Feb 252017
 
 February 25, 2017  Posted by at 9:31 am Finance Tagged with: , , , , , , , , ,  4 Responses »
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Dorothea Lange Saturday afternoon, Pittsboro, North Carolina 1939

 


Trump An ‘Idiot’ On China, ‘No Clue What Currency Manipulation Means’ (CNBC)
The Fiscal Horror Show Playing Soon in Washington (Stockman)
Homeland Security Report Disputes Threat From 7 Banned Nations (AP)
Multiple News Outlets Denied Access To White House Press Briefing (G.)
Tsipras Says The Era Of Austerity In Greece Is Over (AP)
Transcript Of IMF Press Briefing Thursday, February 23, 2017 (IMF)
Toronto Housing Market May Need Vancouver-Style Cooling (BBG)
Just As Neoliberalism Is Finally On Its Knees, So Too Is The Left (G.)
Documents Indicate Germany Spied on Foreign Journalists (Spiegel)
Surgeons Should Not Look Like Surgeons (NN Taleb)

 

 

From one of Reagan’s main economic advisers.

Trump An ‘Idiot’ On China, ‘No Clue What Currency Manipulation Means’ (CNBC)

President Donald Trump may think the Chinese are the “grand champions” of currency manipulation, but he’s wrong, expert John Rutledge told CNBC on Friday. “Trump is an idiot on this. He has no clue what currency manipulation means,” the chief investment officer of global investment firm Safanad said in an interview with “Closing Bell.” During the campaign, Trump accused China of keeping its yuan currency artificially low against the U.S. dollar to make Chinese exports cheaper, “stealing” American manufacturing jobs. On Thursday, the president told Reuters he has not “held back” in his assessment, despite not acting on a pledge to declare the country a currency manipulator on his first day in office. “Well they, I think they’re grand champions at manipulation of currency. So I haven’t held back,” Trump said. “We’ll see what happens.”

However, earlier Thursday Treasury Secretary Steve Mnuchin told CNBC he wasn’t ready to pass judgment on China’s currency practices. “We have a process within Treasury where we go through and look at currency manipulation across the board. We’ll go through that process. We’ll do that as we have in the past. We’re not making any judgments until we continue that process,” he told “Squawk Box.” Rutledge, who was one of the principal architects of President Ronald Reagan’s economic plan, said China is actually trying to support its currency. “Chinese authorities have actually sold a trillion dollars’ worth of foreign reserves in the last year to support their currency that’s trying to fall because Chinese nationals are trying to get their money out of China,” he said. That is anti-manipulation.”

Read more …

It’s all about the debt ceiling.

The Fiscal Horror Show Playing Soon in Washington (Stockman)

The Deep State’s coup against Donald Trump is palpable. So count it as another element of reality to which Wall Street and its raging robo-machines and day traders are blind as bats. After all, they are essentially “pricing-in” the most successful presidency in modern times on the economic front. The Trump Stimulus was even supposed to be “in like Flynn” in time to boost corporate earnings materially in 2017. But it has already transpired that the Flynn in question was named Mike, not Errol; and the conquest was not that of a swashbuckling outsider who quickly had his way with the Imperial City, but the doings of resident swamp creatures bent on turning back the Donald’s unwelcome challenge.

So in a matter of weeks or months at most, Trump will be struggling to survive, while the giant fiscal stimulus that has Wall Street all bulled-up will amount to a heap of ruins scattered about a debilitating political war zone on Capitol Hill. I never thought the vaunted Trump tax cut and infrastructure boom would see the light of day in their own right, of course, because the Donald is caught in an inherited debt trap that he does not yet even dimly appreciate. Yet with each passing day, the magnitude of the trap materially enlarges. As of the Daily Treasury Statement for February 17, for example, the public debt was $19.895 trillion compared to $18.99 trillion on the same date a year ago. When you factor in a slight gain in the Treasury’s cash balance to $262 billion, the math speaks for itself.

During the past year Uncle Sam’s “cash burn rate” was nearly $75 billion per month. That means Washington actually consumed $885 billion of cash during the last 365 days — or far more than implied by the official budget deficit of $587 billion for the fiscal year just ended (FY 2016). It also means that once the tax collection season ends in April, it will be Katie-bar-the-door time on the debt ceiling front. When the latter becomes frozen into place on March 15 after the insidious Boehner-Obama debt ceiling “holiday” expires, there will not be enough cash to last the summer — even if the Treasury resorts to the usual gimmicks, such as temporarily divesting the trust funds. So let this part be crystal clear. What is coming down the track is the mother of all debt ceiling showdowns and the virtual certainty of government shutdowns and deferred payments to states, contractors and even some transfer payment beneficiaries.

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Funny, but not new. They can always deflect criticism be saying it was an Obama list.

Homeland Security Report Disputes Threat From 7 Banned Nations (AP)

Analysts at the Homeland Security Department’s intelligence arm found insufficient evidence that citizens of seven Muslim-majority countries included in President Donald Trump’s travel ban pose a terror threat to the United States. A draft document obtained by The Associated Press concludes that citizenship is an “unlikely indicator” of terrorism threats to the United States and that few people from the countries Trump listed in his travel ban have carried out attacks or been involved in terrorism-related activities in the U.S. since Syria’s civil war started in 2011. Trump cited terrorism concerns as the primary reason he signed the sweeping temporary travel ban in late January, which also halted the U.S. refugee program. A federal judge in Washington state blocked the government from carrying out the order earlier this month.

Trump said Friday a new edict would be announced soon. The administration has been working on a new version that could withstand legal challenges. Homeland Security spokeswoman Gillian Christensen on Friday did not dispute the report’s authenticity, but said it was not a final comprehensive review of the government’s intelligence. “While DHS was asked to draft a comprehensive report on this issue, the document you’re referencing was commentary from a single intelligence source versus an official, robust document with thorough interagency sourcing,” Christensen said. “The … report does not include data from other intelligence community sources. It is incomplete.”

The Homeland Security report is based on unclassified information from Justice Department press releases on terrorism-related convictions and attackers killed in the act, State Department visa statistics, the 2016 Worldwide Threat Assessment from the U.S. intelligence community and the State Department Country Reports on Terrorism 2015. The three-page report challenges Trump’s core claims. It said that of 82 people the government determined were inspired by a foreign terrorist group to carry out or try to carry out an attack in the United States, just over half were U.S. citizens born in the United States. The others were from 26 countries, led by Pakistan, Somalia, Bangladesh, Cuba, Ethiopia, Iraq and Uzbekistan. Of these, only Somalia and Iraq were among the seven nations included in the ban.

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It’s one way to change the conversation. C’mon, guys, you’ll be let back in soon.

Multiple News Outlets Denied Access To White House Press Briefing (G.)

The White House barred several news organizations from an off-camera press briefing on Friday, handpicking a select group of reporters that included a number of conservative outlets friendly toward Donald Trump. The “gaggle” with Sean Spicer, the White House press secretary, took place in lieu of his daily briefing and was originally scheduled as an on-camera event. But the White House press office announced later in the day that the Q&A session would take place off camera before only an “expanded pool” of journalists, and in Spicer’s West Wing office as opposed to the James S Brady press briefing room where it is typically held. Outlets seeking to gain entry whose requests were denied included the Guardian, the New York Times, Politico, CNN, BuzzFeed, the BBC, the Daily Mail and others.

Conservative publications such as Breitbart News, the One America News Network and the Washington Times were allowed into the meeting, as well as TV networks CBS, NBC, Fox and ABC. The Associated Press and Time were invited but boycotted the briefing. The decision to limit access to Spicer, hours after Trump once again declared that much of the media was “the enemy of the American people” while speaking at the annual Conservative Political Action Conference, marked a dramatic shift. While prior administrations have occasionally held background briefings with smaller groups of reporters, it is highly unusual for the White House to cherry-pick which media outlets can participate in what would have otherwise been the press secretary’s televised daily briefing.

The briefing has become indispensable viewing for journalists trying to interpret the often contradictory statements coming out of the Trump administration, and Spicer’s aggressive handling of the press and delivery of false or misleading statements have already been memorably mocked on NBC’s Saturday Night Live. “Gaggles” – more informal briefings – with the press secretary are traditionally only limited to the pool when they conflict with the president’s travel, in which case they often take place aboard Air Force One. At times, impromptu gaggles form with reporters who spend their days in the White House, but denying outlets wishing to participate is extremely uncommon.

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Don’t believe it for a second.

Tsipras Says The Era Of Austerity In Greece Is Over (AP)

Greek Prime Minister Alexis Tsipras says the era of austerity is over for his country, painting a positive picture Friday of reforms the country has agreed to take after its latest bailout program ends in 2018. Speaking in parliament, Tsipras described the deal reached Monday as an “exceptional success” and said it showed the country’s creditors accepted Greeces insistence that it could no longer bear any further budget austerity. “I am fully convinced we achieved an honorable compromise,” Tsipras said, adding that all sides at the eurozone finance ministers’ meeting in Brussels had agreed for the “first time after seven years … to leave the path of continued austerity behind us.”

On Monday, Greece agreed to legislate new reforms to come into effect in 2019, but said these will be fiscally neutral: for every euros worth of new burdens on the Greek taxpayer, an equal amount of relief will be granted. In return, Greeces creditors agreed to send their bailout inspectors back to Athens next week for further talks to complete a long overdue review of progress made in Greeces bailout. Tsipras said both creditor-requested new measures and government-proposed relief measures will be legislated at the same time, and that therefore there was no conditionality for the relief measures. The prime minister’s left-led coalition government, trailing in polls, has presented the deal as a decisive, positive step forward for austerity-weary Greeks hammered by seven years of a financial crisis that plunged the country into an economic depression.

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I found this very interesting. Looks like the IMF has never truly looked at whether being part of the euro is best for Greece. Why not? It’s not as if they only do what countries want. Whose interests is the IMF really defending here?

Part of transcript of a press briefing with Gerry Rice, IMF Director of Communications, and reporters.

Transcript Of IMF Press Briefing Thursday, February 23, 2017 (IMF)

QUESTIONER: Gerry, help me to understand how the IMF weighs a member country’s interests, economic interests when it is in a monetary union, when the interests may be that it be out of a monetary union. I haven’t seen any analysis by the IMF about the pros and cons, economic pros and cons of Greece exiting the euro. And it seems to me that Madame Lagarde has expressed herself as a pro euro and a pro EU advocate. So help me to understand, one, why we haven’t seen any economic analysis to defend the IMF’s position to not counsel Greece for exiting the euro or – and two, how it weighs this decision when obviously other member countries who are not in a program want Greece to stay in the euro. Do you understand where I’m getting at? I just haven’t seen any analysis from the IMF to defend or argue either case.

MR. RICE: You know, the amount of economic analysis that we’ve undertaken on Greece over the last seven years, you probably know as well as anyone, is voluminous. So, you know, I think there’s plenty out there to analyze and digest. [..] So, you know, on the question of Greece being a member of the eurozone and the monetary union, you know, it’s been Greece’s explicit objective to retain its membership of the eurozone. It’s been one of its priority objectives since the very beginning. It’s been also a priority objective of the other eurozone members. So, you know, in terms of how we weigh our service and support to a member country, you know, these are obviously important factors that we take into account, and we have taken those into account and are trying to support and service the member as best we can in that context.

QUESTIONER: But, if I may follow up, Gerry. There are cases in which a member country is explicitly – to use your language – has an explicit objective to do for economic policies that the IMF believes to not be in that member country’s economic interests or in the global economic interest. And it speaks truth to power, and yet there has been no analysis to argue why Greece should remain part of the euro or why it shouldn’t. And to me that’s a fundamental economic argument, since you’re talking about internal devaluation versus a nominal exchange rate devaluation. I mean, that’s at the heart of the problem. So can you tell me why the IMF hasn’t at least published its analysis or any analysis on why Greece should remain in the euro or should exit as a part of its truth-telling economic advice to a member country?

MR. RICE: Well, you know, again I think there’s been plenty of analysis of Greece’s economic situation and how the IMF assesses what is in Greece’s best interests. And, you know, I just think there’s voluminous information on that. And –

QUESTIONER: If you can point me to the – and respectfully, I appreciate your patience and me interrupting you – but if you can point me to the voluminous analysis of Greece – which I admit is voluminous, it will probably fill several volumes in fact, several history books, but I have seen in none of it that I am aware of any analysis of the pros and cons of Greece staying or exiting the eurozone.

MR. RICE: [..] I’ll come back to you, but I do believe there is actually a lot of analysis where you can clearly distill what the IMF’s view is as being in Greece’s best economic interest. I would include in that the many staff reports and, in particular, these ex post evaluation studies that we have done that, again, I can point you to some of this material afterwards. But I do think there’s plenty of material.

QUESTIONER: I just want to follow up on Ian’s question and maybe have another question if you don’t mind. Maybe you can clarify do you think – does the IMF think that it’s in Greece’s best interest to retain its membership in the eurozone? And the second question has to do with the timeline entry, because you mentioned the fact that the discussion on the debt will take place following the discussion on reforms. So should we assume that this discussion on the debt relief won’t start before the second review is completed?

MR. RICE: Yes, I don’t have the timing on the completion of the second review. Again, I want to revert to my formulation. Before we would be able – we, the IMF – would be able to, you know, make a commitment on our participation in the program, we would need to have the discussion of both policies and debt relief, and beyond the discussion, credible commitments in which we have confidence. So that’s the way I would like to formulate that.

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Been saying that forever. But as we saw last week, Toronto’s entire budget is based on high and rising house prices.

Toronto Housing Market May Need Vancouver-Style Cooling (BBG)

Toronto may require measures to cool its red-hot housing market similar to moves taken in Vancouver if interest rates don’t increase, said Royal Bank of Canada Chief Executive Officer David McKay. The head of Canada’s largest lender said Toronto housing is “running hot” and is fueled by a “concerning mix of drivers” that include lack of supply, continued low rates, rising foreign money and speculative activity. Similar circumstances in Vancouver prompted British Columbia’s government last year to impose a 15% tax on foreign buyers. “In the absence of being able to use higher rates to reduce that, I do think we’re going to at some point have to consider similar measures to slow down the housing price growth,” McKay said Friday in a telephone interview.

The comments from the bank CEO come as frustration grows over the unaffordability of properties in Canada’s biggest city. The average home price in Toronto jumped 22% in January from the previous year, the fifth straight month of gains topping 20%. Listings have dropped off, down by half from last year, squeezing prices further. The CEOs of Canada’s other big banks last year called on the government to increase housing regulation amid skyrocketing prices in Vancouver and Toronto. National Bank of Canada CEO Louis Vachon said that minimum downpayments should return to 10% from 5%, while Bank of Nova Scotia head Brian Porter suggested his company was pulling back on mortgage lending due to concern about high home prices in those two cities.

Vancouver, once Canada’s fastest-paced home market and now supplanted by Toronto, has seen slowing sales after several regulatory moves. In August, British Columbia added a 15% tax to home purchases by non-Canadians after they were found to have bought more than C$1 billion ($760 million) in property in a five-week period. The city of Vancouver in January began taxing empty homes and plans to further regulate short-term rentals. Since the tax was imposed in Vancouver, monthly transactions in the metro region fell on average by 36% compared to a year earlier, according to data from the Real Estate Board of Greater Vancouver. Prices for prized single-family detached homes had been rising in double digits last year. In the past six months, they’ve fallen 6.6% to an average C$1.47 million, according to board figures released earlier this month.

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The left largely has itself become part of neoliberalism. Ergo: there is no left, left, other than in name.

Just As Neoliberalism Is Finally On Its Knees, So Too Is The Left (G.)

The 10th anniversary of the global financial crisis looms this year, which means it’s almost a decade since neoliberal economics began to fall apart. The crisis spawned a global recession, the near collapse of global finance and the subsequent eurozone crisis as governments incurred huge debts amid efforts to rescue the hapless banking industry. The then Australian prime minister, Kevin Rudd, observed in the immediate aftermath: The current crisis is the culmination of a 30-year domination of economic policy by a free-market ideology that has been variously called neoliberalism, economic liberalism, economic fundamentalism, Thatcherism or the Washington consensus. The central thrust of this ideology has been that government activity should be constrained, and ultimately replaced, by market forces.

The global recession that followed was the worst in 70 years and its effects continue to be felt in many developed countries. Australia was one of the fortunate few to avoid a recession, thanks to enormous government-funded stimulus packages and the continuation of an unprecedented mining boom. Nevertheless, economic activity has been sluggish ever since, job growth has stalled, wage growth has collapsed and inequality is on the rise. And yet in 2017, just as neoliberalism is on its knees, so too is the left. It matters not whether we are describing social democrats, socialists, the hard left or the moderate left. A swath of populist extreme rightwing forces is sweeping through many developed countries. Europe now resembles a graveyard for social democracy. How did it come to this?

First and foremost, there is incompetence. Neoliberal economics, a creation of the right and embraced to varying degrees by social democrats, has dominated western politics for nigh on four decades. Its mantras of deregulation, privatisation and cutting tax for the wealthy and corporations have been exhausted, if not discredited. There are only so many assets that can be privatised and, as the head of the Australian Competition and Consumer Commission, Rod Sims, has noted, replacing a public-sector monopoly with a private-sector monopoly has simply driven up prices. The fetish for deregulation and tax cutting has caused immense harm – for consumers, for workers and for governments seeking to provide services demanded of them but hampered by inadequate revenue.

It is not just Pope Francis who has called for major reform of the economic system. The World Economic Forum, which met in January, advocated “fundamental reforms to market capitalism to tackle inequality”. In doing so, it echoed statements of the IMF and World Bank, formerly strong advocates of the neoliberal agenda.

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Legal schmegal. If they can do it, they will. All of them. Question: is this worse than banning them?

Documents Indicate Germany Spied on Foreign Journalists (Spiegel)

According to documents seen by SPIEGEL, the BND conducted surveillance on at least 50 additional telephone numbers, fax numbers and email addresses belonging to journalists or newsrooms around the world in the years following 1999. Included among them were more than a dozen connections belonging to the BBC, often to the offices of the international World Service. The documents indicate that the German intelligence agency didn’t just tap into the phones of BBC correspondents in Afghanistan, but also targeted telephone and fax numbers at BBC headquarters in London. A phone number belonging to the New York Times in Afghanistan was also on the BND list, as were several mobile and satellite numbers belonging to the news agency Reuters in Afghanistan, Pakistan and Nigeria.

The German spies also conducted surveillance on the independent Zimbabwean newspaper Daily News before dictator Robert Mugabe banned it for seven years in 2003. Other numbers on the list belonged to news agencies from Kuwait, Lebanon and India in addition to journalist associations in Nepal and Indonesia. Journalists in Germany enjoy far-reaching protection against state meddling. They enjoy similar legal protection to lawyers, doctors and priests: occupations that require secrecy. Journalists have the right to refuse to testify in court in order to protect their sources. German law forbids the country’s domestic intelligence agency from conducting surveillance on persons who have that right.

The German chapter of Reporters without Borders says that the BND’s systematic surveillance of journalists is an “egregious attack on press freedoms” and “a new dimension of constitutional violation.” Christian Mihr, head of the German chapter of Reporters without Borders, says that press freedom “is not a right granted by the graciousness of the German government, it is an inviolable human right that also applies to foreign journalists.” The allegations come as the German parliamentary investigative committee focusing on U.S. spying in Germany is completing its inquiry. Chancellor Angela Merkel, who appeared before the committee last Thursday, was the last witness called and now the committee members are working on their closing report. But even as the committee also addressed extensive BND spying, the surveillance of journalists was only a fringe issue.

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Things are not what they seem.

Surgeons Should Not Look Like Surgeons (NN Taleb)

Say you had the choice between two surgeons of similar rank in the same department in some hospital. The first is highly refined in appearance; he wears silver-rimmed glasses, has a thin built, delicate hands, a measured speech, and elegant gestures. His hair is silver and well combed. He is the person you would put in a movie if you needed to impersonate a surgeon. His office prominently boasts an Ivy League diploma, both for his undergraduate and medical schools. The second one looks like a butcher; he is overweight, with large hands, uncouth speech and an unkempt appearance. His shirt is dangling from the back. No known tailor in the East Coast of the U.S. is capable of making his shirt button at the neck. He speaks unapologetically with a strong New Yawk accent, as if he wasn’t aware of it. He even has a gold tooth showing when he opens his mouth.

The absence of diploma on the wall hints at the lack of pride in his education: he perhaps went to some local college. In a movie, you would expect him to impersonate a retired bodyguard for a junior congressman, or a third-generation cook in a New Jersey cafeteria. Now if I had to pick, I would overcome my suckerproneness and take the butcher any minute. Even more: I would seek the butcher as a third option if my choice was between two doctors who looked like doctors. Why? Simply the one who doesn’t look the part, conditional of having made a (sort of) successful career in his profession, had to have much to overcome in terms of perception. And if we are lucky enough to have people who do not look the part, it is thanks to the presence of some skin in the game, the contact with reality that filters out incompetence, as reality is blind to looks.

When the results come from dealing directly with reality rather than through the agency of commentators, image matters less, even if it correlates to skills. But image matters quite a bit when there is hierarchy and standardized “job evaluation”. Consider the chief executive officers of corporations: they not just look the part, but they even look the same. And, worse, when you listen to them talk, they will sound the same, down to the same vocabulary and metaphors. But that’s their jobs: as I keep reminding the reader, counter to the common belief, executives are different from entrepreneurs and are supposed to look like actors.

Now there may be some correlation between looks and skills; but conditional on having had some success in spite of not looking the part is potent, even crucial, information. So it becomes no wonder that the job of chief executive of the country, that is, the president, was once filled by a former actor, Ronald Reagan. Actually, the best actor is the one nobody realizes is an actor: a closer look at the record and the activity shows that Barack Obama was even more of an actor: a fancy Ivy-League education combined with a liberal reputation is compelling as an image builder. (In fact much as President Trump has going for him is that he doesn’t act as a president).

Read more …

Feb 232017
 
 February 23, 2017  Posted by at 9:53 am Finance Tagged with: , , , , , , , , , ,  5 Responses »
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Jack Delano Colored drivers entrance, U.S. 1, NY Avenue, Washington, DC 1940

 


The Absolute Dominance Of The US Economy, In One Chart (MW)
Trump Scorns the IMF’s Globalism, and Now He Gets to Vote on It
The Problem with Gold-Backed Currencies (CHS)
What’s So Great About Europe? (BBG)
Italy Warned by EU Over High Public Debt With Spillover Risk (BBG)
‘Spain Is Ruined For 50 Years’ (Exp.)
Why Greece’s Crisis Has Broken All Previous Records (K.)
Millions In UK Are Just One Unpaid Bill Away From The Abyss (G.)
Oz Reserve Bank Interest Rate Moves Limited By High Debt, House Prices (AbcAu)
Exxon Wiped A Whopping 19.3% Of Its Oil Reserves Off Its Books In 2016 (Q.)
Turkish Provocations Test Greek Resolve (K.)
Greece Okays Asylum Requests Of 10,000 Refugees (K.)

 

 

Not sure that’s what I get from the graph.

The Absolute Dominance Of The US Economy, In One Chart (MW)

Despite the bleak picture painted by President Donald Trump of the U.S. as a country in disarray, America’s status as an economic superpower is still very much intact, even as China steadily closes the gap. The U.S. economy, as measured by GDP, is by far the largest in the world at $18.04 trillion. China, the closest thing the U.S. has for a competitor, is No. 2 with a GDP of $11 trillion, while Japan is a distant third with $4.38 trillion. As the chart by HowMuch.net illustrates, the U.S. accounts for about a quarter of the global economy, nearly 10 percentage points more than China’s 14.84%. Put another way, the U.S. economy is roughly equivalent to the combined GDPs of the eight next-biggest countries after China — Japan, Germany, the U.K., France, India, Italy, Brazil and Canada.

However, the narrative shifts when countries are grouped by geography, with Asia clearly in the lead. The region, denoted in yellow in the chart, contributed 33.84% to the global GDP. “Asia’s economic center of gravity is in the east, with China, Japan and South Korea together generating almost as much GDP as the U.S.,” said Raul Amoros at HowMuch.net. North America follows Asia at 27.95%, and Europe trails at 21.37%. The three blocs combined represent about 83% of the world’s economic activity. The chart also highlights the chasm between wealthy and poor countries. South America’s four largest economies — Brazil, Argentina, Venezuela and Colombia — only add up to 4% of the global GDP, while Africa’s three biggest — South Africa, Egypt and Nigeria — account for around 1.5%.

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I picked the last bit of the article.

Trump Scorns the IMF’s Globalism, and Now He Gets to Vote on It

The IMF has already survived one major mission-change. It’s known today as the lender of last resort to countries facing balance-of-payments crises. But in its first three decades, the Fund managed the world’s currency order. That was the role assigned at Bretton Woods in 1944, when the IMF and World Bank were set up. Forty-five nations attended the summit, but two men dominated it: John Maynard Keynes and America’s Harry Dexter White. From the back of her car in Uganda, Lagarde calls them the “founding fathers.” Their goal was to avoid a repeat of the 1930s, when competitive devaluations and tariff wars led to the collapse of world trade. Keynes wanted the IMF to act as a central bank of central banks, denominating their accounts in a new global currency. It would let members devalue or borrow with relative ease. Both creditors and debtors would pay interest on their holdings, discouraging large trade surpluses as well as deficits.

White’s plan was more creditor-friendly, reflecting the U.S. position as world lender. There would be no new currency: IMF members would tie their money to the dollar. They couldn’t devalue without consulting the Fund, and were only supposed to borrow short-term to close balance-of-payments gaps. “The British wanted an automatic source of credit, the Americans a financial policeman,” wrote Keynes’s biographer Robert Skidelsky. The English economist was one of the 20th century’s sharpest thinkers, but it was the U.S. Treasury official who got his way. The system turned out to have a flaw: It depended on the supply of U.S. dollars backed by gold. That link came under pressure as America, financing social programs at home and war in Vietnam, slipped into persistent deficit. In 1971, President Richard Nixon took the dollar off the gold standard, ending phase one at the IMF.

Today there’s a patchwork of floating rates, pegs and currency unions like the euro. It’s not working to everyone’s satisfaction – notably Trump’s. His team has called out several countries, from China to Germany, for gaming the system. Money courses around that system on a scale that would have been unimaginable at Bretton Woods. Massive trade imbalances built up. The dollar remains central. The risks were laid bare in 2008, when a collapsed U.S. housing bubble led to world recession. Since then, some financial leaders – among them the governor of the People’s Bank of China, Zhou Xiaochuan, and his U.K. counterpart Mark Carney – have gently hinted that something more like Keynes’s plan might be in order, to reduce the world’s dollar dependency.

Lagarde doesn’t see that happening on her watch. “It didn’t happen in 1944, when the world had destroyed itself,” she said. “I’m not a dreamer.” She argues instead that what the IMF is doing today will remain useful tomorrow. Countries will always be getting in a financial mess. Someone has to clean it up. Ukraine needed money in 2015: without the IMF, “where would the $17.5 billion come from? Whose pocket would it be?”

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The curse of the reserve currency. And if you look a bit deeper, any gold-backed currency.

The Problem with Gold-Backed Currencies (CHS)

There is something intuitively appealing about the idea of a gold-backed currency –money backed by the tangible value of gold, i.e. “the gold standard.” Instead of intrinsically worthless paper money (fiat currency), gold-backed money would have real, enduring value–it would be “hard currency”, i.e. sound money, because it would be convertible to gold itself. Many proponents of sound money identify President Nixon’s ending of the U.S. dollar’s gold standard in 1971 as the cause of the nation’s financial decline. If our currency was still convertible to gold, the thinking goes, the system would never have allowed the vast pile of debt to accumulate. The problem with this line of thinking is that it is disconnected from the real-world mechanisms of capital flows and the way money is created in our financial system.

