Argentina Archives - Page 2 of 3 - The Automatic Earth

Nearly 51 million households don’t earn enough to afford a monthly budget that includes housing, food, child care, health care, transportation and a cell phone, according to a study released Thursday by the United Way ALICE Project. That’s 43% of households in the United States. The figure includes the 16.1 million households living in poverty, as well as the 34.7 million families that the United Way has dubbed ALICE — Asset Limited, Income Constrained, Employed. This group makes less than what’s needed “to survive in the modern economy.” “Despite seemingly positive economic signs, the ALICE data shows that financial hardship is still a pervasive problem,” said Stephanie Hoopes, the project’s director.

California, New Mexico and Hawaii have the largest share of struggling families, at 49% each. North Dakota has the lowest at 32%. Many of these folks are the nation’s child care workers, home health aides, office assistants and store clerks, who work low-paying jobs and have little savings, the study noted. Some 66% of jobs in the US pay less than $20 an hour. [..] in Seattle’s King County, the annual household survival budget for a family of four (including one infant and one preschooler) in 2016 was nearly $85,000. This would require an hourly wage of $42.46. But in Washington State, only 14% of jobs pay more than $40 an hour.

“For now, bond market liquidity is fine because hedge funds and other non-bank lenders have filled the gap. The problem is they are not true market makers. Nothing requires them to hold inventory or buy when you want to sell.”

• A Liquidity Crisis of Biblical Proportions Is Upon Us (Mauldin)

In an old-style economic cycle, recessions triggered bear markets. Economic contraction slowed consumer spending, corporate earnings fell, and stock prices dropped. That’s not how it works when the credit cycle is in control. Lower asset prices aren’t the result of a recession. They cause the recession. That’s because access to credit drives consumer spending and business investment. Take it away and they decline. Recession follows. Corporate debt is now at a level that has not ended well in past cycles. Here’s a chart from Dave Rosenberg:

The Debt/GDP ratio could go higher still, but I think not much more. Whenever it falls, lenders (including bond fund and ETF investors) will want to sell. Then comes the hard part: to whom? You see, it’s not just borrowers who’ve become accustomed to easy credit. Many lenders assume they can exit at a moment’s notice. One reason for the Great Recession was so many borrowers had sold short-term commercial paper to buy long-term assets. Things got worse when they couldn’t roll over the debt and some are now doing exactly the same thing again, except in much riskier high-yield debt. We have two related problems here. • Corporate debt and especially high-yield debt issuance has exploded since 2009. • Tighter regulations discouraged banks from making markets in corporate and HY debt.

Both are problems but the second is worse. Experts tell me that Dodd-Frank requirements have reduced major bank market-making abilities by around 90%. For now, bond market liquidity is fine because hedge funds and other non-bank lenders have filled the gap. The problem is they are not true market makers. Nothing requires them to hold inventory or buy when you want to sell. That means all the bids can “magically” disappear just when you need them most. These “shadow banks” are not in the business of protecting your assets. They are worried about their own profits and those of their clients.

“Internet advertising revenues in the US soared 21.4% in 2017 from a year earlier to a record of $88 billion..”

• Fake News No Problem: Internet Totally Dominates Advertising in the US (WS)

You might think you never look at these ads or click on them, and you might think they’re the biggest waste of money there ever was, but reality is that internet advertising revenues in the US are surging, and are blowing all other media categories out of the water. But only two companies divvy up among themselves nearly 60% of the spoils. Internet advertising revenues in the US soared 21.4% in 2017 from a year earlier to a record of $88 billion, thus handily demolishing TV ad revenues, which declined 2.6% to $70.1 billion, according to annual ad revenue report by the Interactive Advertising Bureau (IAB). It was the second year in a row that internet ad revenues beat TV. In 2016, internet ad revenues (or “ad spend”) had surpassed TV ad revenues for the first time in US history.

And 2017 was the first year in the data series going back to 2010 that TV advertising actually declined. That formerly unstoppable growth industry is now a declining industry. [..] Social Media sizzles, fake news no problem. Advertising spend on social media surged 36% from the prior year to $22.2 billion, now accounting for a quarter of all internet advertising, up from just an 8% share in 2012. But who’s getting all this internet ad manna? The report is presented at an “anonymized aggregate level,” and no company names are given. But it’s not hard to figure out. The top ten companies got 74% of the share in Q4 2017, according to the report.

For further detail, we mosey over to eMarketer, which estimates that in 2017, Google captured 38.6% of the total internet ad spend in the US and Facebook captured 19.9% in the US, for a combined total of 58.5% of total internet ad spend. Just by these two companies! For perspective, Google’s parent Alphabet reported global revenues of $111 billion in 2017, and Facebook $40 billion. Practically all of it was generated by internet advertising.

Well, you can’t do QE forever.

• Blundering Into Recession (Rickards)

Contradictions coming from the Fed’s happy talk wants us to believe that QT is not a contractionary policy, but it is. They’ve spent eight years saying that quantitative easing was stimulative. Now they want the public to believe that a change to quantitative tightening is not going to slow the economy. They continue to push that conditions are sustainable when printing money, but when they make money disappear, it will not have any impact. This approach falls down on its face — and it will have a major impact. My estimate is that every $500 billion of quantitative tightening could be equivalent to one .25 basis point rate hike. Some estimates are even higher, as much 2.0% per year. That’s not “background” noise. It’s rock music blaring in your ears.

For an economy addicted to cheap money, this is like going cold turkey. The decision by the Fed to not purchase new bonds will therefore be just as detrimental to the growth of the economy as raising interest rates. Meanwhile, retail sales, real incomes, auto sales and even labor force participation are all declining or showing weakness. Every important economic indicator shows that the U.S. economy can’t generate the growth the Fed would like. When you add in QT, we may very well be in a recession very soon. Then the Fed will have to cut rates yet again. Then it’s back to QE. You could call that QE4 or QE1 part 2. Regardless, years of massive intervention has essentially trapped the Fed in a state of perpetual manipulation. More will follow.

You can’t resolve a crisis with 40% interest rates. That spells panic.

• Peso Crisis Highlights Fragility Of Argentina’s Economy (AFP)

Argentina appears to have resolved, at least in the short term, the crisis over the peso and its depreciation by taking drastic action — but analysts warn the policy is untenable over time. To sustain the Argentinian peso, the Central Bank raised its benchmark interest rate up to 40% and injected more than $10 billion into the economy. A crisis of confidence in the peso saw it plunge nearly 20% over six weeks as investors concerned by Argentina’s high inflation yielded to the lure of a strong dollar. On Monday, the unit dipped to a historic low of 25.51 against the dollar, as talks continued with the International Monetary Fund for a stabilizing loan. Argentina’s center-right president, Mauricio Macri, has sought to be reassuring, saying Thursday that “we consider the turbulence overcome.”

But he pointed the finger at an endemic problem: the budget deficit of Latin America’s third largest economy – even though it has dropped from six to four% of gross domestic product since he took power in late 2015. “It’s a real structural problem, well identified for a long time by the IMF, difficult to resolve politically,” said Stephane Straub, an economist at the Toulouse School of Economics. “If rates remain at this level, it will pose problems in the medium-to-long term. But confidence must return in order to reduce the rates. That’s where the intervention of the IMF can be useful, to bring back confidence and halt the flight of capital and the pressure on the currency.” Annual inflation at more than 20% and a balance of trade deficit still stifle economic reform efforts in an economy whose annual growth was 2.8% in 2017.

But how?

• China Offers Trump $200 Billion Package To Slash US Trade Deficit (R.)

China is offering U.S. President Donald Trump a package of trade concessions and increased purchases of American goods aimed at cutting the U.S. trade deficit with China by up to $200 billion a year, U.S. officials familiar with the proposal said. News of the offer came during the first of two days of U.S.-China trade talks in Washington focused on resolving tariff threats between the world’s two largest economies. But it was not immediately clear how the total value was determined. One of the sources said U.S. aircraft maker Boeing would be a major beneficiary of the Chinese offer if Trump were to accept it. Boeing is the largest U.S. exporter and already sells about a quarter of its commercial aircraft to Chinese customers.

Another person familiar with the talks said the package may include some elimination of Chinese tariffs already in place on about $4 billion worth of U.S. farm products including fruit, nuts, pork, wine and sorghum. [..]The top-line number in the Chinese offer would largely match a request presented to Chinese officials two weeks ago by Trump administration officials in Beijing. But getting to a $200 billion reduction of the U.S. China trade deficit on a sustainable basis would require a massive change in the composition of trade between the two countries, as the U.S. goods deficit was $375 billion last year. The United States’ two biggest exports to China were aircraft at $16 billion last year, and soybeans, at $12 billion.

An invitation to London and Washington?!

• Ecuador Orders Withdrawal Of Extra Assange Security From London Embassy (R.)

The president of Ecuador, Lenin Moreno, ordered the withdrawal on Thursday of additional security assigned to the Ecuadorian embassy in London, where WikiLeaks founder Julian Assange has remained for almost six years. The Australian took refuge in the small diplomatic headquarters in 2012 to avoid sexual abuse charges in Sweden. He rejects the charges and prosecutors have abandoned their investigation. However, British authorities are still seeking his arrest.

“The President of the Republic, Lenin Moreno, has ordered that any additional security at the Ecuadorian embassy in London be withdrawn immediately,” the government said in a statement. “ From now on, it will maintain normal security similar to that of other Ecuadorian embassies,” the statement said. Ecuador suspended Assange’s communication systems in March after his pointed political comments on Twitter. Moreno has described Assange’s situation as “a stone in his shoe.”

Own your own basics.

• How Public Ownership Was Raised From The Grave (NS)

For decades, nationalisation was a taboo subject in British politics. New Labour accepted all of Margaret Thatcher’s privatisations and even extended the market into new realms (such as air traffic control and Royal Mail). Few expected public ownership to return in any significant capacity. But the state has since risen from its slumber. Chris Grayling, the Transport Secretary, yesterday announced that the East Coast Mainline rail franchise would be renationalised (for the third time in 12 years) after its private operators defaulted on payments. Labour, which has called for the whole network to be restored to public ownership, can boast of changing policy from opposition. Further franchises, rail experts say (Northern Rail, South Western, Transpennine Express and Greater Anglia), may also be renationalised out of necessity.

