Jul 052017
 
 July 5, 2017  Posted by at 11:14 am Finance Tagged with: , , , , , , ,  4 Responses »


Fred Lyon Golden Gate Bridge painter 1947

We Have Fixed Issues That Caused Financial Crisis, Says Mark Carney (G.)
David Cameron Says People Who Oppose Austerity Are ‘Selfish’ (Ind.)
Judge To Review Ban On Prosecuting Tony Blair For Iraq War (G.)
The Grenfell Inquiry Will Be A Stitch-Up. Here’s Why (Monbiot)
Foreigners Account for Just 4.7% of Home Sales in Toronto Region (BBG)
China’s $162 Billion of Dealmaker Debt Raises Alarm
China’s Shadow Banking Lacks Sufficient Regulation: Central Bank (R.)
Arab States To Deliver Verdict On Qatar As Compromise Elusive (R.)
Why Do We Think Poor People Are Poor Because Of Their Own Bad Choices? (G.)
Austrian Troops To Control Migrants On Italy Border (R.)

 

 

Oh come on, get real. Heard that a million times before. This is insulting. Are people really stupid enough to believe Carney? Is he? Hell yeah. Well, here’s what Carney’s predecessor at the BOE, Mervyn King, said in 2007.

We Have Fixed Issues That Caused Financial Crisis, Says Mark Carney (G.)

Fundamental reforms undertaken since the US sub-prime mortgage market triggered the deepest global recession since the second world war have created a safer, simpler and fairer financial system, Mark Carney has said. With the 10th anniversary of the financial crisis next month, Carney said the world’s biggest banks were stronger, misconduct was being tackled, and the toxic forms of shadow banking were no longer a threat. Carney, as well as being governor of the Bank of England, is chairman of the Financial Stability Board, a body created by the G20 group of developed and developing nations in 2009 to recommend ways of remedying the flaws in the system highlighted by the crash.

In a letter to G20 leaders before their meeting in Hamburg later this week, Carney said: “A decade after the start of the global financial crisis, G20 reforms are building a safer, simpler and fairer financial system. The largest banks are considerably stronger, more liquid and more focused.” The FSB chairman said there were still issues to be addressed, such as the risks posed by developments in financial technology (fintech) and the increased vulnerability of digital systems to cyber-attack. But at a press conference in London on Monday, Carney said: “We have fixed the issues that caused the last crisis. They were fundamental and deep-seated, which is why it was such a major job.” The financial crisis of 2007 began in the US mortgage market but rapidly went global as it emerged that banks and unregulated shadow banks were massively exposed in the market for derivatives and did not have enough capital when losses started to mount.

Public anger towards the financial system grew when the biggest banks were bailed out by taxpayers because they were deemed “too big to fail”. Carney said in his letter: “The largest banks are required to have as much as 10 times more of the highest quality capital than before the crisis and are subject to greater market discipline as a consequence of globally agreed standards to resolve too-big-to-fail entities. “A decade ago, many large banks were woefully undercapitalised, with complex business models that relied on the goodwill of markets and, ultimately, taxpayers. A decade on, the largest banks have raised more than $1.5tn of capital, and all major internationally active banks meet minimum risk-based capital and leverage ratio requirements well in advance of the deadline.”

Read more …

Austerity is not about money, that has nothing to do with it. It’s about power, pure and simple.

David Cameron Says People Who Oppose Austerity Are ‘Selfish’ (Ind.)

David Cameron has intervened in the Cabinet row over easing up on austerity by attacking “selfish” politicians demanding higher spending. The former Prime Minister sided with Chancellor Philip Hammond by arguing it would be wrong to bow to growing public pressure and “let spending and borrowing rip”. A string of senior Tories, including Boris Johnson and Michael Gove, have called for the lifting of the one per cent pay cap on awards to millions of public sector workers. But Mr Cameron, speaking to a business conference in South Korea, said: “The opponents of so-called austerity couch their arguments in a way that make them sound generous and compassionate. “They seek to paint the supporters of sound finances as selfish or uncaring. The exact reverse is true. “Giving up on sound finances isn’t being generous, it’s being selfish: spending money today that you may need tomorrow.”

In addition to the row over the pay cap, Education Secretary Justine Greening is pushing for a £1bn cash injection to end school funding cuts. New demands for higher spending added to the pressures on Mr Hammond today, as councils warned they faced a £5.8bn funding gap by the end of the decade. Meanwhile, the Chancellor used a speech to business leaders last night to urge his colleagues to join a “grown-up debate” about how to pay for higher spending. Mr Hammond acknowledged the public was “weary” of austerity, but insisted “we must hold our nerve” and not simply borrow more. Paul Johnson, director of the respected Institute for Fiscal Studies, said “political discipline seems to have fallen apart” in the Cabinet. Alistair Darling, the former Labour Chancellor, said the sight of Cabinet ministers publicly criticising the Chancellor over public sector pay made the Government appear “shambolic”.

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Don’t get your hopes up.

Judge To Review Ban On Prosecuting Tony Blair For Iraq War (G.)

The most senior judge in England and Wales will hear a case attempting to overturn a ban on prosecuting Tony Blair over the Iraq war, the Guardian has learned. A private criminal prosecution against the former Labour prime minister was blocked in 2016 by Westminster magistrates court when it was ruled Blair would have immunity from any criminal charges. But that ruling by the district judge, Michael Snow, will be reviewed on Wednesday before the lord chief justice, Lord Thomas of Cwmgiedd, and Mr Justice Ouseley. The current attorney general, Jeremy Wright QC, wants the block on proceedings upheld. He will have a barrister in court to try to stop the attempted private prosecution. The hearing follows a decision by the high court in May, which has not previously been reported.

Then a high court judge said those wanting to prosecute Blair could have a hearing to seek permission for a court order allowing their case to go to the next stage. The judge in that case also said the attorney general could formally join in the case. Blair caused controversy when prime minister in deciding to take Britain into the invasion of Iraq in 2003, which was led by the US and sparked huge opposition. The private prosecution seeks a war crimes trial in a British court of Blair, the foreign secretary in 2003, Jack Straw, and Lord Goldsmith, the attorney general at the time the government was deciding to join the invasion of Iraq. The case seeks their prosecution for the crime of aggression. The attorney general in written submissions for Wednesday’s hearing says such an offence does not exist in English law, a claim which is disputed.

The private prosecution attempt is based on the findings of last year’s Chilcot report into the decision by Blair to join the invasion of Iraq, which is criticised, under the false pretext that Saddam Hussein’s regime had weapons of mass destruction. After the Chilcot report was released some families of British service personnel who lost their lives in Iraq said they wanted Blair prosecuted in the courts. This attempt at a private prosecution is brought by Gen Abdul-Wahid Shannan ar-Ribat, former chief of staff of the Iraqi army who is now living in exile. His lawyers are Michael Mansfield QC and Imran Khan, who acted for the family of Stephen Lawrence. In November 2016, a British court ruled against an application to bring a private prosecution. A district judge at Westminster magistrates court ruled Blair had immunity from prosecution over the Iraq war and that any case could also “involve details being disclosed under the Official Secrets Act”.

At the hearing at the Royal Courts of Justice in central London, lawyers for the attorney general will argue that the crime of aggression, while existing in international law, has never been included into English law by parliament. But the government’s stance appears to be undermined by Goldsmith. In his 2003 memo on the legality of the Iraq war, Goldsmith appeared to concede the key point of those now seeking his prosecution. “Aggression is a crime under customary international law which automatically forms part of domestic law,” he wrote.

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Britain is one scary place. I’m reminded of Travis Bickle: “Someday a real rain will come and wipe this scum off the streets.”

The Grenfell Inquiry Will Be A Stitch-Up. Here’s Why (Monbiot)

We don’t allow defendants in court cases to select the charges on which they will be tried. So why should the government set the terms of a public inquiry into its own failings? We don’t allow criminal suspects to vet the trial judge. Why should the government approve the inquiry’s chair? Even before the public inquiry into the Grenfell Tower disaster has begun, it looks like a stitch-up, its initial terms of reference set so narrowly that government policy remains outside the frame. An inquiry that honours the dead would investigate the wider causes of this crime. It would examine a governing ideology that sees torching public protections as a sacred duty. Let me give you an example. On the morning of 14 June, as the tower blazed, an organisation called the Red Tape Initiative convened for its prearranged discussion about building regulations.

One of the organisation’s tasks was to consider whether rules determining the fire resistance of cladding materials should be removed for the sake of construction industry profits. Please bear with me while I explain what this initiative is and who runs it, as it’s a perfect cameo of British politics. It’s a government-backed body, established “to grasp the opportunities” that Brexit offers to cut “red tape” – a disparaging term for public protections. It’s chaired by the Conservative MP Sir Oliver Letwin, who has claimed that “the call to minimise risk is a call for a cowardly society”. It is a forum in which exceedingly wealthy people help decide which protections should be stripped away from lesser beings.

Among the members of its advisory panel are Charles Moore, who was editor of the Daily Telegraph and the chair of an organisation called Policy Exchange. He was also best man at Letwin’s wedding. Sitting beside him is Archie Norman, the former chief executive of Asda and the founder of Policy Exchange. He was once Conservative MP for Tunbridge Wells – and was succeeded in that seat by Greg Clark, the minister who now provides government support for the Red Tape Initiative. Until he became environment secretary, Michael Gove was also a member of the Red Tape Initiative panel. Oh, and he was appointed by Norman as the first chairman of Policy Exchange. (He was replaced by Moore.) Policy Exchange also supplied two of Letwin’s staff in the Conservative policy unit that he used to run.

Policy Exchange is a neoliberal lobby group funded by dark money, that seeks to tear down regulations. The Red Tape Initiative’s management board consists of Letwin, Baroness Rock and Lord Marland. Baroness Rock is a childhood friend of the former Tory chancellor George Osborne, and is married to the wealthy financier Caspar Rock. Marland is a multimillionaire businessman who owns a house and four flats in London, “various properties in Salisbury”, three apartments in France and two apartments in Switzerland. In other words, the Red Tape Initiative is a representative cross-section of the British public. In no sense is it a self-serving clique of old chums, insulated from hazard by their extreme wealth, whose role is to decide whether other people (colloquially known as “cowards”) should be exposed to risk.

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“Ontario’s strong housing market is a reflection of our growing economy,” Charles Sousa, the province’s minister of finance, said..

Foreigners Account for Just 4.7% of Home Sales in Toronto Region (BBG)

The Ontario government said overseas buyers accounted for just 4.7% of home purchases in the Toronto area over a recent one-month period. The new data is in line with other surveys, signaling that foreigners haven’t been major drivers of real estate prices in one of Canada’s most expensive markets. Non-residents bought about 860 properties between April 24 to May 26 in the so-called greater golden horseshoe region of Ontario which includes Toronto, Hamilton and Peterborough, the province said in a statement Tuesday. The finance and housing ministries began compiling the figures as part of a new housing plan announced in April meant to make homes more affordable and accessible for Canadian residents. One of the measures included a 15% levy as of April 21 on foreign investors buying residential property in Toronto and nearby cities.

“Ontario’s strong housing market is a reflection of our growing economy,” Charles Sousa, the province’s minister of finance, said in a statement. “While this is great news for the province, the resulting increase in speculative purchases and a spike in home prices created affordability challenges for many and posed a risk to the market.” Toronto is the latest Canadian city to target non-resident buyers, who are often accused of driving up the price of homes by using them as an investments. Prices and sales in the city had been on a tear until early this year, prompting some to point to non-resident factors as a source of the heat. Vancouver last year imposed a 15% foreign buyer tax that preceded a slowdown of sales and price growth, though it was short-lived as the market picks up speed again. Both cities followed the lead by Australia, which forces offshore buyers to purchase through a separate buying program.

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Buying the world with monopoly money.

China’s $162 Billion of Dealmaker Debt Raises Alarm

China struck deal after deal to acquire companies abroad over the last few years. Now the bill is coming due. The nation’s top corporate dealmakers, including HNA and Fosun International, must pay off the equivalent of at least $11.5 billion in bonds and loans by the end of 2018 – a feat now complicated by government efforts to rein in their aggressive rush overseas. That figure represents just a fraction of the total debt of 1.1 trillion yuan ($162 billion) that the Chinese companies have reported as they projected their money and influence around the world with a record number of acquisitions. The size of their obligations – and whether they will be able to shoulder them – has begun to worry global banks and investors now that Beijing has pressed companies to dial back their ambitions abroad.

“Those companies the banking regulator is checking on have very high financing demand for M&A activities,” said Xia Le, chief Asia economist at BBVA in Hong Kong. “But banks will heighten their risk control when lending to them going forward, which could increase their funding costs and hurt the pace of their expansion.” The moves threaten to end an era of easy access to money for the firms. People familiar with the matter said last month that China Banking Regulatory Commission asked some banks to provide information on overseas loans to HNA, Fosun, Anbang Insurance and Dalian Wanda. Yields on some bonds issued by the firms jumped. The CBRC is examining examples of acquisitions gone awry to assess potential risks to the financial sector, people familiar also said. To be sure, the companies, which are among the biggest private-sector firms in China, are sitting on a cash pile that they can tap to meet upcoming debt deadlines. They have more than 400 billion yuan of cash and cash equivalents…

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Too late now, boys.

China’s Shadow Banking Lacks Sufficient Regulation: Central Bank (R.)

China’s central bank said on Tuesday the shadow banking sector lacks sufficient regulation and the bank would give more prominence to financial risk controls. Compared with traditional bank lending, the opaque nature of shadow banking products make it easier for them to bypass regulatory requirements and provide credit to restricted areas, the People’s Bank of China said in its annual China Financial Stability Report released online. The central bank will increase supervision over the rapidly growing asset management industry to curb shadow banking risks, it said. Since the first quarter, the PBOC has included banks’ off-the-balance-sheet wealth management products in its examination of broad credit in its Macro Prudential Assessment (MPA) risk-tool.

The world’s second-largest economy faces major challenges, including excess industrial capacity, sluggish growth, high corporate leverage, mounting local government debt, property bubbles in some regions, and the deterioration of banking assets, the PBOC said in its report. As the economy still faces relatively big downward pressures, the bank pledged to create a favourable monetary and financial environment for the development of the real economy this year. The central bank also said it would strengthen coordination with other financial regulators to fend off systemic financial risks.

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Still can’t help wondering about the timing of this. Why now? What changed?

Arab States To Deliver Verdict On Qatar As Compromise Elusive (R.)

Arab states that have imposed sanctions on Qatar, accusing it of links to terrorism, were due to meet in Cairo on Wednesday to consider Doha’s response to a stiff ultimatum, but settlement of the dispute seemed far off. The editor of the Abu Dhabi government linked al-Ittihad newspaper wrote in an editorial that Qatar was “walking alone in its dreams and illusions, far away from its Gulf Arab brothers”. Foreign ministers of Saudi Arabia, the United Arab Emirates, Egypt and Bahrain will consider whether to escalate, or less likely abandon, the boycott imposed on Qatar last month that has rattled a key oil-producing region and unnerved strategic Western allies. Qatar faces further isolation and possible expulsion from the Gulf Cooperation Council (GCC) if its response to a list of demands made nearly two weeks ago is not deemed satisfactory.

The Arab countries have demanded Qatar curtail its support for the Muslim Brotherhood, shut down the pan-Arab al Jazeera TV channel, close down a Turkish base and downgrade its ties with regional arch-rival Iran. They view Qatar’s independent diplomatic stances and support for 2011 “Arab Spring” uprisings as support for terrorism and a dangerous breaking of ranks – charges Doha vigorously denies. Qatar has countered that the Arab countries want to curb free speech and take over its foreign policy, saying their 13 demands are so harsh they were made to be rejected. The gas-rich state had raised its international profile dramatically in recent years, drawing on huge gas revenues, and developed its economy with ambitious infrastructure projects. It is due to host the soccer world cup in 2022.

Qatari Foreign Minister Sheikh Mohammed bin Abdulrahman al-Thani said at a joint news conference with his German counterpart on Tuesday that its response was “given in goodwill and good initiative for a constructive solution”, but insisted that Doha would not compromise on its sovereignty. Gulf officials have said the demands are not negotiable, signaling more sanctions are possible, including “parting ways” with Doha – a suggestion it may be ejected from the GCC, a regional economic and security cooperation body founded in 1981. “A Gulf national may be obliged to prepare psychologically for his Gulf to be without Qatar,” the editor of the Abu Dhabi al-Ittihad newspaper said.

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The topic deserves better treatment than this.

Why Do We Think Poor People Are Poor Because Of Their Own Bad Choices? (G.)

Cecilia Mo thought she knew all about growing up poor when she began teaching at Thomas Jefferson senior high school in south Los Angeles. As a child, she remembered standing in line, holding a free lunch ticket. But it turned out that Mo could still be shocked by poverty and violence – especially after a 13-year-old student called her in obvious panic. He had just seen his cousin get shot in his front yard. For Mo, hard work and a good education took her to Harvard and Stanford. But when she saw just how much chaos and violence her LA students faced, she recognized how lucky she had been growing up with educated parents and a safe, if financially stretched, home. Now, as an assistant professor of public policy and education at Vanderbilt University, Mo studies how to get upper-class Americans to recognize the advantages they have.

She is among a group of scholars trying to understand how rich and poor alike justify inequality. What these academics are finding is that the American dream is being used to rationalize a national nightmare. It all starts with the psychology concept known as the “fundamental attribution error”. This is a natural tendency to see the behavior of others as being determined by their character – while excusing our own behavior based on circumstances. For example, if an unexpected medical emergency bankrupts you, you view yourself as a victim of bad fortune – while seeing other bankruptcy court clients as spendthrifts who carelessly had too many lattes. Or, if you’re unemployed, you recognize the hard effort you put into seeking work – but view others in the same situation as useless slackers. Their history and circumstances are invisible from your perspective.

Here’s what has gone wrong: hard work and a good education used to be a sure bet for upward mobility in the US – at least among some groups of people. Americans born in the 1940s had a 90% chance of doing better economically than their parents did – but those born in the 1980s have only 50/50 odds of doing so.

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Oh yes, the EU will fail yet.

A comment on Twitter: “The last time Austria had tanks on the Italian border it lost Trent and Trieste.”

Austrian Troops To Control Migrants On Italy Border (R.)

Austria is planning to impose border controls and possibly deploy troops to cut the number of migrants crossing from Italy, defense officials said, drawing a warning from Rome and reigniting a row over Europe’s handling of the refugee crisis. Tensions between European Union countries over how to share the burden of migrants flared in 2015 when hundreds of thousands, many fleeing wars in Africa and the Middle East, began arriving in EU territory, mainly via Greece, and headed for Germany, Austria and other nearby affluent states. Austria took in more than 1 percent of its population in asylum seekers at the time, which helped increase support for the far-right Freedom Party. Keen to avoid another influx, it said it would introduce controls at the busy Brenner Pass border crossing with Italy if one materialized there.

That has not yet happened but Italy recently asked other EU countries to help it cope with a surge in migrants reaching its southern Mediterranean shores from Africa, raising concern in Austria that many will soon show up at its border with Italy. That is a political hot potato in Austria, where a parliamentary election is scheduled in October with immigration shaping up as a central issue. Austrian Defence Minister Hans Peter Doskozil told the mass-circulation Kronen Zeitung in an interview published on Tuesday that he expected restrictions would be introduced along the Alpine boundary with Italy “very soon”. Other Austrian officials, including Interior Minister Wolfgang Sobotka, who oversees crossings like Brenner, said there was currently no reason to introduce controls and Austria remained vigilant, a stance Vienna has repeated for the past year.

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Dec 052016
 
 December 5, 2016  Posted by at 9:38 am Finance Tagged with: , , , , , , , , , ,  3 Responses »


Don’t let the door hit you on the way out..

Bloody Hell, John Key Just Quit As Prime Minister (Spinoff)
Trump Picks Twitter Fight With China (AFP)
Italy PM Renzi Quits After Crushing Referendum Defeat (AFP)
Italy Bank Recapitalizations A Harder Road After Referendum Flop (CNBC)
Austria Rejects Far-Right Candidate In Presidential Election (G.)
Greece Must Reform Or Leave Eurozone – Schäuble (G.)
Greece Sees Final Solution On Debt Crisis Amid Euro Uncertainty (R.)
Money-Laundering Networks Thrive Amid India’s Cash-Ban Chaos (BBG)
China Regulator Slams Leveraged Stock Acquirers as ‘Robbers’ (BBG)
Vancouver Housing Tax Pushes Chinese Into $1 Million Seattle Homes (BBG)
Pensions Time Bomb Spells Disaster For US Economy (RVTV)
US Reshaping Budget To Account For Russian Military Threat (R.)
Army Denies Dakota Pipeline Permit (R.)

 

 

“John Key took New Zealand, a nation of just 4.5m people, from almost no debt to $100 billion debt.” – Kim Dotcom

Bloody Hell, John Key Just Quit As Prime Minister (Spinoff)

It is one of the hoary rules of politics that leaders never – almost never – go of their own accord. But John Key, not for the first time, has proved his resistance to the forces of political gravity, announcing on Monday afternoon he will exit on his own terms. “For me this feels the right time to go,” the prime minister of New Zealand said. Already the conspiracy theorists are in full flight but there is no evidence to suggest he is doing anything but that: going on his own terms, sitting as strongly as ever, a year out from the next election. He’s only 55. A spring chicken in political terms.

Key said he “feels like I am going out on top”, that he had “never seen myself as a career politician” and “didn’t want to find myself in the position many leaders around the world find themselves, which is disgruntled and unhappy”. Some media are reporting he’s leaving “for family reasons”. But while he did say he’d made sacrifices on that front and family was “a factor”, this wasn’t a “spend more time with my family” exit, or not with that euphemistic freight. The National party under Key has been lauded, rightly, for its ability to renew, with underperforming MPs finding themselves nudged out or shouldered towards retirement. But now the prime minister has performed the biggest renewal of the lot. “To be blunt, I’ve taken the knife to some other people, and now I’ve taken the knife to myself.”

