May 242017
 
 May 24, 2017  Posted by at 9:32 am Finance Tagged with: , , , , , , , , , ,  6 Responses »
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Henri Matisse Nu Blue IV 1952

 

China Hit by First Moody’s Downgrade Since 1989 on Debt Risk (BBG)
Chinese Banks Are In Big Trouble (ZH)
American Exceptionalism – Population Growth vs Money Growth (Econimica)
Shiller: Stay In The Market, It ‘Could Go Up 50% From Here’ (CNBC)
German Police Search Daimler Facilities In Dieselgate Probe (DW)
Canada Must Deflate Its Housing Bubble (BBG Ed.)
The Violence of Austerity (OD)
IMF Wants More Realism In Eurozone Assumptions On Greece (R.)
QE Remains A Long Shot For Greece (K.)
In Germany, Syrian Man Wins Case Against Deportation To Greece (AP)
Elder Refugees Seeking Asylum in Europe Left Stranded in Greece – HRW (GR)
Tasmania Bans Super Trawlers From Its Waters (AAP)
Fossils Cast Doubt On Human Lineage Originating In Africa (R.)

 

 

Moody’s worries are the local government financing vehicles and state-owned enterprises, which are umbilically linked to the shadow banks.

You can’t run an entire economy from and in the shadows.

China Hit by First Moody’s Downgrade Since 1989 on Debt Risk (BBG)

Moody’s Investors Service cut its rating on China’s debt for the first time since 1989, challenging the view that the nation’s leadership will be able to rein in leverage while maintaining the pace of economic growth. Stocks and the yuan slipped in early trading after Moody’s reduced the rating to A1 from Aa3 on Wednesday, with markets paring losses in the afternoon. Moody’s cited the likelihood of a “material rise” in economy-wide debt and the burden that will place on the state’s finances, while also changing the outlook to stable from negative. It’s “absolutely groundless” for Moody’s to argue that local government financing vehicles and state-owned enterprise debt will swell the government’s contingent liabilities, according to a response released by the Ministry of Finance. The ratings company has underestimated the capability of the government to deepen reform and boost demand, the ministry said.

It wouldn’t be the first time a rating company was behind the curve, nor is such pushback unique – U.S. Treasury officials questioned the credibility of a 2011 downgrade from Standard & Poor’s. Still, the move underscores broader doubts over whether President Xi Jinping’s government can simultaneously cut excessive leverage and steady growth, all with a twice a decade reshuffle of top party posts looming later this year. “It is a psychological blow that China will not take kindly to and absolutely speaks to the rising financial pressures,” said Christopher Balding, an associate professor at the HSBC School of Business at Peking University in Shenzhen. That said, “it doesn’t matter much in the grand scheme of things because so much of Chinese debt is held by state or quasi-state actors and minimal amounts are international investors.”

Total outstanding credit climbed to about 260% of GDP by the end of 2016, up from 160% in 2008. At the same time, China’s external debt is low by international standards, at around 12% of gross domestic product, according to the IMF, meaning that a downgrade isn’t likely to be as disruptive as it would be for nations more reliant on international funding. Overseas institutions’ holdings of onshore bonds dropped to 830 billion yuan ($121 billion) as of the end of March, from 853 billion yuan three months earlier, People’s Bank of China data show. That’s less than 1.5% of 63.7 trillion yuan of outstanding notes. Moody’s last cut China’s sovereign rating in 1989, when it downgraded the sovereign to Baa2 from Baa1, according to spokesperson, Manvela Yeung. Moody’s lowered China’s credit-rating outlook to negative from stable in March 2016, citing rising debt, falling currency reserves and uncertainty over authorities’ ability to carry out reforms.

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Starting to be painful. At some point, Beijing total control will come up empty.

Chinese Banks Are In Big Trouble (ZH)

That’s not supposed to happen… With the crackdown on financial system leverage underway, Chinese banks (and securities firms) are in big trouble. As we noted previously, China’s bond curve is inverted, yields are surging, and Chinese regulatory decisions shutting down various shadow-banking pipelines has crushed securities firms’ stocks. However, as Bloomberg points out, as China’s deleveraging efforts cut into banks’ profit margins, rising base funding costs and interbank credit risk concerns have pushed banks’ cost of borrowing beyond the rate they charge customers for loans for the first time in history. As the chart shows, the one-year Shanghai Interbank Offered Rate has exceeded the Loan Prime Rate, the first time this has happened since the latter was introduced in 2013. “This is probably just the beginning” and interbank funding costs will rise further amid the drive to reduce leverage, said Xu Hanfei at China Merchants Securities in Shanghai.

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Wonderful from Chris Hamilton.

American Exceptionalism – Population Growth vs Money Growth (Econimica)

Since 1971, and the disconnection of the dollar from a finite gold backing, the value of money (the dollar) has been determined by it’s purchasing power versus the inflation of the assets to be purchased. Thus printing more money has not necessarily created “wealth” if the assets to be purchased are rising as fast or faster than the purchasing power of the “money”. The Fed touts it’s dual mandate of full employment and stable prices…but the result in prices; not so stable. The primary global asset purchasable only in US dollars, crude oil, has told a story of wildly gyrating prices. Since the end of Bretton Woods and the subsequent Congressionally dual mandated roles bestowed on the Fed…crude oil prices have gone bezerk, twice climbing nearly 10x’s within a decade. This is the opposite of stable (particularly compared to the price stability from WWII’s end until the Fed took over).

Soooo, theoretically the growth of “money” should be linked to the growth of the population, to ensure an adequate and stable money supply exists for the growing population. In a moment I’ll show you anything but a stable money supply. But first, the chart below shows the total 25-54yr/old US population, those employed among them, and the value in dollars of all publicly traded US stocks (represented by the Wilshire 5000). Something far beyond population growth or employment growth is pushing up the value of dollar based assets, gauging by US stock markets accelerating appreciation.

With that in mind, the chart below shows the growth of M3 money (the broadest measure of US “money”) and the broader 15-64yr/old US population since 1971. The money supply has grown in excess of 20x’s (2,000%) vs. the working age population (15-64yr/olds) which has grown less than 1x (nearly 70% increase).

This results in a rising ratio of “money” on a per capita of the core population basis, as the chart below details. The total amount of “money” rose from approximately $5 thousand dollars per working age adult to todays $65 thousand dollars per adult…an increase of 13x’s (1.300%).

The annual growth of the 15-64yr/old core US population peaked in 2003 and annual core population growth has decelerated by 90% since…while annual M3 growth has doubled over the same time period. [..] The chart below from 2000 into 2017 shows the change in both core population and M3 money supply, showing the year over year change on a monthly basis…and the current fall in core population growth will continue downward, likely turning negative at times over the next year (yet another first for America).

The final chart is the growth in M3 money supply per the growth in the adult, working age population. I’m not an economist or expert on much of anything…but that doesn’t look particularly good to me (something to do with “hyper-monetization” or some such thing). All I can say is the appearance of hockey sticks typically aren’t a good or stable sign but their appearance, just like those of black swans, has become the “new normal”.

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It could also fall by 50%.

Shiller: Stay In The Market, It ‘Could Go Up 50% From Here’ (CNBC)

Nobel Prize-winning economist Robert Shiller believes investors should continue to own stocks because the bull market may continue for years. CNBC’s Mike Santoli spoke with Shiller in an exclusive interview for CNBC PRO. Santoli asked Shiller about his market outlook. “I would say have some stocks in your portfolio. It could go up 50% from here. That’s what it did around 2000, after it reached this level, it went up another 50%. So I’m not against investing in the stock market when you consider the alternatives. But I think if one wants to diversify, US is high in its CAPE ratio. You can go practically anywhere else in the world and it’s lower,” Shiller said. “We could even set a new another record high in CAPE, that’s not a forecast.”

Shiller developed the “cyclically adjusted price-to-earnings ratio” (CAPE) market valuation measure, which is calculated using price divided by the index’s average historical 10-year earnings, adjusted for inflation. The economist’s research found future 10-year stock market returns were negatively correlated to high CAPE ratio readings on a relative basis. However, even though the current CAPE ratio is at 29, which is above the 17 historical average, the economist is not calling for a market decline. “I can see it as a real possibility that stocks prices and house prices would both keep going up for years, but I’m not forecasting that by any means,” he added.

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Dragging on.

German Police Search Daimler Facilities In Dieselgate Probe (DW)

German authorities have raided several locations associated with German premium carmaker Daimler. They acted on an initial suspicion of fraud involving misleading information about emission levels. Prosecutors in the southern German city of Stuttgart confirmed Tuesday they had searched about a dozen locations associated with the maker of Mercedes-Benz cars. The raids came as a result of the company being suspected of fraud and misleading advertising in relation to the selling of diesel-powered vehicles. Prosecutors have yet to provide further details on the raids. They only said the raids were carried out by well over 200 investigators across the country, with the focus of the search in progress on locations in the states of Baden-Württemberg, Lower Saxony, Saxony and the the city state of Berlin.

The carmaker said the investigations targeted “known and unknown employees of Daimler over suspicion of fraud related to the possible manipulation of exhaust gas emissions in passenger cars with diesel engines.” Daimler executives said they were not aware of any emissions scandal, adding that they were fully co-operating with investigators. The automaker had earlier agreed with Germany’s Federal Motor Transport Authority to “voluntarily” recall 247,000 vehicles to remove “potentially problematic technology,” which Daimler said had been installed to prevent engines from being damaged. Daimler has also been in the crosshairs of prosecutors in the US where it faces a number of class-action suits by car owners who have accused the company of not being accurate in stating emissions levels for a number of its diesel-powered models.

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You don’t say.

Canada Must Deflate Its Housing Bubble (BBG Ed.)

Canada’s housing market offers a case study in a contentious economic issue: If a central bank sees a bubble forming, should it act to deflate it? In this instance, the answer should be a resounding yes. A combination of foreign money, local speculation and abundant credit has driven Canadian house prices to levels that even government officials recognize cannot be sustained. In the Toronto area, for example, they were up 32% from a year earlier in April. David Rosenberg, an economist at Canadian investment firm Gluskin Sheff, notes that it would take a decline of more than 40% to restore the historical relationship between prices and household income. Granted, the bubble bears little resemblance to the U.S. subprime boom that triggered the global financial crisis.

Although one specialized lender, Home Capital, has had issues with fraudulent mortgage applications, regulation has largely kept out high-risk products. Homeowners haven’t been withdrawing a lot of equity, and can’t legally walk away from their debts like many Americans can. Banks aren’t sitting on the kinds of structured products that destroyed balance sheets in the U.S. Nearly all mortgage securities and a large portion of loans are guaranteed by the government. That said, the situation presents clear risks. As buyers stretch to afford homes, household debt has risen to 167% of disposable income – the highest among the Group of Seven industrialized nations. This is a serious vulnerability, and a big part of the rationale behind Canadian banks’ recent ratings downgrade. The more indebted people are, the more sensitive their spending becomes to changes in prices and interest rates, potentially allowing an otherwise small shock to result in a deep recession.

What to do? Administrative efforts to curb lending and tax foreign buyers have helped but haven’t solved the problem. That’s largely because extremely low interest rates are still giving people a big incentive to borrow. The Bank of Canada has held its target rate at 1% or lower since 2009, and at 0.5% since 2015, when it eased to counteract the effect of falling oil prices. That’s a very stimulative stance in a country where the neutral rate is estimated to be about 3% or higher. One can’t help but see a parallel with the low U.S. rates and the housing bubble of the early 2000s.

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The Violence of Austerity, edited by Vickie Cooper and David Whyte, is published by Pluto Press.

The Violence of Austerity (OD)

As we move towards the general election, we are paralyzed by what is probably the biggest single issue affecting ordinary people in the country: austerity. We are unable to fully understand both the economic madness of austerity and the true scale of the human cost and death toll that ‘fiscal discipline’ has unleashed. Since coming into power as Prime Minister, Theresa May has made a strategic decision not to use the word ‘austerity’. Instead she has adopted a more palatable language in a vain attempt to distance herself from the Cameron governments before her: “you call it austerity; I call it living within our means.” The experience of countless thousands of people is precisely the opposite: people are actively prevented from living within their means and are cut off from their most basic entitlement to: housing, food, health care, social care and general protection from hardship.

And people are dying as a result of these austerity effects. In February, Jeremy Corbyn made precisely this point when he observed the conclusions of one report that 30,000 people were dying unnecessarily every year because of the cuts to NHS and to local authority social care budgets. But this is really only the tip of the iceberg. The scale of disruption felt by people at the sharp end of these benefit reforms is enormous. Countless thousands of others have died prematurely following work capability assessments: approximately 10,000 according the government’s own figures. People are dying as a result of benefit sanction which has fatal impacts on existing health conditions, such as diabetes and heart disease. Austerity is about dismantling social protection. The crisis we face in social care is precipitated by cuts to local authority funding.

In the first 5 years of austerity, local authority budgets were cut by 40%, amounting to an estimated £18bn in care provision. A decade of cuts, when added up, also means that some key agencies that protect us, such as the Health and Safety Executive and the Environment Agency will have been decimated by up to 60% of funding cuts. Scaling back on an already paltry funding in these critical areas of regulation will lead to a rise in pollution related illness and disease and will fail to ensure people are safe at work. The economic folly is that austerity will cost society more in the long term. Local authorities are, for example, housing people in very expensive temporary accommodation because the government has disinvested in social housing.

The crisis in homelessness has paradoxically led to a £400 million rise in benefit payments. The future costs of disinvesting in young people will be seismic. Ending austerity would mean restoring our system of social protection and restoring the spending power of local authorities. It would mean, as all the political parties except the Conservatives recognise, taxing the rich, not punishing the poor in order to pay for a problem that has its roots in a global financial system that enriched the elite. It would also mean recognizing that the best way to prevent the worsening violence of austerity and to rebuild the economy is to re-invest in public sector jobs.

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The Greek government is being played for fools. Given how long this has been going on, one might suggest they are.

IMF Wants More Realism In Eurozone Assumptions On Greece (R.)

The IMF needs to see more realistic euro zone assumptions about Greece’s economy and more detail on planned debt relief measures to join a bailout, IMF’s European Department head Poul Thomsen said. Thomsen said the IMF and Greece’s euro zone lenders made progress in talks on Monday, but were not yet quite there. “We still think there is a need for more realism in assumptions and more specificity,” Thomsen said on Tuesday. The euro zone and the IMF agreed on Monday that Greece would have to keep a primary surplus – the budget balance before debt servicing – at 3.5% of GDP for five years after the bailout ends in 2018. But officials said the size of the surplus afterwards was still under discussion and there were also differences on economic growth assumptions, especially that forecasts used for debt relief plans spanned dozens of years. A group of euro zone countries led by Germany wants the IMF to join the Greek bailout, now handled by euro zone governments alone, to increase credibility. The IMF says that it will only join if Greece is granted debt relief.

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Greece will be declared eligible for inclusion in the ECB’s QE only AFTER the central bank says it will taper QE.

QE Remains A Long Shot For Greece (K.)

Greece is nowhere near a swift inclusion in the ECB’s QE program, according to senior officials at domestic banks. They argue that the issue of the national debt, and securing its sustainability in a way that would satisfy the IMF too, constitutes a particularly complex problem that may well be too hard to resolve by next month’s Eurogroup. They therefore consider Greece’s entry into the ECB’s bond-buying program this summer unlikely – instead expecting it to happen after the German election in the fall, either by the end of 2017 or in early 2018. Some go as far as expressing concern as to whether Greece will make it in at all before the program ends.

While there are more and more voices within the ECB speaking in favor of concluding the program earlier, Greece would like enjoy its benefits for more than two years. Greek banks are hoping a formula will be found at the next Eurogroup, on June 15, that will allow the disbursement of the next bailout tranche while putting off any decisions on the debt. The most optimistic observers note there is a chance of Greece entering QE between July and September and next month’s Eurogroup will be crucial to this end. The ECB argues that Greece’s inclusion in the bond-buying program requires the safeguarding of the debt’s sustainability.

In this context political statements or a mere reference to a series of measures will not suffice, as they will have to constitute legally binding pledges, which is highly unlikely before the German election. Goldman Sachs stated in an analysis that this country is not likely to fulfill the terms the ECB has set to join QE before the reduction of the monthly rate of bond purchases is activated. It also highlighted the high rate of bad loans as a point of concern that might also delay the decision for Greece to enjoy the benefits of QE. Similarly, Citi estimates that without an agreement on the easing of the debt, both inclusion in QE and a return to the bond markets would be quite difficult for Greece.

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In one and the same Union, laws and rights are widely divergent. That is not a union.

In Germany, Syrian Man Wins Case Against Deportation To Greece (AP)

Germany’s highest court has upheld a complaint by a Syrian whose asylum claim was rejected because he’d already been granted asylum in Greece. The man, whose name wasn’t released, arrived in Germany in 2015. He told officials he had already been granted protection in Greece but had been living on the street there and received no support from the Greek government. The man’s claim in Germany was rejected, meaning that he risked deportation to Greece. Germany’s Federal Constitutional Court said Tuesday that a lower court had wrongly failed to take account of a lack of welfare payments for refugees in Greece and to check whether there were assurances that the man would be given at least temporary housing. Judges sent the case back to the lower court to reconsider.

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Who cares about human rights declarations when elections are coming up?

Elder Refugees Seeking Asylum in Europe Left Stranded in Greece – HRW (GR)

There are many unnecessary delays and arbitrary barriers which keep older refugees and asylum seekers stranded in Greece, unable to reunite with family members who have legal status in the EU, Human Rights Watch said on Monday. According to their publication on Monday, EU: Older Refugees Stranded in Greece, one of the main issues that older refugees face is that family reunification does not focus on reuniting an entire family, but spouses and parents with minor children who are under the age of 18. Hundreds of older refugees and asylum seekers currently in Greece who have fled war zones and persecution are waiting to learn if they will be allowed to reunite with adult family members who have been granted residency in another EU country. Although EU law provides for family reunification for older people, lack of clarity or explicit provisions governing the process means that they can remain in limbo, far from their family for prolonged periods of time.

“These older people, already victims of conflict and persecution, hoped to find protection in the EU after treacherous journeys to Greece, and to be reunited with their family,” said Bethany Brown, researcher on older people’s rights at Human Rights Watch. “Now they don’t know if they will ever see their relatives again.” While several barriers are common to all asylum seekers, they can have a more significant impact on older people. Older people have been shown, in some contexts, to have significantly higher rates of psychological distress than the general refugee population, and often suffer from health issues, injuries and violence during displacement, and frailty that can be exacerbated by time and uncertainty.

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A little piece of news. But a good one.

Tasmania Bans Super Trawlers From Its Waters (AAP)

Tasmania’s parliament has passed laws banning super trawler fishing vessels from operating in the state’s waters. Legislation was given a green light on Wednesday, with Liberal government MP Mark Shelton confirming that any future attempts to allow freezer trawler vessels would require an act of parliament. “Our bill should give recreational fishers additional comfort that any future attempt to let super trawlers into the small pelagic fishery will be met with parliamentary hurdles,” he said.

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Graecopithecus freybergi.

Fossils Cast Doubt On Human Lineage Originating In Africa (R.)

Fossils from Greece and Bulgaria of an ape-like creature that lived 7.2 million years ago may fundamentally alter the understanding of human origins, casting doubt on the view that the evolutionary lineage that led to people arose in Africa. Scientists said on Monday the creature, known as Graecopithecus freybergi and known only from a lower jawbone and an isolated tooth, may be the oldest-known member of the human lineage that began after an evolutionary split from the line that led to chimpanzees, our closest cousins. The jawbone, which included teeth, was unearthed in 1944 in Athens. The premolar was found in south-central Bulgaria in 2009.

The researchers examined them using sophisticated new techniques including CT scans and established their age by dating the sedimentary rock in which they were found. They found dental root development that possessed telltale human characteristics not seen in chimps and their ancestors, placing Graecopithecus within the human lineage, known as hominins. Until now, the oldest-known hominin was Sahelanthropus, which lived 6-7 million years ago in Chad. The scientific consensus long has been that hominins originated in Africa. Considering the Graecopithecus fossils hail from the Balkans, the eastern Mediterranean may have given rise to the human lineage, the researchers said.

The findings in no way call into question that our species, Homo sapiens, first appeared in Africa about 200,000 years ago and later migrated to other parts of the world, the researchers said. “Our species evolved in Africa. Our lineage may not have,” said paleoanthropologist Madelaine Böhme of Germany’s University of Tübingen, adding that the findings “may change radically our understanding of early human/hominin origin.” Homo sapiens is only the latest in a long evolutionary hominin line that began with overwhelmingly ape-like species, followed by a succession of species acquiring more and more human traits over time.

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May 192017
 
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Jean-Michel Basquiat Untitled 1982

 

Swedish Prosecutors Drop Julian Assange Rape Investigation (AP/R.)
Australia Economy Among ‘Walking Dead Of Household Debt’ – Steve Keen (NCA)
US Household Debt Hit Record in First Quarter (WSJ)
Why Government Surpluses Is A Terrible Idea – Steve Keen (Renegade)
How Can The Greeks Save More Money? A Monetary Parable. (Steve Keen)
Greek Parliament Approves More Austerity Measures Amid Protests (DW)
Trump Aims to Balance Budget With Deep Cuts, Bullish Growth Projections (WSJ)
Get Ready for Quantitative Tightening (Rickards)
ECB Tapering to Cause “Disorderly Restructuring” of Italian Debt, Return to Lira (DQ)
Russia-US Relations Have Become ‘Extremely Paranoid’ – Sberbank CEO (CNBC)
Western Democracy – As Represented By The US – Is Crumbling (Global Times)
Secret Plans To ‘Protect’ France In The Event Of Le Pen Victory Emerge (G.)
What Jeremy Corbyn Whispered In My Ear (Ind.)
Study Of Healthcare Quality In 195 Countries Names The Best And Worst (AFP)
50 Years Since Indigenous Australians First ‘Counted’, Little Has Changed (G.)

 

 

Time for legal action against Sweden and the prosecutors.

Swedish Prosecutors Drop Julian Assange Rape Investigation (AP/R.)

Swedish prosecutors said on Friday they would drop a preliminary investigation into an allegation of rape against WikiLeaks founder Julian Assange, bringing to an end a seven-year legal standoff. “Chief Prosecutor Marianne Ny has today decided to discontinue the preliminary investigation regarding suspected rape concerning Julian Assange,” the prosecutors office said in a statement. Assange, 45, has lived in the Ecuadorian Embassy in London since 2012, after taking refuge there to avoid extradition to Sweden over the allegation of rape, which he denies. He has refused to travel to Stockholm, saying he fears further extradition to the US over WikiLeaks’ release of 500,000 secret military files on the wars in Afghanistan and Iraq. In 2015 lawyers for Julian Assange have claimed victory after a Swedish prosecutor bowed to pressure from the courts and agreed to break the deadlock in the WikiLeaks founder’s case by interviewing him in London.

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“Stop making housing into an asset.” “Make housing a place for people to actually live.”

Australia Economy Among ‘Walking Dead Of Household Debt’ – Steve Keen (NCA)

Australia has become the “walking dead of debt” due for a financial reckoning that could shock the housing market “bubble” within months. That’s according to “anti-economist” Professor Steve Keen who defines Australia as a “zombie to be” given soaring personal debt that has created a government-induced property bubble ripe to burst. “Australia has simply delayed its day of reckoning,” he told news.com.au in reference to the global financial crisis that shocked many countries around the world from 2008 but left the lucky country relatively unscathed after a series of government interventions. The Kingston University Professor claims first homeowners grants rolled out by successive governments have artificially kept prices high creating a form of “instant prosperity” that politicians are loath to stop.

“The housing bubble makes the politicians look good because A, people are feeling wealthier, and B … people are borrowing money to spend,” he said. “Then the government runs a balanced budget and looks like it really knows what it’s doing” “It hasn’t got a f***ing clue frankly, because what’s actually happening is the reason it’s making that money is credit is expanding,” he said. “It’s the old classic story, you’re criticising a party because someone’s laced the punchbowl. You try to take the punchbowl away from the party you’re a very unpopular person but you need to because what’s actually happening is people are getting intoxicated with credit”. His latest book, Can We Avoid Another Financial Crisis? argues Australia, along with Belgium, China, Canada and South Korea, is a “zombie” economy sleepwalking into a crunch that could come between 2017 and 2020.

“Both [Australia and Canada] will suffer a serious economic slowdown in the next few years since the only way they can sustain their current growth rates is for debt to continue growing faster than GDP,” he writes. [..] For Prof Keen, the solution for governments to an overheated housing market is obvious: “Stop making housing into an asset.” “Make housing a place for people to actually live. So you go back to saying ‘what’s desirable is affordable houses’ and affordable means it doesn’t cost a first homebuyer more than three or four years’ income to get a property,” he said. As for those struggling to get on the ladder in the meantime? “The only thing you can do in the middle is say I’m just not going to join in, and if it happens on a collective level …. it’s game over for the bubble because the bubble only works if more people keep taking out more leverage.”

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Wait till house prices start falling.

US Household Debt Hit Record in First Quarter (WSJ)

The total debt held by American households reached a record in early 2017, exceeding its 2008 peak after years of retrenchment against a backdrop of financial crisis, recession and modest economic growth. Much has changed over the past 8.5 years. The economy is larger, lending standards are tighter and less debt is delinquent. Mortgages remain the largest form of household borrowing but have become a smaller share of total debt as consumers take on more automotive and student loans. “The debt and its borrowers look quite different today,” New York Fed economist Donghoon Lee said. He added: “This record debt level is neither a reason to celebrate nor a cause for alarm.” The total-debt milestone, announced Wednesday by the Federal Reserve Bank of New York, was a long time coming.

Americans reduced their debts during and after the 2007-09 recession to an unusual extent: a 12% decline from the peak in the third quarter of 2008 to the trough in the second quarter of 2013. New York Fed researchers, looking at data back to the end of World War II, described the drop as “an aberration from what had been a 63-year upward trend reflecting the depth, duration and aftermath of the Great Recession.” In the first quarter, total debt was up about 14% from that low point as steady job gains, falling unemployment and continued economic growth boosted households’ income and willingness to borrow. The New York Fed report said total household debt rose by $149 billion in the first three months of 2017 compared with the prior quarter to a total of $12.725 trillion.

The pace of new lending slowed from the strong fourth quarter. Mortgage balances rose from the final three months of 2016, while home-equity lines of credit were down. Automotive loans rose, as did student loans, but credit-card debt fell along with other types of debt. The data weren’t adjusted for inflation, and household debt remains below past levels in relation to the size of the overall U.S. economy. In the first quarter, total debt was about 67% of nominal gross domestic product versus roughly 85% of GDP in the third quarter of 2008. Balance sheets look different now, with less housing-related debt and more student and auto loans. As of the first quarter, about 68% of total household debt was in the form of mortgages; in the third quarter of 2008, mortgages were roughly 73% of total debt. Student loans rose from about 5% to around 11% of total indebtedness, and auto loans went from roughly 6% to about 9%.

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Can we finally try to understand this, all of us?

Why Government Surpluses Is A Terrible Idea – Steve Keen (Renegade)

In this Renegade Short, Professor Steve Keen explains why the government isn’t supposed to balance its accounts like a household.

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TomDickHaria.

How Can The Greeks Save More Money? A Monetary Parable. (Steve Keen)

The EU’s “Stability and Growth Pact” has as one of its primary rules that “The Member States undertake to abide by the medium-term budgetary objective of positions close to balance or in surplus…” I explore what this objective implies in the context of a model of the economy of “TomDickHaria”: what happens to its collective GDP where one member tries to achieve the surplus goal set out in the “Stability and Growth Pact?

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The Troika makes sure Greece will keep drowning.

Greek Parliament Approves More Austerity Measures Amid Protests (DW)

All 153 lawmakers in Prime Minister Alexis Tsipras’ governing coalition backed the legislation that includes new pension cuts and lower tax breaks, which are expected to save Greece €4.9 billion ($5.4 billion) until 2021. All opposition lawmakers present in the 300-seat chamber rejected the package required by international lenders before the release of more aid. Athens needs the bailout funds to repay €7.5 billion of debt maturing in July this year. Relief measures will only kick in if Greece meets fiscal targets stipulated by its creditors. “Our country is being turned into an austerity colony,” leading opposition conservative Kyriakos Mitsotakis said during debate on the bill, describing added cuts as a “nightmare” for low-earners.

Tsipras countered that its passage would enable Greece from summer next year to stand on its own feet, without the intervention of creditors such as the IMF. He accused the opposition of constantly warning of a catastrophe that “hasn’t come.” Government spokesman Dimitris Tzanakopoulos told Skai TV that Greek creditors the IMF and Germany were “in the final stretch of very tough negotiations” over a compromise that should allow Greece to return to bond markets in 2018. Thursday’s austerity package lowers the income tax exception from €8,600 down to about €5,700 but increases benefits for low-income tenants, parents with children and subsidies for child care. Public stakes are to be reduced through sales of holdings in Greece’s PPC electricity utility, railways, Athens’ international airport and the Thessaloniki port.

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Same as it ever was. Fantasy numbers have ruled the day for many years.

Trump Aims to Balance Budget With Deep Cuts, Bullish Growth Projections (WSJ)

President Donald Trump next week will propose the U.S. can balance the federal budget over 10 years with substantial cuts to safety-net programs such as food stamps and other anti-poverty efforts, combined with a tax and regulatory overhaul that speeds up the nation’s economic growth rate, a senior White House budget official said. The president’s budget, due for release Tuesday, will spare the two largest drivers of future spending—Medicare and Social Security—leaving trillions in cuts from other programs. That includes discretionary spending cuts to education, housing, environment programs and foreign aid already laid out by the administration, in addition to new proposed reductions to nondiscretionary spending like food stamps, Medicaid and federal employee-benefit programs.

The budget release, which will be unveiled while Mr. Trump is visiting Europe and the Middle East, shows how his economic policy team is trying to forge ahead on his agenda even as distracting political controversies, such as the recent firing of FBI director James Comey, swirl around Washington. On Thursday, Treasury Secretary Steven Mnuchin testified on Capitol Hill, his first such appearance since his February confirmation, where he expressed confidence Congress could advance a revamp of the tax code this year. House Republicans held their first hearing on the proposed tax overhaul, following a series of meetings between lawmakers and top administration officials Wednesday.

The White House’s budget proposal next week builds upon an earlier outline in March that called for a nearly 10% boost in defense funding next year, offset by around $54 billion in cuts for nondefense programs. [..] Among the more controversial elements of the budget will be the administration’s growth forecasts. The White House projects the nation’s economic growth rate will rise to 3% by 2021, compared with the 1.9% forecast under current policy by the Congressional Budget Office. It’s unusual to see the White House’s growth forecasts differ from the CBO and other blue-chip projections by such a large margin over such a long stretch of the 10-year budget window.

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Another crazy experiment by the Fed bookworms.

Get Ready for Quantitative Tightening (Rickards)

Despite yesterday’s market sell-off, the Fed is still on track to raise interest rates in June. Wednesday’s action is no more than a speed bump for the Fed. It will not stop the Fed from moving forward with another 0.25% rate increase. The Fed is embarking on a new path, a path that started several years with QE (quantitative easing). QE is the name for the method the Fed uses to ease monetary conditions when interest rates are already zero. Conventional monetary policy calls for interest rate cuts to stimulate growth and inflate asset prices when the economy is in a recession. What does a central bank do when interest rates are already at zero and you can’t cut them anymore? One solution is negative interest rates, although the evidence from Japan and Europe indicates that negative rates do not have the same effect as rate cuts from positive levels. The second solution is to print money! The Fed does this by buying bonds from the big banks.

The banks deliver the bonds to the Fed, and the Fed pays for them with money from thin air. The popular name for this is quantitative easing, or QE, although the Fed’s technical name is long-term asset purchases. The Fed did QE in three rounds from 2008 to 2013. They gradually tapered new purchases down to zero by 2014. Since then, the Fed has been stuck with $4.5 trillion of bonds that it bought with the printed money. When the bonds mature, the Fed buys new ones to maintain the size of its balance sheet. But now the Fed wants to “normalize” its balance sheet and get back down to about $2 trillion. They could just sell the bonds, but that would destroy the bond market. Instead, the Fed will let the old bonds mature, and not buy new ones. That way the money just disappears and the balance sheet shrinks. The new name for this is “quantitative tightening,” or QT. You’ll be hearing a lot about QT in the months ahead.

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Tapering, QT, it’s all just more ‘uncharted territory’.

