Jul 132015
 
Share on FacebookTweet about this on TwitterShare on Google+Share on LinkedInShare on TumblrFlattr the authorDigg thisShare on RedditPin on PinterestShare on StumbleUponEmail this to someone


NPC Fordson tractor exposition at Camp Meigs, Washington DC 1922

The World’s Awash In $5 Trillion In Excess Liquidity (Bloomberg)
Greece Capitulates to Creditors’ Demands to Cling to Euro (Bloomberg)
Greek Fury Meets Resignation at Demands for Concessions
Greece Wins Euro Debt Deal – But Democracy Is The Loser (Paul Mason)
How The Greeks Could Have The Last Laugh: Adopt The Renminbi (David McWilliams)
The Euro – A Fatal Conceit (MM)
A Greek Exit Could Not Be More Costly Than The Current Path (Mitchell)
Dr Schäuble’s Plan for Europe: Do Europeans Approve? (Yanis Varoufakis)
Killing the European Project (Paul Krugman)
Germany Showing ‘Lack Of Solidarity’ Over Greece: Stiglitz (AFP)
How Fascist Capitalism Functions: The Case Of Greece (Zuesse)
Russia Considering Direct Fuel Deliveries To Help Greece (AFP)
Greek Government’s Majority In Question, Says Labor Minister (Reuters)
Was This Humiliation Of Greeks Really Necessary? (Helena Smith)
Greek Deal Makes Versailles Look Like A Picnic – Steve Keen (BallsRadio)
Greece Today, America Tomorrow? (Ron Paul)
Chinese Buyers Turn Kiwis Into Renters In Their Own Country (NZ Herald)
China’s Rich Seek Shelter From Stock Market Storm In Foreign Property (Guardian)
How China’s Stock-Market Muddle May Spread (MarketWatch)
China’s Market-Tracking ETFs Roiled By Share Suspensions (FT)

Zombie money.

The World’s Awash In $5 Trillion In Excess Liquidity (Bloomberg)

If you’re worried the Federal Reserve will topple the debt markets, consider this: there’s rarely been so much cash available in the world to buy assets such as bonds. While the prospect of higher U.S. interest rates sent bonds worldwide to the biggest-ever quarterly loss, JPMorgan Chase says the excess money in the global economy – about $5 trillion – will support demand and bolster asset prices. Since 1990, there have been four periods when households, companies and investors held such a surplus. Each time, markets rallied. “The world is awash with unprecedented excess liquidity,” said Nikolaos Panigirtzoglou, a strategist at JPMorgan, the top-ranked firm for U.S. fixed-income research by Institutional Investor magazine. “Fed tightening won’t change that.”

The cash cushion has surged in recent years as the world’s central banks injected trillions of dollars into the financial system to jump-start demand after the credit crisis. Now all the extra money that’s sloshing around may help extend the three-decade bull market in bonds even as a stronger U.S. economy pushes the Fed closer to boosting rates from rock-bottom levels. Bonds suffered a setback last quarter as signs of inflation in both the U.S. and Europe sparked an exodus after yields fell to historical lows. They lost 2.23%, the most since at least 1996, index data compiled by Bank of America show. This month, worries over Greece’s financial ruin and China’s stock-market meltdown have pushed investors back into the safety of debt securities. Yet Wall Street is still bracing for a selloff, especially in U.S. Treasuries, once the Fed moves to raise rates that it’s held near zero since 2008.

The U.S. 10-year note, the benchmark used to determine borrowing costs for governments, businesses and consumers, yielded 2.45% as of 9:12 a.m. Monday in London. Forecasters surveyed by Bloomberg say the yield will approach 3% within a year. Although JPMorgan provided plenty of caveats, the company’s analysis suggests it might not play out that way. Helped by bond-buying stimulus in the U.S., Japan and Europe, and increased bank lending in emerging markets, the amount of cash in circulation now totals $67 trillion globally, compared with about $62 trillion of estimated demand, data compiled by the bank show. That happens when the amount of money in the world exceeds the value of the global economy, financial assets and the cash that individuals hoard in response to risk.

Read more …

How real is the deal?

Greece Capitulates to Creditors’ Demands to Cling to Euro (Bloomberg)

Prime Minister Alexis Tsipras surrendered to European demands for immediate action to qualify for up to €86 billion euros ($95 billion) of aid Greece needs to stay in the euro. After a six-month offensive against German-inspired austerity succeeded only in deepening his country’s economic mess and antagonizing his European counterparts, there was no face-saving compromise on offer for Tsipras at a rancorous summit that ran for more than 17 hours. “Trust has to be rebuilt, the Greek authorities have to take on responsibility for what they agreed to,” German Chancellor Angela Merkel said after the meeting ended just before 9 a.m. in Brussels Monday. “It now hinges on step-by-step implementation of what we agreed.”

The agreement shifts the spotlight to the parliament in Athens, where lawmakers from Tsipras’s Syriza party mutinied when he sought their endorsement two days ago for spending cuts, pensions savings and tax increases. They have until Wednesday to pass into law key creditor demands, including streamling value-added taxes, broadening the tax base to increase revenue and curbing pension costs. While the summit agreement averted a worst-case outcome for Greece, it only established the basis for negotiations on an aid package, which would also include €25 billion to recapitalize its weakened financial system.

Read more …

“The government is trying to get the least bad, the least catastrophic deal..”

Greek Fury Meets Resignation at Demands for Concessions

Greek officials and media reacted with fury to the latest European demands for spending cuts and tax hikes, with some resorting to imagery from World War II and the U.S.- led war on terror to describe their predicament. Greece is being “waterboarded” by euro-area leaders, Nikos Filis, the parliamentary spokesman for the ruling Coalition of the Radical Left, or Syriza, said on ANT1 TV Monday morning. He accused Germany of “tearing Europe apart” for the third time in the past century. Newspapers leveled similar allegations at Germany, which led the hard-line camp at all-night talks that ended with an agreement on the terms needed to open a third bailout for Europe’s most-indebted country. EC President Donald Tusk, announcing the deal after 17 hours of negotiations, said it would entail “strict conditions” and end the threat of Greece exiting the euro.

“The government is trying to get the least bad, the least catastrophic deal,” Labor Minister Panos Skourletis said on ERT TV. “Talk of a Grexit shouldn’t take place when Greece has its back to the wall.” The tone of Greek reaction illustrates the obstacles for Prime Minister Alexis Tsipras as he seeks domestic approval for a deal that creditors called the country’s last chance to stay in the euro. European leaders insisted Greece’s parliament now approve measures including placing state assets in a dedicated fund in exchange for as much as €86 billion in new financing. “The agreement is difficult, but we averted the transfer of public property abroad, we averted the plan to cause a credit crunch and the collapse of the financial system,” Tsipras said after the summit.

“We put up a hard fight for the past six months and we fought to the end in order to get the best out of it, to get a deal which will allow the country to stand on its feet and the Greek people to keep fighting.” According to the initial text for a deal presented to European leaders, Greece needs to pass laws by July 15 to raise sales taxes, cut pension payments, alter the bankruptcy code and enforce automatic spending cuts if the next budget misses its targets. A key sticking point was the involvement of the IMF, which Tsipras at one point called “criminal.” Those measures will be difficult for Tsipras to sell to a public that voted decisively in a July 5 referendum to reject an earlier austerity package that was less onerous than the measures under discussion now. The premier, who was elected on an anti-austerity platform in January, also faces the challenge of keeping Syriza together through upcoming parliamentary votes.

Read more …

“Everybody on earth with a smartphone understands what happened to democracy last night.”

Greece Wins Euro Debt Deal – But Democracy Is The Loser (Paul Mason)

The eurozone took itself to the brink last night, and we will only know for certain later whether its reputation and cohesion can survive this. The big powers of Europe demonstrated an appetite to change the micro-laws of a smaller country: its bakery regulations, the funding of its state TV service, what can be privatised and how. Whether inside or outside the euro, many small countries and regions will draw long-term negative lessons from this. And from the apparently cavalier throwing of a last-minute Grexit option into the mix by Germany, in defiance of half the government’s own MPs. It would be logical now for every country in the EU to make contingency plans against getting the same treatment – either over fiscal policy or any of the other issues where Brussels and Frankfurt enjoy sovereignty.

Parallels abound with other historic debacles: Munich (1938), where peace was won by sacrificing the Czechs; or Versailles (1919), where the creditors got their money, only to create the conditions for the collapse of German democracy 10 years later, and their own diplomatic unity long before that. But the debacles of yesteryear were different. They were committed by statesmen. People who knew what they wanted and miscalculated. It was hard to see last night what the rulers of Europe wanted. What they’ve arguably got is a global reputational disaster: the crushing of a left-wing government elected on a landslide, the flouting of a 61 per cent referendum result. The EU – a project founded to avoid conflict and deliver social justice – found itself transformed into the conveyor of relentless financial logic and nothing else.

Ordinary people don’t know enough about the financial logic to understand why this was always likely to happen: bonds, haircuts and currency mechanisms are distant concepts. Democracy is not. Everybody on earth with a smartphone understands what happened to democracy last night.

Read more …

Nice!

How The Greeks Could Have The Last Laugh: Adopt The Renminbi (David McWilliams)

The other day Enda Kenny speculated aloud that Greece should follow Ireland. Michael Noonan thinks that too. Apparently, they should do what we did and, if Greece did, there’d be no problems. Maybe we should examine this proposal because what is on the table for Greece right now makes little sense. Is there an alternative for an inventive Greece – one that might follow Ireland’s blueprint? Before we answer that, let’s examine what’s on the table for Greece right now. The German/EU offer maintains that the price for staying in the Euro is possibly 10 to 15 years of austerity with no alternative industrial model. There should be no debt forgiveness and there should be years of low to zero growth as the Greeks grind out a meagre existence largely from tourist euros.

Because there is no capital, this will occur at a time when Greek tourist assets will plummet and those that are worth something, such as tourist hotels, will be bought off by German and other investors for half nothing. In time, the Greeks will end up as workers in the tourist industry, working for foreign owners of the assets. The profits from these assets will be repatriated back to Germany, boosting the German current account surplus, while the wages for this labour will be spent in Greece on imported goods, which may or may not be made in Germany. Basically Jamaica with ouzo! Over time, the Greek standard of living will remain low and Greek people with talent will have no choice but to emigrate. There may be some pick-up in the economy but as long as there is huge debt-servicing costs, this pick-up will largely go to servicing past debts.

If there is some new EU loan made available to Greece, this will simply be borrowing from tomorrow not to pay for today but to pay for yesterday. The Greeks should do all this in order to have the privilege of paying for this stuff in the Euro. It seems a high price to pay for a currency, don’t you think? But the alternative is, according to the EU, to revert to the drachma, watch the currency fall, watch the drachma value of Greece euro debts rise, allow the national balance sheet to implode and ensure that the banks collapse. In other words, flirt with short-term Armageddon.