Read more …

Got to admit he’s way more entertaining in person than Saturday Night Live’s impression of him is. And these numbers are real:

“China charges an average 15.6% tariff on US agricultural imports and 9% on other goods [..] Chinese farm products pay 4.4% and other goods 3.6% when coming into the United States.”

Trump Picks Twitter Fight With China (AFP)

US President-elect Donald Trump fired a Twitter broadside at China on Sunday, accusing the Asian giant of currency manipulation and military expansionism in the South China Sea. The taunt came two days after Trump risked offending Beijing by accepting a call from the Taiwanese president, and heralded the prospect of a trade battle between the world’s largest economies. China was a frequent target of Trump’s during his presidential campaign and, as he prepares to take office next month, every sign points to his taking an aggressive line with Beijing. “Did China ask us if it was OK to devalue their currency (making it hard for our companies to compete), heavily tax our products going into their country (the US doesn’t tax them) or to build a massive military complex in the middle of the South China Sea?” he demanded, adding: “I don’t think so!”

China is the United States’ largest trading partner, but America ran a $366 billion deficit with Beijing in goods and services in 2015, up 6.6% on the year before. US politicians often accuse China of artificially depressing its currency, the renminbi, in order to boost its exports – its value has fallen by around 15% in the past two-and-half years. Trump has vowed to formally declare China a “currency manipulator” on the first day of his presidency, which would oblige the US Treasury to open negotiations with Beijing on allowing the renminbi to rise. With China holding about a trillion dollars in US government debt, Washington would have little leverage in such talks, but the declaration would harm ties and boost the prospect of a trade war. China charges an average 15.6% tariff on US agricultural imports and 9% on other goods, according to the WTO. Chinese farm products pay 4.4% and other goods 3.6% when coming into the United States.

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“Five Star founder and leader Beppe Grillo called for an election to be called “within a week”..” Not going to happen say the tea leaves.

Italy PM Renzi Quits After Crushing Referendum Defeat (AFP)

Italian Prime Minister Matteo Renzi announced his resignation on Monday, hours after it was confirmed he had suffered a crushing defeat in a referendum on constitutional reform. “My experience of government finishes here,” Renzi told a press conference, acknowledging that the No campaign had won an “extraordinarily clear” victory in a vote on which he had staked his future. Interior Ministry projections suggested the No camp, led by the populist Five Star Movement, had carried the vote by a margin of almost 60-40 with a near 70% turnout underlining the high stakes and the intensity of the debate. Markets seemed to take Renzi’s departure in their stride. Stocks and the euro fell in early trading in Asia but there were no signs of panic with the possibility of his resignation having already been largely factored in.

Renzi said he would be visiting President Sergio Mattarella on Monday to hand in his resignation following a final meeting of his cabinet. Mattarella will then be charged with brokering the appointment of a new government or, if he can’t do that, ordering early elections. Five Star founder and leader Beppe Grillo called for an election to be called “within a week” on the basis of a recently adopted electoral law which is designed to ensure the leading party has a parliamentary majority – a position Five Star could well find themselves in at the next election. [..] Most analysts see early elections as unlikely with the most probable scenario involving Renzi’s administration being replaced by a caretaker one dominated by his Democratic Party which will carry on until an election due to take place by the spring of 2018. Finance Minister Pier Carlo Padoan is the favourite to succeed Renzi as prime minister and the outgoing leader may stay on as head of his party – which would leave him well-placed for a potential comeback to frontline politics at the next election, whenever it is.

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Monte dei Paschi down 7.5% this morning. “Monte Paschi’s shares are trading at a 94% discount to the value of its assets.” “Italian households have highest share of wealth invested in bank bonds in the developed world..”

But Draghi to the rescue!

Italy Bank Recapitalizations A Harder Road After Referendum Flop (CNBC)

Recapitalization of Italy’s troubled banks will be harder following the failure of a referendum pushed by Prime Minister Matteo Renzi, with ratings agencies among key actors to watch as delays may loom as the country likely heads to early polls next year. Renzi resigned after failing to win a mandate to curb the powers of the upper house legislature, throwing into questions steps such as plans by Banca Monte dei Paschi di Siena to conduct a €5 billion capital increase this week, a solution backed by the outgoing premier. Barclays Economics Research, in a note to clients following the defeat, suggested that concerns surrounding Italian banks are growing.

“This outcome is likely to exacerbate concerns about the Italian banking sector and increase downgrade risks from rating agencies such as DBRS, although we do not expect rating agencies to act anytime soon, as they are likely to wait for political developments before taking any rating decision,” Barclays said in the Dec. 5 note. Italy’s banking sector has struggled with toxic debts as 14 of the largest banks sit on €286 billion of bad loans, debt securities and off-balance sheet items. Asset managers, insurers and banks had agreed earlier this year to set up a euro fund to bail out the weaker Italian lenders.

But other analysts suggest after the referendum result, investors might pull out. “[Investors] are now drawing back, they think the situation is too volatile both in Italy and in the European Union,” said Mark Grant, chief strategist at Hilltop Holdings, in a Squawk Box interview. “It’s going to be very difficult to do a raise of capital for Monte Paschi and the regional investment banks, and I think then what happens is Italy is going to be at loggerheads with the EU and the ECB,” Grant said.

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“.. a “small global turning of the tide in these uncertain, not to say hysterical and even stupid times..”

Austria Rejects Far-Right Candidate In Presidential Election (G.)

Austria has decisively rejected the possibility of the EU getting its first far-right head of state, instead electing a former leader of the Green party who said he would be an “open-minded, liberal-minded and above all a pro-European president”. Alexander Van der Bellen, who ran as an independent, increased his lead over the far-right Freedom party candidate, Norbert Hofer, by a considerable margin from the original vote in May, which was annulled by the constitutional court due to voting irregularities. Hofer conceded his defeat within less than half an hour of the first exit polls on Sunday, writing on Facebook: “I congratulate Alexander Van der Bellen for his success and ask all Austrians to pull together and work together.”

The 45-year-old, who said he was “endlessly sad” and “would have liked to look after Austria”, confirmed that he would like to run again for the presidency in six years’ time. The Freedom party secretary, Herbert Kickl, who has acted as Hofer’s campaign manager, said: “The bottom line is it didn’t quite work out. In this case the establishment – which pitched in once again to block, to stonewall and to prevent renewal – has won.” Speaking in front of international press at the end of the evening, a visibly emboldened Van der Bellen said the election had not just been a repeat, “but a new election after the world around us has changed” with the Brexit vote in June and Donald Trump’s win in November.

Referring to the colours of the Austrian flag, he described the result as “a red-white-and-red signal of hope and change to all the capitals in Europe”. Werner Kogler, a Green party politician, described the result as a “small global turning of the tide in these uncertain, not to say hysterical and even stupid times”. The endorsement of the retired economics professor was particularly emphatic in urban areas, with all of Vienna’s 23 districts showing up in Van der Bellen’s green than Hofer’s blue at the end of the night.

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The kind of headline where you really have to check the date of the article. But this is why Renzi lost, and this is why the EU will soon fall to bits.

Greece Must Reform Or Leave Eurozone – Schäuble (G.)

Greece must implement economic reforms if it is to keep its place in the eurozone, Germany’s finance minister has insisted, ruling out debt relief for the country ahead of a crucial euro group meeting on Monday. As the finance ministers of member states using the single currency prepared to discuss fiscal plans for the coming year, Wolfgang Schäuble in effect presented Greece with an ultimatum: either it must enforce unpopular structural reforms or exit the bloc. “Athens must finally implement the needed reforms,” he told the newspaper Bild am Sonntag in an interview published on Sunday. “If Greece wants to stay in the euro, there is no way around it – in fact completely regardless of the debt level.” Asked if German voters should be prepared for the inevitability of debt relief in the run-up to national elections next year, Schäuble quipped: “That would not help Greece.”

Schäuble, who also asserted the Greek budget was not burdened by debt servicing because interest rates were now so low, made the comments as speculation mounted over how best to put the thrice-bailed-out nation back on the road to economic recovery. On Friday the German finance ministry announced that short-term measures to lighten Greece’s debt load would be among the proposals up for discussion at the euro group meeting. Athens’s leftist-led government has long argued that the country’s staggering €330bn debt load is the single biggest impediment to sustainable growth. It is an argument that has won backing from the IMF. Time is of the essence. The economic crisis enveloping Greece is far from over despite more than €300bn of emergency loans since 2010 when, after its first brush with bankruptcy, it received its first EU-IMF sponsored bailout.

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Never let a good crisis go to waste.

Greece Sees Final Solution On Debt Crisis Amid Euro Uncertainty (R.)

Political uncertainty in Europe has created fresh momentum for a “comprehensive and permanent” solution to the Greek debt crisis before the year ends, a government spokesman said on Sunday. Eurozone finance ministers will meet in Brussels on Monday to discuss short-term debt relief for Greece, and Germany’s Wolfgang Schaeuble said it must implement reforms instead of hoping for further debt forgiveness. Greece remained optimistic for a final debt deal, however, just as Italians were voting on a constitutional referendum on Sunday and a victory for the opposition “No” camp may push the eurozone toward fresh crisis.

“Everyone realizes that Europe cannot stand a rekindling of the Greek crisis, when there are issues with Italy and amid a pre-election period in many European countries,” Dimitris Tzanakopoulos told Athens 9,84 radio. “The general uncertainty which prevails in Europe – which is both political and financial – creates … a momentum for a comprehensive and permanent solution for the Greek issue.” Bank of Greece Governor Yannis Stournaras said new measures were needed to lighten Athens’s debt burden. One option would be to extend the maturity of already granted long-term aid loans by some 20 years. “Greece needs debt sustainability and more realistic fiscal targets after the completion of the current adjustment program [in 2018],” Stournaras told German business daily Handelsblatt in an interview to be published on Monday.

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China and India, the world’s most populous countries, are both ruled by megalomaniacs. Thinking they are in full control.

Money-Laundering Networks Thrive Amid India’s Cash-Ban Chaos (BBG)

As Indians struggle with the chaos caused by last month’s sudden banning of their 500 and 1,000 rupee notes, money-laundering networks are spreading across the country, seizing on a new market in helping people turn their cash hoards into legal tender. While people have until year-end to deposit old notes in their bank accounts, the government has said it will scrutinize large cash deposits and money with undeclared origins — and will tax or penalize depositors. That’s created a scramble for ways to turn so-called black money, the local term for cash that has evaded taxation, into white.

Agents offering to launder money are using creative means, including flying banned cash by the planeload to northeastern states exempt from restrictions as well as connecting people to high-turnover businesses that can deem old cash as revenue, keep a portion of it, and return the rest, according to people involved in the networks. Premiums range from 10% to 50%, depending on the difficulty, they say. At least one property brokerage is offering to arrange the sale of apartments using banned money in an upscale suburb of Mumbai that’s popular with Bollywood movie stars.

While the government has been working to close loopholes – which Prime Minister Narendra Modi decried as people’s “illegal means to save their ill-gotten wealth” in a radio address last week – new ones are opening even faster. So far, the policy aimed at reducing the scale of the black economy and bringing more people into the tax net is, in the short term, leading to just the reverse: money-laundering, tax-avoidance, and new opportunities for existing organized crime, the evolution of the long-standing hawala money-transfer system, and the start of new illicit networks.

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“..you’ve gone from strangers at the gate, to barbarians and eventually robbers of the industry..”

China Regulator Slams Leveraged Stock Acquirers as ‘Robbers’ (BBG)

China’s top securities regulator resorted to unusually harsh language to denounce leveraged acquisitions of listed companies, as officials move to rein in financial risks associated with a surge in dealmaking. China Securities Regulatory Commission Chairman Liu Shiyu also questioned the legitimacy of the funding sources at acquirers that he didn’t identify, saying their behavior challenges the nation’s rules, as well as their own professional ethics. Such acquisitions show “retrogress and decay in humanity and commercial morals, and is by no means financial innovation,” Liu said. “By using improperly obtained money to conduct leveraged acquisitions, you’ve gone from strangers at the gate, to barbarians and eventually robbers of the industry, ” he said at a meeting of the Asset Management Association of China in Beijing on Saturday, a transcript of which was posted on the regulator’s website. “That’s not allowed.”

The comments came after China Evergrande Group, the country’s largest property developer, last month stepped up a buying spree of shares in rival China Vanke in the weeks after a warning from the Shenzhen stock exchange that it is closely monitoring Evergrande’s investments in listed companies. The bourse said it strengthened supervision after finding “abnormal trading behaviors” that affected share prices of Vanke and others. [..] Evergrande joined the fray in a tussle for control at Vanke, which has been trying to fend off advances from the Baoneng Group. Vanke labeled Baoneng “hostile” after it emerged last year as the developer’s largest shareholder, amassing a 24% stake by borrowing from brokers and fund managers who raise the money selling private high-yield instruments to wealthy clients.

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There once was a time when homes were places that offered shelter.

Vancouver Housing Tax Pushes Chinese Into $1 Million Seattle Homes (BBG)

Just a few days after Vancouver announced a tax on foreign property investors, Seattle real estate broker Lili Shang received a WeChat message from a wealthy Chinese businessman who wanted to sell a home in Canada and buy in her area. After a week of showings, he purchased a $1 million property in Bellevue, across Lake Washington from Seattle. He soon returned to buy two more, including a $2.2 million house in Clyde Hill paid for with a single cashier’s check. Shang says she’s been inundated with similar requests from China and Hong Kong after Vancouver’s provincial government enacted a 15% tax on foreign homebuyers in August to help cool soaring real estate values.

With Chinese investors – the largest pool of foreign capital – looking for a place to put their cash, the unintended consequence of the fee has been to push demand to cities such as Seattle and Toronto. “The tax was the trigger of this new wave of investment now coming to Seattle,” Shang said. “Why pay more for the same thing?” Vancouver, which has seen detached-home prices double in a decade, joined areas including Australia and Hong Kong in taking steps to slow housing demand after an unprecedented surge of foreign investment. Chinese buyers, in particular, are accelerating purchases overseas, spurred by a weakening yuan, rising prices at home and the perceived safety of real estate. They’re also venturing farther afield as costs soar in some of their favored markets.

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“..the physiological decision to stay in the workforce won’t work for much longer….”

Pensions Time Bomb Spells Disaster For US Economy (RVTV)

The $1.3 trillion pensions deficit just takes into account state and municipal obligations and with promised returns of 8% and funds compounding at 3% for decades it will take nothing short of an economic miracle to recover. “The average state pension in the last fiscal year returned something south of 1%. You cannot fill that gap with a bulldozer, impossible,” DiMartino Booth said. “Anyone who knows their compounding tables knows you don’t make that up. You don’t get that back unless you get some miracle.” The last time we saw significant market weakness, the baby boomers pretty much accepted that they would be retiring at 70 instead of 65, she added. “Well, guess what? They’re turning 71. And the physiological decision to stay in the workforce won’t work for much longer. And that means that these pensions are going to come under tremendous amounts of pressure.”

“And the idea that we can escape what’s to come, given demographically what we’re staring at is naive at best. And it’s reckless at worst,” DiMartino Booth said. “And when you throw private equity and all of the dry powder that they have – that they’re sitting on – still waiting to deploy on pensions’ behalf, at really egregious valuations, yeah, it’s hard to sleep at night.” “This is where the smile comes off my face. We are an angry country. We’re an angry world. The wealth effect is dead. The inequality divide is unlike anything we’ve seen since the years that preceded the Great Depression,” she told Real Vision TV. “Where’s the money going to come from? And the answer is, for now, they cut services. I’ve just written about the Winter of Discontent and the rubbish piled up in central London streets in 1979, as Thatcher was coming in. I worry about the ambulance not getting there in time. I worry about firefighters being cut to the bone and policemen.”

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Russia is not the no. 1 threat. These people are.

US Reshaping Budget To Account For Russian Military Threat (R.)

Russia’s increasing military activities around the world have unsettled top U.S. military officials, who say they are reshaping their budget plans to better address what they now consider to be the most pressing threat to U.S. security. “Russia is the No. 1 threat to the United States. We have a number of threats that we’re dealing with, but Russia could be, because of the nuclear aspect, an existential threat to the United States,” Air Force Secretary Deborah James told Reuters in an interview at the annual Reagan National Defense Forum. James, Chief of Naval Operations Admiral John Richardson and Pentagon chief arms buyer Frank Kendall, all voiced growing concern about Russia’s increasingly aggressive behavior in interviews late on Saturday.

Their comments come as the Pentagon finalizes a classified security assessment for President-elect Donald Trump, who has promised to both pump up U.S. defense spending and build closer ties to Russian President Vladimir Putin. European diplomats fear Moscow could use the time before Trump’s inauguration to launch more offensives in Ukraine and Syria, betting that President Barack Obama will be loathe to response forcefully so soon before he hands off power on Jan. 20. Kendall said U.S. policy had been centered on threats in the Asia-Pacific region and Middle East, but was now focused more on Russia. “Their behavior has caused us … to rethink the balance of capabilities that we’re going to need,” he said.

None of the officials gave details about how the concerns would affect the fiscal 2018 budget request, but defense officials have pointed to the need to focus on areas such as cyber security, space, nuclear capabilities and missile defense, where Russia has developed new capabilities in recent years.

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Washington better back down. Trump can’t afford this fight either.

Army Denies Dakota Pipeline Permit (R.)

The U.S. Army Corps of Engineers said on Sunday it turned down a permit for a controversial pipeline project running through North Dakota, in a victory for Native Americans and climate activists who have protested against the project for several months. A celebration erupted at the main protest camp in Cannon Ball, North Dakota, where the Standing Rock Sioux tribe and others have been protesting the 1,172-mile Dakota Access Pipeline for months. It may prove to be a short-lived victory, however, because Republican President-elect Donald Trump has stated that he supports the project. Trump takes over from Democratic President Barack Obama on Jan. 20 and policy experts believe he could reverse the decision if he wanted to.

The line, owned by Texas-based Energy Transfer Partners, had been complete except for a segment planned to run under Lake Oahe, a reservoir formed by a dam on the Missouri River. That stretch required an easement from federal authorities. The Obama administration delayed a decision on the permit twice in an effort to consult further with the tribe. “The Army will not grant an easement to cross Lake Oahe at the proposed location based on the current record,” a statement from the U.S. Army said. Jo-Ellen Darcy, the Army’s Assistant Secretary for Civil Works, said in a statement the decision was based on a need to explore alternate routes for the pipeline, although it remains unclear what those alternatives will be. Protesters have said the $3.8 billion project could contaminate the water supply and damage sacred tribal lands.

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Sep 202015
 
 September 20, 2015  Posted by at 9:38 am Finance Tagged with: , , , , , , , , , ,  Comments Off on Debt Rattle September 20 2015


DPC Government Street, Mobile, Alabama 1906

Human Migration Will Be A Defining Issue Of This Century (Alexander Betts)
5-Year Old Child Drowns Off Greece, Others Paddle Across From Turkey (Reuters)
30 Refugees Missing In New Boat Sinking Off Greece On Sunday (AFP)
Europe Needs To Take Big Numbers Of Refugees. Until Then Chaos Reigns (Guardian)
Greece Is Making America Look Bad (Pittsburgh Post-Gazatte)
Thousands Of Refugees Pour Into Austria As European Crisis Intensifies (AFP)
Exhausted Migrants Left With Few Options on Slovenian Border (WSJ)
UN Warns European Unity At Risk As Borders Close To Refugees (Guardian)
Bank of Finland Governor Supports Opening Door to Migrants (WSJ)
Do China’s Ghost Cities Offer A Solution To Europe’s Migrant Crisis? (Reuters)
Xi Jinping: Does China Truly Love ‘Big Daddy Xi’ – Or Fear Him? (Guardian)
How China Decided To Redraw The Global Financial Map (Reuters)
The US Federal Reserve Has Got It Wrong (Andrew Sentance)
A Divided Fed Pits World’s Woes Against Domestic Growth (Reuters)
Stuck At Zero: Global Risks Have Tied The Fed’s Hands (Forbes)
US Oil Tumbles 4.7% To Settle At $44.68 A Barrel (Reuters)
Jim Chanos on What Lies Ahead for Greece (Lynn Parramore)
Catalonia Separatists: Spanish State Has Failed. We Can Change This (Guardian)
UK’s NHS To Collapse Within Two Years, Warns Former Health Minister (Guardian)

Certainly of this decade. A whole century is a bit much. A harbinger of things to come sounds about right.

Human Migration Will Be A Defining Issue Of This Century (Alexander Betts)

This is the first time in its history that the European Union has faced a mass influx of refugees from outside the region. Each year, as UNHCR announced record numbers of displaced people, the general assumption – until recently – was that this is a problem for other parts of the world. However, rising displacement that had mainly affected the Middle East and Africa has finally reached Europe’s shores in significant numbers. Many are beginning to ask whether the current crisis represents a temporary peak in displacement or presages a new, long-term trend. On what basis can we know? Will the dystopian images we see at the Hungarian-Serbian border of desperate families being beaten back by armed guards or the shocking image of Alan Kurdi become “the new normal”? The simple answer is: it depends.

It depends significantly on us, and the policies we, and our leaders, choose to adopt – nationally, regionally, and globally. Asylum numbers do fluctuate over time depending on the state of the world, and Europe has witnessed significant spikes in numbers before. In 1992, the EU received 672,000 asylum seekers, and numbers remained high during the Bosnia conflict. In 2001, numbers again peaked at 424,000 following the Kosovo crisis and with many arriving from Somalia and Afghanistan. This year, numbers are likely to exceed those figures but not dramatically, especially when one considers that in 1992 there were 15 EU member states and today there are 28. In general terms, the number of refugees in the world is broadly a function of the number of wars and human-rights-abusing dictatorships at any given time.

Today, there are a series of internal and regional armed conflicts around the world. Most of these are in two regions, the Middle East and Africa. There are humanitarian emergencies in Syria, Iraq, Afghanistan, South Sudan, Central African Republic, Somalia, Nigeria and, closer to home, in Ukraine. The UN high commissioner for refugees, António Guterres, has described a “world at war”. If we were able to address the root causes of those conflicts, the number of refugees in the world would decline significantly. However, there are also grounds to believe that refugees and displacement are likely to become a defining issue of the 21st century. Two global trends in particular suggest this: fragility and mobility. In both cases, the international community is struggling to come up with viable collective responses.