This article explains why Nixon took the USD off the gold standard: since the U.S. was running trade deficits, all of America’s gold would have been transferred to the exporting nations. America’s gold reserves would have disappeared, leaving nothing to back the dollar. The U.S. Empire Would Have Collapsed Decades Ago If It Didn’t Abandon The Gold Standard. The problem to sound-money proponents is trade deficits: if the U.S. only had trade surpluses, then the gold would not drain away. But Triffin’s Paradox explains why this doesn’t work for a reserve currency: a reserve currency has two distinct sets of users: domestic users and global users. Each has different needs, so there is a built-in conflict between the two sets of users.

Global users of the USD need enormous quantities of dollars to use as reserves, to pay debts denominated in USD and to facilitate international trade. The only way the issuing nation can provide enough currency to meet this global demand is to run large, permanent trade deficits–in effect, “exporting” dollars in exchange for goods and services. This is the paradox: to maintain the “exorbitant privilege” of a reserve currency, a nation must “export” its currency in size; a nation that runs trade surpluses cannot supply the world with enough of its currency to act as a reserve currency.

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That is one damning set of numbers.

What’s So Great About Europe? (BBG)

A woman said that maybe the problem with the European Union – or at least the common currency, the euro – was that it was too advantageous to Germany. “Because we have a common currency, we get an edge in exports,” she said. “I profit from this. Thanks!” “Do you think this is harming our neighbor countries?” Armbruster asked. “Yes, definitely,” she responded. “Germany was always a problem in Europe,” interjected Andre Wilkens, a Berlin-based policy wonk who was one of the evening’s featured speakers but mostly sat and listened. “The EU was formed to solve that problem.” Others got up to say that Europe needed more solidarity, with Germans leading the way. It needed more of a sense of community. More attention needed to be paid to the millions of jobless young people in Greece, Italy, Portugal and Spain.

Then things shifted to straight-out Euroenthusiasm. “To be totally honest, I think Europe is super,” said a woman sitting in the front row. Added a man a few rows back: “There are problems that we Germans alone can’t solve.” By working together with the rest of Europe, he went on, Germany had a better shot at fighting climate change and preventing war. It isn’t exactly news that a bunch of people gathered in a theater in downtown Stuttgart support the idea of Europe and even, for the most part, the reality of the European Union. The home of Daimler, Porsche and Robert Bosch is one of the continent’s great economic success stories – and its residents’ political views aren’t necessarily shared by other Germans. On the whole, Germans see the EU in a more positive light than the citizens of most other European countries (I’ve included the 10 most populous EU member countries in the chart below), but they’re still pretty negative about it.

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All Italy can do is pretend. And Brussels likes it that way.

Italy Warned by EU Over High Public Debt With Spillover Risk (BBG)

The European Commission warned that Italy faces excessive economic imbalances as the country’s shaky center-left government struggles to control public debt, boost sluggish growth and mend ailing banks. Troubles including soured bank loans risk spilling into other euro-area countries, the commission said on Wednesday. Italy’s public debt is projected to rise to 133.3% of gross domestic product this year from an estimated 132.8% in 2016. “High government debt and protracted weak productivity dynamics imply risks with cross-border relevance looking forward, in a context of high non-performing loans and unemployment,” the European Union’s executive arm in Brussels said in a set of annual policy recommendations to EU governments. Italy is struggling to maintain government stability amid infighting in the ruling Democratic Party, where some members are pushing for early elections.

The country also faces sluggish GDP growth of 0.9% this year and lingering issues at domestic banks, which are weighed down by €360 billion of bad loans that have eroded profitability, undermined investor confidence and curtailed new lending. “The stock of non-performing loans has only started to stabilize and still weighs on banks’ profits and lending policies, while capitalization needs may emerge in a context of difficult access to equity markets,” the commission said. In May it plans to recommend whether Italy should be subject to a stricter oversight regime – one with fines as a last resort – for failing to keep public debt on a trajectory toward the EU limit of 60% of GDP. The assessment will take into account final economic data for 2016 and Italian government pledges to adopt by the end of April budget-austerity measures worth 0.2% of GDP.

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“We have a third world production model of speculators and waiters, with a labour market where the majority of jobs created are temporary and with remunerations of €600, the largest wage decline in living memory..”

‘Spain Is Ruined For 50 Years’ (Exp.)

A leading Spanish economist has hit out at the ECB saying “crazy” loans will ruin the lives of the population for the next 50 years.And it is only a matter of time before the Government is forced to default as a debt bubble and low wages effectively forge the worst declines in “living memory”. Leading economist Roberto Centeno, who was an advisor to US president Donald Trump’s election team on hispanic issues, says the country has borrowed €603 billion that it cannot conceivably pay back. And he says Spanish politicians including Minister of Economy Luis de Guindos are “insulting their intelligence” after doing back door deals with the ECB. In a blog post Mr Centeno says there needs to be audits so the country can understand the magnitude of its debt mountain.

He said Spain was “moving steadily towards the suspension of payments which is the result of out of control public waste, financed with the largest debt bubble in our history, supported by the ECB with its crazy policy of zero interest rate expansion and without any supervision.” The expert added the doomed situation will “lead to the ruin of several generations of Spaniards over the next 50 years”. And that current Prime Minister Rajoy has employed 2500 special advisors in his central government as opposed to other leaders. He said: ”Our economic future requires drastic decisions to cut public waste, such as eliminating thousands of useless public companies, thousands of useless advisers, [Prime Minister Mariano] Rajoy has 2,500 in Moncloa, compared to Obama’s 600, Merkel’s 400 or the 250 working for Theresa May.

“There’s disastrous management of Health and Education, the cost of which has skyrocketed 60 per cent since they were transferred to the Autonomous Communities while the quality plummeted.” Mr Centento also said the Government and the European Union’s estimations of GDP are completely wrong and has presented them with figures he claims are accurate. He said the country is currently suffering from a “third world production model”. He added: “We have a third world production model of speculators and waiters, with a labour market where the majority of jobs created are temporary and with remunerations of €600, the largest wage decline in living memory, “And all this was completed with a broken pension system and an insolvent financial system.”

Forecasting an unprecedented shock to the European financial model, Mr Centento is calling for an immediate audit despite a recent revelation that the ECB is failing in its supervisory role over Europe’s banks. He also claimed the Spanish government and European Union leaders have been manipulating figures since 2008. Mr Centento said: “We will require the European Commission and Eurostat to audit and audit the Spanish accounting system for serious accounting discrepancies that may jeopardise stability. “The gigantic debt bubble accumulated by irresponsible governments, and that never ceases to grow, will be the ruin of several generations of Spaniards. “The Bank of Spain’s debt to the Eurosystem is the largest in Europe. “The day that the ECB minimally closes the tap of this type of financing or markets increase their risk aversion, the situation will be unsustainable.”

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A feature not a bug.

Why Greece’s Crisis Has Broken All Previous Records (K.)

How unique is the Greek crisis? Two charts tell the tragic tale. The first – from the International Monetary Fund’s recent Article IV report on Greece – compares four major economic crises that took place in the developed world in the last 100 years: the Great Depression in the United States, the Asian financial crisis of the late 1990s, the eurozone recession and Greece’s long collapse. Greece’s performance is by far the worse. The East Asian countries caught in the hurricane of 1997-8 returned to pre-crisis real GDP within three years. The eurozone needed six years, and today its real GDP is only 2% higher than the pre-crisis high point. The output of the US economy had shrunk by a quarter three years after the Wall Street Crash of 1929, but by 1936 it had recovered to pre-crisis levels. The Greek economy contracted by 26% in real terms between 2007 and 2013, and at the end of 2016 – nine years after the start of its own Great Depression – it remained stuck at the bottom.

The second chart, from the analysis service Macropolis, compares the performance of eight countries that have sought assistance from the IMF since 1997 seven years after the start of their programs. The Fund’s best student was Turkey, which doubled its GDP in real terms between 2000 and 2007. Russia was a close second, largely thanks to growth fueled by climbing oil and gas prices. South Korea comes next, with growth well above 50% from its baseline year, while Indonesia, Brazil and Thailand are hovering around 25%. The only countries which remained below their pre-crisis GDP levels seven years after seeking the Fund’s assistance are Argentina (in the aftermath of the 1998-2002 crisis) and Greece. At its low point, three years into its crisis, Argentina’s dollar-denominated GDP – largely because of the devaluation of the peso after the abolition of convertibility – had fallen by two-thirds compared to pre-crisis highs. At the seven-year mark, Argentina, unlike Greece, was experiencing a robust recovery.

Focusing on the comparison with the Great Depression in the United States, US unemployment peaked in May 1933 at 26%, to be cut by more than half by the end of 1936. In Greece it reached 28% in July 2013, and has since fallen to 23%. The Dow Jones Industrial index lost 85% of its value between August 1929 and May 1932, but it rose fourfold in the three-and-a-half years to the end of 1936 (another 23 years would pass, however, before it got back to pre-crisis levels).

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No, it’s not just the EU, or the euro.

“..an economic climate that is normalising low-income families having to live hand to mouth..”

Millions In UK Are Just One Unpaid Bill Away From The Abyss (G.)

As the cocktail of long-term austerity, rising living costs and a slumping post-Brexit economy hits, what’s really frightening is the crisis that is brewing but is barely being noticed. Look at this week’s finding that one in four families now have less than £95 in savings. That’s staggering, not simply because it gives an insight into how large swaths of families in Britain are clinging on financially in a climate of low wages, cut benefits and high rents, but also because it offers us a warning of how little it will take to push them over the edge. There are now 19 million people in this country living below the minimum income standard (an income required for what the wider public view as “socially acceptable” living standards), according to figures released by the Joseph Rowntree Foundation (JRF) this month.

Around 8 million of them could be classed as Theresa May’s “just about managing” families: those who can, say, afford to put food on the table and clothe their children but are plagued by financial insecurity. The other 11 million live far below the minimum income standard and are, the JRF warns, “at high risk of falling into severe poverty”. We are entering a period not simply of growing hardship in this country but of what I would call precarious poverty: the sort that isn’t characterised by the traditional image of lifelong, deep-seated deprivation, but which can hit in a matter of days: a broken washing machine, a late child tax credit payment, an injury that leads to time off work. In an economic climate that is normalising low-income families having to live hand to mouth, increasingly, for a whole economic class, one small unexpected cost can trigger a spiral into debt.

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And now they’re stuck. This is where it gets risky.

Oz Reserve Bank Interest Rate Moves Limited By High Debt, House Prices (AbcAu)

Fears of inflating housing bubbles in Sydney and Melbourne are stopping the Reserve Bank from cutting interest rates to boost the economy, the central bank governor conceded today. The stark admission by Reserve Bank governor Phillip Lowe about the RBA’s dilemma comes as soaring house prices in the eastern states have Australians carrying “more debt than they ever have before”. Dr Lowe delivered the reality check at the Australia Canada Economic Leadership Forum, where he said low interest rates made it attractive for borrowers in both countries to invest in real estate, making further rate cuts an undesirable option. “We are trying to balance multiple objectives at the moment,” he said in response to questions after the speech.

“We’d like the economy to grow a bit more quickly and we’d like the unemployment rate to come down a bit more quickly than is currently forecast. “But if we were to try and achieve that through monetary policy it would encourage people to borrow more money and it probably would put more upward pressure on housing prices and, at the moment, I don’t think either of those two things are really in the national interest.” For the moment, it looks like the Reserve Bank feels content — or locked in — to leaving official interest rates on hold at a record low 1.5%. However, Dr Lowe expressed optimism that this level of rates was low enough to spark business investment and stronger economic growth, and therefore there would be no need to lower rates further.

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That’s a lot of (not) oil.

Exxon Wiped A Whopping 19.3% Of Its Oil Reserves Off Its Books In 2016 (Q.)

ExxonMobil has taken a big hit to one of the pillars underlying its decades of braggadocio: its oil reserves. In an announcement today, Exxon said it had written down its proven oil reserves by a massive 19.3%, a stinging reduction to what is a primary measure of any oil company’s value. As of the end of 2016, Exxon had 20 billion barrels in proven reserves, compared with 24.8 billion a year earlier. This includes the erasure of all 3.5 billion barrels of Exxon’s proven oil sands reserves at Canada’s Kearl field. Last year’s low oil prices made it uneconomical to drill at Kearl, which had been at the core of Exxon’s growth strategy. In addition, for the second straight year, Exxon failed to replace all the reserves it pumped—in 2016, it replaced just 65% of its produced reserves. In 2015, it replaced just 67%.

Prior to these years, Exxon had replaced at least 100% of its production every year since 1993. As bad as that was, it was expected: Exxon had signaled that it would write down reserves in 2016, and analysts had expected the company not to replace what it pumped. What wasn’t anticipated was the impact on Exxon’s vaunted longer-term performance. Almost every year, when Exxon announces its earnings, dividend payouts, reserve replacement results—and nearly any other important annual result—it throws in its 10-year record in the respective category to demonstrate its steady, reliable hand on the tiller. This time, bringing up the 10-year record backfired: The replacement failures of the last two years and the 2016 writedown punched a hole in Exxon’s vaunted 10-year reserves replacement average—it plunged to 82% in 2016, from 115% a year earlier.

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Simmering conflict.

Turkish Provocations Test Greek Resolve (K.)

The recent spike in Turkish provocations in the Aegean and incendiary comments emanating from Ankara are aimed at testing Greece’s resolve, according to Greek analysts. In what was seen as its latest transgression, Turkey dispatched its Cesme research vessel to conduct surveys on Wednesday in international waters between the islands of Thasos, Samothrace and Limnos, but within the area of responsibility of the Hellenic Search and Rescue Coordination Center. The night before, Turkish coast guard vessels conducted patrols in the region around the Imia islets. At the same time, the Cyprus talks are being undermined over what Greeks believe is a minor detail – the decision by the Cyprus Parliament for schools to commemorate a 1950 referendum calling for union with Greece.

Greeks say it is an attempt to shift attention from the fundamental issues of the peace talks, namely post-settlement security and guarantees. In response, Athens has pursued the principle of proportionality by countering the presence of Turkish military and coast guard vessels with an equivalent number of Greek ones, while embarking on a diplomatic campaign at international organizations and in major capitals. Analysts also attribute the spike in tension to the Supreme Court’s refusal to extradite the Turkish servicemen that Ankara says were involved in the July coup attempt. But they also note that it serves as a convenient pretext for Turkey to up the nationalistic rhetoric ahead of the April 16 referendum called by President Recep Tayyip Erdogan in a bid to expand his powers.

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Think maybe rich Europe has slipped Tsipras a few bucks?

Greece Okays Asylum Requests Of 10,000 Refugees (K.)

At least 10,000 refugees, including around 2,000 minors, are expected to remain in Greece over the coming three years as their asylum applications have been approved. The approved asylum claims account for about a sixth of more than 60,000 migrants who are currently stranded in Greece following the decision last year by a series of Balkan states to close their borders amid a massive influx of refugees from Syria and other war-torn states. The arrival of migrants in Greece has slowed significantly following an agreement between the European Union and Turkey in March last year to crack down on human smuggling across the Aegean.

However, boatloads of migrants continue to arrive on Greek shores from neighboring Turkey. On Wednesday, another 145 migrants arrived on the eastern Aegean island of Chios alone. Authorities attribute the sudden spike in arrivals to the unseasonably good weather. According to the Greek Asylum Service, a total of 1,912 migrants lodged asylum applications in January of this year. Last year, when hundreds of thousands of migrants flooded through Greece toward other parts of Europe, a total of 51,091 people applied for asylum in Greece, compared to 13,195 in 2015, 9,432 in 2014 and 4,814 in 2013.

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 February 21, 2017  Posted by at 9:53 am Finance Tagged with: , , , , , , , , ,  No Responses »
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DPC Masonic Temple, New Orleans 1910

 


Greece: The Economic Consequences of Depression Economics (Prime)
After Seven Years Of Bailouts, Greeks Sink Yet Deeper In Poverty (R.)
Greece’s Creditors Dash Hopes For Quick Deal (Tel.)
Greek Government In Damage Control Mode After Giving In To Troika, Again (K.)
Mr Draghi, What Are You Afraid Of? Release #TheGreekFiles! (DiEM25)
Fumbling Towards Collapse (Jim Kunstler)
Why Trumponomics Will Fail Spectacularly (Robert Reich)
Saudi Arabia Breaks Records on Oil Exports and Output for (BBG)
Chinese Banks’ Off-Book Wealth Products Exceed $3.8 Trillion (BBG)
Why Toronto (and Other Cities) Inflate Housing Bubbles to the Bitter End (WS)
Refugee Claimants From US Strain Canada’s Border Resources (R.)
‘Casa Nostra, Casa Vostra’ (K.)

 

 

A theoretical approach to austerity as a creator of poverty.

Greece: The Economic Consequences of Depression Economics (Prime)

The policy debate in Greece and the EU is burdened with hysteria over the issue of budget deficit and public debt. The proposition is that the less the governments borrow the better and, therefore, the main policy has been to put pressure on the State to curtail as far as possible all capital expenditure, without concern on how productive and desirable that is in itself. The idea is that cuts in government expenditures are not to be used by the government to tax the general population less but to borrow less on the assumption that if the government borrows less the private sector necessarily borrows more, though taxing less the highest rungs of the income distribution might be desirable as it is considered as an incentive to investment.

Second, led by the belief that the main thrust of policy should be internal devaluation, a program of cutbacks in expenditures, decrease in deficits and debts and wage and income restraint is pursued even in a time of recession. The idea is that if producers have reduced costs of production they will produce more and the prices of the produced goods will fall as much as wages. However, as Keynes pointed out that there is no reason to expect that any reduction of purchasing power will be offset by increases in other directions. Certainly, this reduction of purchasing power may cause a reduction of domestic expenditures on imports, which may improve the trade balance. It may also reduce savings, as public employees and others whose salaries are cut and those who lost their jobs may save less or draw on their passed savings to maintain their habitual standard of life.

However, producers will find that the expenditures of consumers (public employees, pensioners, unemployed) are reduced. Consequently, they can only match this reduction of revenue by either cutting down their own expenditure or making redundant some of their employees or both. As a necessary consequence of reduced incomes and profits there should be an increase in unemployment and a decrease in government tax revenues. Importantly, as Keynes noticed, deflation of wages, incomes and prices transfers wealth from the rest of the public to the rentiers and to those who hold titles to money. In effect, internal devaluation redistributes wealth as it transfers money from borrowers to lenders. The real assets in the country constitute the wealth of its citizens. Such real assets are buildings, stocks of commodities, goods in the process of production and the like. As is the usual practice, owners of these assets frequently purchase them by borrowing money.

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Don’t forget, it’s not Greece that’s being bailed out.

After Seven Years Of Bailouts, Greeks Sink Yet Deeper In Poverty (R.)

Greek pensioner Dimitra says she never imagined a life reduced to food handouts: some rice, two bags of pasta, a packet of chickpeas, some dates and a tin of milk for the month. At 73, Dimitra – who herself once helped the hard-up as a Red Cross food server – is among a growing number of Greeks barely getting by. After seven years of bailouts that poured billions of euros into their country, poverty isn’t getting any better; it’s getting worse like nowhere else in the EU. “It had never even crossed my mind,” she said, declining to give her last name because of the stigma still attached to accepting handouts in Greece. “I lived frugally. I’ve never even been on holiday. Nothing, nothing, nothing.” Now more than half of her €332 ($350) monthly income goes to renting a tiny Athens apartment. The rest: bills.

The global financial crisis and its fallout forced four euro zone countries to turn to international lenders. Ireland, Portugal and Cyprus all went through rescues and are back out, their economies growing again. But Greece, the first into a bailout in 2010, has needed three. Rescue funds from the EU and IMF saved Greece from bankruptcy, but the austerity and reform policies the lenders attached as conditions have helped to turn recession into a depression. Prime Minister Alexis Tsipras, whose leftist-led government is lagging in opinion polls, has tried to make the plight of Greeks a rallying cry in the latest round of drawn-out negotiations with the lenders blocking the release of more aid. “We must all be careful towards a country that has been pillaged and people who have made, and are continuing to make, so many sacrifices in the name of Europe,” he said this month.

Much of the vast sums in aid money has simply been in the form of new debt used to repay old borrowings. But regardless of who is to blame for the collapse in living standards, poverty figures from the EU statistics agency are startling. Greece isn’t the poorest member of the EU; poverty rates are higher in Bulgaria and Romania. But Greece isn’t far behind in third place, with Eurostat data showing 22.2% of the population were “severely materially deprived” in 2015. And whereas the figures have dropped sharply in the post-communist Balkan states – by almost a third in Romania’s case – the Greek rate has almost doubled since 2008, the year the global crisis erupted. Overall, the EU level fell from 8.5% to 8.1% over the period. The reality of such statistics becomes clear at places like the food bank run by the Athens municipality where Dimitra collects her monthly handouts.

Here, dozens more Greeks waited solemnly with a ticket in hand to get their share. All are registered as living below the poverty line of about €370 a month. “The needs are huge,” said Eleni Katsouli, a municipal official in charge of the center. Figures for the food bank, which serves central Athens, show a similar trend on a local scale to the wider Eurostat data. About 11,000 families – or 26,000 people – are registered there, up from just 2,500 in 2012 and 6,000 in 2014, Katsouli said. About 5,000 are children.

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Delusional theoretics: “..a greater emphasis on growth..”

Greece’s Creditors Dash Hopes For Quick Deal (Tel.)

Greece’s creditors have dashed hopes of a quick resolution to the country’s looming cash crunch, even as talks paved the way for debt inspectors to return to Athens. Jeroen Dijsselbloem, the head of the Eurogroup, told reporters that there had been a “clear shift” in creditor demands following a meeting of finance ministers in Brussels on Monday. Yields on Greek government bonds fell sharply after he announced that representatives from the European Commission and IMF would return to Athens to thrash out an “additional package of structural reforms” to support long term growth and debt sustainability. Greece needs around €7bn in fresh rescue funds before July in order to cover substantial debt repayments to the ECB and private creditors. The Dutch finance minister said new measures would be “designed and agreed on the ground” in Athens, with a greater emphasis on growth.

“At face value, that means less tax rises and spending cuts and deep reforms to the country’s tax system, pensions and labour laws,” Mr Dijsselbloem told reporters. However, he played down reaching a solution before Dutch elections next month or even the French presidential election in May and said creditors were “looking towards the summer” for an agreement. “There is still a lot of work to do, a lot of issues to discuss and calibrate so I want to temper expectations,” he said. “There is no need for a disbursement in March, April or May.” Mr Dijsselbloem also signalled that differences remained between Greece, Brussels and the IMF over the reforms needed to unlock the next loan tranche and secure the institution’s participation in Greece’s third, €86bn rescue package.

Speaking after the meeting, a Greek government official said Athens was prepared to implement reforms beyond 2019. The official added: “The agreement includes the inviolable condition that was set by the Greek side for not even one euro more of austerity.” However, Pierre Moscovici, European Commissioner for economic and financial affairs, signalled that structural reforms, including pension cuts as well as tax and labour reforms would be required before pro-growth measures could be sanctioned. “I think that one word was forgotten [in the Greek official’s statement]. That was ‘net’,” he said.

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This one may be hard for Tsipras to explain. What’s the use of red lines if they mean nothing?

Greek Government In Damage Control Mode After Giving In To Troika, Again (K.)

After the government backed down on its vow not to take new measures at Monday’s Eurogroup, its number one priority now is damage control. In the runup to Monday’s meeting of eurozone finance ministers, Athens had insisted it had drawn its “red lines,” but it left Brussels having promised its EU partners that it will legislate measures after the current bailout program expires in 2018, in exchange for the return of technical experts to Athens in the bid to conclude the second review of the country’s third bailout. Faced with the challenge of explaining its turnaround and agreement to take new measures to an increasingly disillusioned electorate and lawmakers of ruling SYRIZA and Independent Greeks (ANEL), the government is using the term “neutral fiscal balance” in an attempt to sweeten the pill.

According to government sources, the term essentially means that for every euro saved from the new measures, there will be equivalent reductions in value-added, corporate or property taxes. In other words, the government’s narrative is that even though new measures will be implemented, these will be neutral as their burden will be canceled out by tax relief. Senior government officials were also busy laying the groundwork last week, saying that the government may have to accept new measures “for the good of the country” as the protracted negotiations to conclude the review were having a negative impact on the prospects of the country’s economic recovery.

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Nice legal twist.

Mr Draghi, What Are You Afraid Of? Release #TheGreekFiles! (DiEM25)

Deep in a vault in the headquarters of the European Central Bank (ECB) lie #TheGreekFiles, a legal opinion about the ECB’s actions towards Greece in 2015 that could send shockwaves across Europe. As a European taxpayer, you paid for these documents. But the ECB’s boss, ex-Goldman Sachs head Mario Draghi, says you can’t see them. So former Greek Finance Minister Yanis Varoufakis and MEP Fabio de Masi, together with a broad alliance of politicians and academics (below), have announced they will file a mass freedom of information request to the ECB to uncover #TheGreekFiles once and for all. If Mario says no, they’ll take the campaign to the next level, and consider all options – including legal action – to make this vital information public. Support their request to release critical documents you paid for by signing this petition now!

What are #TheGreekFiles? In June 2015, the newly-elected Greek government was locked in tense negotiations with its creditors (the ‘Troika’ – the ECB, EC and IMF), doing what it had been voted in to do: renegotiate the country’s public debt, fiscal policy and reform agenda, and save its people from the hardship of the most crushing austerity programme in modern history. The Troika knew they needed to make a drastic move to force the Greek government to capitulate. And that’s just what they did: through the ECB, they took action to force Greece’s banks to close, ultimately driving the Greek government – against its democratic mandate – to accept the country’s third ‘bailout’, together with new austerity measures and new reductions in national sovereignty.

But in their haste, their zeal to crush the Greek government’s resistance, the ECB feared their actions might be legally dubious. So they commissioned a private law firm to examine whether those decisions were legal. The legal opinion of this law firm is contained in #TheGreekFiles. In July 2015, the German MEP Fabio De Masi asked Mario Draghi to release the legal opinion. Mario refused, hiding behind ‘attorney-client privilege’. Clearly #TheGreekFiles contain something he doesn’t want you to see. One of the foremost experts on European Law, Professor Andreas Fischer-Lescano, examined whether the ECB was right to refuse to release #TheGreekFiles. His detailed conclusion leaves no room for doubt: the ECB has no case for withholding from MEPs and the citizens of Europe the legal opinion the ECB secured (and paid for using your money) regarding its own conduct.

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“..lost in a hall of mirrors with the lights off..” Building infrastructure for a world that’s gone, strip malls etc.

Fumbling Towards Collapse (Jim Kunstler)

[..] the real issue hidden in plain sight is how America — indeed all the so-called “developed” nations — are going to navigate to a stepped-down mode of living, without slip-sliding all the way into a dark age, or something worse. By the way, the Ole Maestro, Alan Greenspan, also chimed in on the “productivity” question last week to equally specious effect in this Business Insider article. None of these celebrated Grand Viziers knows what the fuck he’s talking about, and a nation depending on their guidance will find itself lost in a hall of mirrors with the lights off. So, on one side you have Trump and his trumpets and trumpistas heralding the return of “greatness” (i.e. a booming industrial economy of happy men with lunchboxes) which is not going to happen; and on the other side you have a claque of clueless technocrats who actually believe they can “solve” the productivity problem with measures that really only boil down to different kinds of accounting fraud.