[..] Okay, but how can Greece get lots and lots of foreign investment into the country while still using a currency that is strong and in so doing, change irrevocably their economy? How can they move onto a higher productivity level without all these debt repayments? They can do it by adopting the Chinese Renminbi! Yes, you read it right. There’s no point for the Greeks in going back to the drachma if that will destroy its banking system. Why not do what Ireland has done over the years and adopt some other country’s currency? What’s in it for China? Everything!

Read more …

“Imagine that the euro had never been introduced … do you seriously think that we would have a crisis as deep as what we have seen over the past seven years in Europe?”

The Euro – A Fatal Conceit (MM)

Imagine that the euro had never been introduced and we instead had had freely floating European currencies and each country would have been free to choose their own monetary policy and fiscal policy. Some countries would have been doing well; others would have been doing bad, but do you seriously think that we would have a crisis as deep as what we have seen over the past seven years in Europe? Do you think Greek GDP would have dropped 30%? Do you think Finland would have seen a bigger accumulated drop in GDP than during the Great Depression or during the banking crisis of 1990s? Do you think that European taxpayers would have had to pour billions of euros into bailing out Southern European and Eastern European governments? And German and French banks!

Do you think that Europe would have been as disunited as we are seeing it now? Do you think we would have seen the kind of hostilities among European nations as we are seeing now? Do you think we would have seen the rise of political parties like Golden Dawn and Syriza in Greece or Podemos in Spain? Do you think anti-immigrant sentiment and protectionist ideas would have been rising across Europe to the extent it has? Do you think that the European banking sector would have been quasi paralyzed for seven years? And most importantly do you think we would have had 23 million unemployed Europeans? The answer to all of these questions is NO!

We would have been much better off without the euro. The euro is a major economic, financial, political and social fiasco. It is disgusting and I blame the politicians of Europe and the Eurocrats for this and I blame the economists who failed to speak out against the dangers of introducing the euro and instead gave their support to a project so economically insane that it only could have been envisioned by the type of people the British historian Paul Johnson called “Intellectuals”.

Read more …

It’ll happen yet anyway.

A Greek Exit Could Not Be More Costly Than The Current Path (Mitchell)

It appears the Germans (with their Finish and Slovak cronies) have lost all sense of reason, if they ever had any. Germany has the socio-pathological excuse of having suffered from an irrational inflation angst since the 1930s and has forgotten its disastrous conduct during the 1930s and 1940s and also the generosity shown it by allied nations who had destroyed its demonic martial ambitions. Finland and Slovakia have no such excuse. They are just behaving as jumped-up, vindictive show ponies who are not that far from being in Greece’s situation themselves. Sure the Finns have a national guilt about their own notorious complicity with the Nazis in the 1940s but what makes them such a nasty conservative allies to the Germans is an interesting question.

It also seems to be hard keeping track with the latest negotiating offer from either side. But the trend seems obvious. The Greeks offer to bend over further and are met by a barrage of it is going to be hard to accept this , followed by a Troika offer (now generalised as the Eurogroup minus Greece which is harsher than the last. And so it goes from ridiculous to absurd or to quote a headline over the weekend. From the Absurd to the Tragic, which I thought was an understatement. There are also a plethora of plans for Greece being circulated by all and sundry, most of which hang on to the need for the nation to run primary fiscal surpluses, with no reference to the scale of the disaster before us (or rather the Greek people). It is surreal that this daily farce and public humiliation (like the medieval parading of recalitrants in stocks) is being clothed as “governance”. Only in Europe really.

We now know that the Eurogroup is not content to destroy the credibility of the Greek government and have the Greek prime minister come cap in hand begging for money and agreeing to turn his back on the sentiments of his own people, expressed so strongly last Sunday. The latest document from the Recession Cult has demanded even deeper measures from Athens, which Euclid Tsakalotos has apparently acceded to.

They now want a primary surplus target of 3.5% of GDP by 20183 , much deeper pension cuts, widespread product market deregulation, a more comprehensive privatisation program (so that the northern capital owners can get their hands on Greek assets for cheap), massive deregulation of the labour market, wind-back legislation since the beginning of 2015 which have not been agreed with the institutions and run counter to the program commitments and put all of that on top the harsh austerity that has already been pushed leading into the referendum. The sentiment is that Germany is not going for an exit for Greece but total submission and probably a new government by the end of the week .

Read more …

One man has not given up.

Dr Schäuble’s Plan for Europe: Do Europeans Approve? (Yanis Varoufakis)

Article to appear in Die Zeit on Thursday 16th July 2015 – Pre-publication summary: Five months of intense negotiations between Greece and the Eurogroup never had a chance of success. Condemned to lead to impasse, their purpose was to pave the ground for what Dr Schäuble had decided was ‘optimal’ well before our government was even elected: That Greece should be eased out of the Eurozone in order to discipline member-states resisting his very specific plan for re-structuring the Eurozone.

This is no theory. How do I know Grexit is an important part of Dr Schäuble’s plan for Europe? Because he told me so!

I wrote this article not as a Greek politician critical of the German press’ denigration of our sensible proposals, of Berlin’s refusal seriously to consider our moderate debt re-profiling plan, of the European Central Bank’s highly political decision to asphyxiate our government, of the Eurogroup’s decision to give the ECB the green light to shut down our banks.

I wrote this article as a European observing the unfolding of a particular Plan for Europe – Dr Schäuble’s Plan. And I am asking a simple question of Die Zeit’s informed readers:

Is this a Plan that you approve of?
Do you consider this Plan good for Europe?

Read more …

#ThisIsACoup

Killing the European Project (Paul Krugman)

Suppose you consider Tsipras an incompetent twerp. Suppose you dearly want to see Syriza out of power. Suppose, even, that you welcome the prospect of pushing those annoying Greeks out of the euro. Even if all of that is true, this Eurogroup list of demands is madness. The trending hashtag ThisIsACoup is exactly right. This goes beyond harsh into pure vindictiveness, complete destruction of national sovereignty, and no hope of relief. It is, presumably, meant to be an offer Greece can’t accept; but even so, it’s a grotesque betrayal of everything the European project was supposed to stand for.

Can anything pull Europe back from the brink? Word is that Mario Draghi is trying to reintroduce some sanity, that Hollande is finally showing a bit of the pushback against German morality-play economics that he so signally failed to supply in the past. But much of the damage has already been done. Who will ever trust Germany’s good intentions after this? In a way, the economics have almost become secondary. But still, let’s be clear: what we’ve learned these past couple of weeks is that being a member of the eurozone means that the creditors can destroy your economy if you step out of line. This has no bearing at all on the underlying economics of austerity.

It’s as true as ever that imposing harsh austerity without debt relief is a doomed policy no matter how willing the country is to accept suffering. And this in turn means that even a complete Greek capitulation would be a dead end. Can Greece pull off a successful exit? Will Germany try to block a recovery? (Sorry, but that’s the kind of thing we must now ask.) The European project — a project I have always praised and supported — has just been dealt a terrible, perhaps fatal blow. And whatever you think of Syriza, or Greece, it wasn’t the Greeks who did it.

Read more …

“Here you have the advanced countries trying to undermine a global effort to stop tax avoidance. Can you have a better image of hypocrisy?”

Germany Showing ‘Lack Of Solidarity’ Over Greece: Stiglitz (AFP)

Prominent economist and Nobel laureate Joseph Stiglitz accused Germany on Sunday of displaying a “lack of solidarity” with debt-laden Greece that has badly undermined the vision of Europe. “What has been demonstrated is a lack of solidarity by Germany. You cannot run a eurozone without a basic modicum of solidarity. It is really undermining the common sense of vision, the sense of common solidarity in Europe,” the Colombia University professor and former World Bank chief economist told AFP. “I think it s been a disaster. Clearly Germany has done a serious blow, undermining Europe,” he said.

“Asking even more from Greece would be unconscionable. If the ECB allows Greek banks to open up and they renegotiate whatever agreement, then wounds can heal. But if they succeed in using this as a trick to get Greece out, I think the damage is going to be very very deep.” Stiglitz is in the Ethiopian capital Addis Ababa for this week s international development financing summit, which is presented as crucial for United Nations efforts to end global poverty and manage climate change by 2030. He is supporting the creation of an international tax organisation within the UN to fight against tax evasion by multinationals, although this has yet to win Western agreement.

International tax rules that allow large companies to avoid tax end up costing developing countries $100 billion every year, according to Oxfam. “European leaders and the West in general are criticising Greece for failure to collect taxes,” Stiglitz said. “The West has created a framework for global tax avoidance… Here you have the advanced countries trying to undermine a global effort to stop tax avoidance. Can you have a better image of hypocrisy?”

Read more …

Very strong from Zuesse.

How Fascist Capitalism Functions: The Case Of Greece (Zuesse)

There is democratic capitalism, and there is fascist capitalism. What we have today is fascist capitalism; and the following will explain how it works, using as an example the case of Greece. Mark Whitehouse at Bloomberg headlined on 27 June 2015, “If Greece Defaults, Europe’s Taxpayers Lose,” and presented his ‘news’ report, which simply assumed that, perhaps someday, Greece will be able to get out of debt without defaulting on it. Other than his unfounded assumption there (which assumption is even in his headline), his report was accurate. Here is what he reported that’s accurate: He presented two graphs, the first of which shows Greece’s governmental debt to private investors (bondholders) as of, first, December 2009; and, then, five years later, December 2014.

This graph shows that, in almost all countries, private investors either eliminated or steeply reduced their holdings of Greek government bonds during that 5-year period. (Overall, it was reduced by 83%; but, in countries such as France, Portugal, Ireland, Austria, and Belgium, it was reduced closer to 100% — all of it.) In other words: by the time of December 2009, word was out, amongst the aristocracy, that only suckers would want to buy it from them, so they needed suckers and took advantage of the system that the aristocracy had set up for governments to buy aristocrats’ bad bets — for governments to be suckers when private individuals won’t.

Not all of it was sold directly to governments; much of it went instead indirectly, to agencies that the aristocracy has set up as basically transfer-agencies for passing junk to governments; in other words, as middlemen, to transfer unpayable debt-obligations to various governments’ taxpayers. Whitehouse presented no indication as to whom those investors sold that debt to, but almost all of it was sold, either directly or indirectly, to Western governments, via those middlemen-agencies, so that, when Greece will default (which it inevitably will), the taxpayers of those Western governments will suffer the losses. The aristocracy will already have wrung what they could out of it.

Who were these governments and middlemen-agencies? As of January 2015, they were: 62% Euro-member governments (including the European Financial Stability Facility); 10% IMF, and 8% ECB; then, 17% still remained with private investors; and 3% was owned by “other.” Whitehouse says: “Ever since the region’s sovereign-debt crisis first flared in 2010, European nations have been stepping in for Greece’s private creditors – largely German and French banks — by lending the country [Greece] the money to pay them off. Thanks to this bailout [of ‘largely German and French banks’], banks and [other private] investors have much less at stake than before.”