ECB Tapering to Cause “Disorderly Restructuring” of Italian Debt, Return to Lira (DQ)

Here’s the staggering scale of the Italian government’s dependence on the ECB’s bond purchases, according to a new report by Astellon Capital: Since 2008, 88% of government debt net issuance has been acquired by the ECB and Italian Banks. At current government debt net issuance rates and announced QE levels, the ECB will have been responsible for financing 100% of Italy’s deficits from 2014 to 2019. But now there’s a snag. Last month, the size of the balance sheet of the ECB surpassed that of any other central bank: At €4.17 trillion, the ECB’s assets have soared to 38.8% of Eurozone GDP. The ECB has already reduced the rate of purchases to €60 billion a month. And it plans to further withdraw from the super-expansionary monetary policy. To do this, according to Der Spiegel, it wants to spread more optimistic messages about the economic situation and gradually reduce borrowing.

[..] By the halfway point of 2018 the ECB would have completed tapering and it would then use the second half of the year to move away from negative interest rates. So far, most current ECB members have shown scant enthusiasm for withdrawing the punch bowl. The reason most frequently cited for not tapering more just yet is their lingering concern about the long-term sustainability of the Eurozone’s recent economic turnaround. The ECB’s binge-buying of sovereign and corporate bonds has spawned a mass culture of financial dependence across Europe, while merely serving to paper over the cracks that began forming — or at least became visible — in some Eurozone economies during the sovereign debt crisis. In many places the cracks are even bigger than they were back then. This is the elephant in the ECB’s room, and by now it’s too big to ignore.

In one country alone, the cracks are so large that they could end up fracturing the entire single currency project. That country is Italy. Astellon Capital’s report on Italy’s dependence on ECB bond purchases poses the question: If the ECB tapers its purchase of Italian bonds further, who would pick up the slack? The Italian banks, which are themselves deep in crisis mode and whose balance sheets are already filled to the gills with Italian bonds? Hardly. When QE ends, the banks are more likely to become net sellers, rather than net buyers, of Italian debt. The only way for the game to continue is if over the next six years non-banks increase their purchase activity up to seven times that of the past nine years. In other words, the very same investors who have used QE as the perfect opportunity to offload the immense risk of holding Italian liabilities onto the Bank of Italy’s, and then onto the Eurosystem’s, would need to step back into the market in a massive way, just at a time that the country in question is on the verge of a full-blown banking crisis.

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No kidding.

Russia-US Relations Have Become ‘Extremely Paranoid’ – Sberbank CEO (CNBC)

Diplomatic relations between America and Russia have deteriorated to such an extent that contacts between the two countries have become extremely paranoid of one another, the chief executive of Russia’s largest bank has told CNBC. “From what we see here in Russia and from the programs we see from the U.S., the unfolding situation is fairly complex. And there are certain signs of a certain… paranoid attitude to Russia and to every single contact with Russia real or imagined,” Herman Gref, Sberbank CEO, said via a translator. [..] When asked whether Gref harbored any concerns about the consequences of having met with Trump in the past, he replied, “I think the situation has become extremely paranoid for one to suspect that these sort of contacts could lead to political consequences.”

Speaking in January at the World Economic Forum in Davos, Sberbank’s CEO had predicted the Trump administration could re-establish close ties with the Kremlin and expressed his hope the newly-elected U.S. president could mark a “new beginning” for the two countries. On Friday, Gref suggested it was still too early to judge the success of Trump’s presidency however conceded that, for the time-being at least, relations between American and Russia were unlikely to change for the better. Moscow is currently enduring the sharp end of tough international sanctions from Washington[..] . “Well, I have to say that this has had an effect on us in the last two years… The inability to access international markets is painful for us,” Gref said. “You know, sanctions were put in place for political reasons and most likely their removal will also be motivated by politics…

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China’s official government paper.

Western Democracy – As Represented By The US – Is Crumbling (Global Times)

The American elite still refuse to accept Trump after his 100 days in the Oval Office. He is at odds with the mainstream media; insiders have constantly leaked information to the media. Now some commentators have compared the exposure of the Comey memo to the Watergate scandal. As Congress is under Republican control, few believe there will be a move to impeach the president, but these latest revelations will certainly further erode Trump’s presidential authority. At the beginning of the corruption scandal, few believed that South Korean president Park Geun-hye would be impeached either. Could this be a reference for Trump’s case? But evidence of Park’s illegal activities was solid, while it will be more complicated to make determinations over whether Trump obstructed justice and leaked classified intelligence.

To impeach Trump will need more evidence from further investigation. To completely discredit Trump among voters, the present scandal is not enough as it does not add to the negative image of Trump. Many just think Trump often speaks off the cuff, which ends up in silly blunders. If there is a major substantive scandal over and above him speaking out of turn then that will be another thing. But this is not the case at the moment. Every country has its own troubles. The US model represents Western democracy, but it is crumbling, and the resulting social division has become more and more serious. The US Deputy Attorney General Rod J. Rosenstein appointed a special counsel to oversee the investigation into link between Russia and the 2016 US presidential election and related matters on Wednesday.

More juicy details will continue to appear and the rifts may become wider. Trump will become one of the most frequently accused Americans. The US won’t be engulfed by chaos if its president is caught in a lawsuit. Someone has pointed out that no matter how chaotic the White House and Capitol Hill are, the overall operation of the US will not be a major problem as long as the enterprises and social organizations in the country are stable. This is seen as an advantage of the American system. Although American society is relatively stable, the political tumult can’t be taken as an advantage of the US system. The fact is that US politics is in trouble, and the benefits brought by its system are being squandered.

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Democracy as a threat to the state.

Secret Plans To ‘Protect’ France In The Event Of Le Pen Victory Emerge (G.)

It was never written down and never given a name, but France had a detailed plan to “protect the Republic” if far right leader Marine Le Pen was elected president, French media have reported. “It was like a multi-stage rocket,” an unnamed senior official told l’Obs magazine. “The philosophy, and the absolute imperative, was to keep the peace, while also respecting our constitutional rules.” [..] L’Obs cited three anonymous sources with knowledge of the emergency plan that would have been put into effect had Le Pen reached the Elysée palace, saying it was devised by a small group of ministers, chiefs of staff and top civil servants. The magazine said the plan was aimed mainly at preventing serious civil unrest and “freezing” the political situation by convening parliament in emergency session and maintaining the outgoing prime minister in office.

Police and intelligence services were particularly concerned by the threat of “extreme violence” from mainly far left protesters in the event of a Le Pen victory as the country would have found itself “on the brink of chaos”. Even before the first round of voting on 23 April, a confidential note drawn up by the intelligence services announced that “without exception, every local public safety directorate has expressed its concern”, Le Parisien reported. Regional police chiefs were asked on 21 April to detail their crowd control and deployment plans, l’Obs said. Under France’s ongoing state of emergency, more than 50,000 police and gendarmes and 7,000 soldiers were already on duty. On 5 May, two days before the second round that Macron won by 66% to Le Pen’s 34%, the national public safety directorate warned in another note that protesters were ready to use “fireworks, mortars and incendiary bombs”.

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“If you do what you believe in, you’re strong. It’s when you don’t do what you believe in that you’re weak. And we are strong.”

What Jeremy Corbyn Whispered In My Ear (Ind.)

When I shook his hand, I told him that I work for a charity and freelance as a journalist, writing on politics and social justice issues. I expressed my disappointment that Labour (and particularly Corbyn himself) doesn’t get a fair hearing from many news outlets. He spoke in my ear: “If you do what you believe in, you’re strong. It’s when you don’t do what you believe in that you’re weak. And we are strong.” The unveiling of Labour’s manifesto today was a display of strength. Labour is promising a Britain that works for everyone, where whole swathes of society aren’t left behind. The transformative manifesto will take the financial burden from the shoulders of those who can least afford to carry it, and place it upon the top 5% of earners and arrogantly tax-dodging corporations.

The Britain we currently live in is untenable for young people, university students, teachers, NHS workers, policemen, the disabled, people with long-term illnesses, people who can’t find work, first-time buyers, and those living in rented accommodation. Britain is working for a wealthy few, and Labour’s manifesto highlights the fact, often forgotten, that this is not inevitable. At Bradford University, a huge cheer went up when Corbyn promised to scrap tuition fees and end hospital parking charges. The scandal of zero hours contracts would be a thing of the past under Labour, as will NHS cuts and rises in VAT and income tax for 95% of earners. The manifesto is a document filled with long-overdue, common sense policies.

It addresses the important questions that accompany the Brexit process, including concerns about the protection of jobs and hard-won workers’ rights. It puts children and young people first, promising to invest in them through a National Education Service rather than rely on the failed academies experiment or a ridiculous and divisive reintroduction of grammar schools. In-work poverty is unacceptable. My partner and I both work two jobs and we struggle to make ends meet. We don’t indulge in avocado toast but finding enough for a deposit on a mortgage is sadly out of reach. The pledge to build one million new homes and introduce a £10 living wage by 2020 is crucial for young couples and for anyone working in poorly paid or part-time jobs, notably in care work and service industry roles. If Labour’s manifesto and the promise of more public ownership will transport us to the 1970s, where do we currently live? 1870, perhaps?

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Single payer rules. Supreme.

Study Of Healthcare Quality In 195 Countries Names The Best And Worst (AFP)

Neither Canada nor Japan cracked the top 10, and the United States finished a dismal 35th, according to a much anticipated ranking of healthcare quality in 195 countries, released Friday. Among nations with more than a million souls, top honours for 2015 went to Switzerland, followed by Sweden and Norway, though the healthcare gold standard remains tiny Andorra, a postage stamp of a country nestled between Spain (No. 8) and France (No. 15). Iceland (No. 2), Australia (No. 6), Finland (No. 7), the Netherlands (No. 9) and financial and banking centre Luxembourg rounded out the first 10 finishers, according to a comprehensive study published in the medical journal The Lancet.

Of the 20 countries heading up the list, all but Australia and Japan (No. 11) are in western Europe, where virtually every nation boasts some form of universal health coverage. The United States – where a Republican Congress wants to peel back reforms that gave millions of people access to health insurance for the first time – ranked below Britain, which placed 30th. The Healthcare Access and Quality Index, based on death rates for 32 diseases that can be avoided or effectively treated with proper medical care, also tracked progress in each nation compared to the benchmark year of 1990.

Virtually all countries improved over that period, but many – especially in Africa and Oceania – fell further behind others in providing basic care for their citizens. With the exceptions of Afghanistan, Haiti and Yemen, the 30 countries at the bottom of the ranking were all in sub-Saharan Africa, with the Central African Republic suffering the worst standards of all. “Despite improvements in healthcare quality and access over 25 years, inequality between the best and worst performing countries has grown,” said Christopher Murray, director of the Institute for Health Metrics and Evaluation at the University of Washington, and leader of a consortium of hundreds of contributing experts.

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“Dogs and cats and pigs and sheep were counted in Australia before Aboriginal people”

50 Years Since Indigenous Australians First ‘Counted’, Little Has Changed (G.)

Sol Bellear, a former rugby league player for South Sydney Rabbitohs and Aboriginal rights activist, sits in the soft autumn sunshine at a cafe intersecting Redfern Park and the oval that remains the spiritual home of his beloved club. He sips a Red Bull “heart starter” and English breakfast tea. And he shakes his head while contemplating the anniversaries of what ought to have been transformative moments for Aboriginal and Torres Strait Islander people – starting with the 1967 “citizenship” referendum that first made their existence in Australia “official”. “Things should be so much better for Aboriginal people. I think the country saw 1967 as the end of the fight,” Bellear says.

“Before 1967, we weren’t counted in the census or anything as people. Dogs and cats and pigs and sheep were counted in Australia before Aboriginal people.” Indigenous people had never previously been officially included among the Australian citizenry, nor counted in the Commonwealth census – so the federal government could not legislate for them. But on 27 May 1967, more than 90% of the Australian electorate voted at the “citizenship” referendum to effectively bring Indigenous people into the Commonwealth. “After the referendum, though, it was like the work was done for the rest of the country and governments – when it was actually just the bloody beginning,” Bellear says. “Every little thing we’ve won since, we’ve had to fight for.”

2017 is also the 25th anniversary of two more critical moments in the story: the Mabo decision – a High Court ruling that led to native title land rights, and former prime minister Paul Keating’s landmark “Redfern speech” (“We committed the murders – we took the children from their mothers”). It was Bellear who introduced Keating at Redfern Park. This was the first time an Australian prime minister had frankly, without qualification, acknowledged the violence, sickness, dispossession and ongoing oppression that colonialism had imposed on Indigenous people. Yet a quarter of a century on, Bellear says his country remains deaf to all the non-government reports into Indigenous lives – and to the savage critiques of Commonwealth policies that purported to make them better.

[..] Aboriginal and Torres Strait Islanders constitute some 3% of the country’s overall population – yet in 1991, they comprised 14% of Australia’s prisoners. A quarter of a century later, that figure was up to 27% – while more than 150 Indigenous people had died in custody in the intervening 25 years. In some parts of Australia, many more young Indigenous men complete prison terms than high school. The Indigenous rate of imprisonment is 15 times the age-standardised non-Indigenous rate. As Thalia Anthony pointed out in her 2015 book Indigenous People, Crime and Punishment, rates of Indigenous incarceration in Australia today match those of black imprisonment in apartheid South Africa.

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May 122017
 
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Robert Doisneau Le Baiser Blotto, Paris 1953

 

Human Beings Are Not Efficiency Seeking Machines (Radford)
Stockman: Trump’s Tax Plan Never Had a Chance (DR)
Is China Really Deleveraging? (Balding)
China Stocks Are Tumbling Again. Unlike 2015, World Doesn’t Care (BBG)
China Has the World’s Biggest Productivity Problem (BBG)
No Evidence of Russian Intrusion in US Political System (Ron Paul)
Canada’s Home Capital Seeks New Funding Sources, Uncertain Of Future (BBG)
Open Letter to Theresa May: Annul The Phoney Negotiations! (Varoufakis)
Pound Stumbles As Bank Of England Releases Gloomy Economic Report (Pol.)
Macron Spells the End to the Global Baby-Boomer Rule (BBG)
European Monotony (K.)
Anxiety Mounts As Italy Moves To Get More Migrants Out (AFP)
G7 Finance Chiefs Can’t Agree On Trade, So They Talk About Greece (BBG)
Greek Economy to Grow Over 2% in 2017 – Economy and Development Minister (BBG)
European Commission Slashes Greece’s Economic Forecasts (GR)
Schaeuble Says Greece Needs Reforms, Defends 2015 ‘Timeout’ Idea (K.)
One In Six Greek Businesses Are Late Payers – Central Bank Chief (Amna)
Somebody’s Going To Suffer: Greece’s New Austerity Measures (Michael Hudson)

 

 

Wonderful: “..if your goal is to understand real economies replete with real humans, modern economics is a waste of time.”

Human Beings Are Not Efficiency Seeking Machines (Radford)

I don’t understand why people get upset when I say that economics is a waste of time. I suppose it’s because I don’t make a clear enough difference between economics as a general topic and economics as a formal, mainstream, body of knowledge. It’s the latter that is a waste of time. The former is wonderfully interesting. At its heart economics is a study of human behavior, where that behavior is specific to certain activities. It is thus deeply rooted in psychology, so it is more closely associated with biology than physics. This is not a new idea: some of the greatest economists of the past have argued as much. Trying to transfer in ideas from physics, even metaphorically, therefore tends to lead to dead ends.

Like the notion of efficiency. That’s something of great interest to engineers, but has little to do with economics. You can have an efficient physical system. You cannot have an efficient social system. There’s just too much we don’t know and can never know. Still economists all over the world are obsessed with efficiency. So what do they do? They start to abstract and simplify. They model and fine tune. They test and re-test. And still their ideas run afoul of reality: human beings are not efficiency seeking machines, and so any system filled with humans is likely to be darned near impossible to steer towards efficient outcomes. Nothing daunted economists press on. If humans are unlikely to be efficient the logical next step is to construct a theory to exclude actual humans.

That’s what’s happened in economics: the faulty decision to root economics in a physics-like setting rather than in a biology like-setting forced subsequent generations of economists to “refine” their thinking and, eventually, to force real people out of their theoretical world. Voila! Modern economics ends up as a wonderful edifice with extravagant claims as to its ability to understand human behavior precisely by eliminating all contact with humanity. Weird. Ergo, if your goal is to understand real economies replete with real humans, modern economics is a waste of time.

Go study something else. You can learn a great deal about real economies by reading psychology literature. Behavioral economics — which despite all the press it gets has had only a marginal impact on the mainstream and on textbook economics — is an attempt to do that. The behavioral economics project is in its infancy. Go get involved. By the way: anything that refers to strategic behavior is also useful. Real humans are constantly trying to outwit each other. That’s when they’re not cooperating, which is another human characteristic economics determinedly overlooks. Humans are complicated. Too complicated for an economics built on an exclusive belief in relentless rationality.

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“This rosy scenario, which is the current ten-year baseline, assumes 30% more nominal GDP and wage growth per year than we’ve actually had in the past ten years.”

Stockman: Trump’s Tax Plan Never Had a Chance (DR)

David Stockman joined Fox Business and Maria Bartiromo on Mornings with Maria to discuss President Trump’s tax plan efforts and what he viewed as a massive calamity unfolding in Washington. The Fox Business host began the conversation by asking what he thought on the Trump tax plan proposal. Stockman pressed, “I think it is a one page, $7.5 trillion wish list that has no chance of being enacted and is pretty irresponsible this late in the game.” The host then fired back by asking how the former Reagan budget director placed a price tag on the plan without a score from the Congressional Budget Office. The author fired back, “The corporate is at 15%, the pass through rate on all unincorporated business is at 15% and that will cost roughly $4 trillion. Doubling the standard deduction will cost over $1 trillion. Getting rid of the alternative minimum will cost nearly $1 trillion.”

Then when referencing the Committee for a Responsible Federal Budget (which Stockman is a Board Member of) the author highlighted, “The gross cost is $7.5 trillion and that perhaps the government could earn back $2 trillion through loophole closing and base broadening. My argument is, after ruling out charitable contributions, home mortgages and a Congress that says they won’t touch a health care exclusion… when you go through the math there is no $2 trillion that this Congress and Republican party will even remotely be able to put together.” When asked about the assumption from Treasury Secretary Mnuchin and Senior Economic Advisor Cohn that new economic growth would pay for the budget Stockman pressed on the facts as he saw them:

“Growth always helps, but what they’re failing to realize, and what I learned in the 1980’s is that there is more growth built into the baseline forecast from the CBO than you’re ever going to achieve in the real world.” “This rosy scenario, which is the current ten-year baseline, assumes 30% more nominal GDP and wage growth per year than we’ve actually had in the past ten years.” When asked about the conditions in Congress and how else the government could raise revenue he directed, “We have to look at the numbers. There’s $10 trillion of new deficits built in over the next ten years, within the current policy, with rosy scenario economics. If you are going to try to push $2-$6 billion in tax cuts on top of that with $1 trillion of defense increases, $1 trillion for infrastructure in addition to Veteran spending and more – we’re headed for a fiscal calamity.

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Christopher Balding and crazy numbers.

Is China Really Deleveraging? (Balding)

There’s growing evidence that China is finally scaling back its epic borrowing binge. That’s important for a lot of reasons, not least for reducing risk and avoiding a financial crisis. The question is whether the government can sustain the pain. Regulators in Beijing are well aware of the risks that excessive leverage poses, and have tried many times over the years to crack down. Yet they routinely fail to rein in local government officials who get promoted by boosting economic growth, regardless of what systemic risks they may be incurring by binging on debt. To adapt a Chinese proverb: Growth is high and the banking regulator is far away. Evidence is mounting that this time is different. Lending to banks from the People’s Bank of China, which surged by 243% from December 2015 to January 2017, has declined by 12% in the past two months.

Loans to non-financial corporations are up a relatively moderate 7.3% from March 2016, which is a slower rate than nominal growth in gross domestic product. Although this clampdown followed an enormous surge of credit in the first half of last year, it does suggest real progress. Another good sign is that the government is starting to rein in shadow banking. Issuance of risky wealth-management products declined by 18% in April from March, as banks and insurance companies have been pressured to rely on them less. Because the sector is so enormous – with more than $4 trillion outstanding – getting it under control is a crucial prerequisite for any serious deleveraging. Predictably, though, these reforms have pushed down asset prices. Stocks, bonds, commodities and real estate have all turned strongly negative.

Interest rates have been inching up, inflicting losses on bond investors. Allocations of stocks and commodities in wealth-management products are at their lowest levels in almost a year, depressing prices further. This will probably get worse. Industrial capacity is widely up while demand growth is flat. Steel rebar prices have dropped by only 8% from their highs this year, and remain up by an amazing 91% since December 2015. Yet even this small dip has had a major effect. In March, when prices peaked, 85% of Hebei steel makers reported being profitable. Now that figure stands at 66%. If an 8% drop in prices results in a 19 percentage-point decline in the number of profitable steel mills, more serious price drops could well push the industry to the brink.

For a sector in which listed firms have suffered operational losses of 5.1 billion yuan since 2010 – during one of the largest building booms the world has ever seen – a sustained deleveraging effort may well spell disaster. The property market could also be in for a rough ride. Chinese consumers take the ability to buy an apartment as a birthright, and prices have risen in response to demand. Mortgage lending has grown by 31% since March 2016. But as cities place more restrictions on purchases and banking regulators get tougher about slowing mortgage growth, the resulting pressure on prices could be an unpleasant surprise for homeowners and indebted developers.

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Don’t worry, the world will care yet.

China Stocks Are Tumbling Again. Unlike 2015, World Doesn’t Care (BBG)

Global investors are still shaking off a rout that’s erased more than $560 billion from the value of Chinese equities, making them the world’s worst performers since mid-April. Below are four charts showing just how deep the pain has spread in China’s mainland. Outside of the nation’s borders, investors are indifferent to the weakness in the second-largest equity market after the U.S. The MSCI All-Country World Index is near a record and the VIX Index, the so-called fear gauge for U.S. stocks, is close to its lowest level since 1993. The ChiNext small-cap gauge, seen as a barometer for Chinese stock-market sentiment, has taken quite the hit this year, down 9.7% and close to its lowest level since February 2015. The selloff erased all that was left of a rebound from a low later that year, after a bubble in China’s markets burst.

A technical indicator suggests the Shanghai Composite Index has fallen too far, too fast. The gauge’s relative strength index dipped further below the 30 level that signals to some traders an asset is oversold, and is close to levels not seen since 2013. Chart watchers are still waiting for that rebound. The benchmark for yuan-denominated shares has lost 6.9% in the past month, while global stocks are up 2.8%. That divergence means the Shanghai measure is trailing the rest of the world by the most since 2014.

Chinese stocks now make up less than 9% of the world’s equity market, the smallest slice since June last year. The value of global equities is near a record $73 trillion reached earlier this month.

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Quite shocking: “..each employed worker in China generated only 19% of the amount of GDP an American worker did.” Workers in India generate just 13%.

China Has the World’s Biggest Productivity Problem (BBG)

Just about everybody assumes that China will overtake the U.S. as the world’s indispensable economy. One factor, however, could slow its seemingly relentless march and cast doubt on China’s prospects for becoming an advanced economy: faltering productivity. Sure, China is advancing daily in wealth, technology and expertise. But nothing is inevitable in economics. As costs rise and the labor force shrinks due to Beijing’s decades-long “one-child” policy, China will need to squeeze a lot more out of each remaining worker to keep incomes growing. If not, China could succumb to a sluggish trajectory that threatens both its future and that of the entire global economy. Despite China’s reputation as a paragon of authoritarian efficiency, the country isn’t immune to the global trend of dwindling productivity gains.

The Conference Board, using adjusted economic growth estimates, figures that Chinese labor productivity rose 3.7% in 2015, a precipitous plunge from an average of 8.1% annually between 2007 and 2013. (Official Chinese statistics also show productivity growth falling off, although settling at higher rates.) Of course, even that reduced clip looks drool-worthy to policymakers elsewhere. Labor productivity inched upwards by a mere 0.7% in the U.S. and 0.6% in the euro zone in 2015. But the smaller increases in China are a big problem, because it has so much catching up to do. Chinese workers are miserably unproductive compared to their U.S. counterparts. The Conference Board calculates that in 2015 each employed worker in China generated only 19% of the amount of GDP an American worker did.

That’s not a whole lot better than Indian workers, who created 13%. China, like other economies in Asia, is facing the consequences of its past success. The region’s economies achieved eye-popping growth rates by tossing their poor and primarily agrarian workers into industry and global supply chains. That unleashed a torrent of productivity gains, as peasant farmers started making everything from teddy bears to iPhones. In other words, China propelled its rapid development by shifting underutilized labor and capital into a modern capitalist economy. (That’s why Paul Krugman once argued that there was nothing particularly miraculous about the Asian “miracle.”) Inevitably, though, such low-hanging, productivity-enhancing fruit gets picked as the economy advances. Then the bang you get for every buck of new inputs starts to taper off.

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It’s time for proof on all aleegations concerning Russia. Either that or a full stop. I was just talking to someone who said he ‘believes’ the Russians downed MH17. But belief doesn’t cut it, we need facts and proof.

No Evidence of Russian Intrusion in US Political System (Ron Paul)

RT: Sergey Lavrov says President Trump wants productive relations with Moscow after the previous administration soured them. Can they be improved considering the storm over the alleged ties between the Trump team and Russia?

Ron Paul: Absolutely. And I think that has been. What is going on right now is an improvement. I think what is going on in Syria with these de-escalation zones; I think that is good. They are talking to each other. I just don’t understand why sometimes there is an impression that we shouldn’t be having diplomatic conversations … All the tough rhetoric doesn’t do any good. Trump’s statement to me sounded pretty good. I think the whole thing about the elections, putting that aside would be a wise thing because the evidence is not there for any intrusion in our election by the Russians. I think this is good progress, and there will be plenty individuals in this country who complain about it because it just seems like they are very content to keep the aggravation going. Right now, the relationship from my viewpoint has greatly improved. I think that is good.

RT: During the media conference, some journalists again raised the question of possible Russian involvement in US politics. How is it possible for such a great nation to think this way?

RP: If it is a fact, we should hear about it, but we haven’t. And those individuals who are trying to stir up trouble like that, they haven’t come up with any facts. Nobody wants anybody’s elections interfered with. But the facts aren’t there, so why dwell on that? Why use that as an excuse to prevent something that we think is positive and that is better relations with Russia. I think what is happening with this conversation is very beneficial.

RT: According to Lavrov, Trump also expressed his support for creating safe zones in Syria. Will this pave the way for co-operation between the two coalitions?

RP: With Assad and Russia working together and getting more security for the country, at the same time the US is now talking with Russia. I think this is good. But just the acceptance of the idea that we should be talking and practicing diplomacy rather than threats and intimidation. There are obviously a lot of problems that we have to work out, but I think in the last week and the last couple of days very positive things have been happening.

RT: The meeting came after the firing of the FBI director James Comey. What do you make of the timing?

RP: I don’t think that firing had anything to do with the so-called investigation. I think it has to do with the credibility of Comey as such, where he was involved too politically in the issues. First, it looked like he was supporting Hillary, then the next time he was supporting Trump, and he should not have been out in front on either one of those issues; that should have been done more privately on these charges made that were unconfirmed. I think this represents poor judgment on Comey’s part and certainly, the president had the authority to fire him. It will be politicized now, and the question will be whether there will be a special prosecutor, but if there are no problems, then a special prosecutor in my estimation is unnecessary.

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Stick a fork in it and turn it over.

Canada’s Home Capital Seeks New Funding Sources, Uncertain Of Future (BBG)

Home Capital said it’s seeking new sources of funding after a run on deposits sparked by a regulatory investigation raised concerns about the Canadian mortgage lender’s ability to stay in business. “Material uncertainty exists regarding the company’s future funding capabilities as a result of reputational concerns that may cast significant doubt” about continued operations, Home Capital said in a statement late Thursday. “Management’s focus is on finding more sources of funding in the near term so we can be more active serving our customers, and on seeking longer-term solutions that put the business back on track.” Home Capital’s troubles are being closely watched by investors concerned about possible contagion to other lenders and to the red-hot real estate markets in Toronto and Vancouver.

The Canadian dollar has slumped, and is the worst performing currency among Group of 10 nations this year. Moody’s Investors Service late Wednesday cut the credit ratings on six Canadian banks, citing rising household debt and soaring real estate prices that make the banks more vulnerable to losses. Home Capital, accused by regulators last month of misleading investors over fraudulent mortgage loan applications, has lost almost C$1.8 billion ($1.2 billion) in high-interest deposits in five weeks, draining the Toronto-based company of funds used to finance mortgages. The company said it’s facing liquidity issues because of reputational concerns raised by the Ontario Securities Commission allegations, as well as a class action lawsuit announced earlier this year. The lack of a chief executive officer and chief financial officer is also hurting, the company said.

High-interest savings plummeted to C$134 million as of May 9 from $1.9 billion at March 31, the company said. Home Capital also lost C$344 million in cashable GICs, or guaranteed investment certificates. Tightening lending criteria and broker incentive programs will lead to a decline in originations and renewals going forward, the company said. The lender’s liquid assets are about C$1.01 billion as of May 10, it said in a separate statement Thursday. It had drawn C$1.4 billion of a C$2 billion rescue loan from an Ontario pension fund that carries an effective interest rate of 22.5%, the firm disclosed. The company also sold a C$154 million portfolio of preferred shares to raise cash.

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Brussels is a cesspit obsessed with power politics, not with representing Europeans.

Open Letter to Theresa May: Annul The Phoney Negotiations! (Varoufakis)

Dear Mrs May [..] While the clock is ticking away, and your country is caught up in pre-election fever, there are two potential mistakes I wish to warn against: First, the belief that a strong mandate on June 8 will enhance your ability to negotiate. Second, that meaningful negotiations are possible within the less than two years left after the triggering of Article 50. Your mandate will, I believe, enrage Brussels in proportion to its magnitude and steel their preordained determination to frustrate the negotiations in order to procure a mutually disadvantageous outcome. Why would they pursue mutual disadvantage? Because faced with a choice between an agreement that is to the advantage of the peoples of Europe and one that bolsters their own power within the EU institutions at the expense of Europe’s social economies, the Brussels establishment, and the powerful politicians behind them, will choose the latter every time.

In 2015 the proposals I was tabling, of a moderate Greek public debt restructure, lower tax rates and deep reforms, would have allowed the EU to reclaim more of European taxpayers’ loans to Greece. Except that getting back their taxpayers’ money was lower on their list of priorities than signalling to the Spaniards, the Irish, the Italians etc. that if they dared to elect a government promising to challenge the EU’s authority, they would be crushed. Thankfully, Britain is too rich to crush. Alas, Britain is not too big to be pushed into a disadvantageous form of Brexit as a deterrent to other Europeans voting against the edicts of the Brussels apparatchiks. The political utility to the Brussels establishment of leading the UK-EU negotiations to impasse is greater than any disutility they might experience from watching European people and businesses lose out.

If I am right, negotiations will be an exercise in futility and frustration. Barnier’s two-phase negotiation announcement amounts to a rejection of the principle of … negotiation. He is, effectively, saying to you: First you give me everything I am asking for unconditionally (Phase 1) and only then will I hear what you want (Phase 2). This is nothing short of a declaration of hostilities and, moreover, of his lack of a mandate to negotiate with you in good faith. Moreover, if you try to bypass Brussels, in order to communicate directly with, say, Angela Merkel, you will be given the EU runaround (i.e. Merkel refers you to Juncker, who refers you to Barnier who suggests you go back to Merkel, and so on ad infinitum). Meanwhile, the leaks about your ministers’ “lack of preparedness” will be flooding out of the meeting rooms as part of a propaganda war of attrition.

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As long as the UK is as splintered as it is now, its economy will be in danger.

Pound Stumbles As Bank Of England Releases Gloomy Economic Report (Pol.)

Less than a month ahead of the U.K. general election, the Bank of England published a gloomy report indicating British families’ finances are being squeezed that sent sterling tumbling. The BoE’s latest quarterly inflation report, published Thursday, points to a stronger-than-expected squeeze in real incomes which would translate into decreased household spending. The report also shows inflation continuing to climb above the central bank’s 2% target, and is expected to hit close to 3% by December, as the fall in the value of sterling has raised import prices and started to feed through to the real economy. Economic growth in the first quarter of this year was also weaker than expected, the BoE said.

Sterling fell sharply against the dollar after the report was released, losing half a cent to $1.288. In a warning to the British government, the central bank said, “The outlook for U.K. growth will continue to be influenced by the response of households, companies and financial market participants to the prospect of the United Kingdom’s departure from the EU including their assumptions about the nature and timing of post-Brexit trading arrangements. The Bank of England also Thursday decided to leave interest rates and the levels of monetary stimulus untouched. Its monetary policy committee voted seven to one to maintain the BoE’s benchmark rate at 0.25%, while unanimously backing the level of U.K. government bond purchases at £435 billion, and corporate bond buying at up to £10 billion.