You also have an American public, and a mass media, who do not question the premise of a massive “infrastructure” spending project to re-boot the foundering economy. If you ask what they mean by that, you will learn that they uniformly see rebuilding our highways, bridges, tunnels, and airports. Some rightly suspect that the money for that is not there – or can only be summoned with more accounting fraud (borrowing from our future). But on the whole, most adults of all political stripes in this country think we can and should do this, that it would be a good thing. And what is this infrastructure re-boot in the service of? A living arrangement with no future. A matrix of extreme car dependency that has zero chance of continuing another decade. More WalMarts, Target stores, Taco Bells, muffler shops, McHousing subdivisions, and other accoutrement of our fast-zombifying mode of existence? Isn’t it obvious, even if you never heard of, or don’t understand, the oil quandary, that we have shot our wad with all this? That we have to start down a different path if we intend to remain human?

It’s not hard to describe that waiting world, which I’ve done in a bunch of recent books. We’re going there whether we like it or not. But we can make the journey to it easier or harsher depending on how much we drag our heels getting on with the job. History is pretty unforgiving. Right now, the dynamic I describe is propelling us toward a difficult reckoning, which is very likely to manifest this spring as the political ineptitude of Trump, and the antipathy of his enemies, leaves us in a constitutional maelstrom at the very moment when the financial system comes unglued. Look for the debt ceiling debate and another Federal Reserve interest rate hike to set off the latter. There may be yet another converging layer of tribulation when we start blaming all our problems on Russia, China, Mexico, or some other patsy nation. It’s already obvious that we can depend on the Deep State to rev that up.

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US manufacturing is inferior.

Why Trumponomics Will Fail Spectacularly (Robert Reich)

When Donald Trump gave a speech last Friday at Boeing’s factory in North Charleston, South Carolina – unveiling Boeing’s new 787 “Dreamliner” – he congratulated Boeing for building the plane “right here” in South Carolina. It’s pure fantasy. I’ll let you know why in a moment. Trump also used the occasion to tout his “America First” economics, stating “our goal as a nation must be to rely less on imports and more on products made here in the U.S.A.” and “we want products made by our workers in our factories stamped by those four magnificent words, ‘Made in the U.S.A.’” To achieve this goal Trump would impose “a very substantial penalty” on companies that fired their workers and moved to another country to make a product, and then tried to sell it back to America. The carrot would be lower taxes and fewer regulations “that send our jobs to those other countries.” Trump seems utterly ignorant about global competition – and about what’s really holding back American workers.

Start with Boeing’s Dreamliner itself. It’s not “made in the U.S.A..” It’s assembled in the United States. But most of it parts come from overseas. Those foreign parts total almost a third of the cost of the entire plane. For example: The Italian firm Alenia Aeronautica makes the center fuselage and horizontal stabilizers. The French firm Messier-Dowty makes the aircraft’s landing gears and doors. The German firm Diehl Luftfahrt Elektronik supplies the main cabin lighting. The Swedish firm Saab Aerostructures makes the cargo access doors. The Japanese company Jamco makes parts for the lavatories, flight deck interiors and galleys. The French firm Thales makes its electrical power conversion system. Thales selected GS Yuasa, a Japanese firm, in 2005 to supply it with the system’s lithium-ion batteries. The British company Rolls Royce makes many of the engines. A Canadian firm makes the moveable trailing edge of the wings.

Notably, these companies don’t pay their workers low wages. In fact, when you add in the value of health and pension benefits – either directly from these companies to their workers, or in the form of public benefits to which the companies contribute – most of these foreign workers get a better deal than do Boeing’s workers. (The average wage for Boeing production and maintenance workers in South Carolina is $20.59 per hour, or $42,827 a year.) They also get more paid vacation days. These nations also provide most young people with excellent educations and technical training. They continuously upgrade the skills of their workers. And they offer universally-available health care. To pay for all this, these countries also impose higher tax rates on their corporations and wealthy individuals than does the United States. And their health, safety, environmental, and labor regulations are stricter.

Not incidentally, they have stronger unions. So why is so much of Boeing’s Dreamliner coming from these high-wage, high-tax, high-cost places?

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Yeah, big cuts, remember?

Saudi Arabia Breaks Records on Oil Exports and Output for (BBG)

Saudi Arabia boosted oil exports and production last year to the highest monthly averages on record as the global crude market endured oversupply. Exports climbed to 7.65 million barrels a day on average last year, from 7.39 million barrels a day a year earlier, according to Joint Organisations Data Initiative monthly data compiled by Bloomberg. Production rose to 10.46 million barrels a day from 10.19 million, on average, over the same period. Saudi Arabia led the push by global producers to end a crude glut by cutting output as of Jan. 1. JODI data indicate that the kingdom’s exports surged to more than 8 million barrels a day in November and December right before the cuts were due to start. Shipments in November were the highest since May 2003, JODI data show.

“Whenever there was no agreement with others, Saudi Arabia was running after expanding its market share,” said Mohamed Ramady, an independent analyst in London. Saudi Arabia pumped 10.2 million barrels to 10.67 million barrels a day in the first 10 months as producers discussed output cuts without making an agreement. It reined in production in January following the deal between the Organization of Petroleum Exporting Countries and non-OPEC nations to reduce output by 1.8 million barrels a day, according to data compiled by Bloomberg.

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This is just a part of the shadow banking sector, the part that’s held by official banks.

Chinese Banks’ Off-Book Wealth Products Exceed $3.8 Trillion (BBG)

Chinese banks had more than 26 trillion yuan ($3.8 trillion) of wealth-management products held off their balance sheets at the end of December, a 30% increase from a year earlier, according to the central bank. The expansion of this form of shadow banking, with money eventually being diverted to quasi-loans and bonds, outpaced the 10% growth for normal lending during the same period, raising risks for the broader economy and undermining the country’s “deleveraging” efforts, the People’s Bank of China said Friday in its quarterly monetary policy report. The central bank is including off-balance sheet WMPs in its so-called macro prudential assessment framework starting this quarter to better gauge the expansion of credit and potential risks in the financial system.

The move will probably lead to banks reporting higher credit growth and may require them to take steps to maintain sufficient capital reserves to limit risks posed by the investment products. Since late 2014, the China Banking Regulatory Commission has been tightening rules on WMPs, most of which are non-principal guaranteed, meaning they can reside off banks’ balance sheets. The products are a key reason behind the growth of shadow banking in China, and have been used by some financial institutions as a way to extend funds to risky borrowers and evade capital requirements. The investment vehicles are asset-management products by nature and therefore investors should shoulder any risks by themselves, the central bank said in its report. More work is needed to solve problems such as the real amount of capital banks should hold to cover WMPs, risk segmentation, regulatory arbitrage, and the perception of an implicit guarantee of repayment, the PBOC said.

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Tax addiction.

Why Toronto (and Other Cities) Inflate Housing Bubbles to the Bitter End (WS)

“Let’s drop the pretense. The Toronto housing market and the many cities surrounding it are in a housing bubble,” Bank of Montreal (BMO) Chief Economist Doug Porter told clients in a note last week. Many have called it “housing bubble” for a while, but now it’s official, according to BMO. In January, the benchmark price and the average price were both up 22% year-over-year, with the average price of detached homes up 26%, of semi-detached homes 28%, of townhouses 27%, and of condos 15%. Double-digit price increases have become the rule in recent years. But this jump was “the fastest increase since the late 1980s – a period pretty much everyone can agree was a true bubble – and a cool 21 percentage points faster than inflation and/or wage growth,” Porter explained in his note, cited by BNN.

Home prices in Greater Toronto have become “dangerously detached” from economic fundamentals and are soaring simply on the belief that they will continue to soar, he wrote. “The market is far too hot for comfort.” BNN: “The often-cited mantra that Toronto’s real estate market is being driven largely by a lack of supply is wearing thin, he argues. Housing starts in Toronto and Vancouver recently hit an all-time high of 70,000 units per year and overall Canadian starts are above demographic demand at 200,000 units in the past year, according to BMO.” The “massive price gains” are not driven by lack of supply, but “first and foremost by sizzling hot demand, whether from ultra-low interest rates (negative in real terms), robust population growth, or non-resident investor demand.”

“Toronto and any city that is remotely within commuting distance are overheating, and perhaps dangerously so,” he said. But don’t expect the city of Toronto to do anything other than inflate the bubble further. It has to – unless it wants to fall into a fiscal and financial sinkhole. This became apparent last week, when the city councilors approved Toronto’s operating and capital budgets. What a mess!

The tax-supported operating budget is now expected to grow by 4.4% in 2017, to C$10.5 billion. So more taxes must be extracted from the hapless folks in Toronto. Among sundry fees, taxes, and levies, the councilors approved a 3.29% increase in the residential property tax and raised the municipal land transfer tax. Under the new budget, property taxes would provide 38% of the revenues, and the land transfer tax 7%, for a total of 45% of the C$10.5 billion in taxes, or C$4.7 billion. Just how dependent the funding for Toronto’s ballooning operating budget has become on the house price bubble – and the property-related taxes it generates – is made clear in this chart by Warren Lovely, Head of Public Sector Research & Strategy at National Bank Financial, Toronto:

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A most curious difference.

Refugee Claimants From US Strain Canada’s Border Resources (R.)

Canadian police said on Monday they had bolstered their presence at the Quebec border and that border authorities had created a temporary refugee center to process a growing number of asylum seekers crossing from the United States. The Canada Border Services Agency, or CBSA, said at a news conference that it had converted an unused basement into a refugee claimant processing center. Both the border agency and the Royal Canadian Mounted Police are reassigning staff from other locations in the province, as needed, to accommodate rising demand. The CBSA said the number of people making refugee claims at Quebec-U.S. border crossings more than doubled from 2015 to 2016. Last month, 452 people made claims in Quebec compared with 137 in January 2016, the agency said.

The influx is straining police, federal government and community resources from the western prairie province of Manitoba, where people arrive frostbitten from hours walking in freezing conditions, to Quebec, where cabs drop asylum seekers off meters away from the Quebec-U.S.border, the border agency said. A Reuters reporter on Monday saw RCMP officers take in for questioning a family of four – two men, a woman and a baby in a car seat – who had walked across the snowy gully dividing Roxham Road in Champlain, New York, from Chemin Roxham in Hemmingford, Quebec. “Please explain to her that she’s in Canada,” one Canadian officer told another officer.

Police take people crossing the border in for questioning at the border agency’s office in Lacolle, Quebec, which is the province’s biggest and busiest border crossing. Police identify them and ensure they are not a threat or carrying contraband. They are then transferred to the CBSA for fingerprinting and further questions. If people are deemed a threat or flight risk, they are detained. If not, they can file refugee claims and live in Canada while they wait for a decision “It’s touching, and we are not insensitive to that,” Bryan Byrne, the RCMP’s Champlain Detachment commander, told reporters near the border. “Some of these people had a long journey. Some are not dressed for the climate here.”

Asylum seekers cross illegally because Canada’s policy under the Canada-U.S. Safe Third Country Agreement is to turn back refugees if they make claims at border crossings. But as U.S. President Donald Trump cracks down on illegal immigrants, Amnesty International and refugee advocacy groups are pressuring the Canadian government to abandon the agreement, arguing the United States is no safe haven. On Monday, Montreal, Canada’s second most populous city, voted to declare itself a “sanctuary city,” making it the fourth Canadian city to protect illegal immigrants and to provide services to them.

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European governments criticizing Trump’s refugee policies have no credibility. But the people still can.

‘Casa Nostra, Casa Vostra’ (K.)

Thousands of people marched through the streets of downtown Barcelona on Saturday shouting the slogan “Casa nostra, casa vostra” (Our home, your home). Barcelona had prepared its plan for welcoming Syrian and Iraqi refugees back in September 2015. It put its municipal services on standby and organized an army of volunteers, whose generosity inspired residents in Madrid and Valencia to open their own cities to refugees. In the meantime, much of the rest of Europe was busy building walls, fencing itself in, warding inflows off, hardening its laws and ignoring not just the plight of the refugees themselves, but also the difficulties faced by Greece and Italy, Lesvos and Lampedusa. This amazing show of solidarity – not rhetorical but actual and tangible – from the Catalans convinced the Spanish government to raise its commitment for taking in refugees trapped in Greece and Italy from the 2,749 it had initially agreed to up to 17,680.

But numbers often suffer the same fate as words, dying out without leaving a single political or moral trace. Up until February 2016, just 18 refugees had been relocated to Spain, a number that makes sense when you consider that of the 160,000 relocations agreed on by the countries of the European Union, just 600 had actually taken place by that time. This failure to live up to commitments prompted Barcelona Mayor Ada Colau at this precise time last year to lash out against the Spanish government and the strategy centers in Brussels, which seem happy to confine their action to the deal made between the European Union and Turkey, even though this has been condemned by every respected humanitarian organization.

Colau’s protests fell on deaf ears, so on August 1, 2016, authorities in Barcelona placed a “counter of shame” on the city’s most popular beach, recording daily how many people are lost at sea in their effort to escape war or extreme poverty. We don’t know whether the counter triggered any feelings of guilt, but it certainly failed to awaken any sense of responsibility. When it was inaugurated, the number of victims stood at 3,034. By the end of the year, and according to official data from Europe, ever the passive observer, this surpassed 5,000. And as far as relocations to Spain go, these barely came to more than 1,000 last year. This, in general terms, is the background of that very encouraging rally we saw in Barcelona on Saturday. Whether the people who took to the streets were motived by their feelings or by their ideological beliefs is a question that only means something to those who think ideology is a fixation and feelings a sign of immaturity.

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Feb 182017
 
 February 18, 2017  Posted by at 4:01 pm Finance Tagged with: , , , , , , , ,  8 Responses »
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Jackson Pollock Shooting Star 1947

 

It’s amusing to see how views start to converge, at the same time that it’s tiresome to see how long that takes. It’s a good thing that more and more people ‘discover’ how and why austerity, especially in Europe, is such a losing and damaging strategy. It’s just a shame that this happens only after the horses have left the barn and the cows have come home, been fed, bathed, put on lipstick and gone back out to pasture again. Along the same lines, it’s beneficial that the recognition that for a long time economic growth has not been what ‘we’ think it should be, is spreading.

But we lost so much time that we could have used to adapt to the consequences. The stronger parties in all this, the governments, companies, richer individuals, may be wrong, but they have no reason to correct their wrongs: the system appears to work fine for them. They actually make good money because all corrections, all policies and all efforts to hide the negative effects of the gross ‘mistakes’, honest or not, made in economic and political circles are geared towards making them ‘whole’.

The faith in the absurd notion of trickle down ‘economics’ allows them to siphon off future resources from the lower rungs of society, towards themselves in the present. It will take a while for the lower rungs to figure this out. The St. Louis Fed laid it out so clearly this week that I wrote to Nicole saying ‘We’ve been vindicated by the Fed itself.’ That is, the Automatic Earth has said for many years that the peak of our wealth was sometime in the 1970’s or even late 1960’s.

Intriguing questions: was America at its richest right before or right after Nixon took the country off the gold standard in 1971? And whichever of the two one would argue for, why did he do it smack in the middle of peak wealth? Did he cause the downfall or was it already happening?

As per the St. Louis Fed report: “Real GDP growth fell and leveled off in the mid-1970s, then started falling again in the mid-2000s”. What happened during that 30-year period was that we started printing and borrowing with abandon, making both those activities much easier while we did, until the debt load overwhelmed even our widest fantasies ten years ago. And we’ve never recovered from that, if that was not obvious yet. Nor will we.

As the first graph below shows, there was still growth post-Gold Standard but the rate of growth fell and then “leveled off”, only to fall more after, to a point where Real GDP per Capita is presently 0.5% or so -little more than a margin error-. How one would want to combine that with talk of an economic recovery is hard to see. In fact, such talk should be under serious scrutiny by now.

Still, the numbers remain positive, you say. Yes, that’s true. But there’s a caveat, roughly similar to the one regarding energy and the return on it. Where we used to pump oil and get 100 times the energy in return that we needed to pump it, that ratio (EROEI) is now down to 10:1 or less. Alternative energy sources do little better, if at all. Whereas to run a complex society, let alone one like ours that must become more complex as we go along – or die-, we would need somewhere along the lines of a 20:1 to even 30:1 EROEI rate.

Another place where a similar caveat can be found is the amount of dollars it takes to produce a dollar of real growth. That amount has been increasing, and fast, to the point where it takes over $10 to create $1 or growth in the US and Europe, and China too moves towards such numbers.

Both our energy systems and our financial systems are examples of what happens when what we should perhaps call the rate of ‘productivity’ (rather than growth) falls below a critical mass: it becomes impossible to maintain, even keep alive, a society as complex as ours, which requires an increase in complexity to survive. In other words: a Real GDP per Capita growth rate of 0.5% is not enough to stand still, just like oil EROEI of 5:1 is not; there is growth, but not -nearly- enough to keep growing.

One does not get the impression that the St. Louis Fed economists who wrote the report are aware of this -though the title is suggestive enough-, they seem to lean towards the eternal desire for a recovery, but they did write it nonetheless. Do note the sharp drop that coincides with the 1973 oil crisis. We never ‘recovered’.

Why Does Economic Growth Keep Slowing Down?

The U.S. economy expanded by 1.6% in 2016, as measured by real GDP. Real GDP has averaged 2.1% growth per year since the end of the last recession, which is significantly smaller than the average over the postwar period (about 3% per year). These lower growth rates could in part be explained by a slowdown in productivity growth and a decline in factor utilization. However, demographic factors and attitudes toward the labor market may also have played significant roles.

The figure below shows a measure of long-run trends in economic activity. It displays the average annual growth rate over the preceding 40 quarters (10 years) for the period 1955 through 2016. (Hence, the first observation in the graph is the first quarter of 1965, and the last is the fourth quarter of 2016.)

 

Long-run growth rates were high until the mid-1970s. Then, they quickly declined and leveled off at around 3% per year for the following three decades. In the second half of the 2000s, around the last recession, growth contracted again sharply and has been declining ever since. The 10-year average growth rate as of the fourth quarter of 2016 was only 1.3% per year. Total output grows because the economy is more productive and capital is accumulated, but also because the population increases over time.

The same dynamics (or lack thereof) are reflected in a recent piece by Chris Hamilton, in which he argues that global growth -as expressed by growth in energy consumption- has largely been non-existent for years, other than in China. Moreover, China has added a stunning amount of debt to achieve that growth, and since its population growth is about to stagnate -and then turn negative-, this was pretty much all she wrote.

Global Growth is All About China…Nothing but China

Since 2000, China has been the nearly singular force for growth in global energy consumption and economic activity. However, this article will make it plain and simple why China is exiting the spotlight and unfortunately, for global economic growth, there is no one else to take center stage. To put things into perspective I’ll show this using four very inter-related variables…(1) total energy consumption, (2) core population (25-54yr/olds) size and growth, (3) GDP (flawed as it is), and (4) debt. First off, the chart below shows total global energy consumption (all fossil fuels, nuclear, hydro, renewable, etc…data from US EIA) from 1980 through 2014, and the change per period. The growth in global energy consumption from ’00-’08 was astounding and an absolute aberration, nearly 50% greater than any previous period.

 

[..] here is the money chart, pointing out that the growth in energy consumption (by period) has shifted away from “the world” squarely to China. From 2008 through 2014 (most recent data available), 2/3rds or 66% of global energy consumption growth was China. Also very noteworthy is that India nor Africa have taken any more relevance, from a growth perspective, over time. The fate of global economic growth rests solely upon China’s shoulders.

 

China’s core population is essentially peaking this year and beginning a decades long decline (not unlike the world. The chart below shows total Chinese core population peaking, energy consumption stalling, and debt skyrocketing.

 

The chart below shows China’s core population (annual change) again against total debt, GDP, and energy consumption. The reliance on debt creation as the core population growth decelerated is really hard not to see. This shrinking base of consumption will destroy the meme that a surging Chinese middle class will drive domestic and global consumption…but I expect this misconception will continue to be peddled for some time.

 

• China of ’85-’00 grew on population and demographic trends.

• China of ’00-’15 grew despite decelerating population growth but on accelerating debt growth…this growth in China kept global growth alive.

• China of ’15-’30 will not grow, will not drive the global economy and absent Chinese growth…the world economy is set to begin an indefinite period of secular contraction. China ceased accumulating US Treasury debt as of July of 2011 and continues to sell while busy accumulating gold since 2011.

Unfortunately, neither quasi-democracies nor quasi-communist states have any politically acceptable solutions to this problem of structural decelerating growth and eventual outright contraction…but that won’t keep them from meddling to stall the inevitable global restructuring.

I can only hope that these data will convince more people that all the times I’ve said that growth is over, it was true. And perhaps even make them think about what follows from there: that when growth is gone, so is all centralization, including globalization, other than by force. This will change the world a lot, and unfortunately not always in peaceful ways.

What seems to have started (but was in the air long before) with Brexit and Trump, is merely a first indication of what’s to come. People will not accept that important decisions that affect them directly are taken by anonymous ‘actors’ somewhere far away, unless this promises and delivers them very concrete and tangible benefits. In fact, many have lost all faith in the whole idea, and that’s why we have Trump and Brexit in the first place.

This turn inward -protectionism if you will-, in the UK, US and many other places, is an inevitable development that follows from declining growth and soaring debt. Entire societies will have to be re-built from the ground up, and people will want to do that themselves, not have it dictated by strangers. At the same time, of course, those who profit most from centralization want that to continue. They can’t, but they will try, and hard.

Equally important, people who wish to try and save existing ‘central institutions’ for less selfish and more peaceful reasons should think twice, because they will fail too. It’s centralization itself that is failing, and the demise of the structures that represent it is but a consequence of that. We will see local structures being built, and only after that possibly -and hopefully- connect to each other. This is a big change, and therefore a big challenge.

Feb 162017
 
 February 16, 2017  Posted by at 10:31 am Finance Tagged with: , , , , , , , , ,  2 Responses »
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Pablo Picasso Femme 1930

 

 

Great read from Ed. “..while Brazil and Greece faced the same type of downturn in dollar terms — about 45% in GDP per person — Brazilian living standards only deteriorated about 2%, compared to 26% in Greece.” Good part on Dutch elections too.

Europe’s Delusional Economic Policies (Edward Harrison)

This chart encapsulates the narrative in Matt’s post – namely that Greece has underperformed other emerging market crisis countries on post-crisis growth. Here’s how Matt put it: Greece had a very different post-crisis experience: it never recovered. By contrast, all the other countries were well past their pre-crisis peak after this much time had elapsed. On average, Argentina, Brazil, Indonesia, Thailand, and Turkey have outperformed Greece by more than 40 percentage points after nine years. The reasonable question is why. Matt answers that in the paragraph before, saying: “But unlike those countries, Greece lacked the ability to use the exchange rate as a shock absorber. So while Brazil and Greece faced the same type of downturn in dollar terms — about 45% in GDP per person — Brazilian living standards only deteriorated about 2%, compared to 26% in Greece. The net effect is that Greece had a relatively typical crisis in dollars but an unprecedently painful one in the terms that matter most”.

My view is that what we are seeing, therefore, is the difference monetary sovereignty can make in post-crisis recovery because the currency does a lot of the heavy lifting. And this is true for developed economies as well. For example, we saw the UK and Sweden recover after a housing bubble and EMU turmoil in the early 1990s in part because of currency depreciations. But of course, Greece doesn’t have its own currency so the currency can’t depreciate. Greece must use the internal devaluation route, which makes its labor, goods and services cheaper through a deflationary path – and that is very destructive to demand, to growth, and to credit. This, in my view, accounts for much of Greece’s underperformance relative to emerging market crisis countries.

In response to my tweet on Greece, Danish economist Lars Christensen pointed out to me that he had compared Greece to Turkey in 2015 and Greece came out poorly too. And his post noted that: “14 years later Turkey is still in many ways politically dysfunctional – in fact it has gotten worse in recent years – there has been rumours of plans of military coups, there has been major corruption scandals even involving the Prime Minister (now president Erdogan) and the governing AKParty and lately the civil war in Syria has created a massive inflow of refugees and increased tensions with Turkish Kurdish population.” Translation: it’s not about reforms, people. It’s about growth. And the euro – and the policies tied to membership – is anti-growth, particularly for a country like Greece that is forced to hit an unrealistic 3.5% primary surplus indefinitely. And there will be no debt forgiveness either, as the IMF has said is necessary.

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The WaPo takes a break from its political campaign and shows it still has at least one person left who can write an actual -and execellent- report.

Austerity Was A Bigger Disaster Than We Thought (WaPo)

We now take a break from your regularly scheduled scandals to bring you some not-so-breaking news: austerity was as big a disaster as its biggest critics said it was. That, at least, is what economists Christopher House and Linda Tesar of the University of Michigan and Christïan Proebsting of the École Polytechnique Fédérale de Lausanne found when they looked at Europe’s budget-cutting experience the last eight years. It turns out that cutting spending right after the worst crisis in 80 years only led to a lower GDP and, in the most extreme cases, higher debt-to-GDP ratios. That’s right: trying to reduce debt levels sometimes increased debt burdens. Other than that, how was the policy, Mrs. Lincoln? But let’s back up a minute. This isn’t something that’s always true. In fact, it almost never used to be.

Cutting spending, you see, shouldn’t be a problem as long as you can cut interest rates too. That’s because lower borrowing costs can stimulate the economy just as much as lower government spending slows it down. What happens, though, if interest rates are already zero, or, even worse, you’re part of a currency union that means you can’t devalue your way out of trouble? Well, nothing good. House, Tesar and Proebsting calculated how much each European economy grew — or, more to the point, shrank — between the time they started cutting their budgets in 2010 and the end of 2014, and then compared it with what actually realistic models say would have happened if they hadn’t done austerity or adopted the euro.

According to this, the hardest-hit countries of Greece, Ireland, Italy, Portugal and Spain would have contracted by only 1% instead of the 18% they did if they hadn’t slashed spending; by only 7% if they’d kept their drachmas, pounds, liras, escudos, pesetas and the ability to devalue that went along with them if they hadn’t become a part of the common currency and outsourced those decisions to Frankfurt; and only would have seen their debt-to-GDP ratios rise by eight percentage points instead of the 16 they did if they hadn’t tried to get their budgets closer to being balanced. In short, austerity hurt what it was supposed to help, and helped hurt the economy even more than a once-in-three-generations crisis already had.

[..] the euro really has been a doomsday device for turning recessions into depressions. It’s not just that it caused the crisis by keeping money too loose for Greece and the rest of them during the boom and too tight for them during the bust. It’s also that it forced a lot of this austerity on them. Think about it like this. Countries that can print their own money never have to default on their debts — they can always inflate them away instead — but ones that can’t, because, say, they share a common currency, might have to. Just the possibility of that, though, can be enough to make it a reality. If markets are worried that you might not be able to pay back your debts, they’ll make you pay a higher interest rate on them — which might make it so that you really can’t. In other words, the euro can cause a self-fulfilling prophecy where countries can’t afford to spend any more even though spending any less will only make everything worse.

That’s actually a pretty good description of what happened until the ECB belatedly announced that it would do “whatever it takes” to put an end to this in 2012. Which was enough to get investors to stop pushing austerity, but, alas, not politicians. It’s a good reminder that you should never doubt that a small group of committed ideologues can destroy the economy. Indeed, it’s the only thing that ever has. That’s true whether you’re talking about the European politicians who pushed for the creation of the euro itself – they ignored the economists who warned them that it might turn out just as badly as it has – or the ones who pushed for austerity a few decades later. After all, it shouldn’t have been a surprise that trying to balance your budget when interest rates were zero would end badly.

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What’s lacking in Europe is self-reflection. Maybe that’s because it has no flexibility in its policies. But that still doesn’t make Malloch wrong.

‘The European Project Has Failed’ – Trump EU Envoy Pick Malloch (Exp.)