Grayling emphasised that the East Coast move was a “temporary” and purely pragmatic one; the Conservatives usually deride nationalisation as retrogressive, redolent of the grim 1970s. But the voters back Labour’s interventionism. A poll published last year by the Legatum Institute and Populus found that they favour public ownership of the UK’s water (83%), electricity (77%), gas (77%) and railway (76%). Voters are weary of the substandard service and excessive prices that characterise many private companies. (And saw the commanding heights of the British banking system renationalised following the financial crisis.) .

People are tired of more EU.

• EU Dashes Membership Hopes Of Balkan States (G.)

Keep waiting in line, but don’t expect the door to open any time soon. That was the message delivered on Thursday to six Balkan states hoping to join the EU. The six had been invited to the EU heads of state summit in Sofia, Bulgaria, as a gesture to reaffirm their path towards EU membership. Instead, the summit was notable for divisions on whether or not the bloc could cope with further enlargement in the foreseeable future. The EU is keen to offer enticements to the six states, given worries about potential instability and the growing role of Russia in the region. Johannes Hahn, the commissioner for enlargement, has said on a number of occasions that the EU should “export stability” to the region to avoid “importing instability”.

But many member states are uneasy about giving concrete commitments. Emmanuel Macron has emerged as the leading opponent of further EU expansion. “I think we need to look at any new enlargement with a lot of prudence and rigour,” the French president told journalists in Sofia. “The last 15 years have shown a path that has weakened Europe by thinking all the time that it should be enlarged.” A declaration was adopted at the summit that offered support for the “European perspective” of the six Balkan countries but was noticeably lacking words about “accession” or “enlargement”.

“The draft was approved with votes 60-1..”

• US House Committee Approves Provision To Freeze Arms Sales To Turkey (K.)

The United States House Committee on Armed Services of the US Congress approved in principle on Thursday a draft bill on the US budget for 2019 national defense which includes a provision that would halt any sale of military equipment to Turkey until the Secretary of Defense submits a report on the US-Turkish relationship to the congressional defense committees. The draft was approved with votes 60-1 and will be followed by a debate on various amendments, while a similar procedure will take place in the Senate.

If this provision comes into force after the end of the debate, the restrictions imposed on Turkey’s military supplies will be wide-ranging, including, but not limited to, the sales of F-35 Lightning II JSF and F-16 Fighting Falcon, CH- 47 Chinook helicopters, H-60 Blackhawk, and Patriot missiles. The effort to freeze the delivery of the F-35 fighter aircraft to Ankara has formed part of an important campaign conducted by the Hellenic American Leadership Council (HALC) in Washington. As explained by HALC’s executive director, Endy Zemenides, the fact that this provision was included in the draft law is another important step towards fulfilling the goal of the HALC campaign.

No comment.

• Alabama Congressman Blames Sea Level Rise On Rocks Falling Into The Ocean (Al)

North Alabama Congressman Mo Brooks is making headlines again for blaming sea level rise on rocks falling into the ocean and silt washing from major rivers. Brooks was one of several Republican lawmakers sparring with a climate scientist at a Wednesday hearing of the House Science, Space, and Technology Committee. Included in the arguing were Republicans Lamar Smith of Texas, the committee’s chairman, and California’s Dana Rohrabacher, but the websites for Science and Esquire used Brooks’ picture to illustrate their coverage. “Republican lawmaker: Rocks tumbling into ocean causing sea level rise,” read the Science site’s headline.

“Is the Human Race Too Dumb to Survive on This Planet?” asked Esquire also featuring Brooks. “Here’s how big a rock you’d have to drop into the ocean to see the rise in sea level happening now,” chimed in the Washington Post. Brooks was quoted saying, “Every time you have that soil or rock or whatever it is that is deposited into the seas, that forces the sea levels to rise, because now you have less space in those oceans, because the bottom is moving up.” He referred to erosion on the California coastline and England’s White Cliffs of Dover and silt from the Mississippi and Nile rivers.

I think chemicals are a much bigger issue.

• Climate Change On Track To Cause Major Insect Wipeout (G.)

Global warming is on track to cause a major wipeout of insects, compounding already severe losses, according to a new analysis. Insects are vital to most ecosystems and a widespread collapse would cause extremely far-reaching disruption to life on Earth, the scientists warn. Their research shows that, even with all the carbon cuts already pledged by nations so far, climate change would make almost half of insect habitat unsuitable by the end of the century, with pollinators like bees particularly affected. However, if climate change could be limited to a temperature rise of 1.5C – the very ambitious goal included in the global Paris agreement – the losses of insects are far lower.

The new research is the most comprehensive to date, analysing the impact of different levels of climate change on the ranges of 115,000 species. It found plants are also heavily affected but that mammals and birds, which can more easily migrate as climate changes, suffered less. “We showed insects are the most sensitive group,” said Prof Rachel Warren, at the University of East Anglia, who led the new work. “They are important because ecosystems cannot function without insects. They play an absolutely critical role in the food chain.” “The disruption to our ecosystems if we were to lose that high proportion of our insects would be extremely far-reaching and widespread,” she said. “People should be concerned – humans depend on ecosystems functioning.” Pollination, fertile soils, clean water and more all depend on healthy ecosystems, Warren said.

In October, scientists warned of “ecological Armageddon” after discovering that the number of flying insects had plunged by three-quarters in the past 25 years in Germany and very likely elsewhere. “We know that many insects are in rapid decline due to factors such as habitat loss and intensive farming methods,” said Prof Dave Goulson, at the University of Sussex, UK, and not part of the new analysis. “This new study shows that, in the future, these declines would be hugely accelerated by the impacts of climate change, under realistic climate projections. When we add in all the other adverse factors affecting wildlife, all likely to increase as the human population grows, the future for biodiversity on planet Earth looks bleak.”

It’s a start. But why the focus still only on bees?

• EU Court Upholds Curbs On Bee-Killing Pesticides (AFP)

A top European Union court on Thursday upheld the ban on three insecticides blamed for killing off bee populations, dismissing cases brought by chemicals giants Bayer and Syngenta. The decision involves a partial ban by the European Union from 2013, but the bloc has since taken more drastic action after a major report by European food safety agency targeted the chemicals. “The General Court confirms the validity of the restrictions introduced at EU level in 2013 against the insecticides clothianidin, thiamethoxam and imidacloprid because of the risks those substances pose to bees,” a statement said.

“Given the existence of new studies … the Commission was fully entitled to find that it was appropriate to review the approval of the substances in question,” it said. Bees help pollinate 90% of the world’s major crops, but in recent years have been dying off from “colony collapse disorder,” a mysterious scourge blamed partly on pesticides. The pesticides – clothianidin, imidacloprid and thiamethoxam – are based on the chemical structure of nicotine and attack the nervous systems of insect pests. Past studies have found neonicotinoids can cause bees to become disorientated such that they cannot find their way back to the hive, and lower their resistance to disease.

Debt Rattle May 16 2018

May 162018

May 16, 2018 Posted by Raúl Ilargi Meijer at 8:30 am Finance Tagged with: Airbnb, Argentina, Assange, chimpanzees, debt relief, deflation, Ecuador, Greece, IMF, mortgage rates, opioids, unemployment 4 Responses »

Alfred Wertheimer Elvis 1956

• What If Wall Street Is Waiting For The Wrong Disaster? (BI)

• US Mortgage Rates Surge To Highest Level In 7 Years (CNBC)

• Economic Numbers Are Less Than Meet the Eye (Rickards)

• Argentina Went From Selling 100-Year Bonds To An IMF Rescue In 9 Months (Q.)

• Turkey’s Economy Enters A ‘Slow Burning Crisis’ (CNBC)

• Investors In Turkey Stunned By Erdogan’s Fight With Markets (R.)

• Ecuador Spent Millions On Spy Operation For Julian Assange (G.)

• New York City Poised To Join Airbnb Crackdown (Pol.)

• US State Lawsuits Against Purdue Pharma Over Opioid Epidemic Mount (R.)

• Debt Relief Woes Threaten Greece’s Bailout Exit (K.)

• Greece Changes Asylum Rules To Fight Camp Overcrowding (AP)

• UK Government Wants To Put A Price On Nature – But That Will Destroy It (G.)

• Chimpanzees Have Much Cleaner Beds Than Humans Do (Ind.)

Deflation.

• What If Wall Street Is Waiting For The Wrong Disaster? (BI)

What if the entire world of money is preparing for the wrong disaster — which would be a disaster in and of itself? Since the financial crisis, Wall Street, central-bank heads, economists, and policymakers have been waiting for the return of inflation. At the beginning of this year, they thought they had found it. It came, so they thought, in the form of a weak dollar, wage growth, economic stability in China, and steadily rising interest rates. So here in the US, the Fed started talking about the importance of preparing to fight runaway inflation. In fact, it’s obsessed with the idea. According to Deutsche Bank analyst Torsten Slok, the Fed is talking more about inflation now (in its minutes and in its reports) than it did in 2006 when the economy was actually overheating, right before the crash.

This, even though personal-consumption expenditures haven’t grown by the Federal Reserve’s 2% target since the financial crisis. There’s a lot of noise, from data revisions and Trump tweets, trade-war threats and hopes of growth from tax policy, a wobbling stock market, and rising interest rates. But when it comes down to it, the things that everyone is saying will be sources of inflation may not be sources at all. Meanwhile, the weak dollar, wage growth, and a stable China elixir that got markets high in January have since faded. That should be a warning. If we play our cards wrong and pay attention to all the wrong signs, we may still be in a world tilting dangerously closer to our old enemy, deflation.

[..] As Slok said, aging can’t fully explain why wage growth has been suppressed, but he has other ideas too. “One important reason why the expansion since 2009 has been so weak is that wealth gains have been unevenly distributed (see chart below). A decline in the homeownership rate and the number of households holding stocks has dampened consumer spending growth for the bottom 90% of households,” he wrote in a note to clients back in March.