So: what got bailed-out was private investors, not ‘the Greek people’ (such as the ‘news’ media assert, or try to suggest). For example, a reader’s comment to Whitehouse’s article says: “A reasonable assumption is that a large part of the Greek debt to the Germans was the result of Greek consumption of German goods and services bought with the German provided credit. In that case, the Germans have lost the Greek goods and services that could have potentially been bought with the money that is owed to them.” But this is entirely false: that “consumption” was by the aristocracy, not by the public, anywhere or at any time. After all: It’s the aristocracy that get bailed-out — not the public, anywhere.

Read more …

“..we are studying the possibility of organising direct deliveries of energy resources to Greece, starting shortly.”

Russia Considering Direct Fuel Deliveries To Help Greece (AFP)

Russia is considering direct deliveries of fuel to Greece to help prop up its economy, Energy Minister Alexander Novak said Sunday, quoted by Russian news agencies. “Russia intends to support the revival of Greece’s economy by broadening cooperation in the energy sector,” Novak told journalists, quoted by RIA Novosti news agency. “Accordingly we are studying the possibility of organising direct deliveries of energy resources to Greece, starting shortly.”

Novak said that the energy ministry expected “to come to an agreement within a few weeks,” but did not specify what type of fuel Russia would supply. Greece’s left-wing leadership has made a show of drawing closer to Moscow in recent months as the spat with its international creditors has grown more ugly. In June, Greek Prime Minister Alexis Tsipras during a visit to Russia sealed a preliminary agreement for Russia to build a €2 billion gas pipeline through Greece, extending the TurkStream project, which is intended to supply Russian gas to Turkey.

Read more …

Greek politics will get a shake-up. But only Syriza can govern.

Greek Government’s Majority In Question, Says Labor Minister (Reuters)

The strength of the Greek government’s majority is in question and no-one can blame lawmakers who won’t agree to the terms of a cash-for-reforms deal with the country’s creditors, Labor Minister Panos Skourletis said on Monday. Eurozone leaders argued late into the night with near-bankrupt Greece at an emergency summit, demanding that Athens enact key reforms this week to restore trust before they will open talks on a financial rescue. “Right now there is an issue of a governmental majority (in parliament),” Skourletis told state TV ERT. “I cannot easily blame anyone who cannot say ‘yes’ to this deal.” “We aren’t trying to make this deal look better, and we are saying it clearly: this deal is not us,” he added.

Read more …

This is a question?

Was This Humiliation Of Greeks Really Necessary? (Helena Smith)

In return for a third bailout – this time staggered over three years and amounting to €53bn – Greeks essentially have been told to walk through the valley of the shadow of death. And that is the good scenario. The alternative – Grexit – would have bypassed purgatory but taken crisis train passengers straight to hell. Greeks know that the next 48 hours will define them and Europe, too. But whatever happens, they also know the choice is one between a complete march into the unknown or a conscious decision to take measures that – for a time, at least – will inflict further damage on a country already hollowed out by the eviscerating effects of austerity. Either way, the future is bleak.

In this, Tsipras’s brinkmanship has not helped: trust is so eroded between the leadership in Athens and creditors abroad that aid, if given, will not be handed magnanimously. Almost everyone I know now fears that Greece will be left to rot in the eurozone. Politically, there is tumult on the horizon. That, in the early hours of Saturday, so many government MPs refused to give their vote to the proposed package of pension and budget cuts, tax rises and administrative reform does not portend well. Many Greeks may now credit Tsipras for convincing Europe’s fiscally obsessed creditors that the country’s debt burden remains the cause of its woes (as indeed it does), but that will not cut much ice with hardliners in his party.

Events have moved at such giddying speed that ironically most Greeks do not appear to blame Tsipras for ignoring the resounding rejection that he himself had urged when the economic demands of lenders were put to popular vote last weekend. The referendum, like so much else, has become part of the blanket of crisis. That the measures were less severe than the ones the government ultimately accepted has, in a further irony, been similarly played down. Greece, in truth, has skated so close to the edge – apocalyptic scenarios more real than ever before – that Tsipras’s spectacular U-turn has come as a welcome relief. Across an ever-fractious political spectrum, he has been applauded for putting his country before his party.

In the event of financial rescue, the hope is that Tsipras finally tackles the maladies that have so pervasively held back the country’s potential. Like no other party in power, Syriza is well placed to tackle the age-old malignancies of tax evasion, cronyism and corruption. But the leader will also face conflict on the streets. In the back alleys of Athens, where activists work in dark offices stacked with freshly painted placards and banners – the ammunition of the war against austerity – the battle is already on. “There will be demonstrations every day,” vowed Petros Papakonstantinou of the anti-capitalist bloc Antarsya. “And we will press for a general strike. That won’t be easy when the left is in power.”

Read more …

In fine form.

Greek Deal Makes Versailles Look Like A Picnic – Steve Keen (BallsRadio)

This interviewed was recorded before the deal was supposedly struck, but the sentiment still stands. Just how much does Greece have to give away. Too much says economist Steve Keen.

Read more …

“Even as its economy collapses and the government makes cuts in welfare spending, Greece’s military budget remains among the largest in the European Union..”

Greece Today, America Tomorrow? (Ron Paul)

The drama over Greece’s financial crisis continues to dominate the headlines. As this column is being written, a deal may have been reached providing Greece with yet another bailout if the Greek government adopts new “austerity” measures. The deal will allow all sides to brag about how they came together to save the Greek economy and the European Monetary Union. However, this deal is merely a Band-Aid, not a permanent fix to Greece’s problems. So another crisis is inevitable. The Greek crisis provides a look into what awaits us unless we stop overspending on warfare and welfare and restore a sound monetary system. While most commentators have focused on Greece’s welfare state, much of Greece’s deficit was caused by excessive military spending.

Even as its economy collapses and the government makes (minor) cuts in welfare spending, Greece’s military budget remains among the largest in the European Union. Despite all the handwringing over how the phony sequestration cuts have weakened America’s defenses, the United States military budget remains larger than the combined budgets of the world’s next 15 highest spending militaries. Little, if any, of the military budget is spent defending the American people from foreign threats. Instead, the American government wastes billions of dollars on an imperial foreign policy that makes Americans less safe. America will never get its fiscal house in order until we change our foreign policy and stop wasting trillions on unnecessary and unconstitutional wars.

Excessive military spending is not the sole cause of America’s problems. Like Greece, America suffers from excessive welfare and entitlement spending. Reducing military spending and corporate welfare will allow the government to transition away from the welfare state without hurting those dependent on government programs. Supporting an orderly transition away from the welfare state should not be confused with denying the need to reduce welfare and entitlement spending.

Read more …

New Zealand better beware. Wait till housing collapses on top of the logging and dairy crashes.

Chinese Buyers Turn Kiwis Into Renters In Their Own Country (NZ Herald)

Mainland Chinese money snapped up at least 80% of residential sales in parts of Auckland in March but were nearer 90% in May, a whistle blower from the industry says. The Herald reported at the weekend Labour data that showed people of Chinese descent accounted for 39.5% of the almost 4000 Auckland transactions between February and April. Yet Census 2013 data showed ethnic Chinese who are New Zealand residents or citizens account for only 9% of Auckland’s population. The property insider – who wanted to protect their identity because they feared for their job – said the situation was much more serious than the Labour data suggested. The numbers should be more than doubled due to the weight of capital coming out of Mainland China, the whistle blower said.

One big Auckland real estate agency, where many salespeople are of Chinese ethnicity, was selling almost every single property throughout many suburban areas to people living in China, the insider said. In some cases, those buyers had a New Zealand connection “but it’s one group disenfranchising the other. It’s really taken off in the last 18 months. I’ve been studying the figures since October.” “The Kiwis, South Africans and British have dropped out of the market because they just can’t compete with the Chinese. The people living in China buy the places the Kiwis are trying to get, then those places are rented out the next day,” the insider said. That showed the person is in an important position in the property sector with extensive access to information unavailable to the public revealing who the buyers really are.

“We’re becoming tenants in our own country. It’s utterly outrageous. The Chinese are interested in Panmure, Ellerslie, Greenlane, Epsom, Remuera, the North Shore – not so much the west.” In some cases, a single Chinese resident was spending up to $15 million on Auckland properties and the higher the bidding at auctions went, the happier they were. “They simply don’t care how much they pay. It’s not related to the CV. If they pay another $400,000 more, that’s $400,000 they’re better off as it’s $400,000 they have shifted out of Mainland China. If they continue vacuuming up all the existing properties at the current rate of consumption, what will that do? The Chinese will outbid everyone at the auction. I’m sick of the phone bidder from Guangzhou. I’m relieved that someone at last is talking about this,” the insider said of Twyford’s data.

Read more …

“..it implies that this is a capital movement rather than just individuals looking to park money.“

China’s Rich Seek Shelter From Stock Market Storm In Foreign Property (Guardian)

Real estate agents in Australia, Britain and Canada are bracing for a surge of new interest in their already hot property markets, with early signs that wealthy Chinese investors are seeking a safe haven from the turmoil in Shanghai’s stock markets. Sydney agent Michael Pallier said in the past week alone he has sold two new apartments and shown a A$13.8m (US$10.3m) house in the harbourside city to Chinese buyers looking for an alternative to stocks. “A lot of high-net-worth individuals had already taken money out of the stock market because it was getting just too hot,” Pallier, the principal of Sydney Sotheby’s International Realty, said. “There’s a huge amount of cash sitting in China and I think you’ll find a lot of that comes to the Australian property market.”

Around 20% has been knocked off the value of Chinese shares since mid-June, although attempts by authorities to stem the bleeding are having some effect. Many wealthy Chinese investors had already cashed out. Major shareholders sold 360bn yuan (US$58bn) in the first five months of 2015 alone, compared with 190bn yuan in all of 2014 and an average of 100bn yuan in prior years, according to Bank of America Merrill Lynch. While much of that money may initially be parked in more liquid assets like US Treasury bonds and safe-haven currencies such as the Swiss franc, there is growing evidence that foreign property sales may receive a boost.

“There is anecdotal evidence that Chinese buyers have intensified their interest in safe-haven global property markets, including London, as a result of the recent stock market volatility,” said Tom Bill, head of London residential research at Knight Frank. Ed Mead, executive director of realtor Douglas & Gordon in London, said his firm had seen two buyers from China looking to buy whole blocks of flats. “It is unusual to see the Chinese block buying, it implies that this is a capital movement rather than just individuals looking to park money.“

Read more …

“../Beijing’s panicky policy actions may reveal that the economy is in worse shape than is being let on.”

How China’s Stock-Market Muddle May Spread (MarketWatch)

Despite China’s troubled stock markets finding a floor last week, do not expect any quick return to normality. The dramatic stock rout and subsequent heavy-handed interference by authorities will not be easily forgotten. It has not just rattled investor confidence, but also damaged the political credibility of President Xi Jinping. For China’s legions of retail investors, the heavy losses have been compounded by wholesale stock suspensions — with half of Shenzhen and Shanghai stocks still not trading. This is a likely to fuel anxiety so long as investors are trapped in stock positions with no liquidity. It is also likely to lead to a sea change in investor mood from only weeks earlier, when some were even selling the roof over their head to buy equities.