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Fun with numbers.

Macron Spells the End to the Global Baby-Boomer Rule (BBG)

President-elect Emmanuel Macron will still be seven months short of his 40th birthday when he takes power on Sunday, putting him within a year of France’s median age. While voters often pick experience over youth, France chose a political rookie to chart a new course after successive baby-boomers from the establishment parties oversaw a decade of stagnation. The country’s youngest head of state since Napoleon Bonaparte is also the only leader from the old Group of Eight nations who can claim to be the same age as his people – 70-year-old Donald Trump has the biggest gap at 32 years older than the median American. Macron will get to compare notes with his G-7 peers later this month in Italy.

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Yes, Le Pen was right. Merkel rules France.

European Monotony (K.)

When Alexis Tsipras became prime minister in 2015 he raised the hopes of the radical left across Europe. But after six months, the turnaround of the SYRIZA-Independent Greeks coalition government was complete, as it adapted to the European order of things. The conclusion is that guerrilla talk is good for coffee shops and that politics and policy are formed and enforced elsewhere. One might say that this sort of situation is confined to decadent and incoherent Greece, or that it occurred because of leftist adventurism. But possibly not. Because we all saw what happened in France. It was basic restraint that saved all those who were not enthralled by the rise of the extreme right.

At the end of the day, the only thing that Marine Le Pen achieved was to secure a little more than a third of the support of French voters, doubling the percentage received by her father Jean-Marie Le Pen in 2002, and to lift the National Front from the fringe and turn it into a political force. But we have better things to preoccupy ourselves with. During the election campaign, Emmanuel Macron projected himself as someone who will save France from the specter of the far right, but also as someone who aimed to change the profile of Europe. And immediately after his election, he proposed a way out of Europe’s dead end, but that was immediately rejected by Germany.

Manfred Weber from Bavaria, who pummeled Tsipras in the European Parliament, said that Macron can talk about reforming Europe only when he has proved himself capable of implementing reforms in France. More condescendingly, German Finance Minister Wolfgang Schaeuble said Macron’s proposals were impossible to implement. Given this, there is a danger that Le Pen will be vindicated in her prediction that if she was not elected president, then France would be run by another woman, Angela Merkel. The most likely outcome is that Macron will realize that talk of changing Europe is alright for the legendary La Rotonde brasserie in Paris’s 6th arrondissement, where he celebrated his victory in the first round of the elections. Something similar happened to Tsipras on the other side of the political spectrum. Because, at the moment, Europe is Germany and everyone else.

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High time for safe zones in Syria, Libya and beyond. But that would hurt arms sales.

Anxiety Mounts As Italy Moves To Get More Migrants Out (AFP)

Behind the high fences of the repatriation centre at Ponte Galeria, just down the road from Rome’s Fiumicino airport, dozens of women sit outside, waiting for word on whether they will have to leave Italy. But as the government steps up its efforts to send more migrants home, many who pinned their hopes on asylum appeals are growing increasingly worried. This week an official decree paved the way for the creation of 11 more repatriation centres capable of housing 1,600 people pending deportation, on top of the four currently in operation. At Ponte Galeria, in courtyards easily mistaken for cages, Khadigia Shabbi, 47, can barely hold back her tears. “Here we are dying,” the former Libyan university lecturer says. Arrested in Palermo at the end of 2015 and convicted of inciting terrorism, Shabbi protests her innocence and has requested asylum.

She is not alone. Half of the 63 women at Ponte Galeria, which AFP was able to visit, have made similar requests. Several are from Nigeria, having crossed Libya to reach Italy. But there are also Ukrainians and Chinese. The country is sheltering more than 176,000 asylum-seekers, with about 45,000 migrants arriving since January 1 – a 40% rise on the same period last year – and officials are bracing for another summer of record arrivals. To cope with the influx – and to deter others from coming – Interior Minister Marco Minniti pushed through parliament last month a plan to increase migrant housing and provide new resources for expelling those who have come only to seek work. The plan includes creating fast-track asylum appeal courts for the roughly 60% of migrants who have their initial requests denied, in order to reach a binding decision that gets them out of the country sooner.

Between January and April, Italy expelled 6,242 people who did not have the right to stay, an increase of 24% on the same period last year. But the figures include more than just people rescued from the overcrowded boats coming daily from Libya who have failed in their asylum requests. Many were sent home directly because of repatriation agreements, such as those with Tunisia, Egypt or Morocco, while others were expelled after overstaying their student or tourism visas. But despite Italy’s new efforts to deter migrant arrivals, many say they won’t give up trying. “If they expel me, I’ll come back afterwards. I say this honestly — there is nothing for me back there,” said one woman at Ponte Galeria.

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US pressure may be the only way out for Greece.

G7 Finance Chiefs Can’t Agree On Trade, So They Talk About Greece (BBG)

Group of Seven finance chiefs don’t see eye-to-eye on trade, so they’re reverting to a default issue in economic diplomacy: Greece. Officials arriving on Thursday for talks in the Southern Italian port of Bari – a crossroads of commerce for more than two millenia – downplayed any focus on their festering disagreement after two abortive Group of 20 discussions this year suggested the Trump administration won’t sign up to the long-existing global consensus on free trade. That leaves sideline talks on Greece as the most fruitful arena for talks for now. On Wednesday, a senior U.S. Treasury official said they are looking for Europe to take the lead in solving the country’s debt problem. Informal talks on Greece were held on Thursday night, according to German Finance Minister Wolfgang Schaeuble.

His nation, together with Italy, France, the IMF and the ECB make up the so-called Washington Group. “Trade is explicitly off the table – they’re not going to clinch anything at all,” said Isabelle Mateos y Lago at BlackRock. But on Greece, “this is the right grouping within which to reach an agreement on some of the more political aspects.” Talks on easing Greece’s debt load have been picking up steam amid hopes of striking a deal later this month, with officials targeting the May 22 meeting in euro-area finance ministers in Brussels. Among the preferred options is the use of leftovers from the country’s latest euro-area-backed bailout to repay about €12.4 billion of IMF loans to Greece outstanding, according to EU officials. “We’ll carry on working on this debt relief package,” IMF Managing Director Christine Lagarde said on Friday. “We certainly hope that the Europeans will be far more specific in terms of debt relief which is also an imperative.”

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That so-called ‘Growth’ is achieved because Greece raises taxes and cuts pensions for its poorest, and sells its assets for pennies on the drachma. But that is not growth. That is scorched earth.

Greek Economy to Grow Over 2% in 2017 – Economy and Development Minister (BBG)

Greece is confident that the country’s economic output will exceed 2% in 2017 boosted by investments, privatizations and exports, Economy and Development Minister Dimitri Papadimitriou said. This year will be “the year of real growth in Greece,” Papadimitriou said in a May 10 interview in Nicosia, Cyprus, at the annual meeting of the European Bank for Reconstruction and Development. With the exception of 2014, Greece’s economy shrank every year since 2008. The IMF in April cut its forecast for 2017 Greek economic growth to 2.2% from 2.8%. The European Commission revised earlier today its estimate for the Greek growth rate to 2.1% from 2.7%. Papadimitriou cited committed investments for 2017 of €300 million by Philip Morris International and €500 million by Hellenic Telecommunication as well as applications to make investments worth €1.9 billion following the introduction of new legislation that provides incentives to investors. He also highlighted higher industrial production, increased exports and a rise in employment.

Greece will also complete in 2017 an “ambitious” privatization program worth over €2 billion that mainly comprises regional airports, the country’s second-largest port of Thessaloniki, the national railroad operator Trainose and units of state-controlled Public Power Corp., the largest electricity supplier, Papadimitriou said. With almost one-quarter of Greeks without work in the fourth quarter of 2016, or 23.6%, the highest in the EU, Greece is targeting a fall in the unemployment rate by 2020/21 to the euro-area average of 12% through targeted programs for job creation, Papadimitriou said. The final conclusion of the review of Greece’s bailout program with the country’s international creditors will see the nation’s sovereign bonds included in the ECB’s asset purchase program that will mean Greece will be like “a normal country and every other member of the euro zone,” Papadimitriou said.

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Growth, you said? Both sides are making up numbers that suit their book. And in the end, Greece loses.

European Commission Slashes Greece’s Economic Forecasts (GR)

The European Commission forecast for Greece’s economic figures is not as optimistic as the one presented by Athens. Specifically, the European Commission sees growth of 2.1% of GDP in 2017 and 2.5% in 2018 (compared with 2.7% and 3.1% respectively as the Greek government projected). The government deficit is projected to fall to 1.2% of GDP in 2017 and to a surplus of 0.6% in 2018. In the Commission’s winter forecast, the deficit was slightly lower for 2017 (1.1%) and the surplus slightly higher for 2018 (0.7%). Regarding the sovereign debt, the forecasts for the decline of the state debt are also more conservative than the Commission’s winter forecasts.

It is estimated to drop from 179% of GDP in 2016 to 178.8% in 2017 (177.2% in winter forecasts) and 174.6% of GDP in 2018 (170.6% in winter forecasts). At the same time, unemployment numbers differ, as it is estimated that from 23.6% in 2016 it will fall to 22.8% in 2017 (compared with 22% in the winter forecasts) and 21.6% in 2018 (compared to 20.3% in winter forecasts). Inflation is expected to be 1.2% in 2017 and 1.1% in 2018. Finally, estimates of investment growth are also mitigated by lower growth. Specifically, investment growth is projected to increase by 6.3% in 2017 (compared with 12% in the winter forecasts) and 10.8% in 2018 (compared with 14.2% in winter forecasts).

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Schaeuble blames Greece for not exiting the Eurozone in 2015. Like the EU would have let them. The world on its head.

Schaeuble Says Greece Needs Reforms, Defends 2015 ‘Timeout’ Idea (K.)

Structural reforms are key to membership of the euro area, German Finance Minister Wolfgang Schaeuble has said while defending his 2015 offer of a Greek euro “timeout.” “If a country does not want to leave [the euro], then it has to make structural reforms – like Greece has,” Schaeuble said in an interview with Italian newspaper La Repubblica published Thursday. “With the euro, the time is over when some countries could increase their competitiveness through currency devaluation. This is a political short-cut,” he said. Asked about his proposal for a temporary Greek exit from the eurozone, put forward in the dramatic summer of 2015, the German finance minister defended his idea. “You know what [Italian Economy Minister] Pier Carlo Padoan said in public: an overwhelming majority of finance ministers were convinced that it would be better if Greece were temporarily out of the euro,” Schaeuble said. “It was Greece that decided otherwise. We are now making an effort to make sure that the third aid package is a success,” he said.

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Remember 40% of Greek businesses don’t expect to survive 2017.

One In Six Greek Businesses Are Late Payers – Central Bank Chief (Amna)

About one in six businesses in Greece has the characteristics of a late payer, Bank of Greece Governor Yannis Stournaras said on Thursday, addressing an audience at the Federation of Industries of Northern Greece (FING) in Thessaloniki. Stournaras said it is urgent to address the problem of non-performing loans (NPLs), saying it should be a priority among the reforms discussed between Greece and its lenders, as it is a very significant obstacle to economic recovery. “This is the biggest challenge facing today, not just the banking system but the Greek economy,” he said, adding that according to a conservative estimate based on a sample of 13,000 businesses with loans over one million euros, an average of one in six has the characteristics of a bad payer.

He said there are indications that the analogy is significantly higher for smaller businesses and households. “But this will change in the immediate future with a series of initiatives that have already underway to address the aforementioned causes and which have hindered banks’ efforts to resolve the problem for years,” he said. Stournaras also expressed confidence that the approval of the prior actions by the parliament agreed during the second program review will open the way for the disbursement of the next loan tranche from the Eurogroup on May 22. “The financial markets are already expecting this result,” he said.

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“Somebody’s going to suffer. Should it the wealthy billionaires and the bankers, or should it be the Greek workers? Well, the Greek workers are not the IMF’s constituency.”

Somebody’s Going To Suffer: Greece’s New Austerity Measures (Michael Hudson)

Michael Hudson: I wouldn’t call it a negotiation. Greece is simply being dictated to. There is no negotiation at all. It’s been told that its economy has shrunk so far by 20%, but has to shrink another 5% making it even worse than the depression. Its wages have fallen and must be cut by another 10%. Its pensions have to be cut back. Probably 5 to 10% of its population of working age will have to immigrate. The intention is to cut the domestic tax revenues (not raise them), because labor won’t be paying taxes and businesses are going out of business. So we have to assume that the deliberate intention is to lower the government’s revenues by so much that Greece will have to sell off even more of its public domain to foreign creditors. Basically it’s a smash and grab exercise, and the role of Tsipras is not to represent the Greeks because the Troika have said, “The election doesn’t matter. It doesn’t matter what the people vote for. Either you do what we say or we will smash your banking system.” Tsipras’s job is to say, “Yes I will do whatever you want. I want to stay in power rather than falling in election.”

Sharmini Peries: Right. Michael you dedicated almost three chapters in your book “Killing the Host” to how the IMF jjunkeconeconomists actually knew that Greece will not be able to pay back its foreign debt, but yet it went ahead and made these huge loans to Greece. It’s starting to sound like the mortgage fraud scandal where banks were lending people money to buy houses when they knew they couldn’t pay it back. Is it similar?

Michael Hudson: The basic principle is indeed the same. If a creditor makes a loan to a country or a home buyer knowing that there’s no way in which the person can pay, who should bear the responsibility for this? Should the bad lender or irresponsible bondholder have to pay, or should the Greek people have to pay? IMF economists said that Greece can’t pay, and under the IMF rules it is not allowed to make loans to countries that have no chance of repaying in the foreseeable future. The then-head of the IMF, Dominique Strauss-Kahn, introduced a new rule – the “systemic problem” rule.

It said that if Greece doesn’t repay, this will cause problems for the economic system – defined as the international bankers, bondholder’s and European Union budget – then the IMF can make the loan. This poses a question on international law. If the problem is systemic, not Greek, and if it’s the system that’s being rescued, why should Greek workers have to dismantle their economy? Why should Greece, a sovereign nation, have to dismantle its economy in order to rescue a banking system that is guaranteed to continue to cause more and more austerity, guaranteed to turn the Eurozone into a dead zone? Why should Greece be blamed for the bad malstructured European rules? That’s the moral principle that’s at stake in all this.

[..] Yanis Varoufakis, the finance minister under Syriza, said that every time he talked to the IMF’s Christine Lagarde and others two years ago, they were sympathetic. They said, “I am terribly sorry we have to destroy your economy. I feel your pain, but we are indeed going to destroy your economy. There is nothing we can do about it. We are only following orders.” The orders were coming from Wall Street, from the Eurozone and from investors who bought or guaranteed Greek bonds. Being sympathetic, feeling their pain doesn’t really mean anything if the IMF says, “Oh, we know it is a disaster. We are going to screw you anyway, because that’s our job. We are the IMF, after all. Our job is to impose austerity. Our job is to shrink economies, not help them grow. Our constituency is the bondholders and banks.” Somebody’s going to suffer. Should it the wealthy billionaires and the bankers, or should it be the Greek workers? Well, the Greek workers are not the IMF’s constituency. It says: “We feel your pain, but we’d rather you suffer than our constituency.”

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May 032017
 
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Leonardo da Vinci A Copse of Trees 1508

 

Trump: US “Needs A Good Shutdown In September To Fix This Mess” (ZH)
Home Capital Fails to Draw Buyout Interest From Canada Banks (BBG)
Hot Air Hisses Out of US Auto Bubble (WS)
May’s Election Fighting Talk Fuels Brexit War of Words With EU (BBG)
Le Pen Wants A French National Currency Within Two Years After Election (R.)
Macron Victory Could Mark The Start Of Political Upheaval For France (CNBC)
Italy Is Europe’s Next Big Problem (BBG)
Soros At it Again – Trying to Overthrow Polish Government? (Martin Armstrong)
In Tense Encounter, Merkel Tells Putin Sanctions Must Remain (BBG)
‘It’s Very Important We Hear What Putin Has To Say’ – Oliver Stone (RT)
Adults in the Room – One Of The Greatest Political Memoirs Ever (Mason)
Greece, Creditors To Discuss Options For Debt Restructuring (CNBC)
Greece Will Avoid Default After Bailout Deal – But Faces More Austerity (G.)
Greek Poverty Deepens During Seven Years Of Austerity (AP)

 

 

September’s a long way away.

Trump: US “Needs A Good Shutdown In September To Fix This Mess” (ZH)

With Congress poised this week to approve a deal to fund the government through September, the first major bipartisan legislation of Trump’s presidency, after lengthy negotiations (which have appeared to signal numerous ‘folds’ by President Trump), apparently frustrated by the lack of tryannical powers that a simple majority grants him, President Trump has lashed out this morning at disagreeable Democrats, and in particular Senate Democrats. As a reminder, the proposed government funding deal does not include funding for Trump’s proposed wall along the U.S.-Mexico border or include language stripping federal money from so-called sanctuary cities, both of which the White House demanded at the outset of negotiations. In fact, as we reported yesterday, the bill has been seen widely as a victory for Democrats, something which has been panned by the conservative press.

While the White House also backed off a threat to withhold ObamaCare subsidy payments to insurance companies, Trump did secure increased military spending in the 2017 budget deal. According to the Hill, the comments are likely irk top Republican lawmakers, who have been frustrated by Trump’s repeated attempts to intervene in the legislative process. The businessman-turned-president, in turn, has vented frustration with the slow pace of work on Capitol Hill. “I’m disappointed that it doesn’t go quicker,” Trump told Fox News last week when asked about the Republican effort to repeal and replace ObamaCare. Commenting on Trump’s tweets, Citi asks rhetorically whether “this could be a case of cutting one’s nose to spit one’s face? – Potentially problematic when the nose in question is attached to the current administration… It seems counterintuitive that a sitting president would want a shutdown, unless he was to blame it on the opposition in order to force through reform/encourage a voter backlash.”

Bloomberg reports that “The message appeared to encourage the Republican-controlled Senate to change rules that now require 60 votes to end a filibuster of legislation. Republicans reduced the threshold to 51 votes for Supreme Court nominees this year and could do the same for legislation with a simple majority vote.” USD does not seem to have reacted to the President’s tweet (it can’t every time, after all), which may just be more political manoeuvring rather than a signal of intent. In any case, we’re not so sure there is such a thing as a “good” shutdown of the US government – and with what will be over $20 trillion in debt and a declining GDP by that time, one wonders which ratings agency will have the balls to downgrade the world’s reserve currency this time?

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“Someone will buy it for a dollar because they want to get the loan book [..] it goes for a lot less than it’s trading at today.”

Home Capital Fails to Draw Buyout Interest From Canada Banks (BBG)

Canadian banks and financial firms are so far showing little interest in buying Home Capital, vindicating short-sellers who say the embattled mortgage lender could be sold off piecemeal, driving the stock down further. “People in the industry would rather see these guys go out of business because the loans aren’t worth the risk, and they’re so leveraged,” said Marc Cohodes, a private investor and part-time chicken farmer in California who has been shorting the stock, or betting on declines, for more than two years. Home Capital’s rival Equitable joined a list of companies that have said they aren’t interested in taking over the struggling mortgage lender, which hired investment banks last week for a possible sale after the stock plunged by two-thirds amid a regulatory probe.

“The bottom line is no,” Equitable Chief Executive Officer Andrew Moor said on Monday. “We have some concerns based on what we’ve read about how they underwrote their loans and their internal controls.” Other banks have indicated that they aren’t interested. Canadian Western Bank CEO Chris Fowler said his Edmonton, Alberta-based lender, which has an alternative mortgage business, would not be a buyer for all of Home Capital. He added the bank will consider “selectively” acquiring loan portfolios. A Laurentian Bank of Canada spokeswoman said that for the lender to be interested in an acquisition it needs to be financially sound and a good strategic fit. Laurentian is active in the alternative lending space.

Canada’s biggest commercial banks, meanwhile, are unlikely to be interested because Home Capital’s mortgages are with customers who wouldn’t qualify for a loan with them, said Sumit Malhotra, an analyst at Bank of Nova Scotia, in a research note. They might be interested in the loan book, he added. [,,] Other short sellers agree with Cohodes. Jerome Hass at Lightwater in Toronto, said he wonders why anybody would buy Home Capital when they could just pick up the mortgages. “It’s got all this litigation against it, it’s going to have all these liabilities against it, so why not just take their loan book off their hands?” Hass said in an interview. “Someone will buy it for a dollar because they want to get the loan book, but I don’t see it going for much, and it goes for a lot less than it’s trading at today.”

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No purchasing power.

Hot Air Hisses out of US Auto Bubble (WS)

A 4.7% drop in sales, bad as it is, wouldn’t qualify for #carmageddon. These things happen. But here’s the thing: Automakers had shelled out $3,465 in incentives per new vehicle sold, on average, according to TrueCar estimates. A record for the month of April. It beat the prior record of $3,393, set in April 2009. It amounts to about 10% of suggested retail price, similar to March. The last period when incentive spending was at this level of MSRP was in 2009 as the industry and sales were collapsing. The #carmageddon point to watch: despite the 13.4% year-over-year surge in incentive spending to nearly $5 billion, total vehicle sales fell 4.7%! When these massive incentives fail to even slow the sales decline, serious problems lurk beneath the surface. This table shows the largest automakers, their year-over-year sales performance – the sea of red ink – along with average per-unit incentive spending and total incentive spending:

GM shelled out the most incentives on average per vehicle, in total $1.23 billion. In March, it had spent about $1.3 billion. At this rate, GM is spending just under $4 billion per quarter in incentives. By comparison, in its Q1 earnings, GM reported “North America” revenue of $29.3 billion. At this rate, it is spending about 13% of its North American revenues on US incentives. But it’s just not working out. Total sales dropped nearly 5.9%, to 244,200 units, with car sales plunging 12.5% and even truck sales falling 3.2%. A gruesome detail: Silverado-C/K pickup sales plunged 20% to 40,154 units. Total retail sales (not including fleet sales) fell 4% to 191,911 vehicles. GM ended the month with 100 days’ supply, up from the nail-biter level of 98 days at the end of March.

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The UK is so divided along multiple fault lines that May has nothing, unless she’s prepared to walk away.

May’s Election Fighting Talk Fuels Brexit War of Words With EU (BBG)

U.K. Prime Minister Theresa May vowed she won’t be pushed around in Brexit talks with the European Union as her war of words with Brussels escalates before negotiations even begin. The premier said European Commission President Jean-Claude Juncker is learning she can be “bloody difficult” after leaked details of a dinner meeting between the leaders alleged he was shocked by her approach to negotiating Brexit. May won a measure of support from several European government officials, who distanced themselves from Juncker’s apparent skepticism about the chances of a Brexit deal. The row blew up after details of the allegedly disastrous meal Juncker attended at May’s London residence last week were reported by a German newspaper.

“What we’ve seen recently is that at times these negotiations are going to be tough,” May told BBC television in an interview Tuesday. “During the Conservative Party leadership campaign, I was described by one of my colleagues as a bloody difficult woman. And I said at the time the next person to find that out will be Jean-Claude Juncker.” The clash between London and the European Commission comes as May seeks re-election on June 8 in a campaign defined by Brexit, and the argument won’t necessarily hurt her chances. While EU officials are concerned about such a public dispute ahead of negotiations, it could help May’s Tories convince voters the U.K. needs what she calls her “strong and stable leadership” for the Brexit talks.

May claims her main rival for power, opposition Labour party leader Jeremy Corbyn, would be too “weak” to succeed at the negotiating table. Germany’s Frankfurter Allgemeine Sonntagszeitung newspaper said on Sunday that Juncker left a dinner on April 26 “10 times more skeptical” of reaching a Brexit deal. In her interview on the campaign trail, May told the BBC she hopes to agree an accord that works for the U.K. and the EU, saying there’s “a lot of similarity” between her proposals and the bloc’s negotiating guidelines.

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Can a national currency exist alongside a European one?

Le Pen Wants A French National Currency Within Two Years After Election (R.)

Far-right presidential challenger Marine Le Pen said capital controls could be used if she won the election and there was a run on banks as she negotiated France’s exit from the European Union, but stressed they were unlikely to be needed. In an interview with Reuters ahead of Sunday’s decisive second round, Le Pen reaffirmed she wanted to take France out of the euro and said she hoped the French people would have a national currency in their pockets within two years. Le Pen said she wanted to replace the EU single currency with another, looser type of cooperation in the form of the ECU basket of currencies that preceded the euro. That would exist alongside a national currency.

“The objective is to transform the euro ‘single currency’ into a euro ‘common currency’, going back to the ancestor of the euro, the ECU, which was an accounting unit that did not stop each country from having each its own currency,” Le Pen said. Calling the euro a deadweight on the French economy, the National Front candidate said a new national currency would better protect French people’s savings. She accused the “establishment” of wanting to “frighten” voters into thinking otherwise. “I am convinced there won’t be any banking crisis,” Le Pen said when asked if French negotiations to quit the EU could trigger a run on French banks.

Asked if she would impose capital controls if savers nevertheless did rush to take their money out of banks, she said: “If there’s a run on banks, we could very well imagine such a solution for a few days, but I’m telling you it won’t happen.” Le Pen said she would launch negotiations over reforms of the EU immediately after winning, saying this would allow France to regain national sovereignty. The talks would include ditching the euro as well as regaining control of France’s borders and being able to decide French legislation alone, she said. Those negotiations could last six to eight months, she said, after which France would hold a referendum on its EU membership.

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Whatever happens in Sunday’s 2nd round, a mess is certain.

Macron Victory Could Mark The Start Of Political Upheaval For France (CNBC)

France’s political course is likely to remain far from certain even with a win for presumed victor Emmanuel Macron, as his inability to form a parliamentary majority threatens to undermine his authority both domestically and across Europe, political analysts have suggested. Sunday’s second round runoff will mark the start of a period of tension for the country as the successful candidate waits to see if they can garner a large enough parliamentary majority in June’s legislative election to enact change, Dominique Reynié, professor of political science at the Sciences Po institute in Paris, told CNBC Tuesday. “I’m not worried about Macron’s ability to win, but the question surrounds what kind of turnout he will achieve and what his ability to gain a majority in the June election will be,” explained Reynié.

Polls are currently pitching centrist Macron to gain anywhere from a 59% to a 64% lead on his far-right opponent Marine Le Pen. However, this lead will do little to boost Macron’s authority in government, Reynié suggests. The independent will have to gain significant support from other parties if he is to form a majority when France once again heads to the polls on June 11 and June 18 to elect the 577 members of its National Assembly. “It will all depend on his margin of victory. A 55 to 45% win for Macron would be a disaster. Even 60 to 40 is not at all a triumph; a 20% margin would be very difficult. “It would be a crisis. It is not normal and would be a problem both on the streets of France and for Europe,” said Reynié.

In the first round of voting, Macron’s En Marche!, or Onwards! party, achieved a majority in 240 constituencies versus Le Pen’s 216. However, Reynié says this is simply not enough. “The smaller Macron’s majority the harder it will be for him to win the general election in June. He needs support; it is not possible to have power as President without support. “This could cause parliament to be largely fragmented like in the first round, with discussions taking place in fractured groups. Macron will have to negotiate with MPs and will be fragile and unpopular.”

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Has been for years.

Italy Is Europe’s Next Big Problem (BBG)

Emmanuel Macron looks on course to become France’s new president, ending the threat of a euroskeptic at the Elysee. Even if Macron wins, though, it’ll be too soon to celebrate a new phase of stability in the euro zone. Across the Alps, an economic and political storm is brewing – and there’s no sign anyone can stop it. Italy’s economic problems are in many ways worse than France’s. Public debt stands at nearly 133% of gross domestic product; in France, it’s 96%. The last time Italy grew faster than France was in 1995. Both countries have struggled to stay competitive internationally – but French productivity has risen by roughly 15% since 2001, whereas Italy’s has stagnated.

Meanwhile Italian politics goes from bad to worse. The Five Star Movement, a populist force that wants to hold a referendum on Italy’s membership of the euro system, is riding high in the polls and currently neck and neck with the center-left Democratic Party. The general election, scheduled for next spring, is unlikely to produce a clear winner – and there’s even a small chance it may result in a Eurosceptic government, if the Five Stars were to win enough votes and form an alliance with the fiercely anti-euro Northern League. Europhiles in Italy are busily looking for an Italian Macron – someone who could offer a liberal remedy for Italy’s economic woes while fighting off the threat of “It-exit.” Investors would like that. In the autumn, the European Central Bank looks set to slow its purchases of government debt. The prospect of political instability in Rome could spook investors, raising doubts over the sustainability of Italy’s debt.

In many ways, Matteo Renzi, Italy’s former prime minister, who resigned after a heavy defeat in December’s constitutional referendum, would be the obvious choice. At 42, he is only three years older than Macron. He too has sought to modernize the left, even though he preferred to climb through the ranks of his party, rather than set up a new one as Macron did. The trouble is that Renzi looks increasingly like a spent force. He has just obtained a fresh mandate as party leader, but many Italians doubt his promises because he reneged on a pledge to quit politics if he lost the referendum. His message has also become muddled. He claims to be pro-EU, but never misses a chance to bash Brussels – for imposing fiscal austerity, especially. Why should voters opt for Renzi’s half-hearted euroskepticism when they can have the real thing?

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“Money does not give you the right to fund revolutions to recast the world in your image.”

Soros At it Again – Trying to Overthrow Polish Government? (Martin Armstrong)

QUESTION: Mr. Armstrong, I attended your March 1999 conference in Tokyo when I worked for ___ bank. I remember you called out Soros and crew and said they were trying to manipulate the yen for fiscal year end. You warned the Japanese how to defeat the Club. If I remember, he and his crew lost $1 billion when everyone in Tokyo followed your advice. Many assumed what they did to you 6 months later was retribution. Now he is at it in Poland funneling money he made from such trading in through Norway to create political unrest. What is it with this guy? Why does he play God?

ANSWER: Oh yes. I remember that event very clearly. That’s why they started calling me Mr. Yen because it was me and our clients against the Club and the Club lost. They were trying to push the yen down for the fiscal year-end roll of March 31st and then run it up into April 1st. They had our clients lock it in and that forced the manipulators out. That was a wild day – 3 big figures in a single day in an outside-reversal was a big move back then. I know the rumor was that Soros was in on that and the Club lost $1 billion. Not sure how much they lost on that one. It was the good-old fun days of confrontations. The Polish government wants to stop the distribution of Norwegian money flowing into Poland coming from Soros’ funded Batory Foundation, which manages over 800 million euros with a target of overthrowing the Polish government by 2020.

Since 2014, the Batory Foundation has distributed some 130 million zlotys (around 31.7 million euros) to various associations and organizations within Poland to change the government. According to Bloomberg, this includes organizations for the promotion of parliamentary democracy , but only if it agrees with Soros agenda. Effectively, Soros is trying to defeat ‘Catholic values’ in Poland which are supported by the population and government. [..] Soros has publicly stated he does not believe in God. Many who worked for him said they think he believes he is a god with the right to reshape the world in his image. So have many throughout history and they are responsible for the murder of countless millions. Money does not give you the right to fund revolutions to recast the world in your image.

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Merkel knows Putin can’t give in on Ukraine. Useless rhetoric.

In Tense Encounter, Merkel Tells Putin Sanctions Must Remain (BBG)

German Chancellor Angela Merkel told President Vladimir Putin that EU sanctions will have to remain on Russia as the two leaders clashed over Ukraine, human rights and election meddling at a chilly encounter in the Black Sea city of Sochi. Addressing a joint press conference with Putin after about two hours of talks on Tuesday, Merkel raised concerns about the rights of homosexuals in Chechnya and Russia’s role in the war in Syria. She devoted much of her time to the lack of progress in resolving the three-year-old conflict in Ukraine. While Putin sought to lay the blame on the Ukrainian government, the chancellor said that a cease-fire is required as part of the “arduous” so-called Minsk process for restoring peace in eastern Ukraine and appealed to him to make it happen.

“My goal remains to get to the point where we can lift EU sanctions, but there’s a link here,” Merkel told reporters on her first visit to Russia since May 2015. The peace process is “moving very slowly, we only make progress in small steps and constantly have setbacks.” Merkel, who met with President Donald Trump at the White House in March, is visiting Putin in her capacity as holder of the presidency of the Group of 20 nations. As well as Ukraine, Merkel and Putin discussed the civil war in Syria and the G-20 summit in Hamburg in July, when the Russian and U.S. presidents are scheduled to meet for the first time. Ukraine was the main flashpoint, with Putin reiterating his stance that the Russian-backed breakaway regions in southeastern Ukraine split off because of a “coup d’etat, an unconstitutional change of power in Kiev.”