Donald Trump’s likely EU ambassador has launched a blistering attack on the “undemocratic” bloc and its “elitist” leaders.In comments that will terrify Brussels, Ted Malloch said the EU had become “bloated” by bureaucracy and “anti-Americanism”. And he called for member states to hold their own Brexit-style referendums – which could spark the break-up of the union. It comes after Mr Trump hailed Brexit as a “blessing to the world” and said the UK would be far stronger outside the bloc. Mr Malloch, who is the President’s pick to become Washington’s envoy to Brussels, made the comments in The Parliament magazine.

He said: “Put the EU to a referendum vote in every member country. “It is time for greater scepticism and realism about the European Union and its not so hidden agenda and ever closer union.” He added: “The failure of the European integration project should by now be self-apparent to everyone. “This is simply not something Churchill or Roosevelt would countenance. “The European Union has become undemocratic and bloated by both bureaucracy and rampant anti-Americanism.” He said: “We want democracy and accountability, while the EU is intrinsically undemocratic and unaccountable. “So should the US continue to promote such a damaged European model, which is alien to our own traditions? Is it not working against US interests to do so?”

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It may be an option considered fleetingly, but that’s it.

Greece ‘May Ditch Euro In Favour Of The Dollar’ – Malloch (Ind.)

The man tipped to be Donald Trump’s ambassador to the European Union has said that Greece is contemplating leaving the euro in favour of the US dollar. According to the transcript of a translated interview with Greek local online news site ekathimerini.com, Professor Ted Malloch claimed Greek economists are looking into taking on the US banknotes if the country turns its back on the European single currency in a move that he said would “freak out” Germany. He said: “I know some Greek economists who have even gone to leading think tanks in the US to discuss this topic and the question of dollarisation. “Such a topic of course freaks out the Germans because they really don’t want to hear such ideas.”

Mr Malloch added that a “Grexit” would be the best options for Greek people as the current situation is “unsustainable”. Mr Malloch, a strident Brexiteer, has indicated he is no fan of Brussels on several occasions. Earlier this month, in an interview with Bloomberg, Mr Malloch said that he didn’t want to speak on behalf of the Greek people but “I think there is probably – from an economist’s perspective – a very strong reason for Greece moving away from the euro.” Last month, Mr Malloch said the euro “could collapse” in the next 18 months. “The one thing I would do in 2017 is short the euro,” he said. “I think it is a currency that is not only in demise but has a real problem and could in fact collapse in the coming year, year and a half,” he added.

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‘He will die in jail’:

US Intelligence Community Ready To ‘Go Nuclear’ On Trump (RawS)

U.S. national security officials are reportedly ready to “go nuclear” after President Donald Trump’s latest attack on the intelligence community. In a series of tweets on Tuesday and Wednesday, Trump insisted that the “real scandal” was not that former National Security Adviser Michael Flynn lied about his contact with Russia. Instead, the president blasted what he said were “un-American” leaks that led to Flynn’s ousting.On Wednesday, former NSA intelligence analyst John Schindler provided some insight into the reaction of national security officials. “Now we go nuclear,” he wrote on Twitter. “[Intelligence community] war going to new levels. Just got an [email from] senior [intelligence community] friend, it began: ‘He will die in jail.’” “US intelligence is not the problem here,” Schindler added in another tweet. “The President’s collusion with Russian intelligence is. Many details, but the essence is simple.”

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No matter where you stand, this must be of concern. A state within the state is not what the founders had in mind.

Spies Keep Intelligence From Donald Trump on Leak Concerns (WSJ)

U.S. intelligence officials have withheld sensitive intelligence from President Donald Trump because they are concerned it could be leaked or compromised, according to current and former officials familiar with the matter. The officials’ decision to keep information from Mr. Trump underscores the deep mistrust that has developed between the intelligence community and the president over his team’s contacts with the Russian government, as well as the enmity he has shown toward U.S. spy agencies. On Wednesday, Mr. Trump accused the agencies of leaking information to undermine him. In some of these cases of withheld information, officials have decided not to show Mr. Trump the sources and methods that the intelligence agencies use to collect information, the current and former officials said.

Those sources and methods could include, for instance, the means that an agency uses to spy on a foreign government. A White House official said: “There is nothing that leads us to believe that this is an accurate account of what is actually happening.” A spokesman for the Office of Director of National Intelligence said: “Any suggestion that the U.S. intelligence community is withholding information and not providing the best possible intelligence to the president and his national security team is not true.” Intelligence officials have in the past not told a president or members of Congress about the ins and outs of how they ply their trade. At times, they have decided that secrecy is essential for protecting a source, and that all a president needs to know is what that source revealed and what the intelligence community thinks is important about it.

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Fewer reserve requirements means less Treasury appetite.

How Trump Could Trigger A Massive Wave Of Selling In The Treasury Market (CNBC)

Since the financial crisis, banks have been stockpiling Treasurys because they qualify as “safe” assets that count toward required regulatory capital levels. U.S. commercial banks now hold $2.4 trillion in government debt and agency securities, more than double the total from nine years ago, according to the St. Louis Fed. But House Republicans – with the support of the administration – are pushing to roll back parts of the Dodd-Frank regulations that were put in place after the 2008 financial crisis. That means banks could get a reprieve from those capital level requirements, and they could reduce their Treasury holdings as a result. In a report, RBC managing director and banking analyst Gerard Cassidy calculates the 24 largest bank holding companies already hold $100 billion in excess capital, with Citigroup and JPMorgan Chase having the highest dollar amount.

As regulation eases, the capital that was once used as a large cushion against a future recession could be funneled into stock buybacks. Those Treasury-heavy portfolios “will certainly be the source of cash to use to buy back stock,” Cassidy wrote in an e-mail to CNBC. Banks have already been slowly selling off the debt, which causes yields to rise. Between the middle of 2013 and 2014, Bank of America’s holdings of U.S. Treasurys grew from $2.9 billion to $58 billion. At the end of 2016, that figure had dropped to $48 billion, according to the bank’s earnings. Wells Fargo’s $26 billion Treasury balance in September is down nearly 30% from a year ago. Not all banks break out the specific balance, but the totals as of the third quarter of 2016 range from $23 billion (Morgan Stanley) to $111 billion (Citigroup).

But banks are just one source of possible selling en masse. China is a creditor of a different magnitude: The country held $1.05 trillion in Treasurys as of November, down by $215 billion from a year earlier. It dumped $41 billion in U.S. debt in October alone, a move that relinquished its ranking as the largest foreign creditor to the United States. One reason for the country selling U.S. debt previously was its need to raise cash to prop up its currency, the yuan, after years of seeking to devalue it to make its exports more attractive. Its intervention in the currency markets led President Donald Trump, while campaigning, to label China a currency manipulator and threaten a 45% tariff on products made in China but sold in the United States.

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Interesting phenomenon, but the writers have a hard time explaining.

Houses as ATMs No Longer (NYFed)

Housing equity is the primary form of collateral that households use for borrowing. This makes it a potentially important source of consumption funding, especially for younger households. In a previous post we showed that owner’s equity in residential real estate has finally, thanks to increasing home prices, rebounded to and essentially re-attained its 2005 peak level. Yet in spite of a gain of more than $7 trillion in housing equity since 2012, so far homeowners haven’t been tapping this equity at anything like the pace we witnessed during the housing boom that ended in 2006. In this post, we analyze the changes in equity withdrawal.

The blue line in the chart below shows total owner’s equity in real estate from the Flow of Funds—this is the same series as in our previous post. It shows a dramatic rebound in aggregate home equity over the last several years. The red line shows the combination of two ways that households can withdraw equity—assuming they have some—without selling the house: they can originate a junior lien against the property or they can refinance using a cash-out refinancing of an existing first-lien mortgage. The series in the chart, which we have shown in an earlier post on household debt, captures both of these, while excluding the equity withdrawal associated with selling a home.

The first observation that’s striking about the chart is the dramatic change in borrower behavior with respect to home equity. During the boom between 2000 and 2006, household equity and its extraction were both rising rapidly. From 2003 to 2007, homeowners were extracting more than $350 billion per year, resources that were available for use in a variety of purposes from home improvement to consumption. The second major point of the chart is the effect of the housing and financial crises. Beginning in 2008, equity extraction began to decline quickly and was hovering around zero by 2010, where it remained through 2012. The virtual elimination of equity withdrawal was a big contributor to the household deleveraging that ultimately shaved more than $1.5 trillion from household debt. It also likely contributed to the sharp decline of consumption during the Great Recession and its subsequent sluggish recovery.

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Looks dangerous. Fighting bubbles with bigger bubbles is always a bad idea.

Fed Frets about $2 Trillion Commercial Real Estate Bubble (WS)

Boom and bust: that’s the material CRE is made of. We had seven years of boom, and now the Fed is worried about the bust. Yellen didn’t mention CRE in her prepared testimony on Tuesday before the Senate Committee on Banking, Housing, and Urban Affairs. But it featured in the twice-yearly report that the Fed delivered to Congress in support of Yellen’s testimony. And it wasn’t the first time that it was mentioned in these twice-yearly reports – but the fifth time in a row. In its February report two years ago, the Fed first pointed at “valuation pressures” in CRE. And warnings about CRE have appeared since then in every report, twice a year, with growing sharpness, including in the report issued in June 2016, which warned that “valuations in the CRE sector appear increasingly vulnerable to negative shocks….”

Other Fed governors have also warned about the CRE boom and a potential bust, particularly Boston Fed governor Eric Rosengren, who was gazing with amazement at a stunning crane forest in his own city. What concerns the Fed about CRE aren’t the valuations per se, but the fact that the sector is highly leveraged, and that when prices collapse, which they tend to do, the collateral value gets crushed, and banks are left to twist in the wind. That’s what happened during the Financial Crisis. Just how badly can prices get crushed? The national averages hide the drama that happens on the ground in particular cities. But even these national averages still show enough drama, as per data from the Green Street Commercial Property Price Index. The index shows that overall prices across the major markets in the nation plunged nearly 40% during the Great Recession and have since more than doubled:

So that’s why the Fed is fretting about it. This time around, the Fed report said: “Commercial real estate (CRE) valuations, which have been an area of growing concern over the past year, rose further, with property prices continuing to climb and capitalization rates decreasing to historically low levels.” Then the report discusses the debt that nurtured this boom to these heights. This debt has ballooned to $1.98 trillion, and is now 14% higher than during the crazy peak of the prior bubble that collapsed with such spectacular results:

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All of a sudden Hamon has 38%?! Oh wait, the numbers don’t add up at all. More countries should discuss their colonial past- and present.

France’s Colonial Past Muscles Into Presidential Race (AFP)

French presidential frontrunner Emmanuel Macron drew a storm of criticism Wednesday after calling France’s colonisation of Algeria a “crime against humanity”. In a TV interview in Algiers this week, the centrist said French actions in Algeria, which achieved independence in 1962 after eight years of war, were “genuinely barbaric, and constitute a part of our past that we have to confront by apologising”. His visit also included a stop at the Martyrs’ Memorial in Algiers, saying he wanted to promote a “reconciliation of memories” between the two countries. His rivals on the right for the French presidency – due to be decided in a first round election in April and a run-off between the two top candidates in May – pounced on the comments.

Les Republicans candidate Francois Fillon on Wednesday denounced what he called “this hatred of our history, this perpetual repentance that is unworthy of a candidate for the presidency of the republic”. Wallerand de Saint-Just, an official in Marine Le Pen’s far-right National Front party, accused Macron of “shooting France in the back”, while Gerald Darmanin, an ally of ex-president Nicolas Sarkozy, tweeted “Shame on Emmanuel Macron for insulting France while abroad”. It was the not the first time Macron, who currently leads the polls for the two rounds of voting in April and May, has touched on the livewire issue. “Yes, there was torture in Algeria, but there was also the emergence of a state, or wealth, of a middle class,” he told the magazine Le Point in October.

“This is the reality of colonialism. There are elements of civilisation and elements of barbarism.” And Fillon has been tripped up by his own comments on French colonialism. In August, he drew claims of trying to sanitise history, claiming that “France is not guilty of having wanted to share its culture with the peoples of Africa”. Macron remains the frontrunner in the presidential race, with 39% of those surveyed in the latest survey by pollsters Ipsos giving him a favourable opinion. In the poll released by the magazine Le Point on Wednesday, Macron was followed by Socialist candidate Benoit Hamon, with 38%, while Fillon tumbled 18 percentage points to 25%, just behind Le Pen, on 26%.

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One step away from a formal investigation. Does he really want it that bad?

French Prosecutor Keeps Fillon Fake Work Probe Open (R.)

France’s financial prosecutor announced on Thursday that an investigation into fake work allegations surrounding presidential candidate Francois Fillon would remain open, in a new blow to the ex-prime minister’s campaign. A three week-old scandal over hundreds of thousands of euros in taxpayers’ money which his wife was paid for work she may not have done has cost conservative Fillon his status as favorite to win the French presidency in May. “It is my duty to affirm that the numerous elements collected (by investigators) do not, at this stage, permit the case to be dropped,” prosecutor Eliane Houlette said in a statement, after receiving an initial police report on the subject.

The prosecutor did not announce any further steps, but among the choices before it are dropping the case, taking it further by appointing an investigating magistrate, or sending it straight to trial. Fillon, 62, has said he would step down should he be put under formal investigation, but his camp has also challenged the legitimacy of the probe. The first round of the election is less than 10 weeks away.

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Jan 262017
 
 January 26, 2017  Posted by at 10:32 am Finance Tagged with: , , , , , , , , , ,  14 Responses »
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Arthur Siegel Zoot suit, business district, Detroit, Michigan 1942


Trump Loves Debt, But It Won’t Love Him Back (BBG)
US Tax Reforms Could ‘Transform’ Global Oil Market (R.)
Trump Prepares Orders Aiming at Global Funding and Treaties, UN (NYT)
Trump Starts A ‘Sanctuary City’ War With Liberal America (BBC)
Kyle Bass Calls Trump ‘Gasoline’ on Smoldering Fire in China (BBG)
China Keeps 3% Budget Deficit Goal For 2017 As Debt Risks Grow (R.)
China Is Becoming ‘Increasingly Risky’ Because Of Its Economy (CNBC)
Dutch Respond To Trump’s ‘Gag Rule’ With International Safe Abortion Fund (G.)
Why the Corrupt, Worker-Hating New Democrats Must Be Purged (Bill Black)
Pippa Malmgren: The Social Contract In The West Is Broken (SLD)
Seymour Hersh Blasts Media For Promoting Russian Hacking Story (IC)
Austerity Economics Has Just Been Smashed. By The IMF. (GDB)
The Super Rich Are Preparing For The End Of The World (CNBC)
Rome Mayor Raggi Says She Received Summons From Prosecutors (BBG)
Deal On Greek Bailout’s Second Review Possible At February Eurogroup (R.)
“INAUGURATION DAY” (Bad Lip Reading)

 

 

Catch 20-something.

Trump Loves Debt, But It Won’t Love Him Back (BBG)

President Donald Trump, the self-proclaimed king of debt, may end up with a revolt on his hands.He wants to spend billions of dollars to rebuild American highways and bridges to double economic growth to about 4% a year. He wants to preserve medical benefits for the poor and elderly. And he’s selected someone to oversee the national budget who’s fundamentally opposed to huge piles of debt and pledges to reduce the nation’s deficit.This recipe doesn’t add up, either in theory or practice. Even if Trump finances his promised infrastructure plans entirely by cutting other government services, the nation’s debt load is forecast to surge by trillions of dollars over the next decade.

Trump faces two big problems when grappling with the U.S. debt load: an aging population that’s becoming sicker and inauspicious bond math. If Trump succeeds in fostering substantially higher growth rates, as he’s promised, then interest rates will most likely rise much more than forecast. That’ll make it materially more expensive for the nation to service its debt.Even without much more growth, the U.S. deficit will likely increase as interest rates rise. That’s according to the Congressional Budget Office, a nonpartisan group that analyzes the U.S. economy, which just released its forecast for the nation’s deficit and debt load over the next decade.

Its baseline scenario calls for gradually rising benchmark borrowing costs, with 10-year Treasury yields leveling out at about 3.6% by 2022 from about 2.5% today. Even with that relatively modest projection, CBO analysts wrote that “the government’s interest payments on that debt rise sharply over the next 10 years — nearly tripling in nominal terms and almost doubling relative to GDP.”Interest expense will rise to $768 billion in 2027 from $270 billion in 2017 under the CBO’s base-case scenario.But let’s say Trump succeeds in his attempt to foster more economic growth. That’ll mean that inflation will rise, prompting investors to demand higher U.S. Treasury yields to offset steadily rising consumer prices. Jeffrey Gundlach, the bond guru who runs DoubleLine Capital, said after the election that U.S. 10-year government bond yields could reach 6% in five years. In that case, the interest expense would balloon much more than expected, substantially eating into the nation’s budget.

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“We expect WTI could move to a $10 per barrel premium to Brent from a $3 discount – a $13 (+25%) relative move immediately.”

US Tax Reforms Could ‘Transform’ Global Oil Market (R.)

The push by Republicans in the U.S. House of Representatives for a shift to border-adjusted corporate tax (BTA) could push U.S. crude prices higher than the global benchmark Brent, triggering large-scale domestic production, according to analysts at Goldman Sachs on Tuesday. The measure, known as border adjustment, intends to boost U.S. manufacturing by taxing imports while exempting U.S. business export revenues from corporate taxation. Goldman said it anticipates a 25% jump in the prices of U.S. crude futures, also known as West Texas Intermediate (WTI), and refined products in comparison to the global prices if the switch is implemented.

The investment bank, however, said that uncertainty on whether such a policy will go ahead is high due to concerns about WTO-non compliance and transition issues and oil futures currently only imply a 9% probability for such a shift. “If implemented, the impacts on the oil market would be significant,” Goldman said. “We expect WTI could move to a $10 per barrel premium to Brent from a $3 discount – a $13 (+25%) relative move immediately.” Brent crude futures were trading on Tuesday at a $2.40 per barrel premium to WTI. The appreciation in prices could be an incentive for producers to sharply increase activity, the bank said warning, that the ramp up in U.S. production in a market only starting to rebalance would create a renewed large oil surplus in 2018, which could lead to an immediate sharp decline in global oil prices.

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The UN is dysfunctional, but this risks cutting the few parts that do actually work.

Trump Prepares Orders Aiming at Global Funding and Treaties, UN (NYT)

The Trump administration is preparing executive orders that would clear the way to drastically reduce the United States’ role in the United Nations and other international organizations, as well as begin a process to review and potentially abrogate certain forms of multilateral treaties. The first of the two draft orders, titled “Auditing and Reducing U.S. Funding of International Organizations” and obtained by The New York Times, calls for terminating funding for any United Nations agency or other international body that meets any one of several criteria. Those criteria include organizations that give full membership to the Palestinian Authority or Palestine Liberation Organization, or support programs that fund abortion or any activity that circumvents sanctions against Iran or North Korea.

The draft order also calls for terminating funding for any organization that “is controlled or substantially influenced by any state that sponsors terrorism” or is blamed for the persecution of marginalized groups or any other systematic violation of human rights. The order calls for then enacting “at least a 40% overall decrease” in remaining United States funding toward international organizations. The order establishes a committee to recommend where those funding cuts should be made. It asks the committee to look specifically at United States funding for peacekeeping operations; the International Criminal Court; development aid to countries that “oppose important United States policies”; and the United Nations Population Fund, which oversees maternal and reproductive health programs.

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Interesting power fight. But there are laws.

Trump Starts A ‘Sanctuary City’ War With Liberal America (BBC)

Mr Trump’s border wall announcement will make most of the headlines today, given that it was a central focus of his presidential campaign and has increased diplomatic tension with the Mexican government. His plan to target US “sanctuary cities”, however, likely sets the stage for a much tougher, uglier domestic political fight. More than 400 jurisdictions across the country, including New York, Los Angeles, Boston and Seattle – major cities in left-leaning states that did not vote for Mr Trump – have enacted policies protecting undocumented immigrants within their boundaries. Officials in these designated areas, including local law enforcement, are not allowed to enquire as to an individual’s immigration status in the course of their duties.

Candidate Trump pledged to end this practice, and on Wednesday he put some teeth into his promise – authorising the federal government to withhold funds from cities that do not co-operate with immigration officials or comply with federal law. His executive order frames the issue as one of national security. “Sanctuary jurisdictions across the United States wilfully violate Federal law in an attempt to shield aliens from removal from the United States,” it reads. “These jurisdictions have caused immeasurable harm to the American people and to the very fabric of our republic.”

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Speeding up decline. Or exposing it, rather.

Kyle Bass Calls Trump ‘Gasoline’ on Smoldering Fire in China (BBG)

Hedge fund manager Kyle Bass likened President Donald Trump’s trade and tax policies to gasoline — hastening an economic restructuring in China while stimulating capital investment and growth in the U.S. China has “recklessly built a system that’s going to need to restructure and that just so happens to be metastasizing right when Trump becomes elected,” Bass told Bloomberg TV. “This is a fire that’s been smoldering and it’s now starting to burn, and Trump is just more gasoline.” Imposing tariffs on Chinese imports could have “profound consequences” for the nation’s economy, where credit over the last 18 months has grown by $6.5 trillion while deposits expanded just $3 trillion, said Bass, founder of Hayman Capital Management.

Early last year, Bass called for a 30% devaluation in the yuan against the dollar, and he’s since opened two Asia-focused funds to wager on the imbalances in the region, which he said could extend to Hong Kong and Taiwan. “The idea that China is now the driving economic power in the world, I think, is illusory or somewhat of a fallacy,” he said. “It’s safe to say that the Asian theater is where we’ve been focused.” In the U.S., Bass said, border tax adjustments will help finance a lower corporate tax rate that Trump has proposed, which in combination with the repatriation of capital offshore will be “extremely stimulative.” He said Trump’s accelerated policies would lead to real capital investment, competitiveness and an improvement in productivity.

The impact will be “positive for the United States and slightly negative for the rest of the world,” he said. “But it’s not the globalist nightmare, in my opinion.” Inflation, set to increase in the U.S., will also spike in Germany, which will prompt a tapering of the ECB’s bond-buying program and possibly an increase in interest rates, he said. The move to do so will be sped up by Trump, he said.

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“Total fixed-asset investment rose 8.1% in 2016, the slowest pace since 1999, despite an 18.7% increase in investment by state entities..”

China Keeps 3% Budget Deficit Goal For 2017 As Debt Risks Grow (R.)

China’s policymakers plan to keep their budget deficit target for 2017 at the same level as last year to underscore a focus on debt reduction and reform, though they have wiggle room to increase fiscal stimulus if the economy needs support again. A budget deficit target of 3% of GDP, unchanged from 2016, was endorsed by top leaders at the Central Economic Work Conference in December, according to sources with knowledge of the meeting’s outcome. After government investment propped up activity for much of 2016, policymakers are looking for a recovery in private investment through public-private partnership (PPP) infrastructure projects to drive growth this year. “Fiscal policy is clear. It’s necessary to maintain last year’s 3% deficit ratio, although there is room to increase it slightly,” said one of the sources, a policy adviser.

Preliminary finance ministry data this week implied an actual deficit of 3.8% of GDP in 2016. However, China’s budget accounting allows it to use unspent money from previous years and funds from a Central Budget Stabilization Fund so it can report a final deficit in line with the target. The world’s second-largest economy grew 6.7% last year, supported by higher government spending and record bank lending, though it was still the slowest growth in 26 years. Reuters reported last week that sources said the 2017 economic growth target would be around 6.5%, down from last year’s 6.5-7%. “If this year’s growth goal is not that high, there will be less pressure on the strength of policy support,” said a second policy source. [..] Total fixed-asset investment rose 8.1% in 2016, the slowest pace since 1999, despite an 18.7% increase in investment by state entities, as private investment grew just 3.2%, the weakest on record.

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A risk to the west, that is.

China Is Becoming ‘Increasingly Risky’ Because Of Its Economy (CNBC)

A major risk to U.S. markets is looming, and it’s bigger than headlines and President Donald Trump’s tweets, Goldman Sachs’ Sharmin Mossavar-Rahmani told CNBC on Wednesday. The threat is the Chinese economy, the Goldman Sachs Private Wealth Management chief investment officer told “Squawk on the Street.” “We use the term that China could ‘submerge’ under the burden of its own debt,” Mossavar-Rahmani said. “If you look at any of the debt measures in China, they’re tremendously high.” Mossavar-Rahmani focused on the credit-to-GDP number from the BIS as a key measure of China’s accumulating debt. As of the second quarter of 2016, China’s ratio was 28.8%.

“China is about 30, the U.S. was at 12.4% just before the crisis. And if the U.S. didn’t avoid a financial crisis with all its strength, how can we assume that China will?” the wealth manager asked. China is still awaiting its 19th gathering of the National Congress of the Communist Party in the fall, which Mossavar-Rahmani said would weigh on the country’s economic position in 2018. The meeting will determine 370 of China’s Central Committee members for the next five years. “Then we have to see, in 2018, will they put structural reforms on the front burner or does it stay on the back burner?” Mossavar-Rahmani asked.

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The US has a large block of religious zealots. The rest of the west, not so much.

Dutch Respond To Trump’s ‘Gag Rule’ With International Safe Abortion Fund (G.)

Up to 20 countries have indicated support for the Netherlands’ plan to set up an international safe abortion fund to plug a $600m funding gap caused by Donald Trump’s reinstatement of the “global gag rule”, the Dutch international development minister, Lilianne Ploumen, said on Wednesday. Ploumen took soundings from a number of her colleagues around the world on Tuesday evening after the Netherlands said it would act to mitigate the impact on hundreds of charities around the world. The “global gag rule”, also known as the Mexico City policy, was reimposed by Trump on Monday, and bans US federal funding for NGOs in foreign countries that provide abortion services or abortion advocacy. ‘We’re in talks with 15 to 20 countries and we’ve also spoken to foundations,” Ploumen told the Guardian.

“As well as contacting a number of European countries that we work with on these issues, we’re also in touch with countries in South America and Africa, as well as the foundations. It’s important to have the broadest possible support for the fund.” Ploumen did not identify which countries had been approached or how much money the Dutch government might commit to the scheme. She said the aim would be to continue support for existing programmes being run by organisations such as the United Nations Population Fund (UNPFA), the International Planned Parenting Federation and Marie Stopes International. “These are successful and effective programmes: direct support, distributing condoms, making sure women are accompanied at the birth, and making sure abortion is safe if they have no other choice,” she said.

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Damning. DO read.

Why the Corrupt, Worker-Hating New Democrats Must Be Purged (Bill Black)

This article explains three critical reasons why the Democratic Party’s leaders are far more insane than all but a few Democrats understand. It focuses on the leaders of the Democratic National Committee (DNC) and the New Democrats. The DNC leadership is composed of New Democrats. Debbie Wasserman Schultz had to resign in disgrace when the leaks proved that she was putting the DNC’s thumbs on the scale to favor Hillary Clinton (a New Democrat) in the presidential nomination contest against Bernie Sanders. Wasserman Schultz also took large contributions from big finance and, until she faced the prospect of a serious primary challenger, she supported efforts by predatory lenders to use Congress to bar the regulators from stopping their abuses.

Donna Brazile, a New Democrat, now runs the DNC. In this article, I show that Brazile denounced Democrats who refused to cheer President Bush’s invasion of Iraq (and his “Mission Accomplished” declaration) as so disloyal that when their country needed them they went “AWOL.” Not satisfied with that libel, she added the homophobic smear that voters would view Democrats who failed to cheer Bush’s lies and invasion as “effete.” Best of all, she said that Democrats should take as their role models Paul Wolfowitz, Richard Perle, and Frank Gaffney – Bush’s “chicken hawks” that devised the campaign of lies that led to the disastrous invasion of Iraq. Gaffney is now spreading hate of Muslims – and advising President Trump.

