, those closest. Yes, basic psychology. Freud, Jung warned us. Self-haters must blame. Can’t stand the darkness festering within. Project on “them,” blaming others, anyone. Self-haters carry a deep secret the therapist seeks, to help free them from their self-destructive pain. The big problem is, this virus is spreading fast. Millions of self-hating Americans collect and dump their secrets in our one big collective unconscious.

Hidden deepest: Our fear America has “peaked.” America is declining. To 1% GDP. Wars will accelerate. Do-nothing politics. Widening inequality. All hiding under the disappearing myth of the American Dream, a future where if you just work hard, tomorrow will be better than today, for our children, ourselves, everyone in this great nation. Gone. An illusion. Yes, deep within our souls is America’s new collective reality. No longer leader of the free world, we’re falling behind, falling into a self-hatred so painful we block it from our conscious mind. In denial, we won’t take personal responsibility for our pain, our recovery. Instead, we get rid of it … get someone else to take our pain … someone to blame … someone “out there” to take these overwhelming feelings. Americans can’t stand who we’ve become, what we’re done to ourselves, must blame someone, find someone to take away our painful self-hatred secret.

Read more …

We keep seeing real heroes in the Ebola case.

Ebola Drug Made From Tobacco Plant Saves US Aid Workers (Bloomberg)

A tiny San Diego-based company provided an experimental Ebola treatment for two Americans infected with the deadly virus in Liberia. The biotechnology drug, produced with tobacco plants, appears to be working. In an unusual twist of expedited drug access, Mapp Biopharmaceutical Inc., which has nine employees, released its experimental ZMapp drug, until now only tested on infected animals, for the two health workers. Kentucky BioProcessing LLC, a subsidiary of tobacco giant Reynolds American Inc., manufactures the treatment for Mapp from tobacco plants. The first patient, Kent Brantly, a doctor, was flown from Liberia to Atlanta on Aug. 2, and is receiving treatment at Emory University Hospital. Nancy Writebol, an aid worker, is scheduled to arrive in Atlanta today and will be treated at the same hospital, according to the charity group she works with. Both are improving, according to relatives and supporters.

Each patient received at least one dose of ZMapp in Liberia before coming to the U.S., according to Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases. “There’s a very scarce number of doses,” and it’s not clear how many each patient needs for treatment, Fauci said. “I’m not sure how many doses they’ll get.” [..] The antibody work came out of research projects funded more than a decade ago by the U.S. Army to develop treatments and vaccines against potential bio-warfare agents, such as the Ebola virus, Arntzen said in a telephone interview. The tobacco plant production system was developed because it was a method that could produce antibodies rapidly in the event of an emergency, he said. To produce therapeutic proteins inside a tobacco plant, genes for the desired antibodies are fused to genes for a natural tobacco virus. The tobacco plants are then infected with this new artificial virus.

Read more …