Merkel noted the two leaders’ “different opinions” about the origins of the conflict in Ukraine, which spiraled after protests over a scrapped accord with the EU triggered the downfall of the Russian-backed government in 2014. “We don’t share this view,” Merkel said in the briefing, which dispensed with the usual pleasantries or leaders’ banter. “We think that the Ukrainian government came to power through democratic means.” Although she’s among Putin’s sternest critics, Merkel has sought to keep a channel open to the Russian leader even as she holds the line on EU sanctions, which are a response to Russia’s annexation of Crimea and backing for Ukrainian separatists. Hours before Putin was scheduled to speak by phone with Trump on Tuesday, he responded again to allegations of electoral interference, saying “we never interfere in the political life of other countries.”

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There are people with less bias on Putin. Just not in US or EU politics.

‘It’s Very Important We Hear What Putin Has To Say’ – Oliver Stone (RT)

The man behind three films about American presidents, Oliver Stone, says his upcoming feature about Russian President Vladimir Putin “opens up a whole viewpoint that we as Americans haven’t heard,” and could help prevent “a dangerous situation – on the brink of war.” Academy Award-winning director and revered documentary filmmaker Stone said in interview with the Sydney Morning Herald that his new film about Putin will be released soon. “It’s not a documentary as much as a question and answer session,” he said. “Mr. Putin is one of the most important leaders in the world and in so far as the United States has declared him an enemy – a great enemy – I think it’s very important we hear what he has to say.” The film will present Putin’s viewpoint of political events since he was first elected president of Russia in March 2000.

“It opens up a whole viewpoint that we as Americans haven’t heard,” Stone told the newspaper, adding that his crew went to see the indefatigable Russian leader four times over the course of two years. “I talked to him originally about the Snowden affair, which is in the film. And out of that grew, I think, a trust that he knew that I would not edit it so much,” he said, adding that Putin “talks pretty straight.” “I think we did him the justice of putting [his comments] into a Western narrative that could explain their viewpoint in the hopes that it will prevent continued misunderstanding and a dangerous situation – on the brink of war.” The 70-year-old director also commented the accusations of Russian influence on the US presidential elections.

“That’s a path that leads nowhere to my mind. That’s an internal war of politics in the US in which the Democratic Party has taken a suicide pact or something to blow him up; in other words, to completely de-legitimize him and in so doing blow up the US essentially. “What they’re doing is destroying the trust that exists between people and government. It’s a very dangerous position to make accusations you cannot prove,” he added. Stone also said he does not believe claims circulating in the mainstream media that Moscow allegedly passed some classified documents to WikiLeaks in a bid to influence the November US elections. “I hold Assange [WikiLeaks editor Julian Assange] in high regard in many issues of state. I take very seriously his statement that he received no information from Russia or any state actors,” Stone said.

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“.. it is French and German taxpayers who will pay the price when the Greek debt is inevitably written off.”

I should get the book later this week.

Adults in the Room – One Of The Greatest Political Memoirs Ever (Mason)

Varoufakis began on the outside – both of elite politics and the Greek far left – swerved to the inside, and then abruptly abandoned it, after he was sacked by his former ally, Greek prime minister Alexis Tsipras, in July 2015. He dramatises his intent throughout the crisis with a telling anecdote. He’s in Washington for a meeting with Larry Summers, the former US treasury secretary and Obama confidant. Summers asks him point blank: do you want to be on the inside or the outside? “Outsiders prioritise their freedom to speak their version of the truth. The price is that they are ignored by the insiders, who make the important decisions,” Summers warns. Elected politicians have little power; Wall Street and a network of hedge funds, billionaires and media owners have the real power, and the art of being in politics is to recognise this as a fact of life and achieve what you can without disrupting the system.

That was the offer. Varoufakis not only rejected it – by describing it in frank detail now, he is arming us against the stupidity of the left’s occasional fantasies that the system built by neoliberalism can somehow bend or compromise to our desire for social justice. In this book, then, Varoufakis gives one of the most accurate and detailed descriptions of modern power ever written – an achievement that outweighs his desire for self-justification during the Greek crisis. He explains, with a weariness born of nights in soulless hotels and harsh-lit briefing rooms, how the modern power network is built. Aris gets a loan from Zorba’s bank; Zorba writes off the loan but Zorba’s construction company gets a contract from Aris’s ministry. Aris’s son gets a job at Zorba’s TV station, which for some reason is always bankrupt and so can never pay tax – and so on.

“The key to such power networks is exclusion and opacity,” Varoufakis writes. As sensitive information is bartered, “two-person alliances forge links with other such alliances … involving conspirators who conspire de facto without being conscious conspirators”. In the process of telling this story, Varoufakis not only spills the beans but beans of the kind the Greeks call gigantes – fat ones, full of juice. The first revelation is that not only was Greece bankrupt in 2010 when the EU bailed it out, and that the bailout was designed to save the French and German banks, but that Angela Merkel and Nicolas Sarkozy knew this; and they knew it would be a disaster.

This charge is not new – it was levelled at the financial elite at the time by leftwing activists and rightwing economists. But Varoufakis substantiates it with quotes – some gleaned from the tapes of conversations and phone calls he was, unbeknown to the participants, making at the time. Even now, two years after the last Greek election, this is of more than academic interest. Greece remains burdened by billions of euros of debt it cannot pay. Because of the actions taken in 2010-11 – saving private banks by saddling north European states with massive debts – it is French and German taxpayers who will pay the price when the Greek debt is inevitably written off.

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Not going to happen until after the German fall election.

Greece, Creditors To Discuss Options For Debt Restructuring (CNBC)

Greece and its creditors are expected to discuss ways to restructure the country’s debt ahead of a meeting of euro zone finance ministers on May 22, a European official told CNBC on Tuesday. Athens agreed on Tuesday to introduce new laws on labor, energy reforms, pension cuts, and tax rises. This paves the way for a fresh disbursement of money from creditors in mid-June, but above all it allows Greece, its European creditors, and the IMF to consider how they will restructure the country’s debt. A European official who follows the bailout talks told CNBC that there isn’t a specific date for a solution to Greece’s debt but the first discussions on this issue will start soon. “From now until the Eurogroup meeting of May 22 there will be discussions to consider options for debt relief,” the official said.

Greece has to legislate the new reforms within two weeks. However, these new laws won’t take effect until 2019 and 2020 and will be dependent on the country’s economic performance. For example, among the new measures is the promise to cut pensions in 2019 and cut the tax-free threshold in 2020 to produce savings worth 2% of GDP. But if Athens exceeds its targets, it is allowed to offset the austerity measures and reduce taxes. During the first stages of talks on debt restructuring, the European Stability Mechanism, which is the euro zone’s permanent bailout fund, will produce a new debt sustainability analysis. Current economic forecasts indicate that Greece’s public debt stood at about 180% of GDP in 2016. The IMF will also be doing its debt sustainability analysis to include the recently-agreed measures.

The Fund wants an agreement on measures to make Greece’s debt more sustainable before deciding whether it is participating with its own money in the Greek bailout program. Dimitris Tzanakopoulos, spokesperson to the Greek government told reporters last month, that the IMF will make a “small” funding contribution that will not last for more than one year, so it ends at the same time as the current European program, which runs out in August of 2018. The IMF’s participation in the third bailout program to Greece is key for many euro countries, which perceive the fund’s involvement as giving credibility to the reform process in Greece. One of these countries is Germany, but the upcoming federal election might reduce Berlin’s room to restructure Greece’s debt.

“We will get some IMF participation, but no significant number,” Johannes Mayr, head of economic research at Bayern LB ,told CNBC via email. On the debt issue, “we need a compromise between the IMF and the EU/ESM (European Stability Mechanism), he said, “and this is realistic only after the German elections.” Neil Dwane, global strategist at Allianz Global Investors, added: “National governments, like Germany, would lose popularity if they wrote off Greek debt.” “I would expect more extend and pretend from the EU and the IMF,” he said via email.

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No Greek default, but nothing else either: again, until after the German fall election. And even then.

Greece Will Avoid Default After Bailout Deal – But Faces More Austerity (G.)

The long road to Greece emerging from its worst financial crisis in modern times reached another milestone on Tuesday as the country concluded a crucial compliance review that will allow it to avert default in July. At the cost of yet more painful austerity – in the form of extra pension cuts and tax increases – international creditors agreed to disburse €7.5bn (£6.3bn) in emergency loans to enable Athens to honour maturing debt repayments. More importantly, lenders accepted to set talks in motion on making Greece’s debt mountain more manageable – vital if the country is to gain access to the capital markets from which it has been almost completely exiled since 2009. [..] The deal ends more than six months of intense wrangling over the fiscal and structural reforms that Athens must implement in exchange for loans from its third, €86bn bailout programme.

Although the programme was outlined in 2015 when Greece came closest to crashing out of the eurozone and reverting to the drachma, the conditions attached to the lifeline remained open to negotiation. Discord most recently had focused on labour reforms and pensions – two issues that Tsakalotos, a British-trained Marxist economics professor, had felt especially strongly about. Under the agreement, the leftist-led government undertook to further slash pensions by 18% as of 2019. Pension payments have now been reduced 12 times since the start of the crisis, and cut by 40% in the past six years. With poorer out-of-work families often depending on them, news of a further drop was met with fury by union leaders, who immediately announced industrial action.

The two-party coalition led by the prime minister, Alexis Tsipras, also agreed to broaden the tax-free threshold by effectively dispensing with tax breaks as of 2020. Both measures are expected to produce savings worth €3.6bn or 2% of GDP. “It will be a very hot spring,” Odysseus Trivalas, acting president of the union of public sector employees, told the Guardian. “We have yet to see the details of this agreement but what we know is that it will mean further cuts. There will be a lot of strikes and a general 24-hour lockdown when the measures are brought to parliament for vote.”

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“On a corner of Monastiraki Square full of tourists and passers-by, a group of volunteers from the soup kitchen O Allos Anthropos (The Fellow Man) cook chicken with rice. In less than 20 minutes, 230 hot meals are delivered to people who waited more than an hour to get them.”

Greek Poverty Deepens During Seven Years Of Austerity (AP)

Over the past seven years, austerity has left visible scars in Greece’s capital. A walk around Athens reveals more homeless people than ever despite some signs of a rosier economic outlook. Thousands of shops, mostly small businesses, are shuttered here and across the country. In what used to be a busy shopping arcade, closed stores are padlocked against a backdrop of hanging Greek flags. Whole families can be seen lining up for free meals at a growing number of soup kitchens. “Every day we feed 400 to 500 people, and this number has increased even more in the past two years,” says Evangelia Konsta, organizer and sponsor of the meals offered by the Church of Greece in a run-down neighborhood in central Athens.

Yesterday, IMF and European negotiators bailout negotiators reached an agreement with Greece’s government to continue rescue funding in return for a painful new round of cuts and higher taxes over the next three years. High unemployment and a steady decline of living standards for most Greeks for seven consecutive years have had lasting effects. Greece has survived on international rescue loans since 2010, granted by the IMF and other countries using the euro currency in exchange for drastic cuts in public spending and benefits. Greece is now in its third bailout. A few steps away from the Church-run soup kitchen is a homeless shelter also run by the Church. Guests in its tiny rooms include one family with their young children and a retired nurse suffering from cancer who is still waiting to get her pension application approved.

Another shelter, the “Shelter of Love and Solidarity,” has a great view of the ancient Acropolis that’s barely noticed by the hundreds of homeless and poor who come twice a week to wash their clothes and take a hot bath. “The shelter is the best option for us because the government doesn’t really do anything for us,” says Ilias Kosmidis, 38, who has been sleeping on the street for the past two years. While waiting to wash their clothes, people at the shelter have developed friendships, and catch up on the news, including the French presidential election. Sofia Vitalaki and her husband Costas, both retired civil servants, have run the shelter since 1991. “It’s not just the food,” she says. “Most people want their dignity back and here we try to support them.”

On a corner of Monastiraki Square full of tourists and passers-by, a group of volunteers from the soup kitchen O Allos Anthropos (The Fellow Man) cook chicken with rice. In less than 20 minutes, 230 hot meals are delivered to people who waited more than an hour to get them. At the end of every month, it’s become a familiar sight outside banks: pensioners waiting in huge lines to collect their monthly checks. Few know how to use ATMs. While in line, they fret over how to make ends meet after years of cuts to their earnings, worrying about more austerity being planned. They won’t have long to wait till the next round of cuts. The government on Tuesday finalized its agreement with bailout lenders to ax pensions further, starting on January 1, 2019.

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Apr 202017
 
 April 20, 2017  Posted by at 9:04 am Finance Tagged with: , , , , , , , ,  5 Responses »
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Fra Filippo Lippi 1406-1469 The Virgin Mary

 

The IMF Says Austerity Is Over (Tel.)
Reflation Trades of 2016 Deflate With Remarkable Speed (R.)
IMF Warns High US Corporate Leverage Could Threaten Financial Stability (WSJ)
Securities-Based Loans Are Scaring Fiscal Experts (NYP)
Telling the Truth: (P + G) – M = I (MarkGB)
You’re Hired! A Guaranteed Job For Anyone Who Wants One (DJ)
Japan’s Middle-Aged ‘Parasite Singles’ Face Uncertain Future (R.)
The EU’s Collapse Is Now “Imminent” (Doug Casey)
Greece Needs To Start Having Babies Again or Face Financial Oblivion (Ind.)
40% of Spanish Children Live in Poverty (EurA)
Ontario Set to Unveil Its Plan to Cool Toronto Housing (BBG)
Feds Knew of 700 Wells Fargo Whistleblower Cases in 2010 (CNN)
So It Goes (Oliver Stone)
A Melting Arctic Changes Everything (BBG)

 

 

Yeah, sure, just come look in Greece. Where the IMF itself demands ever more austerity. While claiming austerity is over.

The IMF Says Austerity Is Over (Tel.)

Austerity is over as governments across the rich world increased spending last year and plan to keep their wallets open for the foreseeable future. After five years of belt tightening, the IMF says the era of spending cuts that followed the financial crisis is now at an end. “Advanced economies eased their fiscal stance by one-fifth of 1pc of GDP in 2016, breaking a five-year trend of gradual fiscal consolidation,” said the IMF in its fiscal monitor. “Their aggregate fiscal stance is expected to remain broadly neutral in 2017 as well as in the following years.” The British Government is still trying to reduce the deficit but at a slower pace, as Philip Hammond, the Chancellor, wanted to ease spending cuts following the vote for Brexit last year.

Although extra spending may be welcomed by those who want funds for specific projects or public services, the IMF is worried that governments are still heavily indebted and need to be careful with their budgets. The US government, for instance, should use the current economic growth spurt as a chance to get its finances under control. “In the United States, where the economy is close to full employment, fiscal consolidation could start next year to put debt firmly on a downward path,” the IMF said. That contrasts heavily with President Donald Trump’s plans to spend more on infrastructure and defence while cutting taxes, a combination that risks ramping up the budget deficit. “These policies are expected to generate rising deficits over the medium term.

As a result, the US debt ratio is projected to increase continuously over the five-year forecast horizon,” the IMF warned. Overall the IMF believes government debts “should stabilise in the medium term, averaging more than 100pc of GDP, rather than decline as previously expected.” With debts that high, governments have to walk a fine line to use fiscal policy to support sustainable economic growth, but avoid dangerous over-indebtedness. “Fiscal policy is generally seen as a powerful tool for promoting inclusive growth and can contribute to stabilising the economy, particularly during deep recessions and when monetary policy has become less effective,” said the IMF.

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How can anyone get this right if they can’t even properly define inflation?

Reflation Trades of 2016 Deflate With Remarkable Speed (R.)

Stocks, bond yields and the dollar are all falling, yield curves are flattening and sterling is marching higher. The “reflation” trades of 2016 that were supposed to mark a turning point in global markets are fading. Fast. The question for investors is whether this is the play book for the rest of the year, or whether the trends of 2016 will resume in the second half of the year. What is clear is that much of the conviction with which investors went into 2017 has been lost. This week, Goldman Sachs ditched its long-standing bullish call on the U.S. dollar, and Deutsche Bank did likewise with their gloomy sterling outlook. Following the developed world’s two most seismic events last year – the U.S. presidential election and Brexit – investors around the world had positioned for a broad-based reflation trade.

Trump’s surprise election victory was supposed to unleash a wave of tax cuts, banking deregulation and fiscal largesse that would lift U.S. – and global – growth. Meanwhile, sterling’s 20% plunge after the Brexit vote was supposed to pave the way for a surge in UK equities and inflation. This, indeed, is how it played out as 2017 got underway. The Federal Reserve raised interest rates twice, the dollar reached a 14-year peak, Wall Street hit record highs, and government bond yield curves around the world steepened to the benefit of banks and financial stocks. But it is now unraveling, in large part due to a clear slowdown in U.S. growth and signs that global inflation is leveling off. Flatter yield curves where short- and long-term bond yields are close to each other suggest economic uncertainty.

[..] Citi’s economic surprises indexes for most of the world’s major economies have been heading south for the past month. The U.S. index has suddenly tumbled to lows not seen since November, and is below all its peers apart from Japan’s. And inflation expectations are showing signs of peaking too. The dollar is now down 2.5% year-to-date (but still up 2% since the U.S. election; U.S. bank stocks are down 10% from their February peak (but still up 20% from the election); and sterling is down 13% against the dollar since the Brexit vote last June (but it has been down as much as 20%). Estimates of first quarter U.S. growth have been slashed in recent weeks, with the Atlanta Fed’s closely-watched GDPNow model pointing to just 0.5% compared with around 2.5% less than two months ago.

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All it takes is a few rate hikes.

IMF Warns High US Corporate Leverage Could Threaten Financial Stability (WSJ)

U.S. corporate debt has ballooned on cheap credit to levels exceeding those prevailing just before the 2008 financial crisis, a potential threat to financial stability, the IMF warned in its latest review of the top threats to markets and banks. High corporate leverage could become problematic as the Federal Reserve raises short-term interest rates, the IMF warned, since higher borrowing costs could hinder the ability of firms to service debts. While borrowing costs remain low, debt servicing as a proportion of income has risen to its highest level since 2010, raising questions over firms’ ability to service their debts, according to the IMF’s study of nearly 4,000 U.S. firms accounting for about half of the economywide corporate sector balance sheet.

Companies have added $7.8 trillion of debt and other liabilities since 2010, while issuing $3 trillion of equity, net of buybacks, according to the IMF. The IMF’s message stands in contrast to the one being sent by the corporate bond market, which has been rallying for more than a year now. In early March, the average spread between junk-rated corporate bond yields and U.S. Treasury yields reached 3.44 percentage points, its lowest point since July 2014, according to Bloomberg Barclays data. It was most recently at 3.92 percentage points, still a very low level by historical standards, indicating that investors don’t see the debt as very risky.

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So you buy mortgage backed securities, and then use them as collateral for a loan that lets you buy more securities. The serpent and the tail.

Securities-Based Loans Are Scaring Fiscal Experts (NYP)

Forget subprime mortgages – one of Wall Street’s biggest risks doesn’t even show up on most banks’ balance sheets. Financial insiders are getting increasingly worried over the popularity of securities-based loans, or SBLs – a risky form of debt marketed to wealthy investors who typically use it to buy big assets like houses. The loans, which are taken against pools of stocks and bonds, offer borrowers cheap money fast without having to sell their underlying securities – an attractive option when the Dow is rising. But if markets crash, brokers can unload their clients’ holdings at fire-sale prices – and go after the house to cover the the vig. Fears of such ugly scenarios are growing as the Fed hikes interest rates, stocks are hitting all-time highs, and high-net-worth individuals are using this form of “shadow margin” to borrow more against stocks and bonds in their portfolios than ever before.

It’s not clear how much debt has been taken out in the form of SBLs, and a lack of regulatory oversight is partly to blame. Finra, the brokerage regulator, doesn’t track it, nor does the Securities and Exchange Commission — even though both have warned investors about the risks. However, several advisers surveyed by The Post estimated there is between $100 billion and $250 billion in outstanding SBLs among all brokerages. At least one concerned financial executive is in talks with lawyers to file a whistleblower case over the issue against a major bank with the Securities and Exchange Commission, The Post has learned. “When the market does turn, and it will at some point, it will be a major disaster,” said the exec, who requested confidentiality in exchange for speaking on the issue with The Post.

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Here’s what I think will lead to UBI: poor old people. I skipped all the examples and links provided here. Do read them. “Where ‘P’ is pensions, ‘G’ is ‘government intervention’, ‘M’ is media oversight, and ‘I’ is insolvency.”

Telling the truth: (P + G) – M = I (MarkGB)

Telling the truth has never been popular with politicians. They believe that it would prevent them from getting elected. Making new promises that will never be kept, and covering up the unaffordability of old promises…is how politicians get elected. The pattern is well worn and predictable: they use promises to ‘bribe’ people to vote for them, then they fail to deliver, then they blame someone else, then they change the subject…rinse and repeat…meanwhile the really important stuff get’s brushed under the carpet or kicked down the road…choose your own metaphor. There are few greater examples of this than the approaching crisis in pensions: A tale that has been decades in the telling, the climax will be a calamity that the corporate media doesn’t want to look at, and politicians never mention or acknowledge. Short of being strapped to a metal chair and entertained with an electrical massage they never will…which is a nice thought but regrettably still illegal, at least on the mainland.

[..] Despite the dark pleasure it would give me to label our political and economic elites: ‘as thick as two short planks’…the truth is that many of them are not. It’s far worse than that I’m afraid. They are ‘liars’. The politicians, central bankers, economists and journalists who understand the situation we face, but do nothing to address it, are discrediting the positions of responsibility that they hold…by lying through omission, by obfuscation, through denial, by issuing false and/or misleading information, and via the good old fashioned ‘art’ of bull$hitting straight to camera. Finally, and on a slightly lighter note, for anyone reading this who has been brainwashed with the idea that any theory or observation that can’t be reduced to an equation, is not real ‘economics’…here is an equation for you (but don’t expect your professor to like it):

(P + G) – M = I

Where ‘P’ is pensions, ‘G’ is ‘government intervention’, ‘M’ is media oversight, and ‘I’ is insolvency. Throughout recorded history, this equation has never failed to balance eventually…ask any legionnaire.

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Another -more palatable?!- way of phrasing UBI.

You’re Hired! A Guaranteed Job For Anyone Who Wants One (DJ)

Democrats have begun the presidency of Donald Trump exiled to the political wilderness. They’ve lost the White House, both houses of Congress, a shocking number of state governments, while the “blue state” vote has turned out to be really just the “blue city” vote. The party has cast about for solutions, battling it out over identity politics, the proper opposition strategy, and more. But Democrats might consider taking a cue from Trump himself. Namely, his relentless promises to bring back good-paying American jobs. “It’s the first and most consistent thing he discusses,” observed Mike Konczal, a fellow at the Roosevelt Institute, after reviewing Trump’s speeches. The President understands, as The New York Times’s Josh Barro noted, that most Americans think the purpose of private business is to provide good jobs, not merely turn a profit.

Even Trump’s xenophobia and white nationalism are not totally separate from this: Kicking out all the immigrants and rolling foreign competitors are critical components of how he would restore jobs. Democrats tend to treat jobs as the happy by-product of other goals like infrastructure revitalization or green energy projects. Or they treat deindustrialization and job dislocation as regrettable inevitabilities, offering training, unemployment insurance, health care, and so on to ameliorate their effects. All these policies are worthy. But a job is not merely a delivery mechanism for income that can be replaced by an alternative source. It’s a fundamental way that people assert their dignity, stake their claim in society, and understand their mutual obligations to one another. There’s pretty clear evidence that losing this social identity matters as much as the loss of financial security.

The damage done by long-term joblessness to mental and physical health is rivaled only by the death of a spouse. It wreaks havoc on marriages, families, mortality rates, alcoholism rates, and more. The 2008 crisis drove long-term unemployment into the stratosphere, and today it remains near a historic high. Trump went right at this problem, telling Michigan in October of 2016: “I am going to bring back your jobs.” Period. Democrats should consider making the same moon shot promise. But unlike Trump, they should back it up with a policy plan. And there’s an idea that could do the trick. It emerges naturally from progressive values. It’s big, bold, and could fit on a bumper sticker. It’s generally called the “job guarantee” or the “employer of last resort.” In a nutshell: Have the federal government guarantee employment, with benefits and a living wage, to every American willing and able to work.

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More pension troubles. Today Japan, tomorrow your neck of the woods.

Japan’s Middle-Aged ‘Parasite Singles’ Face Uncertain Future (R.)

Their youth long gone, members of Japan’s generation of “parasite singles” face a precarious future, wondering how to survive once the parents many depended on for years pass away. Some 4.5 million Japanese aged between 35 and 54 were living with their parents in 2016, according to a researcher at the Statistical Research and Training Institute on a demographic phenomena that emerged two decades ago, when youthful singles made headlines for mooching off parents to lead carefree lives. Now, without pensions or savings of their own, these middle-aged stay-at-homes threaten to place an extra burden on a social welfare system that is already creaking under pressure from Japan’s aging population and shrinking workforce.

Hiromi Tanaka once sang backup for pop groups, and epitomized the optimism of youth. “I got used to living in an unstable situation and figured somehow it would work out,” Tanaka told Reuters as she sat at the piano in a small parlor of an old house connected to her elderly mother’s next door. Now aged 54, Tanaka relies on income from giving private singing lessons to a dwindling number of students, and her mother’s pension to make ends meet. She has no pension plan of her own, and has used up most of her savings. “My father died last year so pension income was halved,” she said. “If things go on like this, my mother and I will fall together.” Tanaka is one of the growing ranks of “life-time singles,” whose numbers hit a record in 2015, according to data released this month that showed that among 50-year-olds, 1 in 4 men and 1 in 7 women were unmarried.

“During the ‘bubble economy’ until the mid-1990s, the 20-somethings were happily amusing themselves. They thought by the time they were in their 30s, they’d be married,” said Masahiro Yamada, a Chuo University sociologist who coined the term “parasite singles” in 1997. “But one-third never married and are now around age 50,” Yamada said. The trend is not only a factor behind Japan’s low birthrate and shrinking population. It also puts an extra damper on consumption since new household formation is a key driver of private spending. And since about 20% of the middle-aged stay-at-home singles rely on parents for support, they also threaten to weigh on social safety nets. “Once they use up inherited assets and savings, when nothing is left, they will go on the dole,” Yamada said.

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Casey gets lots of things spectacularly wrong. The EU did need trade pacts etc., to enhance, guarantee quality control. The EU did a lot of good things. But it got taken over by the shit that floats to the top: “The European Union in Brussels is composed of a class of bureaucrats that are extremely well paid, have tremendous benefits, and have their own self-referencing little culture. They’re exactly the same kind of people that live within the Washington, D.C. beltway.”

The EU’s Collapse Is Now “Imminent” (Doug Casey)

A free trade pact between different governments is unnecessary for free trade. An individual country interested in prosperity and freedom only needs to eliminate all import and export duties, and all import and export quotas. When a country has duties or quotas, it’s essentially putting itself under embargo, shooting its economy in the foot. Businesses should trade with whomever they want for their own advantage. But that wasn’t the way the Europeans did it. The Eurocrats, instead, created a treaty the size of a New York telephone book, regulating everything. This is the problem with the EU. They say it is about free trade, but really it’s about somebody’s arbitrary idea of “fair trade,” which amounts to regulating everything. In addition to its disastrous economic consequences, it creates misunderstandings and confusion in the mind of the average person.

Brussels has become another layer of bureaucracy on top of all the national layers and local layers for the average European to deal with. The European Union in Brussels is composed of a class of bureaucrats that are extremely well paid, have tremendous benefits, and have their own self-referencing little culture. They’re exactly the same kind of people that live within the Washington, D.C. beltway. The EU was built upon a foundation of sand, doomed to failure from the very start. The idea was ill-fated because the Swedes and the Sicilians are as different from each other as the Poles and the Irish. There are linguistic, religious, and cultural differences, and big differences in the standard of living. Artificial political constructs never last. The EU is great for the “elites” in Brussels; not so much for the average citizen.

Meanwhile, there’s a centrifugal force even within these European countries. In Spain, the Basques and the Catalans want to split off, and in the UK, the Scots want to make the United Kingdom quite a bit less united. You’ve got to remember that before Garibaldi, Italy was scores of little dukedoms and principalities that all spoke their own variations of the Italian language. And the same was true in what’s now Germany before Bismarck in 1871. In Italy 89% of the Venetians voted to separate a couple of years ago. The Italian South Tyrol region, where 70% of the people speak German, has a strong independence movement. There are movements in Corsica and a half dozen other departments in France. Even in Belgium, the home of the EU, the chances are excellent that Flanders will separate at some point.

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Another feature brought to you by the Troika.

Greece Needs To Start Having Babies Again or Face Financial Oblivion (Ind.)

People in Greece can’t afford to have more than one child, and many are opting to have none at all. Fertility doctor Minas Mastrominas tells the New York Times that some women have decided not to conceive, and single-child parents have been asking him to destroy their remaining embryos. He said: “After eight years of economic stagnation, they’re giving up on their dreams.” It isn’t just Greece suffering low birth rates. In fact the trend spreads to most of Europe, with Spain, Portugal and Italy also reporting dangerously low rates. Unemployment continues to be a serious issue in Greece. Rates are slightly lower than in 2016 when they were 23.9%, but are still very high at 23.5%. The slump has affected women more, with unemployment rates at 27% compared to 20% of men.

Child tax breaks and subsidies for large families have decreased, and the country stands at having to lowest budget in the EU for family and child benefits. During the height of the crisis, women postponed childbirth in favour of working. As the years dragged on, the rate of fertility decreased, making it biologically more difficult to conceive. Additionally, gender equality came to a standstill, and many women of ‘childbearing age’ were denied employment, or had their contract changed to part time involuntarily, as soon as they got pregnant. One of the most prominent areas that will be detrimentally affected is pensions and the welfare system. Additionally, according to Eurostat, such low birth rates – under 2.1 – could create a demographic disaster. This will have a knock-on effect on pensions, with fewer young people working.

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And the children we do have, we treat like this. No wonder there are fewer of them.

40% of Spanish Children Live in Poverty (EurA)

Spain has the EU’s third highest rate of child poverty, after Romania and Greece. EURACTIV Spain reports. After the economic crisis and years of austerity, child poverty is on the rise in wealthy countries, according to Unicef. In Spain, the proportion of children living below the poverty line increased by 9 percentage points between 2008 and 2014, to reach almost 40%. While child poverty in general rose significantly, the sharpest increase (56%) was among households of four people (two adults and two children) living on less than €700 per month, or €8,400 per year. Spain has the third widest gap in the EU, behind Latvia and Cyprus, between the levels of social protection offered to children and people over 65. During the crisis, Spain’s oldest citizens were much better protected than its youngest.

According to the Spanish Statistical Office, cited by Unicef, investment in the social protection of families fell by €11.5 billion between 2009 and 2015. Unicef also highlighted that families with children, large families, single-parent families and teenagers suffered the most from the effects of poverty. As for Madrid’s response to the crisis, the UN’s agency for children criticised its failure to contain child poverty. “Social protection policies are very fragmented and very unequal, with little focus on children,” Unicef said. For the organisation, this is due, among other causes, to the strong link between social security and workers’ contributions, and the fact that many of the state’s family aid programmes take the form of tax credits, which have little impact on low earners.

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They’ll get it awfully wrong. It’s too late in the game.

Ontario Set to Unveil Its Plan to Cool Toronto Housing (BBG)

Ontario is expected to impose a tax on “non-resident speculators” when it announces new measures Thursday to cool the red-hot housing market in Toronto, according to people familiar with the plans. The measures are intended to improve housing affordability, and address both supply and demand, the people said, speaking on condition of anonymity because the plans are not yet public. The measures are also said to include a new tax aimed at curbing purchases from non-resident speculators. [..] Home prices in the Toronto area climbed 6.2% last month, the biggest one-month gain on record, according to a benchmark price index by the Canadian Real Estate Association, and are up almost 30% in the past 12 months. Bank of Canada Governor Stephen Poloz said last week the price gains are “divorced” from the typical measures of demand, such as income growth and demographics, and said they are unsustainable.