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Without photographs, the reaction is completely different.

5-Year Old Child Drowns Off Greece, Others Paddle Across From Turkey (Reuters)

A girl believed to be five years died on Saturday and 13 other migrants were feared lost overboard after their boat sank in choppy seas off the Greek island of Lesbos, the Greek coastguard said. A second, exhausted group of around 40 people reached the island in a small boat following a traumatic journey from Turkey, having paddled through the night with their hands across 10 kilometers (six miles) of ocean after their engine failed. “When we were on the sea … I didn’t have any hope … I said: I am dead right now, nobody can help me,” Mohammed Reza, 18, said after being pulled ashore from the boat by foreign volunteers. Hundreds of thousands of mainly Syrian refugees have braved the short but precarious crossing from Turkey to Greece’s eastern islands this year, mainly in flimsy and overcrowded inflatable boats.

Reza, who fled from Afghanistan and left the rest of his family in Iran, told Reuters TV: “The water and fuel mixed up together … and we were on the sea for about seven or eight hours without any water or any food.” He said neither the Greek and Turkish coastguard had assisted the group of men, women and children. “At that moment, we, all of us, thought that we are useless, we are not human.” Greek coastguard spokesman Nikos Lagkadianos said 11 people were rescued from the boat that sank and a twelfth swam ashore in the early hours. The girl who died was found unconscious and was later declared dead in hospital, Lagkadianos said, adding that the coastguard and Greek navy were searching for survivors. Fifteen babies and children were among 34 refugees who died when their boat capsized off the small island of Farmakonisi last Sunday. Twenty-two others drowned and 200 were rescued two days later trying to reach Kos.

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To be continued.

30 Refugees Missing In New Boat Sinking Off Greece On Sunday (AFP)

Nearly 30 migrants were feared missing off the Greek island of Lesbos, the coastguard said Sunday, in the latest boat sinking in an ongoing Aegean Sea tragedy that has cost hundreds of lives. The coastguard said it had rescued 20 people spotted in the water by a helicopter from EU border agency Frontex, but the survivors said another 26 people had been in the boat. The state news agency ANA said there were children among those missing. On Saturday, a five-year-old Syrian girl died in another attempted crossing from Turkey to Greece, and there were no news on another dozen people who were in the boat with her. The accident again occurred east of the island of Lesbos, one of the Greek islands that has seen a heavy influx of refugees from war-torn Syria this year.

Many have perished trying to cross the Aegean Sea in search of a better future in Europe. Earlier this month, harrowing pictures of three-year-old Syrian refugee Aylan Kurdi, whose body was found washed up on a Turkish beach after the boat carrying his family to the Greek island of Kos sank, caused an outpouring of emotion around the world, pressuring European leaders to step up their response to the refugee crisis. The body of another four-year-old Syrian girl washed up on a beach in western Turkey on Friday. Migrants have in recent days turned to Turkey’s land borders with Greece and Bulgaria to avoid the sea voyage that has cost over 2,600 people their lives in the Mediterranean this year. Greece has seen over 300,000 refugees and migrants enter the country this year, most of them passing through to other European countries.

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Much as Europe is criminally negligent, this is a global issue, not a European one.

Europe Needs To Take Big Numbers Of Refugees. Until Then Chaos Reigns (Guardian)

Europe’s heads of government gather this week for a meeting billed as a last-ditch effort to resolve the refugee crisis sweeping the continent. But the pace of arrivals has accelerated so fast that the deal some are touting as a solution to the challenge is actually more of a stopgap measure to tackle an emergency. Politicians in Brussels have been arguing fiercely about where 120,000 refugees should be allowed to settle, even though tens of thousands more have already travelled into the continent. Borders are being sealed with bewildering speed, as columns of desperate people move from country to country in their attempt to find a haven. And winter is only likely to bring a pause, rather than an end, to the crisis.

The sea crossing from Turkey to Greece may soon be partly “sealed” by harsh weather, but migration groups have warned that many people will die in a desperate attempt to cross before the seas get too stormy. And when spring comes again, the exodus will almost certainly pick up. Claude Moraes, MEP and chair of the European parliament’s justice, civil liberties and home affairs committee, said: “My concern is that we have had this paralysis for so long that the numbers are now out of date. So even if we get [a deal] on Wednesday we are going to have to lift them again. The EU has worked hard on this. But these were figures for the start of the crisis, not now.” Countries from the Balkans to Denmark are sealing land borders, setting up a chain of obstacles that may eventually all but block passage for refugees to prosperous western European nations.

But the journeys from Turkey to Europe’s eastern edge will be almost impossible to stop. Franck Düvell, senior researcher at Oxford University’s migration observatory, said: “Along the sea border with Greece there are too many routes and beaches. [Turkish authorities] can launch operations like they are doing around Bodrum now, but people will find other routes and other beaches.” The long, irregular coastline will always be a challenge, and Turkish police and border guards have told Düvell they are stretched too thin by other emergencies to monitor it all now. “They are at the limits of what they can do, and at the moment their priority lies in the east, borders with Syria and Kurdish areas.” While sea crossings are possible, they will continue to be made.

The trip is relatively short, and although the odds of survival may seem terrifying to people watching from safety, many fleeing war or the endless suffocating limbo of refugee camps long ago decided that they are not unreasonable. “You can’t block the border with Turkey in any meaningful way,” said Leonard Doyle, spokesman for the International Organisation for Migration. “There is the rise of expectation that you can do it, the push factor of people with Isis at their back, and the result is they put themselves at far greater risk than they would have before.” Only an unlikely peace, a moderation of the violence in Syria or far better conditions in regional refugee camps are likely to reduce the number of boats landing on Greek shores. Tighter border controls further north will only trap new arrivals in Greece, where they will still be a European responsibility.

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“If you scream about foreigners usurping the nation here, people might mistake you for a fascist. Back in America, you can be a frontrunner in a major political party.”

Greece Is Making America Look Bad (Pittsburgh Post-Gazatte)

More than 200,000 refugees fleeing mayhem in the Middle East already have worked their way this year from Turkey to Greece, site of the worst economic crisis to hit a developed country since World War II. About 100,000 illegal immigrants come each year from Mexico to the United States, which has 30 times as many people as Greece and a vastly more prosperous economy. So which country is witnessing the meteoric rise of an anti-immigrant political figure? Hint: It’s not Greece. It’s America, of course, where Donald Trump has shot to the top of the Republican presidential fold on an astoundingly nativist platform: Put up a wall between the United States and Mexico, deport anyone who is in America illegally and deny birthright citizenship to their offspring.

And that’s not because waves of Mexicans have been sneaking across our borders to steal jobs and commit crimes, as Mr. Trump would have you believe. Illegal immigration declined with the recession of 2007-2009 and remains a relative trickle. As for Mr. Trump’s fear-mongering, undocumented workers are less likely to engage in criminal activity than native-born citizens. It’s been especially depressing to watch Mr. Trump’s ascent from here in Greece, which has an actual — rather than imagined — flood of newcomers on its hands. On the islands closest to Turkey, especially Kos and Lesbos, 33,000 migrants have arrived in the last month alone. Despite their own economic crisis, however, Greeks have aided the refugees in every way they can.

Greece dispatched 60 extra coast guard officials to register refugees on the island of Lesbos, where an estimated 20,000 people were sleeping in streets and parks awaiting travel permits. The government also provided special ferries to transport refugees to Athens, where most of them will continue toward other destinations in Europe. In the wake of the debt deal signed earlier this summer, however, the government’s capacities are obviously limited. So ordinary citizens have stepped into the breach. Spurred by photos of a drowned Syrian child who was trying to reach Greece, vacationers in speedboats have rescued people cast adrift on the sea. Waves of volunteers have been providing food and clothing for refugees when they get to shore.

To be sure, there have also been reports of young thugs beating refugees. And the far-right Golden Dawn party has tried to capitalize on the crisis, spreading a rumor earlier this summer that Muslim immigrants had defecated in churches on Lesbos. “We will do everything we can to protect the Greek homeland against immigrants,” the party declared in response to the defecation story, which was later exposed as a lie. As Greece braces for elections Sunday, however, Golden Dawn’s popularity has remained in single digits. Its leader has denied the Holocaust, which took the lives of an estimated 60,000 Greek Jews. Its symbol is a slightly modified swastika. And whereas Donald Trump wants to build a wall on America’s southern border, Golden Dawn advocates putting land mines around Greece to kill illegal immigrants.

But Golden Dawn also helps to stigmatize anti-immigrant sentiment in Greece, in ways that might surprise Americans. If you scream about foreigners usurping the nation here, people might mistake you for a fascist. Back in America, you can be a frontrunner in a major political party.

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“Around 13,000 people entered Austria on Saturday, according to the Red Cross, after being forced away from to Croatia, Hungary and Slovenia”

Thousands Of Refugees Pour Into Austria As European Crisis Intensifies (AFP)

Thousands of refugees have streamed into Austria after being shunted through Croatia, Hungary and Slovenia as Europe’s divided nations stepped up efforts to push the migrants into neighbouring countries. The continent’s biggest migratory flow since 1945 has opened a deep rift between western and eastern members of the European Union over how to distribute the refugees fairly, and raised questions over the fate of the Schengen agreement allowing borderless travel within the 28-nation bloc. Several countries have imposed border controls, as recent figures have shown nearly half a million people have braved perilous trips across the Mediterranean to reach Europe so far this year, while the EU has received almost a quarter of a million asylum requests in the three months to June.

In Austria, up to 13,000 people entered the country over the course of Saturday alone, the head of the Austrian Red Cross told the APA news agency. The figure was not immediately confirmed by local police, who had said earlier they were readying for an influx of around 10,000 refugees and migrants. Austrian police said Hungary had shipped at least 6,700 people to the border, with more expected in the Burgenland border region by the end of Saturday. Hungary’s rightwing government has faced international criticism over violent clashes with migrants and a hastily-erected fence along its frontier with Serbia, but in a shift late Friday, Hungarian authorities began transporting thousands of migrants straight to the border with Austria, an apparent bid to move them through and out of their territory as quickly as possible.

There was no let-up in the stream of people making the gruelling journey across the Balkans into western Europe, with Croatia saying 20,700 had entered the country since Wednesday. Zagreb, which initially said it would allow migrants to pass through freely, announced it was swamped on Friday and began transporting hundreds to the Hungarian border by bus and train – sparking a furious reaction from Budapest. Despite the row, Croatian and Hungarian authorities appeared to be coordinating on the ground. An AFP journalist along the frontier between the two countries saw migrants board Croatian buses that took them to the border, before disembarking and crossing on foot then boarding Hungarian buses that quickly departed.

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Shifting disasters.

Exhausted Migrants Left With Few Options on Slovenian Border (WSJ)

In this small Croatian village, an army tent has been set up to cater for the hundreds of migrants stranded at the border crossing with Slovenia. Volunteers with the local Red Cross and Caritas are sorting through donated clothes and pouring hot ratatouille into plastic bowls. A sturdy, tattooed man is piling the fresh meals onto a large tray. “We delivered 600 meals yesterday and today we’re prepared for 2,000,” says Joakim Nilsson, a student from Sweden who traveled to the Balkans to help out wherever he could. “This is a world crisis,” he says about the thousands of migrants and refugees who have streamed daily from Serbia into Croatia after Hungary sealed its border.

At the border crossing, where a two-lane bridge is sealed off and guarded by a dozen of Slovenian riot police, the crowd is exhausted and angry. Many refuse Mr. Nilsson’s meals or prefer instead to walk back into the village where there is shade and stretchers for them to rest. Eventually, however, his tray is empty. “Good luck,” he tells one of the refugees. “And see you in Sweden.” The migrants, a mix of Syrians, Iraqis, Afghans and Africans, have been waiting for three days, and only on Saturday morning did two buses arrive to take some of them to a registration center in Slovenia. “When is a bus coming—when?” they repeatedly ask police officers wearing helmets, shields, batons and cans with pepper spray. But the officers remain silent.

At least one of those cans was used the night before, around midnight, when tensions flared as a group of migrants started pelting the police cordon with plastic bottles and sticks. A spokeswoman from the Slovenian Interior Ministry, Vesna Drole, maintained that only one officer used pepper spray against “a single protester” who was part of a larger group trying to break through the police cordon. “Pepper spray is one of the milder means of coercion that police may use to maintain public order and ensure people’s safety,” she added.

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Time for UN to act, not talk.

UN Warns European Unity At Risk As Borders Close To Refugees (Guardian)

Europe’s biggest refugee crisis in 70 years atomised into a chaotic series of border confrontations and diplomatic disputes this weekend, as crowds of refugees were blocked from passing through a number of crossings in central Europe, prompting the UN to warn that the concept of European unity was at risk. Hungary sent armoured vehicles to its border with Croatia, while Slovenian police sealed several crossings after Croatia attempted to offload tens of thousands of refugees who are using it as an alternative entry point to the European Union.

Croatian policemen accompanying hundreds of migrants into Hungary were disarmed by their Hungarian counterparts and turned away, while Slovenian police used pepper spray to ward off hundreds, mostly Syrians and Afghans, trying to cross to reach the countries of northern Europe. The chaos had been sparked by Hungary’s decision to shut off its southern border with Serbia, blocking a well-trodden refugee railroad that has brought more than 170,000 refugees into the EU since the start of the year. In response, refugees flooded instead into Croatia, which immediately tried to move them back into Hungary and Slovenia, prompting quasi-military manoeuvres from its neighbours.

Croatia’s prime minister, Zoran Milanovic, called Hungary’s actions “incomprehensible”, given that no refugee wanted to stay in Hungary, and said the situation was “the ugliest thing I have seen in Croatia since the [Balkans] war”. He also refused to seal Croatia’s border, because “even if that were possible under the constitution – and it is not – it means killing people”. In response, Hungary’s foreign minister, Péter Szijjártó, said Croatia had “lied in the face” of Hungary. He argued that Croatia had failed to show adequate solidarity with Hungary by sending refugees across their border, just days after the same refugees had rushed into Croatia after being blocked from crossing the Hungarian-Serbian border.

The UN warned that failure to agree on a united response to the crisis endangered the concept of European unity. Peter Sutherland, the UN’s special representative on international migration, said: “If there is no agreement to share refugees between the countries of the European Union, it risks undermining the very essence of the European project.” Sutherland was also surprised at how central and eastern European countries were undermining some of the EU’s key values so soon after joining its membership. “It’s amazing that this is the reaction of central and eastern Europe to the whole concept of solidarity, having only just joined,” Sutherland said.

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“..as new workers would help finance a generous set of welfare benefits..” Sure.

Bank of Finland Governor Supports Opening Door to Migrants (WSJ)

An influx of migrants into Finland could give the small Nordic nation’s shrinking economy a shot in the arm, as new workers would help finance a generous set of welfare benefits, Bank of Finland Governor Erkki Liikanen said Saturday. “More foreign workers would support our economic growth,” the central banker told Finnish television. Mr. Liikanen’s recommendation to open Finland’s doors to foreigners echo comments heard in Germany—where government and business leaders have said the large migrant stream into Europe represents an opportunity to rejuvenate a fast-aging population and boost the economy Finland has experienced three years of stagnation and is expecting gross domestic product growth of only 0.3% this year.

Although Mr. Liikanen cautioned the process of integrating refugees could be “difficult,” the central banker’s view contrasts sharply with the anti-immigration sentiment prevailing among Finns and the government they elected in June. Earlier on Saturday, the Finnish government introduced rules on processing asylum seekers in a bid to tighten Finland’s borders following an increasing number of refugees entering the country from Sweden through a northern checkpoint. The Finnish Interior Ministry said the new rules would see all refugees registered at the country’s border upon arrival. The Finnish Police and Immigration Service have tightened family reunification criteria, saying they aimed to make swift decisions on applications deemed unfounded.

Inside the government, the anti-immigrant camp is led by Timo Soini, leader of the populist Finns Party, who was named deputy prime minister and foreign minister in June. He serves in the government of Prime Minister Juha Sipilä, who has pledged to repair the country’s recession-choked economy through deep spending cuts.

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Bigger priority than stocks?! “A full 39% of individual wealth in China is kept in housing, and, according to Nomura, 21% of China’s urban households possess more than one home.”

Do China’s Ghost Cities Offer A Solution To Europe’s Migrant Crisis? (Reuters)

Nearly 150,000 Syrian refugees have already claimed asylum in Europe and tens of thousands more are flooding the borders in search of places to live. Meanwhile, in China, there are millions of new apartments sitting completely empty and entire sections of freshly constructed cities that are virtually uninhabited. This disparity between unmet housing need and oversupply has not been lost on many around the world, and after writing a book about China’s ghost cities, I’ve recently found my email inbox getting flooded with suggestions such as this: Do you think the Ghost Cities could be used, even as a temporary situation, to accommodate those displaced from Syria? It seems that many of the cities are just waiting for a community and here is a community that needs a city.

This sentiment is widespread across popular social media platforms, and on Twitter alone roughly 7 out of 10 results for searches pertaining to China’s ghost cities reveal tweets recommending the mass movement of Syrian refugees to these under-populated urban terrains. Realistically speaking, this suggestion isn’t worth analyzing with much depth. The political quagmire of relocating masses of people across the planet — not to mention the fact that refugees need more than just housing — means that this is a far greater ordeal than simply assuaging demand with supply. It does shed light, though, on the gulf that exists between the predominant international opinion on China’s so-called ghost cities and their present reality.

Even though there are between 20 and 45 million unoccupied homes across China, which account for roughly 600 million square meters of uninhabited floor space — enough to completely cover Madrid — these places are not the urban wastelands they are often posited to be. While many of China’s new cities and urban districts are deficient in people they are not deficient in owners. Nearly every apartment that goes on the market in China is quickly purchased, often at exorbitant prices that commonly range into the hundreds of thousands of dollars. Far from being unwanted infrastructure that could seamlessly be doled out to refugees, those arrays of vacant high-rises are actually the proud possessions of people who paid a lot of money for them.

So why would anyone spend incredible amounts of cash on houses they do not intent to use? All over the world, the value of property extends beyond the utilitarian function of being a place to live. Real estate is also a vital economic entity that presents an avenue for investment as well as a way of storing wealth — a use of property that is taken to the extreme in China. “Many Chinese investors are buying property based on expectations of appreciation, and that it is a solid, safe investment that they can easily understand,” said Mark Tanner, the founding director of China Skinny, a Shanghai based marketing research firm.

A full 39% of individual wealth in China is kept in housing, and, according to Nomura, 21% of China’s urban households possess more than one home. The reasons for this desire to invest in housing often results from a lack of better options. China’s banks pay negative interest and are becoming even more unattractive with the recent wave of currency devaluation. Wealth management products are not fully developed and are highly regulated by the government, and the stock market is viewed to be about as secure as a casino.

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Curious travel itinerary. Pope and XI are in US at the same time. Xi is due in Washington on Thursday, just two days after the Pope?!

Xi Jinping: Does China Truly Love ‘Big Daddy Xi’ – Or Fear Him? (Guardian)

[..] spin doctors have set about building a cult of personality around their leader with books, cartoons, pop songs and even dance routines celebrating Xi Dada’s rule. Earlier this month, thousands of troops goose-stepped through Tiananmen Square as part of a massive military parade proclaiming Xi’s unassailable position at the party’s helm. “There is this aristocratic flair which has now become more apparent, particularly after the military parade,” said Lam. “The word demi-god would be an exaggeration but after the military parade he looked like an emperor.” Many ordinary Chinese appear enamoured with their 21st century emperor. “He has the backing of the whole country,” claimed Zhang Jingchuan, the songwriter from Sichuan province, describing his leader as an approachable man of ideas.

Human rights activists, liberals and dissidents – some of whom will gather in the United States this week to protest the Chinese president’s visit – have been less impressed. Since Xi came to power, there has been a concerted effort to obliterate civil society in China, with moderate and once-tolerated critics including human rights lawyers, feminists, religious leaders and social activists harassed or thrown in prison. More than 200 lawyers have been detained or interrogated as part of a sweeping crackdown on their trade that began in July. At least 20 remain in detention or are missing, prompting calls for Barack Obama to cancel Xi’s visit to the US. “We had hoped for something different,” said Sophie Richardson, the China director of Human Rights Watch. “We are surprised by just how bad it is.”

MacFarquhar blamed the dramatic tightening on Xi’s obsession with the collapse of the Soviet Union, which followed Mikhail Gorbachev’s attempts at reform. “When he first came in he exhibited how much the Gorbachev phenomenon had spooked him. He is very conscious of long-term threats – and maybe he doesn’t see it as long-term. If he is only thinking in terms of 10 years, now is the time to solidify the country and he thinks he knows how to do it.” Yet for all Xi’s apparent muscle – one academic has dubbed him the Chairman of Everything – not everyone is convinced by the growing legend of Xi Dada. “I never bought the powerful leader narrative at all. But now it’s publicly displayed to be a fiction,” said Anne Stevenson-Yang, a respected observer of the Chinese economy and politics, who believes the recent stock market debacle and deadly Tianjin explosions exposed a president far weaker than many had thought.

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AIIB.

How China Decided To Redraw The Global Financial Map (Reuters)

Plans for China’s new development bank, one of Beijing’s biggest global policy successes, were almost shelved two years ago due to doubts among senior Chinese policymakers. From worries it wouldn’t raise enough funds to concerns other nations wouldn’t back it, Beijing was plagued by self-doubt when it first considered setting up the Asian Infrastructure Investment Bank (AIIB) in early 2013, two sources with knowledge of internal discussions said. But promises by some Middle East governments to stump up cash and the support of key European nations – to Beijing’s surprise and despite U.S. opposition – became a turning point in China’s plans to alter the global financial architecture.