The DNC is also in the news because it has just accepted a $20 million “donation” funded by Third Way, a Wall Street front group, to study why the white working class “abandoned” Hillary Clinton. Clinton is a leader of the New Democrats. Wall Street has long been the largest single funder of the New Democrats various institutions. The New Democrats, at the behest of Wall Street, have waged the “long war” against the working class since their formation in 1984. The New Democrats did not simply abandon the working class – they targeted it for scorn and assaulted it with policies that harmed many Americans, but caused the greatest harm to the working class.

Particularly in light of the Trump’s election, the logical reaction of the DNC would have been to refuse to take the Wall Street buyout and announce that the New Democrats would never again do Wall Street’s bidding. They would return to the Democratic Party’s historic role as the party that championed the rights of workers. Brazile, of course, ensured that the DNC eagerly took the $20 million Wall Street buyout. The New Democrats not only continue to be for sale (or rent) by Wall Street – they continue to show that they continue to for sale for chump change. The DNC does not need $20 million to figure out why the white working class “abandoned” the New Democrats. They can check out from their local library Tom Frank’s books warning that this would happen and explaining in detail why the New Democrats’ long war against the working class was making it happen.

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When growth could not be delivered. “There is always a deal between citizens and their governments. But now governments are defaulting on their citizens because of the debt problem. They can’t deliver retirement at 65.”

Pippa Malmgren: The Social Contract In The West Is Broken (SLD)

Question: The inability of continental Europe to grow has been a clear part of the concern in Britain about Europe. What role has this played?

Malmgren: The British received more Foreign Direct Investment than any other locartion in the EU before Brexit. It was assumed this flow would fall after Brexit. But, I hear from my clients that they are even more interested in the UK now. That’s because money is like water. It flows to wherever it faces the least resistance – the lowest tax rates and least regulatory burden. I would challenge the British to end up with more regulation and higher taxes that the EU after Brexit. Frankly, that would take a huge effort! But the problems on the Continent are deeper than this; The real issue is that the social contract between citizens and governments in the West are being broken. There is always a deal between citizens and their governments. But now governments are defaulting on their citizens because of the debt problem. They can’t deliver retirement at 65. Now everybody has to work longer.

They can’t deliver the healthcare that had been expected. Frankly they can’t deliver police, fire departments or roads without potholes. The social contract in the EU is under even greater stress because growth has been so very poor. The night of the victory of Brexit, the markets attacked Italian banks, not British banks. What did the state in Italy do? They said they’d find 5b Euros to bail out the oldest bank which had lost 98% of its shareholder value. Meanwhile, they can’t find 5 cents for the young who are experiencing over 30% unemployment rates. This breaks the social contract and helps explain the new anti-EU sentiment. The Europeans are also increasingly uneasy about immigration issues. It was not part of the original deal in the European contract to have completely open borders. In my view, the British are not xenophobic, but want more process around immigration. They want a more secure movement of people within Europe.

The media talks all the time about the proposed Wall by Trump in the US with Mexico, but the reality is there a wall-building spree going on in Europe. Look at the new walls being constructed between Hungry and Serbia, between Germany and the Czech Republic, as well as new walls in Estonia, Poland and Lithuania are constructing one around Kaliningrad with watchtowers, etc. Frankly new walls will increasingly be digital. Processing of people will begin well before you get anywhere near what you think the border is. We will pass through borders without realizing we’ve already been assessed. We are in a period of history where the Europeans are fundamentally rethinking what they want Europe to stand for, the European Union to do, and how to generate economic growth again. As everywhere else, the public are questioning the establishment because they have failed to deliver on their promises.

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“I don’t think the notion of democracy is ever going to be as tested as it’s going to be now.”

The ‘media’ have lost so much credibility, and permamently. That is dangerous.

Seymour Hersh Blasts Media For Promoting Russian Hacking Story (IC)

Pulitzer prize-winning journalist Seymour Hersh said in an interview that he does not believe the U.S. intelligence community proved its case that President Vladimir Putin directed a hacking campaign aimed at securing the election of Donald Trump. He blasted news organizations for lazily broadcasting the assertions of U.S. intelligence officials as established facts. Hersh denounced news organizations as “crazy town” for their uncritical promotion of the pronouncements of the director of national intelligence and the CIA, given their track records of lying and misleading the public. “The way they behaved on the Russia stuff was outrageous,” Hersh said when I sat down with him at his home in Washington, D.C., two days after Trump was inaugurated.

“They were just so willing to believe stuff. And when the heads of intelligence give them that summary of the allegations, instead of attacking the CIA for doing that, which is what I would have done,” they reported it as fact. Hersh said most news organizations missed an important component of the story: “the extent to which the White House was going and permitting the agency to go public with the assessment.” Hersh said many media outlets failed to provide context when reporting on the intelligence assessment made public in the waning days of the Obama administration that was purported to put to rest any doubt that Russian President Vladimir Putin ordered the hacking of the DNC and Clinton campaign manager John Podesta’s emails.

The declassified version of the report, which was released January 7 and dominated the news for days, charged that Putin “ordered an influence campaign in 2016 aimed at the U.S. presidential election” and “aspired to help President-elect Trump’s election chances when possible by discrediting Secretary Clinton and publicly contrasting her unfavorably to him.” According to the report, the NSA was said to have had a lower confidence level than James Clapper and the CIA about the conclusion that Russia intended to influence the election. Hersh characterized the report as full of assertions and thin on evidence.

“It’s high camp stuff,” Hersh told The Intercept. “What does an assessment mean? It’s not a national intelligence estimate. If you had a real estimate, you would have five or six dissents. One time they said 17 agencies all agreed. Oh really? The Coast Guard and the Air Force — they all agreed on it? And it was outrageous and nobody did that story. An assessment is simply an opinion. If they had a fact, they’d give it to you. An assessment is just that. It’s a belief. And they’ve done it many times.”

[..] While expressing fears about Trump’s agenda, Hersh also called Trump a potential “circuit breaker” of the two-party political system in the U.S. “The idea of somebody breaking things away, and raising grave doubts about the viability of the party system, particularly the Democratic Party, is not a bad idea,” Hersh said. “That’s something we could build on in the future. But we have to figure out what to do in the next few years.” He added: “I don’t think the notion of democracy is ever going to be as tested as it’s going to be now.”

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But it will just continue. Wanna bet?

Austerity Economics Has Just Been Smashed. By The IMF. (GDB)

A powerful new report finally kills off any remaining intellectual veil for a broken economics that is breaking society. Sometimes an ideology is so brilliantly propagated that observers might not even notice it’s an ideology. In the corridors of power and in mainstream discussion, it ceases to be questioned. Then it goes catastrophically wrong. And it begins to seen again for the ideology it is. It becomes questioned again. And, if they are smart, leaders hear this and start to self-correct. This is where we’ve got to with neoliberalism, austerity, and rising inequality. Except for the self-correct part. Right now, instead of self-correction, we’re seeing many mainstream politicians unable to shift away from dead economics, and what seems in too many countries like the start of social breakdown.

Change is well overdue. Who can prompt leaders to drop the old economic nostrums are causing so much harm? Enter the IMF with a sledgehammer. Progressives duck in case in the sledgehammer is meant for them. But then the IMF demolishes the case for neoliberalism and austerity. It sounds extraordinary, and it is. Today the IMF will launch a new report, “Macro-Structural Policies and Income Inequality in Low-Income Developing Countries”, the latest in series that mark the intellectual journey the IMF research department has been travelling in recent years. Packed with detailed quantitative analysis it demonstrates that much of what elites have been advancing as unquestioned economics is demonstrably harmful both to economic growth and to public wellbeing.

Of course what makes this surprising, and what may make some progressives unenthusiastic about welcoming this, is also what makes it so powerful: an institution that has been, for far too long, a defender of the free market story and the Washington Consensus – the idea that liberalizing trade, privatizing everything possible and cutting down public spending was a one-size-fits-all solution to any government in trouble – has now refuted it. This paper is not the first by the IMF to take a stand on inequality, but it is notable because it claims in no uncertain terms that public spending – i.e. the opposite of the budget cuts that it once advocated for – decreases income inequality. They even have a formula – a 1% increase in public spending, they report, leads to a 2.3% decrease in inequality after 5 years. The paper also takes a strong stand against prioritizing indirect taxes, such as VAT, showing that they increase inequality.

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Bit sensationalist, perhaps?

The Super Rich Are Preparing For The End Of The World (CNBC)

The Dow has hit 20,000 for the first time ever, but rather than celebrating, some of the richest of the rich are building bunkers to prepare for a potential apocalypse. These “preppers” are making other investments too. They’re buying houses in New Zealand, which has become a popular spot in case of calamity. Billionaire Peter Thiel just secured property and citizenship there. And they’re getting elective surgery. Steve Huffman, the 33-year-old co-founder and CEO of the online community Reddit, got Lasik so that he’d be able to be more independent in case of emergency. “If the world ends — and not even if the world ends, but if we have trouble — getting contacts or glasses is going to be a huge pain in the ass,” the San Francisco resident tells Evan Osnos as part of The New Yorker’s chronicle of the elite’s end-of-the-world preparations. “Without them, I’m f—ed.”

In addition to the eye surgery, Huffman has accumulated guns, ammunition and motorcycles so that he won’t get caught in traffic jams during an evacuation. The notion of “doomsday prepping” was popularized in the mainstream by the National Geographic channel’s show by the same name. The show’s website offers a quiz titled “How prepped are you?” so you can test your own likelihood of surviving an apocalypse. Former Facebook product manager Antonio García Martínez bought wooded land in the Pacific Northwest that he has stocked with generators, solar panels and ammo, The New Yorker reports. “You just need so many things to actually ride out the apocalypse,” García Martínez says. “I think people who are particularly attuned to the levers by which society actually works understand that we are skating on really thin cultural ice right now.”

In particular, the political climate has made many coastal elites anxious about the future. “I think, to some degree, we all collectively take it on faith that our country works, that our currency is valuable, the peaceful transfer of power — that all of these things that we hold dear work because we believe they work,” says Huffman. “While I do believe they’re quite resilient, and we’ve been through a lot, certainly we’re going to go through a lot more.”

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The war on Grillo will intensify.

Rome Mayor Raggi Says She Received Summons From Prosecutors (BBG)

Rome Mayor Virginia Raggi, a member of the anti-establishment Five Star Movement, said she has received a summons from city prosecutors over a staff appointment. Raggi, a lawyer who was elected mayor last year, wrote in a post on Facebook that the summons concerns her nomination of Renato Marra as head of the tourism department, which she has revoked. She said she had informed Five Star co-founder Beppe Grillo and the city council of the summons. “I am very serene; I have full confidence in the judiciary, as ever,” Raggi wrote. “We are ready to give every clarification.” Raggi’s city hall administration has been plagued by resignations. Five Star, which wants a referendum on Italy’s membership in the euro area, has remained neck and neck with the Democratic Party of Prime Minister Paolo Gentiloni and his predecessor Matteo Renzi in national opinion polls.

Five Star has made denunciations of political corruption one of its main themes, often calling for elected officials to resign if they are placed under investigation, long before a case comes to court. But under new rules posted on Grillo’s blog earlier this month, Five Star officials do not have to resign automatically if they are investigated. Italian newswire Ansa said Raggi was under investigation for alleged abuse of office in the personnel matter. [..] Alessandro Di Battista, a senior Five Star lawmaker, told La 7 television that Raggi had a duty to explain why she had made the appointment. “This isn’t about public money, or decisions which affect a right of citizens,” Di Battista said. “This would involve mistaken signatures, a mistaken nomination which was immediately revoked.”

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If not in February, forget 2017.

Deal On Greek Bailout’s Second Review Possible At February Eurogroup (R.)

Euro zone creditors could approve the completion of the second set of Greek bailout reforms at the next meeting of finance ministers in February, an euro zone official said on Wednesday. The approval of the outstanding reforms, mainly concerning Greek fiscal targets, the labor market and liberalization of the energy sector, would pave the way for further euro zone loans to Athens, which faces large repayments in the third quarter. Finance ministers of the 19 countries of the euro zone will meet on Thursday in Brussels but there hasn’t been sufficient progress in Greek reforms yet for them to sign off on a deal now, the senior official said, confirming what the EU economics commissioner Pierre Moscovici said on Tuesday.

Still, the ministers are likely to produce an agreement to continue talks with a view to concluding them at the next Eurogroup meeting on Feb. 20, according to the official. “There is a good chance” that an agreement will be reached on Thursday to send euro zone negotiators back to Athens so that a deal can be reached in February, the official said. “February is the last month in which there is no politically significant election in relevant member states,” the official said, and this meant “February is not formally but realistically the time when we need to reach a political agreement”. The Netherlands go to the polls in March, and the French will vote in presidential elections in April and likely also in May. Germany, the biggest economy in the euro zone, will hold a general election in September. A comprehensive deal for Greece will also have to involve the IMF, the official said.

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Pretty brilliant.

“INAUGURATION DAY” (Bad Lip Reading)

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Dec 112016
 
 December 11, 2016  Posted by at 9:54 am Finance Tagged with: , , , , , , , , , ,  2 Responses »
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‘Daly’ Somewhere in the South, possibly Miami 1941


The ECB Is Creating A World Of Zombie Banks And Zombie Companies (HandBl.)
Stocks Have Only Been This Expensive During Times Of Crisis (BI)
UK Government Faces New Brexit Court Case (R.)
Senate Quietly Passes “Countering Disinformation And Propaganda Act” (ZH)
Does Krugman Really Support The Working Class? (Dean Baker)
Non-OPEC Oil States Agree To Cuts In ‘Historic’ Deal (AFP)
Quebec Paves Way For More Oil And Gas Exploration (BBG)
Goa Goes Cashless: ‘Who Buys Fish With A Credit Card?’ (G.)
Greece Passes Austerity 2017 Budget, Eyes 2.7% Growth (AP)
The Icelandic Minister Who Refused To Help The FBI Frame Assange (Katoikos)
WikiLeaks Emails ‘Link Turkey Oil Minister To Isis Oil Trade’ (Ind.)
Russian Bombardment ‘Forces ISIS Out Of Palmyra’ Hours After Re-Entry (AFP)

 

 

“A large part of the European banking sector would be on the brink of collapse and no stress test could anticipate the magnitude of that kind of credit risk..”

The ECB Is Creating A World Of Zombie Banks And Zombie Companies (HandBl.)

Next year could turn out to be a make-or-break year for Europe. But unlike in 2008, neither the governments nor the central banks have sufficient means to deal with another crisis. And it’s not entirely clear whether their intervention last time actually made things better or worse. Take Mr. Draghi, for instance. By lowering interest rates in the euro zone and buying up debt en masse, he has been trying to give the European economy a much needed shot in the arm. Yet despite all of his efforts, the specter of deflation still looms over the bloc, the future of the common currency is uncertain and lenders in southern Europe are still fighting for their existence. At the same time, the negative effects of Mr. Draghi’s policies are becoming more apparent. The STOXX Europe 600 index may have closed at its highest level in more than two months earlier this week, but it’s still 65% lower than where it was before the financial crisis.

The IMF has even said it feared a third of European banks wouldn’t be able to become profitable again even if the economy were to recover. The weird thing about the way the European economy has fared after the financial crisis is that even though businesses have been struggling, not a lot of them are going under. Insolvencies have been below the historical average. In Germany, for instance, the%age of companies declaring bankruptcy was the same right before the Lehman Brothers crash as it was in the 1990s – between 1.5 and 2%. Since the crisis began, that metric has fallen steadily. In 2015, the last full year for which data is available, it stood at 0.6%. Insolvency rates have even dropped in the euro zone’s weakest members along its southern periphery. Common sense would have one believe that the number of bankruptcies increases in times of crisis – especially during crises as protracted as financial ones.

“With its zero interest rate policy and the massive purchasing of bonds, the ECB is undermining the process of creative destruction, which is so important to a market economy,” said Markus Krall at Goetz Partners in Frankfurt. The ECB, for its part, was willing to do anything to prevent the economy from tanking. The central bank flooded the banks with money, and that deluge reduced companies’ capital costs to practically nothing. Even the most inefficient businesses can survive in that environment. Mr. Krall did the math on what it would mean for the balance sheets of European banks if insolvency rates had been at the historical average all along. He discovered that the €1 trillion in bad loans the ECB identified in its latest report would be closer to the tune of €2.5 trillion in that hypothetical scenario. “A large part of the European banking sector would be on the brink of collapse and no stress test could anticipate the magnitude of that kind of credit risk,” Mr. Krall said. “The ECB is creating a world of zombie banks and zombie companies,” he added.

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1929, 1999, 2007.

Stocks Have Only Been This Expensive During Times Of Crisis (BI)

Stocks are getting a bit pricey. All three major indexes break though their all-time highs on a seemingly daily basis, and this has pushed earnings multiples higher and higher. The current 12-month trailing price-to-earnings ratio of the S&P 500 sits at 25.95x, while the forward 12-month price-to-earnings is roughly 17.1x, according to FactSet data. Each of these is higher than its long-term average. In fact, based on one measure of valuation, the market hasn’t been this expensive anytime other than before a massive crash. The cyclical adjusted price-to-earnings ratio, better known as Shiller P/E, which adjusts the price-to-earnings ratio for cyclical factors such as inflation, stands at 27.86 as of Friday.

There have only been a few instances in history when stocks have been this expensive: just before the crash of 1929, the years leading up to the tech bubble and its bursting, and around the financial crisis of 2007-09. This does not necessarily mean that a crash is imminent — during the tech bubble, the Shiller P/E made it well into the 30s before coming back down. Additionally, there are some criticisms that Shiller P/E is generally more backward-looking since it adjusts for the cycle, so it may not be as accurate. Another caveat is that, during the three previous instances, investors have been incredibly bullish on stocks (there’s a reason Robert Shiller’s book is titled “Irrational Exuberance”) and most indicators of sentiment — from the American Association of Individual Investors to Bank of America Merrill Lynch’s sell-side sentiment indicator — are still depressed. Still, an elevated level for the Shiller P/E certainly isn’t going to make it any easier to sleep at night.

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As the EU descends into chaos, some of these people are going to remember something about a gift horse’s mouth.

UK Government Faces New Brexit Court Case (R.)

Opponents to Britain leaving the EU will launch a fresh legal action this week, which could further hamper Prime Minister Theresa May’s Brexit plans, The Sunday Times reported. The newspaper said campaigners will write to the UK government on Monday saying they are taking it to the High Court in an effort to keep Britain in the single market. It said the claimants will seek a judicial review in an attempt to give lawmakers a new power of veto over the terms on which Britain leaves the EU. They argue the government “has no mandate” to withdraw from the single market because it was not on the referendum ballot paper on June 23 and was not part of the ruling Conservative Party’s manifesto for the 2015 general election.

May has said she wants to invoke Article 50 of the EU’s Lisbon Treaty by the end of March, kicking off up to two years of exit negotiations. However the High Court ruled last month that Article 50 cannot be triggered without parliament’s assent. That ruling is being challenged by the government in Britain’s Supreme Court. The Sunday Times said the new court case hinges on whether the government would also have to trigger another legal measure — Article 127 of the European Economic Area agreement — in order to quit the single market. It said ministers argue Britain automatically exits the single market when it quits the EU. But, it said if the claimants win the new case, the government would have to gain the approval of lawmakers.

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Sanity evaporates in the US. And it’s not Trump.

Senate Quietly Passes “Countering Disinformation And Propaganda Act” (ZH)

While we wait to see if and when the Senate will pass (and president will sign) Bill “H.R. 6393, Intelligence Authorization Act for Fiscal Year 2017”, which was passed by the House at the end of November with an overwhelming majority and which seeks to crack down on websites suspected of conducting Russian propaganda and calling for the US government to “counter active measures by Russia to exert covert influence … carried out in coordination with, or at the behest of, political leaders or the security services of the Russian Federation and the role of the Russian Federation has been hidden or not acknowledged publicly,” another, perhaps even more dangerous and limiting to civil rights and freedom of speech bill passed on December 8.

Recall that as we reported in early June, “a bill to implement the U.S.’ very own de facto Ministry of Truth has been quietly introduced in Congress. As with any legislation attempting to dodge the public spotlight the Countering Foreign Propaganda and Disinformation Act of 2016 marks a further curtailment of press freedom and another avenue to stultify avenues of accurate information. Introduced by Congressmen Adam Kinzinger and Ted Lieu, H.R. 5181 seeks a “whole-government approach without the bureaucratic restrictions” to counter “foreign disinformation and manipulation,” which they believe threaten the world’s “security and stability.” Also called the Countering Information Warfare Act of 2016 (S. 2692), when introduced in March by Sen. Rob Portman, the legislation represents a dramatic return to Cold War-era government propaganda battles.

“These countries spend vast sums of money on advanced broadcast and digital media capabilities, targeted campaigns, funding of foreign political movements, and other efforts to influence key audiences and populations,” Portman explained, adding that while the U.S. spends a relatively small amount on its Voice of America, the Kremlin provides enormous funding for its news organization, RT.“Surprisingly,” Portman continued, “there is currently no single U.S. governmental agency or department charged with the national level development, integration and synchronization of whole-of-government strategies to counter foreign propaganda and disinformation.”

Long before the “fake news” meme became a daily topic of extensive conversation on wuch mainstream fake news portals as CNN and WaPo, H.R. 5181 would rask the Secretary of State with coordinating the Secretary of Defense, the Director of National Intelligence, and the Broadcasting Board of Governors to “establish a Center for Information Analysis and Response,” which will pinpoint sources of disinformation, analyze data, and — in true dystopic manner — ‘develop and disseminate’ “fact-based narratives” to counter effrontery propaganda.

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I don’t really want to mention Krugman ever again, but maybe just this once…

Does Krugman Really Support The Working Class? (Dean Baker)

Paul Krugman told readers that intellectual types like him tend to vote for progressive taxes and other measures that benefit white working class people. This is only partly true. People with college and advanced degrees tend to be strong supporters of recent trade deals [I’m including China’s entry to the WTO] that have been a major factor in the loss of manufacturing jobs in the last quarter century, putting downward pressure on the pay of workers without college degrees. They also tend to support stronger and longer patent and copyright protections (partly in trade deals), which also redistribute income upward. (We will pay $430 billion for prescription drugs this year, which would cost 10-20% of this amount in a free market. The difference is equal to roughly five times annual spending on food stamps.)

Educated people also tended to support the deregulation of the financial sector, which has led to some of the largest fortunes in the country. They also overwhelmingly supported the 2008 bailout which threw a lifeline to the Wall Street banks at a time when the market was going to condemn them to the dustbin of history. (Sorry, the second Great Depression story as the alternative is nonsense — that would have required a decade of stupid policy, nothing about the financial collapse itself would have entailed a second Great Depression.)

His crew has also been at best lukewarm on defending unions. However they don’t seem to like free trade in professional services that would, for example, allow more foreign doctors to practice in the United States, bringing their pay in line with doctors in Europe and Canada. The lower pay for doctors alone could save us close to $100 billion a year in health care expenses.

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OPEC members cheat. What do you think non-members will do? Still, prices can remain ‘high-ish’ until we find out.

Non-OPEC Oil States Agree To Cuts In ‘Historic’ Deal (AFP)

11 countries agreed on Saturday to cut their oil output, teaming up with the OPEC cartel in an exceptional bid to end the world’s glut of crude and reverse a dramatic fall in income. Russia and 10 other non-OPEC states will reduce their production by more than half a million barrels per day (bpd), OPEC announced. The deal will take effect from the start of 2017 and last for six months, though it may be extended depending on market conditions. “I am happy to announce that a historic agreement has been reached,” said Qatar’s Energy Minister Mohammed Bin Saleh Al-Sada, whose country holds the rotating presidency of the OPEC. The cut will contribute to OPEC’s own initiative to ease a saturated market and end a price slump that has brutally affected the economies of many oil producers.

On November 30 its members announced a slash in output by 1.2 million barrels per day (bpd) beginning in January, to 32.5 million bpd. Under that deal, OPEC called on non-member producer states to lower their output by 600,000 bpd. Saturday’s deal approves cuts totalling 558,000 bpd. Russia had already signalled it would provide half of that production cut in the first half of 2017. Among the other countries that will contribute cuts Kazakhstan agreed to reduce production by 20,000 bpd, Mexico 100,000 bpd, Oman 40,000 bpd and Azerbaijan 35,000 bpd, according to Bloomberg. The deal also includes Malaysia, Bahrain, Equatorial Guinea, Sudan, South Sudan and Brunei.

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Québec is powered by hydro. All this is just for export to the US. Turn ‘La Belle Province’ into a moonscape. It’s up to the First Nations again to stop the mess. You still like Justin?

Quebec Paves Way For More Oil And Gas Exploration (BBG)

Quebec’s legislature passed a bill that will pave the way for more oil and gas exploration, providing a boost to drillers such as Junex Inc. while drawing criticism from environmental, aboriginal and citizen groups. Bill 106 passed Quebec’s National Assembly in a 62-38 vote early Saturday after an overnight debate ahead of the holiday break. The legislation is meant to implement Quebec’s clean energy plan but also contains provisions allowing for energy exploration, potentially including fracking. “Quebec’s government just voted down an amendment to ban fracking in a triumph of science over ‘leave it in the ground’ lunacy,” Calgary-based Questerre Energy tweeted early Saturday morning. Shares of companies that hold exploration rights, including Questerre and Junex, based in Quebec City, surged last week as passage of the legislation looked likely.

Questerre holds about 1 million acres and has drilled test wells in the Utica shale formation along the St. Lawrence River, according to its website. Questerre’s shares rose the most in more than eight years on Thursday and inched up again on Friday. Junex’s stock increased 30%, the most in almost two years. Bill 106 creates a new agency to promote Quebec’s transition to cleaner energy yet also lays out a framework for oil and gas development in the Canadian province. Environmental, aboriginal and citizen groups argued that the bill’s mandate is contradictory, that debate was rushed and that it should have included a moratorium on fracking as well as greater protection for landowners. [..] Bill 106 strips power from landowners who will be powerless to stop exploration by companies with drilling claims, Carole Dupuis at Regroupement vigilance hydrocarbures Quebec, said by phone.

That, in turn, will hurt property values, especially if exploration leads to fracking. “If there was not the fracking issue, the landowner issue would not be a problem. It’s an access issue,” she said. “What’s the value of your land if someone has been drilling one kilometer from you and you don’t know if your drinking water is safe?” [..] Bill 106 goes against aboriginal rights to self-determination and to establish the best use of their lands, Mi’gmaq Chief Darcy Gray said in an e-mail Saturday. “The bill also opens up our lands to exploration that we feel could have long-lasting, detrimental and irreparable damage,” he wrote “especially with regards to hydraulic fracturing and or other types of well stimulation.” “Why this would even be considered, or how it could be construed as a favorable initiative, is beyond me,” he said.

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When will Modi’s support crash?

Goa Goes Cashless: ‘Who Buys Fish With A Credit Card?’ (G.)

It’s 11 o’clock, and Laxman Chauhan still hasn’t sold any fish. His stall in the central market in the west Indian city of Panjim has been open for three hours, but none of his usual clients have come today. He checks his watch, and then takes a walk to see if other vendors have had any customers. “Sold anything yet?” he asks Ramila Pujjar, who has set her stall up with a glistening display of the morning’s catch. She hasn’t either. “I’m losing 2,000-3,000 rupees (£23-£35) a day,” says Chauhan. “I’m throwing fish away every day.” The low footfall at Panjim’s fish market is unusual; fish is a staple in Goan cuisine but, for the past month, since the prime minister, Narendra Modi, abolished the 500 and 1,000 rupee notes, business has suffered. “I’m losing money because of the government,” says Pujjar.