“The focus has to be on runaway prices, more so than affordability per se,” Robert Hogue, a senior economist at Royal Bank of Canada, said in a phone interview. “The risk now is about expectations in the market, or market psychology, as you have both sellers and buyers expecting much higher prices.” The Toronto Star reported earlier, without saying where it got the information, that Sousa will announce some 10 measures ranging from rent controls to a new tax on speculators. The move comes a week before the province tables its budget on April 27, and two days after Sousa said the government recognizes that “now” is the time to address runaway home prices. Sousa on Tuesday met Canadian Finance Minister Bill Morneau and Toronto Mayor John Tory, who said that possible steps include taxing homes left empty for speculative purposes. Rent increases on newer buildings may be limited to about 1.5% above the inflation rate, which was at 2% in February, the Star reported.

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Daddy, please tell the story again of why we have regulators!

Feds Knew of 700 Wells Fargo Whistleblower Cases in 2010 (CNN)

America’s chief federal banking regulator admits it failed to act on numerous “red flags” at Wells Fargo that could have stopped the fake account scandal years earlier. One particularly alarming red flag that went unheeded: In January 2010, the regulator was aware of “700 cases of whistleblower complaints” about Wells Fargo’s sales tactics. An internal review published on Wednesday by the Office of the Comptroller of the Currency found that the regulator didn’t live up to its responsibilities. The report found that oversight of Wells Fargo was “untimely and ineffective” and federal examiners overseeing the bank “missed” several opportunities to uncover the problems that led to the creation of millions of fake accounts. The review painted a damning picture of the OCC’s ability to spot what in retrospect should have been obvious problems at one of the nation’s biggest banks.

The OCC did confront Carrie Tolstedt, then head of Wells Fargo’s community bank, about the stunning number of whistleblower claims. However, there are no records that show that federal inspectors “investigated the root cause,” or force Wells Fargo to probe it. It’s now clear that root cause of Wells Fargo’s problems – both the creation of fake accounts and the related 5,300 firings – was the notoriously aggressive sales goals targets set by senior management. At one point, rank and file bankers were asked to open as many as eight accounts per customer. That’s why the bank has eliminated them. From top management to Wells Fargo’s board of directors, everyone turned a blind eye to these issues. There’s evidence now that some of this was flagged as early as 2004 to management.

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Stone states the obvious.

So It Goes (Oliver Stone)

I confess I really had hopes for some conscience from Trump about America’s wars, but I was wrong – fooled again! – as I had been by the early Reagan, and less so by Bush 43. Reagan found his mantra with the “evil empire” rhetoric against Russia, which almost kicked off a nuclear war in 1983 – and Bush found his ‘us against the world’ crusade at 9/11, in which of course we’re still mired. It seems that Trump really has no ‘there’ there, far less a conscience, as he’s taken off the handcuffs on our war machine and turned it over to his glorified Generals – and he’s being praised for it by our ‘liberal’ media who continue to play at war so recklessly. What a tortured bind we’re in. There are intelligent people in Washington/New York, but they’ve lost their minds as they’ve been stampeded into a Syrian-Russian groupthink, a consensus without asking – ‘Who benefits from this latest gas attack?’

Certainly neither Assad nor Putin. The only benefits go to the terrorists who initiated the action to stave off their military defeat. It was a desperate gamble, but it worked because the Western media immediately got behind it with crude propagandizing about murdered babies, etc. No real investigation or time for a UN chemical unit to establish what happened, much less find a motive. Why would Assad do something so stupid when he’s clearly winning the civil war? No, I believe America has decided somewhere, in the crises of the Trump administration, that we will get into this war at any cost, under any circumstances – to, once again, change the secular regime in Syria, which has been, from the Bush era on, one of the top goals – next to Iran – of the neoconservatives. At the very least, we will cut out a chunk of northeastern Syria and call it a State.

Abetted by the Clintonites, they’ve done a wonderful job throwing America into chaos with probes into Russia’s alleged hacking of our election and Trump being their proxy candidate (now clearly disproved by his bombing attack) – and sadly, worst of all in some ways, admitting no memory of the same false flag incident in 2013, for which again Assad was blamed (see Seymour Hersh’s fascinating deconstruction of this US propaganda, ‘London Review of Books’ December 19, 2013, “Whose sarin?”). No memory, no history, no rules – or rather ‘American rules.’ No, this isn’t an accident or a one-off affair. This is the State deliberately misinforming the public through its corporate media and leads us to believe, as Mike Whitney points out in his brilliant analyses, “Will Washington Risk WW3” and “Syria: Where the Rubber Meets the Road,” that something far more sinister waits in the background.

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BBG can’t even run a story on climate anymore without adding “..the emerging risk of an emboldened and growing Russian empire..”, and more of such useful hints.

A Melting Arctic Changes Everything (BBG)

The story of the Arctic begins with temperature but it’s so much more—this is a tale about oil and economics, about humanity and science, about politics and borders and the emerging risk of an emboldened and growing Russian empire. The world as a whole has warmed about 0.9 degrees Celsius (1.7 degrees Fahrenheit) since 1880. Arctic temperatures have risen twice that amount during the same time period. The most recent year analyzed, October 2015 to September 2016, was 3.5C warmer than the early 1900s, according to the 2016 Arctic Report Card. Northern Canada, Svalbard, Norway and Russia’s Kara Sea reached an astounding 14C (25F) higher than normal last fall. Scientists refer to these dramatic physical changes as “Arctic amplification,” or positive feedback loops. It’s a little bit like compound interest.

A small change snowballs, and Arctic conditions become much less Arctic, much more quickly. “After studying the Arctic and its climate for three-and-a-half decades,” Mark Serreze, director of the National Snow and Ice Data center, wrote recently. “I have concluded that what has happened over the last year goes beyond even the extreme.” The heat is making quick work of its natural prey: ice. Scientists track the number of “freezing-degree days,” a running seasonal tally of the amount of time it’s been cold enough for water to freeze. The 2016-2017 winter season has seen a dramatic shortfall in coldness—more than 20% below the average, a record. Sea ice has diminished much faster than scientists and climate models anticipated. Last month set a new low for March, out-melting 2015 by 23,000 square miles.

Compared with the 1981-2010 baseline, the average September sea-ice minimum has been dropping by more than 13% per decade. A recent study in Nature Climate Change estimated that from 30-50% of sea ice loss is due to climate variability, while the rest occurs because of human activity. Receding ice decreases the Earth’s overall reflectivity, making the Arctic darker and therefore absorbing even more heat. The ice is not all the same age or thickness, although it has become somewhat more uniform. In 1985, about 45% of Arctic sea ice was made up of older and thicker multi-year ice. By 2016, that number shrank to 22%.

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Apr 112017
 
 April 11, 2017  Posted by at 9:11 am Finance Tagged with: , , , , , , , , ,  6 Responses »
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Carole Lombard 1934

 

54% Of Canadians Think Home Prices Will Never Fall (BNN)
Wild Housing Speculation Drives Entire Canadian Economy (WS)
Third of US Car Owners Can’t Afford Surprise Repairs (UT)
The Retail Apocalypse’s Terrifying Impact On One Corner Of Wall Street (BI)
China Is Playing a $9 Trillion Game of Chicken With Savers (BBG)
Currency-Issuing Governments Never Have To Worry About Bond Markets (Bilbo)
Recessions Are Never Desirable Events And Are Always Avoidable (Bilbo)
So Many Triggers (Thomas)
American Carnage – The New Landscape of Opioid Addiction (Caldwell)
How Erdogan’s Referendum Gamble Might Backfire (Spiegel)
Share of Member States in EU GDP (EC)
Austria FinMin Calls For €1 Billion EU Investment In Greece (R.)
JP Morgan Report Sees ‘Light At The End Of The Tunnel’ For Greece (Amna)
Refugee Community Center Set To Open On Lesvos (K.)

 

 

Stupefying. “Of those in the younger generation who are already in the housing market, more than four of every five plan to sell..”

54% Of Canadians Think Home Prices Will Never Fall (BNN)

More than half of the country believes home prices will never fall, according to a new poll from CIBC. Despite lofty valuations in the Toronto and Vancouver housing markets, 54% of respondents to the CIBC poll say housing prices will rise indefinitely, while only 40% think prices will decline over the course of the next five years. David Madani, senior Canadian economist at Capital Economics, thinks the unbridled optimism is just one more sign the Toronto housing market is in bubble territory. “The fact that the majority of Canadians still think home prices can continue to shoot up is sort of testament to the fact we’re in a full-blown housing bubble,” he said in an interview with BNN. According to the poll, those high prices are keeping homeowners on the sidelines, with 62% of respondents saying they’re reluctant to sell their home, lest they become buyers again.

Home prices in Toronto are up more than 30% over the course of the last year, and prices in Vancouver have risen more than 14%. Those who are looking to sell are largely of the baby boomer cohort, with more than two-thirds of respondents older than 55 saying they plan to downsize to a smaller home or condo. CIBC says boomers are motivated to sell not just due to the ease of maintaining a smaller home, but also as a boost to their retirement savings. What’s less clear is who they’re going to sell their home to: 52% of the millennial generation either don’t believe they’ll ever own a home, or are unsure if home ownership is in their future, according to the CIBC poll. Of those in the younger generation who are already in the housing market, more than four of every five plan to sell, with 63% complaining the mortgage and housing costs are making them cash-poor.

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It drives it and will make it crumble. But Justin isn’t listening.

Wild Housing Speculation Drives Entire Canadian Economy (WS)

Here’s another data point on the Canadian housing bubble, how immense it really is, and how utterly crucial wild housing speculation has become to the Canadian economy. Housing starts surged to 253,720 units in March seasonally adjusted, the highest since September 2007, according to Canada Mortgage & Housing Corp. Of them, 161,000 were multi-family starts of condos and rental units in urban areas. In Toronto, one of the hot beds of Canada’s house price bubble, housing starts jumped by 16,600 units, all of them condos and apartments, defying any expectation of a slowdown. Housing starts are an indication of construction activity, a powerful additive to the local economy with large secondary effects. Housing construction gets fired up by the promise of ever skyrocketing housing prices, and thus big payoffs for developers, lenders, real estate agents, and the entire industry.

National home price data covers up the real drama in certain cities, particularly Vancouver (British Columbia) and Toronto (Ontario), but it does show by how much Canadian housing prices have overshot the already lofty US housing prices. The chart below by Stéfane Marion, Chief Economist at Economics and Strategy, National Bank of Canada, compares US home prices per the Case-Shiller 20-City index to Canadian home prices per the Teranet-National Bank 26-market index. Both indices are based on similar methodologies of comparing pairs of sales of the same home over time. The shaded areas denote recessions in Canada. Note that during the housing crisis in the US, there was only a blip in Canada’s housing market:

How important is real estate and housing construction to the Canadian economy? Hugely important! It accounts for an ever larger proportion of the Canadian economy. For all of Canada, according to data by Statistics Canada, housing construction and real estate activities combined account for 15.5% of GDP, up from 14.7% in 2011. This chart shows housing construction and real estate activities in the largest four provinces as percent of the province’s GDP in 2015, and for Canada overall. StatCan data for 2016 are not yet available. Note British Columbia: 22% of its economy is based on residential construction and real estate activities – due to Canada’s number one housing hot-bed Vancouver:

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As I said last week: it seems there’s an article on this theme every week now.

Third of US Car Owners Can’t Afford Surprise Repairs (UT)

Nearly one-in-three American motorists cannot pay for vehicle repairs without taking on debt, according to a new study from AAA. The study estimates 64 million drivers could not pay out-of-pocket for an average repair bill of $500 to $600. There are about 210 million licensed motorists in the country, according to the U.S. Department of Transportation. About 76% of men said they could afford the expense, while only 62% of women could do the same. “We were a little shocked at the results,” said Michael Calkins, AAA manager of technical services. “That one-third of American drivers couldn’t afford the cost of a $500 auto repair is a little concerning.”

AAA suggests motorists adhere to a scrupulous vehicle maintenance schedule and set aside $50 a month to build a fund for maintenance and unexpected repairs. But some motorists don’t – or can’t. About one-third of U.S. drivers delay or skip recommended car maintenance, Calkins said, a possible lingering repercussion of the 2008 recession. Motorists pay later for putting off vehicle maintenance now, as worn-down parts increase the likelihood of costly roadside breakdowns, Calkins said. A car-care fund can help motorists stick to their maintenance schedules, but for many low-income families, $50 a month is a big ask, said Asley Orr, executive director of Good News Mountaineer Garage, a nonprofit that donates used cars to West Virginians who need transportation to work.

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Who owns the stores and malls? Who owns the debt that keeps them going until it doesn’t?

The Retail Apocalypse’s Terrifying Impact On One Corner Of Wall Street (BI)

One of the biggest waves of retail closures in decades is killing off malls across the US and taking some Wall Street investments with it. Struggling with online competition, huge retailers like Sears, JCPenney, and Macy’s are closing hundreds of stores that typically anchor malls, meaning they occupy the largest spaces at mall entrances and drive most shopper traffic. When a big store shuts down, it triggers a chain reaction that can end with the shopping mall being unable to collect enough rent to cover its debts, forcing it to default. By one measure, as many as a third of the malls in the US are at risk of facing this situation. This has become a nightmare for investors who are expecting to collect on those debts. They own bonds – called commercial mortgage-backed securities, or CMBSs – that are backed by the mall properties’ rents.

If this sounds familiar, that’s because it’s similar to one element of the financial crisis. Back then, mortgage-backed securities, which pooled homeowners’ mortgages into a multitrillion-dollar financial market, were part of the problem. They encouraged risky lending, and together with derivatives on the bonds that were ginned up by Wall Street, they left banks and investors with massive losses that threatened the financial system. Nobody is predicting anything that dire today, but CMBSs, which Morgan Stanley says account for nearly 10% of the $3.6 trillion commercial real-estate mortgage market, work similarly. They pool debt payments from several malls or other commercial properties and then splice them so that investors can buy the segment and take on the kind of risk they want.

What’s happening in the retail market, though, is worse than anyone who invested in the bonds could’ve imagined a few years ago. “Malls are hard to turn around once they go downhill,” said Steve Jellinek, vice president of CMBS analytical services for Morningstar Credit Ratings. As a result, many CMBS investments are getting wiped out, and “retail lending has really taken a beating,” he said. About $48 billion in loans backed by mall properties are at risk of default, according to Morningstar.

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This is how the Chinese see Beijing, first as full of hot air (true), and second as capable of making good on any and all losses (not true): “Cracking down on implicit guarantees is just like curbing home prices,” she says. “It’s something that the government needs to say, but it’s not something they will eventually do.”

China Is Playing a $9 Trillion Game of Chicken With Savers (BBG)

Like many individual investors in China, Yang Mo has no idea what’s in the wealth management products that make up a big chunk of her net worth. She says there’s really no point in finding out. Sure, WMPs invest in all kinds of risky assets, but the government would never let a big one fail, she explains. “It’s not how the Chinese government does things, and it’s not even Chinese culture,” says Yang, a 29-year-old public relations professional in Beijing. Hers is a common refrain in Asia’s largest economy, where savers have poured $9 trillion into WMPs and similar products on the assumption that they’ll get bailed out if the investments sour. Even after news in February that policy makers are drafting rules to make it clear that state guarantees don’t exist, Yang is undaunted.

She says she’ll only withdraw money from WMPs in the unlikely event that they start to suffer losses. “Cracking down on implicit guarantees is just like curbing home prices,” she says. “It’s something that the government needs to say, but it’s not something they will eventually do.” Yang’s steadfast faith in bailouts illustrates the dilemma for authorities as they try to reduce moral hazard and improve the pricing of risk in China’s financial system: It may require a major WMP blowup to shake investors out of their complacency, an event that could wreak havoc on banks that increasingly rely on the products for funding. [..] WMPs – a key part of China’s shadow banking system – are getting squeezed as the nation’s central bank increases interest rates to discourage excessive leverage.

That’s not only putting pressure on products that use borrowed funds to meet their fixed return targets, it’s also weighing on the Chinese bond market, where WMPs allocate the biggest portion of their funds. For as long as they can, banks will make investors whole when WMPs run into trouble because they fear the reputational damage of a failed product, according to Hong. At some point, though, WMP shortfalls may be too large for the banks to cover, forcing policy makers to decide whether they’re willing to allow losses. Intervention is becoming less likely, if the new draft rules are anything to go by. Regulators are working on language that would make clear there are no state guarantees on asset-management products – which include WMPs, trusts, mutual funds and other products – people familiar with the matter said in February.

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Snippets from a great and long article by Australian economist Bill Mitchell. Everything they tell you about austerity is a lie.

Currency-Issuing Governments Never Have To Worry About Bond Markets (Bilbo)

How many times have you heard a politician claim they had to cut government spending and move the fiscal balance to surplus because they had to engender the confidence of the bond markets. Apparently, this narrative alleges that if bond markets are not ‘confident’ (whatever that means) then they will stop begging treasury departments for more debt issues and the government, in question, will run out of money and then pensions will stop being paid and the public service will be sacked and public trains and buses will stop running and before we know it the skies will blacken and collapse on us. The narrative ignores the usual statistics that bid-to-cover ratios are typically high (hence my ‘begging’ terminology) which are supplemented by well documented cases where the bond dealers (including banks etc) do actually beg central banks to stop driving yields down in maturity segments where these characters have pitched their “business model” (read: where they make the most profits).

The facts are exactly the opposite to the neo-liberal pitch. Currency-issuing governments never need to worry about how bond markets ‘feel’. Essentially, the bond markets are irrelevant to the ability of such a government to design and implement its fiscal plans. And, the central bank always can counteract any tendencies that the bond markets might seek to impose where governments do actually issue debt. [..] Nothing a student learns in a mainstream macroeconomics course at university (at any level – and the deception becomes worse the in later years as the student enters graduate school) about the relative powers of governments and bond markets is true. [..] So next time you hear an economist or a politician talk about how bond markets have to be satisfied and they use that as a justification for hacking into public spending (and driving up unemployment and poverty rates) you know they are lying and are frauds.

The bond traders never have to be satisfied. They can be forced to live on crumbs by the central bank if it so chooses. [..] The narrative that asserts that governments have to assuage the sentiments of the bond markets – which is an oft-repeated claim to justify job-destroying and poverty-inducing austerity – is just fake. It is a lie. It is just one of many lies that the elites use to pursue their biased austerity. Biased because they never advocate cutting spending or government support that helps them. They just support cuts that help the most disadvantaged who have little political voice and so can be disregarded. The point is that currency-issuing governments never have to worry about bond markets. And it would be better if the government eliminated the public debt market altogether – then the bond traders would have to do something productive for a living and get off the corporate welfare teat!

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More Bill Mitchell.

Recessions Are Never Desirable Events And Are Always Avoidable (Bilbo)

Bloomberg published an article last week (April 7, 2017) that it should not have published given that the article offers only fake knowledge to its readership. The article in question – Australia’s Delayed Recession Fallout Is Showing Up in Its Jobs Data – carried the sub-title “There may be trouble ahead” and purported to argue that because the Australian government’s fiscal stimulus allowed our nation to avoid a recession in 2009 we now have to ‘pay the piper’ and take our medicine and suffer a recession anyway. The proposition is ridiculous to say the least. The article uses as authority some nonsensical statements from a “business management consultant”, who doesn’t appear to have a very sound grasp of either history or what is actually going on. This is another case of misinformation.

The fact is that the Australian government’s fiscal stimulus in 2008 and 2009 saved the economy from recession. The current slowdown and parlous labour market is not some delayed effect from that. Rather, it is because the Australian government caught the ‘fiscal surplus bug’ obsession, and began a misguided pursuits of surpluses, irrespective of what the external and private domestic sectors were doing. It caused an immediate slowdown and all the virtuous dynamics that were accompanying the stimulus-led growth (for example, fall in household debt and the rise in the household saving ratio) were reversed, as we would expect. Far from being delayed effects, the poor jobs data is because current fiscal policy is too restrictive. Simple solution: expand the discretionary fiscal deficit (preferably with a large-scale public sector job creation strategy).

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“..Deutsche is ten times larger than Lehman Brothers..”, ” (90% of Deutsche’s revenue has been from derivative trading, which is what brought down Lehman.)”

So Many Triggers (Thomas)

Deutsche Bank has announced that it will create more shares, selling them at a 35% discount. Existing shareholders have not been pleased and, in the first four days since the offer was announced, the value of existing shares dropped by 13% as shareholders began dumping them. So why on earth would Germany’s foremost bank do something so rash? Well, in recent years, the bank has been involved in many arbitrations, litigations, and regulatory proceedings as a result of fraudulent activities, including the manipulation of markets. Having been found guilty, they presently owe $7.2 billion to the US Department of Justice and are now facing an additional $10 billion litigation bill. Unfortunately, the bank is already broke and, should Deutsche actually be able to sell the new shares, the $8.6 billion they hope to receive will still not save them from bankruptcy.

Business has also not been so good. They’ve lost nearly $2 billion in the last two years, instituted a hiring freeze, cut bonuses by 80%, and are facing a $2.5 million civil penalty to pay to the Commodity Futures Trading Commission for failure to report transactions and, not surprisingly, have been downgraded. The German government has stated that they will not bail out Deutsche and, indeed, under the EU agreement, they cannot do so. It’s safe to say that Germany’s largest bank will soon go the way of the dodo. For those who don’t live in Europe, this may not seem all that significant. However, Deutsche is the bank that funds the euro system, which they can now no longer do. Further, Deutsche is ten times larger than Lehman Brothers, an American bank that famously went down in 2008, heralding in that year’s economic crash. (90% of Deutsche’s revenue has been from derivative trading, which is what brought down Lehman.)

Upon the collapse of Deutsche Bank, four major US banks would be expected to become insolvent in a matter of days. The ripples would then continue to spread outward into the economic system as a whole. For many years, I’ve made repeated reference to the fact that the Western powers have been headed south economically, repeatedly relying on strategies that would provide short-term gain but would ultimately create long-term pain. They’ve been remarkably consistent and steadfast in this trend and, at this point, Deutsche is merely the latest trigger that may bring down the system.

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Chilling.

American Carnage – The New Landscape of Opioid Addiction (Caldwell)

There have always been drug addicts in need of help, but the scale of the present wave of heroin and opioid abuse is unprecedented. Fifty-two thousand Americans died of overdoses in 2015—about four times as many as died from gun homicides and half again as many as died in car accidents. Pawtucket is a small place, and yet 5,400 addicts are members at Anchor. Six hundred visit every day. Rhode Island is a small place, too. It has just over a million people. One Brown University epidemiologist estimates that 20,000 of them are opioid addicts—2% of the population. Salisbury, Massachusetts (pop. 8,000), was founded in 1638, and the opium crisis is the worst thing that has ever happened to it. The town lost one young person in the decade-long Vietnam War. It has lost fifteen to heroin in the last two years.

Last summer, Huntington, West Virginia (pop. 49,000), saw twenty-eight overdoses in four hours. Episodes like these played a role in the decline in U.S. life expectancy in 2015. The death toll far eclipses those of all previous drug crises. And yet, after five decades of alarm over threats that were small by comparison, politicians and the media have offered only a muted response. A willingness at least to talk about opioid deaths (among other taboo subjects) surely helped Donald Trump win last November’s election. In his inaugural address, President Trump referred to the drug epidemic (among other problems) as “carnage.” Those who call the word an irresponsible exaggeration are wrong.

Jazz musicians knew what heroin was in the 1950s. Other Americans needed to have it explained to them. Even in the 1960s and 1970s, with bourgeois norms and drug enforcement weakening, heroin lost none of its terrifying underworld associations. People weren’t shooting it at Woodstock. Today, with much of the discourse on drug addiction controlled by medical bureaucrats, it is common to speak of addiction as an “equal-opportunity disease” that can “strike anyone.” While this may be true on the pharmacological level, it was until quite recently a sociological falsehood. In fact, most of the country had powerful moral, social, cultural, and legal immunities against heroin and opiate addiction. For 99 percent of the population, it was an adventure that had to be sought out. That has now changed.

America had built up these immunities through hard experience. At the turn of the nineteenth century, scientists isolated morphine, the active ingredient in opium, and in the 1850s the hypodermic needle was invented. They seemed a godsend in Civil War field hospitals, but many soldiers came home addicted. Zealous doctors prescribed opiates to upper-middle-class women for everything from menstrual cramps to “hysteria.” The “acetylization” of morphine led to the development of heroin. Bayer began marketing it as a cough suppressant in 1898, which made matters worse. The tally of wrecked middle-class families and lives was already high by the time Congress passed the Harrison Narcotics Tax Act in 1914, threatening jail for doctors who prescribed opiates to addicts. Americans had had it with heroin. It took almost a century before drug companies could talk them back into using drugs like it.

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Referendum on April 16: “..some pollsters see the “no” camp ahead by as much as 10%.”

How Erdogan’s Referendum Gamble Might Backfire (Spiegel)

Support for the presidential system is crumbling. Erdogan may be giving the impression that the entire country is behind him, with his speeches resembling religious masses. On Sunday a week ago, tens of thousands cheered him on in Ankara. But some pollsters see the “no” camp ahead by as much as 10%. Even previously loyal Erdogan supporters, including party functionaries, don’t understand why the president so desperately wants this referendum. According to polls, one third of AKP voters are fluctuating between yes and no. The new system would concede powers to the president that even the nation’s founder, Mustafa Kemal Atatürk, didn’t have.

The president would be able to appoint ministers and 12 of 15 constitutional judges, and he would have the power to dissolve parliament any time he wanted to. The position of prime minister would also be eliminated. Erdogan claims the reform is necessary to secure stability and prevent further coup attempts. But he already has more power than any other politician in recent Turkish history. Campaign posters plasterd with Erdogan’s visage hang everywhere in Bursa. The balconies are decorated with Turkish flags and vehicles drive through the streets blaring AKP election songs. The AKP is trying to create excitement, and that shouldn’t be too difficult here in Bursa. The city is Turkey’s fourth-largest and a higher-than-average share of residents voted for the AKP in the November 2015 parliamentary election.

For a long time, the residents of Bursa were the way Erdogan wanted them to be: hard-working and pious. The city has developed into an industrial center and the government built brand new residential neighborhoods, with shopping malls and mosques. But since the attempted coup, the economy has collapsed and many storefronts now stand empty. Mumcu’s cousin, who runs a textile company, says that his revenue has dropped from €50 million to €2 million in the past year.

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Germany and France are half of EU GDP. The rest are mere pawns.

Share of Member States in EU GDP (EC)

In 2016, the GDp of the European Union (EU) amounted to €14 800 billion (bn) at current prices. Over half of it was generated by three Member States: Germany, the United Kingdom and France. With a GDP worth €3 100bn in 2016, Germany was the leading EU economy, accounting for over a fifth (21.1%) of EU GDP. It was followed by the United Kingdom (16.0%), France (15.0%), Italy (11.3%), Spain (7.5%) and the Netherlands (4.7%). At the opposite end of the scale, eleven Member States had a GDP of less than 1% of the EU total. They were: Malta, Cyprus, Estonia, Latvia, Lithuania, Slovenia, Croatia, Bulgaria, Luxembourg, Slovakia and Hungary. As regards the 19 Member States which form the euro area, their cumulated GDP stood at €10 700 bn in 2016, meaning that they accounted all together for 72.5% of the EU GDP. Germany (29.2%) and France (20.7%) made up half of the euro area GDP.

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Schäuble is shaking his head.

Austria FinMin Calls For €1 Billion EU Investment In Greece (R.)

The European Union should consider a one-billion-euro special investment programme to spur growth in debt-ridden Greece, Austria’s finance minister told daily Der Standard in an interview published on Monday. Hans Joerg Schelling said Greece would only be able to get back on track and regain access to capital markets if it was able to generate sustainable growth in the mid- and long-term. It was important to help the country participate in a pick-up in growth in the euro zone, he added. There was no immediate comment from Athens which has called for more help and debt relief as it struggles to cope with its financial crisis and attain a budget surplus of 3.5% of economic output, excluding debt servicing outlays next year.

“You must assess whether to start a big investment programme through the European Investment Bank or maybe with the (European bailout fund) ESM… to get an additional boost (for the Greek economy),” the paper quoted Schelling as saying. “I would define a scale of one billion euros.” Schelling, seen as a possible successor to Eurogroup President Jeroen Dijsselbloem, said one project could be an investment in renewable energy to make Greece less dependent on energy imports. The European Investment Bank (EIB) launched a one billion euro credit line to Greek banks in December, mainly to be used for on-lending to small and medium sized companies and firms promoting youth employment.

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JP Morgan doesn’t understand the state the Greek economy is in.

JP Morgan Report Sees ‘Light At The End Of The Tunnel’ For Greece (Amna)

The decision reached by Eurozone finance ministers in Malta concerning Greece increases the chances of a solution for completing the second review of the Greek programme before May 22, according to a report by J. P. Morgan released on Monday. The U.S. banking and financial services giant said the decisions appears to have clarified most of the obstacles that were delaying talks for concluding the review and point to a higher possibility of a good outcome for Greece. J.P. Morgan’s central scenario, to which it gives an 85 pct probability, predicts that the next step will be the return of the institutions’ missions to Greece to finalise the technical details that will support a staff-level agreement (SLA).

If its predictions are correct, the report said, there will be great progress over the next few weeks, while the sequence of events will be the signature of the SLA, passing of the measures agreed by the Greek Parliament and the completion of the review ensuring future disbursements and further details on debt relief measures. As a part of this positive scenario, J.P. Morgan said, it was also expected that Greece will become eligible for inclusion in the ECB’s quantitative easing programme in the summer. “We give an 85 pct probability to this development. This is the most positive result for the Greek bond market and we expect that 10-year Greek bonds will have price/yield rations of about 85 euros/5.5-6 pct with this scenario,” the report says. Even if the worst of the three scenarios it has drawn up should be proved right, J.P. Morgan said that an accident leading to Grexit was extremely unlikely after last Friday’s decisions and that in its medium-term outlook on Greek bonds “the reward for the risk remains attractive.”

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Fantastic. The Automatic Earth and its very generous readers play a substantial role in this. Thank you so much for making it possible.

Refugee Community Center Set To Open On Lesvos (K.)

Just a 10-minute walk from the municipal-run camp of Kara Tepe and a bit over a half-hour from the Moria migrant camp north of Mytilene, the capital of Lesvos, a community center currently under construction on a 1.5-acre site aspires to become a magnet for individuals stranded on the eastern Aegean island by offering a wide range of activities. Run by the Swiss Cross charity, the center, which is set to open in the coming days, was built by migrants with the help of volunteers who arrived here from different parts of Europe. The project is called “One Happy Family.” The facility will provide a coffee shop (complete with nargile), a home cinema, a library and a garden.

The O Allos Anthropos (Fellow Man) group has agreed to provide about 1,000 servings of food [daily]. The entire project will cost 200,000 euros, which includes rent for the first 12 months. “The Swiss are very good at organizing, while the Greeks are good at hospitality, so great things can come out of that mix,” Achilleas Peklaris, a writer and journalist now working for Swiss Cross, told Kathimerini. After doing charity work in Thessaloniki, northern Greece, Swiss Cross moved to Lesvos, prompted by the tragic deaths of Moria camp residents living outdoors in tents in freezing conditions this past winter.

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Apr 092017
 
 April 9, 2017  Posted by at 8:32 am Finance Tagged with: , , , , , , , , ,  7 Responses »
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Paul Gauguin Avenue de Clichy 1889

 

Central Banks “Took Over” Markets In 2009; In December “Unwind” Begins (ZH)
‘No Bubble, No Pop’: Why Banks Are As Safe As Houses (WAus)
Greek Gloom As Economy Stalls Amid Latest Bout Of EU Wrangling (G.)
The Picture Of Our Economy Looks A Lot Like A Rorschach Test (NYT)
Steve Keen And Michael Hudson: Fixing The Economy (EI)
Trump’s ‘Wag the Dog’ Moment (Robert Parry)
Former DIA Colonel: “US Strikes On Syria Based On A Lie” (IntelT)
Congresswoman Tulsi Gabbard On Syria (Fox)
How Marine Le Pen Could Win (Pol.)
Privacy Experts Say CIA Left Americans Open To Cyber Attacks (IBT)
Rising Waters Threaten China’s Rising Cities (NYT)

 

 

“What do credit traders look at when they mark their books? Well, these days it is fair to say that they have more than one eye on the equity market.”

Central Banks “Took Over” Markets In 2009; In December “Unwind” Begins (ZH)

Citigroup’s crack trio of credit analysts, Matt King, Stephen Antczak, and Hans Lorenzen, best known for their relentless, Austrian, at times “Zero Hedge-esque” attacks on the Fed, and persistent accusations central banks distort markets, all summarized best in the following Citi chart… have come out of hibernation, to dicuss what comes next for various asset classes in the context of the upcoming paradigm shift in central bank posture. In a note released by the group’s credit team on March 27, Lorenzen writes that credit’s “infatuation with equities is coming to an end.” “What do credit traders look at when they mark their books? Well, these days it is fair to say that they have more than one eye on the equity market.”