The overseas affirmation, combined with the endorsement of stalwart supporters, including a former Chinese vice premier and incoming AIIB President Jin Liqun, a former head of sovereign wealth fund China Investment Corp, enabled China to bring the bank from an idea to its imminent inception. The bank’s successful establishment is likely to bolster Beijing’s confidence that it can play a leading role in supranational financial institutions, despite the economic headwinds it is facing at home. “At the start, China wasn’t very confident,” one of the sources said in reference to Beijing’s AIIB plans. “The worry was that there was no money for this.”

A Finance Ministry delegation that called on Southeast Asian nations to gauge interest in the AIIB was not encouraging, the source said. Governments backed the idea, but were too poor to contribute heavily to the bank’s funding. But subsequent visits to the Middle East helped to win the day as regional governments informed China they needed new infrastructure and, crucially, were able to pay for it, a source said. “They are all oil-producing countries, they have foreign currencies, they were very enthusiastic, and they could shell out the cash,” he said. “That was when we thought ‘Ah, this can be done.'”

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“The key debate then should be around the pace and extent of this rise, not whether it should take place at all.”

The US Federal Reserve Has Got It Wrong (Andrew Sentance)

The US Federal Reserve decided not to raise the key policy rate in the US this week. That would be an understandable decision if rates were at or close to a normal level. But they are not. Interest rates of 0.5% in the UK and 0-0.25% in the US are the lowest recorded levels in history. Seven years into a recovery, central bankers need to explain why the interest rate playing field is still so heavily tilted to borrowers. Continuing with such low interest rates in the UK and the US, when unemployment rates are back to 5-5.5% and our economies are growing well, raises some more profound questions about monetary policy in the west. First, how independent are central banks? Since the 1990s, the Fed and the Bank of England have pursued policies similar to the ones any well-meaning government official would have chosen.

They have cut interest rates very readily, but when they have raised them (in 1994-5 and 2005-7) they have been behind the curve. Independent central banks were established precisely to avoid this “behind the curve” interest rate policy. But it has not worked. Once again, they are at serious risk of lagging behind in their interest rate decisions as the major western economies climb out of the post-crisis recession. Second, if interest rates cannot rise now, when will they increase? In the case of the US, growth has averaged over 2% for more than six years since the recovery started in mid-2009. Unemployment has halved from around 10% to 5% over roughly the same period. Yet interest rates remain stuck — close to zero. A similar position prevails in the UK.

A multitude of reasons have been advanced for delaying the first rate rise: sluggish growth in all the major western economies in 2011-12; the euro crisis in 2013-14; and now the Fed is citing weak economic growth in China and the impact this has on financial markets. If you look around hard enough, there can always be a reason for not raising interest rates. But that highlights the key problem. Monetary policymakers are very timid at the moment. They are lions who have lost their roar. The third problem is that central bankers appear to lack a clear strategy for monetary policy. Their implicit strategy is that interest rates will remain at current excessively low levels — until sufficient evidence accumulates to raise them. But a more realistic approach to keeping monetary policy on a steady and neutral course would involve a gradual rise in interest rates over the next few years. The key debate then should be around the pace and extent of this rise, not whether it should take place at all.

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Liar, liar, economy on fire.

A Divided Fed Pits World’s Woes Against Domestic Growth (Reuters)

Federal Reserve policymakers appeared deeply divided on Saturday over how seriously problems in the world economy will effect the U.S., a fracture that may be difficult for Fed Chair Janet Yellen to mend as she guides the central bank’s debate over whether to hike interest rates. Though last week’s decision to again delay an interest rate increase was near-unanimous, drawing only one dissent, St. Louis Fed President James Bullard called the session “pressure-packed” as members debated whether global uncertainty or the continued strength of the U.S. economy deserved more attention. In the end the committee felt that tepid global demand, a possible weakening of inflation measures, and recent market volatility warranted waiting to see how that might impact the U.S.

Bullard, who does not have a vote this year on the Fed’s main policy-setting committee, said he would have joined Richmond Fed President Jeffrey Lacker’s dissent, and worried the central bank had paid too much attention to recent financial market gyrations. Markets sold off sharply this summer over concerns about a slowdown in China and weak world growth, leaving Fed officials to vet whether that reflected a short-term correction or more fundamental problems on the horizon. “Financial markets tend to wax and wane, sometimes suddenly. Monetary policy needs to be more stable,” said Bullard, who in prepared remarks here to the Community Bankers Association of Illinois said he did not think the Fed “provided a satisfactory answer” to why rates should stay near zero.

The economy is near full employment, and inflation will almost certainly rise, Bullard said, leaving the Fed’s near seven-year stay at near zero rates out of line with the broad economic picture. In a statement Lacker said he felt the current low rates “are unlikely to be appropriate for an economy with persistently strong consumption growth and tightening labor markets.”

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“Some people call this stealing economic activity from the future..”

Stuck At Zero: Global Risks Have Tied The Fed’s Hands (Forbes)

On the seventh anniversary of the implosion of Lehman Brothers, an event that rocked the global economy, it’s more than ironic that the main topic of global financial discussion has been a rate hike by the Federal Reserve, which just announced that it would leave rates unchanged yet again. Behind the scenes, more interesting is the growing list of risks which may be tying the FOMC’s hands behind their back. The Fed should have hiked rates in 2012, but every day they put off the rate raise, Lehman-like systemic risk is lurking and rising. It’s a Colossal Failure of Common Sense all over again. With all the debate about what exactly the Federal Reserve should do with short-term interest rates, historical perspective is something that’s being left behind.

The U.S. has had near zero short-term interest rates before. The period of 1932 to 1953 was defined by rates that were between zero and 2.1%. The last time we hit the zero bound, we stayed very close to it for upwards of 21 years. This is not something you hear often from economists these days. The main reason central banks raise and lower rates is to shift consumption around and smooth out periods of stagnation. The Fed’s dual mandate of non-accelerating inflation and full employment defines the characteristics of the smoothing that society wants to see. Low rates pull consumption and investment forward and allow projects to be undertaken that otherwise would have to wait. Some people call this stealing economic activity from the future, but we must keep our eye on the incentives created by Fed policy.

On the other hand, higher rates make debt more expensive and push consumption and investment out. This year, most economist have felt the Fed is looking to “tap the brakes” on the improving U.S. economy. The other pressing issue is high debt levels. The Fed is in no hurry to hike rates with debt levels so high in the post-Lehman era. The U.S. hit its debt ceiling in March, at $18.1 trillion, but the devil is in the details, or what’s called interest costs as a%age of federal spending. As you can see below, net interest outlays are on course to more than double by 2017 from 2005 levels. Interest costs on the staggering U.S. debt load, added together with government entitlement spending, is nearing 71% of Federal spending, compared to 26% in the early 1960s. Is this sustainable?

There’s a price to pay for six years of a zero interest rate policy, it’s not free. As the world’s most influential central bank has kept interest rates so low for so long, debt has piled up in all kinds of global pockets, especially in emerging markets. According to the Bank of International Settlements, emerging markets’ total debt to GDP ratio has surged to nearly 170%, up from 100% just before Lehman’s failure. Even more disturbing, according to Bloomberg data: there’s a strong correlation between the surge in emerging market debt levels and the cost of credit default protection. Investors wanting to insure themselves against the risk of EM defaults are paying up for the privilege these days.

U.S. Government Net Interest Outlays
2005: $150 billion
2009: $190 billion
2017: $335 billion
*Data from CBO

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The lower the price, the more producers will pump.

US Oil Tumbles 4.7% To Settle At $44.68 A Barrel (Reuters)

U.S. oil prices fell about 5% on Friday after U.S. energy firms cut oil rigs for a third week in a row this week, data showed on Friday, a sign the latest crude price weakness was causing drillers to put on hold plans announced several months ago to return to the well pad. The drop comes amid increased concerns about the outlook for energy demand. The U.S. central bank warned of the health of the global economy and bearish signs persisted that the world’s biggest crude producers would keep pumping at high levels. Drillers removed eight rigs in the week ended Sept. 18, bringing the total rig count down to 644, after cutting 23 rigs over the prior two weeks, oil services company Baker Hughes said in its closely followed report. Those reductions cut into the 47 oil rigs energy firms added in July and August after some drillers followed through on plans to add rigs announced in May and June when U.S. crude futures averaged $60 a barrel.

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“Can you imagine what would happen in the U.S. if you cut spending by 20 or 30% and cut Social Security? You’d have riots in the streets, more so than we ever saw in Greece.”

Jim Chanos on What Lies Ahead for Greece (Lynn Parramore)

Jim Chanos, the well-known hedge fund manager and president and founder of Kynikos Associates, is half Greek on his father’s side. He has been traveling to the country since 1970 and has also been active in the Greek community in the United States. A long-time observer of Greece, he became more involved in 2010 when he was part of a group that met with then-prime minister Papandreou to offer some pro bono advice. Since then, he has been watching closely from the sidelines with increasing levels of concern. In the following interview, he discusses how Greece reached this point of crisis, the upcoming elections, and what lies ahead.

LP: You’ve recently returned from a trip to Greece to visit family and friends. How did you find the mood in the country?

JC: It was grim — away from the vacation spots, of course, which are more international than domestic locations. I’d gotten there just after they’d finally agreed to sign the third memorandum. There was a general sense of resignation and not knowing what else they can do. The feeling of the people I spoke to — whether high level or people in restaurants and tavernas — was that they [the Troika] have them by the short hairs because of the banking system. And I think that was pretty clear. Really, there was no sense of any chance of this working out with an alternative currency. To this day we’re really not quite sure whether they had that planned — various reports differed as to whether they could have even done it — but I think that there’s just this general level of resignation coupled with despair amongst people worried about the long-term growth of the country and its well-being. People are worried about their kids, as they should be.

LP: I think pretty much everybody agrees that the negotiations with the Troika have been a fiasco. How do you assess what’s happened? Who is to blame?

JC: It’s important to understand that while Syriza may have botched the negotiations —and I do I think there’s a general consensus that they did or at least didn’t play it as well for their country as they could have — they didn’t cause this mess. When the first memorandum was signed and then agreed to by PASOK and Papandreou, and then the follow-on was agreed to by Samaras and New Democracy to the right, in effect they were the same types of understandings. But they couldn’t work from the get-go because, as we now know, there was no net new money in any meaningful way coming into Greece. Whatever new capital was coming in was just a way to keep the banks current. It was going in the front door and out the back door.

Greece really did a decent job from an austerity point of view. They brought down spending, they raised taxes. I know there’s this belief that the Greeks are just world-class tax evaders, but in fact, in terms of taxes collected as a%age of GDP, they’re now quite a bit higher than a number of European countries because a lot of the taxes are indirect: the Greeks couldn’t evade them if they wanted to. They also cut spending dramatically. Can you imagine what would happen in the U.S. if you cut spending by 20 or 30% and cut Social Security? You’d have riots in the streets, more so than we ever saw in Greece.

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This weekend Greece, next weekend Catalunya.

Catalonia Separatists: Spanish State Has Failed. We Can Change This (Guardian)

At the port of Tarragona recently, with the sun shining on the harbour, it became clear that Junts pel Sí (Together for Yes), the Catalan independence coalition which hopes to score a significant victory next weekend, is a pretty big tent. Asked about a controversial megacomplex of hotels, casinos and theme parks in the works, candidate Germà Bel was confident that the project would create wealth and jobs for the area. But Raül Romeva, charismatic leader of the Together for Yes list, doubted whether the project would actually go ahead. “It’s not a done deal,” he hedged. Spanish media seized on the moment as evidence of the uneasy bedfellows that had joined together for Catalonia’s forthcoming regional elections.

But Romeva, who leads the Junts pel Sí ticket, sees the unwieldy coalition backed by the conservative Democratic Convergence party, the leftwing Catalan Republican Left and grassroots independence activists, as a sign of the extraordinary moment Catalonia is experiencing. “This is a movement that goes from left to right, spanning conservatives, liberals, ecologists, sociologists and many others,” he told the Observer. “It’s a consequence of necessity.” For the past decade, he argued, the Spanish state has failed to represent the plurality of the country: “What we have is the opportunity to change all this.” His coalition seeks to turn the 27 September ballot into a de facto referendum on independence, segregating parties by their stance on the question and launching the region’s most ambitious move in recent years in the push to break away from Spain.

“If there is a majority, we will have to manage that result. If there is not a majority, we will have to accept that and move on.” Polls suggest that pro-independence parties could win a slim majority in the 135-seat regional parliament. If so, Catalan leader Artur Mas has pledged to lead a transitional government, lasting no longer than 18 months, which will begin drafting a Catalan constitution and work towards negotiating secession with the central government in Madrid. A leftist who dresses in jeans and wears bright yellow glasses, Romeva comes across as a bridge between the diverse groups that make up Junts pel Sí. Born in Madrid and raised in Catalonia, he said his position on independence was cemented in 2010, when Spain’s constitutional court ruled that Catalonia’s status and powers could not be considered tantamount to nationhood.

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Channel Greece: “The system will crash. Elderly people won’t get the care they need, and it will be people with mental ill health who suffer most, because that is where the squeeze always comes.”

UK’s NHS To Collapse Within Two Years, Warns Former Health Minister (Guardian)

The National Health Service will crash within two years with catastrophic consequences unless the government orders an immediate multibillion pound cash injection, the former minister in charge of care services says. The stark assessment from Norman Lamb, minister of state at the Department of Health until May’s general election, comes as fears mount among senior NHS officials, care providers and local authorities that NHS and care services are approaching breaking point. In an interview with the Observer, Lamb, a Liberal Democrat who was at the heart of policymaking during the Tory-Lib Dem coalition, accuses the government of dishonesty in failing to admit the scale of the problems.

He says that an increasing number of private companies and other organisations contracted to provide care by local authorities are refusing to tender again because cash-starved councils, already hit by budget cuts of more than 40% since 2010, cannot pay enough to let them run adequate services. Lamb says the result is that more elderly people in particular will end up in already overstretched hospitals, compounding the crisis. Pre-election promises by the Tories to provide an additional £8bn for the health service by 2020, on top of £2bn extra pledged at the end of last year, are insufficient and too vague to reassure anyone, he argues.

“If the investment is not made upfront and in the early period of this parliament, you could see serious failures in the system,” he said. “The system will crash. Elderly people won’t get the care they need, and it will be people with mental ill health who suffer most, because that is where the squeeze always comes.” While the promised extra money would help, it was nowhere near enough. “I don’t think anyone in the NHS believes that is enough. The government talks very vaguely about an extra £8bn by 2020, but it is needed now. If it comes in 2019-20, the system will have crashed by then. I think the next two years will make or break the NHS and the care system.”

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Sep 052015
 
 September 5, 2015  Posted by at 11:22 am Finance Tagged with: , , , , , , , , , ,  4 Responses »


Russell Lee Saloon, Craigville, Minnesota Aug 1937

US Stocks End Sharply Lower After Jobs Report (MarketWatch)
China’s Central Banker Says His Nation’s Bubble ‘Burst’ (Bloomberg)
100% Risk Of A 50% Stock Crash (Paul B. Farrell)
The Bible Is Clear: Let The Refugees In, Every Last One (Guardian)
UK Must Emulate Kindertransport To Aid Refugee Crisis: Lord Sacks (Guardian)
Grant Visas To Refugees Before They Take The Death Route (ThePressProject)
The March of Shame (Irate Greek)
Migrants Stream Into Austria, Swept West By Overwhelmed Hungary (Reuters)
Over 1,000 Exhausted Migrants Reach Austria Border (AP)
Hungary Provides 100 Buses To Take Refugees To Austrian Border (WaPo)
This Refugee Crisis Is Too Big For Europe’s Broken Institutions (Paul Mason)
European Union Cracking Under Pressure Of Migrant Crisis (Globe and Mail)
The Poisoned Chalice (James Galbraith And J. Luis Martin)
On CNBC Discussing Greece And Europe – Full Transcript (Varoufakis)
You Never Want a Serious Crisis to go to Waste (Legrain)
Capital Outflow From China Adds Another Layer Of Worry (MarketWatch)
Canada, Australia Feel Squeeze In Wake Of Chinese Economic Slowdown (Guardian)
South Korean Exports Fall 14.7%, GDP Forecasts Cut (WSJ)
Scientists Find Mathematical Secret To How Nature Works (WaPo)

Not in labor force is the only number rising strongly.

US Stocks End Sharply Lower After Jobs Report (MarketWatch)

U.S. stocks ended Friday’s session sharply lower, as a highly anticipated monthly jobs report intensified the debate about the Federal Reserve’s decision to raise interest rates in September. Widely seen as the last notable economic report before the Federal Reserve decides whether to raise interest rates at its two-day meeting on Sept. 16-17, the jobs data showed that the U.S. economy added a weaker-than-estimated 173,000 nonfarm jobs last month, while the unemployment rate dropped to 5.1%—marking its lowest level since April 2008.

The employment report began a downbeat day for the market as investors seemed to read the data as signaling that the Fed may soon decide to end its ultraloose monetary policy in two weeks. “The Fed has been clear about wanting to raise rates this year and at least now they have a green light if they decide to do so,” said Kate Warne, investment strategist at Edward Jones. Friday’s losses capped another brutal week for the main indexes, which suffered their second-largest weekly losses this year.

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That sounds clear enough.

China’s Central Banker Says His Nation’s Bubble ‘Burst’ (Bloomberg)

Zhou Xiaochuan, governor of China’s central bank, couldn’t stop repeating to a G-20 gathering that a bubble in his country had “burst.” It came up about three times in his explanation Friday of what is going on with China’s stock market, according to a Japanese finance ministry official. When asked by a reporter if Zhou was talking about a bubble, Japanese Finance Minister Taro Aso was unequivocal: “What else bursts?” A dissection of the slowdown of the world’s second-largest economy and talk about the equity rout which erased $5 trillion of value was a focal point at the meeting of global policy makers in Ankara. That wasn’t enough for Aso, who said that the discussions hadn’t been constructive.

Chinese stocks have plunged almost 40 percent since a June peak, triggering unprecedented intervention from the authorities. The central bank cut rates for the fifth time since November last month and lowered the amount of cash banks must set aside, falling back on its major levers to support equity prices and the slowing economy. It was China, rather than the timing of an interest-rate increase by the Federal Reserve, that dominated the discussion, according to the Japanese official, with many people commenting that China’s sluggish economic performance is a risk to the global economy and especially to emerging-market nations.

“It’s clear there are problems in the Chinese market, and at today’s G-20 meeting, many people other than myself also expressed that opinion,” Aso said after a meeting of finance chiefs and central bank governors. The PBOC shocked global markets by allowing the biggest yuan depreciation in two decades on Aug. 11, when it changed the exchange-rate mechanism to give markets a bigger role in setting the currency’s level. That historic move would not get a mention in the communique, according to the Japanese official, who asked not to be named, citing ministry policy.

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After the election.

100% Risk Of A 50% Stock Crash (Paul B. Farrell)

“Who will get the Dreary Recovery Going?” taunts Mort Zuckerman in a Wall Street Journal op-ed. The head of U.S. News & World Report warns America that a recession is coming: “They occur about every eight years and America is ill-prepared to weather the one on the horizon.” Ill-equipped. Yes, the clock is ticking, every 8 years. 2000. 2008. Next 2016, even with a President Trump. Another great newsman, Bill O’Neill, publisher of Investors Business Daily, author of perennial best-seller “How To Make Money in Stocks,” agrees: Markets have peaked and crashed roughly every four years for the last century, with bigger crashes, long recessions, every eight years. And still most investors will be ill-prepared.

Sounds like a double-teamed confirmation of Jeremy Grantham’s famous BusinessInsider prediction for 2016: “Around the presidential election or soon after, the market bubble will burst, as bubbles always do, and will revert to its trend value, around half of its peak or worse.” Get it? A mega crash is coming, dropping half off its peak, down below Dow 5,000. Not just another 1,000-point correction like last month. But a heart-stopping collapse coinciding with the 2016 elections … then a long systemic recession … probably lasting till the 2020 presidential election, maybe longer … no matter who’s in the White House, Doanld Trump, Jeb Bush or Hillary Clinton.

Yes, recessions hit every eight years. The last was just about 8 years ago, warned Zuckerman with these facts: “The period since the Great Recession ended in 2009 has seen the weakest U.S. recovery since World War II,” Our aging bull is actually warning us … recession dead ahead.

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Jesus was a refugee.

The Bible Is Clear: Let The Refugees In, Every Last One (Guardian)

Thousands more, says David Cameron now, grudgingly conceding to popular pressure. But why not all of them? Surely that’s the biblical answer to the “how many can we take?” question. Every single last one. Let’s dig up the greenbelt, create new cities, turn our Downton Abbeys into flats and church halls into temporary dormitories, and reclaim all those empty penthouses being used as nothing more than investment vehicles. Yes, it may change the character of this country. Or maybe it won’t require anything like such drastic action – who knows? But let’s do whatever it takes to open the door of welcome. “Keep, ancient lands, your storied pomp! Give me your tired, your poor, Your huddled masses yearning to breathe free, The wretched refuse of your teeming shore. Send these, the homeless, tempest-tost to me, I lift my lamp beside the golden door!”

And yes, when Emma Lazarus wrote these words – later inscribed on the Statue of Liberty – by “storied pomp”, she meant us Brits. For years our politicians have piggy-backed upon Christian morality for electoral advantage. We should “feel proud that this is a Christian country”, said Cameron earlier this year (pre-election, of course), in what some might uncharitably see as a call to maintain a Muslim-free view from his Cotswold village. But there is no respectable Christian argument for fortress Europe, surrounded by a new iron curtain of razor wire to keep poor, dark-skinned people out. Indeed, the moral framework that our prime minister so frequently references – and to which he claims some sort of vague allegiance – is crystal clear about the absolute priority of our obligation to refugees.

For the moral imagination of the Hebrew scriptures was determined by a battered refugee people, fleeing political oppression in north Africa, and seeking a new life for themselves safe from violence and poverty. Time and again, the books of the Hebrew scriptures remind its readers not to forget that they too were once in this situation and their ethics must be structured around practical help driven by fellow-feeling. The Passover, first celebrated as a last-minute preparation before leaving Egypt (unleavened bread as there wasn’t time for it to rise) – and the Christian Eucharist that was built on top of it – is nothing less than a call to re-live this basic human solidarity in the face of existential fear and uncertainty. And when the author of Matthew’s gospel describes Jesus as a child refugee, fleeing his country from a despotic ruler intent on taking his life – Herod not Assad – he is deliberately sampling that basic foundational myth of the Exodus.