There may be a nasty surprise when the first post-suspension bid prices come in. Albert Edwards at Société Générale highlights the experience in 2008, when Pakistan suspended trading on the Karachi Stock Exchange to try to “put a floor” under stocks after a share-price slump. This episode left authorities’ reputation in tatters, and when the market reopened, it quickly lost another 52%. For foreign investors, many of the bizarre interventions by Beijing last week will have raised a number of other, more fundamental questions about the competence of China’s leadership and the true state of the economy. One area of renewed uncertainty is the ongoing policy commitment to allowing market forces to play a larger role in the economy, a part of Beijing’s larger reform program.

The reintroduction of a ban on initial public offerings and spate of stock suspensions set a worrying precedent and will refocus attention on political risk. This, in turn, will place a cloud of doubt over plans for liberalizing interest rates, the capital account and the domestic bond market. Foreign investors are likely to think twice as they face the risk that the government may simply suspend reforms if prices start going against them. These recent actions suggest the voices of conservatives opposed to market reforms are in the ascendancy. Perhaps the more worrying take-away is that Beijing’s panicky policy actions may reveal that the economy is in worse shape than is being let on.

Read more …

More losses.

China’s Market-Tracking ETFs Roiled By Share Suspensions (FT)

A wave of stock suspensions has played havoc with exchange traded funds tracking Chinese markets, causing wild price swings and big price gaps between passive funds and the assets they track. More than 1,400 companies — more than half of all listings — are on trading halts in China, in an effort to shield themselves from the dramatic equity market sell-off that has wiped trillions of dollars off the value of Chinese stocks. The suspensions have left a number of ETFs holding frozen shares or derivatives linked to them, even as the funds themselves continue to trade. One Hong Kong-listed ETF that tracks China’s small-cap board, the ChiNext, traded every day last week, despite more than two-thirds of the underlying shares it reflects being suspended.

On Friday, the CSOP ChiNext ETF jumped by a fifth, while the index itself rose only 4.1%. Concerns have been growing globally over the potential mismatch between the liquidity of the underlying collateral that ETFs hold and that of their units. The Bank of International Settlements warned last month that the growth of passive funds may have created a “liquidity illusion” in bonds, although analysts say the problems currently facing Chinese equity ETFs are specific to the idiosyncrasies of that market. Chinese shares have tumbled in the past month, as millions of retail investors unwind leveraged bets on the market. Beijing has responded with various supportive measures, including bans on short selling, and on stock sales by large shareholders.

The central bank has also been funnelling money to brokerages to help them buy equities. Trading volumes for many China-tracker ETFs have doubled over the past two weeks, as market volatility has risen. ETFs have experienced wild daily price swings as investors use passive funds for price discovery of suspended Chinese assets. Last Thursday, the Deutsche X-Trackers Harvest CSI 300 ETF, which trades in New York, rose 20%. The extent of share suspensions has made ETFs “one of the only tradable instruments” for global investors looking to manage their exposure to Chinese stocks, said Warren Deats, head of Asia-Pacific portfolio trading at Barclays. Such funds are performing like futures contracts, he added, with investors using them to estimate the true level of the market — a view echoed by fund providers.

Read more …

Apr 082015
 
 April 8, 2015  Posted by at 9:09 am Finance Tagged with: , , , , , , , ,  1 Response »
Share on FacebookTweet about this on TwitterShare on Google+Share on LinkedInShare on TumblrFlattr the authorDigg thisShare on RedditPin on PinterestShare on StumbleUponEmail this to someone


Mathew Brady Three captured Confederate soldiers, Gettysburg, PA 1863

US Dot-Com Bubble Was Nothing Compared to Today’s China Prices (Bloomberg)
The Coming $10 Trillion Loss in Paper Wealth (John Hussman)
The Great American Invasion Into Europe’s Debt Market Has Begun (Bloomberg)
Fed Needs Europe’s Permission To Raise Rates (CNBC)
US Failure to Stop China Bank Unmasks Fight Over World Finance (Bloomberg)
15 Years Of Stimulus – Nothing To Show (David Stockman)
IMF Sees Low Potential Economic Growth Around World (Reuters)
Consumer Credit in U.S. Increases on Jump in Non-Revolving Debt (Bloomberg)
Scathing Assessment: “The UK Economy Is A Ticking Time Bomb” (Simon Black)
Russia Rules Out Joining The QE Gang (CNBC)
As Greece Battles a Debt Crisis, Its Banks Issue More Short-Term Debt (NY Times)
German Economy Minister Calls Greek War Reparations Request ‘Stupid’ (Guardian)
Greek Defense Minister: We Cannot Keep ISIS Out If EU Keeps Bullying Us (KTG)
What You Need To Know About Putin’s Meeting With Tsipras (RT)
Greek Cash Crunch Results In Significant Reduction Of Imports (Kathimerini)
Draghi’s Doom Loop(s): More Than Just Rentiers’ Euthanasia (Parenteau)
Got A Million? Auckland Homes Are For You (NZ Herald)
The Worst Place On Earth: A Dystopian Lake In China (BBC)

Xi and Li are moving ‘wealth’ from the housing casino to the stocks roulette.

US Dot-Com Bubble Was Nothing Compared to Today’s China Prices (Bloomberg)

The world-beating surge in Chinese technology stocks is making the heady days of the dot-com bubble look almost tame by comparison. The industry is leading gains in China’s $6.9 trillion stock market, sending valuations to an average 220 times reported profits, the most expensive level among global peers. When the Nasdaq Composite Index peaked in March 2000, technology companies in the U.S. had a mean price-to-earnings ratio of 156. Like the rise of the Internet two decades ago, China’s technology shares are being fueled by a compelling story: the ruling Communist Party is promoting the industry to wean Asia’s biggest economy from its reliance on heavy manufacturing and property development. In an echo of the late 1990s, Chinese stocks are also gaining support from lower interest rates, a boom in initial public offerings and an influx of money from novice investors.

The good news is the technology sector makes up a smaller portion of China’s equity market than it did in the U.S. 15 years ago, limiting the potential fallout from a selloff. The bad news is that any reversal in the industry will saddle individual investors with losses and risk putting an end to the Shanghai Composite Index’s rally to a seven-year high. “Chinese technology stocks do resemble the dot-com bubble,” Vincent Chan, the Hong Kong-based head of China research at Credit Suisse Group AG, Switzerland’s second-biggest bank, said in an interview on April 2. “Given stocks fell 50 to 70% when that bubble burst in 2000, these small-cap Chinese shares may face big corrections when this one deflates.”

China’s government is boosting spending on science and technology as a faltering industrial sector drags down economic growth to the weakest pace in 25 years. In March, Premier Li Keqiang outlined an “Internet Plus” plan to link web companies with manufacturers. Authorities also plan to give foreign investors access to Shenzhen’s stock market, the hub for technology firms, through an exchange link with Hong Kong. Among global technology companies with a market value of at least $1 billion, all 50 of the top performers this year are from China. The sector has the highest valuations among 10 industry groups on mainland exchanges after the CSI 300 Technology Index climbed 69% in 2015, more than three times faster than the broader measure.

Read more …

“..this is just temporarily overvalued paper masquerading as something durable”

The Coming $10 Trillion Loss in Paper Wealth (John Hussman)

Financial assets now represent over 82% of the net worth of both households and U.S. non-financial corporations (Data: Federal Reserve Z.1 Flow of Funds). Except for periods where total net worth had itself retreated (for example, 2008-2010), the concentration of private net worth on financial assets, rather than real assets or productive capital, has reached the highest extreme in history in recent years. In our view, this is just temporarily overvalued paper masquerading as something durable. The previous extreme – again, outside of periods where net worth itself had retreated – was not surprisingly in Q1 of 2000. We are rather helpless observers to this, as we were prior to the last financial crisis, and as we were prior to the technology collapse – despite the same conviction each time that the imbalances and elevated valuations would end badly.

There a strong correlation between private net worth and U.S. market capitalization. Examining the data, we find that the change in private net worth per dollar of change in U.S. market cap is actually about 1.5. That means that stocks have not only a direct impact on total private net worth, but an indirect effect, as many privately held assets such as corporate debt and junk bonds are also correlated with stock price fluctuations. At about $23 trillion in U.S. non-financial equity market capitalization, and over $100 trillion in total U.S. private net worth, a standard, run-of-the mill bear market decline in stocks on the order of 30% would likely be associated with total paper losses in the private sector on the order of $10 trillion.

Meanwhile, much has been made about “cash on the sidelines” held by corporations, where the sum of currency, bank deposits and foreign deposits of U.S. nonfinancial corporations has surged by $700 billion since 2008. What’s typically left out of this observation is that the debt of those same corporations has surged by $1.5 trillion over the same period. As my friend Albert Edwards and his colleagues have demonstrated, much of this debt issuance has been used to finance stock repurchases instead of expanding investments in productive capital. While this process may feel right in an environment of low interest rates and a belief in permanently rising stock prices, it has made corporate balance sheets much more vulnerable to debt refinancing risk down the road, particularly if earnings fall short or credit spreads rise as they have in prior cycles.

Read more …

“They’ve found, courtesy of Draghi, a new source of financing that is plenty cheap.”

The Great American Invasion Into Europe’s Debt Market Has Begun (Bloomberg)

Just when debt-addicted American companies were starting to worry that Federal Reserve Chair Janet Yellen was going to take their proverbial punch bowl away, along came Mario Draghi. The ECB president has made borrowing so cheap in the region that foreign corporations are selling record amounts of debt. Forget the deeper, bigger U.S. corporate-bond market. Borrowing in euros is all the rage these days because it’s about 2 percentage points less expensive to do so. About 65% of the record €60 billion of investment-grade bonds sold in March came from overseas companies, according to a March 27 Bank of America report. And a lot of those sellers are based in the U.S.

“The appeal of Europe is likely to continue throughout 2015,” Fitch Ratings analysts Michael Larsson and Monica Insoll wrote in an April 1 report. They predict non-European issuers will sell twice as much euro-denominated debt this year than they did in 2014. The trend comes down to basic math. Yields on investment-grade bonds in Europe have fallen to 0.99%, compared with 2.9% on those in the U.S., according to Bank of America Merrill Lynch index data. Debt is so cheap in Europe that U.S. companies are saving money even if they buy currency hedges that have gotten expensive as the dollar’s soared versus the euro, according to Fitch.

And it’s not just top-rated companies. Speculative-grade borrowers including Huntsman and IMS Health have also headed to Europe to raise cash, according to Fitch. “Riskier credits also achieve a larger discount than stronger names, and this is likely to boost the U.S. high-yield footprint in Europe,” the Fitch analysts wrote. Stimulus-driven “search for yield is pushing European investors into embracing a wider range of credits.” Yields of 4.3% on euro-denominated high-yield bonds are about 2.2 percentage points lower than those on dollar-denominated notes, Bank of America Merrill Lynch data show. So even if the Fed does hike interest rates this year, it may not matter too much to U.S. corporate borrowers. They’ve found, courtesy of Draghi, a new source of financing that is plenty cheap.