Understandable: after all, as the FOMC Minutes revealed last week, even the Fed now openly admits its policy is directly in response to stock prices. As the credit economist points out, “statistically, over the last couple of years both markets have been influencing (“Granger causing”) each other. But considering the relative size, depth and liquidity of (not to mention the resources dedicated to) the equity market, we’d argue that more often than not, the asset class taking the passenger seat is credit. Yet the relationship was not always so cosy. Over the long run, the correlation in recent years is actually unusual. In the two decades before the Great Financial Crisis, three-month correlations between US credit returns and the S&P 500 returns tended to oscillate sharply and only barely managed to stay positive over the long run..

Rudolf E. [email protected]
Replying to @zerohedge
Here is a chart of the well being of the American middle-class and poor over the same period.

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“Tell a European you think there’s a housing bubble and you’ll have a reasonable discussion,” Grantham said. “Tell an Australian and you’ll have World War III…”

‘No Bubble, No Pop’: Why Banks Are As Safe As Houses (WAus)

The housing sector is therefore picking up the slack, and as far as the Westpac chair can discern the underlying demand is real. “That’s why I believe there is no bubble — there is huge demand from local and offshore buyers,” he says. “But that doesn’t mean we’re not looking at things like the capacity to pay interest and repay principal, so we don’t have any issues with the measures announced (on March 31). “APRA has its mandate; we have ours. But we have no interest in lending to people who can’t repay.” That’s the reasoned analysis from Norris and Maxsted, and Henry mostly concurs. If you’re after the full Catherine wheel experience, try taking the alternative position as a market-leading fund manager or economist and warning the public about an inflating property bubble. Legendary US investor Jeremy Grantham did just that, vowing in 2012 he would never do it again. “Tell a European you think there’s a housing bubble and you’ll have a reasonable discussion,” Grantham said. “Tell an Australian and you’ll have World War III. Been there, done that!”

Local economist Steve Keen entered the fray in 2009, likening the experience to “having my genitals cut off”, while hedge fund managers have lost so much money short-selling Australian banks because they expected the bubble to pop that it’s been called the “widow maker’s” trade. True to his word, Grantham failed to respond to an email inviting him to trigger World War III. Keen, who has relocated to Britain but was in Australia this week, has no such hesitation, saying it is abundantly clear that we’re in a debt-fuelled housing bubble that has only a year or two to run before it pops. “We’re in hock to the banks and we depend on endless rising levels of credit,” the economics professor says. “Credit can continue rising but eventually you reach a peak and the gas runs out.”

Denmark, according to Keen, reached its world-record peak in 2010 at a household debt-to-GDP ratio of 139 per cent. While Australia is currently at 123 per cent, the country has some headroom because the corporate sector has deleveraged and the RBA still has some policy ammunition with the 1.5 per cent cash rate. Keen reckons we have two years, at most, before unravelling in a similar, catastrophic way to Ireland in the financial crisis. However Phil Ruthven, the experienced forecaster and founder of IBISWorld, says low interest rates mean that debt servicing is the lowest it’s been in 50 years. “But we do need to increase supply, and we do need to warn home buyers of the dangers of going too deep into debt when interest rates are rising,” Ruthven says.

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“They no longer have the means to meet basic needs, with consumption of milk and bread right down and payment of electricity bills at an all-time low.”

Greek Gloom As Economy Stalls Amid Latest Bout Of EU Wrangling (G.)

Eight years into Greece’s ordeal to escape bankruptcy, thousands of Communist party sympathisers packed into Syntagma Square in Athens on Friday to protest at the latest concessions made by Alexis Tsipras’s leftist government to keep the country afloat. Massed before parliament in the fading light of day, they did what they had come to do: rail against the cuts that loom in return for further disbursement of the emergency aid now needed to avert economic collapse. The serial drama of Greece’s debt repayments will reach a climax again when loans of €7.5bn mature in July. That communist-aligned unionists can still muster such protests is testament to the party’s zealous determination to make itself heard. Most Greeks gave up demonstrating long ago.

Two years short of a decade in freefall, and with little prospect of recovery, the nation has succumbed to protest fatigue. With the exception of pensioners – the great losers in Greece’s assault by austerity – anger has been replaced by malaise, the lassitude that strikes when loss becomes commonplace. Friday’s protest, one of more than 60 nationwide, came within hours of Europe escaping another dose of Greek drama after eurozone finance ministers announced that bailout talks – stalled as Athens bickered over the terms of its latest compliance review with lenders – could finally resume. International auditors representing the bodies behind the three bailout packages the country has received since May 2010 are expected to return to Greece on Monday. Once technical issues are addressed, the delayed bailout payment will be disbursed, ensuring default is averted in July.

In exchange, the once fiercely anti-austerity Tsipras has signed up to further reforms worth €3.6bn, the equivalent of 2% of GDP, to be put into effect once the current programme ends next year. “It is in the nature of every agreement for there to be compromises,” said Greek finance minister Euclid Tsakalotos, who faces the thankless task of having to sell the prospect of more pension cuts and tax rises to sceptical leftists in the ruling Syriza party when it convenes on Sunday. “There are things that will upset … the Greek people.” After more than a year of hard talk and bluster – the review was meant to have been concluded in February 2016 – the government once again conceded on its own red lines, reflecting Athens’s overarching policy of keeping Greece in the heart of the eurozone. Tsipras, who fought hard to ensure countermeasures can also be taken to offset losses if economic indicators are better than expected, was quick to sound optimistic. “The Greek economy,” he announced, “is ready to leave the crisis behind it.”

But the breakthrough falls far short of the all-inclusive package the government was hoping for. Once again, promises of reducing the country’s staggering debt pile – at 180% of GDP, the biggest impediment to real economic recovery – will have to wait. [..] Unemployment has increased from 23.2% to 23.5%, with investors – the only guarantee of soaking up such an oversupply of labour – staying away. In a repeat of the chaos that beset the country’s financial system at the height of the crisis in 2015, an estimated €2.5bn of deposits left Greek banks in January and February. Consumption is also down. “The 37% of Greeks at risk of poverty and social exclusion really cannot make ends meet,” said Aliki Mouriki, a leading Greek sociologist. “They no longer have the means to meet basic needs, with consumption of milk and bread right down and payment of electricity bills at an all-time low.”

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That’s what you get for publishing made-up reports all the time, NYT.

The Picture Of Our Economy Looks A Lot Like A Rorschach Test (NYT)

Economics has a foundation in hard numbers – employment, inflation, spending – that has largely allowed it to sidestep the competing partisan narratives that have afflicted American politics and culture. But not anymore. Since Donald J. Trump’s victory in November, consumer sentiment has diverged in an unprecedented way, with Republicans convinced that a boom is at hand, and Democrats foreseeing an imminent recession. “We’ve never recorded this before,” said Richard Curtin, who directs the University of Michigan’s monthly survey of consumer sentiment. Although the outlook has occasionally varied by political party since the survey began in 1946, “the partisan divide has never had as large an impact on consumers’ economic expectations,” he said.

At the same time, familiar economic data points have become Rorschach tests. That was evident after the government’s monthly jobs report on Friday; Republicans’ talking points centered on a 10-year low in the unemployment rate, while Democrats focused on a sharp decline in job creation. “I find it stunning, to be honest. It’s unreal,” said Michael R. Strain, director of economic policy studies at the conservative American Enterprise Institute in Washington. “Things that were less politicized in the past, like how you feel about the economy, have become more politicized now.” Indeed, the night-and-day views underscore yet another front on which Americans remain polarized five months after the election, and with President Trump nearing his 100th day in office.

[..] The University of Michigan researchers have their own way of measuring the gulf between the two viewpoints and how quickly it has flipped. Among Republicans, the Michigan consumer expectations index was at 61.1 in October, the kind of reading typically reported in the depths of a recession. Confident that Mrs. Clinton would win, Democrats registered a 95.4 reading, close to the highs reached when her husband was in office in the late 1990s and the economy was soaring. By March, the positions were reversed, with an even more extreme split. Republicans’ expectations had soared to 122.5, equivalent to levels registered in boom times. As for Democrats, they were even more pessimistic than Republicans had been in October.

As at the voting booth, the split in perceptions could have real-world consequences. If behavior tracks the recession-era sentiment among Democrats, who account for 32% of respondents in the survey, prophecies could quickly become self-fulfilling by affecting spending and investing decisions. “If one-third of the population cut their consumer spending by 5%, you get a recession,” said Alan Blinder, a Princeton economist who served in the Clinton administration and advised Al Gore and Hillary Clinton on economic policy during their Democratic presidential campaigns. “I don’t think it will happen, but it’s not beyond the realm of the possible.”

To be sure, even if Democratic consumers pulled back, that wouldn’t necessarily bring on a recession. A burst of spending by bullish Republicans, who equal 27% of those polled by the Michigan researchers, could counteract much of that drag. And independents, who are the largest cohort in the survey, at 41%, remain fairly optimistic about future growth. It is rare for “rising optimism to coexist with increasing uncertainty,” said Mr. Curtin, the Michigan expert. “The current level of optimism clearly indicates that no economywide spending retrenchment is underway, but the prevailing level of uncertainty will limit growth in discretionary spending.”

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Great conversation between two great economists. Very much worth a full read.

Steve Keen And Michael Hudson: Fixing The Economy (EI)

Michael Hudson: If you don’t cancel the debts, they’re going to keep growing, and all of the growth and national income is going to go to the creditors. So the fact is that the debts aren’t owed to the “we” – the 99%. The debts are owed to the 1%. 1% of the population has 75% of the financial assets. All their growth has occurred since 1980. So the question is, who are you going to save? The economy or the banks? If you don’t cancel the debts, they’re going to keep growing, and all of the growth and national income is going to go to the creditors. When President Obama came in, he promised that he was going to write down the debts – especially the junk mortgages – to the actual real value of the homes that the junk mortgage people had taken out.

Or and set the debt service – the money you have to pay every month to pay the mortgage, amortization, and principal, and interest to what the normal rental value of this would be. Well, as soon as he was elected, he dropped it all. He invited the bankers to the White House and said, boys, I’m the only guy standing between you and the pitchforks out there. Don’t worry, I can deliver my constituency to you. So, basically, the Democratic Party broke its voters into a black constituency, a women’s constituency, a LGBTQ constituency, and they’re all for Wall Street. Instead of saving the economy, Obama bailed out and saved the banks by keeping the debts in place. And once you have to pay that, it’s curtains. In the end, everybody’s going to end up in Greece. Greece is where you’re going, if you don’t.

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“I’m hearing from sources on the ground in the Middle East, people who are intimately familiar with the intelligence that is available who are saying that the essential narrative that we’re all hearing about the Syrian government or the Russians using chemical weapons on innocent civilians is a sham.”

“People in both the agency [the CIA] and in the military who are aware of the intelligence are freaking out about this because essentially Trump completely misrepresented what he already should have known – but maybe he didn’t – and they’re afraid that this is moving toward a situation that could easily turn into an armed conflict..”

Trump’s ‘Wag the Dog’ Moment (Robert Parry)

On Thursday night, Secretary of State Rex Tillerson said the U.S. intelligence community assessed with a “high degree of confidence” that the Syrian government had dropped a poison gas bomb on civilians in Idlib province. But a number of intelligence sources have made contradictory assessments, saying the preponderance of evidence suggests that Al Qaeda-affiliated rebels were at fault, either by orchestrating an intentional release of a chemical agent as a provocation or by possessing containers of poison gas that ruptured during a conventional bombing raid. One intelligence source told me that the most likely scenario was a staged event by the rebels intended to force Trump to reverse a policy, announced only days earlier, that the U.S. government would no longer seek “regime change” in Syria and would focus on attacking the common enemy, Islamic terror groups that represent the core of the rebel forces.

The source said the Trump national security team split between the President’s close personal advisers, such as nationalist firebrand Steve Bannon and son-in-law Jared Kushner, on one side and old-line neocons who have regrouped under National Security Adviser H.R. McMaster, an Army general who was a protégé of neocon favorite Gen. David Petraeus. In this telling, the earlier ouster of retired Gen. Michael Flynn as national security adviser and this week’s removal of Bannon from the National Security Council were key steps in the reassertion of neocon influence inside the Trump presidency. The strange personalities and ideological extremism of Flynn and Bannon made their ousters easier, but they were obstacles that the neocons wanted removed.

[..] Alarm within the U.S. intelligence community about Trump’s hasty decision to attack Syria reverberated from the Middle East back to Washington, where former CIA officer Philip Giraldi reported hearing from his intelligence contacts in the field that they were shocked at how the new poison-gas story was being distorted by Trump and the mainstream U.S. news media. Giraldi told Scott Horton’s Webcast: “I’m hearing from sources on the ground in the Middle East, people who are intimately familiar with the intelligence that is available who are saying that the essential narrative that we’re all hearing about the Syrian government or the Russians using chemical weapons on innocent civilians is a sham.” Giraldi said his sources were more in line with an analysis postulating an accidental release of the poison gas after an Al Qaeda arms depot was hit by a Russian airstrike.

“The intelligence confirms pretty much the account that the Russians have been giving … which is that they hit a warehouse where the rebels – now these are rebels that are, of course, connected with Al Qaeda – where the rebels were storing chemicals of their own and it basically caused an explosion that resulted in the casualties. Apparently the intelligence on this is very clear.” Giraldi said the anger within the intelligence community over the distortion of intelligence to justify Trump’s military retaliation was so great that some covert officers were considering going public. “People in both the agency [the CIA] and in the military who are aware of the intelligence are freaking out about this because essentially Trump completely misrepresented what he already should have known – but maybe he didn’t – and they’re afraid that this is moving toward a situation that could easily turn into an armed conflict,” Giraldi said before Thursday night’s missile strike. “They are astonished by how this is being played by the administration and by the U.S. media.”

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The picture is pretty clear by now.

Former DIA Colonel: “US Strikes On Syria Based On A Lie” (IntelT)

Donald Trump’s decision to launch cruise missile strikes on a Syrian Air Force Base was based on a lie. In the coming days the American people will learn that the Intelligence Community knew that Syria did not drop a military chemical weapon on innocent civilians in Idlib. Here is what happened.

• The Russians briefed the United States on the proposed target. This is a process that started more than two months ago. There is a dedicated phone line that is being used to coordinate and deconflict (i.e., prevent US and Russian air assets from shooting at each other) the upcoming operation.

• The United States was fully briefed on the fact that there was a target in Idlib that the Russians believes was a weapons/explosives depot for Islamic rebels.

• The Syrian Air Force hit the target with conventional weapons. All involved expected to see a massive secondary explosion. That did not happen. Instead, smoke, chemical smoke, began billowing from the site. It turns out that the Islamic rebels used that site to store chemicals, not sarin, that were deadly. The chemicals included organic phosphates and chlorine and they followed the wind and killed civilians.

• There was a strong wind blowing that day and the cloud was driven to a nearby village and caused casualties.

• We know it was not sarin. How? Very simple. The so-called “first responders” handled the victims without gloves. If this had been sarin they would have died. Sarin on the skin will kill you. How do I know? I went through “Live Agent” training at Fort McClellan in Alabama.

• There are members of the U.S. military who were aware this strike would occur and it was recorded. There is a film record. At least the Defense Intelligence Agency knows that this was not a chemical weapon attack. In fact, Syrian military chemical weapons were destroyed with the help of Russia.

This is Gulf of Tonkin 2. How ironic. Donald Trump correctly castigated George W. Bush for launching an unprovoked, unjustified attack on Iraq in 2003. Now we have President Donald Trump doing the same damn thing. Worse in fact. Because the intelligence community had information showing that there was no chemical weapon launched by the Syrian Air Force. Here’s the good news. The Russians and Syrians were informed, or at least were aware, that the attack was coming. They were able to remove a large number of their assets. The base the United States hit was something of a backwater. Donald Trump gets to pretend that he is a tough guy. He is not. He is a fool.

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Tulsi is being drowned out by the trigger happy Democrats. But she actually served in the Middle East.

Congresswoman Tulsi Gabbard On Syria (Fox)

The cost of war is profound. I’m opposed to the escalation of the counterproductive regime change war in Syria because it will lead to the deaths of more innocent men, women and children. Terrorist groups like al-Qaeda and ISIS, the strongest forces on the ground in Syria, will continue to increase their strength and influence over the region in the vacuum of a central government.

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The French detest their political system even more than Americans do theirs. It’s very possible abstentions will decide the elections. And Le Pen voters WILL go to the ballot box.

How Marine Le Pen Could Win (Pol.)

Could Marine Le Pen become France’s next president? A quick look at polling trends suggests that at first blush at least, the answer is “no.” [..] But for Serge Galam, a French physicist who predicted Donald Trump’s election in the United States, polls are missing out on an important factor: abstention — and specifically, how it affects voter turnout for different candidates. He argues that abstention, which a poll by CEVIPOF showed could be as high as 30%, is likely to be decisive in a “dirty” campaign dominated by scandals. “Obviously, nothing is done yet but her election is becoming very likely,” said Galam, a researcher with the French National Center for Scientific Research who also studies public opinion at the CEVIPOF political science institute. “I’m taking a scientific view of this — she needs a turnout differential of about 20% to win.”

[..] If Le Pen is projected to lose the runoff by 41 to 59%, for example, Galam argues that Le Pen could still win if the turnout rate for her voters is 90% versus 70% for her rival, for an overall turnout rate of 79%. In other words, the National Front leader could benefit because a substantial number of people who say they will vote for her rival may not actually go to the polls. Equally, if Le Pen is projected to lose by 45 to 55% in the runoff, she could win if turnout for her is 85% versus 70% for her rival, for an overall turnout of 77%. If overall turnout is 76%, then Le Pen would need a turnout of 90% versus 65% for her rival, and so on.

Some polls have Le Pen lagging behind Macron or Fillon by more than 30 percentage points, which would make her victory near impossible. But others show her within striking distance, with a lag of less than 20 points. If she can shrink the gap, then the challenge for Le Pen will be to mobilize a greater proportion of her supporters than her rivals. In this regard, Galam argues that Le Pen has a shot. For different reasons, he says, both Macron and Fillon aroused intense feelings of “aversion” among some voters, with a large proportion of Macron voters saying they could change their mind on election day. Negative or ambivalent feelings could translate into weaker turnout for them on election day.

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Newsweek wakes up to a 2 week old report from IBT.

Privacy Experts Say CIA Left Americans Open To Cyber Attacks (IBT)

WikiLeaks release of the latest cache of confidential C.I.A. documents as part of an ongoing “Vault 7” operation exposed some of the U.S. government’s hacking and digital espionage capabilities—this time having to do with iPhones and other smart devices used by hundreds of millions of people across the globe. But cyber security experts and computers scientists are raising concerns over the C.I.A.’s disregard of safety measures put in place for discovering these dangerous flaws in smart gadgets. The federal agency has kept its discovery of many exploits (software tools targeting flaws in products, typically used for malicious hacking purposes) a secret, “stockpiling” that information rather than reporting it to multinational corporations, throwing millions of Americans into the crosshairs of a dangerous, intergovernmental spying game in the process.

“What’s critical to understand is that these vulnerabilities can be exploited not just by our government but by foreign governments and cyber criminals around the world, and that’s deeply troubling,” said Ashley Gorski, an American Civil Liberties Union staff attorney working on the civil rights group’s national security project. “Our government should be working to help the companies patch vulnerabilities when they are discovered, not stockpiling them.” The C.I.A. knew its own classified documents had been floating around the dark web for at least a year and was well aware the hacking capabilities it was using to break into everyday tech could also have been employed by hostile foreign networks. Russian President Vladimir Putin’s Kremlin reportedly orchestrated a sprawling governmental operation in an attempt to influence the 2016 U.S. presidential election, which featured several cyber attacks on email servers and devices used by members of the Democratic Party.

The government enacted the Vulnerabilities Equities Process to reduce the unnecessary stockpiling of exploits. The procedure was meant to provide guidelines for agencies like the C.I.A. for notifying companies when dangerous issues are discovered in their devices. The measure was put in place during the Obama administration to prevent cyber attacks from terrorist networks and foreign governments, including Russia and China. But the C.I.A. completely ignored the Vulnerabilities Equity Process, instead exploring ways to use exploits for their own purposes, according to the Electronic Frontier Foundation, an international nonprofit digital rights group that reviewed a copy of the practice after filing a Freedom of Information Act request. “It appears the CIA didn’t even use the [Vulnerabilities Equity Process],” said Cindy Cohn, executive director of the Electronic Frontier Foundation. “That’s worrisome, because we know these agencies overvalue their offensive capabilities and undervalue the risk to the rest of us.”

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There is so much wrong in China’s urbanization it’s hard to decide where to start.

Rising Waters Threaten China’s Rising Cities (NYT)

The rains brought torrents, pouring into basements and malls, the water swiftly rising a foot and a half. The city of Dongguan, a manufacturing center here in the world’s most dynamic industrial region, was hit especially hard by the downpour in May 2014. More than 100 factories and shops were inundated. Water climbed knee-high in 20 minutes, wiping out inventory for dozens of businesses. Next door in Guangzhou, an ancient, mammoth port city of 13 million, helicopters and a fleet of 80 boats had to be sent to rescue trapped residents. Tens of thousands lost their homes, and 53 square miles of nearby farmland were ruined. The cost of repairs topped $100 million. Chen Rongbo, who lived in the city, saw the flood coming. He tried to scramble to safety on the second floor of his house, carrying his 6-year-old granddaughter. He slipped. The flood swept both of them away.

Flooding has been a plague for centuries in southern China’s Pearl River Delta. So even the rains that May, the worst in the area in years, soon drifted from the headlines. People complained and made jokes on social media about wading through streets that had become canals and riding on half-submerged buses through lakes that used to be streets. But there was no official hand-wringing about what caused the floods or how climate change might bring more extreme storms and make the problems worse. A generation ago, this was mostly farmland. Three vital rivers leading to the South China Sea, along with a spider’s web of crisscrossing tributaries, made the low-lying delta a fertile plain, famous for rice. Guangzhou, formerly Canton, had more than a million people, but by the 1980s, China set out to transform the whole region, capitalizing on its proximity to water, the energy of its people, and the money and port infrastructure of neighboring Hong Kong.

Rushing to catch up after decades of stagnation, China built a gargantuan collection of cities the size of nations with barely a pause to consider their toll on the environment, much less the future impact of global warming. Today, the region is a goliath of industry with a population exceeding 42 million. But while prosperity reshaped the social and cultural geography of the delta, it didn’t fundamentally alter the topography. Here, as elsewhere, breakneck development comes up against the growing threat of climate change. Economically, Guangzhou now has more to lose from climate change than any other city on the planet, according to a World Bank report. Nearby Shenzhen, another booming metropolis, ranked 10th on that World Bank list, which measured risk as a percentage of GDP.


Shenzhen was transformed in a few decades from a small fishing village into a city of millions.

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Apr 072017
 
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Fred Stein Times Square at Night 1947

 

Eyewitness Says Syrian Military Anticipated US Raid (ABC)
The Biggest Stock Bubble In US History (IRD)
The Unavoidable Pension Crisis (Roberts)
Americans Are Taking Out The Largest Mortgages On Record (MW)
Global Debt Explodes At ‘Eye-Watering’ Pace To Hit £170 Trillion (Tel.)
Wall Street Doubts Trump Wants to Split Up Biggest US Banks (BBG)
Fed’s Asset Shift To Pose New Test Of Economy’s Recovery, Resilience (R.)
M5S Plans To ‘Revolutionize Democracy’ With Online Voting, E-petitions (LI)
Arms Sales Becoming France’s New El Dorado, But At What Cost? (F24)
Guns Are The True Cause Of Hunger And Famine (G.)
Greece’s Dark Age: How Austerity Turned Off The Lights (R.)
On Dimitris Christoulas: ‘He Is A Part Of History Now’ (AlJ)

 

 

“I think Secretary of Defense [General] James Mattis gave the president a list of options, this being the smallest…”

Eyewitness Says Syrian Military Anticipated US Raid (ABC)

Syrian military officials appeared to anticipate Thursday’s night raid on Syria’s Shayrat airbase, evacuating personnel and moving equipment ahead of the strike, according to an eyewitness to the strike. Dozens of Tomahawk missiles struck the airbase near Homs damaging runways, towers and traffic control buildings, a local resident and human rights activist living near the airbase told ABC News via an interpreter. U.S. officals believe the plane that dropped chemical weapons on civilians in Idlib Province on Tuesday, which according to the Syrian Observatory for Human Rights killed 86 people, took off from the Shayrat airbase. The attack lasted approximately 35 minutes and its impact was felt across the city, shaking houses and sending those inside them fleeing from their windows. Both of the airport’s major runways were struck by missiles, and some of its 40 fortified bunkers were also damaged.

Local residents say the Russian military had used the airbase in early 2016 but have since withdrawn their officers, so the base is now mainly operated by Syrian and Iranian military officers. There is also a hotel near the airport where Iranian officers have been staying, though it was not clear whether it was damaged. The eyewitness believes human casualties, at least within the civilian population, were minimal, as there was no traffic heading toward the local hospital. [..] Former National Security Adviser and ABC News contributor Richard Clarke said this attack, one of the quickest displays of force by a new president in recent history, is largely “symbolic.”

Following a 2013 chemical weapons attack that killed more than 1400 people outside of Damascus which a U.S. government intelligence assessment concluded likely used a nerve agent, the Obama administration threatened retaliation but ultimately called off planned airstrikes after Assad agreed to turn over the majority of his chemical weapons arsenal to an international watchdog group. Trump has attempted to blame Obama’s “weakness” for the worsening violence in Syria. “This attack on one air base seems more symbolic,” Clarke said. “I think Secretary of Defense [General] James Mattis gave the president a list of options, this being the smallest. It was a targeted attack not designed to overwhelm the Syrian military … I think the president was trying to differentiate himself from his predecessor.”

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“Tesla has never made money and never will make money. Next to Amazon, it’s the biggest Ponzi scheme in U.S. history.”

The Biggest Stock Bubble In US History (IRD)

Please note, many will argue that the p/e ratio on the S&P 500 was higher in 1999 than it is now. However, there’s two problems with the comparison. First, when there is no “e,” price does not matter. Many of the tech stocks in the SPX in 1999 did not have any earnings and never had a chance to produce earnings because many of them went out of business. However – and I’ve been saying this for quite some time and I’m finally seeing a few others make the same assertion – if you adjust the current earnings of the companies in SPX using the GAAP accounting standards in force in 1999, the current earnings in aggregate would likely be cut at least in half. And thus, the current p/e ratio expressed in 1999 earnings terms likely would be at least as high as the p/e ratio in 1999, if not higher. (Changes to GAAP have made it easier for companies to create non-cash earnings, reclassify and capitalize expenses, stretch out depreciation and pension funding costs, etc).

We talk about the tech bubble that fomented in the late 1990’s that resulted in an 85% (roughly) decline on the NASDAQ. Currently the five highest valued stocks by market cap are tech stocks: AAPL, GOOG, MSFT, AMZN and FB. Combined, these five stocks make-up nearly 10% of the total value of the entire stock market. Money from the public poured into ETFs at record pace in February. The majority of it into S&P 500 ETFs which then have to put that money proportionately by market value into each of the S&P 500 stocks. Thus when cash pours into SPX funds like this, a large rise in the the top five stocks by market cap listed above becomes a self-fulfilling prophecy. The price rise in these stocks has nothing remotely to do with fundamentals. Take Microsoft, for example (MSFT). Last Friday the pom-poms were waving on Fox Business because MSFT hit an all-time high.

This is in spite of the fact that MSFT’s revenues dropped 8.8% from 2015 to 2016 and its gross margin plunged 13.2%. So much for fundamentals. In addition to the onslaught of retail cash moving blindly into stocks, margin debt on the NYSE hit an all-time high in February. Both the cash flow and margin debt statistics are flashing a big red warning signal, as this only occurs when the public becomes blind to risk and and bet that stocks can only go up. As I’ve said before, this is by far the most dangerous stock market in my professional lifetime (32 years, not including my high years spent reading my father’s Wall Street Journal everyday and playing penny stocks).

Perhaps the loudest bell ringing and signaling a top is the market’s valuation of Tesla. On Monday the market cap of Tesla ($49 billion) surpassed Ford’s market cap ($45 billion) despite the fact that Tesla delivered 79 thousand cars in 2016 while Ford delivered 2.6 million. “Electric Jeff” (as a good friend of mine calls Elon Musk, in reference to Jeff Bezos) was on Twitter Monday taunting short sellers. At best his behavior can be called “gauche.” Musk, similar to Bezos, is a masterful stock operator. Jordan Belfort (the “Wolf of Wall Street”) was a small-time dime store thief compared to Musk and Bezos. Tesla has never made money and never will make money. Next to Amazon, it’s the biggest Ponzi scheme in U.S. history. Without the massive tax credits given to the first 200,000 buyers of Tesla vehicles, the Company would likely be out of business by now.

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And to think even without demographics pensions look screwed too, just from financial engineering and insane debt levels.

The Unavoidable Pension Crisis (Roberts)

There is a really big crisis coming. Think about it this way. After 8 years and a 230% stock market advance the pension funds of Dallas, Chicago, and Houston are in severe trouble. But it isn’t just these municipalities that are in trouble, but also most of the public and private pensions that still operate in the country today. Currently, many pension funds, like the one in Houston, are scrambling to slightly lower return rates, issue debt, raise taxes or increase contribution limits to fill some of the gaping holes of underfunded liabilities in their plans. The hope is such measures combined with an ongoing bull market, and increased participant contributions, will heal the plans in the future. This is not likely to be the case. This problem is not something born of the last “financial crisis,” but rather the culmination of 20-plus years of financial mismanagement.

An April 2016 Moody’s analysis pegged the total 75-year unfunded liability for all state and local pension plans at $3.5 trillion. That’s the amount not covered by current fund assets, future expected contributions, and investment returns at assumed rates ranging from 3.7% to 4.1%. Another calculation from the American Enterprise Institute comes up with $5.2 trillion, presuming that long-term bond yields average 2.6%. With employee contribution requirements extremely low, averaging about 15% of payroll, the need to stretch for higher rates of return have put pensions in a precarious position and increases the underfunded status of pensions. With pension funds already wrestling with largely underfunded liabilities, the shifting demographics are further complicating funding problems.

One of the primary problems continues to be the decline in the ratio of workers per retiree as retirees are living longer (increasing the relative number of retirees), and lower birth rates (decreasing the relative number of workers.) However, this “support ratio” is not only declining in the U.S. but also in much of the developed world. This is due to two demographic factors: increased life expectancy coupled with a fixed retirement age, and a decrease in the fertility rate. In 1950, there were 7.2 people aged 20–64 for every person of 65 or over in the OECD countries. By 1980, the support ratio dropped to 5.1 and by 2010 it was 4.1. It is projected to reach just 2.1 by 2050. The table below shows support ratios for selected countries in 1970, 2010, and projected for 2050:

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Happy days!

Americans Are Taking Out The Largest Mortgages On Record (MW)

For the past few years, the housing market has been unbalanced. Strong demand and lean supply keep pushing prices higher and higher. On Wednesday, a fresh piece of data confirmed that trend. The Mortgage Bankers Association’s weekly purchase loan data showed that the average size of a home loan was the largest in the history of its survey, which goes back to 1990. Higher prices have a few different effects on the market. Buyers have to make tradeoffs on the kinds of homes they can afford, or may be shut out of ownership altogether. They may also adjust their borrowing. Larger mortgage sizes may reflect not just more expensive properties, but also more leveraged ones.

The 20% down payment is a relic: the median down payment in 2016 was 10%. For first-time buyers, it was 6%. First-timers and other buyers of less-expensive homes are more leveraged now than they were at the height of the housing bubble a decade ago. Home loan sizes aren’t the only things that have changed in the years since MBA started its survey. Back at the start of the survey, the median mortgage size was only about 3.3 times the median annual income. It’s now over five times as big – though buyers get bigger homes and lower interest rates.

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Over $70 trillion since 2008.

Global Debt Explodes At ‘Eye-Watering’ Pace To Hit £170 Trillion (Tel.)

Global debt has climbed at an “eye-watering” pace over the past decade, soaring to a fresh high of £170 trillion last year, according to the Institute of International Finance (IIF). The IIF said total debt levels, including household, government and corporate debt, climbed by more than $70 trillion over the last 10 years to a record high of $215 trillion (£173 trillion) in 2016 – or the equivalent of 325pc of GDP. It said emerging markets posed “a growing source of concern” to financial stability and the global economy as debt burdens in these countries climb at a rapid pace. The IIF data showed the increase was partly driven by a “spectacular rise” in emerging markets, where total debt stood at $55 trillion at the end of 2016, or 215pc of total emerging market GDP.