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If not Jesus, would the Holocaust do it?

UK Must Emulate Kindertransport To Aid Refugee Crisis: Lord Sacks (Guardian)

Britain needs to make a bold gesture similar to Kindertransport to help address the humanitarian crisis engulfing Europe, the former chief rabbi has said. Lord Sacks said it was time for human compassion to triumph in the same way as the scheme that saved thousands of Jewish children before the second world war broke out. He said that a “very clear and conspicuous humanitarian gesture, like Kindertransport” would help to achieve that aim. “Europe is being tested as it has not been tested since the second world war … The European Union was created as a way of saying that we recognise human rights, after the catastrophe of two world wars and the Holocaust, and it’s very chilling to see some of these scenarios being re-enacted,” Sacks told BBC2’s Newsnight on Thursday.

He believes that the UK could accommodate 10,000 displaced people: “It’s a figure to which Britain would respond. The churches, the religious groups, the charities would all join in, and I think we would be better for doing that.” Meanwhile, former home secretary David Blunkett said the UK had a moral obligation to take about 25,000 refugees – which was still a fraction of Germany’s total. “We should concentrate on those coming through Turkey, who have been persecuted and ejected from Syria, and we should concentrate on women and children,” he said. While a global response was needed, Blunkett added: “If we are going to be taken seriously by anybody as a nation in putting that programme together, we are going to have to face the challenge of taking refugees in very large numbers ourselves.”

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Sign the petition.

Grant Visas To Refugees Before They Take The Death Route (ThePressProject)

By now, most of us have seen the gut-wrenching picture of the lifeless three year old Aylan who perished in the Aegean sea while trying to reach Greece. Little Aylan and his family have tried all legal means to reach Canada. But their applications were rejected. They were left with no other option than the perilous journey by sea. They paid for it with their lives. Just a few days earlier, more lifeless bodies of Syrian children were washed ashore after their desperate attempt to find refuge in Europe led to disaster. Dozens more have died a terrible death, suffocating in smuggler’s trucks, crushed by trains, perished of exhaustion, shot by armed coast guards. Some 2,600 people have perished so far in the Mediterranean waters, how many more deaths can we stomach?

Syrians first fled into the neighbouring countries of Jordan, Lebanon, and Turkey. Once there, they found that they had escaped into a prison. They are not allowed to work in Jordan – currently home to 630,000 refugees. They are banned from working in Lebanon – a country of four million people that hosts one million refugees. Turkey, where almost 2 million refugees have sought protection, is trying harder to support them inside their borders, but resources are running low. The US has announced that it will accept 1000 to 2000 refugees. Great Britain has relocated just 216. Syrians that are trying to use formal channels to obtain legitimate visas to Europe or Canada, see their applications rejected. There is no other hope left for them than to jump on a floating coffin to try and reach Europe and claim asylum.

Yet, the poorest of the poor and the unaccompanied Syrian children that beg in the streets of Amman, Istanbul, Beirut, have little hope to raise the money that smugglers are demanding to “sail” them to Europe. They will probably end their lives in the streets. How many floating bodies do we need to see before our governments start re-enforcing asylum processes in the host country? If Syrians could apply for protection while they are still in Turkey, Lebanon or Jordan, through formal channels, less people would opt to travel by sea, less people would become prey to smugglers.

We ask western Governments to create legal channels for the refugees which will grant humanitarian visas, and facilitate family reunions and resettlement, before Syrians are forced to take the “death route” to Europe. We ask the European countries, the United States and Canada to facilitate all mechanisms to allow Syrian refugees that are stranded in Turkey, Lebanon and Jordan, to be able to apply for visas and legal documents that they may travel to their chosen destination.

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“..we will not brutalise them, we will not force them to crawl under our fences, we will not write numbers on their skin and we will not ship them off on trains to nowhere.”

The March of Shame (Irate Greek)

They are people, like us. They are young, they are old, they are men, women and children, they are lawyers or masons or doctors or barbers or plumbers or computer engineers. They are people, and they are coming. Their countries fell apart, their houses were destroyed, their neighbours died. They lost friends and relatives, they lost their loved ones, they lost a limb. They fled. They took trucks or buses or cars or bicycles. They walked. They were smuggled, assaulted, abused, kidnapped on the way. They crossed a border, or two, or three. They were detained, arrested, beaten. They were parked in camps. They were told to live a life without a future, they were told to wait until their country is fixed, they were told to wait with no end in sight.

And then they came. Of course they came. They got on those rickety boats to cross the sea. Some of them were pushed back. Some of them sank and had to return to the coast. Some of them drowned. But they kept coming, and instead of greeting them with open arms, our governments screamed, “we’re being overrun!” Yes, we’re being overrun. It was about time it happened. Because as much as you expect people to stay put and die out of sight, out of mind, they have other plans for their life. As a matter of fact, they want a life worth living. And they are coming to get it. They are coming. Get over it, Europe, they are coming. And if we still want to call ourselves people, if we still want to call ourselves human beings, we will not turn our backs on them, we will not tell them to go away, we will not let them sleep in the streets of our harbours, we will not brutalise them, we will not force them to crawl under our fences, we will not write numbers on their skin and we will not ship them off on trains to nowhere.

There’s a limit to how long you can stay behind the safety of your television screen with pictures of dead children and destroyed cities, and your only reaction is, “how sad”. For them it’s beyond sad. They lost everything. Then they risked what little they had left to come, and they lost even more. ‘Sad’ doesn’t begin to describe that. They are not swarms, they are not invaders, they are not quotas. They are people. They want a life, a life in safety, with a job, a home and a future for their children. They are people, just like us. They are people, and there’s no stopping that. Today they are walking from Budapest to Vienna. Hundreds, maybe thousands of them, decided that they had enough of Viktor Orban’s nonsense, and when he wouldn’t re-establish the trains, they decided to walk.

But these people are only the tip of the iceberg. Europe’s march of shame started thousands of kilometers away. They are coming because of war, destruction, poverty, hopelessness. But this is a march of shame because we the people, we the European people, elected year after year leaders who don’t care about people but only about votes. And for years, despite our aging population, despite our immense wealth, despite all the good reasons for which we could open our borders, our leaders thought that pandering to the xenophobes was more important than helping people who have lost everything and that we could easily accommodate.

But they won’t wait anymore. They are coming, they are marching on Europe, and they are putting us to shame. For the young man in the picture below, the march of shame started when he pushed his grandmother’s wheelchair out of their family home and onto some road in Afghanistan. He has come thus far. Can anything stop him? Can he be made to go back? They are coming. And now it is for us to greet them, to care for them, to give them safe passage, to help them build the home they have lost. Not because we are Europeans, not because we have values, not even because we are filthy rich. But because we must be people. Like them.

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Merkel.

Migrants Stream Into Austria, Swept West By Overwhelmed Hungary (Reuters)

Hundreds of exhausted migrants streamed into Austria on Saturday, reaching the border on buses provided by an overwhelmed Hungarian government that gave up trying to hold back crowds that had set out on foot for western Europe. After days of confrontation and chaos, Hungary’s right-wing government deployed dozens of buses to move on migrants from the capital, Budapest, and pick up over 1,000 – many of them refugees from the Syrian war – walking down the main highway to Vienna. Austria said it had agreed with Germany that they would allow the migrants access, unable to enforce the rules of a European asylum system brought to breaking point by the continent’s worst refugee crisis since the Yugoslav wars of the 1990s.

Wrapped in blankets against the rain, hundreds of visibly exhausted migrants, many carrying small children, climbed off buses on the Hungarian side of the border and walked in a long line into Austria, receiving fruit and water from aid workers. “We’re happy. We’ll go to Germany,” said a Syrian man who gave his name as Mohammed. Hungary cited traffic safety for its decision to move the migrants on. But it appeared to mark an admission that the government had lost control in the face of overwhelming numbers determined to reach the richer nations of northern and western Europe at the end of an often perilous journey from war and poverty in the Middle East, Africa and Asia.

On Friday, hundreds broke out of an overcrowded camp on Hungary’s border with Serbia; others escaped from a stranded train, sprinting away from riot police down railway tracks, while still more took to the highway by foot led by a one-legged Syrian refugee and chanting “Germany, Germany!” The scenes were emblematic of a crisis that has left Europe groping for answers, and for unity. By nightfall, the Keleti railway terminus in Budapest, for days a campsite of migrants barred from taking trains west to Austria and Germany, was almost empty, as smiling families boarded a huge queue of buses that then snaked out of the capital.

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Utter lying cynicism: “Transportation safety can’t be put at risk..”

Over 1,000 Exhausted Migrants Reach Austria Border (AP)

More than 1,000 migrants, exhausted after breaking away from police and marching for hours toward Western Europe, have arrived before dawn Saturday on the border with Austria. The breakthrough became possible when Austria announced that it and Germany would take the migrants on humanitarian grounds and to aid their EU neighbor. In jubilant scenes on the border, hundreds of migrants bearing blankets over their shoulders to provide cover from heavy rains walked off from buses and into Austria, where volunteers at a roadside Red Cross shelter offered them hot tea and handshakes of welcome. Many collapsed in exhaustion on the floor, smiles on their faces.

Early Saturday, Austrian Chancellor Werner Faymann announced that it and Germany would take the migrants on humanitarian grounds and to aid their EU neighbor after speaking with German Chancellor Angela Merkel. Hours before, Hungary had announced it would mobilize a bus fleet to scoop the weary travelers overnight from Budapest’s main international train station and from the roadside of Hungary’s main highway and carry them to the Austrian border. In jubilant scenes on the border, hundreds of migrants bearing blankets over their shoulders to provide cover from heavy rains walked off from buses and into Austria, where volunteers at a roadside Red Cross shelter offered them hot tea and handshakes of welcome. Many collapsed in exhaustion on the floor, smiles on their faces.

Janos Lazar, chief of staff to Hungary’s prime minister, said authorities had reversed course and stopped trying to force migrants to go to state-run asylum shelters because the migrants’ movements were imperiling rail services and causing massive traffic jams. “Transportation safety can’t be put at risk,” he said. The asylum seekers chiefly from Syria, Iraq and Afghanistan often have spent months in Turkish refugee camps, taken long journeys by boat, train and foot through Greece and the Balkans, then crawled under barbed wire on Hungary’s southern frontier to a frosty welcome. While Austria, on Hungary’s western border, says it will offer the newcomers asylum opportunities, most say they want to settle in Germany.

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Guess who paid?

Hungary Provides 100 Buses To Take Refugees To Austrian Border (WaPo)

Sending Europe’s refugee crisis hurtling toward another country, Hungary’s leaders on Friday backed down from a confrontation with thousands of asylum-seekers, offering to bus the desperate migrants to the border with Austria. The late-night offer came after days of efforts to repel the thousands of migrants fleeing war and poverty who have streamed into Hungary in a bid to reach Western Europe, where they hope to begin new lives. Hungarian Prime Minister Viktor Orban had painted his hard-line approach against the mostly Muslim asylum-seekers as a stand to preserve Europe as a Christian continent.

But after a column of migrants more than a mile long streamed onto Hungary’s main highway to Austria, it appeared that authorities felt they had no alternative but to pass the challenge to their neighbor, another country that has been ambivalent about the influx. By early Saturday morning, the first asylum seekers began to walk across the border into Austria after having been dropped off by buses on the Hungarian side. The buses had picked people up at Budapest’s main train station. After initial hesitation, the crowds began to climb on board, relieved to be en route out of Hungary.

The Hungarian decision to provide up to 100 buses to take the asylum-seekers to the border did little to resolve the challenge facing Europe, which has failed to come up with a unified response to the mounting numbers on its borders. Instead, the plans simply shifted the crisis to another state, leaving the fundamental problem — a bloc of 503 million people unable to agree whether and how to house several hundred thousand refugees — to burn for another day.

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More like broken leadership.

This Refugee Crisis Is Too Big For Europe’s Broken Institutions (Paul Mason)

The disorder we have allowed to assemble at the borders of Europe does not easily divide into “economics” and “war”. The conceit that we can segment those coming here into the “deserving and undeserving” is going to shatter as their claims are processed. The immediate challenge for Europe is crisis management: the fiasco in Budapest is just the European leadership problem in microcosm. There is no coherence, no predictability and no urgency. As with Greece, and with the prolonged debt crisis of southern Europe, the institutions move sluggishly until leaders are forced into making flamboyant gestures, and no solution is ever reached. But, as they struggle to achieve coherence and to show compassion, the EU’s leaders are accumulating much bigger risks.

An EU into which half a million people can arrive to claim asylum in six months will struggle to justify the same rules and institutions as the Europe that believed its borders were under control. With Dublin III a dead letter, there will have to be a new asylum system based on reality. People will attempt to claim asylum whether they’re victims of war, drought or poverty. Either they’ll be processed in the place they want to settle, or there will have to be mass deportations back to Greece and Hungary – the two countries with the biggest fascist movements in the EU. And if hundreds of thousands of asylum seekers are given leave to remain in a continent where there is stagnation and mass unemployment, what happens to free movement? The home secretary, Theresa May, has already called for it to be constrained in response to the new situation.

The EU’s leaders can muddle along with broken institutions, flouted laws, flailing border police. Or they can think it through. The OECD’s central projection is that, to stand a chance of avoiding stagnation, the EU’s workforce will have to add 50 million more people through migration by 2060 (a similar number is needed in the US). The Paris-based thinktank says if that doesn’t happen, it is a “significant downside risk” to growth. What this means should be spelled out, because no politician has bothered to do so: to avoid economic stagnation in the long term, Europe needs migrants.

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“Finland, one of the wealthiest and least densely populated EU countries, said it would take a mere 800.” Finland’s PM offered to take refugess into his own home. All 800?

European Union Cracking Under Pressure Of Migrant Crisis (Globe and Mail)

The European Union is cracking, again. This time, it could shatter under the weight of a migrants’ crisis that has virtually every one of its member states madly pulling and pushing in all directions, undermining the founding concept of shared goals, vision, welfare – and shared pain. Every few years, the 28-country EU and the 19 countries within it that use the euro (the euro zone) face severe tests, typically the result of faulty crisis-fighting mechanisms or selfish national behaviour. These crises are inevitable, for the EU and the euro zone are economic and currency unions imposed upon sovereign countries, each of them fully capable of acting in its own interests when the going gets tough.

In 2012, when Europe was in deep recession and Greece in outright depression, the latter seemed on the verge of bolting from the euro zone and making a lie of the notion that the currency was “irreversible.” The European Central Bank (ECB), led by the eminently practical and flexible Mario Draghi, came to the rescue with a barrage of crisis-fighting mechanisms. They more or less worked – outright disaster was avoided – even if they exposed the fragility of the common currency. Three years later, when Greece decided once again to threaten the integrity of the euro zone, the ECB, backed by the financial might of Germany, prevented Greece from leaving. Thanks in good part to the bank, back-to-back existential crises were overcome, if only barely (Greece is an economic wreck and could still hit the road).

The current migrants’ crisis is much bigger than the one unleashed by the Greeks and there is no all-powerful migration version of Mr. Draghi to save the day. Potentially, millions of refugees and economic migrants from conflict areas in the Middle East and Africa are lining up to get in – some nine million Syrians have been displaced as the civil war shreds their country; many of them want to come to Europe. The numbers are already staggering – Europe is seeing the largest influx and internal movement of people since the end of the Second World War. About 350,000 people have entered this year, with Italy, Greece and, now, Hungary, bearing the brunt of the mass arrivals. In August alone, 50,000 migrants reached Hungary.

Almost 3,000 people have died so far this year in the Mediterranean. In April, a shipwreck off the Italian island of Lampedusa claimed 800 lives. On Aug. 28, the bodies of 71 migrants, many of them thought to be Syrian, were found in an abandoned truck in Austria. This week, the world was shocked by images of a three-year-old Syrian boy, whose lifeless body had washed up on a Turkish beach. He drowned when his family tried to reach the Greek island of Kos. But child deaths have been sadly routine among those making the treacherous voyage to southern Europe from Libya and Turkey. In April, several fishermen in Tunisia, near the badlands along the Libyan border, told The Globe and Mail that their nets sometimes snared the bodies of drowned African migrants, a few of them children.

The EU’s reaction to the migrant crisis has, all too predictably, been chaotic, contradictory, near-hysterical and sometimes mean-spirited, heightening the crisis and highlighting an ugly truth –– that the union has no mechanism to fix a disaster that could be managed to minimize the damage and stem outright bigotry. At the EU refugee relocation crisis meeting in July, some countries, such as Austria, refused to take any migrants; others agreed only to take a token number. Finland, one of the wealthiest and least densely populated EU countries, said it would take a mere 800. A few countries, notably Germany, agreed to take way more than their fair share.

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“The underlying reason is that the creditors wish to get their hands on as many Greek assets as possible at the lowest possible prices.”

The Poisoned Chalice (James Galbraith And J. Luis Martin)

Luis Martin: Since the outbreak of the Greek crisis in 2010, the European approach has been austerity now and the promise of supply-side policies later; once deficits have been brought under control and structural reforms have been implemented. Five years later, the Greek economy is depressed and debt has skyrocketed. In light of the third bailout Greece is now trying to secure, what is your vision for the Greek economy in the short and medium term?

James Galbraith: First of all, it’s important to distinguish between the public rationale for the policies that have been imposed on Greece, which are as you describe, and the underlying reasons which are quite different. The public rationale is the notion that so-called structural reforms will produce growth. The underlying reason is that the creditors wish to get their hands on as many Greek assets as possible at the lowest possible prices. Once you see that you’ll see that the policies are quite consistent with the reason, though not with the rationale.

What we are going to see now is an intensification of those policies and the liquidation of public and private assets in Greece: public assets which are being auctioned at undoubtedly low prices under the so-called privatization fund, and private assets because the Memorandum provides for accelerated liquidation, basically foreclosures of people’s homes and real estate and of the remaining Greek businesses. Basically that is the direction of policy, and if the Memorandum stays in place that is what we are likely to see.

LM: If you are correct, it would seem that the institutions (the IMF, the EC and the ECB) will have to rescue Greece indefinitely…?

JG: There is no “rescue” going on here. There is no “rescue,” there is no “bailout,” there is no “reform” going on. I really need to insist on this, because these words creep into our discourse. They are placed there by the creditors in order for unwary people to use them, but there is nothing of the kind taking place. What is going on is a seizure of the assets owned by the Greek state, by Greek businesses and by Greek households. There is no sense that this has anything to do with the recovery of the Greek economy or with the welfare of the Greek people. On the contrary, the policy is utterly indifferent to those considerations.

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“Greece is going to be the canary in the mine.”

On CNBC Discussing Greece And Europe – Full Transcript (Varoufakis)

CNBC: The market and a lot of watchers have been wondering what type of man Alexis Tsipras is following the referendum and his success politically, with some saying he’s a masterful politician, others think perhaps he’s just a newcomer who has had a little bit of luck and is now on borrowed time, or perhaps he’s a man that has really great mentors in Brussels. How would you describe him and his political success so far?

Oh there is no doubt he is an excellent politician. I’ve watched him up close; he has what it takes to be a genuine leader. There were very important junctures when he demonstrated his leadership and I witnessed it. But, the political situation in Greece is so toxic, and has been for years now. When you have an economic system which is in free fall and you have this astonishing situation, I don’t think that economic history and political history has ever seen this before, you have lenders, creditors, who are imposing upon you new loans under the conditions that will ensure that they will not get their money back, I think this is a unique historical phenomenon. So no politician, however skilled they might be, can survive the economic implosion which drags down along with it the political system.

CNBC: But Syriza hasn’t helped out here, and we’ve got the spilt from the left platform who have created their own party. Has this been detrimental to Tsipras’ future or has it handed him a golden opportunity to move to the centre of politics?

No, look, this kind of thinking would probably be appropriate under normal circumstances, but this Greece is not experiencing normal circumstances. What happened on the 12th of July was that there was an imposition by the Euro Summit of a programme that everybody in the Euro Summit knew was unviable on an economy which is in a great depression and this debt spiral, debt deflationary spiral, so once you come to this state of irrationality, reflecting Europe’s dithering, Europe’s inability to make up its own mind as to what it wants to do with its monetary union, there is no sense in going into this discussion about left, right, moving, shifting to the centre, median voters and all that.

Think of what happened to the previous governments. The socialist government of the Papandreou period of 2010 and 2011 imploded, the conservative government of Samaras imploded, our government imploded. Why? Because we rest on a foundation of an economy which is imploding and until and unless the economy gets stabilised, and we have some sensible discussion about debt, about investment, about credit, about reforms, which we have not had with the Troika because they were not interested in it, while they are sorting out their own disagreements about what to do with the monetary union, Greece is going to be the canary in the mine.

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No one wants a tighter Union, at least not outside of Brussels.

You Never Want a Serious Crisis to go to Waste (Legrain)

For now, the threat of Grexit has been avoided. Frantic French efforts to keep Greece in the euro succeeded, after Athens submitted to Germany’s punitive terms. But like threatening divorce in a bitter marital dispute, what’s said cannot be unsaid. Indeed, far from backtracking, the German Council of Economic Experts, which advises Chancellor Angela Merkel’s government, has suggested formalising Schäuble’s proposal: any country that breaches the fiscal rules and “continually fails to cooperate” should exit the monetary union. The message to those tempted to defy the German line could scarcely be clearer. Such a Germanic euro is unacceptable to many Europeans, not least in Paris and Rome.

France’s president, François Hollande, has instead called for a democratically accountable eurozone government. Italy’s finance minister, Pier Carlo Padoan, has echoed the French call for a fiscal and political union. Any proposal with the word “union” in it goes down well in Brussels. But a reality check is needed. There was little support for a federal eurozone government even before the crisis. And now that a financial crisis pitting creditors (the banks) against debtors has become a political conflict between countries, with nationalist insults flying and EU institutions discredited by siding with the creditors, European common feeling is in tatters. With the best will in the world, it is scarcely conceivable that Germans and French people could happily share a government, let alone Germans and Greeks.