The deflationary impacts of economic inequality and an aging population are not going away with the flick of a wrist or the push of a button. They are long-term challenges that require imaginative, difficult policy solutions. It’s hard to see that coming from the Trump administration or an increasingly polarized, uncooperative world. So we need to ask ourselves: Are we waiting for the wrong disaster?

That’s the end?!

• US Mortgage Rates Surge To Highest Level In 7 Years (CNBC)

A sharp sell-off in the bond market is sending mortgage rates to the highest level in seven years. The average contract rate on the 30-year fixed will likely end the day as high as 4.875% for the highest creditworthy borrowers and 5% for the average borrower, according to Mortgage News Daily. Mortgage rates, which loosely follow the yield on the 10-year Treasury, started the year right around 4% but began rising almost immediately. They then leveled off in March and early April, only to begin rising yet again. Tuesday’s move follows positive economic data in retail sales, suggesting that newly imposed tariffs would not hit sales as hard as expected.

Rates have been widely expected to rise, as the Federal Reserve increases its lending rate and pulls back its investments in mortgage-backed bonds. But mortgage rates have reacted only in fits and starts. “The bottom line is that the writing on the wall has been telling rates to go higher since at least last September,” said Matthew Graham, chief operating officer of Mortgage News Daily. “Rates keep looking back to see if the writing has changed, and although there have been opportunities for hope (trade wars, stock selling-sprees, spotty data at times), it hasn’t. Today is just the latest reiteration of that writing.”

10% unemployment.

• Economic Numbers Are Less Than Meet the Eye (Rickards)

Let’s start with the employment report. The U.S. Department of Labor, Bureau of Labor Statistics report dated May 4, 2018, showed the official U.S. unemployment rate for April 2018 at 3.9%, with a separate unemployment rate for adult men of 4.1% and adult women of 3.7%. The 3.9% unemployment rate is based on a total workforce of 160 million people, of whom 153 million are employed and 6.3 million are unemployed. The 3.9% figure is the lowest unemployment rate since 2001, and before that, the early 1970s. The average rate of unemployment in the U.S. from 1948 to 2018 is 5.78%. By these superficial measures, unemployment is indeed low and the economy is arguably at full employment.

Still, these statistics don’t tell the whole story. Of the 153 million with jobs, 5 million are working part time involuntarily; they would prefer full-time jobs but can’t find them or have had their hours cut by current employers. Another 1.4 million workers wanted jobs and had searched for a job in the prior year but are not included in the labor force because they had not searched in the prior four weeks. If their numbers were counted as unemployed, the unemployment rate would be 5%. Yet the real unemployment rate is far worse than that. The unemployment rate is calculated using a narrow definition of the workforce. But there are millions of able-bodied men and women between the ages of 25–54 capable of work who are not included in the workforce.

These are not retirees or teenagers but adults in their prime working years. They are, in effect, “missing workers.” The number of these missing workers not included in the official unemployment rolls is measured by the Labor Force Participation Rate, LFPR. The LFPR measures the total number of workers divided by the total number of potential workers regardless of whether those potential workers are seeking work or not. The LFPR plunged from 67.3% in January 2000 to 62.8% in April 2018, a drop of 4.4percentage points. If those potential workers reflected in the difference between the 2018 and 2000 LFPRs were added back to the unemployment calculation, the unemployment rate would be close to 10%.

[..] Another serious problem is illustrated in Chart 1 below. This shows the U.S. budget deficit as apercentage of GDP (the white line measured on the right scale) compared with the official unemployment rate (the blue line measured on the left scale). From the late 1980s through 2009, these two time series exhibited a fairly strong correlation. As unemployment went up, the deficit went up also because of increased costs for food stamps, unemployment benefits, stimulus spending and other so-called “automatic stabilizers” designed to bring the economy out of recession. That makes sense. But as the chart reveals, the correlation has broken down since 2009 and the two time series are diverging rapidly. Unemployment is going down, but budget deficits are still going up.

Too late to get a new government?

• Argentina Went From Selling 100-Year Bonds To An IMF Rescue In 9 Months (Q.)

In financial markets, memories can be short. Last year, Argentina sold 100-year bonds, joining a select club of countries with the confidence to borrow for such an extended period. Yes, the same Argentina that has defaulted on its debt eight times in the past 200 years, including the largest sovereign default in history in 2001. Not long before investors decided it was a good idea to lend to the South American nation for 100 years, it was largely shut out of international capital markets. In June 2017, Argentina sold $2.75 billion of US dollar-denominated 100-year bonds at an effective yield of 8%. The history of defaults seemed to be forgotten—nearly $10 billion in bids were placed for the bonds.

The sale came at a time when investors were hungry for high-yielding debt, but it also showed confidence in president Mauricio Macri and his program of pro-market reforms. Less than a year later, Macri has asked the IMF for a $30 billion loan to help it combat a currency crisis and limit further damage to the Argentinian economy from a dangerous outbreak of market turmoil. What went wrong?

Not sure it’ll be all that slow. Turekey has borrowed in dollars up the wazoo.

• Turkey’s Economy Enters A ‘Slow Burning Crisis’ (CNBC)

Turkey’s economy is overheating and if the government doesn’t act then the country is in trouble, according to several analysts. “The government has no intention of tackling imbalances or overheating,” Marcus Chevenix, global political research analyst at TS Lombard, said in a research note this week. “It is this unwillingness to act that leads us to believe that we can now say that Turkey is entering a slow burning crisis.” The Turkish lira is at a record low against the dollar, and is ranked among the worst-performing currencies this year. After comments this week by Turkish President Recep Erdogan promising to lower interest rates after the country’s June election, the currency tanked to its lowest point yet against the greenback, hitting 4.4527 on Tuesday mid-afternoon.

The dollar has appreciated by around 18% against the lira so far this year. The reason? Erdogan has been sitting on interest rates, opting for a monetary policy that prioritizes growth over controlling its double-digit inflation. Turkey’s growth rate reached an impressive 7.4% for 2017 and leads the G-20, but at the expense of inflation, which has shot up to 10.9%. Market sentiment has driven much of the lira’s sell-off, as investors worry about government intervention in monetary policy and central bank independence. Investors have been hoping for a rate rise by the bank, but that now appears unlikely.

Erdogan plays an unusually heavy-handed role in deciding his country’s monetary policy, and many observers say he keeps the Central Bank of the Republic of Turkey’s (TCMB) hands tied. The bank finally raised its rates for the first time in several sessions in late April, moving its late liquidity window rate (which it uses to set policy) up by 75 basis points to 13.5%. The lira temporarily jumped on the news. But Erdogan aims to bring the rate back down, saying it must be done to ease pressure on Turkish households and drive the growth needed to create jobs for Turkey’s youth. “I’m seriously concerned about the Turkish lira,” Piotr Matys at Rabobank told CNBC via email. “Is Turkey the domino the market expects to fall next? It’s got all those problems — high current account deficit, government borrowing in other currencies.”

He went to the City for this?!

• Investors In Turkey Stunned By Erdogan’s Fight With Markets (R.)

“Shock and disbelief” – that’s how global money managers reacted to an attempt by Turkish President Tayyip Erdogan to re-assure foreign investors about his economic management as the lira went into tailspin. Fund managers who met Erdogan and his delegation in London on Monday, part of a three-day visit to Britain, were baffled about how he plans to tame rising inflation and a currency in freefall – while simultaneously seeking lower interest rates. Some said that while Erdogan has crushed his domestic enemies, he would find taking on international financial markets with policies that defy economic orthodoxy much tougher.

A resurgent dollar, rising oil prices and a jump in borrowing costs have caused havoc across emerging markets in recent weeks. However, Turkey has been among the worst affected due to its a gaping current account deficit and growing puzzlement over who exactly holds the reins of monetary policy. Erdogan’s comments that he planned to take greater control of the economy after snap presidential and parliamentary elections next month deepened investors’ worries about the central bank’s ability to fight inflation, helping to send the lira to a record low on Tuesday.

Rampant inflation dogged Turkey for decades before 2000 and has been back in double digits since the start of 2017. But Erdogan has styled himself as an enemy of high interest rates, defying orthodox monetary policy that prescribes tighter credit to keep a lid on prices. Speaking on condition of anonymity due to the political sensitivity of the meetings, investors told Reuters they were flabbergasted by his stance and willingness to go into battle with world markets at such a fragile time.

A suggestive and tendentious piece by the Guardian, which seems to prepare us for a justification of Ecuador throwing Julian out. Other articles in today’s paper have titles like “How Julian Assange became an unwelcome guest in Ecuador’s embassy” and “Why does Ecuador want Assange out of its London embassy?”

• Ecuador Spent Millions On Spy Operation For Julian Assange (G.)

Ecuador bankrolled a multimillion-dollar spy operation to protect and support Julian Assange in its central London embassy, employing an international security company and undercover agents to monitor his visitors, embassy staff and even the British police, according to documents seen by the Guardian. Over more than five years, Ecuador put at least $5m (£3.7m) into a secret intelligence budget that protected the WikiLeaks founder while he had visits from Nigel Farage, members of European nationalist groups and individuals linked to the Kremlin. Other guests included hackers, activists, lawyers and journalists.

[..] Documents show the intelligence programme, called “Operation Guest”, which later became known as “Operation Hotel” – coupled with parallel covert actions – ran up an average cost of at least $66,000 a month for security, intelligence gathering and counter-intelligence to “protect” one of the world’s most high-profile fugitives. An investigation by the Guardian and Focus Ecuador reveals the operation had the approval of the then Ecuadorian president, Rafael Correa, and the then foreign minister, Ricardo Patiño, according to sources. [..] Worried that British authorities could use force to enter the embassy and seize Assange, Ecuadorian officials came up with plans to help him escape.