“The government only takes care of the rich, the poor will always be poor.” Modi’s surprise announcement wiped out 86% of the nation’s currency overnight, leaving the vendors at Panjim’s fish market to suffer heavy losses. “Nobody has cash, so they’re not buying fish.” Panjim is no different to the rest of India. Long queues wind around banks and ATMs in every city as people scramble to exchange their high-value banknotes. The cash crisis has hit millions of traders, as people tighten purse strings and save up precious banknotes. But now, this sleepy tourist town is going to become the laboratory for a radical new experiment. From January, Goa’s government has announced that the city will go “cashless”, meaning every street vendor, rickshaw driver and shopkeeper must offer their customers the option to pay using a debit card or mobile phone. The cash-free drive will attempt to close down India’s thriving parallel economy of untaxed cash transactions.

A government circular at the beginning of the month instructed traders: “Goa is likely to become the state in India to go for cashless transactions from 31 December. Even though cash transactions are not being banned, it is in the interest of the government to encourage cashless transactions.” The policy, announced by India’s defence minister, Manohar Parrikar, is in line with Modi’s vision for a cash-free India. Last week, the finance minister, Arun Jaitley, announced a series of discounts on digital transactions for petrol, railway tickets and insurance policies. Modi has urged young people to support his “less cash” economy in a radio broadcast: “I need the help of young people in India … There are many people in your families or neighbourhoods who may not know how to use technologies such as e-wallets and payments through mobiles. I urge you to spend some time … to teach this technology to at least 10 families who may not know it,” he said.

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Sure. Just get your most creative accountants out. A “landmark year”?

Greece Passes Austerity 2017 Budget, Eyes 2.7% Growth (AP)

Greece’s Parliament has passed a budget of continued austerity as mandated by the country’s creditors, but which forecasts robust growth for 2017. Prime Minister Alexis Tsipras says it will mark Greece’s “final exit” from its nearly decade-long financial crisis. The budget adds more than €1 billion in new taxes, mostly indirect taxes on items from phone calls to alcohol. It also cuts spending by over €1 billion. The budget was backed by the left-dominated ruling coalition and opposed by all other parties. It passed by a vote of 152-146 on Saturday. Despite the continued austerity, Tsipras predicted that 2017 will be a “landmark year” with 2.7% economic growth. He said his government has achieved a higher-than-forecast 2016 primary surplus.

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Interesting long interview.

The Icelandic Minister Who Refused To Help The FBI Frame Assange (Katoikos)

You are “the minister” who refused to cooperate with the FBI because you suspected their agents on mission in Iceland were of trying to frame Julian Assange. Do you confirm this? Yes. What happened was that in June 2011, US authorities made some approaches to us indicating they had knowledge of hackers wanting to destroy software systems in Iceland. I was a minister at the time. They offered help. I was suspicious, well aware that a helping hand might easily become a manipulating hand! Later in the summer, in August, they sent a planeload of FBI agents to Iceland seeking our cooperation in what I understood as an operation set up to frame Julian Assange and WikiLeaks.

Since they had not been authorised by the Icelandic authorities to carry out police work in Iceland and since a crack-down on WikiLeaks was not on my agenda, to say the least, I ordered that all cooperation with them be promptly terminated and I also made it clear that they should cease all activities in Iceland immediately. It was also made clear to them that they were to leave the country. They were unable to get permission to operate in Iceland as police agents, but I believe they went to other countries, at least to Denmark. I also made it clear at the time that if I had to take sides with either WikiLeaks or the FBI or CIA, I would have no difficulty in choosing: I would be on the side of WikiLeaks.

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Erdogan’s son-in-law, “groomed to be Mr Erdogan’s successor”. Parliament certain to vote to hand Erdogan much increased powers. Seen any false flags lately?

WikiLeaks Emails ‘Link Turkey Oil Minister To Isis Oil Trade’ (Ind.)

WikiLeaks has released a cache of thousands of personal emails allegedly from the account of senior Turkish government minister Berat Albayrak, son-in-law of the country’s president, Recep Tayyip Erdogan, which it says shows the extent of links between Mr Albayrak and a company implicated in deals with Isis-controlled oil fields. The 60,000 strong searchable cache, released on Monday, spans the time period between April 2000 – September 23 2016, and shows Mr Albayrak had intimate knowledge of staffing and salary issues at Powertrans, a company which was controversially given a monopoly on the road and rail transportation of oil into the country from Iraqi Kurdistan.

Turkish media reported in 2014 and 2015 that Powertrans has been accused of mixing in oil produced by Isis in neighbouring Syria and adding it to local shipments which eventually reached Turkey, although the charges have not been substantiated by any solid evidence. The emails were apparently obtained by Redhack, a Turkish hactivist collective. WikiLeaks founder Julian Assange said that they were published in response to the Turkish government’s widening crackdown on dissent. Mr Albayrak, one of the most powerful individuals in Turkey, is widely seen as being groomed to be Mr Erdogan’s successor. The hardline president has been consolidating his grip on power by implementing emergency powers and arresting thousands of journalists, activists and academics in the wake of a failed military coup in July.

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Reported without any added anti-Putin innuendo?!

Russian Bombardment Forces ISIS Out Of Palmyra Hours After Re-Entry (AFP)

A Russian aerial onslaught forced Islamic State fighters to withdraw from Palmyra at dawn on Sunday, only hours after the jihadis had re-entered the ancient Syrian city, a monitor said.“Intense Russian raids since last night forced IS out of Palmyra, hours after the jihadists retook control of the city,” said Rami Abdel Rahman of the Syrian Observatory for Human Rights.The raids killed a large number of militants in the desert city in central Syria, Abdel Rahman told AFP. “The army brought reinforcements into Palmyra last night, and the raids are continuing on jihadist positions around the city.”Isis began an offensive last week near Palmyra, which is on Unesco’s world heritage list. In May last year, the Sunni Muslim extremist group seized several towns in Homs province including Palmyra, where they caused extensive damage to many of its ancient sites. They were ousted from Palmyra in March by Syrian regime forces backed by Russia.

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Dec 022016
 
 December 2, 2016  Posted by at 10:34 am Finance Tagged with: , , , , , , , , , ,  2 Responses »
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Harris&Ewing Washington, DC, Storm damage..” Between 1913 and 1918


Global Bonds Suffer Worst Monthly Meltdown as $1.7 Trillion Lost (BBG)
What’s Causing The Fire Sale In The Bond Market (CNBC)
Donald Trump Promises to Usher In New ‘Industrial Revolution’ (WSJ)
Trump Will End Growth-Zapping Fiscal Austerity – McCulley (CNBC)
China’s Central Bank Is Facing a Major New Headache (BBG)
Rural China Banks With $4 Trillion Assets Face Debt Test (BBG)
Obama Set To Block Chinese Takeover Of German Semiconductor Supplier (BBG)
QE Infinity Eyed In Europe If Renzi Loses Crucial Italian Referendum (CNBC)
December 4 Could Trigger the “Most Violent Economic Shock in History” (IM)
How Putin, Khamenei And Saudi Prince Got OPEC Deal Done (R.)
Russian Oil Output Near Post-Soviet Record as It Prepares to Cut (BBG)
US Veterans Arrive At Pipeline Protest Camp In North Dakota (R.)
Joy As China Shelves Plans To Dam ‘Angry River’ (G.)
World’s Growing Inequality Is ‘Ticking Time Bomb’: Nobel Laureate Yunus (R.)
This Is The Most Dangerous Time For Our Planet (Stephen Hawking)

 

 

Things get crowded, it’s inevitable. And much more so in manipulated markets.

Global Bonds Suffer Worst Monthly Meltdown as $1.7 Trillion Lost (BBG)

The 30-year-old bull market in bonds looks to be ending with a bang. The Bloomberg Barclays Global Aggregate Total Return Index lost 4% in November, the deepest slump since the gauge’s inception in 1990. Treasuries extended declines Thursday along with European bonds on speculation that the ECB will consider sending a signal that stimulus will eventually end. The reflation trade has been driving markets since Donald Trump’s election victory due to his promises of tax cuts and $1 trillion in infrastructure spending. Calling an end to the three-decade bond bull market is no longer looking like a fool’s errand: the Federal Reserve is expected to raise interest rates again – and do so more often than once a year, inflationary expectations are climbing and there are hints global central banks may buy less sovereign debt going forward.

Investors pulled $10.7 billion from U.S. bond funds in the two weeks after Trump’s victory, the biggest exodus since 2013’s “taper tantrum,” while American stock indexes jumped to records. “The market has moved with remarkable swiftness to price in the anticipated reflationary impact of a Trump administration,” said Matthew Cairns, a strategist at Rabobank International in London. “This has, in turn, prompted a notable rotation out of fixed income and into equities.” Still, Cairns cautioned the moves are “remarkable given the distinct lack of clarity as regards what policies the president-elect will actually pursue.” November’s rout wiped a record $1.7 trillion from the global index’s value in a month that saw world equity markets’ capitalization climb $635 billion.

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Eevrybody’s been on the same side of the boat for too long.

What’s Causing The Fire Sale In The Bond Market (CNBC)

There’s a fire sale in the bond market, and the November jobs report could make it burn even hotter. The wild move came amid speculation that Friday’s employment report could be better-than-expected and drive interest rates even higher. Interest rates surged Thursday, with the 10-year yield spiking as much as 12 basis points at its peak, to 2.49%, the highest yield since June 2015. Yields move inversely to prices and rates snapped higher across the whole yield curve. The 2-year pressed up against 1.17% and the 30-year rose to as high as 3.15%. In afternoon trading, some of the selling subsided, and the 10-year yield slipped back to just under 2.44%, but 2.50 is being watched as the next psychological line in the sand.

“In order to stay above 2.50, it’s got to be a really good number. The way we’re going, it’s like an unhinged market. It’s also going to be counterproductive for things down the road. This is not a healthy adjustment in rates. There’s going to be some losses on this,” said George Goncalves at Nomura. The 10-year yield affects consumer loans especially home mortgage rates, which have already risen near 4%, slowing borrowing activity. The 2-year is the rate most closely watched as a signal about the market’s expectation for Fed rate activity. The Fed is expected to hike rates Dec. 14 but traders have been speculating a stronger economy could force it into a faster hiking cycle next year.

Strategists say Thursday’s rate spike was driven by a combination of factors and at the same time inexplicable in its scope. The overriding themes are that the world is moving to a higher interest rate environment and for the first time in years, there could be inflation. OPEC’s deal to cut production Wednesday, drove oil prices 15% higher in just two days, ramping up inflation expectations that already had been on the rise.

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“There is no global anthem, no global currency..”

Donald Trump Promises to Usher In New ‘Industrial Revolution’ (WSJ)

President-elect Donald Trump on Thursday said his administration would usher in a new “Industrial Revolution,” one of numerous promises he made in Cincinnati as he began a nationwide “Thank You” tour following his Nov. 8 election. Mr. Trump used the 53-minute speech, the first of its kind since he became president-elect, to reflect on his victory but also to outline a number of goals, many of them lofty, for his term as president. The speech was more than just thematic, however. He said for the first time that on Monday he would announce that he was nominating Ret. Gen. James Mattis as his first secretary of defense. Mr. Trump promised sweeping changes to trade policy, national security, infrastructure, military spending and immigration. He said he wanted to work with Democrats but said he could get the work done without them, even without his supporters.

“Now that you put me in this position, even if you don’t help me one bit, I’m going to get it done,” he said. “Don’t worry.” The Cincinnati rally resembled, in some ways, the campaign rallies he held for months as his candidacy gained steam during the year. There were chants of “U.S.A.,” and vendors sold Trump campaign memorabilia. But there was one notable difference: with the election over, the crowd was far smaller[..] During his speech, he stuck to many of his campaign promises. He said a wall would be built along the U.S.-Mexico border. He said his administration would “repeal and replace” the Affordable Care Act. He said the Trump administration would seek plans and deals that benefited Americans first and not get duped into deals with other countries. “There is no global anthem, no global currency,” he said. “We pledge allegiance to one flag, and that flag is the American flag.”

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It’ll fail. You can’t ‘make’ growth.

Trump Will End Growth-Zapping Fiscal Austerity – McCulley (CNBC)

Economist Paul McCulley told CNBC on Thursday he’s had a “big ax to grind” with Washington for years over the need for more deficit spending, and it appears Republican Donald Trump may actually be the one to deliver. The stock market rally since Trump won the presidential election has been reflecting that notion, argued McCulley, who said he voted for Democrat Hillary Clinton. “The market is essentially celebrating the end of fiscal austerity. And it just happens to be a vehicle of Mr. Trump. But the end of fiscal austerity is the key economic issue.” “My big ax to grind in recent years — not months but years — is that we needed to have more fiscal policy expansion, because we’re in a liquidity trap,” said McCulley, former chief economist at Pimco. He said too much responsibility has fallen on the Federal Reserve for growing the economy.

“We needed some help with larger budget deficits.” “I’ve never had an issue with increasing the size of the budget deficit. I think it’s been too small. I have zero problem with increased public investment and funding it with deficits,” he said. “To the extent that Mr. Trump wants to do that, I think that is the right Keynesian policy.” McCulley was referring to the British economist John Maynard Keynes, who is often credited with the concept of deficit spending as a means of fiscal policy. “My biggest complaints for the person I voted for, Mrs. Clinton, is that she said, ‘I will not add a penny to the national debt.’ That was basically putting you in a straightjacket of fiscal austerity forever,” said McCulley, senior fellow in financial macroeconomics at Cornell Law School.

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Mundell: “..nations can’t sustain a fixed exchange rate, independent monetary policy, and open capital borders all at the same time..”

China’s Central Bank Is Facing a Major New Headache (BBG)

People’s Bank of China Governor Zhou Xiaochuan already has one policy headache with the currency falling to near an eight-year low. He could have an even bigger one next month. That’s when a $50,000 cap on how much foreign currency individuals are allowed to convert each year resets, potentially aggravating capital outflow pressures that are already on the rise. If just 1% of China’s almost 1.4 billion people max out those limits, that’s an outflow of about $700 billion – more than the estimated $620 billion that Bloomberg Intelligence estimates indicate has already flowed out in the first 10 months of this year. Middle class and wealthy Chinese have been converting money into other currencies to protect themselves from devaluation, exacerbating downward pressure on the yuan.

Outflows could intensify if Federal Reserve interest-rate hikes fuel further dollar appreciation. That leaves Zhou in a bind identified by Nobel-prize winning economist Robert Mundell as the “impossible trinity” – a principle that dictates nations can’t sustain a fixed exchange rate, independent monetary policy, and open capital borders all at the same time. “At a moment like this, you have to compare two evils and pick the less-worse one,” said George Wu, who worked as a PBOC monetary policy official for 12 years. “Capital free flow may have to be abandoned in order to maintain a relatively stable currency rate.” China is moving further away from balance among trinity variables, at least temporarily, and “it may take a while before the situation stabilizes” for the yuan and capital outflows, said Wu, who’s now chief economist at Huarong Securities in Beijing.

[..] rather than raise borrowing costs to try to make domestic returns more attractive – China has added new restrictions on the flow of money across its borders. They include a pause on some foreign acquisitions and bigger administrative hurdles to taking yuan overseas, people familiar with the steps have told Bloomberg News. China should cut intervention in foreign exchange markets while stepping up capital control, Yu Yongding, a former academic member of the PBOC’s monetary policy committee, said Friday at a conference in Beijing. Yuan internationalization shouldn’t be promoted too aggressively, said Yu, a senior research fellow at the Chinese Academy of Social Sciences.

About $1.5 trillion has exited the country since the beginning of 2015. While China still has the world’s largest foreign exchange stockpile, the hoard shrank in October to a five-year low of $3.12 trillion, PBOC data show. That means there’s less in the armory to battle depreciation if China’s famously frugal savers park more cash abroad. The outflow pressure rose in January as individuals socked away a record amount in domestic bank accounts denominated in other currencies. Household foreign deposits surged 8.1% to $97.4 billion, according to the central bank, for the biggest jump since it began tracking the data in 2011. Those holdings stood at $113.1 billion in October.

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The correct way to write this is: “Assets”.

Rural China Banks With $4 Trillion Assets Face Debt Test (BBG)

Bond investors are weighing rising risks that smaller Chinese banks will fail against growing signs the government will do anything to avoid a financial meltdown. A lender called Guiyang Rural Commercial Bank in the southwestern province of Guizhou sparked concern that risks among smaller lenders are spreading after its rating outlook was cut last month following a jump in overdue loans to 30% of the total. That compares with just 3% at the nation’s biggest lender. Short-term borrowing costs surged for the riskiest lenders including rural commercial banks, which hold 29 trillion yuan ($4.2 trillion) of assets, 13.4% of the total amount in China’s banking system.

Yet confidence in the government’s readiness to step in and offer support to struggling borrowers is rising as authorities allow a credit-fueled recovery of manufacturing activity, helping an official factory gauge match a post-2012 high last month. While 17 onshore public bonds defaulted in the first half of the year, there have since been only seven. The combination of government support and desperation for yield helps explain why Guiyang Rural was able to sell a junior bond at 4.7% last month, 1.7 %age points less than a similar offering last year. “Investors have yet to suffer losses from any bank capital securities, which adds to their confidence,” said He Xuanlai at Commerzbank.

“Smaller banks have a less diversified business profile and will likely get less support from the central government compared with bigger banks. Still, the base case is the government is still not ready to let any bank fail in a disorderly way.” That assumption has helped cut the extra yield investors demand to hold AA- rated five-year bank subordinated notes over AAA rated peers to a record low of 81 basis points, from 113 at the start of the year. There are some positive fundamentals. Rural banks are tied with the big five state-owned banks for the best Tier 1 capital ratio at 12%, according to an analysis by Natixis.

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And Germany says what?

Obama Set To Block Chinese Takeover Of German Semiconductor Supplier (BBG)

U.S. President Barack Obama is poised to block a Chinese company from buying Germany’s Aixtron, people familiar with the matter said, which would mark only the third time in more than a quarter century that the White House has rejected an investment by an overseas buyer as a national security risk. The president is expected Friday to uphold a recommendation by the Committee on Foreign Investment in the U.S. that the sale of the semiconductor-equipment supplier to China’s Grand Chip Investment should be stopped, according to the people, who asked not to be identified as the details aren’t public. Blocking the €670 million ($714 million) acquisition would mark the second time Obama has rejected a deal on national security grounds. The first was in 2012 when he stopped Chinese-owned Ralls Corp. from developing a wind farm near a Navy base in Oregon.

Before that, in 1990 then-president George H.W. Bush stopped a Chinese acquisition of MAMCO, an aircraft-parts maker. CFIUS reviews purchases of U.S. companies by foreign buyers and pays particular attention to purchases of technology, especially when it has defense applications. It has a say in the Aixtron deal because the company has a subsidiary in California and employs about 100 people in the U.S., where it generates about 20% of its sales. Aixtron technology can be used to produce light-emitting diodes, lasers, transistors, solar cells, among other products, and can have military applications in satellite communications and radar. Northrop Grumman, a major U.S. defense contractor, is among its customers, according to a Bloomberg supply chain analysis. “It will be extremely difficult for China’s state owned enterprises to do deals in the semiconductor industry looking forward,” said He Weiwen at the Center for China and Globalization.

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A No vote is also a vote against the ECB.

QE Infinity Eyed In Europe If Renzi Loses Crucial Italian Referendum (CNBC)

Dovish words from the ECB this week have fueled speculation of more accommodative monetary policy if Italians reject constitutional reforms this weekend, but one economist has told CNBC that it might not be that simple. “The market believes that we are basically in for QE infinity in Europe and that might be a stretch of the imagination,” said Elga Bartsch, Morgan Stanley’s global co-head of economics. While the Morgan Stanley economist acknowledged the rhetoric emanating from ECB President Mario Draghi this week arguably did imply there could be a so-called “Draghi put” in the case of a “no” vote in the referendum, she also posited that this view was somewhat simplistic.

“There was strong communication from him (Draghi) and a number of executive board members at the ECB, but at the same time, the views of the broader council and among the national central bank governors seem to be a little bit more mixed,” she explained. “For instance, the debate as to whether instead of extending by six months at €80 billion, just to do nine months of €60 billion doesn’t really want to go away,” Bartsch noted.

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“December 4 referendum fails >> M5S comes to power >> Italians vote to leave the euro currency >> European Union collapses.”

December 4 Could Trigger the “Most Violent Economic Shock in History” (IM)

The Five Star Movement (M5S) is Italy’s new populist political party. It’s anti-globalist, anti-euro, and vehemently anti-establishment. It doesn’t neatly fall into the left–right political paradigm. M5S has become the most popular political party in Italy. It blames the country’s chronic lack of growth on the euro currency. A large plurality of Italians agrees. M5S has promised to hold a vote to leave the euro and reinstate Italy’s old currency, the lira, as soon as it’s in power. That could be very soon. Given the chance, Italians probably would vote to return to the lira. If that happens, it would awaken a monetary volcano. The Financial Times recently put it this way: “An Italian exit from the single currency would trigger the total collapse of the eurozone within a very short period. It would probably lead to the most violent economic shock in history, dwarfing the Lehman Brothers bankruptcy in 2008 and the 1929 Wall Street crash.”

If the FT is even partially right, it means a stock market crash of historic proportions could be imminent. It could devastate anyone with a brokerage account. Here’s how it could all happen… On December 4, Italian Prime Minister Matteo Renzi’s current pro-EU government is holding a referendum on changing Italy’s constitution. In effect, a “Yes” vote is a vote of approval for Renzi’s government. A “No” vote is a chance for the average Italian to give the finger to EU bureaucrats in Brussels. Given the intense anger Italians feel right now, it’s very likely they’ll do just that. According to the latest polls, the “No” camp has 54% support and all of the momentum. Even prominent members of Renzi’s own party are defecting to the “No” side.

If the December 4 referendum fails, Renzi has promised to resign. Even if he doesn’t, the loss would politically castrate him. In all likelihood his government would collapse. (Italian governments have a short shelf life. There have been 63 since 1945. That’s almost a rate of a new government each year.) One way or another, M5S will come to power. It’s just a matter of when. If Renzi’s December 4 referendum fails—and it looks like it will—M5S will likely take over within months. Once it’s in power, M5S will hold a referendum on leaving the euro and returning to the lira. Italians will likely vote to leave. [..] December 4 referendum fails >> M5S comes to power >> Italians vote to leave the euro currency >> European Union collapses.

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Don’t be fooled: it’s all Putin, the one non-OPEC voice. And he’s playing the rest like so many fiddles.

How Putin, Khamenei And Saudi Prince Got OPEC Deal Done (R.)

[..] Heading into the meeting, the signs were not good. Oil markets went into reverse. Saudi Prince Mohammed had repeatedly demanded Iran participate in supply cuts. Saudi and Iranian OPEC negotiators had argued in circles in the run-up to the meeting. And, then, just a few days beforehand, Riyadh appeared back away from a deal, threatening to boost production if Iran failed to contribute cuts. But Putin established that the Saudis would shoulder the lion’s share of cuts, as long as Riyadh wasn’t seen to be making too large a concession to Iran. A deal was possible if Iran didn’t celebrate victory over the Saudis. A phone call between Putin and Iranian President Rouhani smoothed the way.

After the call, Rouhani and oil minister Bijan Zanganeh went to their supreme leader for approval, a source close to the Ayatollah said. “During the meeting, the leader Khamenei underlined the importance of sticking to Iran’s red line, which was not yielding to political pressures and not to accept any cut in Vienna,” the source said. “Zanganeh thoroughly explained his strategy … and got the leader’s approval. Also it was agreed that political lobbying was important, especially with Mr. Putin, and again the Leader approved it,” said the source. On Wednesday, the Saudis agreed to cut production heavily, taking “a big hit” in the words of energy minister Khalid al-Falih – while Iran was allowed to slightly boost output. Iran’s Zanganeh kept a low profile during the meeting, OPEC delegates said.

Zanganeh had already agreed the deal the night before, with Algeria helping mediate, and he was careful not to make a fuss about it. After the meeting, the usually combative Zanganeh avoided any comment that might be read as claiming victory over Riyadh. “We were firm,” he told state television. “The call between Rouhani and Putin played a major role … After the call, Russia backed the cut.”

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As you can see here, Putin even prepared for the cuts: all Russia needs to cut is that 2016 production surge. Which may have been untenable to begin with. And it catches out those who haven’t created a surge, but will have to cut anyway.

Russian Oil Output Near Post-Soviet Record as It Prepares to Cut (BBG)

Russia, the world’s largest energy exporter, held November output near a post-Soviet record , which is likely to remain a high-water mark in the near term after a pledge to cut production. Russian crude and condensate production averaged 11.21 million barrels a day in November, compared with a record 11.23 million barrels a day in October, according to the Energy Ministry’s CDU-TEK statistics unit. Russia promised to support a push by OPEC to reduce a global oil oversupply after the group agreed to cut production by 1.2 million barrels a day on Wednesday.

Energy Minister Alexander Novak pledged Russia would cut its own output by as much as 300,000 barrels a day, a stronger move than the previously preferred position of a freeze. Russia will make a gradual reduction over the first half of the year starting in January, Novak said Thursday. The reduction, supported by Russian oil producers, would be spread proportionally among companies, he said without providing further detail. Gazprom Neft and Novatek led Russian output growth in November compared with a year earlier, although both companies posted lower oil production than October, according to the data.

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“I bought a one-way ticket [..] Hopefully we can shut this down before Christmas.”

US Veterans Arrive At Pipeline Protest Camp In North Dakota (R.)

U.S. military veterans were arriving on Thursday at a camp to join thousands of activists braving snow and freezing temperatures to protest a pipeline project near a Native American reservation in North Dakota. However, other veterans in the state took exception to the efforts of the group organizing veterans to act as human shields for the protesters, saying the nature of the protests reflected poorly on the participants. Protesters have spent months rallying against plans to route the $3.8 billion Dakota Access Pipeline beneath a lake near the Standing Rock Sioux reservation, saying it poses a threat to water resources and sacred Native American sites.

State officials on Monday ordered activists to vacate the Oceti Sakowin camp, located on U.S. Army Corps of Engineers land near Cannon Ball, North Dakota, citing harsh weather conditions. Officials said on Wednesday however that they will not actively enforce the order. Matthew Crane, a 32-year-old Navy veteran who arrived three days ago, said the veterans joining the protest were “standing on the shoulders of Martin Luther King Jr and Gandhi” with the their plans to shield protesters. “I bought a one-way ticket,” he told Reuters as he worked to build a wooden shelter at the main camp. “Hopefully we can shut this down before Christmas.”

[..]Veterans Stand for Standing Rock, a contingent of more than 2,000 U.S. military veterans, intends to reach North Dakota by this weekend and form a human wall in front of police, protest organizers said on a Facebook page. The commissioner of the state’s Department of Veterans Affairs, who appeared at the West Fargo event, said he was worried about the involvement of individuals who have been in war situations. “We’re going to have veterans that we don’t know anything about coming to the state, war time veterans possibly with PTSD and other issues,” Lonnie Wangen told Reuters. “They’re going to be standing on the other side of concertina fence looking at our law enforcement and our (National) Guard, many of whom have served in war zones also,” he added. “We don’t want to see veterans facing down veterans.”

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“Thirty years ago there were 50,000 rivers in China; today there are less than 23,000.”

Joy As China Shelves Plans To Dam ‘Angry River’ (G.)