Debt has risen from $16 trillion in 2006 and $7.4 trillion in 1996. The body, which represents the world’s top financial institutions, said a wave of maturing debt this year presented a “growing refinancing risk”. It estimates that more than $1.1 trillion of emerging market bonds and loans will mature this year, with dollar-denominated debt accounting for a fifth of all redemptions. It said China faced around $40bn of dollar-denominated redemptions this year, while Russia faced redemptions of $20bn. International bodies including the IMF and OECD have warned that rising interest rates in the US could bring an end to an emerging market corporate debt binge as companies in these countries see their debt servicing costs rise in local currency terms. “While risks associated with currency mismatches may not be as acute as during past emerging market debt crises, the overall emerging market debt burden – particularly as global interest rates head higher – is a growing source of concern,” the IIF said in a note.

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Goldman is not a consumer bank. They might actually profit from this.

Wall Street Doubts Trump Wants to Split Up Biggest US Banks (BBG)

President Donald Trump and his advisers have vowed to bring back a Depression-era law that would cleave the biggest U.S. lenders in half by separating commercial and investment banking operations. Wall Street doesn’t expect that to happen. After chief economic adviser Gary Cohn reiterated the administration’s stance toward the Glass-Steagall Act in a private meeting with lawmakers on Wednesday, analysts said they viewed any radical regulatory changes as unlikely. Shares of Bank of America and JPMorgan Chase, which would be most affected by the rule, rose Thursday after Bloomberg first reported on Cohn’s comments. Reinstating Glass-Steagall, which was created after the banking crises of the 1930s and repealed in 1999, would require a rewriting of U.S. banking rules. The Dodd-Frank Act took more than a year of work by Congress.

The Trump administration hasn’t put forward a detailed plan and the revisions proposed by House Republicans don’t involve the return of Glass-Steagall. “Anything resembling Glass-Steagall is so far from happening that it’s hard to envision,” said Ian Katz, an analyst at Capital Alpha. “It simply isn’t a priority issue in Congress.” The Republicans who control the House and the Senate want to loosen banking regulations, not make them stricter, Katz wrote. The Republican Party made restoring Glass-Steagall part of its platform, and Trump sometimes criticized the big banks during the campaign, saying “I’m not going to let Wall Street get away with murder.” Since taking office, he’s appointed Cohn and several other former Goldman Sachs bankers to top posts, and said that he’ll look to JPMorgan CEO Jamie Dimon for advice about regulatory reform.

Treasury Secretary Steven Mnuchin said during his confirmation hearing that he opposes the old Glass-Steagall, but supports a “21st Century” version. He didn’t elaborate on what he meant. “If you’ve listened to all the rhetoric on regulation, we’ve no real guidance on where we are going,” said Christopher Wheeler, an Atlantic Equities analyst in London. “The uncertainty is immense and what you have to believe is that things will continue as they are.” The regulation might not mean that commercial and investment banks have to be separated, Cowen Group analyst Jaret Seiberg wrote in a report. Instead, the government could require that broker-dealers be subsidiaries of holding companies, rather than banks, he said. That would mean that the brokerage arm would have to be separately funded. “Cohn was the most likely obstacle within the Trump White House,” Seiberg wrote. “With him supporting Glass-Steagall’s restoration, there is no one in the inner circle left to fight it.”

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More uncharted territory. We tend to forget, but for 10 years now they’re grasping in the dark. They have no idea what they do, all they have to go on are outdated textbooks that were flawed to begin with. Time to audit the Fed and then close it.

Fed’s Asset Shift To Pose New Test Of Economy’s Recovery, Resilience (R.)

The Federal Reserve’s coming decision to reduce its massive asset holdings will set off a complex dance with global investors and the U.S. Treasury as it tries to put a final end to policies used to fight the 2007 financial crisis without upending the economy along the way. It is a feat with no clear precedent, according to analysts and officials involved in the process: a central bank trying to squeeze trillions of dollars out of markets it has supported for a decade, and in the process likely pushing up the cost of home buying, corporate finance and an array of other activities. Though final decisions have not been made, the Fed may shift policy as soon as the end of this year, and over 2018 begin pulling anywhere from $20 billion to $60 billion a month out of bond markets, according to a review of current Fed asset holdings.

For several years during the crisis, the Fed added to its holdings of U.S. Treasury bonds and securities backed by home mortgages to the tune of $85 billion a month before the program was slowed. The purchases were an emergency measure made necessary because the Fed’s short-term interest rate – its primary tool to encourage people and businesses to spend and invest – had already been cut to zero. With the economy still in freefall, the asset purchases added to demand for financial securities, and are thought to have held down long-term interest rates in general, a boost to the home-building and other industries in particular. The central bank is already raising its short-term interest rate and has managed a series of increases without slowing the economy. When it starts to scale back the size of its $4.5 trillion stockpile of Treasury bonds and mortgage-backed securities – essentially reversing the purchases it made during the crisis – it will pose a stiff new test of the economy’s resilience.

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This was always the plan. Use technology to strengthen democracy.

M5S Plans To ‘Revolutionize Democracy’ With Online Voting, E-petitions (LI)

Italy’s anti-establishment Five Star Movement party plans to introduce online voting and public referendums to increase “democracy and transparency” in the country’s capital. Five Star councillors presented the draft resolution at Rome’s city hall on Monday, where it will be debated. They claimed the proposed ideas would take the city “from Mafia Capitale [the ongoing corruption scandal which has seen dozens of Rome politicians and businessmen put on trial] to direct democracy and transparency in five years”. The ideas suggested included online consultations and participatory budgeting. The latter process would give citizens more say in how Rome money is spent, and has already been introduced by Five Star-led local authorities in some areas, including Mira and Ragusa.

In a blog post, leader Beppe Grillo said that within a year, a Five Star government would introduce public petitions which can be created online and sent directly to the Italian parliament for discussion – a system which already exists in the UK, for example. “It should be the citizens and the local community who govern cities through the Internet, using collective intelligence,” said Grillo. “The web is revolutionizing the relationship between citizens and institutions making direct democracy feasible, as applied in ancient Greece.” Angelo Sturni, one of the councillors behind the proposal, said: “We also want to experiment with electronic voting in referendums, using the American model.” Discontent over widespread corruption in Rome, as revealed in the Mafia Capitale trial, was one of the main factors in Five Star candidate Virginia Raggi’s victory in mayoral elections last June.

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UK, France, Germany, Holland, Belgium: merchants of death. Government sponsored murder.

Arms Sales Becoming France’s New El Dorado, But At What Cost? (F24)

When Qatar agreed to buy 24 French Rafale fighter jets in a €6.3 billion contract at the end of April, it represented yet another major success for France’s arms industry, coming hot on the heels of further multi-billion euro sales of Rafales to Egypt and India. The deals have been hailed by Hollande and his government. According to France’s Minister of Defence Jean-Yves Le Drian, in comments made to the Journal du Dimanche newspaper Sunday, the Qatar contract brought the value of the country’s arms exports to more than €15 billion this year so far. That sum is already more than the €8.06 billion for the whole of 2014, which itself was the highest level seen since 2009 – suggesting a continued upward trajectory for the French arms trade and one that is providing a much-needed salve to the country’s economic woes.

But some of these deals have raised more than a few eyebrows, with anti-arms trade campaigners critical of France’s willingness to sell weapons to countries with less than stellar human rights records. These concerns are only set to rise when Hollande heads first to Doha on Monday and then Saudi Arabia’s capital of Riyadh the day after, where furthering the recent success of the French arms industry is likely to be one of his top priorities. Saudi Arabia has already proved a lucrative trading partner for French arms manufacturers, most recently in a deal signed in November that saw the kingdom buy $3 billion-worth (€2.7 billion) of French weapons and military equipment to supply the Lebanese army. The oil-rich country is currently on something of an arms spending spree. Last year, the Saudis surpassed India to become the world’s biggest arms importer, upping its spending by 54% to €5.8 billion, according to a report by industry analyst IHS.

France, thanks to some adept diplomatic manoeuvering in recent years, is well placed to take advantage of the Saudi cash cow. Paris has been an increasingly close ally of Riyadh ever since it was among the most vocal in backing military intervention against Syria’s President Bashar al-Assad, a key ally of Shiite Iran – one of Sunni Saudi Arabia’s main regional rivals. “You’re seeing political fractures across the region, and at the same time you’ve got oil, which allows countries to arm themselves, protect themselves and impose their will as to how they think the region should develop,” Ben Moores, author of the IHS report, told AP in March. France, of course, is not alone in striking lucrative arms deals in the region. The US remains the biggest arms exporter to the Middle East, with $8.4 billion (€7.5 billion) worth of weapon sales in 2014, while the UK and Germany are also major players.

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And this is what the merchants of death leave behind.

Guns Are The True Cause Of Hunger And Famine (G.)

Last year, the World Bank revised its position on conflict – upgrading it from being one of many drivers of suffering and poverty, to being the main driver. In Somalia, despite some political progress the conflict has put more than half the population in need of assistance, with 363,000 children suffering acute malnutrition. In north-east Nigeria, conflict with Boko Haram has left 1.8m people still displaced, farmers unable to grow crops, and 4.8 million people need food. In Yemen, an escalation in conflict since 2015 has worsened a situation already made dire by weak rule of law and governance. Now more than 14 million people need food aid. Only if we understand conflict can we understand hunger. South Sudan is another example. I worked there for two years following the signing of the comprehensive peace agreement in 2005.

Right now a place called Koch, where Mercy Corps works, is in what the famine early warning systems network calls a “level 4 emergency phase”. This means that people will start to die of hunger in a matter of months if they don’t receive enough aid. Until recent years, Koch was a thriving community with fertile land. It has been destroyed in armed clashes since conflict broke out in South Sudan in December 2013. Families have had to move time and time again and disease is rampant due to the lack of clean water. As one father of five told our team in Koch: “My house was burnt, everything was looted and I do not know how to rebuild my life.” Across the places where we work and where people are facing starvation, the pattern is the similar.

Hunger is not some freak environmental event; it is human-made, the result of a deadly mix of conflict, marginalisation and weak governance. Yet watching some of the news and the crisis appeals, one could be forgiven for thinking that what we need is another Live Aid song and airdrops of food. Red Nose Day has been criticised for portraying Africa as a place where “nothing ever grows”. A recent social media campaign to send a plane filled with food to Somalia gathered support: a noble gesture, but not a long-term solution. Mercy Corps’ own emergency response is not the long-term answer either.

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It’s easy to label something ‘theft’, but for Greeks it’s either go illegal or sit in the dark, freeze etc. Still can’t believe this is the European Union.

Greece’s Dark Age: How Austerity Turned Off The Lights (R.)

Kostas Argyros’s unpaid electricity bills are piling up, among a mountain of debt owed to Greece’s biggest power utility. His family owe €850 to the Public Power Corporation (PPC), a tiny fraction of the state-controlled firm’s 2.6 billion euros ($2.8 billion) in unpaid bills. Argyros picks up only occasional work as an odd-job man. “When you only work once a week, what will you pay first?” said the 35-year-old, who lives in a tiny apartment in an Athens suburb with his unemployed wife and four small children. The Argyros family are emblematic of deepening poverty in Greece following seven years of austerity demanded by the country’s international creditors. They burn wood to heat their home in winter, food is cooked on a small gas stove, and hot water is scarce.

The only evening light is the blue glare of a TV screen, for fear of racking up more debt. Five-watt lightbulbs provide a dim glow and Argyros worries about the effect on their eyesight. More than 40% of Greeks are behind on their utility bills, higher than anywhere else in Europe. People in poor neighborhoods are also increasingly turning to energy fraud, meaning that the problem for PPC is much higher than the mountain of unpaid bills suggests. Power theft is costing PPC around €500-600 million a year in lost income, an industry official said, requesting anonymity because he was not authorized to divulge the numbers. Public disclosures by the Hellenic Electricity Distribution Network Operator HEDNO, which checks meters, show that verified cases of theft climbed to 10,600 last year, up from 8,880 in 2013 and 4,470 in 2012.

Authorities believe theft is far higher than the cases verified by HEDNO, another official said, declining to be named. Households in the country are equipped with analog meters, which are easy to hack. One of the most common tricks is using magnets, which slow down the rotating coils to show less consumption than the real amount, a HEDNO official said. Some websites even offer consumers tips and tricks on power fraud. For households who have had their electricity cut off, a group of activists calling themselves the “I Won’t Pay” movement have taken it upon themselves to reconnect the supply. The group says it has done hundreds this year. PPC, which has a 90% share of the retail market and 60% of the wholesale market, is supposed to reduce this dominance to less than 50% by 2020 under Greece’s third, 86 billion euro bailout deal.

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It’s time to make this personal. Against Schäuble and Dijsselbloem, Merkel and Rutte and Hollande. They are killing people. There’s nothing innocent about that. Making it personal is the only thing that’ll work. Bring it to their doorstep. Literally to their doorstep.

On Dimitris Christoulas: ‘He Is A Part Of History Now’ (AlJ)

On the morning of April 4, 2012, a gunshot sounded amid the city’s hustle and bustle. As passers-by rushed to work through Syntagma Square in central Athens, Dimitris Christoulas had taken his life with a shotgun a few metres from the Greek parliament. The 77-year-old pensioner, a former pharmacist, had left a note in his pocket. “The occupation government literally annihilated my ability to survive,” he wrote. “I depended on my decent pension, which I alone and without the support of the state, paid for 35 years.” His only daughter, Emmy Christoula, had known nothing about his plans. But, speaking as the fifth anniversary of his death approached, she confidently described her father’s public suicide as a political act. Her father woke up in the morning, got dressed, and wrote two identical notes – putting one in his pocket and leaving the other on his kitchen table for his daughter to read.

He took the subway to the square, site of the country’s most important protests for more than a century. When Dimitris arrived at Syntagma, he texted his daughter – “It’s the end, Emmy,” he wrote – and switched off his phone. Greek morning television talk shows broke the news of Christoulas’s suicide a few minutes after it happened. Hundreds soon gathered to pay their respects. Flowers, letters and notes of resistance were left by the tree where he chose to take his life. Spaniards wrote songs of his resistance. Irish poets wrote odes to him. His funeral turned into a rally against the austerity measures imposed on Greece, when the country’s debt payments became too onerous to pay amid the worldwide recession. The country’s creditors called for harsh spending cuts and steep tax increases so that Athens could make the payments. Protests and riots became a staple of life in Athens in the years that followed.

Five years on from Christoulas’ suicide, the crisis has only grown deeper. Greece’s debt is 175% of its GDP. Greek officials have cut retirees’ pensions 17 times to around half of their value before the recession, according to the Greek Association of Pensioners. Budget cuts have also been implemented in education, health, and welfare services. Lenders must improve most government decisions. Unemployment stands at more than 23%. A fourth bailout agreement is expected soon. According to the Greek Statistical Service, suicides have increased by 68% since 2008, the first year Greek economic growth stagnated. “I’m of a certain age and don’t have the power of dynamically reacting,” wrote Christoulas in his suicide note. “I can’t find another solution to a dignified end, as soon I’d have to start scavenging through the garbage to find my own food.”

Christoulas’ suicide became a symbol of the devastating effects of austerity on the Greek people. Until then, the majority of the stories published in the international media on the issue were about lazy Greeks who deserved their comeuppance for living off debt for so many years. “[My father] taught me that you shouldn’t just follow history, you should write it,” said Emmy, adding that she has accepted her father’s decision but still aches from his absence. Emmy describes her father as a wiry and lean man who had long participated in public life. Her first childhood memories include sitting on his shoulders at pro-democracy rallies against Greece’s military government in the 1970s. The police brutality didn’t deter father and daughter from participating.

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Apr 042017
 
 April 4, 2017  Posted by at 8:59 am Finance Tagged with: , , , , , , , , , ,  Comments Off on Debt Rattle April 4 2017
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Esther Bubley Child living in alley near US Capitol 1943

 

Living Standard Will Fall Without Productivity Boost, Warns IMF (G.)
67% Of Low-Income Americans Worry A Lot About Hunger, Homelessness (ZH)
The Issue With China Isn’t Trade, It’s Excess Savings (Pettis)
Toronto Bidding Wars So Fierce That Homebuyers Skip Inspections
Can Housing Bubbles Be Stopped? (WSJ)
Cernovich Explains How He Learned About Susan Rice (ZH)
The Deep State Now Works For The ‘Good Guys’ (AlJ)
The Deep State Now Works For The ‘Good Guys’ (AlJ)
Putin Derangement Syndrome Arrives (Matt Taibbi)
Euro MPs ‘Unanimously’ Condemn Dijsselbloem’s No-Show (AFP)
Greek Pensions Hot Potato Puts Tsipras in Tight Spot on Bailout (BBG)
Austerity-Crushed Greek Households Keep Cutting Food Purchases (TNH)
Youth Unemployment Shows Euro-Area Recovery Not Working for All (BBG)
Erdogan Says Turks In Europe Should Defy ‘Grandchildren Of Nazism’ (R.)
Yes, Let’s Allow The Syrian People To Decide For Themselves (Ron Paul)
New Evidence Undermines EU Report Tying Refugee Rescue Group To Smugglers (IC)
The Vanishing Art Of Seizing The Day (Krznaric)

 

 

Interesting. I’m sure Lagarde has no idea why productivity fell. She has some textbook explanation, for sure, but her ‘solutions’ are bland: education and technology. But those were available all along as productivity was falling. Plus, technology costs jobs too. Then again, for the IMF there’s always ‘reforms’ of course: more globalization. But wait: that also costs jobs. Question then: if you lose enough jobs, will productivity rise?

Living Standard Will Fall Without Productivity Boost, Warns IMF (G.)

The head of the IMF has issued a stark warning that living standards will fall around the world unless governments take urgent action to increase productivity by investing in education, cutting red tape and incentivising research and development. Christine Lagarde used a speech in Washington to tell policymakers they could not simply wait for innovation to drive up productivity growth and help living standards recover from the legacy of the global financial crisis. She highlighted a poor global record on productivity growth in recent years and said IMF analysis suggested GDP in advanced economies would be about 5% higher today if the pre-crisis trend had continued for total factor productivity growth – a broad measure of what goes into production, such as research spending.

“That would be the equivalent of adding another Japan – and more – to the global economy,” the IMF managing director in a speech to the American Enterprise Institute. Legarde warned the world could not afford to leave productivity growth in the doldrums. “Another decade of weak productivity growth would seriously undermine the rise in global living standards. Slower growth could also jeopardise the financial and social stability of some countries by making it more difficult to reduce excessive inequality and sustain private debt and public obligations. “Leaning back and waiting for artificial intelligence or other technologies to trigger a productivity revival is simply not an option.”

[..] In the UK, productivity growth has been sluggish for years and is behind most other big economies, prompting the chancellor, Philip Hammond, to pledge more investment in infrastructure and other areas with a £23bn national productivity investment fund. Calling on all governments to do more, Lagarde sought to emphasise productivity as the most important source of higher income and rising living standards. “For example, the average American worker today works only about 17 weeks to live at the annual real income level of the average worker in 1915,” she said. That kind of progress had been seen in many countries, she added. “But this engine of prosperity has slowed down in recent years, with negative consequences for growth and incomes that look very hard to unwind.”

She also echoed concerns over how rapid changes in technology had cost jobs in some sectors, hitting lower skilled workers hardest. Governments must help such workers through targeted education programmes, Lagarde said. That in turn would help solve productivity problems and create more inclusive and sustainable growth.

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Bit of a vague survery, but who today is going to be surprised at the outcome?

67% Of Low-Income Americans Worry A Lot About Hunger, Homelessness (ZH)

Something unexpected happened on the road to Obama’s economic “recovery” – according to Gallup, over the past two years, a record two-thirds, or an average of 67% of lower-income U.S. adults, up from 51% from 2010-2011, have worried “a great deal” about the problem of hunger and homelessness in the country. They are not alone: concern has also increased among middle- and upper-income Americans, but they still worry far less than do lower-income Americans. Some details: since 2001, worry has been highest among those residing in lower-income households, likely because those with limited financial resources are more at risk of going hungry or becoming homeless. A consistent majority of lower-income adults worried about the problem before 2012, but that has only increased in the past five years. Concern among middle-income Americans in 2016-2017 falls just short of the majority level at 47%, while 37% of upper-income Americans are worried.

Rising concern among all income groups could be a result of the political and media attention devoted to U.S. income inequality in recent years. Americans may also worry more about hunger and homelessness when other issues are not dominating the national consciousness, such as the economy and budget deficit were in 2010-2011 and terrorism was in the years after 9/11. Overall, 47% of Americans now worry about hunger and homelessness “a great deal,” according to Gallup’s March 1-5 survey, tied with 2016 as the high in the trend. Previously, concern had been as low as 35% in 2004 and as high as 45% in 2001, the first year Gallup asked the question.

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In which paying off debt is counted towards savings. And not savings at household level.

The Issue With China Isn’t Trade, It’s Excess Savings (Pettis)

trade imbalances were mostly determined by direct differences in the cost of traded goods, while capital flowed from one country to another mainly to balance trade flows. Today, however, conditions have changed dramatically. Capital flows dwarf trade flows, and investment decisions by fund managers determine their direction and size. This has profound implications for trade. Large, persistent trade surpluses such as the one China runs with the U.S. are no longer the consequence of explicitly mercantilist measures. Instead, they’re driven by policies that distort domestic savings rates by subsidizing production at the expense of households. Take Germany, for example. After a decade of trade deficits and high unemployment, worried leaders in Berlin implemented labor reforms in 2003-05 whose main effect was to weaken wage growth.

As unemployment dropped and business profits surged, the reforms also shrunk the share of national income allocated to ordinary households, driving down the consumption share as well. German businesses, blessed with higher profits, responded unhelpfully. They paid down debt instead of investing the profits, increasing the share of national income devoted to savings. As the growing gap between German savings and investment soon became among the largest in history, so did the German trade surplus. German banks exported the excess savings into other European countries, no longer protected by the interest-rate and currency adjustments proscribed under the rules of the euro. By 2009, after insolvency prevented one European country after another from absorbing any more of the German tsunami of capital outflows, these shifted to countries outside Europe.

While the experiences of China and Japan may seem different on the surface, they were broadly similar in impact. China, for example, severely repressed interest rates in order to boost growth. This simultaneously reduced the household share of Chinese GDP to among the lowest ever recorded and raised Chinese savings to among the highest – so high that, even with the fastest-rising investment in the world, China still needed large trade surpluses to make up for weak domestic demand. What happens next is the most confusing part for economists who don’t understand how trade has changed. When new capital pours into advanced economies that have always had easy access to investment – such as the U.S. and southern Europe – it doesn’t boost investment further. Instead it automatically causes savings to contract.

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Not a bubble. Why of sound mind gets into this?

Toronto Bidding Wars So Fierce That Homebuyers Skip Inspections

In Toronto, some homebuyers are so desperate to win bidding wars that they’re rushing to make offers without even getting an inspection. The average price for a detached home in Canada’s largest metropolitan area jumped to C$1.21 million ($905,950) in February, up a third from a year earlier, amid a dearth of properties for sale. In the same period, Toronto-based home-inspection firm Carson Dunlop saw a 34% drop in volume. Murray Parish, president of the Ontario Association of Home Inspectors, said he’s seen a 30% decline at his firm, Parish Home Inspections. “The bottom line is we are in a shortage of supply,’’ said Tasis Giannoukakis, a Century 21 broker based in Toronto, adding that it’s not uncommon to see bids of as much as C$200,000 over the asking price.

“That pressure is what’s causing everybody to remove the conditions on an inspection.’’ Home-price increases in North America’s fourth-largest city and its suburbs have outpaced growth in places including Manhattan, Vancouver, Seattle and San Francisco, leading local officials to search for ways to control price gains and spurring concerns a correction may be coming. The frothy market, buoyed by low interest rates, is resulting in frenzied bidding wars, causing many shoppers to leave once-standard clauses such as a professional home inspection and financing contingencies out of their purchase offers. A move away from inspections isn’t unique to Toronto.

Vancouver, Canada’s hottest real estate market until Toronto took that mantle last year, saw a surge in unconditional purchase offers in the first half of 2016, said Adil Dinani, an agent with Royal LePage West Real Estate Services in the West Coast city. The same is true in hot U.S. markets. Mark Attarha, president of Bay Sotheby’s International Realty, which has seven offices in the in San Francisco Bay area, said he’s seeing a spate of offers without contingencies, along with a raft of “overbidding.” Attarha estimates that 75% of prospective buyers he works with are accepting a home-inspection report from the seller rather than ordering their own or including an inspection clause in their purchase offers.

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Let your house do the work for you: “Demand in Melbourne is driving up valuations of house land plots by $7,500 a week..”

Can Housing Bubbles Be Stopped? (WSJ)

From Australia to Canada, authorities are learning a hard lesson in their efforts to curb the foreign money flooding their property markets: deterrents quickly lose their punch. In recent years, regulators in several countries have raised taxes on residential real-estate purchases, required banks to demand bigger down payments and taxed empty homes—to little long-term avail. Now they are trying again. Australian regulators on Friday ordered banks to limit the flow of interest-only loans—a villain in the U.S. subprime mortgage crisis—to 30% of new loans from about 40% now and to restrict loans to people making small down payments. The country’s corporate regulator said on Monday it was investigating whether lenders and mortgage brokers are inappropriately promoting interest-only loans.

New South Wales state, home to Sydney, is considering a further property-tax rise for foreigners. The moves are an attempt to blunt a price rise that has resumed after the last crackdown starting in late 2014. House prices in Sydney and Melbourne, the nation’s two biggest cities, rose by about 19% and 16% in the year through Mar. 31, much of it in the last six months, according to an analysis by data company CoreLogic released on Monday. The median house price in Sydney hit $821,000 last year, according to Demographia, a U.S. think tank. It said the figure, equivalent to 12.2 times the average annual wage, made Sydney the world’s second most expensive city after Hong Kong on a house-price-to-income ratio. Demand in Melbourne is driving up valuations of house land plots by $7,500 a week, said Giles Bray, a local mortgage broker.

Developers are now building 300-square-foot apartments—roughly a third of the average new American unit—with 8-foot ceiling heights to pack in more units. In the past three years, foreigners have bought thousands of them sight unseen. “They are poorly built and lack light,” Mr. Bray said. The gains are testing the limits of government measures aimed at preventing housing bubbles from developing in cities around the world. The frothiness is driven by ultralow interest rates at central banks that spur investors to hunt for returns in tangible assets. Chinese investors also are a big driver of the phenomenon. The concern: foreign, speculative investors are making properties unaffordable for locals and adding economic risk because these buyers are more likely to flee in a downturn. In 2010 the Reserve Bank of Australia tightened policy to cool things off. But lately the central bank has been keeping rates at a record-low 1.5% to aid an economy that is still struggling to adjust at the end of a long mining boom.

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The Susan Rice story has many quirks. A big one: what did Obama know? RandPaul wants her to testify under oath to that. It could go a long way towards proving Trump’s wiretap allegations. But also very odd: BBG and NYT sat on the story for -at least- days. And yes, Cernovich is a bit of an oddball. But he has proof, something that’s still sorely lacking for all of the Russia narrative. So much so that it doesn’t matter anymore if proof comes eventually: the US media have published millions of words of innuendo and accusations without any proof. That may work in the echo chamber, but it kills your credibility outside of it.

Cernovich Explains How He Learned About Susan Rice (ZH)

Ever since Mike Cernovich dropped the bombshell report over the weekend outing Obama’s National Security Advisor, Susan Rice, as the person behind the unmasking of the identity of various members of Trump’s team who were ‘incidentally’ surveilled during the 2016 campaign, a report which was subsequently confirmed by Eli Lake of Bloomberg earlier this morning, everyone has been wondering who within the Trump White House or the intelligence community supplied him with such a massive scoop. But, as it turns out, Cernovich didn’t need a ‘deep throat’ within the NSA or CIA for his blockbuster scoop, all he needed was some well-placed sources inside of a couple of America’s corrupt mainstream media outlets. As Cernovich explains below, his sources for the Susan Rice story were actually folks working at Bloomberg and the New York Times who revealed that both Eli Lake (Bloomberg) and Maggie Haberman (NYT) were sitting on the Susan Rice story in order to protect the Obama administration.

“Maggie Haberman had it. She will not run any articles that are critical of the Obama administration.” “Eli Lake had it. He didn’t want to run it and Bloomberg didn’t want to run it because it vindicates Trump’s claim that he had been spied upon. And Eli Lake is a ‘never Trumper.’ Bloomberg was a ‘never Trump’ publication.”

“I’m showing you the politics of ‘real journalism’. ‘Real journalism’ is that Bloomberg had it and the New York Times had it but they wouldn’t run it because they don’t want to run any stories that would make Obama look bad or that will vindicate Trump. They only want to run stories that make Trump look bad so that’s why they sat on it.”

“So where did I get the story? I didn’t get it from the intelligence community. Everybody’s trying to figure out where I got it from. I got it from somebody who works in one of those media companies. I have spies in every media organization. I got people in news rooms. I got it from a source within the news room who said ‘Cernovich, they’re sitting on this story, they’re not going to run it, so you can run it’.”

“If you’re at Bloomberg, I have people in there. If you’re at the New York Times, I have people in there. LA Times, Washington Post, you name it, I have my people in there. I got IT people in every major news room in this country. The IT people see every email so that’s how I knew it.”

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“Anyone, including experienced journalists, who raises questions or recommends caution is immediately dismissed as a Putin stooge or a Trump apologist by an army of progressives convinced, with obdurate certainty, of who is guilty and what is true.”

The Deep State Now Works For The ‘Good Guys’ (AlJ)

US progressives are clinging on to false heroes like the FBI and CIA in their existential battle to dethrone Trump. [..] In Comey’s case, his rather abrupt and miraculous transformation from devil to saint came after his March 20 testimony before a House Intelligence Committee where he finally, belatedly, confirmed that the FBI was indeed investigating the disturbing, cob-web-like connections between the Trump campaign team and Russia before, during and after the presidential election. Ah, now that the G-men are on the case, the indictments would surely follow, the familiar progressive chorus wrote. Trump’s days are numbered. Resignation and impeachment are in the offing. The cavalry is riding to America’s rescue. Comey’s role in torpedoing Clinton’s chances at becoming America’s first female president has fast receded into the rear-view mirror.

The political executioner has become a prince of probity and the rule of law. Defying history and credulity, joining Comey and the FBI in the progressives’ new-found white knight brigade are, incredibly, the CIA and the National Security Agency (NSA). Like the FBI, the spooks are also being widely celebrated as guardian angels in the existential battle to dethrone the treasonous King. The thinking – such as it is – goes something like this: the CIA and NSA must have the surreptitious “goods” on Trump and his gang of Russian mob and FSB consorting thugs that they will, in time, share with Americans and the world. The “goods” perhaps involves oodles of various types of intercepted and incriminating communications and possibly even a notorious Moscow hotel videotape, starring the deviant king himself.

And the hope is that, taken together, it will all eventually expose and doom him. Apparently, these days, the “deep state” is no longer working for the bad guys, but the good guys. It has, in effect, changed sides. Sure, the deep state may have denied Clinton her rightful and long overdue crown and has, for years, systematically spied on, collected and stored intimate details about the lives of countless people with little or no oversight, let alone a warrant. But progressives are too busy letting bygones be bygones to remember. The good guys have fixed their crosshairs on Trump and treacherous company and that’s all that matters.

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“One way we recognize a mass hysteria movement is that everyone who doesn’t believe is accused of being in on the plot..” Journalism should not ever be about ‘belief’, but about proven facts. But there are none. oh, and the syndrome doesn’t ‘arrive’, it’s been here for a long time.

Putin Derangement Syndrome Arrives (Matt Taibbi)

So Michael Flynn, who was Donald Trump’s national security adviser before he got busted talking out of school to Russia’s ambassador, has reportedly offered to testify in exchange for immunity. For seemingly the 100th time, social media is exploding. This is it! The big reveal! Perhaps it will come off just the way people are expecting. Perhaps Flynn will get a deal, walk into the House or the Senate surrounded by a phalanx of lawyers, and unspool the whole sordid conspiracy. He will explain that Donald Trump, compromised by ancient deals with Russian mobsters, and perhaps even blackmailed by an unspeakable KGB sex tape, made a secret deal. He’ll say Trump agreed to downplay the obvious benefits of an armed proxy war in Ukraine with nuclear-armed Russia in exchange for Vladimir Putin’s help in stealing the emails of Debbie Wasserman-Schultz and John Podesta.