They included smuggling Assange out in a diplomatic vehicle or appointing him as Ecuador’s United Nations representative so he could have diplomatic immunity in order to attend UN meetings, according to documents seen by the Guardian dated August 2012. In addition to giving Assange asylum, Correa’s government was apparently prepared to spend money on improving his image. A lawyer was asked to devise a “media strategy” to mark the “second anniversary of his diplomatic asylum”, in a leaked 2014 email exchange seen by the Guardian.

Force them to open the books.

• New York City Poised To Join Airbnb Crackdown (Pol.)

New York’s City Council is plotting a crackdown on Airbnb, the largest home-sharing platform in the world, as the hotel industry and its unionized workers push lawmakers in some of the nation’s biggest cities to blunt the $30 billion company’s growth. New York City’s push resembles a legislative effort underway in Los Angeles, and comes months after San Francisco passed a measure mandating that hosts of short-term rental platforms register their homes with the city, leading to a decline in listings. The coastal cities are among Airbnb’s largest markets in the United States.

The Council is crafting a bill that would require online home-sharing companies to provide the Mayor’s Office of Special Enforcement with the addresses of their listings — a potential blow to Airbnb if its users are revealed to be turning rent-regulated apartments into business enterprises in a city starved for more housing. The move is coming two years after New York’s state Legislature first took aim at Airbnb with a bill that banned the advertising of illegal short-term rentals — but ultimately did little to hurt the company. The New York push comes amid a well-funded advertising and lobbying campaign by the hotel industry, which has run ads supporting a recent report from City Comptroller Scott Stringer that was critical of Airbnb, and is accusing the company of reducing the amount of affordable housing in cities.

What’s taking so long?

• US State Lawsuits Against Purdue Pharma Over Opioid Epidemic Mount (R.)

Litigation against OxyContin maker Purdue Pharma is intensifying as six more U.S. states on Tuesday announced lawsuits, accusing the company of fueling a national opioid epidemic by deceptively marketing its prescription painkillers to generate billions of dollars in sales. U.S. state attorneys general of Nevada, Texas, Florida, North Carolina, North Dakota and Tennessee also said Purdue Pharma violated state consumer protection laws by falsely denying or downplaying the addiction risk while overstating the benefits of opioids. “It’s time the defendants pay for the pain and the destruction they’ve caused,” Florida State Attorney General Pam Bondi told a press conference.

Florida also sued drugmakers Endo Pharmaceuticals, Allergan, units of Johnson & Johnson and Teva Pharmaceutical Industries, and Mallinckrodt, as well as drug distributors AmerisourceBergen, Cardinal Health and McKesson. [..] Lawsuits have already been filed by 16 other U.S. states and Puerto Rico against Purdue. The privately-held company in February said it stopped promoting opioids to physicians after widespread criticism of the ways drugmakers market highly addictive painkillers. Bondi said state attorneys general from New York, California and Massachusetts were preparing similar lawsuits.

And on and on and on…

• Debt Relief Woes Threaten Greece’s Bailout Exit (K.)

The tug of war between the IMF and Berlin over the Greek debt issue is threatening Greece’s successful bailout program exit in August. Germany insists on granting Greece gradual debt relief under the condition that it will be approved every year by the Bundestag. For its part, the IMF disagrees with Berlin’s insistence on reviewing the measures every year and is threatening to leave the Greek program. If the IMF were to leave the program because it thinks that debt relief measures are inadequate to secure the sustainability of Greece’s debt, the country’s access to international market funding will be cast in doubt. This means that, inevitably, the government will have to resort to precautionary credit to shield itself from complications.

The chasm between Berlin and the IMF was clear during Monday’s session of the so-called Washington Group – representatives of Greece’s creditors as well as the governments of Germany, France, Spain and Italy, the biggest eurozone economies. Poul Thomsen, the head of the IMF’s European Department, who attended Monday’s meeting, countered that Berlin’s conditions were not acceptable. Thomsen said Tuesday that the Fund wants to activate the program for Greece but warned that time is running out and asked for final decisions on the matter by the next Eurogroup on May 24.

Speed up deportations and appeals, restrict freedom of movement. Lovely

• Greece Changes Asylum Rules To Fight Camp Overcrowding (AP)

Greece’s parliament approved legislation Tuesday that is designed to speed up the asylum process for migrants, ease the overcrowding at Greek island refugee camps and to deport more people back to Turkey. Under the new law, staff will be added at the office that handles asylum requests, the appeals process for rejected applications will be shortened and travel restrictions can be imposed on asylum-seekers who are moved from the Greek islands to the mainland. Currently, restrictions on asylum-seekers are mostly limited to five islands near the coast of Turkey, where strained refugee camps are trying to cope with up to three times more residents than planned.

More than 16,000 people are stuck there. A group of 13 Greek human rights organizations, however, has accused the government of ignoring refugee rights. The number of newly arriving migrants and refugees has risen sharply this year at the islands and Greece’s land border with Turkey, prompting the change in policy. Police cleared out two abandoned factory buildings used by migrants in the city of Patras in western Greece early Tuesday. More than 600 people will be moved from there to refugee camps on the mainland, police said.

Have we lost the ability to frame everything in anything else than monetary terms?

• UK Government Wants To Put A Price On Nature – But That Will Destroy It (G.)

Never mind that the new environmental watchdog will have no teeth. Never mind that the government plans to remove protection from local wildlife sites. Never mind that its 25-year environment plan is all talk and no action. We don’t need rules any more. We have a pouch of magic powder we can sprinkle on any problem to make it disappear. This powder is the monetary valuation of the natural world. Through the market, we can avoid conflict and hard choices, laws and policies, by replacing political decisions with economic calculations. Almost all official documents on environmental issues are now peppered with references to “natural capital” and to the Natural Capital Committee, the Laputian body the government has created to price the living world and develop a set of “national natural capital accounts”.

The government admits that “at present we cannot robustly value everything we wish to in economic terms; wildlife being a particular challenge”. Hopefully, such gaps can soon be filled, so we’ll know exactly how much a primrose is worth. The government argues that without a price, the living world is accorded no value, so irrational decisions are made. By costing nature, you ensure that it commands the investment and protection that other forms of capital attract. This thinking is based on a series of extraordinary misconceptions. Even the name reveals a confusion: natural capital is a contradiction in terms. Capital is properly understood as the human-made segment of wealth that is deployed in production to create further financial returns.

Concepts such as natural capital, human capital or social capital can be used as metaphors or analogies, though even these are misleading. But the 25-year plan defines natural capital as “the air, water, soil and ecosystems that support all forms of life”. In other words, nature is capital. In reality, natural wealth and human-made capital are neither comparable nor interchangeable. If the soil is washed off the land, we cannot grow crops on a bed of derivatives. A similar fallacy applies to price. Unless something is redeemable for money, a pound or dollar sign placed in front of it is senseless: price represents an expectation of payment, in accordance with market rates. In pricing a river, a landscape or an ecosystem, either you are lining it up for sale, in which case the exercise is sinister, or you are not, in which case it is meaningless.

Still more deluded is the expectation that we can defend the living world through the mindset that’s destroying it. The notions that nature exists to serve us; that its value consists of the instrumental benefits we can extract; that this value can be measured in cash terms; and that what can’t be measured does not matter, have proved lethal to the rest of life on Earth. The way we name things and think about them – in other words the mental frames we use – helps determine the way we treat them.

Make a fresh bed every day.

• Chimpanzees Have Much Cleaner Beds Than Humans Do (Ind.)

Chimpanzees have much cleaner beds – with fewer bodily bacteria – than humans do, scientists have found. A study comparing swabs taken from chimp nests with those from human beds found that people’s sheets and mattresses harboured far more bacteria from their bodies than the animals’ beds did from theirs. The researchers say their findings suggest that our attempts to create clean environments for ourselves may actually make our surroundings “less ideal”. More than a third – 35 per cent – of the bacteria in human beds comes from our own saliva, skin and faecal particles. By contrast, chimps – humans’ closest evolutionary relatives – appear to sleep with few such bacteria.

“We found almost none of those microbes in the chimpanzee nests, which was a little surprising,” said Megan Thoemmes, lead author of the paper. The researchers collected samples from 41 chimpanzee beds – or nests – in Tanzania and tested them for microbial biodiversity. At 15 primates’ nests, researchers also used vacuums to find out whether there were arthropods, such as insects, spiders, mites and ticks. “We also expected to see a significant number of arthropod parasites, but we didn’t,” said Ms Thoemmes. In addition, the team were shocked to find very few fleas, lice and bed bugs – ectoparasites – in the chimp nests.

“There were only four ectoparasites found, across all the nests we looked at. And that’s four individual specimens, not four different species,” said Ms Thoemmes, a PhD student at North Carolina State University. She believes chimps’ beds are cleaner because they make them freshly in treetops each day.

Debt Rattle May 11 2018

May 112018

May 11, 2018 Posted by Raúl Ilargi Meijer at 8:33 am Finance Tagged with: Argentina, Brexit, China, collectivism, deal, FBI, Hubble Constant, Iran, Marx, orangutan, palm oil, revolution 8 Responses »

Pablo Picasso La lecture 1932

• ‘Everything’ in Argentina is 20% to 30% Overvalued – Lacalle (BI)

• About That FBI ‘Source’ (Strassel)

• The Art of Breaking a Deal (Escobar)

• China Walks A Fine Line In Iran (Dorsey)

• Capitalism Is Collectivist (CA)

• Karl Marx Sacrificed Logic On The Altar Of His Desire For Revolution (Keen)

• Theresa May Turns Brexit Into Role-Reversal Game (G.)

• Third of British Homeowners Priced Out Of Their Own Property (Ind.)

• Greece Sees Spike In Waivers Of Inheritance (K.)

• The Answer To Life, The Universe And Everything Might Be 73. Or 67 (G.)

• Palm Oil Producers Are Wiping Out Orangutans (G.)

“Obviously the economy will shrink, but it shrinks to reality..”