Environmentalists in China are celebrating after controversial plans to build a series of giant hydroelectric dams on the country’s last free-flowing river were shelved. Activists have spent more than a decade campaigning to protect the Nujiang, or “angry river”, from a cascade of dams, fearing they would displace tens of thousands of people and irreparably damage one of China’s most spectacular and bio-diverse regions. Since the start of this year, hopes had been building that Beijing would finally abandon plans to dam the 1,750-mile waterway, which snakes down from the Tibetan plateau through some of China’s most breathtaking scenery before entering Myanmar, Thailand and eventually flowing into the Andaman Sea.

On Friday, campaigners said that appears to have happened after China’s State Energy Administration published a policy roadmap for the next five years that contained no mention of building any hydroelectric dams on the Nu. “I am absolutely thrilled,” said Wang Yongchen, a Chinese conservationist and one of the most vocal opponents of the plans, which first surfaced in 2003. Wang, who has made 17 trips to the Nu region as part of her crusade to protect the river, said geologists, ecologists, sociologists and members of the public who had been part of the campaign could all take credit for halting the dams. “I think this is a triumph for Chinese civil society,” the Beijing-based activist said. Stephanie Jensen-Cormier, the China programme director for International Rivers, said environmentalists were “very happy and very excited” at what was a rare piece of good news for China’s notoriously stressed waterways.

“The state of rivers in China is so dismal. Thirty years ago there were 50,000 rivers in China; today there are less than 23,000. Rivers have completely disappeared. They have become polluted, they have become overused for agriculture and manufacturing,” she said. “So it is so exciting when a major river – which is a major river for Asia – is protected, at least where it flows in China.” Jensen-Cormier said the shelving of plans to dam the Nu – which is known as the Salween in Thailand and the Thanlwin in parts of Myanmar – represented “a great turning point for the efforts to preserve China’s rivers”. “It is a really good indication that China is starting to look at other ways of developing energy, and renewable energies especially, that mean they don’t have to sacrifice their remaining healthy river.”

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I don’t know, I think perhaps many people are born followers: “People are not born to be job seekers – they are entrepreneurs by nature..”

World’s Growing Inequality Is ‘Ticking Time Bomb’: Nobel Laureate Yunus (R.)

The widening gap between rich and poor around the world is a “ticking time bomb” threatening to explode into social and economic unrest if left unchecked, Nobel Peace laureate Muhammad Yunus said on Thursday. The banking and financial system has created a world of “the more money you have, the more I give you” while depriving the majority of the world’s population of wealth and an adequate standard of living, Yunus told the Thomson Reuters Foundation. “Wealth has become concentrated in just a few places in the world … It’s a ticking time bomb and a great danger to the world,” said the founder of the microfinance movement that provides small loans to people unable to access mainstream finance.

Yunus cited Donald Trump’s victory in the U.S. presidential election on Nov. 8 and Britain’s vote to leave the EU on June 23 as expressions of popular anger with ruling elites who have failed to stem the widening global wealth gap. A 2016 report by charity Oxfam showed that the wealth of the world’s richest 62 people has risen by 44% since 2010, with almost half of the super-rich living in the United States, while the wealth of the poorest 3.5 billion fell 41%. “This creates tension among people at the bottom (of the income ladder). They blame refugees and minorities – and unscrupulous politicians exploit this,” said Yunus [..]

To break free from an unequal financial system that disadvantages the poor, people should use their creative energy to become entrepreneurs themselves and spread wealth among a broader base of citizens, said Yunus. “People are not born to be job seekers – they are entrepreneurs by nature,” he said, adding that businesses that are focused more on doing social good than generating maximum profit can help to rectify economic and gender inequality. “If wealth comes to billions of people, this wealth will not come to the top one percent (of rich people), and it will not be easy to concentrate all the wealth in a few hands,” he said.

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It’s a little painful to see Hawking lose himself in a field of logic that is not his. He claims we should go to Mars, but then he says earth is our only planet. Isn’t it true that the time and energy dispensed in efforts to get to Mars might be better used in saving earth? Or are we going to claim we can do both?

This Is The Most Dangerous Time For Our Planet (Stephen Hawking)

As a theoretical physicist based in Cambridge, I have lived my life in an extraordinarily privileged bubble. Cambridge is an unusual town, centred around one of the world’s great universities. Within that town, the scientific community that I became part of in my 20s is even more rarefied. And within that scientific community, the small group of international theoretical physicists with whom I have spent my working life might sometimes be tempted to regard themselves as the pinnacle. In addition to this, with the celebrity that has come with my books, and the isolation imposed by my illness, I feel as though my ivory tower is getting taller. So the recent apparent rejection of the elites in both America and Britain is surely aimed at me, as much as anyone.

Whatever we might think about the decision by the British electorate to reject membership of the EU and by the American public to embrace Donald Trump as their next president, there is no doubt in the minds of commentators that this was a cry of anger by people who felt they had been abandoned by their leaders. It was, everyone seems to agree, the moment when the forgotten spoke, finding their voices to reject the advice and guidance of experts and the elite everywhere. I am no exception to this rule. I warned before the Brexit vote that it would damage scientific research in Britain, that a vote to leave would be a step backward, and the electorate – or at least a sufficiently significant proportion of it – took no more notice of me than any of the other political leaders, trade unionists, artists, scientists, businessmen and celebrities who all gave the same unheeded advice to the rest of the country. What matters now, far more than the choices made by these two electorates, is how the elites react.

Should we, in turn, reject these votes as outpourings of crude populism that fail to take account of the facts, and attempt to circumvent or circumscribe the choices that they represent? I would argue that this would be a terrible mistake. The concerns underlying these votes about the economic consequences of globalisation and accelerating technological change are absolutely understandable. The automation of factories has already decimated jobs in traditional manufacturing, and the rise of artificial intelligence is likely to extend this job destruction deep into the middle classes, with only the most caring, creative or supervisory roles remaining. This in turn will accelerate the already widening economic inequality around the world. The internet and the platforms that it makes possible allow very small groups of individuals to make enormous profits while employing very few people. This is inevitable, it is progress, but it is also socially destructive.

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Nov 292016
 
 November 29, 2016  Posted by at 10:08 am Finance Tagged with: , , , , , , , ,  4 Responses »
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NPC Skating night, Washington DC 1919


How The Global Left Destroyed Itself -Or, All Sex Is Not Rape- (DLS)
Of Hoovervilles and Trump Towers (Thomas)
The Blinkered Elite Who Still Think Austerity Works (Aditya Chakrabortty)
Athens Fears IMF, Berlin Will Reach Deal For Further Austerity (Kath.)
Where Are We In The Business Cycle? (ZH)
Cash is for Criminals – Taxing Cash Withdrawals from ATMs (Armstrong)
Canada Watchdog Warns Lenders Face Big Losses If Housing Market Turns (FP)
Canada House Price Bubble Threatens ‘Financial Stability’ (WS)
Security Experts Join Jill Stein’s ‘Election Changing’ Recount Campaign (G.)
France and Britain In Danger of Winter Power Shortages (BBG)
Pressure Grows As Athens Eyes Faster Asylum Process (Kath.)
West Antarctic Ice Shelf Breaking Up From The Inside Out (AGU)
Scientists Record Biggest Ever Coral Die-Off On Great Barrier Reef (R.)

 

 

“..the same unreconstructed global capitalism that was still sucking the life from the lower classes that it always had. Only now it was doing so with explicit public backing and with an abandon it had not enjoyed since the roaring twenties.”

How The Global Left Destroyed Itself -Or, All Sex Is Not Rape- (DLS)

With a Republican Party on its knees, Obama was positioned to restore the kind of New Deal rules that global capitalism enjoyed under Franklin D. Roosevelt. A gobalisation like the one promised in the brochures, that benefited the majority via competition and productivity gains, driven by trade and meritocracy, with counter-balanced private risk and public equity. But instead he opted to patch up financialised capitalism. The banks were bailed out and the bonus culture returned. Yes, there were some new rules but they were weak. There was no seizing of the agenda. No imprisonments of the guilty. The US Department of Justice is still issuing $14bn fines to banks involved yet still today there is no justice. Think about that a minute. How can a crime be worthy of a $14bn fine but no prison time?!?

Alas, for all of his efforts to restore Wall Street, Obama provided no reset for Main Street economics to restore the fortunes of the US lower classes. Sure Obama fought a hostile Capitol but, let’s face it, he had other priorities. And so the US working and middle classes, as well as those worldwide, were sold another pup. Now more than ever, if they said say so they were quickly shut down as “racist”, “xenophobic”, or “sexist”. Thus it came to pass that the global Left somehow did a complete back-flip and positioned itself directly behind the same unreconstructed global capitalism that was still sucking the life from the lower classes that it always had. Only now it was doing so with explicit public backing and with an abandon it had not enjoyed since the roaring twenties.

Which brings us back to today. And we wonder how it is that an abuse-spouting guy like Donald Trump can succeed Barack Obama. Trump is a member of the very same “trickle down” capitalist class that ripped the income from US households. But he is smart enough, smarter than the Left at least, to know that the decades long rage of the middle and working classes is a formidable political force and has tapped it spectacularly to rise to power. And, he has done more. He has also recognised that the Left’s obsession with post-structural identity politics has totally paralysed it. It is so traumatised and pre-occupied by his mis-use of the language of power – the “racist”, “sexist” and “xenophobic” comments – that it is further wedging itself from its natural constituents every day.

Don’t get me wrong, I am very doubtful that Trump will succeed with his proposed policies but he has at least mentioned the elephant in the room, making the American worker visible again.

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I like this: in the 1930s you had “Hoover blankets” for newspapers and “Hoover leather” for cardboard, and now there’s “Trump Towers” for shantytowns.

Of Hoovervilles and Trump Towers (Thomas)

In 1928, Republican Herbert Hoover was elected as president of the US. He took office in March of 1929. The following October, the stock market crashed, heralding in the Great Depression. Millions of Americans lost their jobs and homes and/or starved in the ensuing years. Countless people, having nowhere to live, set up shantytowns that came to be known as “Hoovervilles.” Their new residents relied for the most part on public charities or begging for whatever income they could attain. Was Mister Hoover responsible? Well, no. When elected, he had never held public office before and had not contributed to the cause of the depression. So why was he blamed? Well, whenever there’s disaster, it’s human nature to want to put a face on the cause of the problem. We tend to need to have someone at whom we can point our angry finger.

(Almost immediately after the shooting of John Kennedy, the public were shown a photo of Lee Harvey Oswald holding a rifle; the day after the destroying of the Twin Towers, the television news showed a photo of Osama bin Laden. The viewers didn’t question whether these were indeed the culprits; they simply accepted them, as their need to have someone to blame was greater than their need to have truth.) As a Republican, Mister Hoover became an easy target for Democrats seeking to further their own careers. Although the events that led up to the depression were caused by both Democrats and Republicans, both within politics and without, Mister Hoover was a convenient target for Democrats. In fact, the term “Hooverville” was created by Charles Michelson, publicity chief of the Democratic National Committee. Democrats also came up with other pejoratives, such as “Hoover blankets” for newspapers and “Hoover leather” for cardboard used in a shoe when the sole had worn through.

Throughout the 1930s, hundreds of Hoovervilles sprang up, housing hundreds of thousands of recently homeless people. There was even one in New York’s Central Park. By ascribing the Great Depression and everything that went with it to Mister Hoover, it was a foregone conclusion that in the next presidential election, the Democratic candidate would win by a landslide. For the next 20 years, Democrats held the US presidency and, in that time, the government made a major transformation towards collectivism. In spite of the fact that the Great Depression dragged on for around a decade, few Americans grasped the fact that collectivist policies prolonged the depression, rather than alleviated it.

[..] If history were to repeat, Mister Trump would find that, within months of his ascendancy to the throne, market crashes would occur, followed by monetary collapse, diminishment of entitlements, loss of homes and jobs and a return to Hoovervilles. It wouldn’t be surprising if the present generation of collectivist spin doctors choose to call the new shantytowns “Trump towers.” There can be no doubt that it would be a successful political move and, along with other pejoratives, would be extremely likely to result in a one-term presidency for Mister Trump, followed by a landslide victory in 2020 for the Democratic Party. [..] Mister Trump will be no more to blame than Mister Hoover but, as the present economic cycle will reach the tipping point on his watch, there can be little doubt as to who will receive the blame. Just as in 1929, the tail will blindly be pinned on the elephant, not the donkey, and a long era of increased collectivism will be heralded in.

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“The end had come, but it was not yet in sight”.

The Blinkered Elite Who Still Think Austerity Works (Aditya Chakrabortty)

On 11 September 1929 the Wall Street Journal quoted Mark Twain for its thought of the day: “Don’t part with your illusions; when they are gone you may still exist, but you have ceased to live.” Whatever that day’s subeditors thought they were doing, their choice now sounds as falsely confident as a rambler about to step off a ledge. Markets were already in turmoil, America was sinking into economic depression and running through the daily news was a thin, high note of hysteria. Still, Irving Fisher and the other wise men foresaw only the slightest of setbacks, and the brokers couldn’t take the cash fast enough. As John Kenneth Galbraith writes in his classic, The Great Crash 1929: “The end had come, but it was not yet in sight”.

Just six weeks later shares nosedived, countless families had their life savings destroyed, and an entire ruling class was stripped of its illusions. It took another 25 years, the Great Depression, the New Deal and a world war before stocks regained their 1929 levels. Look around today: the political class of 2016 is stuffed with people firmly clinging on to their illusions. Come Brexit, come Trump, come possible break-up of Europe: no lessons will be learned, barely an inch will be deviated from the ordained course. For some, the best pose is an uncomprehending defiance. Taking a break from tending to his £27m property portfolio, Tony Blair tells the New Statesman, “I can’t come into front-line politics. There’s just too much hostility.” Thus does the patron saint of exasperation inform his ex-voters: it’s not me, it’s you.

Others are smart enough at least to pay lip service to the new times. A couple of months ago George Osborne told the Financial Times how much he’d learned from Brexit: “There’s a pretty profound sense out there that the system’s not working for people, and instead of telling people, ‘Shut up, you’ve never had it so good,’ you’ve got to respond to that … I want to use this time out of office to try and understand it better.” Trouble is, lip service doesn’t pay so well. Days after that interview, the recently ejected chancellor began a speaking tour of America. In just a month, it was revealed last week, he raked in £320,400. Osborne made more from five speeches (nearly all to the finance industry, naturally, and putting in what his parliamentary register records as a total of 13 and a half hours’ work)than the average British worker will earn in over 11 years.

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Good cop, bad cop. Rinse and repeat.

Athens Fears IMF, Berlin Will Reach Deal For Further Austerity (Kath.)

With the government banking on securing a “political decision” at Monday’s Eurogroup – as the conclusion of the bailout review is now seemingly out of reach – the prospect of further austerity as demanded by the International Monetary Fund remains the biggest thorn in its side. Indeed, Athens’s biggest fear is that the IMF and Berlin will strike a deal demanding more measures as highlighted in comments by Finance Minister Euclid Tsakalotos Monday that the government cannot accept “compromise deals made between the IMF and the European countries on the back of Greece.” Tsakalotos criticized the IMF for pressuring Greece to implement more measures while failing to urge European countries to grant the country debt relief, and aimed fire at the eurozone for agreeing to discuss labor measures that stray beyond accepted European principles.

Referring to the labor regulation demands, he said: “Those institutions should not consider a country that is in a [bailout] program to have lesser rights. I think it’s not right, not morally right.” Government aides Monday, meanwhile, said the review would have already been concluded had it not been for the IMF’s demand for more measures in exchange for its participation in the bailout. However, Athens’s case for debt relief received a boost Monday after senior European officials said a solution was overdue. ECB executive board member Benoit Coeure, who was in Athens Monday, said the ECB was “looking forward to a solution” and “all stakeholders in the Greek adjustment program must realize that there are serious concerns about the sustainability of the Greek public debt.”

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Really? There’s a business cycle left?

Where Are We In The Business Cycle? (ZH)

On the bullish side, MS writes a trend of rising yields, steeper curves and better earnings has been in place for months. It forecasts that this trend will continue through 1Q17, as still-easy year-over- year comparisons mean headline inflation and global earnings continue to rise. The bank also points out something the Fed is well aware off: avoid giving the market much, if any, information. Namely, “an initial lack of policy clarity from the Trump administration may actually be helpful allowing investors to believe that the US ultimately will pursue ‘good’ projects (e.g., infrastructure spending) and avoid ‘bad’ ones (trade protectionism), while dangling the possibility of large corporate tax cuts. ”

However, shortly thereafter the initial optimism will fade and by 2Q17, this picture is set to change: global yields and USD to rise in 1Q as markets anticipate that better growth and inflation will cause the Fed to hike twice later in the year. That will mean a material tightening in financial conditions. [..] Around the same time, China growth will slow as credit-fueled stimulus is dialed back. And high expectations that the new US administration will be market-friendly raise the likelihood of disappointment. Even with expectations of fiscal stimulus, Morgan Stanley’s full year 2017 GDP forecast is just 2%. More troubling is that the expansion, already the 4th longest in US history, and set to be the third longest by the time Trump is inaugurated… is very long in the tooth.

Which brings us to the most concerning observation by Morgan Stanley, according to which 2017 is a year in which the bank’s odds of a boom and bust have materially increased, a finding consistent with a late-cycle US environment. So late, in fact, that one look at the chart below shows the US cycle has not only plateaued but is now stalling and is turning over. This, as Morgan Stanley writes, “is a change. Our long-running narrative had been “slow growth, slow reflation, and slow policy normalization”, a backdrop that we’ve seen as favorable to credit. The prospect for more fiscal stimulus in the US and elsewhere affects all three. Our new forecasts call for higher growth, inflation and policy rates than before, an uncertain cocktail for an expansion that is already one of the longest on record.”

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Martin rants: “..even the Ten Commandments state clearly that socialism is wrong..”

Cash is for Criminals – Taxing Cash Withdrawals from ATMs (Armstrong)

We are entering a very dark phase in this battle to retain our liberty. A proposal now being whispered behind the curtain in Europe is to impose a tax on withdrawing your own money from an ATM. The banks support this measure as a whole because they see this as preventing bank runs. Nobody will look at the direction we are headed. I am deeply concerned that these type of proposals will send the West in a real revolution not much different from that of Russia in 1917. The divide between left and right is getting much deeper and the left is hell bent on stripping those who produce of their liberty and assets. This type of confrontation is in line with our War Cycle, which we will update in 2017.

This is the most dangerous period we are heading into for governments will respond only in their own self-interest to survive. The socialists hate those who produce. That is just the bottom line. Nobody should have wealth more than they and this is the same human emotion that has cost tens of millions of lives in civil conflicts through out the centuries. Proof this is a persistent problem is the fact that even the Ten Commandments state clearly that socialism is wrong: “You shall not covet your neighbor’s house … or anything that belongs to your neighbor” (Exodus 20:17). Nevertheless, this is repuidiated by socialists who say it’s not fair that anyone has something more than they do.

This material jealousy has been the source of so much death throughout the centuries because it has been exploited by the ruling class to justify their thievery. We will review all our models and update this after the U.S. inauguration since the socialists are trying to figure out how to steal the election from Trump. There is no way to overturn Michigan, Wisconsin, and Pennsylvania without fraud and they need all three overturned to claim victory. This will not end nicely. The divide will only get bigger. The future is anything but stable and safe.

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Only China can save the day now?!

Canada Watchdog Warns Lenders Face Big Losses If Housing Market Turns (FP)

Recent increases in mortgage interest rates should be a wake-up call that lenders and borrowers should not be making decisions based on a short-term ability to repay, particularly given the risks created by high house prices and a long period of record low rates, Canada’s top banking regulator said Monday. “The recent uptick in mortgage interest rates should serve as a reminder that low rates are not a given, especially over longer periods of time,” Jeremy Rudin, head of the Office of the Superintendent of Financial Institutions (OSFI), told an audience of mortgage professionals in Vancouver. In prepared remarks for the Mortgage Professionals Canada National Conference, Rudin said risks in the market include rising rates and falling house prices.

“A pronounced or prolonged economic downturn could well involve a meaningful housing price correction. This could translate into significant losses for lenders and insurers,” he said. Moody’s Investors Service has estimated that a U.S.-style housing meltdown with home prices falling by as much as 35% could result in combined losses of more than $17 billion for the Canadian banks and mortgage insurers. “Given the risks and vulnerabilities arising from the current environment, sound underwriting is now more important than ever,” Rudin said. This month, Canada’s banks started raising their mortgage prime rates or posted variable rates in what market watchers said was a response to moves by the federal government to cool the housing market. On Nov. 11, mortgage tracker RateSpy.com said the typical five-year discretionary variable rate for Canada’s six largest banks had increased to 2.3% from 2.25%.

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Warnings from all sides now.

Canada House Price Bubble Threatens ‘Financial Stability’ (WS)

In its economic outlook released today, the OECD is generally gung-ho about the Canadian economy, and practically bubbling over with new enthusiasm for the global economy. It now expects global growth to accelerate from 2.9% this year to 3.3% in 2017 and to 3.6% in 2018. Call it the “Trump effect” gone global. But for Canada, despite its hunky-dory economy due to the “moderately expansionary policy stance in the 2016 federal budget,” the OECD has a stark warning: “House prices, housing investment and household debt are very high, posing financial stability risks.” The OECD’s chart shows the house price indices for Vancouver and Toronto, which make up about one-third of the national housing market, versus the index for the rest of Canada. Note the hook at the top of the red line: a feeble sign that house prices in Vancouver might be heading south:

A “disorderly housing market correction,” as envisioned by the OECD, would reduce residential investment, which has become a key in the Canadian economy. Through the reverse “wealth effects,” private consumption would take a hit, and in the end the banks are on the line, and it “could threaten financial stability.”The indebtedness of Canadian households, when measured against disposable income, continues to “edge up from already high levels,” encouraged and enabled by low interest rates. Of the OECD member states, only six have higher debt-to-disposable income ratios: Ireland, Sweden, Australia, Norway, the Netherlands, and Denmark (the last two with a ratio of over 250%). All of them have majestic government-aided and abetted housing bubbles. For American debt slaves, this measure is just over 100%, below where Canada’s was in 2000!

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Strange circus.

Security Experts Join Jill Stein’s ‘Election Changing’ Recount Campaign (G.)

More election security experts have joined Jill Stein’s campaign to review the presidential vote in battleground states won by Donald Trump even as she sues Wisconsin to secure a full recount by hand of all of its 3m ballots. Half a dozen academics and other specialists on Monday submitted new testimony supporting a lawsuit from Stein against Wisconsin authorities, in which she asked a court to prevent county officials from carrying out their recounts by machine. Stein argued that Wisconsin’s plan to allow automatic recounting “risks tainting the recount process” because the electronic scanning equipment involved may incorrectly tally the results and could have been attacked by foreign hackers.

“There is a substantial possibility that recounting the ballots by hand will produce a more correct result and change the outcome of the election,” Stein argued in the lawsuit in Dane County circuit court. A copy was obtained by the Guardian. Stein, the Green party’s presidential election candidate, is working to secure full recounts in the states of Michigan, Pennsylvania and Wisconsin, where Trump surprised pollsters by narrowly beating Clinton on his way to a national victory in the electoral college. A petition from Stein requesting a recount was accepted by Wisconsin last Friday.

Her efforts to obtain a recount in Pennsylvania met serious difficulties on Monday as it became clear she needed three voters in each of the state’s 9,163 voting precincts to request a recount on her behalf, and that deadlines to do so had passed in many precincts. Wisconsin also told Stein on Monday that the recount, which was previously estimated to cost $1m, would actually cost her $3.5m and that the funds must be produced by the end of Tuesday. Stein has raised more than $6m for the three-state recount effort using online crowdfunding.

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One of these years….

France and Britain In Danger of Winter Power Shortages (BBG)

France and the U.K. are the two nations in Europe most at risk of power shortages this winter, particularly if there is a cold snap in early December or January. With availability of Electricite de France’s French nuclear fleet at the lowest level in a decade, the nation will need to rely on imports during several weeks and adding a cold spell to that could make the situation “tense,” according to European grid group Entsoe’s Winter Outlook report. Britain may face a power deficit in early January if temperatures fall below average, it said in the report. The Entsoe analysis indicated that even under severe conditions, demand can be met and reserves maintained across nearly all of Europe, thanks to surpluses in most regions and available interconnector capacity.

The U.K. potentially needs high imports from all neighboring countries in the week from Jan. 9. A combination of low wind and cold temperatures means there might be a deficit. Delays to restarts of several French reactors undergoing safety checks at the request of regulator ASN will mean “significantly” decreased margins in the first three weeks of December. French electricity demand is highly sensitive to cold weather and a drop of 1ºC below normal can add 2,400 megawatts, according to Entsoe. Reseau de Transport d’Electricite, the French grid operator, earlier this month warned of an increasing risk of power shortages in Europe’s second-biggest market. It has several options to reduce demand if needed, including the last-resort possibility of rolling blackouts. The U.K. has a reserve of power stations it can activate and National Grid has described this winter as “tight but manageable.”

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The EU has so far sent 35 of 500 promised ‘staffers’ for asylum proceedings. Slow it down and they don’t have to resettle refugees. Convenient.

Pressure Grows As Athens Eyes Faster Asylum Process (Kath.)

The municipal council on the Aegean island of Chios has voted against a government proposal to create a new reception center for migrants and refugees on the site of a former landfill with the aim of easing congestion at the existing Souda facility. Adding to the strain, heavy rainfall Monday flooded the Souda camp, forcing local authorities to transfer some 800 migrants and refugees into public buildings. On Lesvos, migrants and refugees marched in the island capital of Mytilene in protest at conditions at Moria camp, while demanding that they be allowed to leave the island. Meanwhile, Migration Minister Yiannis Mouzalas visited Germany to discuss ways of accelerating Greece’s asylum procedures within the framework of EU rules on refugee protection. According to official data, an additional 268 individuals arrived on Greece’s islands over the weekend.

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Obviously.

West Antarctic Ice Shelf Breaking Up From The Inside Out (AGU)

A key glacier in Antarctica is breaking apart from the inside out, suggesting that the ocean is weakening ice on the edges of the continent. The Pine Island Glacier, part of the ice shelf that bounds the West Antarctic Ice Sheet, is one of two glaciers that researchers believe are most likely to undergo rapid retreat, bringing more ice from the interior of the ice sheet to the ocean, where its melting would flood coastlines around the world. A nearly 225-square-mile iceberg broke off from the glacier in 2015, but it wasn’t until researchers were testing some new image-processing software that they noticed something strange in satellite images taken before the event. In the images, they saw evidence that a rift formed at the very base of the ice shelf nearly 20 miles inland in 2013.

The rift propagated upward over two years, until it broke through the ice surface and set the iceberg adrift over 12 days in late July and early August 2015. Their findings were published today in Geophysical Research Letters, a journal of the American Geophysical Union. “It’s generally accepted that it’s no longer a question of whether the West Antarctic Ice Sheet will melt, it’s a question of when,” said Ian Howat, associate professor of Earth sciences at Ohio State and lead author of the new study. “This kind of rifting behavior provides another mechanism for rapid retreat of these glaciers, adding to the probability that we may see significant collapse of West Antarctica in our lifetimes.”

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No return.

Scientists Record Biggest Ever Coral Die-Off On Great Barrier Reef (R.)

Warm seas around Australia’s Great Barrier Reef have killed two-thirds of a 700-km (435 miles) stretch of coral in the past nine months, the worst die-off ever recorded on the World Heritage site, scientists who surveyed the reef said on Tuesday. Their finding of the die-off in the reef’s north is a major blow for tourism at reef which, according to a 2013 Deloitte Access Economics report, attracts about A$5.2 billion ($3.9 billion) in spending each year. “The coral is essentially cooked,” professor Andrew Baird, a researcher at James Cook University who was part of the reef surveys, told Reuters by telephone from Townsville in Australia’s tropical north. He said the die-off was “almost certainly” the largest ever recorded anywhere because of the size of the Barrier Reef, which at 348,000 sq km (134,400 sq miles) is the biggest coral reef in the world.