Read more …

“Are we asking the permission of the Europeans for our central bank policies? I’m not sure, but the market’s saying [we are].”

Fed Needs Europe’s Permission To Raise Rates (CNBC)

The market is sending signals that the Federal Reserve may not make much headway raising interest rates during the next two years—even if central bankers are intent on doing so, Jonathan Golub, chief U.S. market strategist at RBC, said on Tuesday. The Fed will not be able to raise its federal funds rate above 1.5% by the end of 2017, Golub said. If it tries to do so, the dollar will start to rise, putting pressure on the economy and causing the central bank to retreat. “I would love to see the Fed be able to move toward 2%, but with free money in Europe, it’s very hard for them to get tighter,” he told CNBC’s “Squawk Box.” “Are we asking the permission of the Europeans for our central bank policies? I’m not sure, but the market’s saying [we are].”

The Fed faces the challenge of raising rates at a time when European central bankers are suppressing rates by purchasing large amounts of bonds. That monetary policy disparity is expected to send investors flocking to U.S. bonds for higher yields, which would drive up the value of the dollar. The greenback has already run up too far, too fast, Golub said, and while he believes the United States remains strong compared with other economies, no country can weather a 20% move in its currency in eight months without experiencing disruptions. That said, Golub views the lower-for-longer rate policy as bullish for stocks. With investors looking for returns outside the bond market, he sees U.S. equities, excluding the energy sector, returning 12 to 14% in 2015.

“If you look at the average year that you don’t have a recession, the market’s up 18%,” he said. “As long as recessionary risk is away, there’s no reason you won’t get double-digit price returns on the market. People are way too bearish.” Mark Grant, managing director at Southwest Securities, said it would be a “huge mistake” for the Fed to raise interest rates, noting that $5 trillion of bonds around the world have negative interest rates and more than 20 central banks have lowered rates in the last six months. The dollar has been “ravaged” by the European Central Bank’s stimulus program, he added. “For us to raise interest rates in this kind of environment would just be really the wrong, wrong thing,” he said. While the U.S. unemployment rate stands at 5.5% and companies are beginning to raise wages, Europe is essentially exporting deflation, Grant said. Lower oil prices are adding to the deflationary pressures, he said.

Read more …

“..it’s a real snubbing..”

US Failure to Stop China Bank Unmasks Fight Over World Finance (Bloomberg)

The Obama administration’s vain attempt to prevent allies from joining China’s Asian Infrastructure Investment Bank is feeding a growing perception that U.S. influence in Asia is declining and America is losing its 70-year grip on global economic institutions. “This past month may be remembered as the moment the United States lost its role as the underwriter of the global economic system,” former Treasury Secretary Larry Summers wrote in an April 5 column in which he also blamed Congress for domestic politicking that has rendered the U.S. “increasingly dysfunctional.” The administration’s campaign against China’s new investment bank stands in contrast to its push for greater regional leadership to battle Islamic extremists, remedy climate change and address other global issues.

And while administration officials argue that domestic economic realities limit America’s ability to police the world, they’re trying to resist the reality of China’s growing economic clout, said a U.S. official who requested anonymity to speak frankly. The U.S. “knows only too well that China is rising and that it wants to reshape the global order, and it is trying to prevent this from happening.” said Tom Miller at Gavekal Dragonomics. That’s leaving the U.S. increasingly isolated. Although the administration has refused to join the $100 billion AIIB and urged others to follow suit, allies such as Australia, the U.K., South Korea, Germany and France are among the more than 40 countries that have joined the new bank, which will fund infrastructure in Asia and be fully established by year’s end.

The U.K. decided that “seeking to ensure that governance is robust from the inside is the best way forward” with the AIIB, British Foreign Secretary Philip Hammond told reporters in Washington March 27. The U.S. has argued that the new bank would lack the lending standards of the World Bank. Despite its chilly relations with China, Japan hasn’t ruled out joining, and Japanese Finance Minister Taro Aso said on Tuesday in Tokyo that he’ll meet his Chinese counterpart, Lou Jiwei, in Beijing in June. “The most damaging part of this at the moment is the reaction of the allies; it’s a real snubbing,” said Mathew Burrows, a former U.S. intelligence analyst who’s now director of the Strategic Foresight Initiative at the Atlantic Council. “I think we fumbled badly, but I’m not convinced that there was any way to get the Chinese to back down on this institution.”

Read more …

Well, not for the people, that is. But what if that was never the intention?

15 Years Of Stimulus – Nothing To Show (David Stockman)

At some point 15 years ought to count for something. After all, it does amount to one-seventh of a century. And during that span we have encompassed several business cycles, two financial crises/meltdowns and nearly a non-stop blitz of “extraordinary” policy interventions. To wit, a $700 billion TARP, an $800 billion fiscal stimulus, upwards of $4.0 trillion of money printing and 165 months out of 180 months in which interests rates were being cut or held at rock bottom levels.

You’d think with all that help from Washington that American capitalism would be booming with prosperity. No it’s not. On the measures which count when it comes to sustainable growth and real wealth creation, the trends are slipping backwards—– not leaping higher.

So here’s the tally after another “Jobs Friday”. The number of breadwinner jobs in the US economy is still 2 million below where it was when Bill Clinton still had his hands on matters in the Oval Office. Since then we have had two Presidents boasting about how many millions of jobs the have created and three Fed chairman taking bows for deftly guiding the US economy toward the nirvana of “full employment”.

Say what?

When you look under the hood its actually worse. These “breadwinner jobs” are important because its the only sector of the payroll employment report where jobs generate enough annual wage income—about $50k—- to actually support a family without public assistance.

Moreover, within the 70 million breadwinner jobs category, the highest paying jobs which add the most to national productivity and growth——goods production—-have slipped backwards even more dramatically. As shown below, there were actually 21% fewer jobs in manufacturing, construction and mining/energy production reported last Friday than existed in early 2000.

Read more …

“..the problem of the zero lower bound if adverse growth shocks materialize..” Huh?

IMF Sees Low Potential Economic Growth Around World (Reuters)

The world’s growth potential took a big hit after the 2007-2009 financial crisis and is likely to lag for years, implying that interest rates should likely stay low for quite a while, the International Monetary Fund said in a study on Tuesday. Potential growth, which gauges how fast economies can grow over time without hitting inflationary speed bumps, already was slowing in richer economies before the financial crisis due to aging populations and a drop in technological innovation. But declines in private investment and employment growth cut annual potential growth in these countries to 1.3% between 2008 and 2014, half a percentage point lower than before the crisis, according to the IMF study.

The study, part of the Fund’s twice-yearly World Economic Outlook, could frame the discussions over how to boost growth when the world’s economic policymakers gather in Washington next week for the IMF and World Bank’s spring meetings. Over the next five years, advanced economies’ annual growth potential should increase to 1.6%, still below pre-crisis growth rates, making it more difficult to cut high public and private debt, the IMF said. With interest rates low, “monetary policy in advanced economies may again be confronted with the problem of the zero lower bound if adverse growth shocks materialize,” the IMF said.

It also said weak demand in the euro zone and Japan could prompt even lower potential growth than forecast. The study comes ahead of the Fund’s global economic forecasts next week. In emerging markets, potential annual growth fell to 6.5% from 2008 to 2014, about 2 percentage points lower than before the crisis, and is expected to fall further to 5.2% over the next five years as populations age, structural constraints curb capital growth, and productivity slows. A projected drop in growth potential for China, the world’s second largest economy, could be even deeper as it transitions away from an investment-led economy to a consumption-based one, the IMF said.

Read more …

Student debt and subprime auto. What a swell recovery this is.

Consumer Credit in U.S. Increases on Jump in Non-Revolving Debt (Bloomberg)

Consumer borrowing in the U.S. increased in February as the value of non-revolving debt climbed by the most since July 2011. The $15.5 billion advance in household credit followed a $10.8 billion gain in January that was smaller than initially reported, Federal Reserve figures showed Tuesday in Washington. A surge in non-revolving loans such as those for automobile purchases and education more than offset the biggest drop in revolving credit since November 2010. Consumers burned by mounting debt during the recession will need to see economic improvement in the way of wage gains and job growth to feel more comfortable boosting their borrowing. While households have been willing to take out loans for education and vehicles, they’ve remained reluctant to break out the plastic for other spending.

The median forecast in a Bloomberg survey of economists called for a $12.5 billion February gain. Estimates of the 31 economists ranged from increases of $5.5 billion to $16 billion. The report doesn’t track debt secured by real estate, such as mortgages and home equity lines of credit. Revolving debt, which includes credit-card spending, decreased by $3.7 billion in February after a $1 billion decline the month before, the figures showed. Non-revolving credit, such as that for college tuition and the purchase of vehicles and mobile homes, increased by $19.2 billion after January’s $11.8 billion gain. Lending to consumers by the federal government, mainly for student loans, rose by $6.4 billion before adjusting for seasonal variations after surging $27.9 billion in January.

Read more …

“Or we could blame the voters who punish at the ballot box any party that tells them anything other than good news..”

Scathing Assessment: “The UK Economy Is A Ticking Time Bomb” (Simon Black)

Despite being an otherwise staid, traditional news service, the professional banking division of the Financial Times recently released an utterly scathing assessment of the British economy. It was entitled, “The UK economy is a ticking time bomb,” and the editor didn’t pull any punches in completely shattering the conventional fantasy that ‘all is well’, and that advanced economies can simply print and indebt their way to prosperity.

“What is the problem? Quite simply, the key numbers are terrible. According to the OECD, after five years of ‘austerity’ the UK’s budget deficit is 5.3%, down from 11.2% in 2009. “In other words, it has gone from being close to meltdown to a situation that is merely dreadful. “Since the government is spending more than it earns, it is hardly surprising that it is borrowing more, and that the debt-to-GDP has risen from 68.95% in 2009 to 93.30% in 2013, again according to OECD figures.

“As the UK is currently growing it should really be running a budget surplus, providing it with the means to run deficit financing during the next downturn. “This is one of the tenets of the Keynesian philosophy that underpins a lot of left-of-centre economic thinking. “Unfortunately Europe’s political parties of all persuasions have bastardised Keynes’ ideas – running deficits in both good and bad times – so as to render them almost meaningless.

“To make matters worse the UK, again similar to most advanced economies, is an ageing society with pension, welfare and healthcare systems that are wrongly structured and financially unsustainable.” “We can blame the politicians for failing to be honest with the electorate about the challenges ahead. “Or we could blame the voters who punish at the ballot box any party that tells them anything other than good news and wants to hear that taxes can be cut, spending raised and the budget balanced all at the same time.”

Read more …

“The banking sector maintains a substantial capital buffer and the banking sector is able to counter serious shocks even if crisis phenomena deepen.”