There is manifestly little appetite among Europeans for further integration right now. It’s been a decade since the French and the Dutch voted No to the EU constitution and they have become much more sceptical since then. A recent survey by Opinium Research finds that the Dutch are almost as wary of deeper integration as the British, who will be soon voting on whether to leave the EU, while the French are close behind. A mere 17% of Dutch people and 24% of French ones favour further steps towards “ever closer union”, while 42% of Dutch people and 32% of French want to repatriate powers from Brussels. So forget about winning a referendum on steps towards a eurozone government.

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Been going on for a long time.

Capital Outflow From China Adds Another Layer Of Worry (MarketWatch)

In yet another sign of deteriorating confidence in China’s economic prospects, capital outflows from the country are accelerating quickly, adding another layer of worry for investors and policy makers alike. “If all of the capital that went into China since 2010 were to exit, this would mean another $400 billion could leave. If we were to assume that all of the capital inflows that went in since 2008 were to exit, the number rises to another $700 billion,” said David Woo, FX and rates strategist at Bank of America Merrill Lynch. While Woo’s projections are based on the worst-case scenario, analysts at Goldman Sachs in July had noted the alarming pace of funds exiting the country.

“Net capital outflows could be around $224 billion in the [second] quarter, meaningfully up from the first quarter,” they said. “Capital outflows have become very sizeable and now eclipse anything seen in the recent past.” In theory, China’s foreign exchange reserves of $3.6 trillion are sufficient to handle the capital flight, but Woo believes Chinese officials are running out of tools to prop up the economy, forcing them to make a tough choice. “China cannot lower interest rates and defend the Chinese yuan at the same time,” he said. And once the Federal Reserve hikes interest rates, which BAML still expects this month, the interest rate differential between China and the U.S. will further narrow, leading to more capital leaving the country, he said.

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But their governments keep denying anything’s wrong.

Canada, Australia Feel Squeeze In Wake Of Chinese Economic Slowdown (Guardian)

In the mining town of Port Hedland, 1,500km north of Perth, modest prefabricated homes called fibro shacks, which were changing hands for more than A$1m four years ago, are now failing to find a buyer at a third of the price. Apartment blocks hurriedly tacked together by developers at the peak of the country’s boom stand empty, because their promised supply of “fly-in-fly-out” mineworkers has dried up, along with the jobs they were brought in to do. In 2011, the iron ore-rich Pilbara region of north-west Australia was on the frontier of a 21st century gold rush, this time with iron ore as the main prize – driven by China’s formidable appetite for natural resources to build up its infrastructure and modernise its economy.

Pilbara boasted salaries two-thirds higher than the national average and almost 80% of workers were flown into their jobs from Australia’s big cities. Now, mortgaged to the hilt on homes that lost value almost before the paint had dried, the mineworkers that remain are accepting longer hours and lower wages in an effort to keep up with the repayments. Their plight resonates thousands of miles away in Calgary, Canada. Oil, not iron ore, has been the foundation of that city’s prosperity. But fears that China’s appetite for natural resources is waning are sapping confidence; and as oil prices have plunged, another property boom could soon turn to bust.

“There’s a lot of people here that have been losing their jobs from the energy sector,” says Ann-Marie Lurie, chief economist at local estate agency CREB. Property prices have so far held up, but she says Calgarians are watching the global oil price with alarm. “Into next year the real question becomes, how long are energy prices going to remain this low?” she says, pointing out that, with building starts declining, the knock-on effects are already rippling through the construction industry. She expects house prices in Calgary, which rose by almost 10% in 2014, to go into reverse by the end of this year.

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That’s a big number.

South Korean Exports Fall 14.7%, GDP Forecasts Cut (WSJ)

South Korea’s government has cut its forecast for the nation’s economic growth next year because of the risks from China’s slowdown, Seoul’s finance minister said. Close economic interlinkage between China and South Korea also means a sharp deterioration of the Chinese economy would have an “extremely huge impact” on South Korea, although a so-called hard landing for China is unlikely, South Korean Finance Minister Choi Kyung-hwan said in an interview. Concerns about the Chinese economy are particularly acute in South Korea, an export-dependent nation that sends around a quarter of its overseas shipments to China. South Korean exports fell 14.7% from a year earlier in August—the sharpest drop in six years—as exports to China slid 8.8%.

Wild swings in global financial markets following a currency devaluation in China on Aug. 11 reflect fears that the world’s second-largest economy is entering a major downshift. “China is unlikely to crash-land. It has the capability to manage a soft landing,” Mr. Choi said in an interview with The Wall Street Journal on the sidelines of a conference for finance chiefs from the Group of 20 developed and major developing economies. “But a hard landing could have an extremely huge impact on South Korea.” Due to the increasing risks of a Chinese slowdown, South Korea cut its own growth forecast for 2016 to 3.3% from 3.5% when drawing up a new budget plan for next year, the minister said.

The budget details will be announced on Monday. For this year, there is no change to the forecast of 3.1% growth. Mr. Choi said the government was trying to achieve the target, citing stimulus efforts including the central bank’s policy rate cuts four times since last year and recently announced supplementary budget spending. South Korea’s economy expanded 3.3% last year. In the interview, the minister also called for the U.S. Federal Reserve to make more efforts to reduce uncertainty over pace of its expected interest rate increases through sufficient communications with markets.

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Very interesting. Does math describe life?

Scientists Find Mathematical Secret To How Nature Works (WaPo)

In nature, the relationship between predators and their prey seems like it should be simple: The more prey that’s available to be eaten, the more predators there should be to eat them. If a prey population doubles, for instance, we would logically expect its predators to double too. But a new study, published Thursday in the journal Science, turns this idea on its head with a strange discovery: There aren’t as many predators in the world as we expect there to be. And scientists aren’t sure why. By conducting an analysis of more than a thousand studies worldwide, researchers found a common theme in just about every ecosystem across the globe: Predators don’t increase in numbers at the same rate as their prey. In fact, the faster you add prey to an ecosystem, the slower predators’ numbers grow.

“When you double your prey, you also increase your predators, but not to the same extent,” says Ian Hatton, a biologist and the study’s lead author. “Instead they grow at a much diminished rate in comparison to prey.” This was true for large carnivores on the African savanna all the way down to the tiniest microbe-munching fish in the ocean. Even more intriguing, the researchers noticed that the ratio of predators to prey in all of these ecosystems could be predicted by the same mathematical function — in other words, the way predator and prey numbers relate to each other is the same for different species all over the world. “That’s what was very surprising to us, to see this same pattern come up over and over,” Hatton says. But what’s actually driving the pattern remains something of a mystery.

Hatton and his colleagues suspect that different aspects of different ecosystems may drive the predator-prey ratio: For example, Hatton says, competition for space might be a major factor controlling animal populations, but changes in the nutrients used and produced by plankton might have more of an effect on some marine ecosystems. The thing that’s puzzling is that the same mathematical function can be used to predict all of these ecosystems’ responses. And that’s not all: In a strange twist, the researchers observed that the same function can also be used to predict several other natural processes as well. One of these is the reproduction rates of prey species. If you remove predators from an ecosystem, prey populations start to increase, since there’s nothing eating them.

But there’s a catch: As their populations continue to grow, they reproduce at lower and lower rates – in other words, they continue to increase their numbers, but more and more slowly. And their growth rate can be predicted by the same mathematical function used to predict the way predators increase in response to their prey. Even more fascinating is that the same function applies to certain processes in individual organisms’ bodies. One phenomenon observed consistently in nature is that smaller animals, like mice, tend to be faster, have higher metabolisms, live shorter lives and reproduce at higher rates, while large animals, like elephants, are slower in all aspects. So as size increases, the rate at which bodily functions are performed changes. And the pattern in these changes is governed by – you guessed it – that same mathematical function.

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Sep 052015
 
 September 5, 2015  Posted by at 8:05 am Finance Tagged with: , , , , , , ,  6 Responses »


Marion Post Wolcott Works Progress Administration worker’s children, South Charleston, WV 1938

In the end, what should have been avoided all along, was. The refugees who were treated like subhumans for days in Hungary, and who in the end refused to be subjected to that treatment any longer and started walking to the Austrian border, are being taken as we speak to that border, on buses provided by the government in Budapest.

Meanwhile, we have all been subjected to the words and ideas of Victor Orban, the loose cannon who rules Hungary. The media largely portray the sudden change from refugees stuck on trains in Budapest train station and locations just outside of the city, to the buses that will take them to Austria and presumably Germany, as something that sprouted from Orban’s brain.

But that is not true. One can call Orban on his crazy notions, but not on decisions about the movements of the refugees. Both the decision to in effect ‘detain’ the thousands of refugees inside Hungary for days, and the decision late last night to let them leave, came from one person only: Angela Merkel. She’s the only one with sufficient power to make such things happen.

She told Orban earlier this week to stop the trains from coming west. And she told him later all refugees would have to be registered. In fact, that was a EU wide order, which is why the Czechs started putting numbers on refugees’ arms. Another image Merkel couldn’t possibly tolerate, even if she initially managed to deflect the blame for that too.

Once again, Merkel diddled till she couldn’t diddle any longer. The one and only reason why she decided to change course was the damage to her stature as a leader and politician. The images of little Aylan Kurdi dead on a beach, and the images of thousands of refugees walking to the Austrian border, had simply become too damaging to Merkel’s reputation.

So she took the opportunistic and at least somewhat cynical decision to tell Orban he could set them free.

The Syrian refugees have taken to calling her Mama Merkel. They don’t know who she is, or what role she plays.

The situation would have gotten out of hand somewhere, either in Budapest or along the highway to the border. People would have died, and cameras would have recorded the deaths.

Merkel might have had a second Aylan on her hands, and at some point even the thickest among reporters would have made the connection to her, the only voice with decision power in that part of the world. She knew her Teflon coat would at some point wear off.

To a large extent, Merkel’s headaches have only started. She can’t let the Budapest train station scenes, or the miles long stream of walking destitute, or the image of drowned children, repeat. If she had come to her senses earlier, much of the misery would have been avoided. And she knows it. She knew the risk of more and worse tragedy was getting too big. And it still is, this is far from over.

But there’s another side to the story as well. That of private European citizens. And not the goons attacking refugees on Kos and in Hungary. We’ve seen the tireless long-term Greek private efforts to feed and shelter refugees on the islands and the cities, Hungarians handing out hundreds of bottles of water, 2200 Austrians last night volunteering to drive across the Hungarian border to pick up the refugees marching along the highway at night (which was a major factor in the decision to send buses).

There are many examples of European citizens showing what decent behavior actually is. And it comes naturally to them.

There is a huge gap between these Europeans and the people who are supposed to be their leaders. And that gap cannot be bridged, and will not be, just because Angela Merkel acknowledges that she’s been being defeated by numbers and images, everytime she is.

Merkel has shown us once again this week that humanity is an orphan in European decision making. Neither Angela or any other of the leaders, be it in national capitals or in Brussels, put humane treatment of refugees first. They are cool and calculated first.

Their attitude towards Syrian refugees is the same as that towards the poor in Greece. They are more than ready to accept that there will be human casualties because of whatever it is they decide. They want the power but not the responsibility.

The EU meeting on the refugee topic, which you can bet they will label ‘migrant’, is still over a week away, on September 14. And it will be about numbers, not about people.

German financial support on the issue is planned to be more than 3 weeks away. During that time, the horror is sure to repeat somewhere along the line that runs from Syria to Berlin. Yes, it starts in Syria.

Therefore, Europeans -and the international media- need to keep the pressure on Merkel now. And on Hollande and Cameron and Juncker, and all of their minions. But first of all on Merkel. She’s key.

Sep 012015
 
 September 1, 2015  Posted by at 9:15 am Finance Tagged with: , , , , , , , ,  4 Responses »


Jack Delano Colored drivers entrance, U.S. 1, NY Avenue, Washington, DC Jun 1940

European Efforts to Stem Migrant Tide Sow Chaos on Austria-Hungary Border (WSJ)
Trains Carrying Refugees Reach Germany As EU Asylum Checks Collapse (Reuters)
Hungary Shuts Down Rail Traffic For Westward-Bound Refugees (AP)
The Refugee Crisis Reveals What We Have Become (Martin Sandbu)
Icelanders Call On Government To Take In More Syrian Refugees (Guardian)
Preparing For A Potential Economic Collapse In October (Jeff Thomas)
China PMI Shrinks, Sending Stocks Lower (FT)
Beijing’s Incompetence Is Now China’s Biggest Problem (MarketWatch)
Why China Had To Crash Part 2 (Steve Keen)
China Encourages Cash Bonuses, Share Buybacks (Xinhua)
Why Is China Finding It Hard To Fight The Markets? (Bruegel)
China Reporter Confesses To Stoking Market ‘Panic And Disorder’ (FT)
SocGen: Half-Hearted Capital Controls Are Coming to China (Bloomberg)
China Has Lots of Treasuries, Not Much Leverage (Pesek)
China’s Wealthy Look To Raise Overseas Investments (FT)
Global Trade Damaged By Weakness In Emerging Market Currencies (FT)
Reflation Threat To Bonds As Money Supply Catches Fire In Europe (AEP)
The Dying Institutions Of Western Civilization (Paul Craig Roberts)
Up To 90% Of Seabirds Have Plastic In Their Guts (Guardian)

Merkel: egg on her face and blood on her hands.

European Efforts to Stem Migrant Tide Sow Chaos on Austria-Hungary Border (WSJ)

Austrian and Hungarian efforts to stem a growing tide of migrants sowed chaos along their frontier on Monday as Germany’s chancellor warned that Europe’s open-border policy was in danger unless it united in its response to the crisis. In Austria, police toughened controls on the border, triggering miles of traffic jams as they checked cars and trucks for evidence of people smuggling. They said they were compelled to conduct the highway searches after discovering the decomposed bodies of 71 people, most of them believed to be Syrian refugees, in an abandoned truck last week. Authorities also stopped and boarded several Germany-bound trains overcrowded with hundreds of migrants, refusing entry into Austria until some of them got off.

Migrants had packed into the trains in Hungary earlier in the day after officials in Budapest abruptly lifted rules barring them from traveling further into the European Union without visas. Such temporary checks remain in accord with the Schengen Agreement, which allows people to travel freely across the borders of 26 European countries that have signed onto the treaty. But in Berlin, German Chancellor Angela Merkel cautioned that some countries could move to reintroduce systematic passport controls at their borders—unless EU governments agreed to more equally bear the burden of the bloc’s escalating crisis, “Europe must move,” she told reporters in Berlin. “Some will certainly put Schengen on the agenda if we don’t succeed in achieving a fair distribution of refugees within Europe.”

Ms. Merkel’s warning—aimed at governments in the bloc’s east that have resisted taking on a greater number of migrants—marked her most direct intervention in the fraught debate between those European countries, such as Germany, Italy and France, that have called for a fairer distribution of migrants across the bloc, and those that have opposed binding quotas. The comments also came as a rebuttal to opposition politicians and some members of the chancellor’s ruling coalition who have accused her of being slow to address the crisis. Echoing comments she made last week in a German town shaken by three days of antimigrant riots, Ms. Merkel urged her compatriots to welcome those fleeing war or persecution while warning that economic migrants, namely those from Southeastern Europe, couldn’t expect to settle in Germany. “If Europe fails on the question of refugees, then [Europe’s] close link with universal civil rights will be destroyed and it won’t be the Europe we wished for,” she said.

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“Syrians call [Chancellor Angela] Merkel ‘Mama Merkel’..” Well, mama let some 20,000 of you drown.

Trains Carrying Refugees Reach Germany As EU Asylum Checks Collapse (Reuters)

Packed trains arrived in Austria and Germany from Hungary on Monday, as European Union asylum rules collapsed under the strain of an unprecedented migration crisis. As men, women and children – many fleeing Syria’s civil war – continued to arrive from the east, authorities let thousands of undocumented people travel on towards Germany, the favoured destination for many. The arrivals are a crisis for the European Union, which has eliminated border controls between 26 Schengen area states but requires asylum seekers to apply in the first EU country they reach. In line with EU rules, an Austrian police spokesman said only those who had not already requested asylum in Hungary would be allowed through, but the sheer pressure of numbers prevailed and trains were allowed to move on.

“Thank God nobody asked for a passport … No police, no problem,” said Khalil, 33, an English teacher from Kobani in Syria. His wife held their sick baby daughter, coughing and crying in her arms, at the Vienna station where police stood by as hundred of people raced to board trains for Germany. Khalil said he had bought train tickets in Budapest for Hamburg, northern Germany, where he felt sure of a better welcome after traipsing across the Balkans and Hungary. “Syrians call [Chancellor Angela] Merkel ‘Mama Merkel’,” he said, referring to the German leader’s relatively compassionate response so far to the crisis. Late on Monday, a train from Vienna to Hamburg was met in Passau, Germany, by police wearing bullet-proof vests, according to a Reuters witness.

Police entered the train and several passengers were asked to accompany them to be registered. About 40 people were seen on the platform. Police said they would be taken to a police station for registration. Merkel, whose country expects some 800,000 migrants this year, said the crisis could destroy the Schengen open borders accord if other EU countries did not take a greater share. “If we don’t succeed in fairly distributing refugees then of course the Schengen question will be on the agenda for many,” she told a news conference in Berlin. “We stand before a huge national challenge. That will be a central challenge not only for days or months but for a long period of time.”

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I changed migrants to refugees in the title. Getting really tired of this politically motivated misnomer.

Hungary Shuts Down Rail Traffic For Westward-Bound Refugees (AP)

Hungarian authorities are stopping all trains from leaving Budapest’s main train terminal in an effort to prevent migrants from using it to leave for Austria and Germany. An announcement over the station’s loudspeakers Tuesday said the measure would be in effect for an undetermined length of time. Scuffles broke out earlier in the morning among some of the hundreds of migrants as they pushed toward metal gates at the platform where a train was scheduled to leave for Vienna and Munich, and were blocked by police. Several say they spent hundreds of euros for tickets after police told them they would be allowed free passage. Police in Vienna say 3,650 migrants arrived from Hungary Monday at the city’s Westbahnhof station. They say most continued on toward Germany.

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Fat and stupid?

The Refugee Crisis Reveals What We Have Become (Martin Sandbu)

When Sir Nicholas Winton died in July, he was widely celebrated for a few days. Obituarists eulogised his work in rescuing Jewish children from Germany and central Europe just before the second world war. Then everyone went back to their everyday business. Few noted the contrast between Winton’s initiative and our own attitudes to the refugee crisis lapping Europe’s shores. Winton was a banker who, in 1938-39, bankrolled and managed part of what became known as the Kindertransport, by which some 10,000 mostly Jewish children were moved and admitted to the UK. The government was persuaded to waive immigration restrictions for the children (they had to leave their parents, most of whom would soon perish) if the rescue organisers promised to find housing and guarantee funds for repatriating the children later.

There is no comparison today with the Holocaust. But last week’s mass deaths in capsized boats and an abandoned lorry show the risks hundreds of thousands of families are prepared to take for a journey they find preferable to the desperation they flee. Children are in large numbers among them: more than a quarter of those applying for asylum in Europe last year were minors, and almost one-fifth less than 14 years old. The two most welcoming countries in Europe are Germany and Sweden. Berlin is preparing for some 800,000 asylum applications this year, 1% of its population and four times more than last year. Even in 2014, Germany received and granted more than 25% of all asylum applications in the EU, far above its population share.

Sweden, with just 2% of the EU’s population, last year accounted for 13% of all applications and 18% of all successful ones. Twentieth-century history gives possible explanations for why these two countries stand out. Germany was responsible for the second world war and much of the country’s current openness to refugees can be attributed to a sense of historic responsibility. Sweden was one of very few European countries to pass through the war relatively unscathed. (Switzerland, too, accepted a disproportionate share of refugees last year, though at only half Sweden’s rate.) Most of the others, however, are twisting themselves into contortions to avoid letting people in. It is hard to banish the thought that guilt motivates determined action, and empathy does not.

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“Refugees are our future spouses, best friends, or soulmates, the drummer for the band of our children, our next colleague, Miss Iceland in 2022, the carpenter who finally finished the bathroom, the cook in the cafeteria, the fireman, the computer genius, or the television host.”

Icelanders Call On Government To Take In More Syrian Refugees (Guardian)

Thousands of Icelanders have called on their government to take in more Syrian refugees – with many offering to house them in their own homes and give them language lessons. Iceland, which has a population of just over 300,000, has currently capped the number of refugees it accepts at 50. Author and professor Bryndis Bjorgvinsdottir put out a call on Facebook on Sunday asking for Icelanders to speak out if they wanted the government to do more to help those fleeing Syria. More than 12,000 people have responded to her Facebook group “Syria is calling” to sign an open letter to their welfare minister, Eyglo Hardar.

“Refugees are human resources, they have experience and skills”, the letter said. “Refugees are our future spouses, best friends, or soulmates, the drummer for the band of our children, our next colleague, Miss Iceland in 2022, the carpenter who finally finished the bathroom, the cook in the cafeteria, the fireman, the computer genius, or the television host.”

Many of those posting on the group have said they would offer up their homes and skills to help refugees integrate. “I have clothing, kitchenware, bed and a room in Hvanneyri [western Iceland], which I am happy to share with Syrians”, one wrote. I would like to work as a volunteer to help welcome people and assist them with adapting to Icelandic society. “I want to help one displaced family have the chance to live the carefree life that I do”, another wrote. “We as a family are willing to provide the refugees with temporary housing near Egilsstadir [eastern Iceland], clothing and other assistance. I am a teacher and I can help children with their learning.”

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True, October has a bad reputation when it comes to markets.

Preparing For A Potential Economic Collapse In October (Jeff Thomas)

There’s no question that the world economy has been shaky at best since the crash of 2008. Yet, politicians, central banks, et al., have, since then, regularly announced that “things are picking up.” One year, we hear an announcement of “green shoots.” The next year, we hear an announcement of “shovel-ready jobs.” And yet, year after year, we witness the continued economic slump. Few dare call it a depression, but, if a depression can be defined as “a period of time in which most people’s standard of living drops significantly,” a depression it is. Many people are surprised that no amount of stimulus and low interest rates have resulted in creating more jobs or more productivity.