Bleaching occurs when the water is too warm, forcing coral to expel living algae and causing it to calcify and turn white. Mildly bleached coral can recover if the temperature drops and the survey found this occurred in southern parts of the reef, where coral mortality was much lower. While bleaching occurs naturally, scientists are concerned that rising sea temperatures caused by global warming magnifies the damage, leaving sensitive underwater ecosystems unable to recover. UNESCO’s World Heritage Committee stopped short of placing the Great Barrier Reef on an “in danger” list last May but asked the Australian government for an update on its progress in safeguarding the reef.

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Nov 242016
 
 November 24, 2016  Posted by at 9:49 am Finance Tagged with: , , , , , , , , , , ,  2 Responses »
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Kennedy and Johnson Morning of Nov 22 1963


Another Election Year, Another Bunch Of Fake Growth Numbers (John Rubino)
China Vows To Defend Trade Rights In Face Of Trump Tariff Threats (R.)
IMF: Chinese Banks Disguise A Massive Amount Of Bad Debt (BI)
The ‘Ownership Society’ Came And Went – A Long Time Ago (MW)
How (Slightly) Higher Mortgage Rates Maul Housing Bubble 2 (WS)
‘Brexit Will Blow £59 Billion Hole In UK Public Finances’ (G.)
Pro-Brexit Lawmakers Attack Fiscal Watchdog’s Gloomy Outlook (BBG)
Capital Flight From Italy (Reinhart)
Jill Stein Raises Over $2 Million To Request US Election Recounts (G.)
Bernie Sanders Should Visit Trump Sooner Rather Than Later (NYDN)
Merkel Warns Against Fake News Driving Populist Gains (AFP)
Putin: EU Resolution Equating RT to ISIS A ‘Degradation Of Democracy’ (R.)
US Navy’s New $4 Billion Stealth Warship Breaks Down – Again (ZH)
Greece Wants To Conclude EU/IMF Review, Won’t Accept ‘Irrational’ Demands (R.)
Greek Businesses Move Abroad To Escape Austerity (R.)

 

 

“So why the approximately $1.8 trillion surge in government borrowing? Because a robustly-healthy economy was necessary to help the party in power stay in power.”

Another Election Year, Another Bunch Of Fake Growth Numbers (John Rubino)

Some pretty good economic reports have energized various parts of the financial markets lately. Consumer spending is up, GDP is exceeding expectations and even factory orders, that perennial downer, popped this morning. In response the dollar is soaring and interest rates are at breaking out of their multi-decade down-channel. The economy is clearly recovering, implying a return to normality. Right? Nah, it’s just the usual election year illusion. When the presidency is at stake the party in power always pumps up spending in an attempt to put people back to work and create the impression of a well-run country whose leaders deserve more time in the spotlight. After the election, spending returns to trend and the resulting bad news gets buried in “political honeymoon” media coverage.

How do we know this year is following the script? By looking at the federal debt. If the government is borrowing more than usual and (presumably) spending the proceeds, then it’s likely that the economy is getting a bit more than its typical diet of stimulus. So here you go: Note that after seven years of massive increases, the federal debt plateaued in 2015, which is what you’d expect in the late stages of a recovery. With full employment approaching and asset prices high, there should be plenty of tax revenues flowing in and relatively few people on public assistance, so the budget should be trending towards balance. Well, more people are working this year than last, and stock, bond and home prices all rose in the first half of the year. So why the approximately $1.8 trillion surge in government borrowing? Because a robustly-healthy economy was necessary to help the party in power stay in power.

This is a huge jump in government debt, even by recent standards. And its impact is commensurately large, accounting for a big part of the “growth” seen in recent months. But it’s also unsustainable. You don’t double a government’s debt in a single decade (from an already historically high level) and then keep on borrowing. At some point an extreme event or policy choice will put an end to the orgy. Either the markets impose discipline through a crisis of some sort, or the government adopts a policy of currency devaluation or debt forgiveness. And – in a nice ironic twist – the people who did the insanely-excessive borrowing are leaving town, to be replaced by folks who will inherit something unprecedented, with (apparently) no clear idea of what’s coming or what will be necessary in response.

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Protectionism and globalism in one.

China Vows To Defend Trade Rights In Face Of Trump Tariff Threats (R.)

China will defend its rights under WTO tariff rules if US president-elect Donald Trump moves toward executing his campaign threats to levy punitive duties on goods made in China, a senior trade official has said. Zhang Xiangchen, China’s deputy international trade representative, also told a news conference in Washington on Wednesday that a broad consensus of academics, business people and government officials have concluded that China is not manipulating its yuan currency to gain an unfair trade advantage, as Trump has charged. “I think after Mr Trump takes office, he will be reminded that the United States should honour its obligations as a member of the WTO,” Zhang said through an interpreter. “And as a member of the WTO, China also has the right to ensure its rights as a WTO member.”

Trump has said China is “killing us” on trade and that he would take steps to reduce the large US goods trade deficit with China, including labelling Beijing as a currency manipulator soon after he takes office and levying duties of up to 45% on Chinese goods to level the playing field for US manufacturers. Trump said on Monday he will formally exit the 12-country TPP trade deal in January. China is not a signatory to the TPP. Zhang, who spoke at the closing news conference for a two-day technical meeting of US and Chinese trade officials in Washington, was not specific on what steps China would take to protect its rights under WTO rules. The global trading body prohibits members from unilaterally raising tariffs above levels that they have committed to maintain.

China’s state-run Global Times newspaper last week warned that a 45% Trump tariff would paralyse US-China bilateral trade. “China will take a tit-for-tat approach then. A batch of Boeing orders will be replaced by Airbus. US auto and [Apple] iPhone sales in China will suffer a setback, and US soybean and maize imports will be halted,” the newspaper warned.

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Shadow securities. US redux.

IMF: Chinese Banks Disguise A Massive Amount Of Bad Debt (BI)

China’s banks are disguising bad debts by turning them into “securitized packages” rather than writing them down as non-performing loans, according to the IMF. The “untradeable debt” comes from China’s “shadow credit” world, which has generated a massive amount of credit that has the potential to become suddenly illiquid. The debts consist of interbank loans in “a structure potentially susceptible to rapid risk transmission and destabilizing liquidity events,” the IMF says. The amount of “shadow credit” grew 48% in 2015, to RMB 40 trillion ($580 billion), the IMF says, “equivalent to 40% of banks’ corporate loans and 58% of GDP.” If any of this sounds familiar, that’s because it is. It’s similar in principal to the way American banks disguised bad mortgages inside securitized packages before the Great Financial Crisis of 2007-2008.

Back then, US mortgage providers gave out too many loans to people who couldn’t repay them. On its own, that should not have been a problem. A mortgage default only hurts the bank that made the loan. But banks bundled together packages of those mortgages and sold them as “mortgage-backed securities” to other institutions. Bad mortgages were mixed in with good ones, making it impossible for investors to judge their quality. When it became obvious that some of these packages were toxic, no one wanted to buy any them. The market became suddenly illiquid. And the credit derivative hedges and leveraged bets layered upon them magnified the problem throughout the entire banking system, creating the financial collapse that plunged most of the world into recession.

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It was always just a fabricated dream.

The ‘Ownership Society’ Came And Went – A Long Time Ago (MW)

Of all the aftereffects of the housing bust and financial crisis, the steady decline in the homeownership rate might be among the most pernicious. Homeownership is traditionally one of the best means into the middle class, and it’s still popularly equated with the American Dream. But in a presentation last week, St. Louis Federal Reserve economist William Emmons demonstrated that homeownership has been losing ground for decades. What’s more, Emmons showed that higher ownership rates were likely coaxed along by government policies and national priorities appropriate for a certain moment in history and unsustainable beyond that. After the Depression, Emmons noted, New Deal policies “laid the foundation” for a huge increase in homeownership.

Those policies included the creation of a government financial system, such as the Federal Housing Administration, Fannie Mae, and the Federal Home Loan Banks. But just as important was the return of millions of service members from World War II, rising incomes and a prosperous economy, a national push for a country full of suburban single-family homes and highways to connect them all, as well as a national process of Americans “sorting themselves out” by race and class into the broad geographic outlines that would persist for decades. That meant the U.S. enjoyed robust growth – until it didn’t. Not only was there little room left to grow, but other changes began to influence ownership, Emmons said. Americans began to age, pushing off marriage, childbearing and home-buying until later.

The U.S. is also becoming more racially and ethnically diverse. Hispanics and African-Americans have traditionally had more limited opportunities to achieve homeownership – but as Emmons pointed out, citing research from the Harvard Joint Center for Housing Studies, “aspirations to own a home are higher among African-Americans and Latinos than among whites and Asians, despite homeownership rates that are 20 to 30 percentage points lower.” And while much of the impact of the 2008 crash has ebbed, it still continues to impact many people through diminished personal wealth, damaged credit scores, blighted neighborhoods, and some loss of trust in financial institutions.

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How ‘little things’ add up.

How (Slightly) Higher Mortgage Rates Maul Housing Bubble 2 (WS)

After the brutal beating following Election Day, US Treasuries took a breather early this week. But today, the beating resumed and will continue until the mood improves. Mid-day, the 10-year Treasury fell so hard that its yield, which moves in the opposite direction of price, spiked to 2.42%. By the end of the day, the 10-year yield was at 2.36%, up 4 basis points for the day, and up an entire percentage point from July this year: The market is 100% certain that the Fed will stop flip-flopping in mid-December and raise rates by moving the upper limit of the Fed funds target range to 0.75%. The markets see more rate hikes next year. A Fed funds rate with the first “1”-handle since 2008 would be a phenomenon a whole generation of Wall Street gurus has never seen in their professional lives.

Mortgage rates are chasing after Treasury rates. The Mortgage Bankers Association reported today that the 30-year fixed-rate conforming mortgage ($417,000 or less) reached 4.16%, its “highest weekly average since the beginning of 2016.” This caused a flurry of activity. Last week, amid the post-election interest rate spike, mortgage applications plunged. But homebuyers may be trying to lock in whatever rate they can get, before they go even higher, and mortgage applications surged. Ironically, from a historical point of view, nothing major has happened so far. That spike is still small compared to what came before, including the spike during the Taper Tantrum in the summer of 2013, when the Fed started musing about ending QE Infinity. Compared to prior years, rates are still very, very low, but home prices have since soared, and for home buyers even a minor uptick makes a world of difference.

From the peak of Housing Bubble 1, which in San Francisco occurred in 2007, to Q3 2016, the median house price soared 45%. But due to plunging mortgage rates, the monthly housing costs increased only 14%. Now with rates rising, that process is going to reverse. The household income needed to qualify for a 30-year fixed rate mortgage with 20% down on that median $1.3 million house in San Francisco was $251,000 before Election Day. Paragon observes: “By Friday, November 18, the income requirement increased by $13,000. And if the interest rate goes up to 5% (and again, we are not saying it will), an additional $35,000 in annual income would be required.”

Hence, at 5%, a minimum qualifying household income of $286,000 a year. In this scenario, even in less costly markets, there are two things that happen: One, many people have to step down to a lower-priced home, or they don’t buy at all. A market-wide shift of this type puts downward pressure on prices and volume. And two, as people stretch more to buy homes at higher interest rates and higher monthly costs, they have even less money to spend on other things. This creates a new drag on consumer spending. It’s how low mortgage rates not only subsidized the house price bubble but the entire economy by giving consumers more money to spend – not just the US economy but exporter nations around the world.

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Or will it?

‘Brexit Will Blow £59 Billion Hole In UK Public Finances’ (G.)

Philip Hammond conceded that Brexit will blow a £59bn black hole in the public finances over the next five years, as he outlined plans to boost investment in infrastructure and housing to equip the UK economy for life outside the EU. In his first fiscal statement, the chancellor, who had supported remain, sought to strike a cautiously upbeat tone about the country’s prospects, saying the economy had “confounded commentators at home and abroad with its strength and its resilience” since the referendum result last June. But the first official projections conducted after the vote of the likely impact of leaving the EU pointed to significantly weaker growth after Brexit. The Office for Budget Responsibility (OBR) announced that there would be a cumulative £122bn of extra borrowing over the next five years, with £59bn of that as a direct result of Brexit.

Other factors included weaker-than-expected tax revenues, and policy changes, including Hammond’s decision to spend more on infrastructure. George Osborne was expecting to achieve a surplus of £11bn on the public finances by 2020-21; instead, the OBR is now forecasting a £21bn deficit – and public debt is expected to peak at more than 90% of GDP. With little cash to spare, Hammond offered only modest handouts to the “just about managing” families (Jams) Theresa May’s government had said it wanted to help, although he repeatedly used the mantra of “building an economy that works for everyone”. The chancellor announced a renewed freeze in fuel duty, to help motorists – largely paid for with an increase in insurance premium tax from 10% to 12% – and a partial reversal of planned cuts to universal credit.

But Labour said there was no cash for either the NHS or social care, which are under increasing strain with winter approaching. Instead, the main thrust of Hammond’s first set-piece outing at the dispatch box was how to help Britain withstand the challenges of leaving the EU.

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Agree to disagree.

Pro-Brexit Lawmakers Attack Fiscal Watchdog’s Gloomy Outlook (BBG)

Conservative lawmakers attacked Britain’s fiscal watchdog after it warned that Brexit would cost £60 billion ($75 billion) in extra borrowing as the economy falters. The Office for Budget Responsibility’s forecast — the first official assessment of the costs related to leaving the bloc – also stated that exiting the EU would leave Britain with less potential for sustainable growth. Chancellor of the Exchequer Philip Hammond, who presented the forecasts alongside his Autumn Statement Wednesday, said the predictions showed there is an “urgent” need for Britain to tackle its long-term economic weaknesses. “We’ve had an endless slew of gloom and doom, and I just don’t buy it,” said Kwasi Kwarteng, a Tory lawmaker who backed the campaign to leave the EU. “They haven’t exactly had a brilliant track record. I’d take their predictions with a pinch of salt.”

Pro-Brexit lawmakers have been critical of both the OBR and the Treasury for overstating the negative consequences of Brexit. While Hammond made brief references to the opportunities that leaving may bring, his tone was one of caution, with few giveaways and a focus on creating a more productive economy that could weather future shocks. Responding to complaints from pro-Brexit politicians, Hammond told lawmakers that economic forecasting “is not a precise science.” He added: “The OBR very specifically says in its report that there is an unusually high degree of uncertainty in the forecasts it is making because of the unusual circumstances.”

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It’s high time for Italy to go its own separate ways. There’s nothing to gain from the EU anymore, but lots to lose.

Capital Flight From Italy (Reinhart)

Understandably, after the surprise victory in June of the “Leave” campaign in the United Kingdom’s Brexit referendum, and of Donald Trump in the United States’ presidential election, no one has much faith in polls in advance of the Italian vote. There is, however, a disquieting real-time poll of investors’ sentiment: capital flight from Italy has accelerated this year. There is a recent precedent for this. In the summer of 2015, Greece’s short-lived default on its IMF loan and the introduction of capital controls and deposit-withdrawal restrictions were at the center of the eurozone drama. Tensions between the Greek and German governments ran high, and speculation about whether Greece would remain in the eurozone escalated.

The stage has now shifted to the much larger Italian economy. In the current environment of uncertainty, yield spreads on Italian bonds have widened to about 200 basis points over German bunds. Economic and political conditions in the two debt-laden southern European economies differ in important respects; but there are also similarities. Economic growth in both countries has lagged far behind other advanced economies for more than a decade, but most markedly since the Global Financial crisis of 2008-2009. According to IMF estimates, real per capita income in Italy is about 12% below what it was in 2007, with only Greece faring worse. The problem of bank insolvency, endemic in Greece, where nonperforming loans account for more than one-third of bank assets, is not as generalized in Italy.

Still, the uncertain resolution of Italy’s third-largest bank, Monte dei Paschi, together with the Italian government’s limited resources to deal with weak banks, has fueled unease among depositors. Bankers also warn that the plan for Monte dei Paschi’s rescue may be jeopardized by the December referendum, which could trigger another round of decline in share prices. But, for all the talk of a looming banking crisis, the balance-of-payments crisis already underway in Italy since the first half of 2016 is the main factor driving the real-time poll of investors. Prior to the adoption of the euro, an unsustainable balance-of-payments position in Italy (as in other countries with their own currencies) would typically spur the central bank to raise interest rates, thereby making domestic financial assets more attractive to investors and stemming capital flight. With the ECB setting monetary policy for the eurozone as a whole, this is no longer an option for Banca d’Italia.

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Nostalgia for hanging chads.

Jill Stein Raises Over $2 Million To Request US Election Recounts (G.)

Jill Stein, the Green party’s presidential candidate, is prepared to request recounts of the election result in several key battleground states, her campaign said on Wednesday. Stein launched an online fundraising page seeking donations toward a a multimillion-dollar fund she said was needed to request reviews of the results in Michigan, Pennsylvania and Wisconsin. Before midnight EST on Wednesday, the drive had already raised more than the $2m necessary to file for a recount in Wisconsin, where the deadline to challenge is on Friday. Stein said she was acting due to “compelling evidence of voting anomalies” and that data analysis had indicated “significant discrepancies in vote totals” that were released by state authorities.

“These concerns need to be investigated before the 2016 presidential election is certified,” she said in a statement. “We deserve elections we can trust.” The fundraising page said it expected to need around $6m-7m to challenge the results in all three states. Stein’s move came amid growing calls for recounts or audits of the election results by groups of academics and activists concerned that foreign hackers may have interfered with election systems. The concerned groups have been urging Hillary Clinton, the defeated Democratic nominee, to join their cause.

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As I said yesterday in “Trump Moves as America Stands Still”.

Bernie Sanders Should Visit Trump Sooner Rather Than Later (NYDN)

Trump aside, evidently the most clairvoyant messenger of 2016 was Sanders, who got pitifully little support from the Democratic Party establishment — including a raw deal from the DNC, which tilted the scales against him in order to coronate Hillary. His brand of anti-Wall Street, anti-elite populism is ascendant. He is the tribune of the progressive youth, many of whom refused to back Hillary despite her repeated (and hollow) entreaties. So what should Sanders do now? Well, how about meeting with the new President-elect? It might seem incongruous. What would the nationalist, brash Trump have to gain from the aging socialist Sanders? Well, maybe quite a bit. Trump explicitly proclaimed during the campaign that he was going to take a page from Bernie’s playbook, much to the consternation of conservative pundits.

“I’m going to be taking a lot of the things Bernie said and using them,” Trump declared in April. And indeed, Trump followed through on the pledge: He made opposition to the Trans-Pacific Partnership a centerpiece of his campaign, thus emphasizing an area of agreement with Sanders. (Trump has since confirmed that the trade deal will be canceled.) He called for a reduced U.S. military presence abroad. And he even repeatedly defended Sanders before millions of people at the televised debates, pointing out that he’d been screwed over by the DNC and Clinton minions. Naturally, Trump and Sanders will never agree on everything, but where they do see eye-to-eye, why not take advantage?

Two days after the election, Sanders issued a statement noting Trump’s success at connecting with folks “sick and tired of establishment economics, establishment politics and the establishment media.” Sanders then offered to “work with” him on discrete initiatives. Trump has already announced that an infrastructure funding bill is one of his top priorities, so who better than Sanders to help steer the legislative process in the most fruitful possible direction? (Bernie this week characterized Trump’s plan as a “scam,” so why not register those concerns in person?)

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Sounds desperate.

Merkel Warns Against Fake News Driving Populist Gains (AFP)

German Chancellor Angela Merkel warned Wednesday against the power of fake news on social media to spur the rise of populists, after launching her campaign for a fourth term. Speaking in parliament for the first time since her announcement Sunday that she would seek re-election next year, Merkel cautioned that public opinion was being “manipulated” on the internet. “Something has changed – as globalisation has marched on, (political) debate is taking place in a completely new media environment. Opinions aren’t formed the way they were 25 years ago,” she said. “Today we have fake sites, bots, trolls – things that regenerate themselves, reinforcing opinions with certain algorithms and we have to learn to deal with them.”

Merkel, 62, said the challenge for democrats was to “reach and inspire people – we must confront this phenomenon and if necessary, regulate it.” She said she supported initiatives by her right-left coalition government to crack down on “hate speech” on social media in the face of what she said were “concerns about the stability of our familiar order”. “Populism and political extremes are growing in Western democracies,” she warned. Last week, Google and Facebook moved to cut off ad revenue to bogus news sites after a US election campaign in which the global misinformation industry may have influenced the outcome of the vote. But media watchers say more is needed to stamp out a powerful phenomenon seen by some experts as a threat to democracy itself.

Merkel’s conservative Christian Democrats are the odds-on favourites to win the German national election, expected in September or October 2017.

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Well, we already knew the EU has gone crazy.

Putin: EU Resolution Equating RT to ISIS A ‘Degradation Of Democracy’ (R.)

The European Parliament called on the EU and its states to do more to counter Russian “disinformation and propaganda warfare” on Wednesday, drawing an angry response from President Vladimir Putin. A motion endorsing a committee report, which also called for more effort against attempts by Islamic State to radicalize Europeans, passed by 304 votes to 179. Members on the far left and far right were opposed; many in the center-left abstained. “The European Parliament … expresses its strong criticism of Russian efforts to disrupt the EU integration process and deplores, in this respect, Russian backing of anti-EU forces in the EU with regard, in particular, to extreme-right parties, populist forces and movements that deny the basic values of liberal democracies,” the 59-point motion read.

With East-West relations in deep freeze since Moscow responded to an EU pact with Ukraine by annexing Crimea in 2014, the Parliament’s report accused the Kremlin of funding media outlets that spread falsehoods and of sponsoring eurosceptic movements in Western Europe which are growing in strength. Putin said that after lecturing Russia on democracy Europe was now trying to silence dissenting opinions. He told reporters in Moscow: “We are observing a certain, quite obvious, degradation … of how democracy is understood in Western society, in this particular case in the European Parliament.” In Strasbourg, center-left lawmakers said they could not endorse the report because Russia was not alone in posing such threats and they objected to the way it appeared to be given an equivalent status to the non-state militants of Islamic State.

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Not a bug but a feature. Given the multibillion ‘trouble’ with the JSF, what do you think the odds are the military-industrial complex makes broken equipemnt on purpose, for profit?

US Navy’s New $4 Billion Stealth Warship Breaks Down – Again (ZH)

For the second time in two months, The Navy’s new $4 billion stealth warship has broken down. As Military.com reports, the ripped-from-the-pages-of-a-sci-fi mag-looking USS Zumwalt is now in Panama for repairs after suffering a breakdown while passing through the Panama Canal on Monday evening. Military.com’s Hope Hodge Seck reports that a spokesman for U.S. 3rd Fleet, Cmdr. Ryan Perry, told Military.com that the commander of 3rd Fleet, Vice Adm. Nora Tyson, had instructed the USS Zumwalt, the first in a new class of stealthy destroyers, to remain at ex-Naval Station Rodman in Panama to address the engineering casualty. “The timeline for repairs is being determined now, in direct coordination with Naval Sea Systems and Naval Surface Forces,” he said in a statement.

“The schedule for the ship will remain flexible to enable testing and evaluation in order to ensure the ship’s safe transit to her new homeport in San Diego.” An official confirmed to Military.com that the ship had been transiting south through the canal en route to its new San Diego homeport when the incident occurred. The ship had to be towed to pier by the Panama Canal Authority, the official said. While details about what caused the breakdown were few, Navy Times – which first reported the incident – cited reports about problems with heat exchangers in the ship’s integrated power plant that had contributed to the mishap. [..]The ship also made headlines earlier this month when multiple outlets reported that the missiles fired from its 155mm Advanced Gun System, at $800,000 apiece, were too expensive for the Navy to buy in large quantities [..]

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But they’ve accepted tons of others already?!

Greece Wants To Conclude EU/IMF Review, Won’t Accept ‘Irrational’ Demands (R.)

Greece wants to conclude its bailout review but cannot accept what it sees as irrational demands on labor reform or for extra austerity, Prime Minister Alexis Tsipras said on Wednesday, in his first speech to lawmakers after a cabinet reshuffle. Negotiations between Greece and its official creditors – the EU and the IMF – hit a snag this week due to differences on fiscal targets, energy and labor reforms in the country, where one in four is unemployed. “The Greek government is fully consistent with what was agreed and has proven it has the political will to conclude the second bailout review without meaningless delays,” Tsipras told his Syriza party lawmakers. “But this does not mean we would discuss irrational demands.”

The mission chiefs overseeing Greece’s bailout program implementation left Athens on Tuesday. Government officials said talks would continue but the latest disagreements and a long-standing rift among the creditors on medium-term fiscal targets have clouded Greek hopes for a swift conclusion. Unpopular labor reforms, including collective bargaining, a mechanism to set the minimum wage and giving companies more freedom to lay off workers are the main sticking point in talks with lenders. Tsipras said differences could be bridged if there is political will on all sides, adding that an agreement could be reached by Dec. 5, when euro zone finance ministers will meet in Brussels.

“It is realistic but also absolutely necessary to conclude the talks soon to secure at the scheduled Dec. 5 … meeting the agreement needed on a political level in order to conclude the bailout review,” he said. Tsipras said this would pave the way for talks on debt relief measures, not only in the short term but also in the medium and long term, which would allow Greece to lower primary surplus targets beyond 2018, when its bailout program ends.

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The Troika forces Greece to strangle itself.

Greek Businesses Move Abroad To Escape Austerity (R.)

Greek businessman Prokopis Makris believes moving to Bulgaria three years ago was the best decision he ever made. The accountant shut his failing furniture company in Greece and opened a business helping other entrepreneurs move to Bulgaria to escape a 29% tax rate, which has jumped since Athens adopted austerity as part of an international bailout. “We are bombarded with taxes in Greece, businesses are being annihilated,” he says in his plush office overlooking the town square of Petritsi, a Bulgarian town about 12 km (seven miles) north of the border with Greece. The debt crises faced by Greece and several other European countries led to drastic spending cuts and tax increases to improve government finances.

But the higher taxes punished businesses forcing many to shut or move to lower tax jurisdictions such as Bulgaria or Cyprus, helping those economies but undermining the recovery needed to balance the books at home. The number of Greek owned businesses based in Bulgaria, where the corporate tax rate is only 10%, has risen to 17,000 from 2,000 in 2010, when Greece had its first bailout, according to Bulgarian authorities. The Greek government is concerned. It plans a series of tax audits in cooperation with Bulgaria to determine if these business defections are merely changes of address designed to avoid tax rather than a physical relocation of operations. [..] Six hundred kilometers north of Athens, the Greek-Bulgarian border is teeming with traffic. A ravine through mountains on the Greek side gives way to a sweeping valley where agriculture and vineyards are the mainstay of the local economy.

At two small industrial parks 5 km inside Bulgaria, Greek signs are everywhere, advertising storage and office space. “There are dozens of Greek businesses just in this area alone, from transport companies to textile businesses and construction materials,” said Yiorgos Kalaitzoglou who runs a logistics business out of one of the industrial parks where a sign reads, “Land of Opportunities”. Three years ago, his business was stuttering in Greece. He moved to Bulgaria, leaving his wife and family in Thessaloniki, Greece’s second largest city an hour’s drive away. “The taxman in Greece takes 70 to 90% of earnings, Greece simply doesn’t let you live,” the 50-year-old said as he walked through a warehouse stacked with ladders and paint tubs.

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