• ‘Everything’ in Argentina is 20% to 30% Overvalued – Lacalle (BI)

“Everything” in Argentina is 20% to 30% overvalued, making a financial crisis inevitable, Daniel Lacalle, an economist and fund manager, told Business Insider. A financial crisis has been building in Argentina for years but was hidden by an inflationary bubble which politicians refused to address because they wanted to “avoid the pain,” said Lacalle, chief economist at Tressis SV and a fund manager at Adriza International Opportunities. “Argentina was an accident waiting to happen… Right now GDP [in Argentina] is a fabrication… a complete invention. Obviously the economy will shrink, but it shrinks to reality. It needs to face reality,” he said.

The Argentine peso has been struggling against an increasingly strong dollar. Two interest rate hikes in 24 hours failed to prevent the fall of the currency’s value and the country is seeking billions from the International Monetary Fund, according to reports. The news shocked Argentines who are still traumatized by the last IMF loan which coincided with austerity and the financial crisis in 2001 that caused social and economic chaos. The next crisis could already be underway. “The crisis is already happening. You have seen prices go through the roof, discontent, the economy is not growing as it was supposed to grow,” said Lacalle.

He added that the problems have been building for years but were disguised by a “massive bubble” which came from an “extreme inflow of cheap dollars” during the end of QE and helpful “tailwind” conditions. The tailwind has now reversed thanks to an increasingly strong dollar and the prospect of an interest rate rise from the US Federal Reserve. The result is a crisis which interest rate rises have failed to stave off. It was disguised by politicians who wanted to “avoid the pain of facing the problems, so they tried to indebt their way out of it,” Lacalle said.

Planting a spy in a political campaign may cause a problem or two.

• About That FBI ‘Source’ (Strassel)

Did the bureau engage in outright spying against the 2016 Trump campaign? The Department of Justice lost its latest battle with Congress Thursday when it allowed House Intelligence Committee members to view classified documents about a top-secret intelligence source that was part of the FBI’s investigation of the Trump campaign. Even without official confirmation of that source’s name, the news so far holds some stunning implications. Among them is that the Justice Department and Federal Bureau of Investigation outright hid critical information from a congressional investigation. In a Thursday press conference, Speaker Paul Ryan bluntly noted that Intelligence Chairman Devin Nunes’s request for details on this secret source was “wholly appropriate,” “completely within the scope” of the committee’s long-running FBI investigation, and “something that probably should have been answered a while ago.”

Translation: The department knew full well it should have turned this material over to congressional investigators last year, but instead deliberately concealed it. House investigators nonetheless sniffed out a name, and Mr. Nunes in recent weeks issued a letter and a subpoena demanding more details. Deputy Attorney General Rod Rosenstein’s response was to double down—accusing the House of “extortion” and delivering a speech in which he claimed that “declining to open the FBI’s files to review” is a constitutional “duty.” Justice asked the White House to back its stonewall. And it even began spinning that daddy of all superspook arguments—that revealing any detail about this particular asset could result in “loss of human lives.” This is desperation, and it strongly suggests that whatever is in these files is going to prove very uncomfortable to the FBI.

The bureau already has some explaining to do. Thanks to the Washington Post’s unnamed law-enforcement leakers, we know Mr. Nunes’s request deals with a “top secret intelligence source” of the FBI and CIA, who is a U.S. citizen and who was involved in the Russia collusion probe. When government agencies refer to sources, they mean people who appear to be average citizens but use their profession or contacts to spy for the agency. Ergo, we might take this to mean that the FBI secretly had a person on the payroll who used his or her non-FBI credentials to interact in some capacity with the Trump campaign. This would amount to spying, and it is hugely disconcerting.

“Trump has reshuffled the Grand Chessboard. Persians, though, happen to know a thing or two about chess.”

• The Art of Breaking a Deal (Escobar)

To cut to the chase, the US decision to leave the JCPOA will not open the path to an Iranian nuclear weapon. Supreme Leader Ayatollah Khamenei, who has the last word, repeatedly stressed these are un-Islamic. It will not open the path toward regime change. On the contrary, Iran hardliners, clerical and otherwise, are already capitalizing on their interpretation from the beginning – Washington cannot be trusted. And it will not open the path toward all-out war. It’s no secret every Pentagon war-gaming exercise against Iran turned out nightmarish. This included the fact that the Gulf Cooperation Council, or GCC, could be put out of the oil business within hours, with dire consequences for the global economy.

President Hassan Rouhani, in his cool, calm, collected response, emphasized Iran will remain committed to the JCPOA. Immediately before the announcement, he had already said: “It is possible that we will face some problems for two or three months, but we will pass through this.” Responding to Trump, Rouhani stressed: “From now on, this is an agreement between Iran and five countries … from now on the P5+1 has lost its 1… we have to wait and see how the others react. “If we come to the conclusion that with cooperation with the five countries we can keep what we wanted despite Israeli and American efforts, Barjam [the Iranian description of the JCPOA] can survive.”

Clearly, a titanic internal struggle is already underway, revolving around whether the Rouhani administration – which is actively working to diversify the economy – will be able to face the onslaught by the hard-liners. They have always characterized the JCPOA as a betrayal of Iran’s national interest. [..] So, Trump has reshuffled the Grand Chessboard. Persians, though, happen to know a thing or two about chess.

China will not turn its back on Iran. Neither will Russia.

• China Walks A Fine Line In Iran (Dorsey)

Chinese businessman Sheng Kuan Li didn’t worry about sanctions when he decided in 2010 to invest $200 million in a steel mill in Iran that started producing ingots and billet within months of the lifting of punitive measures against the Islamic republic as part of 2015 international nuclear agreement with Iran. With no operations in the United States, Mr. Li was not concerned about being targeted by the US Treasury. Mr. Li, moreover, circumvented financial restrictions on Iran by funding his investment through what he called a “private transfer,” a money swap that was based on trust and avoided regular banking channels. In doing so, Mr. Li was following standard Chinese practice of evading the sanctions regime by using alternative routes or establishing alternative institutions that were in effect immune.

To be able to continue to purchase Iranian oil while sanctions were in place, China, for example, established the Bank of Kunlun to handle Chinese payments. The Chinese experience in circumventing the earlier sanctions will come in handy with Beijing rejecting US President Donald J. Trump’s renewed effort to isolate Iran and force it to make further concessions on its nuclear and ballistic missiles programs as well as the Islamic republic’s regional role in the Middle East by walking away from the 2015 agreement and reintroducing punitive economic measures. Chinese foreign ministry spokesman Geng Shuang said in response to Mr. Trump’s announcement that the People’s Republic was committed to the deal and would “maintain communication with all parties and continue to protect and execute the agreement fully.”

How can you maintain individualism rules when you see how people interact with social media?

• Capitalism Is Collectivist (CA)

One of the central tenets of late-20th century consumer capitalism is the sanctity of the individual. Margaret Thatcher declared that “There’s no such thing as society, there are individual men and women.” Ayn Rand’s philosophy glamorized anti-social übermenschen who stand against everyone else. Friedrich von Hayek thought mild social welfare policy could be compared to Nazi fascism because they are both “collectivist.” Libertarians promote “individual freedom” with a level of brand discipline that would make Apple proud.

It’s easy to swallow this idea at face value, agreeing that market fundamentalists really do value the inviolability of the individual, while the left believes instead in the collective and the community. After all, market zealots don’t merely try to dismantle policies that benefit the common good. They attack the idea that there can be a common good to begin with. Because leftists talk about social welfare, and supporters of markets put the Individual at the center of their framework, one can forgive those who are seduced by this rhetoric. But it is only rhetoric. In fact, today’s economy is a collectivist enterprise, insofar as collectivism elevates the good of the aggregate and the organization over that of individual human beings.

Get past the well-crafted agitprop, and we see that corporate capitalism is all about subsuming the particular will of an individual to that of the institution. The institutions vary: a monopolistic corporation, a nonprofit charity, an arm of government, the police. But in each, the individual is actually helpless and powerless, with the needs, wants, and will of the larger entity taking priority. Amazon workers work for Amazon: They don’t set the rules of their own workplace, that’s done from above. They don’t own the company, they don’t get to say what it does. And Amazon in particular is a pioneer in sacrificing the sanctity (and dignity) of the individual to the company. The employees serve the corporation, rather than the other way around.

Steve on Marx’s crucial mistake.

• Karl Marx Sacrificed Logic On The Altar Of His Desire For Revolution (Keen)

With both use-value and exchange-value quantitative, there will be a difference between these two “intrinsically incommensurable magnitudes” (Capital I. Ch. 19) that is the source of surplus. Marx’s best statement of this in relation to labor was in Capital I itself: “The daily cost of maintaining it [Labour], and its daily expenditure in work, are two totally different things. The former determines the exchange-value of the labour power, the latter is its use-value. The fact that half a [working] day’s labour is necessary to keep the labourer alive during 24 hours, does not in any way prevent him from working a whole day… The seller of labour power, like the seller of any other commodity, realises its exchange value, and parts with its use-value.”

He thus had a far more satisfying, positive proof as to why Labour was a source of surplus. But was it the only source? What about machinery as well? In the Grundrisse, when he was still enthralled by his new methodology, he applied it correctly to machinery: “It also has to be postulated (which was not done above) that the use-value of the machine [is] significantly greater than its value; i.e. that its devaluation in the service of production is not proportional to its increasing effect on production.” But Gadzooks! This means that machinery can be a source of surplus as well. And if so, then an increasing “organic composition of capital” has no implications for the levels of surplus and profit: they could go up just as well as go down when production became less labour-intensive.

The “Tendency for the Rate of Profit to Fall” disappears. Socialism is no longer inevitable. Marx’s reaction to this shock discovery was to employ verbal gymnastics until such a time that he could fool himself that he had reconciled the two approaches. He then set about fooling everyone else, and finally declared emphatically—and falsely—that: “However useful a given kind of raw material, or a machine, or other means of production may be, though it may cost £150… yet it cannot, under any circumstances, add to the value of the product more than £150”. With this false statement swallowed by Marx’s followers, the belief in the inevitability of socialism continued. Accidents of history led to his Russia’s Bolshevik followers attempting to impose socialism on feudal Russia, and the rest is a very unfortunate history.

What despair looks like.

• Theresa May Turns Brexit Into Role-Reversal Game (G.)