Were they a bit more cognizant of the simple, understandable principles of classical economics (as opposed to the complex theoretical principles of Keynesian invention), they’d recognise that, when debt reaches the level that it cannot be repaid, a major re-set of some sort must take place. The major economies of the world have reached and exceeded that point and the debt problem is no mere anomaly that can be papered over. It is, instead, systemic. There must be a major forgiveness of debt, a default, or an economic collapse, or some combination of the three. And so, those who recognise the inevitability of such an event have been storing their nuts away in preparation for an economic winter.

Those of us who warned of the 2008 crash in advance had been regarded as economic “Chicken Littles.” After the crash, we were largely resented as having made a “lucky guess.” Following that time, a moderate amount of credence has been allowed us, as we’ve recommended investments in real estate and precious metals (outside of those jurisdictions that are most at risk). However, since the Great Gold Correction (2011-2015), that begrudging credence has worn away and been replaced with renewed contempt. To the naysayers, the 2001-2011 gold boom has been relegated to the investment dustbin and, to most punters, gold is clearly “over.”

Just as importantly, the most significant events of the “Greater Depression” that we had been predicting have clearly not yet come to pass. They’re still ahead of us. And, in this, we must confess that those of us who made this prediction did unquestionably believe that it would have taken place by now. We were wrong. Or at least we were wrong on the timing, but most of us still believe, more than ever, in the inevitability of a collapse (again, this is true because the problem is systemic, not symptomatic). All of the above is a preface of the coming of October, a month which, historically, has seen more than its fair share of negative economic events. This time around, there are warning signs aplenty that, sometime around October of this year, we shall see a number of black swans on the wing, headed our way.

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Shanghai is the gift that keeps on giving.

China PMI Shrinks, Sending Stocks Lower (FT)

Activity in China’s manufacturing sector contracted at its fastest pace in three years, sending shares down and exacerbating fears about a China slowdown that have roiled global markets. The official Purchasing Managers’ Index (PMI) fell to 49.7 in August from the previous month’s reading of 50, the first time since February that the bellwether figure for large industrial enterprises has fallen below 50 — the level that separates expansion from contraction. The reading backs up the earlier Caixin flash PMI, representing a group of private sector and small and medium enterprises, which fell to 47.1 in August, from the final reading of 47.8 in July. China’s stock markets spiralled as much as 5.8% lower after the data, but pared back losses later.

The Shanghai Composite Index was down 1.1% at the lunchtime close while Shenzhen had fallen 2.9%. Wang Tao, chief China economist at UBS, said the reading showed the persistence of downward pressure on growth — a pressure that has triggered a flurry of supportive measures from Beijing, dented stock markets around the world and sent emerging market currencies into a swoon. “This is why the [Chinese] government has intensified policy support recently, announcing plans to bring forward some key infrastructure projects, ways to fund them, and another marginal easing for property purchase in the past couple of days,” said Ms Wang. China’s central bank cut interest rates last week and said it would inject liquidity into the banking sector, in a move to stimulate the slowing economy and stem a slide in share prices that has rattled global investors.

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It has been for many years.

Beijing’s Incompetence Is Now China’s Biggest Problem (MarketWatch)

For much of the summer, global markets have been able to carry on with a detached bemusement at Beijing’s fumbled handling of its stock market burst. But after last week’s “Black Monday” plunge in Shanghai stocks triggered a global equity selloff, suddenly the policy competence of China’s leaders matters to everyone from London to New York. As Beijing lurches between intervening to support its stock market and currency peg, while blaming everyone from the Federal Reserve to rogue brokers for the selloff, the enduring casualty has been confidence. The veil of omnipotence of President Xi Jinping’s government and the “exceptionalism” of China’s economy has been well and truly lifted.

Where once there was the “Beijing put” and policy certainty, now there is a wall of questions as market forces nibble away at China’s model of state-led capitalism. If China’s debt, equity and property markets — together with its currency — are finally marked to market, it could be quite a reckoning. Daiwa Research warns, “The debate for China is no longer between realizing a soft landing or a hard one. It is now between a hard landing and a financial crisis.” Other analysts are also flagging the risk of the equity rout snowballing into something much bigger. Credit Suisse says that because state banks were the main source of lending that financed the last round of stock purchases, intervention may pose a threat to financial stability.

The decision to mobilize the state to support a stock market that had been propelled to bubble highs through massive margin financing, always looked foolhardy, in that its chance of success were limited from the start. Beijing also failed to realize that by effectively becoming the only buyer, it has reduced investing in equities to a binary bet on when the government was buying or not. Last Monday’s plunge was attributed to rumors Beijing had capitulated in its stock-support efforts. The subsequent rebound from Thursday afternoon suggested the “national team” of state-owned investment funds was back in the market. But now once again it is believed state buying may be over after a $200 billion spend in recent weeks, according to a new report in the Financial Times. This suggests more extreme volatility lies ahead.

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“Cherchez La Debt!”

Why China Had To Crash Part 2 (Steve Keen)

One thing my 28 years as a card-carrying economist have taught me is that conventional economic theory is the best guide to what is likely to happen in the economy. Read whatever it advises or predicts, and then advise or expect the opposite. You (almost) can’t go wrong. Nowhere is this more obvious than in its strident assurances that the value of shares is unaffected by the level of debt taken on, either by the firms themselves or by the speculators who have purchased them. This theory, known as the “Modigliani-Miller theorem”, asserted that since a debt-free company could be purchased by a highly levered speculator, or a debt-laden company could be purchased by a debt-free speculator, therefore (under the usual host of Neoclassical “simplifying assumptions”, which are better described as fantasies) the level of leverage of neither firm nor speculator had any impact on a firm’s value—and hence its share price.

The sole determinant of the share price, it argued, was the rationally discounted value of the firm’s expected future cash flows. Armed with that theorem, I was always confident of the contrary assertion: that debt played a crucial role in determining stock prices. So, like the fictional 19th century French detective who began every investigation with the cry “Cherchez La Femme!”, my first port of call in understanding any stock market bubble is “Cherchez La Debt!”. It took a while to locate Shanghai’s margin debt data (the easier to find stock index data is here), but once I plotted it, the reliability of my trusty old contrarian indicator was obvious. While these figures may well substantially understate the actual level of margin debt [see also here], they imply that, starting at the truly negligible level of 0.000014% of China’s GDP in early 2010, margin debt rose to over 2% of China’s GDP at its peak in June of this year. It has since plunged to just under 1% of GDP—see Figure 1.

Figure 1: Margin debt as a percent of China’s GDP: from 0.000014% to 2% in 5 years–and back down again

The ups and downs of margin debt have both paralleled and driven the stock market boom and bust in China: as the leverage of speculators rose and fell, so did the market—see Figure 2.

Figure 2: A debt bubble begets a stock market bubble

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Hey, it worked for Apple until it didn’t…

China Encourages Cash Bonuses, Share Buybacks (Xinhua)

China issued a notice Monday encouraging mergers, cash bonuses and share repurchases by listed companies as part of its efforts to push forward reforms of state-owned enterprises and promote the steady and healthy development of the capital market. The notice was jointly announced by China Securities Regulatory Commission, Ministry of Finance, State-owned Assets Supervision and Administration Commission of the State Council and China Banking Regulatory Commission. The notice took effect Monday. The value of mergers and acquisitions (M&A) among listed companies totaled nearly 1.27 trillion yuan (198.77 billion U.S. dollars) in the first seven months this year, accounting for 87.5% of the overall value registered last year.

The notice also encouraged cash bonuses among listed companies. State-controlled listed companies took the lead, accounting for 76.9% of the total cash bonuses made in 2014. As an important way to repay investors, listed companies should repurchase their shares in due time, said the notice. Of the entire share repurchases published by the Shanghai and Shenzhen bourses since July this year, 72.8% were made by state-controlled listed companies. The notice also vowed to push forward market-oriented reforms and further cut red tape in order to facilitate the implementation of mergers, cash bonuses and share repurchases.

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Good evaluation, good graphs.

Why Is China Finding It Hard To Fight The Markets? (Bruegel)

China’s market drama started in June this year with the collapse of the Shanghai stock exchange, followed by frantic interventions by the Chinese authorities. As if the estimated $200 billion already spent on propping up stock prices were not enough, China found itself in another battle with the market, defending the RMB against depreciation pressures after the PBoC devalued the RMB by nearly 2% on August 11. The cost of the foreign exchange intervention to keep the RMB stable is estimated at $200 billion.This adds to existing pressures on China’s international reserves, which though still extensive, have been reduced by as much as $345 billion in the last year, notwithstanding China’s still large current account surplus and still positive net inflows of foreign direct investment (Graph 1).

The fall in reserves is not so much due to foreign investors fleeing from China but, rather, capital flight from Chinese residents. Another –more positive reason – for the fall in reserves is that Chinese banks and corporations, which had borrowed large amounts from abroad in the expectation of an ever appreciating RMB, finally started to redeem part of their USD funding while increasing it onshore. While this is certainly good news in light of the recent RMB depreciation, the question remains as to how much USD debt Chinese banks and corporations still hold and, more generally, how leveraged they really are a time when the markets may become much less complacent, at least internationally.

Public and corporate sector over-borrowing can be traced back to the huge stimulus package and lax monetary policies which Chinese economic authorities introduced during the global financial crisis in 2008-2009. A RMB 4 trillion investment plan focusing on infrastructure was deployed, but the real cost spiralled. The government also subsidized the development of several important industries and lowered mortgage rates to boost housing demand. At the same time, the PBoC substantially loosened monetary policy with interest rate cuts, reductions in reserve requirements and even very aggressive credit targets for banks. According to the authorities’ initial plan, the funds needed for the stimulus package would come from three sources: central government, local governments, and banks, with costs shared relatively equally.

However in practice, given their limited fiscal capacity, local governments had to turn to banks to meet their borrowing needs. Banks could not decline loan requests from central or local government because of government ownership and control over most banks. In the meantime, government subsidies for specific industries boosted credit demand as firms in these sectors sought to take advantage of policy support and expand their production capacity. Mini-stimulus packages have since become the new norm of China’s economic policy. When growth started to slow in 2012, the authorities responded by rolling out more infrastructure projects to revive the economy, which has blotted China’s consolidated deficits every year since 2008. Although no official statistics exist on this, our best estimate is 8-10% fiscal deficits with the corresponding increase in public debt every year.

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Are we sure this is not from the Onion?

China Reporter Confesses To Stoking Market ‘Panic And Disorder’ (FT)

A leading journalist at one of China s top financial publications has admitted to causing panic and disorder in the stock market, in a public confession carried on state television. The detention of Wang Xiaolu, a reporter for Caijing magazine, comes amid a broad crackdown on the role of the media in the slump in China’s stock market, which is down about 40% from its June 12 peak. Nearly 200 people have been punished for online rumour-mongering, state news agency Xinhua reported at the weekend. “I acquired the news from private conversations, which is an abnormal way, and added my personal judgment and subjective views to finish this story, said Mr Wang in a confession aired on China Central Television. I shouldn’t have released a report with a major negative impact on the market at such a sensitive time. I shouldn’t do that just to catch attention which has caused the country and its investors such a big loss. I regret . . . [it and am] willing to confess my crime.”

Mr Wang’s confession came after he was detained for allegedly fabricating and spreading false information about the stock market, according to Xinhua. High quality global journalism requires investment. State TV channels in China frequently broadcast public confessions in high-profile cases. CCTV on Monday also aired a confession by Liu Shufan, an official of market watchdog the China Securities Regulatory Commission, and reported that four senior executives of investment bank Citic Securities had confessed to insider trading. The state broadcaster showed Mr Liu confessing to market-related crimes including insider trading. The wider clampdown has also targeted those spreading online rumours about the recent fatal explosions in Tianjin and “other key events”. According to Xinhua’s report, crimes punished include claiming a man had jumped to his death in Beijing because of the stock market slump.

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Capital outflows is yet another losing wager for Beijing.

SocGen: Half-Hearted Capital Controls Are Coming to China (Bloomberg)

It’s a tough time to be a Chinese policymaker. Obvious overcapacity in industrial sectors forced the world’s second-largest economy to shift to a more consumer-oriented growth model. Maintaining an elevated currency was conducive to this goal, as it boosted the purchasing power of Chinese citizens. But the yuan’s peg to the U.S. dollar constituted an effective tightening of financial conditions as the greenback soared, despite a deterioration in the Chinese growth outlook. Even with continued current account surpluses, the currency appreciation was also beginning to hamper Chinese competitiveness in an environment in which external demand remains lackluster. Meanwhile, the liberalization of China’s capital account over the past five years provided a conduit for market forces to exert greater pressure on the exchange rate.

The manner by which the People’s Bank of China has been able to maintain an overvalued yuan—by intervening in foreign exchange markets—effectively dried up domestic liquidity, which serves as a rising potential vulnerability for the economy in light of China’s dependence on cheap credit for growth. When policymakers moved to devalue the yuan, market turmoil soon ensued—and China’s fingerprints were all over some of the bizarre moves that occurred in equities and fixed income last week. How Chinese policymakers elect to manage the currency in the face of continued capital outflows will likely play an outsize role in determining whether the current respite from market volatility will endure or prove to be the eye of the hurricane.

Société Générale China economist Wei Yao thinks Chinese policymakers will take a measured approach to solving this conundrum—allowing the currency to depreciate in a controlled manner while placing more restrictions on the flow of capital out of the country. Yao notes that in this discussion, it’s important to distinguish which variable is the dog and which is the tail. “The total size of capital outflows, among other factors, is mathematically a function of the PBoC’s choice of currency policy, not the other way around,” she writes. “That is, total capital outflows equal the current account surplus plus the amount of FX reserves that the PBoC is willing to sell based its target for the RMB relative to the market’s view.”

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Depends on what kind of leverage you mean.

China Has Lots of Treasuries, Not Much Leverage (Pesek)

In recent years, China’s relationship with the U.S. has resembled nothing so much as a hostage situation. Beijing’s enormous holdings of Treasuries gave it immense leverage over Washington, which lived in perpetual fear of China choosing to not finance any new debt, or sell off its current holdings. That worst-case scenario is closer than ever to becoming a reality – or so say the Republicans who are vying for their party’s presidential nomination. But one important point has escaped Donald Trump and company: If the dynamic between China and the U.S. is still a hostage scenario, the roles have been reversed. Beijing has been trimming its holdings of Treasuries in recent months in order to prop up the yuan.

Over the past year, its overall foreign-exchange reserves have fallen by about $315 billion to $3.7 trillion. But the scale of these sales have been relatively modest. And there are at least three reasons that a more massive Chinese selloff of Treasuries is exceedingly unlikely. The first reason is China’s rickety economy. It has always been true that if Beijing dumped hundreds of billions of dollars of Treasuries, U.S. yields would skyrocket and devastate the key market to which China ships its goods. In 2004, former U.S. Treasury Secretary Lawrence Summers warned about relying on this dynamic to ensure stability for the long term: “It surely cannot be prudent for us as a country to rely on a kind of balance of financial terror to hold back reserve sales that would threaten our stability.”

But as Summers also pointed out, the arrangement “is a reason a prudent person would avoid immediate concern.” That’s especially true in the current economic environment, as Chinese growth sputters and traders begin to short Shanghai stocks. China needs every growth engine it can muster. And that means enticing U.S. consumers to spend by ensuring their government enjoys low interest rates. The second reason China will hesitate to sell off Treasuries is Japan. Beijing knows that if it ends its unique relationship with the U.S., Tokyo would gladly step in to take its place. With about $1.2 trillion of Treasuries, Japan is already only marginally behind China in the dollar-leverage department. And two of Prime Minister Shinzo Abe’s signature policies are especially relevant in this context: keeping the yen weak and Barack Obama happy.

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Why not let them purchase your neighborhood too with monopoly money? What could go wrong?

China’s Wealthy Look To Raise Overseas Investments (FT)

China’s wobbly response to the bursting of its stock market bubble, the sudden devaluation of the renminbi and the mystery over the true health of the country’s economy continue to spook investors, large and small. But China’s wealthiest people know exactly what to do in these bewildering times: get some of their money out. More than 60% of wealthy Chinese people surveyed in July by FT Confidential, an investment research service at the FT, said they planned to increase their overseas holdings in the coming two years. Residential property was the most popular future investment, followed by fixed-income securities, commercial property, trust products and life insurance policies.

A significant proportion of China’s wealthy are self-made business people who have managed to profit from the nation’s economic expansion — a phenomenon that has led to massive inflows of foreign investment into China. FT Confidential identified and polled 77 wealthy individuals, divided into two groups: those with Rmb6m ($941,000) or more to invest, and a so-called “mass affluent” group with Rmb600,000-Rmb6m. An attempted rebalancing of the economy away from investment and towards greater consumption has dealt a blow to many once highly lucrative industries such as energy and low-end manufacturing, putting business owners under stress as profits have fallen.

The high-level anti-graft campaign kicked off by President Xi Jinping is making the problem worse as private bosses scramble to adjust their relationships with the government – key to their business success. With uncertainty rising at home, China’s rich have started looking elsewhere to store their wealth. “China’s policy changes so quickly,” said a businessman in Shenzhen who would only give his name as Mr Huang. “I am worried about the safety of my wealth.” The July stock market rout in Shanghai and the policy dilemma it has thrown up is likely to have underlined those concerns. The survey found that 47% of so-called high net worth individuals had earmarked more than 30% of their assets for investment overseas. The US was the preferred destination for 42% of respondents.

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No, that should read ‘damaged by central bankers’ incompetence and/or criminal actions’.

Global Trade Damaged By Weakness In Emerging Market Currencies (FT)

Weakness in emerging market currencies is hurting global trade by reducing imports without any benefit to export volumes, according to FT research based on more than 100 countries. The findings suggest any currency war between developing nations is likely to be even more damaging than previously thought, leading to a reduction in global trade and possibly economic growth, rather than just reapportioning a fixed level of trade between “winners” and “losers”. The analysis coincides with concerns that some countries are engaging in competitive devaluations in order to undercut their neighbours and steal market share. “We risk slipping into a beggar thy neighbour, competitive spiral of currency devaluations, with all the currency overshoots and volatility that go with that,” said Mohamed El-Erian.

Since June 2014, the currencies of Russia, Colombia, Brazil, Turkey, Mexico and Chile have fallen by between 20% and 50% against the dollar, while the Malaysian ringgit and Indonesian rupiah are at their weakest since the Asian financial crisis of 1998.\ China, which had held the renminbi firm against the dollar until this month, has since allowed it to fall 4.5%, triggering a further wave of currency weakness across emerging markets. The FT compared changes in the value of 107 emerging market countries’ currencies with their trade volumes in the following year.

The analysis found that having a weaker currency did not lead to any rise in export volumes. However, it did lead to a fall in import volumes of about 0.5% for every 1% a currency depreciated against the dollar. A fall in the value of a country’s currency pushes up the price of imports, leading to lower demand for imported goods. Brazilian import volumes for the past three months, for example, are falling at a pace of 13% year-on-year, according to estimates from Capital Economics, following a 37% collapse in the real over the past 12 months. Russia, South Africa and Venezuela have also seen imports fall in the wake of plummeting currencies.

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Well, uh, no, Ambrose. No matter how much Europe inflates its money supply, if people don’t spend, there’ll be no reflation or inflation. Spending is the crucial factor. Velocity of money.

Reflation Threat To Bonds As Money Supply Catches Fire In Europe (AEP)

Eurozone money supply is surging at a blistering pace as stimulus gains traction, signalling a powerful economic recovery over coming months and raising the risk of a mjaor sell-off in bond markets. The growth of narrow M1 money surged to 12.1pc in July, higher than the peak levels seen a decade ago when the EMU credit boom was reaching a crescendo. Such explosive rates of growth are usually associated with over-heating. The M1 figures cover cash and current accounts. They are watched closely by monetarists for clues of future spending and economic vigour six months or so ahead. The surge is the clearest evidence so far that zero interest rates and €60bn of asset purchases each month by the ECB are starting to ignite the eurozone’s damp kindling wood.

Doubts are growing over whether the ECB really can keep going with quantitative easing at the current blistering pace. “It is full steam ahead. I don’t see how they can continue to do QE until September (2016),” said Simon Ward from Henderson Global Investors. “It will be clear by early next year that there is a lot more life in the eurozone economy than people think. The bond markets are going to be vulnerable,” he said. The yields on Europe’s sovereign bonds are still at historic lows, priced for depression as far as they eye can see. Two-year yields are negative in 14 countries, including Ireland, Slovenia, Latvia and the Czech Republic. Ten-year yields are 1.09pc in France, 0.74pc in Germany and -0.17pc in Switzerland. Any sign that growth is picking up and that the “output gap” is closing faster than expected in these countries could lead to a spike in yields, and potentially a full-blown bond rout.

The eurozone’s broader M3 measure of the money supply is growing more slowly than M1 but has reached a post-Lehman high of 5.3pc. Private sector lending is coming back from the dead after three years of outright contraction. Loans to households rose by 1.9pc. Demand for housing loans and consumer credit is rocketing, surpassing levels reached at the height of the previous boom. The ECB is in no hurry to wind down QE. Vice-president Vitor Constancio raised eyebrows this week with hints that Frankfurt might actually increase the dosage if needed to stop inflation falling too low, or to avert further fall-out from trouble in China. “The Governing Council stands ready to use all the instruments available within its mandate to respond to any material change to the outlook for price stability,” he said.

Neil Mellor, from BNY Mellon, said the ECB risks a policy mistake by keeping the taps on too long to meet its inflation target. “There is a risk that this will end in asset price inflation, and we should have learned from 2008 how much damage asset booms can do,” he said. The inflation price data have been distorted by the slump in oil and commodity prices over the past year. Modern central banks usually take the view that such “positive supply shocks” increase spending power and are therefore benign.