Russia Rules Out Joining The QE Gang (CNBC)

The Russian central bank has ruled out joining its global counterparts with a massive bond-buying despite the country sliding into a recession this year. Speaking at a banking conference in Moscow, Russian Central Bank Chair Elvira Nabiullina said that a QE package wouldn’t be applicable for the country and would increase inflation and heighten capital outflows, according to the Dow Jones news agency. The country is due to post negative GDP growth of around 4% in the coming year. Russia has been hit hard by the dramatic fall in oil prices and international economic sanctions following its intervention last year in Ukraine. The Russian ruble has experienced a major selloff due to the economic concerns and was one of the worst-performing currencies of 2014 despite emergency measures by the country’s central bank.

The bank has produced several rate cuts this year and has also performed market interventions by selling its U.S. dollar reserves in the hope of boosting the price of the ruble against the greenback. Nabiullina said Tuesday that she expected a rapid decline in inflation for Russia, if there are no unforeseen shocks, after a weak ruble caused consumer price growth to soar to around 16% in recent months. She also said that the banking sector was strong enough to weather financial difficulties, according to Reuters, and said the bank was ready to continue cutting interest rates as inflation rates fell. “On the whole, we judge the situation in the banking sector as stable,” she said, according to the news agency. “The banking sector maintains a substantial capital buffer and the banking sector is able to counter serious shocks even if crisis phenomena deepen.”

The ruble has actually appreciated this year against the greenback and was higher for the session after Nabiullina’s remarks, close to a 2105 high. Higher oil prices have been seen as the main driver for Russian assets, which have staged a small rebound in recent weeks. Russia’s five-year credit default swaps – the price it costs to insure its debt over a 5-year period – have fallen to multi-month lows in recent sessions and Sberbank – one of its biggest lenders – has recently posted better-than-expected results.

Read more …

“..there appears to be no restriction on the banks using these bonds to tap credit from their own central banks..”

As Greece Battles a Debt Crisis, Its Banks Issue More Short-Term Debt (NY Times)

A strange thing is happening as Greece struggles to avert bankruptcy: Its troubled banks are loading up on more debt. These short-term bonds, which have been issued by the country’s largest banks and carry the guarantee of the Greek government, are not being sold to foreign investors. They are being issued to the only entity that would dare buy them: themselves. In the last four months, some of Greece’s largest banks, including Piraeus, Alpha and Eurobank — have self-issued more than €13 billion euros’ worth of these government-guaranteed bonds. Wounded by vanishing deposits and bad loans, Greek bank bonds are about as toxic an investment as can be found. The banks are on life support via an emergency lending program overseen by the ECB, via which they have access to short-term loans from their own central bank.

But to secure this credit line, about €71 billion (more than half the deposits outstanding in Greece), these banks need to provide collateral to the Greek central bank. As was the case in Cyprus during its banking crisis, when a financial system implodes, finding acceptable collateral to swap for desperately needed loans can be difficult. The solution has been for the banks to manufacture and issue billions of euros of short-term bonds, which — because they carry the guarantee of the Greek government — can be used as collateral to secure much-needed cash from the ECB. As long as the bank’s problem is access to short-term funds and not solvency, such machinations can work. In the last year or so, Greek banks have issued more than €50 billion worth of these securities at artificially high interest rates (the higher the rate, the more valuable the collateral becomes in securing loans).

But the strategy has been controversial, and it was criticized by none other than Yanis Varoufakis, the Greek finance minister, who a year ago described the practice as a “hidden bailout from European taxpayers.” Mr. Varoufakis, then a relatively unknown economist, argued that the loans were a potent risk for Greece, which would have to assume responsibility for them if the banks failed. The practice has also been flagged by two German economists as a questionable way for troubled eurozone economies to extract funding from the central bank. Uncomfortable with the amounts of bonds being issued, the ECB said that, as of March, it would no longer accept such paper. But there appears to be no restriction on the banks using these bonds to tap credit from their own central banks, and they have done so. The most recent case occurred Tuesday, when Piraeus, Greece’s largest bank, issued a €4.5 billion note at 6%, which matures in July.

Read more …

The Germans will pay the price for using words like that. At least their opposition gets it: ‘It’s disgraceful’.

German Economy Minister Calls Greek War Reparations Request ‘Stupid’ (Guardian)

Germany’s economy minister has branded Greece’s demand for €278.7bn in WWII reparations as “stupid”, but the German opposition said Berlin should repay a forced loan dating from the Nazi occupation. The Greek deputy finance minister, Dimitris Mardas, made the demand on Monday, seizing on an emotional issue in a country where many blame Germany, their biggest creditor, for the tough austerity measures and record high unemployment that accompanied two international bailouts totalling €240bn. Sigmar Gabriel, Germany’s minister for economic affairs and vice chancellor, said Greece ultimately had an interest in squeezing a bit of leeway out of its eurozone partners to help Athens overcome its debt crisis.

“And this leeway has absolutely nothing to do with world war two or reparation payments,” said Gabriel, who leads the Social Democrats (SPD), the junior partner in the ruling coalition with chancellor Angela Merkel’s conservatives. Berlin is keen to draw a line under the reparations issue and officials have previously argued Germany has honoured its obligations, including a 115-million deutschmark payment made to Greece in 1960. A spokeswoman for the finance ministry said on Tuesday that the government’s position was unchanged. Eckhardt Rehberg, a budget expert for the conservatives, accused Athens of deliberately mixing the debt crisis and reform requirements imposed by Greece’s international creditors with the issue of reparations and compensation.

“For me the figure of €278.7bn of supposed war debts is neither comprehensible nor sound,” he told Reuters. “The issue of reparations has, for us, been dealt with both from a political and a legal perspective.” But Greece’s demand for Germany to repay a forced wartime loan amounting to €10.3bn found support from the German opposition, with members of the Greens and the far-left Linke party saying Berlin should pay. Manuel Sarrazin, a European policy expert for the Greens, and Annette Groth, a member of the leftist Linke party and chairman of a German-Greek parliamentary group, told Reuters that Berlin should repay a so-called occupation loan that Nazi Germany forced the Bank of Greece to make in 1942.

Berlin and Athens should “jointly and amicably” take any other claims to the International Court of Justice, Sarrazin said. Groth went further, saying: “If you look at Greece’s debt and the ECB’s bond purchases every month, it puts the figure of €278.7bn into perspective.” She said the German government should, at the very least, talk to Athens about how it came up with that figure. “The German government’s categorical Nein certainly cannot be allowed to stand. That’s disgraceful, 70 years after the end of the war,” Groth said.

Read more …

Not what he says. He’s talking about if Greece is thrown out.

Greek Defense Minister: We Cannot Keep ISIS Out If EU Keeps Bullying Us (KTG)

For a second time within a couple of weeks, Greek Defense Minister and leader of coalition government junior partner Independent Greeks, Panos Kammenos, warned that if the European Union keeps undermining the coalition government and the country exits or is forced to exit the Euro, “waves of migrants: will stream from Turkey to Europe and among them there would be ISIS “radicals.” Speaking to THE TIMES, Kammenos said:

“The gross meddling into [Greek] domestic affairs isn’t just unheard for European standards, it’s unethical and it’s dangerous. If Greece goes, then a lot more than financial stability and the euro is at stake.” “If Greece is expelled or forced out of the eurozone, waves of immigrants without papers, including radical elements, will stream from Turkey and head towards the heart of the West,” Kammenos told The Times.

German government coalition partners, European Parliament President Martin Schulz and “European anonymous sources” have repeatedly and even blatantly expressed the wish that Prime Minister Alexis Tsipras gets rid of nationalist Kammenos and make a coalition with austerity-friendly To Potami and/or even PASOK. Panos Kammenos described these statements and efforts as “bullying” committed by Brussels and Berlin in order to force Greece into “a full and complete economic surrender.” “Europe must realize that maintaining Greece stable, the West front against the Islamic State (ISIS) is safe. But if expelled or forced out of the eurozone, waves of immigrants without papers, including radical elements will stream from Turkey, heading towards the heart of the West. If these waves of immigrants increase, then the threat of incoming extremist elements will grow not for Greece but for the whole of the West.“

Read more …

“Wait, does Russia have the money for this? Yes and No.”

What You Need To Know About Putin’s Meeting With Tsipras (RT)

Greek Prime Minister Alexis Tsipras will meet Russian President Vladimir Putin on Wednesday. Greece could ask Moscow to bankroll a bailout, Gazprom could agree to a gas discount, or the two sides could talk about how to sidestep EU sanctions. The new 40-year-old leader of one of the world’s most indebted countries with meet with Putin on Wednesday, just one day before the country is due to repay €463.1 million to the IMF. The Greek Prime Minister arrives in Moscow on Tuesday. Is Russia going to bail out Greece? Rumors have been abuzz that Athens and Moscow are plotting a secret bailout ever since the idea was first floated by Russian Finance Minister Anton Siluanov days after the Syriza party won the elections in January. Russian daily Kommersant reported that Moscow is ready to offer indirect financial help, citing an unnamed government source.

“We are ready to consider the issue of allowing Greece a gas discount: under the contract, the gas price is linked to the oil price that has gone significantly lower in recent months,” as Kommersant cites a Russian government source. “We are also ready to discuss the possibility of allowing Greece new loans. But in turn we are interested here in reciprocal moves, in particular in terms of Russia getting certain assets from Greece,” the source added, without specifying the sort of assets he was talking about. Greek Finance Minister Yanis Varoufakis has said that his country “will never ask for financial assistance from Moscow,” in an interview with Zeit online in early February. Wait, does Russia have the money for this? Yes and No.

Government officials have hinted that Russia’s help, if provided, would be indirect. Most economists around the world are more positive about the Russian economy, but everybody agrees it will contract this year between 4 and 3%. Most recently S&P improved its economic outlook for Russia, saying it’ll return to growth in 2016 and add 1.9%. In the first quarter of 2015, the economy expanded 0.4%, and the Russian ruble, which lost nearly 50% in 2014, is now the best performing currency of the year. Though Russia ‘s economy isn’t as strong as it was two years ago, and growth is near zero, it still has a lot saved up for a rainy day – $356 billion in currency reserves as of April and over $150 billion split between the country’s oil reserve funds, the National Reserve Fund and National Welfare Fund. If the Russian economy goes nose first into a recession, these funds are expected to keep the financial situation stable for 2-3 years.

Read more …

14.6% YoY.

Greek Cash Crunch Results In Significant Reduction Of Imports (Kathimerini)

Imports posted a decline for a second consecutive month in February, sliding 14.6% compared to the same month in 2014. When fuel products are excluded, the yearly decline amounts to 6.7%, according to data released on Tuesday by the Hellenic Statistical Authority (ELSTAT). The reason for the drop does not point to any increase in the economy’s self-sufficiency. Rather, as exporters announced on Tuesday, it is mainly due to the lack of liquidity available to Greek enterprises and the pressure on them from foreign suppliers. A key component in this drop is the remarkable decrease in fuel product imports, which is connected to the decline in production activity and the return to economic contraction after a year of relative growth in 2014. There was also a fall in ship imports.

ELSTAT announced that the total value of imports in February amounted to €3.44 billion, against €4.04 billion in February 2014. Imports had contracted by 16% year-on-year in January, reaching €2.14 billion against €3.74 billion a year earlier. Therefore, in the first couple of months of the year there was a total contraction of 15.3% in revenues, or 11% excluding fuel products. Notably, the biggest drop concerned imports from third countries and not from the European Union. Third-country imports declined 31.2%, while imports from within the EU fell by just 6.7%. This suggests that EU imports could constitute a safety cushion for Greece.