Theresa May has ordered Brexiters to study her “customs partnership” model, and remainers to go over the leavers’ “maximum facilitation” proposal, in a bid to thrash out a compromise between the two sides. Boris Johnson and Philip Hammond – apparently regarded as the “ultras” of leave and remain, respectively – have been sitting out of the cabinet working groups. May’s “customs partnership” will be examined by Brexiters Liam Fox and Michael Gove, teamed with remainer and Cabinet Office minister David Lidington. “Max-fac” will be workshopped by remainers Greg Clark, the business secretary, and Karen Bradley, the Northern Ireland secretary, along with Brexit secretary David Davis, a leaver.

The ministers have until Tuesday to examine their options, but entrenched positions mean a breakthrough is not expected. One cabinet minister told the Guardian it is partly about May wanting to “kick any decisions down the road for as long as she can”. It certainly looks that way, after Andrea Leadsom, the leader of the Commons, announced government business for the next fortnight – minus the EU withdrawal bill, which needs to come back from the Lords but is peppered with amendments that have enraged Brexiters. Labour accused the government of “subverting democracy” with the delay.

Sir John Major, meanwhile, has hit out at Brexiters’ failure to grasp that leaving the customs union would mean a hard border in Ireland and damaging consequences for peace there. The Conservative former PM, speaking at the Irish embassy in London, said without a customs union, border checks would be required by law, especially for food, animals and animal feed. “If so, a physical border seems unavoidable,” he said.

How bubbles implode. Slowly at first.

• Third of British Homeowners Priced Out Of Their Own Property (Ind.)

More than one in three UK homeowners wouldn’t be able to afford their home if it were listed on the property market at today’s value says new research, as the latest data confirms prices stutter upwards. The Halifax House Price Index, a leading measure of the state of the property market, this week released figures showing prices in the last three months were 2.2% higher than in the same period last year, with the average property now coming in at £220,962. The figures support separate findings that suggest that a significant proportion of those who have owned their own home even for a few years would already be priced out of the market if they were to attempt the purchase again, despite historically low mortgage interest rates.

More than one in three of the 3,000 property owners surveyed by MyJobQuote said their home’s value had increased to the point that they would be unable to afford it at the current value – an average of £50,000 more than their original purchase price – or that changes to their financial circumstances would now make it impossible. However, the Halifax data suggests that a downward price trend that had been contained in geographical pockets until recently is becoming more widespread. While the annual figures still show a reasonable increase, month by month, prices are currently dropping nationally by an average of more than 3%. At a time when the property market traditionally enters a stronger summer buying season, the latest data, which follows a 1.6% increase in average prices in March, suggests a rocky state of affairs.

Properties become unused and useless. There is no reason for this to happen. Scorched Earth.

• Greece Sees Spike In Waivers Of Inheritance (K.)

The exhaustion of Greeks’ taxpaying capacity and the difficulties in meeting day-to-day expenses are leading to more and more citizens waiving inheritances, especially when they concern real estate assets. Legal sources say that the phenomenon no longer only concerns people waiving inheritances due to the debts of the deceased (which they would have to pay), but has spread to those wishing to avoid the payment of the inheritance tax and the Single Property Tax (ENFIA), as well as expenses related to property maintenance. According to the latest data available, in 2017 such waivers amounted to 130,000, while the definitive data will be issued soon, according to Justice Ministry sources.

That figure is quite impressive, given that it is almost three times the number of inheritance waivers in 2016 (54,422), and is up by 333 percent on the 2013 figure. This means that the state takes ownership of properties that cannot be utilized, as the fate of those assets remains unknown given that the state’s auction programs are fairly limited. For instance, in the first half of this month, the state will auction just three properties, after 15 assets went under the hammer over the previous fortnight but without any success. It also remains unknown how many assets have come under state ownership as a result of confiscations and property concessions.

What is certain is that all these properties are assets that will drop in value, which will make it even more difficult to find buyers for them in the future. Every beneficiary has the right to waive an inheritance, except for the state. The deadline for waiving an inheritance is four months after the day a will is published. If there is no will, the four-month period starts on the day the person dies. However, if the deceased lived abroad or the heir has their main residence in another country, then the deadline for waiving an inheritance extends to 12 months. The acceptance or waiver has to concern the entire inheritance, not parts of it.

“..the universe is getting bigger quicker than it should be..”

• The Answer To Life, The Universe And Everything Might Be 73. Or 67 (G.)

A crisis of cosmic proportions is brewing: the universe is expanding 9% faster than it ought to be and scientists are not sure why. The latest, most precise, estimate of the universe’s current rate of expansion – a value known as the Hubble constant – comes from , which is conducting the most detailed ever three-dimensional survey of the Milky Way. The data has allowed the rate of expansion to be pinned down to a supposed accuracy of a couple of percent. However, this newest estimate stands in stark contradiction with an independent measure of the Hubble constant based on observations of ancient light that was released shortly after the Big Bang. In short, the universe is getting bigger quicker than it should be.

The mismatch is significant and problematic because the Hubble constant is widely regarded as the most fundamental number in cosmology. “The fact the universe is expanding is really one of the most powerful ways we have to determine the composition of the universe, the age of the universe and the fate of the universe,” said Professor Adam Riess, at the Space Telescope Science Institute in Baltimore, Maryland, who led the latest analysis. “The Hubble constant quantifies all that into one number.” In an expanding universe, the further away a star or galaxy is, the quicker it is receding. Hubble’s constant – proposed by Edwin Hubble in the 1920s – reveals by how much.

So one approach to measuring it is by observing the redshifts of bright supernovae, whose light is stretched as the very space it is travelling through expands. A challenge, though, is pinpointing the exact distance of these stars. [..] The new data puts the Hubble constant at 73, which translates to galaxies moving away from us 73km per second faster for each additional megaparsec of distance between us and them (a megaparsec is about 3.3m light-years). However, a separate estimate of Hubble comes from observations of the Cosmic Microwave Background, relic radiation that allows scientists to calculate how quickly the universe was expanding 300,000 years after the big bang.

“The cosmic microwave background is the light that is the furthest away from us that we can see,” said Riess. “It’s been travelling for 13.7bn years… and it’s telling us how fast the universe was expanding when the universe was a baby.” Scientists then use the cosmic equivalent of a child growth chart (a computational model that roughly describes the age and contents of the universe and the laws of physics) to predict how fast the universe should be expanding today. This gives a Hubble value of 67.

Mass extinction and mass insanity.

• Palm Oil Producers Are Wiping Out Orangutans (G.)

These extraordinary creatures are our closest relatives, sharing 97% of our DNA. Their similarity to us is astonishing. They are intelligent, inquisitive, smile and show empathy. They even laugh when tickled, like us, when most other animals have evolved to be ticklish only in an itchy, irritating sort of way as a protective reflex. Encountering orangutans in the wild is like nothing else I’ve experienced. They once thrived in Indonesia’s lush, green rainforests but over the last 50 years they have been forced from their home and killed. In the last 16 years alone, 100,000 Bornean orangutans have been lost. All three species – Bornean, Sumatran and the Tapanuli, a species discovered only last year – are now on the critically endangered list.

The reason? It started in the 1960s as forests were logged for timber, but now it’s palm oil. Global demand for palm oil has increased six-fold since 1990. It’s in half of all packaged products on supermarket shelves and to avoid it completely would be incredibly tricky. Although palm oil in food can no longer be described simply as vegetable oil and must be clearly labelled (thanks to an EU directive in 2014), there is no such law for products such as soap, shampoo and other cosmetics. The supermarket Iceland’s decision to ditch palm oil from all of its own-brand products was, it says, a response to the palm oil industry’s catastrophic failure to halt deforestation and deal with the problem.

Even the Roundtable on Sustainable Palm Oil (RSPO) – the industry body charged with ensuring registered companies trade only in oil that has not come from deforestation – is failing spectacularly. Just over a week ago, Greenpeace exposed massive rainforest destruction in Papua allegedly caused by palm oil companies that are subsidiaries of a current RSPO member. Buying from them were big multinationals including Unilever, Nestlé, Pepsico and Mars. The companies concerned have responded by saying they are taking Greenpeace’s claims seriously and taking appropriate action. But if Greenpeace’s assertions are correct, no company can claim the palm oil it uses is 100% “sustainable”.

Debt Rattle May 10 2018

May 102018

May 10, 2018 Posted by Raúl Ilargi Meijer at 9:24 am Finance Tagged with: Argentina, bullshit jobs, debt bomb, Deep State, Democrats, IMF, Iran, Israel, Polanyi, RBS, Syria, Trump, Turkey 9 Responses »

Paul Gauguin Road in Tahiti 1891

• Beware of the Coming Economic Debt Bomb (Tanous)

• Argentina Looks To Be Headed For Another Economic Storm (CNBC)

• At Last, A Reason To Celebrate: House Prices Are Falling (G.)

• RBS Reaches $4.9 Billion Deal To Settle US Mortgage Bond Probe (R.)

• The Deep State First (Stockman)

• Turkey Detains Dozens Of Air Force Personnel Over Gulen Links (R.)

• Did Putin Green-Light Tonight’s Massive Israeli Strikes On Syria? (ZH)

• Trump Welcomes Home Three Americans Released By North Korea (G.)

• Democrats’ Lead Is Slipping In Generic Ballot Poll (Hill)

• Is Capitalism a Threat to Democracy?

• Bullshit Jobs: Why They Exist And Why You Might Have One (Vox)

“..over half of all personal income taxes will be required just to service the national debt.”

• Beware of the Coming Economic Debt Bomb (Tanous)

In 2009, the year President Obama took office, the national debt held by the public was $7.27 trillion. At the end of fiscal 2016, that had soared to approximately $14 trillion. Given that our marketable debt doubled from 2009 to 2016, it’s remarkable that the annual cost of the interest on the debt rose far less, from $185 billion to $223 billion. The long march of rising rates that began recently is a dramatic reversal after nearly 40-years of declining interest rates. The new trend portends a return to more historic rates. You may be asking: what are the historic rates? We calculate that the average rate paid on the federal debt over the last 30 years was close to 5%. The Congressional Budget Office (CBO) has just raised its estimate that debt held by the public will rise to $17.8 trillion in 2020.