I personally would be surprised if this turned out to be the narrative, mainly because we haven’t seen any real evidence of it. But episodes like the Flynn story have even the most careful reporters paralyzed. What if, tomorrow, it all turns out to be true? What if reality does turn out to be a massive connect-the-dots image of St. Basil’s Cathedral sitting atop the White House? (This was suddenly legitimate British conspiracist Louise Mensch’s construction in The New York Times last week.) What if all the Glenn Beck-style far-out charts with the circles and arrows somehow all make sense? This is one of the tricks that keeps every good conspiracy theory going. Nobody wants to be the one claiming the emperor has no clothes the day His Highness walks out naked. And this Russia thing has spun out of control into just such an exercise of conspiratorial mass hysteria.

Even I think there should be a legitimate independent investigation – one that, given Trump’s history, might uncover all sorts of things. But almost irrespective of what ends up being uncovered on the Trump side, the public prosecution of this affair has taken on a malevolent life of its own. One way we recognize a mass hysteria movement is that everyone who doesn’t believe is accused of being in on the plot. This has been going on virtually unrestrained in both political and media circles in recent weeks.

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Illustrating what a dud the European Parliament is. They want the man who’s negotiating with Greece to come explain what he does, and he simply refuses. Imagine that in Congress. A Dutch MP said Dijsselbloem is now effectively a ‘persona non grata’ in the European Parliament. And remember: the Eurogroup has no official status, so what can thay do?

Euro MPs ‘Unanimously’ Condemn Dijsselbloem’s No-Show (AFP)

European Parliament lawmakers on Monday “unanimously condemned” the refusal by Eurogroup chief Jeroen Dijsselbloem to appear at a hearing on Greece this week. Dijsselbloem, who is also the Dutch finance minister, has been facing calls to step down since he suggested in an interview in a German newspaper that southern European countries blew their money on “drinks and women”. In the wake of the controversy, the parliament had invited the head of the Eurogroup of eurozone finance ministers to discuss the stalled Greek bailout at this week’s plenary session in Strasbourg. Expectations were that MEP’s would use the opportunity to harshly criticise Dijsselbloem.

“Unanimous condemnation by the European Parliament against Jeroen Dijsselbloem for umpteenth refusal to answer questions on sacrifices made by our citizens,” European Parliament chief Antonio Tajani posted on Twitter. MEP Gianni Pittella, the head of the left-of-centre S&D group, said Dijsselbloem’s refusal to attend was “a further slight after his previous shameful remarks”. “He should resign,” Pittella added. In a letter on Thursday, Dijsselbloem said he was unable to attend the hearing because of a scheduling conflict.

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To repeat: Why are Greek pension costs relatively high? Because “The country hasn’t yet put in place a proper social welfare system”. And it can’t of course, because that would cost money it’s not allowed to spend by Brussels. Let’s see all benefits expenditures for all nations, and then talk again.

Greek Pensions Hot Potato Puts Tsipras in Tight Spot on Bailout (BBG)

Greece is set to miss yet another self-imposed deadline with no accord expected when the Eurogroup meets in Malta on Friday. While there has been “a lot of progress,” there will be no agreement on April 7, Jeroen Dijsselbloem, the group’s chief, said on March 31. “That’s too early.” Europe has become impatient with Greece as the region prepares for Brexit and the threat from emerging populist movements. The failure to reach an accord stems in part from the conflicting political interests of the two sides — Tsipras doesn’t want to face a scheduled general election in 2019 at the same time as pensioners take a cut of as much as 30% in their monthly payments. Creditors worry that if the plan is put in place after 2019, a new government that’s not a signatory of the accord might not implement it.

The IMF, backed by Greece’s euro-area creditors, is pushing Athens to save €1.8 billion, or 1% of GDP, from pension cuts. Greece spends more than 13.3% of its GDP on old-age pensions, the highest proportion in the EU, Eurostat figures show. Greece, which crossed what it once characterized as a red line and accepted the need for pension cuts, is asking creditors to give the country more time to see how measures agreed to last year work before embarking on anything new. The country hasn’t yet put in place a proper social welfare system , making pensions the de facto safety net for many families, supporting several generations. A survey in January showed that 49% of households relied on pensions as a primary source of income.

Further cuts in pensions has become a thorny issue to sell at home as pensioners use their ever-shrinking income to support jobless children at time when youth unemployment stands at more than 40%. Take Panagiotis Papapetrou, for example. The 65-year-old retiree and his wife, who collectively take home a pension of €1,480 a month, support two grown children. “Not only can we not afford any kind of entertainment, but we also have made cuts in our diet,” he said. “We eat less meat and we seek to buy cheap goods.”

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This economy cannot survive. It will keep on shrinking. There is no other possibility as long as there is a Troika. Economies run on consumer spending, and that keeps on falling in Greece. It needs stimulus, not austerity. Europe is creating a powder keg here.

Austerity-Crushed Greek Households Keep Cutting Food Purchases (TNH)

More than seven years into a brutal economic crisis worsened by austerity measures hitting workers, pensioners and the poor, Greek households are continuing to cut food purchases, even for essential items. Repeated salary and pension cuts have left millions unable to keep up, with a survey by the Marketing Laboratory of the Athens University of Economics and Business showing consumers spending almost €40 ($42.72) less a month at supermarkets this year compared to 2016. Average monthly household expenditure came to €274 against €310 a year earlier, with the 13% decline also reflected on supermarket turnover as the sector struggles to lure customers despite sales and 2-for-1 deals.

The study was aimed at average consumers who make up the bulk of supermarket customers drawing a bleak picture of their ability to buy what they want and as more turn away from brand names in favor of cheaper goods. Some 63.4% of Greeks said they buy fewer products and 45.8% buy only the absolute necessities with 54.4% turning to private-label chain products. Data from Nielsen researchers showed that in 2016, some 51% of brand products sold in supermarket were on special offer, up from 33.1% in 2009 and after super markets wouldn’t cut prices despite the crisis, until they were forced to do so by lagging sales. Sales fell another 4% in 2016, driving the cumulative downturn to 18% since 2009, as the crisis began and a year before the then-ruling PASOK Socialists asked for what turned into €326 billion in three bailouts.

The data compiled by Nielsen researchers showed that besides a sharp decline in demand and with more people turning as well to generic brands and looking for offers, that mergers and acquisitions had taken a big bite out of the sector. The phenomenon is likely to continue for several more years with analysts expecting a further drop of 2-3%. In 2016, the sales value of food retailing – including small grocery stores – amounted to about €10.78 billion, down 4.1% from 2015, pushing the sector back to 2005 levels and showing the devastating effect of the crisis and harsh austerity measures that brought big pay cuts, tax hikes, slashed pensions and worker firings. The number of small food retail stores has dropped from about 32,000 in 2005 to 27,000 in 2015 with major chains showing their sales values plummet at the same time with only the discount food chain Lidl showing increases.

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It shows Euro area is not working. Period.

Youth Unemployment Shows Euro-Area Recovery Not Working for All (BBG)

For all the continued momentum in the euro-area recovery, differing prospects for young people across the bloc show the wounds of the debt crisis remain very raw. The unemployment rate for those under age 25 was at 19.4% in February, according to data on Monday. While that’s an improvement compared with a year ago – and is the lowest since 2009 – it’s more than twice the total for the euro-area of 9.5%. In four southern European countries – Greece, Spain, Italy and Cyprus – at least three in 10 young people are still out of work. [..] the unevenness across geography and age groups show how complicated it is for the ECB to set monetary policy for 19 nations.

In Germany, the youth unemployment rate is just 6.6%. That’s lower than the overall rate in Spain has ever been since the euro’s introduction. In Greece, still struggling seven years after its first bailout, the figure in December was almost seven times greater than Germany’s, at 45.2%. Draghi has said that monetary policy can’t take the whole weight of the economic recovery, and repeatedly urged governments to implement reforms to reduce structural unemployment. That’s made harder by the rise of populist parties across Europe, with France and Germany all facing general elections in the coming months.

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Waiting for real craziness over the next 2 weeks.

Erdogan Says Turks In Europe Should Defy ‘Grandchildren Of Nazism’ (R.)

President Tayyip Erdogan on Monday called on Turkish voters in Europe to defy the “grandchildren of Nazism” and back a referendum this month on changing the constitution, comments likely to cause further ire in Europe. Erdogan has repeatedly lashed out at European countries, including Germany and the Netherlands, in campaigning for the referendum, accusing them of “Nazi-like” tactics for banning his ministers from speaking to rallies of Turkish voters abroad. Both the Germans and Dutch have been incensed by the comparisons to Nazism and German Chancellor Angela Merkel has said the references must stop. “With this determination, we will never allow three or four European fascists … from harming this country’s honor and pride,” Erdogan told a packed crowd of flag-waving supporters in the Black Sea city of Rize, where his family comes from.

“I call on my brothers and sisters voting in Europe…give the appropriate answer to those imposing this fascist oppression and the grandchildren of Nazism.” Erdogan is counting on the support of expatriates in Europe, including the 1.4 million Turks eligible to vote in Germany, to pass constitutional changes that would give him sweeping presidential powers. But ties with Europe have deteriorated in the run-up to the campaign. Erdogan last month said Turkey would reevaluate its relationship with the bloc, and may even hold a second referendum on whether to continue accession talks. On Monday, he said he could take the issue of whether Turkey should restore the death penalty to referendum if necessary. “The European Union will not like this. But I don’t care what Hans, George or Helga say, I care what Hasan, Ahmet, Mehmet, Ayse and Fatma say. I care what God says… If necessary, we will take this issue to another referendum as well,” he told the rally.

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“Congress can rein him in with very little effort by saying no money can be spent to deploy US troops to areas where they may encounter hostilities unless a state of war is declared.”

Yes, Let’s Allow The Syrian People To Decide For Themselves (Ron Paul)

Is common sense beginning to creep into US policy in the Middle East? Last week Secretary of State Rex Tillerson said that the longer-term status of Syrian President Assad would be “decided by the Syrian people.” The media reported this as a radical shift in US foreign policy, but isn’t this just stating what should be obvious? What gives any country the right to determine who rules someone else? Washington is currently paralyzed by evidence-free rumors that the Russians somehow influenced our elections, but no one blinks an eye when Washington declares that one or another foreign leader “must go.” It’s only too bad that President Obama hadn’t followed this back in 2011 instead of declaring that Assad had to go and then arming rebel groups who ended up being allies with al-Qaeda.

Imagine how many thousands of lives and billions of dollars would have been saved by following this policy in the first place. Imagine the millions of refugees who could still be in their homes, running their businesses, living their lives. Will the Trump Administration actually follow through on Tillerson’s Syria policy statement? It is too early to tell. The President has illegally sent hundreds of US troops to fight on the ground in Syria. Current US positions in eastern Syria suggest that Washington may be looking to carve out parts of oil-rich areas of the country for some kind of future federation. The White House followed up on Tillerson’s comments by stating that getting rid of Assad was no longer a top priority for the US. This also sounds good. But does this mean that once the current top priority, destroying ISIS, is completed, Washington may return to its active measures to unseat the Syrian president?

Neocons in Washington still insist that the rise of ISIS in Syria was due to President Assad, but in fact ISIS did not appear in Syria until the US began trying to overthrow Assad. They haven’t given up on their desire to overthrow the Syrian government and they do have influence in this Administration. If the Trump Administration is serious about letting the people of Syria decide their fate he needs to take concrete steps. Rather than sending in more troops to fight an ISIS already on its last legs, he must bring US troops home and prohibit the CIA from further destabilizing the country.

It would also be nice if Congress would wake up from its long slumber and start following the Constitution. The President (and his predecessors) have taken this country to war repeatedly without proper Constitutionally-required authority to do so. The president has reportedly decided not to even bother announcing where next he plans to send the troops. Congress can rein him in with very little effort by saying no money can be spent to deploy US troops to areas where they may encounter hostilities unless a state of war is declared.

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Frontex plays a very ugly role here. We saw that coming from miles away.

New Evidence Undermines EU Report Tying Refugee Rescue Group To Smugglers (IC)

Last month, an Italian prosecutor opened an investigation into whether nonprofits working to rescue refugees in the Mediterranean had connections to smuggling operations. “We want to know who is behind all these humanitarian groups that have proliferated in the last few years,” the prosecutor said, and “where all the money they have is coming from.” The implication of the investigation is inflammatory: Why would humanitarian groups want to have anything to do with human traffickers or smugglers? But the idea that nonprofits are directly involved in smuggling people into Europe has swept through conservative media in recent months, fueled by a news report that the EU’s border agency, Frontex, had “accused charities operating in the Mediterranean of colluding with people smugglers.”

The report, which appeared in the Financial Times in December, didn’t name any particular charities, and it quickly started to show holes; within a week, the paper issued a correction and Frontex distanced itself from the accusations. Despite the walk-back, the story stuck, and the Italian prosecutor cited Frontex’s concerns about “collusion with smugglers” in announcing his investigation. The Intercept has obtained a full copy of the Frontex report on which the Financial Times story was based. The report, along with video evidence and interviews with rescue workers who witnessed the incident described in it, further undermines the allegations of collusion. In the report, Frontex does say that people were smuggled to Europe via an NGO ship. But the report provides little evidence for the allegation, and what it does contain is contradicted by the rescue crew.

The confusion shows the fraught conditions of rescue work in the Mediterranean – where smugglers and opportunists do take advantage of refugees and their rescuers, but where the situation is not always so cut and dry. In dire rescues, if a nonprofit accepts help from nearby Libyan boats, they may have no idea who they are working with. “It’s not us that force the people on the boats and cause them to be out there. But once they are out there, we all have to apply maritime law,” said Ruben Neugebauer, who works with the group Sea-Watch. “If there is a boat in distress, we are obliged to help, but also a potential smuggler is also obliged to help.”

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Watching TV. Still far more important than other media. “..television takes up a full 50% of our leisure time..” and “if you live to 75, you will have spent around nine years of your life watching television.”

The Vanishing Art Of Seizing The Day (Krznaric)

Carpe diem – seize the day – is one of the oldest philosophical mottos in Western history. First uttered by the Roman poet Horace over 2,000 years ago, it retains an extraordinary resonance in popular culture. Ask someone to spell out their philosophy of life and there’s a good chance they will say something like “seize the day” or “live as if there’s no tomorrow” – even if they appear to be trapped by routine or paralysed by procrastination. It’s a message found in Hollywood films like Dead Poets Society, in one of the most successful brand campaigns of the last century (“Just Do It”), and in the social media hashtag #yolo (“you only live once”). Almost every language has an equivalent expression for the original Latin phrase. Carpe diem has been a call to arms for everyone from the Jewish sage Hillel the Elder, who in the first century bce asked, “If not now, when?”, to the Rastafarian sage Bob Marley, who sang out: “Wake up and live!”

However, in the course of writing my new book on the vanishing art of seizing the day, I discovered that carpe diem has been hijacked – in part, by the most popular leisure pursuit in the Western world. I loved television as a kid, fitting in an hour before school each day (Thunderbirds, Superheroes) and at least an hour-and-a-half before dinner (5.30: Wheel of Fortune, 6.00: The Goodies, 6.30: Dr Who). What I didn’t realise as a teenager, as I sat on my beanbag in suburban Sydney making the agonising decision whether to break tradition and watch Gilligan’s Island instead of The Goodies, was that I was absorbed in a ritual that ranks as one of the most momentous cultural transformations ever experienced by humankind. Within less than 50 years of the first ever television demonstration in

Selfridges London department store in 1925, around 99 per cent of Western households had a set. Today the typical European or American watches an average of around three hours per day, whether it’s on flat-screen TVs, computers, phones or other devices. This is apart from time spent engaged in digital pursuits such as internet surfing, social media, texting or video games. So television takes up a full 50% of our leisure time, and more time than we spend doing any other single activity apart from work or sleep. Perhaps the best way to grasp how much TV has colonised our lives is to tape the following statistic to your remote control: assuming your viewing habits are somewhere near average, if you live to 75, you will have spent around nine years of your life watching television.

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Apr 032017
 
 April 3, 2017  Posted by at 9:35 am Finance Tagged with: , , , , , , , ,  1 Response »
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Paul Wolff Frankfurt Opera House 1934

 

‘Buy Property In Sydney And You’re ‘Pretty Well Set For Life’ (WS)
Sydney Property Prices Rise Almost 20% In Past 12 Months (G.)
Australia Sticks With Blunt Instruments To Battle Housing Bubble (R.)
A ‘Sleeping Beast’ In The Markets Is About To Be Unleashed – SocGen (BI)
Commercial Real Estate Is The Next ”Big Short” (F.)
Euro Is A ‘Knife In The Ribs’ Of The French Says Le Pen (R.)
ECB Leads The Cure For Euro-Pessimism (CNBC)
Scotland Yard Examines Allegations Of Saudi War Crimes In Yemen (G.)
Greek Households Spend €40 Less Per Month On Supermarket Purchases (KTG)
Greece To Accelerate Return Of Migrants To Turkey As Arrivals Pick Up (K.)

 

 

“Once you are in the Sydney housing market, you are pretty well set then for the rest of your life.”

‘Buy Property In Sydney And You’re ‘Pretty Well Set For Life’ (WS)

How far can a desperate government go to keep the whole overleveraged edifice of a housing bubble from tumbling down and doing God-knows-what to the economy and the banks? Australia is trying to find out. The housing bubble in Sydney and Melbourne, by now among the top in the world, is taking on grotesque proportions, not only in price increases, but also in political pronouncements. So much of the economy depends on this bubble that no politician can imagine bringing it down to earth. Prices for all types of homes in Sydney jumped 19% in March year-over-year, according to CoreLogic, with houses up nearly 20% and “units” (we’d call them condos) up 15%. Sydney’s home prices have nearly doubled since 2008. In Melbourne, overall home prices jumped 16%, with houses up 17%, and condos up 5%. The index for all dwellings in Canberra and Hobart also rose in the double-digits.

In Adelaide and Brisbane, prices rose in the mid-single digits. Perth and Darwin showed declines in the 4.5% range. The CoreLogic index is not based on sales pairs, such as the Case-Shiller index in the US, or on median prices, but on its own “hedonic methodology,” which, like the other two methods, has plenty of critics. The government has its own Residential Property Price Indexes. The latest edition, released on March 21, was for Q4 2016, so a little slow. Based on the median price, the index for Sydney jumped 10.3% and for Melbourne 10.8%. Real estate is highly leveraged, and household debt is at an all-time high. Wages even in Sydney haven’t risen at the same pace. So the inevitable is beginning to happen. Affordability becomes a political issue, and delinquencies become a financial issue.

[..] On February 24, Anthony Roberts, New South Wales Minister for Planning and Housing, was speaking at the launch of a 690-unit apartment development at Olympic Park, a suburb of Sydney, heaping praise on the developer for having committed to offer 60 units first to first-time buyers. A new policy on housing affordability would be announced in the “very near future,” Roberts said. But as a first step, he threw in an incentive for first-time buyers. Instead of the normal 10% down payment, they’d only need to make 5%. “This is the beginning, this is the start,” he said. And in hyping the Sydney housing market and the importance of getting in now or be priced out forever, he also said this: “This is about fairness, and this is about enabling people to get into the Sydney housing market. Once you are in the Sydney housing market, you are pretty well set then for the rest of your life.

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Get out while you can.

Sydney Property Prices Rise Almost 20% In Past 12 Months (G.)

Sydney property prices have increased by almost 20% in just 12 months, putting the city at the front of a nationwide trend that has seen dwelling values increase by 12.9% on average. Sydney house values soared by 19.65% in the past year, and unit values increased by 15.27%. New data from CoreLogic, released on Monday, shows house values in Melbourne (up 17.15%), Canberra (13.64%), and Hobart (11.05%) have followed Sydney’s rapid rise. Only homes in Perth (-4.68%) and Darwin (-4.41%) have bucked the trend, slipping backwards over the past year. CoreLogic’s five capital city aggregate – which includes Sydney, Melbourne, Brisbane and the Gold Coast, Adelaide and Perth – shows prices for houses and units rose 12.9% on average last year.

But the news comes as the ratings agency Moody’s warned an increasing number of borrowers have fallen behind on their mortgage and car repayments, saying more borrowers are set to join them amid rising underemployment, record-low wages growth and a more difficult housing market. On Monday, Moody’s said delinquencies for prime residential mortgage-backed securities increased to 1.61% in January, from 1.57% in December, while 30-day delinquencies for car loan asset-backed securities rose to 1.80%, from 1.54% over the same period. “Weaker economic conditions in states reliant on the mining industry, rising underemployment, weak wages growth and less favourable housing market conditions will drive delinquencies higher,” vice president and senior analyst Alena Chen said on Monday.

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More like no instruments at all: “..limit new interest-only loans to 30% of total new mortgage lending..”

Australia Sticks With Blunt Instruments To Battle Housing Bubble (R.)

In their struggle to cool red-hot property prices in Australia’s big cities, authorities are ratcheting up measures that could dent the whole market but avoiding more targeted steps that have had some success in New Zealand and China. Australian regulators first focused on reining in investment loans nationally in 2015, by imposing an annual limit of 10% on how much banks could expand their investor loan book. Those steps worked for a while, but the heat is on again in Sydney, where prices are rising almost 20% a year, having more than doubled since 2008, and Melbourne, where the pace is over 15%, according to property consultant Core Logic.

That and all-time high household debt prompted the Australian Prudential Regulatory Authority (APRA) to move again on Friday, asking banks to limit new interest-only loans to 30% of total new mortgage lending, from 40% now, and promising a lot of “monitoring”, “scrutinizing” and “observing”. Industry players doubt that will do the trick. “I personally don’t think this will have a material impact,” said Simon Orbell at mortgage broker Smartmove, as prices kept rising even though it was already a tough lending market. “Maybe more needs to be done,” he added. [..] There has been market speculation that the Reserve Bank of Australia will be forced to hike interest rates, a yet blunter instrument, though record low inflation and weak wages growth make that an unattractive option. There is also political resistance to measures that could make prices actually fall, with two thirds of households owning their homes.

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Too much uncertainty to unleash it.

A ‘Sleeping Beast’ In The Markets Is About To Be Unleashed – SocGen (BI)

The bond market has been quiet. Too quiet in fact. That’s about to change, says Societe Generale’s fixed income team led by Vincent Chaigneau. “Spring is likely to be more threatening for bond investors as US data improves, political risk in Europe ebbs and investors refocus on a slow central bank exits,” the team wrote in a note to clients on Thursday. The note is titled “The Sleeping Beast.” In the wake of the U.S. Presidential election, traders priced in the prospect that Donald Trump’s agenda of a protectionist trade policy, cutting taxes, rolling back regulations, and massive infrastructure would bring back inflation to the United States. Reflecting this, the yield on 10-year Treasurys rallied more than 80 basis points, reaching a high of 2.64%, in the weeks following the election.

But for the last few months, the yield has been trapped in a tight 35 basis point range as traders take a wait-and-see approach in regards to Trump’s ability to execute his proposed agenda. “We expect that to reverse in spring, especially if Trump proves a little more effective in pushing his agenda through Congress,” Societe Generale wrote. “Treasuries too present some seasonal patterns: the average of the past five years shows the 10yT reaching a low around mid-April before bearish forces start to take over.”

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America turns on the mall.

Commercial Real Estate Is The Next ”Big Short” (F.)

A small but growing group of hedge funds are positioning themselves to profit from the collapse of the real estate market. Sounds like 2007, right? It’s actually happening right now. But this time, hedge funds (along with Deutsche Bank and Morgan Stanley) aren’t targeting subprime mortgages—they’re going after commercial real estate. It’s no secret retailers and malls have been struggling for years, but it looks like the perfect storm is set to hit them in 2017. Bearish bets against commercial loans jumped 50% year-over-year in February—and with problems piling up for malls, it’s no wonder. Around $3.5 billion in retail loans were liquidated in 2016. Investment firm Gapstow Capital said losses on mall loans have been “meaningfully higher than in other areas.” This is because malls are reliant on retailers like Macy’s, J.C. Penny and Sears. Unfortunately for these landlords, their tenants’ businesses are failing, which brings us to…

As a result of falling sales, retailers are shutting up shop at a rate that has not been seen since the 2008 financial crisis.

…and they plan to close hundreds more over the coming years, which is very bad news for malls. Most malls are dependent on one or more of these big retailers. When anchor stores close, it reduces foot traffic, and that hurts other retailers. This begins a cycle of blight, leading other tenants to leave. Alder Hill (a hedge fund started by associates of billionaire David Tepper) is bearish on commercial loans and expects 2017 to be a “tipping point.” Morningstar Credit Ratings estimates roughly 40% of the loans due this year won’t be paid. This comes at a bad time for the industry. Commercial real estate prices have been on a tear since 2009, but with vacancies rising, prices have stagnated.

This, coupled with new rules that came into effect in December (which force banks to hold at least 5% of the loans they make on their books), has caused loan growth to stall. As a result, leading retail analyst Jan Rogers Kniffen expects around one-third of American malls to close in the coming years. So, what are the implications of this commercial collapse?

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But the French love the euro. Hard sell.

Euro Is A ‘Knife In The Ribs’ Of The French Says Le Pen (R.)

French presidential candidate Marine Le Pen told a political rally on Sunday that the euro currency which she wants France to ditch was like a knife in the ribs of the French people. The leader of the eurosceptic and anti-immigrant National Front (FN) also told the rally in the city of Bordeaux that the forthcoming election for president could herald a “change in civilization”. Encouraged by the unexpected election of Donald Trump in the United States and by Britain’s vote to leave the European Union, Le Pen hopes to profit from a similar populist momentum in France, though opinion polls suggest she will lose the May 7 run-off. “We are at the mercy of a currency adapted to Germany and not to our economy. The euro is mostly a knife stuck in our ribs to make us go where others want us to go,” Le Pen said to loud cheers and applause.

Reiterating her anti-globalization and anti-immigration views, she declared: “We do not want France to be open to all commercial and human flows, without protection and borders.” A government under Le Pen’s presidency would take France out of the euro zone and bring back a national currency, hold a referendum on its EU membership and slap taxes on imports and on companies hiring foreigners. Le Pen says she would curb migration, expel all illegal migrants and restrict certain rights now available to all residents, including free education, to French citizens. She hit out at her two main opponents in the French election, independent centrist Emmanuel Macron and conservative candidate Francois Fillon, saying they belonged to “the same system” “The system is panicking because it sees people are waking up,” she said.

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Draghi slays austerity?

ECB Leads The Cure For Euro-Pessimism (CNBC)

The euro-sclerosis and the euro-pessimism are only a few of the old neologisms that got a new lease on life thanks to “reformers” and “crisis managers” who devastated the euro area economy with their – take a deep breath – “austerity growth model,” consisting of deep public spending cuts, tax hikes, jobs-destroying structural reforms and a monetary policy that should look the other way. Predictably, the area’s economy took it on the chin and went down for the count, with millions of lives destroyed by soaring poverty and destitution – until the ECB stepped in to provide the antidote to that cruel nostrum and to begin a long process of healing and recovery.

The ECB’s intervention eventually stiffened the spines, and gave some oxygen, to scared and disoriented political leaders in France, Italy, Spain and Portugal – exactly one-half of the euro area’s GDP – who abandoned the fiscal madness and structural destruction to latch on to the life jacket thrown at them by their lender of last resort. The economic recovery we see now is a result of that policy mix. At 1.7%, the euro area growth last year matched the pace of the U.S. economy and seems poised for further gains in the months ahead. The ECB-driven recovery was also reflected in steadily rising asset values. As of last Friday, the euro area equity prices (Euro Stoxx 50 in dollar terms) were 17.3% above their year-earlier level, with nearly half of that increase (7.6%) recorded since the beginning of this year.

[..] France is the next political test with the first round of elections on April 23. Again, anybody betting against the euro and the EU will lose big. According to the French media, voters are largely indifferent toward the presidential candidates, but the economy is improving and low credit costs have unleashed a real estate boom that’s triggering solid consumer spending. The French are also great fans of the euro: An opinion poll published last Tuesday (March 25) shows that 75% of the French like the European currency, and half of them are pleased with the EU, although they believe that some of their neighbors were greater beneficiaries of the whole project. The French, of course, have Germany in mind. They are looking at Germany’s huge trade surpluses and the industrial takeover by the world-beating manufacturing companies across the Rhine.

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It should be investigating British war crimes.

Scotland Yard Examines Allegations Of Saudi War Crimes In Yemen (G.)

Scotland Yard is examining allegations of war crimes by Saudi Arabia in Yemen, the Guardian can reveal, triggering a possible diplomatic row with Britain on the eve of Theresa May’s visit to the Arab state. The Metropolitan police confirmed that their war crimes unit was assessing whether criminal prosecutions could be brought over Saudi Arabia’s devastating aerial campaign in Yemen. The force’s SO15 counter-terrorism unit revealed to a London human rights lawyer that it had launched a “scoping exercise” into the claims before Maj Gen Ahmed al-Asiri’s visit to the capital last week. The revelation comes as May plans to underline Britain’s close relationship with the Saudi royal family on her visit to the Arab state this week, in which tackling the terror threat from Islamic State will be a key factor.

Speaking in advance of the trip, in which she will also visit Jordan, the prime minister said she wanted to “herald a further intensification in relations between our countries and deepen true strategic partnerships”. She argued that the intelligence relationship with Saudi Arabia had been critical, potentially saving hundreds of lives in the UK, and claimed there were huge possibilities for closer trade links as the UK moves towards leaving the European Union. May plans to stress the need for collaboration in the wake of the Westminster terror attack, while also pledging humanitarian support to Jordan to help it handle the huge volumes of refugees displaced by the Syrian conflict.

But the trip comes under the shadow of a war in Yemen that has killed more than 10,000 civilians and displaced more than 3 million people. The Saudi-led coalition has been accused of killing thousands of civilians and triggering a humanitarian catastrophe in one of the region’s poorest countries. The UK, which along with the US supports the Saudis against the Houthis, has been urged to reconsider its arms exports to Saudi Arabia in light of the bloody air campaign.

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Austerity kills people and economies.

Greek Households Spend €40 Less Per Month On Supermarket Purchases (KTG)

A significant decrease of 13% has been recorded in the amount Greek households spend for daily purchases at the country’s supermarkets. This is the logical consequence caused by low wages, high unemployment rates and increased direct and indirect taxes. Factors that have lead to impoverishment of large groups of the Greek society. Worth mentioning are the extra charges (special consumption fees) imposed as of 1.1.2017 in a variety of supermarket products like coffee. Greek households spend monthly forty euros less for their shopping at the supermarket than in the previous year. The average monthly expenditure of households at the supermarket amounts to 274 euros from 310 last year.

According to research conducted by the Economic University of Athens, the expenditure decrease has been confirmed also by the turnover of the supermarkets. The decrease in sales was 10% in January 2017. The was a slight increase of 2.9% in February, but a serious decline of 15% in March. 63% of respondents said they buy fewer products. 45.8% said they restricted to what is necessary. At the same time, 54.4% said that buy cheaper products especially following a market investigation and that they chase discount offers and products of private label. 81.5% said that they compare prices before they decide which product they will pick up from the supermarket shelf.

99.2% of consumers stated that they do research before going to the supermarket, they know in advance what to buy and they avoid impulse purchases. 38% of respondents said that they would make fewer purchases in 2017, 5% that they will increase their purchases. 57% estimate that their purchases will remain unchanged. The average expenditure per supermarket visit remains almost unchanged. Expenditure in 2017 is at an average of €50.4 euros. It was at 49.5 euros in 2016. However, the frequency of visits has declined down to 6.8 visits per month from 8.5 visits last year.

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Yes, it can still get worse.

Greece To Accelerate Return Of Migrants To Turkey As Arrivals Pick Up (K.)

As the inflow of undocumented migrants to the islands of the eastern Aegean rises with the improving weather, the government is planning action to ease the pressure on increasingly overcrowded reception centers. In the coming days, Migration Minister Yiannis Mouzalas is expected to issue a circular, banning migrants who appeal against a rejection of their application for political asylum from a voluntary repatriation scheme being run by the International Organization for Migration (IOM). Meanwhile police on the islands are boosting efforts to locate and detain migrants who face deportation to Turkey in line with an agreement signed last year between Ankara and Brussels.

Last week, a new detention center opened on Kos, the function of which will be to detain migrants facing deportation. Others awaiting the outcome of asylum applications or inclusion in the IOM’s repatriation scheme are to remain in the island’s main reception center. A similar “closed” center for migrants awaiting deportation is operating on Lesvos. However, police face a problem on Chios, which has seen arrivals from Turkey intensify in recent days, and where local residents vehemently oppose the creation of such a center. A police official told Kathimerini that the main police precinct on the island is already full of migrants and there are no other facilities to accommodate new arrivals. “We don’t know what to do,” he said.

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