Read more …

“Draghi may have signed a mutually assisted suicide pact with finanzkapital in the eurozone.”

Draghi’s Doom Loop(s): More Than Just Rentiers’ Euthanasia (Parenteau)

The recently adopted QE approach by the ECB, in concert with the negative deposit policy rate (NDPR) introduced last summer, has set off a number of nested disequilibrium dynamics that may unwittingly introduce a material increase in systemic risk for the eurozone, and perhaps beyond. Lord Keynes anticipated what he termed ”euthanasia of the rentiers”, as he expected active monetary policy would be successful in reducing long-term interest rates, and the share of the population living off of bond coupons would eventually just wither away. By way of contrast, if the following assessment is correct, Draghi may have signed a mutually assisted suicide pact with finanzkapital in the eurozone.

The logistics of implementing QE (including questions about adequate bond supply for the ECB to purchase, as well as the related market “liquidity” concerns), or whether or not QE represents what Lord Turner refers to as “open monetary financing”, are not the real problem, or at least not the most compelling ones. Rather, the implementation of QE with a large and increasing share of the bond market displaying negative yields to maturity (NYTM) presents a number of serious challenges to financial stability in the eurozone. To cut to the chase, the ECB’s QE and NDRP measures may be setting investors up for a discontinuous price event, much like what was experienced in the equity market meltdown back in October 1987.

Even if a disruptive yield spike is avoided, or even contained and reversed by ECB heroics, pursuing QE under NYTM market conditions may lead to a significant dampening down of bank and insurance company profitability. In the extreme, the solvency of key eurozone financial institutions could once again come under question. This could further complicate the ECB’s chances of achieving their 2% inflation goal, as it may dampen the bank lending channel as a key transmission mechanism for unconventional monetary policy. The entire set up, in other words, begins to take on many of the characteristics of Andrew Haldane’s Doom Loops. In this case, however, the ECB may unintentionally be setting off nested Doom Loops that will feed on each other, and thereby magnify systemic risks quicker than investors and policy makers might otherwise imagine possible.

Read more …

It gets crazier by the day.

Got A Million? Auckland Homes Are For You (NZ Herald)

One in four houses sold by Auckland’s biggest real estate agency last month fetched more than $1 million. According to Barfoot & Thompson, which released the record-breaking sales figures yesterday, 420 of the 1597 houses sold cost buyers seven figures. At the same time, sales prices increased almost 4% since February, taking the average price of a residence in Auckland to an all-time high of $776,729. The cost is 9% higher than the median for March last year and $17,000 higher than the previous record average price set in December. It indicates the city’s housing market is showing no signs of letting up, as first-home buyers scramble to get on the property ladder.

Barfoot & Thompson managing director Peter Thompson said March was always the most active month for property sales, but last month set a string of new highs. In one fortnight alone, the company sold more than 400 properties each week, the highest two weeks’ trading in its 92-year history. Only March 2003 had bigger sales, when 476 residences sold in seven days. Last week, agents sold a two-bedroom house in Sussex St in Grey Lynn for $1.5 million – 39% above its council valuation. “Buyers remain convinced that with a stable economy, low interest rates and restricted housing availability, buying at current prices is manageable,” said Mr Thompson.

Read more …

Makes your phone work.

The Worst Place On Earth: A Dystopian Lake In China (BBC)

From where I’m standing, the city-sized Baogang Steel and Rare Earth complex dominates the horizon, its endless cooling towers and chimneys reaching up into grey, washed-out sky. Between it and me, stretching into the distance, lies an artificial lake filled with a black, barely-liquid, toxic sludge. Dozens of pipes line the shore, churning out a torrent of thick, black, chemical waste from the refineries that surround the lake. The smell of sulphur and the roar of the pipes invades my senses. It feels like hell on Earth. Welcome to Baotou, the largest industrial city in Inner Mongolia. I’m here with a group of architects and designers called the Unknown Fields Division, and this is the final stop on a three-week-long journey up the global supply chain, tracing back the route consumer goods take from China to our shops and homes, via container ships and factories.

You may not have heard of Baotou, but the mines and factories here help to keep our modern lives ticking. It is one of the world’s biggest suppliers of “rare earth” minerals. These elements can be found in everything from magnets in wind turbines and electric car motors, to the electronic guts of smartphones and flatscreen TVs. In 2009 China produced 95% of the world’s supply of these elements, and it’s estimated that the Bayan Obo mines just north of Baotou contain 70% of the world’s reserves. But, as we would discover, at what cost? Rare earth minerals have played a key role in the transformation and explosive growth of China’s world-beating economy over the last few decades. It’s clear from visiting Baotou that it’s had a huge, transformative impact on the city too. As the centre of this 21st Century gold-rush, Baotou feels very much like a frontier town.

In 1950, before rare earth mining started in earnest, the city had a population of 97,000. Today, the population is more than two-and-a-half million. There is only one reason for this huge influx of people – minerals. As a result Baotou often feels stuck somewhere between a brave new world of opportunity presented by the global capitalism that depends on it, and the fading memories of Communism that still line its Soviet era boulevards. Billboards for expensive American brands stand next to revolution-era propaganda murals, as the disinterested faces of Western supermodels gaze down on statues of Chairman Mao. At night, multicoloured lights, glass-dyed by rare earth elements, line the larger roads, turning the city into a scene from the movie Tron, while the smaller side streets are filled with drunk, vomiting refinery workers that spill from bars and barbecue joints.

Even before getting to the toxic lake, the environmental impact the rare earth industry has had on the city is painfully clear. At times it’s impossible to tell where the vast structure of the Baogang refineries complex ends and the city begins. Massive pipes erupt from the ground and run along roadways and sidewalks, arching into the air to cross roads like bridges. The streets here are wide, built to accommodate the constant stream of huge diesel-belching coal trucks that dwarf all other traffic.

Read more …

Apr 052015
 
 April 5, 2015  Posted by at 11:01 am Finance Tagged with: , , , , , , , , ,  6 Responses »
Share on FacebookTweet about this on TwitterShare on Google+Share on LinkedInShare on TumblrFlattr the authorDigg thisShare on RedditPin on PinterestShare on StumbleUponEmail this to someone


Underwood&Underwood Chicago framed by Gothic stonework high in the Tribune Tower 1952

For the second time in three years, I’m fortunate enough to spend some time in New Zealand (or Aotearoa). In 2012, it was all mostly a pretty crazy touring schedule, but this time is a bit quieter. Still get to meet tons of people though, in between the relentless Automatic Earth publishing schedule. And of course people want to ask, once they know what I do, how I think their country is doing.

My answer is I think New Zealand is much better off than most other countries, but not because they’re presently richer (disappointing for many). They’re better off because of the potential here. Which isn’t being used much at all right now. In fact, New Zealand does about everything wrong on a political and macro-economic scale. More about that below.

I’ve been going through some numbers today, and lots of articles, and I think I have an idea what’s going on. Thank you to my new best friend Grant here in Northland (is it Kerikeri or Kaikohe?) for providing much of the reading material and the initial spark.

To begin with, official government data. We love those, don’t we, wherever we turn our inquisitive heads. Because no government would ever not be fully open and truthful. This is from Stuff.co.nz, March 19 2015:

New Zealand GDP grew 3.3% last year

New Zealand’s economy grew 3.3% last year, the fastest since 2007 before the global financial crisis, Statistics NZ said. Most forecasts expect the economy to keep growing this year and next, although slightly more slowly than in the past year. For the three months ended December 31, GDP grew 0.8%, in line with Reserve Bank and other forecasts. That was led by shop sales and accommodation.

That sounds great compared to most other nations. But then we find out where the alleged growth has come from (I say alleged because other data cast a serious doubt on the ‘official’ numbers):

The economy grew a revised 0.9% in the September quarter, down from 1% reported earlier. Retail and accommodation increased 2.3% in the December 2014 quarter, buoyed by a 15% increase in international tourist spending, as reported on Wednesday. New Zealand household spending also increased 0.6%. [..]

“Spending by Chinese, US, and UK visitors all increased in 2014, though Australians spent less.” Australia is New Zealand’s biggest tourism market, but the New Zealand dollar has been high against the Australian currency, trading at A96.5c on Thursday. The exchange rate was under A80c at the start of 2013. Total visitor spending last year hit $7.4 billion, up 13% on the previous year. [..]

(Note: $1 US = $1.3156 NZ today.)

Increased banking activity was reflected in a 1.1% rise in financial services this quarter, while housing investment rose 5.2%.

[..] The figures also showed the first fall in real incomes since the middle of 2012. The inflation-adjusted purchasing power of disposable income was down 0.5% in the December quarter.

We’ll get back to housing in a bit. And by all means, keep those last few numbers in mind: while the economy ostensibly grew by 3.3%, disposable income was down. That’s what you call a warning sign.

But let’s focus first on tourism and especially on China. While overall tourist spending rose 15% in 2014, as part of a later quote in this article we will even see that “tourism from China was up 40% in the first two months of this year from a year ago..”

Still, that cannot make up for that other big trade with China, exports, in particular of New Zealand’s biggest industry, dairy, and the second biggest, timber. There things are not looking nearly as rosy. And after reading the next piece, I’m wondering how the economy could possibly have grown by 3.3%. More from Stuff.co.nz, dated March 25:

Dairy Slump Hits New Zealand Exports To China

New Zealand posted a small trade surplus of just $50 million in February with dairy exports down heavily, especially to China, New Zealand’s top export market. Some economists had expected a monthly surplus of about $350 million. The trade shortfall for the year ended February 2015 was a deficit of $2.2 billion. Exports to China have boomed in the past few years, but melted down last year as dairy product prices plunged. Total exports to China in February were down more than 36% on the same month last year.

China remains New Zealand’s biggest export market, worth almost $9b in the past year, just slightly ahead of Australia. But the trend for exports to China has been falling for the past year, and is down 45% from the peak in late 2013. In fact, it has returned to levels seen in 2012. [..] Total exports were worth $3.9b for the month, just barely ahead of monthly imports which were also about $3.9b.

So sure, the 3.3% was over 2014, and this piece concerns this year. But it also says ‘the trend for exports to China has been falling for the past year,’ and ‘..The trade shortfall for the year ended February 2015 was a deficit of $2.2 billion..’ and that can only leave me wondering again what real GDP growth was. This is from RadioNZ, April 3:

Export Drop Rattles Companies

Confidence among manufacturers and exporters has taken a hit with export sales in February down 27% compared with a year ago. A survey found net confidence – which includes measures of cash flow, profitability, investment, staff and sales – fell into negative territory for the first time since April 2013. Net confidence was minus 13, down from 21 in January. The sample of Manufacturers and Exporters Association members covered companies with combined annual sales of $178 million, with 68% of those from exports. Association president Tom Thomson said currency volatility was the biggest issue for exporters, with the big jump in the US dollar forcing up the price of some raw materials.