Some economists believe that the figure will be much higher. For our exercise though, let’s stick with the CBO estimate. We are postulating that the interest rate on our national debt may return to the long-term, 30-year average of 5%. Note, too, that Treasury debt rolls over every 3 to 4 years so the maturing bonds at low interest rates will be refinanced at the then current higher rates. Let’s do the math together. Take the CBO estimate of debt held by the public of $17.8 trillion in 2020, a 5% average interest on that amount comes to annual debt service of $891 billion, an unfathomable amount. (In 2017, interest on the debt held by the public was $458.5 billion, itself a scary number.)

In its current report, the CBO added: “It also reflects significant growth in interest costs, which are projected to grow more quickly than any other major component of the budget.” Here’s the danger: • According to CBO, individual income taxes produced $1.6 trillion in revenue in fiscal year 2017. • Under this 2020 scenario, over half of all personal income taxes will be required just to service the national debt. • Annual debt service in 2020 will exceed our newly increased defense budget of $700 billion in FY 2018. • Annual debt service would exceed our Social Security obligations.

[The IMF] “..admitted shortly after the intervention that its support to keep the peso’s peg against the dollar prolonged the crisis in the country.”

• Argentina Looks To Be Headed For Another Economic Storm (CNBC)

Argentina has started talks with the IMF seeking financial rescue once again, as inflation soars and the currency sinks. Buenos Aires looks to be going through another economic nightmare, with prices rising rapidly while the Argentine peso drops. The central bank announced last week another increase in rates to 40% — as the 12-month inflation rate hit 25.4%, above its 15% target. At the same time, since the start of the year, the peso is down by more than 20% against the U.S. dollar. [..] Asking for help from the Fund is a contentious issue for the country. Back in 2001, Argentina defaulted on $132 billion of foreign debt. The Washington-based institution, which was helping the country at the time, admitted shortly after the intervention that its support to keep the peso’s peg against the dollar prolonged the crisis in the country.

Following Macri’s announcement Tuesday, several people protested against a new IMF intervention, still traumatized by the economic collapse at the start of the century, Reuters reported. “The IMF has a terrible reputation among Argentinians, and so this is a big political gamble for the government,” Fiona Mackie, regional director for Latin America at the Economist Intelligence Unit, told CNBC via email. “At present, though, (the government) clearly sees the need to regain the confidence of markets as more pressing, and is hoping that its program of adjustment gets back on track in time for the presidential election late next year,” she added.

“The Germans are right. Ever-rising house prices are a curse. They are bad for social mobility. They are bad for young people. And they are bad for the economy. ”

• At Last, A Reason To Celebrate: House Prices Are Falling (G.)

The housing market is dead. Britain’s biggest mortgage lender, the Halifax, says that prices fell in April by 3.1%, the biggest monthly drop in almost eight years. Newspapers bury this disastrous news way back in their editions for fear that it will spread gloom and despondency. We need to wean ourselves off this way of thinking. Falling house prices are not disastrous, and only in a country with such a perverted relationship with bricks and mortar could they be seen as such. In Germany, they scratch their heads in bemusement when they hear Britons boast of how the value of their house has soared. The Germans are right. Ever-rising house prices are a curse. They are bad for social mobility. They are bad for young people. And they are bad for the economy.

The billions that are spent pushing up property prices could be more productively invested elsewhere. Imagine for a second that the next time you went to the train station the rail operating company had unexpectedly cut fares by 5%. Or that when doing your weekly shop you discovered that the supermarket had slashed your normal bill by £10. Would you think this was an unwelcome development? Daft question. Of course you would be happy, because your money would go further. Conversely, you would be less than chuffed to find more of your pay being spent on getting to work or putting food on the table. That’s why there are no headlines in the papers screaming “Boom-boom Britain: joy for commuters as rail fares rise by 10% for third year in a row”, or “Good news for families as supermarkets add £10 a week to the average shop”.

The papers stand up for their readers when they think they are being gouged by train companies and supermarkets. They stick up for buyers rather than sellers. But different rules apply to property. If the average house price had risen rather than fallen by £7,000 in April, that would have been front-page news and hailed as a sign that all was well with the economy. The papers tend to side with owner-occupiers rather than the buyers of property getting the rough end of the deal. This fetishisation of rising house prices is relatively recent. For the first 25 years after the second world war, a combination of mass housebuilding and strict controls on credit meant that the cost of property rose only modestly.

But since 1970, financial deregulation, much lower levels of housebuilding and a tax system heavily weighted in favour of owner-occupation have meant demand for housing in parts of the country has tended to outstrip supply. There have been four big house-price booms – the early 1970s, the late 80s, the mid 00s and the mid 10s. None of them have ended well.

No criminal charges.

• RBS Reaches $4.9 Billion Deal To Settle US Mortgage Bond Probe (R.)

The British state-backed bank said that $3.46 billion of the proposed civil settlement will be covered by existing provisions and the bank will take a $1.44 billion incremental charge in 2018’s second quarter to cover the rest. The accord would resolve a major issue that has weighed on the company’s share price and complicated the UK government’s plan to sell down its more than 70 percent stake in the bank. RBS Chief Executive Ross McEwan called the deal a “milestone.” “Removing the uncertainty over the scale of this settlement means that the investment case for this bank is much clearer,” he said in a statement.

The U.S. Attorney’s Office in Massachusetts, which led the probe, confirmed it had reached an agreement in principle with RBS that would resolve potential civil claims related to mortgage-backed securities that were issued from 2005 to 2008. “Further details remain to be negotiated, however, before a formal agreement can be reached,” the office said. The implosion of markets for risky residential mortgage-backed securities and related derivatives contributed to the 2008 global financial crisis and prompted a series of investigations by authorities including the Justice Department. The U.S. Attorney’s Office in Massachusetts had also been conducting a criminal investigation into RBS and former employees who were involved in structuring and selling the securities.

But the settlement that RBS and the office disclosed on Thursday was only civil in nature, signaling no criminal charges were likely to result. RBS previously agreed in July 2017 to pay $5.5 billion to resolve a lawsuit by the Federal Housing Finance Agency, the conservator for Fannie Mae and Freddie Mac, claiming it misled the U.S. mortgage giants into buying mortgage-backed securities. It resolved similar claims by the National Credit Union Administration related to mortgage-backed securities RBS sold to credit unions that later failed for $1.1 billion in 2016.

“The mere threat of a military attack from the White House is madness because it arises from blatant lies that have absolutely nothing to do with US national security..”

• The Deep State First (Stockman)

At his so-called Cabinet meeting this morning, the Donald basically threatened Iran with annihilation if it does what 15 other signatories to the nuclear non-proliferation treaty (NPT) do every day: Namely, increase production of industrial grade nuclear fuel (3.5%-5.0% purity) at its enrichment plant at Natanz—which, in any event, is crawling with IAEA inspectors. Moreover, it really doesn’t matter whether Trump was play-acting in the style of Art of the Deal or that the JPAOC could be improved. The mere threat of a military attack from the White House is madness because it arises from blatant lies that have absolutely nothing to do with US national security. Nor, for that matter, the security of any other country in the region, including Saudi Arabia and Israel.

The real purpose of the Donald’s missile-rattling is nothing more than helping Bibi Netanyahu keep his coalition of right wing religious and settler parties (Likud, United Torah Judaism, Shas, Kulanu and the Jewish Home) together, thereby maintaining his slim 61-vote majority in the 120-seat Knesset. Netanyahu’s malefic political glue is the utterly false claim that Iran is an “existential threat” to Israel because it is hell-bent on getting the bomb. But that’s where the whopper comes in. It amounts to the ridiculous postulate that Iran is so fiendishly evil that if it is involved in the nuclear fuel cycle in any way, shape or form – presumably even just operating a uranium mine – it is only a matter of months before it will have a bomb.

As a matter of record, of course, Netanyahu has been saying this since the early 1990s and he has always been wrong because there were never any facts or logic to support his blatant fear-mongering.

Madman,

• Turkey Detains Dozens Of Air Force Personnel Over Gulen Links (R.)

Turkish police detained 65 suspects on Thursday in an operation targeting air force personnel accused of links to the U.S.-based preacher whom Ankara says orchestrated an attempted coup in 2016, state-run Anadolu news agency said. Prosecutors issued arrest warrants for a total 96 people, of which 91 were from the air force, and police were still seeking the remaining suspects in an operation focused on the western city of Izmir and spread across 15 provinces, it said. The suspects were said to have ties to the cleric Fethullah Gulen, whose network is accused of being behind the failed putsch in July 2016, during which 250 people were killed. Gulen has denied involvement.

In a separate operation, an Ankara prosecutor on Thursday issued detention warrants for 93 employees of a private tutoring center that was previously closed down on suspicion of links to Gulen’s network, Anadolu said. Turkish authorities have detained 160,000 people and dismissed nearly the same number of civil servants since the failed military intervention, the U.N. human rights office said in March. Among those detained, more than 50,000 have been formally charged and kept in jail during their trials.

Hmmm…

• Did Putin Green-Light Tonight’s Massive Israeli Strikes On Syria? (ZH)

Just off a 10-hour visit with Russian President Vladimir Putin in Moscow, and less than a day after Trump pulled out of the Iran nuclear deal, Israeli Prime Minister Benjamin Netanyahu said on Wednesday he doesn’t expect Russia to act against Israeli forces as they continue exchanging fire with Syria. It appears the meeting wrapped up at the very moments a major escalation began along the Golan Heights, with both Syria and Israel trading blame for an initial attack which quickly escalated into Israeli cruise missile launches and shelling on targets in southern Syria and notably, on Damascus itself. The question remains, did Putin give Netanyahu the green light for tonight’s events?