Now I’m wondering which raw materials this fine man has in mind. See, I can imagine currency volatility being a bit of a drag, but not too much for New Zealand manufacturers, because as far as I can see the country’s exporters don’t seem to import much in the way of raw materials. The main exports, as I said, are dairy and timber, with a bit of meat thrown in, none of which require raw materials imports, and what the US dollar drives up in there would help New Zealand more than hurt it. That the New Zealand dollar itself has gained vs various other currencies, while true, is a whole other story.

New Zealand’s dairy industry has been thrown together since the start of the century in co-op Fonterra, good for 30% of global dairy exports – most dairy farmers are shareholders (mind you, no country the size of New Zealand should ever even think of exporting 30% of the world’s anything, of course, unless it’s something unique on the planet and it comes in small quantities). Fonterra’s by far biggest clients are the lactose-intolerant Chinese, who import about all the milkpowder – for their babies – they can lay their hands on, following a domestic tainted milk scandal a few years back. Still, to establish your biggest industry around one single client is obviously a very risky venture. And now there’s the added problem of dropping prices. The New Zealand Herald, April 2:

World Dairy Prices Slide 10.8% On Supply Concerns

International dairy prices continued to reverse gains made early this year at this morning’s GlobalDairyTrade (GDT) auction, putting downward pressure on Fonterra’s $4.70 a kg farmgate milk price forecast and raising concerns about next season’s likely payout. The GDT price index fell by 10.8% compared with the last sale a fortnight ago, when prices dropped by 8.8%. Big falls were recorded for the key products of wholemilk powder – down 13.3% to US$2,538 a tonne, skim milk powder – down 9.9% to US$2,467/tonne.

That 10.8% price drop occurred in just 2 weeks. There can be no doubt that if your economy depends so much on one sector and one client, you’re vulnerable. Probably as much as oil producers, who saw their prices drop more, but who mostly have higher profit margins. What hasn’t helped New Zealand dairy farmers is the Russian ban on EU milk products; these will now have to be sold on world markets. What won’t help either is the recent lifting of EU milk quotas, which will bring a huge flood of additional milk on the market. A market that is already drowning in milk. RadioNZ, April 2:

World ‘Awash With Milk’

The Government is blaming a slump in milk prices on the world market being awash with milk. But New Zealand First leader Winston Peters said National’s economic policies and the high value of the New Zealand dollar were not helping dairy farmers. In the Global Dairy Trade auction prices dropped 10.8% overnight to $US2746 a tonne, the second fall in a fortnight. Mr Peters said he predicted the fall and it was a sign of rural areas lagging behind. “I’ve been saying it for a long long time – what you’ve got is a fixation with Auckland, hollowing out the provincial economies and sucking all the attention and money to Auckland and that is not going to go on any longer.”

Mr Peters said New Zealand had a free market system that no other country followed and he would legislate to control the exchange rate, similar to Singapore’s system. “The one country that’s not devaluing at the moment is New Zealand – every other economy has. [..] Economic Development Minister Steven Joyce firmly rejected that idea. “Well, with the greatest respect to Winston I am old enough, and so is he, to remember the last time we tried to set the exchange rate in this country and it wasn’t that successful…

“What he is basically saying is that he would legislate, presumably, to put the exchange rate at a level it won’t naturally go and that means effectively increasing costs for the consumer and decreasing costs for exporters.” [..] Meanwhile, the Fonterra Shareholders Council said some frustrated farmers were considering leaving the co-operative due to the price slump.

For more than a few farmers, the situation has already proved too much. NZ Herald, Jan 11:

Stress Too Much For Farmers

At least four farmers have taken their lives since Fonterra cut its milk payout forecast for the coming season. On December 10, the dairy giant dropped its payout forecast for 2014-15 to an eight-year low of $4.70 a kilogram of milk solids. That’s nearly half the $8.40 paid in the 2013-14 season and is estimated to mean an income drop for farmers of $6.6 billion. Federated Farmers dairy industry group vice-chairman Kevin Robinson confirmed to the Herald on Sunday that it was aware of the December deaths. “There’s been discussion through Federated Farmers email about them,” he said.

Several industry experts blame high levels of rural debt for increased stress on farmers. In total, 14 farmers have taken their lives in the past six months, Chief Coroner Judge Neil MacLean said. The most recent four deaths were also confirmed by Te Aroha farmer Sue McKay, the administrator of a private Facebook-based support group. She added: “I also know some local hospitals have a number of farmers in them from attempted suicide. If there’s three in one ward alone, there will be more in other hospitals.”

Whole milk powder prices were down 11% in the month and 52% lower than a year earlier. Cheese also dropped 5% over the month.

But New Zealand also has a whole different side. If anything could explain the 3.3% GDP growth number for 2014, I’m guessing it must be this: a real estate bubble that would put most of Charles Ponzi’s heirs to shame. Not 10 years ago, mind you, Americans, but today. Will they never learn, you ask? No, they will have to have their faces pushed squarely through the stucco walls. And they’ll probably still have hope for a recovery when they come out at the other side. NZ Herald, April 5:

Hot Properties: Auckland Valuations Out Of Date Within Months

Council valuations are already out of date, with homes selling in Auckland’s overheated property market on average for more than 15% above their figure of six months ago. And previously unfashionable suburbs have recorded some of the biggest spikes as desperate buyers look for their first home. Mt Roskill made the biggest jump in the Real Estate Institute figures, which are based on Auckland sales in February and compared against capital valuations made in July last year. The valuations, which do not involve a property inspection or include chattels, were made public on October 1.

Even suburbs among the 10 with lowest rises, such as Remuera and Te Atatu Peninsula, were up 13%. Properties sold by Bayleys Real Estate last month included a West Harbour home bought for $700,000 more than its capital valuation of $900,000 and a Glendowie home with a capital value of $1.13m that sold for $1.575m. An Avondale home sold for $590,000 — $130,000 above valuation.

REINZ chief executive Colleen Milne wasn’t surprised because city fringe suburbs were now out of reach for many. The hot market made it hard for capital values to keep up, Milne said. “There has been a 19.9% median movement in Auckland in the last 18 months. I thought the CVs seemed to be quite appropriate at the time, but the whole thing is just supply and demand — we have a lack of houses,” she told the Herald on Sunday.

A ‘19.9% median movement in Auckland in the last 18 months’ is about 13.25% per year, a doubling time of just over 7 years. Auckland apartment prices in the Trade.me graph below, which covers February 2014-February 2015, would double every 3-4 years.

It must be an Anglo-Saxon disease. You can see it in London, in Sydney, Melbourne, New York, Toronto. The new normal way to make your failing economy look ‘healthy’ is to sell assets to any rich foreigner or investment fund who comes knocking, no matter what the consequences, short term or long term. In all these cities, young people can forget about buying a home, that allegedly government supported dream.

And everyone but the rich are pushed out ever further into the boondock burbs. It’s a ‘policy’ that kills cities, of necessity. Cities need people, real people, all people, poor and rich and old and young, that have grown up where they live, they love where they live, they are interested in making it look good and feel good. This is an ongoing and organic process, because cities are alive, and yes, you can kill them. But that’s for another story.

Back to New Zealand’s reality for the vast majority of people, who will never be able to fork over 100s of 1000s of dollars for a house. People like the workers in the timber industry, who see slowing Chinese demand translated into job cuts both for those who cut the trees and those who transport them.

Again, a dumb idea to base a whole industry around one client, but the men and women who did the job were just glad they had work. And now they don’t anymore. Jobs that in all likelihood will never come back again. China won’t have another debt-financed growth spurt, and there are no other candidates waiting on the horizon.

And that’s all a big shame. New Zealand is not poor, but it’s by no means as rich as Australia or Canada or Germany or the US. What it does have is the potential to be largely self-sufficient. A potential that is being squandered in order to play with the big boys of globalized trade.

New Zealand has only 4.5 million citizens, one third of which live in Auckland. It has vast tracts of productive land that are now used to feed export oriented cows and American pines, neither of which are even native. It could have a great shoe industry, plenty of leather, and a textile industry, plenty of wool. But New Zealand, like everyone else, imports such basic needs from China. While having scores of unemployed people. When will that light go off?

The country’s prime minister since 2008, John Key, used to work at Merrill Lynch and the New York Fed, and that sort of background guarantees valiant efforts to sell anything in the country that’s not bolted down, and take an axe to what is. It also guarantees zero initiative to become self-sufficient.

But then there are many tragic countries and societies in the world who all suffer from the same maladie. I’ll leave you with some reflections by the man who I’m told is New Zealand’s best business writer, Bernard Hickey in the NZ Herald:

New Zealand’s Economic Winds Of Change

Chaos theory calls it the butterfly effect. It’s the idea that a butterfly flapping its wings in the Amazon could cause a tornado in Texas. The New Zealand economy has plenty of its own butterflies changing the weather for GDP growth, jobs, interest rates, inflation and house prices. [..] One of the flappiest at the moment is the global iron ore price.

It’s barely noticed here but it’s an indicator of growing trouble inside our largest trading partner, China, and it is knocking our second-largest partner, Australia, for six. It fell to a 10-year low of almost US$50 a tonne this week and is down from a peak of more than US$170 a tonne in early 2011.

China embarked on an infrastructure spree after the global financial crisis. Over the three years to 2013, China poured 6.4 gigatonnes of concrete, which was more than was poured in the US in the entire 20th century. All that concrete needed reinforcing with steel and China didn’t have enough iron ore and coking coal to make it. That building boom created a glut of apartments and debt, which China now needs to digest. [..]

.. iron ore production in Australia has only now ramped up to its peak levels. Weak demand met high supply to produce a price slump. This all may seem irrelevant to New Zealand, but it’s not. The Australian dollar has fallen in response to the iron ore crash, while New Zealand’s dollar has remained strong because our economy is humming along, thanks to building surges in Christchurch and Auckland and plenty of spending and investment.

That divergence between the Australasian economies drove the New Zealand dollar to a record high of well over AUD$98 this week. Dollar parity would make all those winter holidays on the Australia Gold Coast and trips to shows in Sydney and Melbourne cheaper and generate a fierce headwind for manufacturing exporters and tourism businesses here that sell to Australians.

President Xi has reinforced the contrasting effects of the changes in China on Australia and New Zealand by encouraging consumers and investors to spend more of China’s big trade surpluses overseas. Tourism from China was up 40% in the first two months of this year from a year ago, and there remains plenty of demand from investors in China for New Zealand assets.

The dark side of this tornado in New Zealand after the flapping of the butterfly’s wings in China was felt in Nelson this week. The region’s biggest logging trucking firm, Waimea Contract Carriers, was put into voluntary administration owing $14m, partly because of a slump in log exports to China in the past six months.

That’s because New Zealand’s logs are now mostly shipped to China to be timber boxing for the concrete being poured in its new “ghost” cities. The Chinese iron ore butterfly has flapped and now we’re seeing Gold Coast winter breaks become cheaper and logging contracts rarer.