If it wasn’t clear over the past weeks and months of unprovoked Israeli strikes on Syria—ostensibly to roll back Iranian troop presence—then it should be very clear by now that Syria, Israel, and Iran are now in a state of war and all signs point to a continued intensification of the conflict. And crucially, there’s currently no sign that Russia came to the aid of its close ally as rockets rained down on Damascus overnight. Russia has routinely looked the other way while Israel has conducted, by its own admission, over one hundred major strikes on Syria—most of which have come after Russian intervention on behalf of Assad in 2015. As Reuters reported late in the day Wednesday, Netanyahu told reporters just before departing Moscow: “Given what is happening in Syria at this very moment, there is a need to ensure the continuation of military coordination between the Russian military and the Israel Defence Forces.”

The Russians and Israelis coordinate their actions through a direct military hotline intended to avoid accidental clashes which could lead to escalation between the two countries. A reportedly “upbeat” Netanyahu further said, “”In previous meetings, given statements that were putatively attributed to – or were made by – the Russian side, it was meant to have limited our freedom of action or harm other interests and that didn’t happen, and I have no basis to think that this time will be different.” Thus it appears Israel may have been given a green light by Putin to engage targets in Syria, however, at this point it is unclear what limitations or restrictions Putin may have issued, if any at all.

Victory.

• Trump Welcomes Home Three Americans Released By North Korea (G.)

Three Americans released by North Korea have landed in the US under cover of darkness, with Donald Trump waiting on the tarmac to greet their plane. The three men emerged from a US government plane, flashing peace signs high above their heads. A huge US flag hung between two fire trucks served as a backdrop against the night sky. “I want to thank Kim Jong-un,” Trump said. “I think he wants to do something and bring that country into the real world.” “We didn’t think this was going to happen, and it did. It was very important to all of us,” he said, referring to the prisoner release. “The true honour will be if we have a victory in getting rid of nuclear weapons.” The US secretary of state, Mike Pompeo, flew to Pyongyang for a surprise one-day visit on Wednesday, when he met the North Korean leader and secured the release of the three men.

What do Democrats stand for?

• Democrats’ Lead Is Slipping In Generic Ballot Poll (Hill)

The lead held by Democrats over Republicans on generic ballot polls ahead of the 2018 midterm elections is beginning to slip, a new CNN poll suggests. Overall, 31% of respondents in a poll released Wednesday told CNN that they believe the country would be better off with Democrats in control of Congress, while 30% said Republicans should hold the reins. However, the largest proportion of respondents, at 34%, said it makes no difference to them who is in charge. Among registered voters asked whether they would vote Democratic or Republican in their congressional district if the elections were held today, Democrats had a three-point advantage, at 44% to 41%, which is within the poll’s margin of error.

Democrats have seen a steady decline in their advantage over Republicans in recent months, according to CNN polling, falling from a 16-point advantage in February to a 6-point one in March, to just a 3-point lead this week, roughly six months away from the midterm elections. An ABC News/Washington Post poll similarly found last month that Democrats’ lead over Republicans among registered voters was only 4 points, at 47% to 43%, down from a 12-point lead the poll found Democrats held in January. Democrats still have an edge in enthusiasm, according to CNN. Among respondents who said they are excited to vote in November, more plan to vote Democratic than Republican, at 53% to 41%.

But enthusiasm does seem to be growing among GOP voters. According to the CNN poll, 44% of Republican and Republican-leaning registered voters said they were “very enthusiastic” about voting, which is a jump from 36% in March. [..] President Trump’s own job approval has increased recently, with his approval rating at 41% in the CNN poll and his approval over his handling of the economy at 52%.

On Polanyi.

• Is Capitalism a Threat to Democracy?

In a sweeping, angry new book, “Can Democracy Survive Global Capitalism?” (Norton), the journalist, editor, and Brandeis professor Robert Kuttner champions Polanyi as a neglected prophet. Like Polanyi, he believes that free markets can be crueller than citizens will tolerate, inflicting a distress that he thinks is making us newly vulnerable to the fascist solution. In Kuttner’s description, however, today’s political impasse is different from that of the nineteen-thirties. It is being caused not by a stalemate between leftist governments and a reactionary business sector but by leftists in government who have reneged on their principles.

Since the demise of the Soviet Union, Kuttner contends, America’s Democrats, Britain’s Labour Party, and many of Europe’s social democrats have consistently tacked rightward, relinquishing concern for ordinary workers and embracing the power of markets; they have sided with corporations and investors so many times that, by now, workers no longer feel represented by them. When strongmen arrived promising jobs and a shared sense of purpose, working-class voters were ready for the message.

[..] Polanyi starts “The Great Transformation” by giving capitalism its due. For all but eighteen months of the century prior to the First World War, he writes, a web of international trade and investment kept peace among Europe’s great powers. Money crossed borders easily, thanks to the gold standard, a promise by each nation’s central bank to sell gold at a fixed price in its own currency. This both harmonized trade between countries and stabilized relative currency values. If a nation started to sell more goods than it bought, gold streamed in, expanding the money supply, heating up the economy, and raising prices high enough to discourage foreign buyers—at which point, in a correction so smooth it almost seemed natural, exports sank back down to pre-boom levels.

The trouble was that the system could be gratuitously cruel. If a country went into a recession or its currency weakened, the only remedy was to attract foreign money by forcing prices down, cutting government spending, or raising interest rates—which, in effect, meant throwing people out of work. “No private suffering, no restriction of sovereignty, was deemed too great a sacrifice for the recovery of monetary integrity,” Polanyi wrote. The system was sustainable politically only as long as those whose lives it ruined didn’t have a say. But, in the late nineteenth and early twentieth centuries, the right to vote spread. In the twenties and thirties, governments began trying to protect citizens’ jobs from shifts in international prices by raising tariffs, so that, in the system’s final years, it hardened national borders instead of opening them, and engendered what Polanyi called a “new crustacean type of nation,” which turned away from international trade, making first one world war, and then another, inevitable.

More Graeber. Most jobs are bullshit.

• Bullshit Jobs: Why They Exist And Why You Might Have One (Vox)

Corporate lawyers. Most corporate lawyers secretly believe that if there were no longer any corporate lawyers, the world would probably be a better place. The same is true of public relations consultants, telemarketers, brand managers, and countless administrative specialists who are paid to sit around, answer phones, and pretend to be useful. A lot of bullshit jobs are just manufactured middle-management positions with no real utility in the world, but they exist anyway in order to justify the careers of the people performing them. But if they went away tomorrow, it would make no difference at all. And that’s how you know a job is bullshit: If we suddenly eliminated teachers or garbage collectors or construction workers or law enforcement or whatever, it would really matter. We’d notice the absence.

But if bullshit jobs go away, we’re no worse off. [..] We’re all taught that people want something for nothing, which makes it easy to shame poor people and denigrate the welfare system, because everyone is lazy at heart and just wants to mooch off other people. But the truth is that a lot of people are being handed a lot of money to do nothing. This is true for most of these middle-management positions I’m talking about, and the people doing these jobs are completely unhappy because they know their work is bullshit. I think most people really do want to believe that they’re contributing to the world in some way, and if you deny that to them, they go crazy or become quietly miserable.

[..] You expect this outcome with a Soviet-style system, where you have to have full employment so you make up jobs whether a need exists or not. But this shouldn’t happen in a free market system. I think one of the reasons is there’s huge political pressure to create jobs coming from all directions. We accept the idea that rich people are job creators, and the more jobs we have, the better. It doesn’t matter if those jobs do something useful; we just assume that more jobs is better no matter what. We’ve created a whole class of flunkies that essentially exist to improve the lives of actual rich people. Rich people throw money at people who are paid to sit around, add to their glory, and learn to see the world from the perspective of the executive class.

Debt Rattle May 9 2018

May 092018

May 9, 2018 Posted by Raúl Ilargi Meijer at 9:10 am Finance Tagged with: Airbus, Argentina, debt slaves, Greece, IMF, Iran, marijuana, palm oil, Pompeo, rainforest, retail, Single Market, Trump 5 Responses »

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.

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.

“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.

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.”

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.

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.

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.

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.

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.

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.

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.

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.”

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%.

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.”

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)”.

Debt Rattle May 7 2018

May 072018

May 7, 2018 Posted by Raúl Ilargi Meijer at 8:51 am Finance Tagged with: Argentina, China, collapse, collusion, Congress, Conoco, emerging markets, Greece, Merkel, middle class, Mueller, poverty, Trump 10 Responses »

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.

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.

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.

“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.

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.”

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.”

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.

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.

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.

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.”

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.

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.

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.

Debt Rattle May 5 2018

May 052018

May 5, 2018 Posted by Raúl Ilargi Meijer at 9:11 am Finance Tagged with: Argentina, BLS, business cycle, China, gorilla, Monsanto, mortgage prisoners, Mueller, OPCW, recession, Skripal, Trump, unemployment 4 Responses »

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.

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.

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.

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”.

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.

“..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.”

“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.”

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?

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”.

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.

“..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.

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.

Debt Rattle March 5 2016

Mar 052016

March 5, 2016 Posted by Raúl Ilargi Meijer at 9:42 am Finance Tagged with: Argentina, Brazil, China, Greece, NIRP, recession, refugees, Syria, Turkey, VW 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.

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.

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.

“..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.

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.

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.

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.”

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.

“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.

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.”

“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.”

“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.

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.

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).

“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.

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.

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.

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.”

Debt Rattle July 18 2015

Jul 182015

July 18, 2015 Posted by Raúl Ilargi Meijer at 10:26 am Finance Tagged with: Argentina, China, El Nino, euro, Greece, Ireland, Schäuble, troll, Tsipras, war 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.

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.

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.

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.”

“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.

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.”

“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.

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.

“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.

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.

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.

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.

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.

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.

“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?

“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.

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.

“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.

Debt Rattle Aug 8 2014: Obama Argentina Italia Ebola Obama

Aug 082014

August 8, 2014 Posted by Raúl Ilargi Meijer at 1:26 pm Finance Tagged with: Argentina, democracy, foreign policy, Italy, Obama, Singer 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.

• 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.”

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)?

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.

“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%.

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.

• 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.

• 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.

• 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.”

• 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.

• 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.

• 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.

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.

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.

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

“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.

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.”

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.”

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.

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.

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