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Could have read The Dying Constitutions.

The Dying Institutions Of Western Civilization (Paul Craig Roberts)

The US no longer has a judiciary. This former branch of government has transitioned into an enabler of executive branch fascism. Privacy is a civil liberty protected by the US Constitution. The Constitution relies on courts to enforce its prohibitions against intrusive government, but if the executive branch claims (no proof required) “national security,” courts kiss the Constitution good-bye. Federal judges are chosen by the executive branch. The senate can refuse to confirm, but that is rare. The executive branch chooses judges who are friendly to executive power. This is especially the case for the appeals courts and the Supreme Court. The Justice (sic) Department keeps tabs on district court judges who rule against the government, and these judges don’t make it to the higher courts. The result over time is to erode civil liberty.

Recently a three-judge panel of the US Appeals Court for the District of Columbia ruled that the National Security Agency can continue its mass surveillance of the US population without showing cause. The panel avoided the constitutional question by ruling on procedural terms that NSA had a right to withhold the information that would prove the plaintiffs’ case. By refusing to extend the section of the USA PATRIOT Act—a name that puts a patriotic sheen on Orwellian totalitarianism—that gave carte blanche to the NSA and by passing the USA Freedom Act, Congress attempted to give NSA’s spying a constitutional patina. The USA Freedom Act allows the telecom companies to spy on us and collect all of our communications data and for NSA to access the data by obtaining a warrant from the Foreign Intelligence Surveillance Act (FISA) Court.

The Freedom Act protects constitutional procedures by requiring NSA to go through the motions, but it does not prevent telecom companies from invading our privacy in behalf of NSA. No one has ever explained the supposed threat that American citizens pose to themselves that requires all of their communications to be collected and stored by Big Brother. If the US Constitution was respected by the executive branch, Congress, the judiciary, law schools and bar associations, there would have been a public discussion about whether Americans are most threatened by the supposed threat that requires universal surveillance or by the loss of their constitutional protections. We all know what our Founding Fathers’ answer would be.

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Feel proud of yourself?

Up To 90% Of Seabirds Have Plastic In Their Guts (Guardian)

As many as nine out of 10 of the world’s seabirds are likely to have pieces of plastic in their guts, a new study estimates. An Australian team of scientists who have studied birds and marine debris found that far more seabirds were affected than the previous estimate of 29%. Their results were published in the journal Proceedings of the National Academy of Sciences. “It’s pretty astronomical,” said study coauthor Denise Hardesty, a senior research scientist at the CSIRO. She said the problem with plastics in the ocean was increasing as the world made more of it. “In the next 11 years we will make as much plastic as has been made since industrial plastic production began in the 1950s.”

Birds mistook plastic bits for fish eggs so “they think they’re getting a proper meal but they’re really getting a plastic meal”, Hardesty said. Some species of albatross and shearwaters seem to be the most prone to eating plastic pieces. She combined computer simulations of garbage and the birds, as well as their eating habits, to see where the worst problems are. Hardesty’s work found the biggest problem was not where there was the most garbage, such as the infamous patch in the central north Pacific Ocean. Instead it was in areas with the greatest number of different species, especially in the southern hemisphere near Australia and New Zealand. Areas around North America and Europe were better off, she said.

By reducing plastic pellets Europe was seeing less of it in one key bird, the northern fulmar. Hardesty said she had seen an entire glowstick and three balloons in a single short-tailed shearwater bird. “I have seen everything from cigarette lighters … to bottle caps to model cars. I’ve found toys,” Hardesty said. And it is only likely to get worse. By 2050, 99% of seabirds will have plastic in them, Hardesty’s computer model forecasts. That prediction “seems astonishingly high but probably not unrealistic”, said American University environmental scientist Kiho Kim, who wasn’t part of the study but praised it.

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Mar 102015
 
 March 10, 2015  Posted by at 6:14 am Finance Tagged with: , , , , , , , ,  1 Response »


NPC Ford Motor Co., McReynolds & Sons garage, L Street, Washington DC 1926

S&P 500 Can’t Fight The Market’s Selloff Forever (MarketWatch)
China’s ‘Money Garrote’ May Choke Us All (MarketWatch)
Three Reasons Japan Will Get More Stimulus (Bloomberg)
Central Bank Blues (Deutsche Welle)
Japan’s Not So Golden Oldies Tighten Their Purse Strings (CNBC)
ECB Starts Buying German, Italian Government Bonds Under QE Plan (Bloomberg)
Presenting The Buyers Of Over 100% Of New German And Japanese Bond Issuance (ZH)
Aftershocks, Part 1: That Austrian Bank (John Rubino)
Billionaire Greek Ship Owners Surface on Tax-Exempt Overseas Profit (Bloomberg)
EU, Greece To Start Technical Loan Talks Wednesday (Reuters)
Draghi Urged Greece to Allow Officials Back Before It’s Too Late (Bloomberg)
Eurozone Calls On Greece To Come Up With Credible Economic Reforms (Guardian)
Greece Sees First Shortages In Imported Goods (Kathimerini)
Liquidity Fears Slow Greek Government Payments (Kathimerini)
Creditors Reject Greece’s Reform Proposals (Bloomberg)
Spain’s Post-Franco Elite Under Attack From Popular Podemos Party (Bloomberg)
truthinesslessness (Jim Kunstler)
US Deploying 3,000 Troops To The Baltics (DW)
The Isolation of Donetsk: A Visit to Europe’s Absurd New Border (Spiegel)

“Something is wrong with this picture.”

S&P 500 Can’t Fight The Market’s Selloff Forever (MarketWatch)

Investors have reached a fork in the road. Should they follow the rally in the S&P 500, or the selloff in two key components and a much broader market index? One chart watcher believes the road with more travelers could prove to be right. The chart below compares the S&P 500, the NYSE Composite Index and the shares of General Electric and Exxon Mobil. “More and more stocks no longer are in uptrends, even as the S&P 500 manages to maintain its uptrend,” said Carter Braxton Worth, chief market technician at Sterne Agee. “Unsustainable divergence, we’d say.”

Worth believes it is important to view the performance of the NYSE Composite, which is composed of more than 2,000 stocks, because it is“one of the broadest (and oldest) indices in existence.” He also believes GE and Exxon are among the most important stocks within the S&P 500, given GE’s broad reach into all corners of the economy, and Exxon’s sheer size and the economic importance of the oil and gas markets. “Something is wrong with this picture. Either the S&P 500 accurately depicts the state of the world, or GE and Exxon do,” Worth said. “One or the other, but it cannot be both.

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“China’s money supply is already 372% of what it was at the beginning of 2006.”

China’s ‘Money Garrote’ May Choke Us All (MarketWatch)

— In this new era of all-powerful central banks, it is hard for investors to look past who will be next to take out the big gun of quantitative easing. This week, all eyes are on the European Central Bank, which follows the Bank of Japan as the latest of the major monetary-policy makers to embark on its own aggressive bond-buying program. In contrast, China appears to be entering a “new normal” era, in which its central bank only has a pea-shooter. While most headlines at the ongoing National Peoples Congress meeting focused on the “approximately 7%” economic growth target, the benchmark money-supply growth target of 12% was also the lowest in decades. Another part of China’s new normal is not just lower growth, but also an era where the central bank is no longer able to magically speed its money-printing presses.

Conventional wisdom holds that the People’s Bank of China (PBOC) has a gargantuan monetary arsenal, given that the country has the world’s largest stash of foreign reserves at $3.89 trillion. This cash mountain is routinely used to justify how Beijing has nearly unlimited firepower to backstop its economy. But according to some analysts, this reserve accumulation is merely a byproduct of another form of quantitative easing. Rather than strength, its size indicates just how staggeringly large China’s domestic credit expansion has become in recent decades. According to strategist Albert Edwards at Société Générale, such foreign-reserve accumulation — which typically takes place in emerging markets — is equivalent to quantitative easing.

The PBOC’s historic mass-printing of money to buy foreign currency and depress the yuan’s value is little different from what the Federal Reserve and others have done, Edwards said. This would mean that China has already embarked on a major monetary expansion after three decades of trade surpluses and reserve accumulation. Furthermore, the recent reversal in such reserve accumulation points to a significant turning point in monetary conditions. Indeed, Joe Zhang, author of “Inside China’s Shadow Banking System,” argues that China’s credit expansion has in fact been far more aggressive than the quantitative easing attempted in the U.S. or Europe.

Zhang, a former PBOC official, calculated that China’s money supply is already 372% of what it was at the beginning of 2006. And if you add up official data between 1986 and 2012, China’s benchmark M2 money supply has grown at a compound rate of 21.1%. While 7% economic growth is slow for China compared to the double-digit rates of the past, such data makes 12% money-supply growth looks positively measly. Another reason to believe that China is at the tail end of a huge monetary expansion is found in a recent study by McKinsey. They estimated that total credit in China’s economy has quadrupled since 2008, reaching 282% of gross domestic product.

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Do or die.

Three Reasons Japan Will Get More Stimulus (Bloomberg)

Two years after Haruhiko Kuroda, governor of the Bank of Japan, declared his team will “do whatever it can” to end deflation, it’s painfully clear their efforts aren’t working. Stocks are up, bond yields are down and people are buzzing about Japan for the first time in years. What’s still missing, though, is any hint of the self-sustaining recovery Kuroda hoped to be touting by now. With annualized growth of 1.5% between October and December after two straight quarters of contraction, Japan is hobbling out of recession far more slowly than hoped. A third dose of quantitative easing is almost certain. Here are three reasons why.

First, the initial rounds of QE weren’t potent enough. “In order to escape from deflationary equilibrium, tremendous velocity is needed, just like when a spacecraft moves away from Earth’s strong gravitation,” Kuroda recently explained. “It requires greater power than that of a satellite that moves in a stable orbit.” Although the Bank of Japan managed to lower the value of the yen by more than 20% beginning in April 2013, that clearly hasn’t provided enough of a boost to the economy. (Net exports, for example, added just 0.2% to fourth quarter GDP.) Meanwhile, the bank’s 2% inflation target looks more and more distant. The BOJ’s main inflation gauge slowed to just 0.2% in January, down from 1.5% in April last year.

The trouble with the first two rounds of QE was both the size and the strategy. While undoubtedly huge, neither injection was aggressive enough to, at Kuroda puts it, “drastically convert the deflationary mindset.” Also, the BOJ must get more creative than just hoarding government debt. This time, the BOJ should pledge bond purchases of closer to $1 trillion a year and buy bigger blocks of asset-backed, mortgage-backed and corporate securities; load up on distressed assets, including property in rural areas; and prod the government to tax excessive bond holdings by banks and households.

Second, the Federal Reserve is complicating Kuroda’s job. With U.S. unemployment falling to 5.5% in February, the lowest level in almost seven years, U.S. interest rates will soon be heading higher. On Friday, Fed Bank of Richmond President Jeffrey Lacker employed his own cosmic imagery when he declared: “June would strike me as the leading candidate for liftoff.” Monetary largess isn’t exactly a zero-sum game, but the Fed’s QE experiment supported asset markets from London to Tokyo as much as it’s enlivened U.S. demand. As the Fed withdraws, Kuroda will face pressure to make up the difference.

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“..experts question whether a flood of central bank reserve money, pumped into the hands of players in secondary financial markets, can generate a stimulus at all. ”

Central Bank Blues (Deutsche Welle)

On Monday (09.03.2015), the European Central Bank begins its long-anticipated program to buy sovereign bonds on secondary bond markets – i.e. previously issued government bonds held by institutional investors like banks or insurance funds. In central bankers’ jargon, this is called “quantitative easing,” or QE. The ECB’s plan is to pump 60 billion euros ($65 billion) into the financial markets each month, by trading central bank reserve money (a form of electronic cash) for bonds. That’s set to continue until at least September 2016, which means at least 1.1 trillion euros will be put into the hands of investment managers – who will have to find some alternative investments to make with the money. The bond-purchasing program’s goal is to push inflation back up to just under two% – at the moment, there’s consumer price deflation averaging 0.3% across the eurozone.

The ECB appears confident that QE will succeed in this aim. On Thursday last week, at the ECB’s governing board meeting in Nicosia on Cyprus, the central bank revised its projections for both GDP growth and inflation in the eurozone upward: The inflation rate is projected to go up to 0.7% for this year, and GDP growth from 1.0 to 1.5%. But are the new projections just a case of whistling in the dark? There are in fact serious doubts as to whether the ECB will actually be able to meet its targets, or if, instead, the bond-purchasing program will have effects that will make a structural recovery of the eurozone more difficult. For a start, many observers doubt whether the ECB will even be able to find willing sellers for €60 billion a month of bonds. Sovereign bonds – especially those of the core eurozone member states, like Germany – may soon become rather scarce on secondary markets.

Neither domestic banks and insurance funds, nor foreign central banks, will have much incentive to sell their government bond holdings to the ECB. The older bonds with long maturities and decent interest rates, in particular, will probably be held rather than sold. Moreover, experts question whether a flood of central bank reserve money, pumped into the hands of players in secondary financial markets, can generate a stimulus at all. It probably won’t lead to any boost in their lending activities to real-economy businesses or households, for two reasons: First, banks have recently been obliged to increase their core capital reserves – the amount of shareholders’ money, including retained earnings, which is available to cover possible loan losses – and they’re still adjusting their balance sheets accordingly. That means they’re being cautious about lending.

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Done spending long ago. Abenomics is just a mirage that only works as long as people believe in it. Abe himself has urged them to believe. But they’re not that crazy.

Japan’s Not So Golden Oldies Tighten Their Purse Strings (CNBC)

Rising prices are forcing Japanese pensioners to reduce spending, undercutting Prime Minister Shinzo Abe’s plan to boost economic growth and pay down the hefty public debt burden in one of the world’s fastest aging nations. “There is no solution to the structural problem: the government is running a huge budget deficit, but the only way to coax the elderly into spending more is by increasing public spending on them,” said Dai-ichi Life Research Institute (DLRI) chief economist Hideo Kumano. Japan limped out of a technical recession in the fourth quarter of 2014, but consumers are still struggling. A 3-percentage-point tax hike to 8% last April continues to weigh on consumption, while higher import prices have exacerbated the situation due to the yen’s over 40% decline against the U.S. dollar since Abe’s return to power.

In January, Japanese household spending fell 5.1% on month – its 10th consecutive decline, marking the longest losing streak since the global financial crisis. Meanwhile retail sales fell 2.0% – their first decline in 7 months. The elderly are reducing spending the most. “The average Japanese is suffering because of a weaker yen,” said Keio Business School associate professor Seki Obata, but “pensioners are suffering the most from the rising prices because there is no prospects of their incomes rising.” Whether a pensioner can afford to spend or has to cut back depends on their ability or willingness to work, according to according to DLRI’s Kumano figures, citing government data. The 37.8% of households with no income from paid work cut back spending by 1.5% in 2014 – and nearly all (95%) of these households are over 60 years old, according to DLRI’s Kumano.

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“They have just switched on the heat and we will need some time for the pressure to mount.”

ECB Starts Buying German, Italian Government Bonds Under QE Plan (Bloomberg)

With the first purchases of government bonds under a broader stimulus plan, the European Central Bank showed willingness to be patient in its efforts to reignite the euro area’s economy. The ECB and national central banks started buying sovereign debt on Monday under the 19-month plan to inject €1.1 trillion into the economy. While purchases included bonds from at least five countries, the size of individual trades — at between 15 million euros and 50 million euros — was small relative to the program’s goals, according to people with knowledge of the transactions. “The amount bought may be small to start with, but this will be like a pressure cooker,” said Ciaran O’Hagan, head of European rates strategy at SocGen in Paris. “They have just switched on the heat and we will need some time for the pressure to mount.”

Euro-area bonds extended a 14-month rally fueled by speculation that buying €60 billion of debt a month will create a scarcity of government bonds among buyers of the securities. Yields already fell to record lows across the region as the Frankfurt-based bank follows in the quantitative-easing footsteps of the Federal Reserve, Bank of England and Bank of Japan. Germany’s 10-year yield fell the most in six weeks. Gains in Italian bonds were smaller, with the yield on similar-maturity debt slipping four basis points to 1.28%. That widened the yield gap between the two securities by four basis points to 97 basis points, after it shrank to 90 basis points on Friday, the narrowest spread since 2010. “We will see more spread compression ahead,” SocGen’s O’Hagan said. National central banks purchased Belgian, French, German, Italian and Spanish debt..

The buying of bonds will be made roughly in proportion to the capital that each member central bank has contributed to the ECB, though that guideline doesn’t have to be strictly followed every month. There’s also flexibility on what maturity of bonds will be bought by the central banks to reach their target, and acquisitions of asset-backed securities and agency debt are also included in the plan. Some holders of government securities have indicated an unwillingness to sell, sparking concern that there will be a scarcity of available debt for the ECB to buy. There’s also a risk that flexibility and limited information on the plan stirs market volatility. “They know it will not be easy to purchase €60 billion a month including covered bonds and ABS, so they have to deal very cautiously,” said Patrick Jacq at BNP Paribas. “The market remains in positive territory but there is no further acceleration, which means that apparently there is no squeeze on any paper.”

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“.. please don’t tell your average Hinz and Kunz that more than all German bond issuance in 2015 will be monetized. It will bring back some very unpleasant memories.”

Presenting The Buyers Of Over 100% Of New German And Japanese Bond Issuance (ZH)

Back in December, when the total amount of annual ECB Q€ was still up in the air and and consensus expected a lowly €500 billion annual monetization number, we calculated that based on Germany’s capital key contribution of about 26%, the ECB would monetize some €130 billion of German gross Bund issuance, or about 90% of the total scheduled issuance for 2015. Subsequently, the ECB announced that the actual amount across all ECB asset purchasing programs, will be some 44% higher, or €720 billion per year (€60 billion per month). So what does that mean for the revised bond supply and demand across two of the most important developed markets?

Well, we already know that the Bank of Japan will monetize 100% or just over of all Japanese gross sovereign bond issuance (source). As for Germany, on a run-rate basis, and assuming allocation based on the abovementioned capital key, it means that for the next 12 month period, assuming no major funding changes in Germany, the ECB will swallow more than a whopping 140% of gross German issuance! Or, said otherwise, the entities who will buy more than all gross German and Japanese issuance for the next 12 months, are the ECB and the Bank of Japan, respectively.

This also means that to fulfill its monthly purchase mandate, the ECB will have to push the price to truly unprecedented levels (such as the -0.20% yield across the curve discussed previously, or even lower) to find willing sellers. That said, please don’t tell your average Hinz and Kunz that more than all German bond issuance in 2015 will be monetized. It will bring back some very unpleasant memories.

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“The result is a bunch of banks, pension funds and hedge funds whose balance sheets are stuffed with paper that has value only if 1) accounting rules continue to support “mark to fantasy” bookkeeping and 2) governments (via taxpayers) stand ready to convert that bad paper to newly-created currency upon demand.”

Aftershocks, Part 1: That Austrian Bank (John Rubino)

It’s amazing how fast credit ratings revert to their intrinsic value when artificial government support is removed. And the list of potential victims so far doesn’t even include the counterparties on whatever credit default swaps are out there on Heta-related bonds. So more scary headlines are coming. It’s also important to note just how tiny these numbers are. Not a single amount mentioned in the above article is over €25 billion. That’s chump change in today’s mega-bank world. Yet in the absence of a government backstop it’s enough to cause cascading credit downgrades and maybe even the bankruptcy of an entire Austrian state.

So Austria and by implication the rest of the eurozone now face a tricky choice: Stick with the bail-in program and risk a highly-unpredictable cross-border contagion. Or go back to the tried-and-true bail out, with the higher deficits and rising debt — and angry voters — that that implies. Over the past couple of decades, governments have generally blinked when confronted with the prospect of actually letting markets clear bad debts and other misallocated capital. Starting in the mid-1990s with the what came to be known as the “Greenspan put” governments around the world have made it clear to the financial sector that no mistake is too egregious to be unworthy of a central bank backstop. So leverage up, roll the dice, collect those bonuses, and don’t worry about the consequences.

The result is a bunch of banks, pension funds and hedge funds whose balance sheets are stuffed with paper that has value only if 1) accounting rules continue to support “mark to fantasy” bookkeeping and 2) governments (via taxpayers) stand ready to convert that bad paper to newly-created currency upon demand. As taxpayers and voters have caught onto the scam, they’ve raised the political costs for governments, forcing Austria’s leaders to have to decide which group — unstable financial markets or an appalled electorate — is more dangerous to cross heading into the next election. Either choice brings its own series of aftershocks and systemic risks.

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Big fight coming up, or are they just going to change the flags on their ships to Panamese?

Billionaire Greek Ship Owners Surface on Tax-Exempt Overseas Profit (Bloomberg)

The Hellenic fleet is the world’s most valuable at $106 billion, according to VesselsValue.com, accounting for 19% of the world’s tankers. Greece’s seafaring mastery is a remarkable feat for the world’s 42nd-largest economy, where economic and political turmoil has left a quarter of the population unemployed. “This is a business that’s part of their soul,” Matt McCleery at ship finance consultancy Marine Money International, said in a phone interview. “It’s so important to their culture, to their identity, and to their history.” It’s also made billionaires of the country’s four largest ship owners by tonnage: John Angelicoussis, George Prokopiou, Peter Livanos and George Economou. The quartet control a combined fortune of $7.6 billion, according to the Bloomberg Billionaires Index. None of them appear individually on an international wealth ranking. [..]

The value of the vessels are discounted by 60% to approximate the typical level of financing Greek ship owners can obtain today, according to Anthony Zolotas, chief executive officer of ship financing adviser Eurofin SA. Greeks have long dominated the shipping business. The nation’s fleet, 3,669 vessels in 2013, is the largest in the world, according to the Union of Greek Shipowners, making up more than 7% of the Greek economy and providing 192,000 jobs in 2013. Greece’s shipping magnates control 23% of the world bulk carrier fleet, according to the report, even as their home country accounts for less than 0.4% of the world economy.

Their success in one of the most global industries stands in contrast to their country’s domestic troubles, where 36% of the population was at risk of poverty or exclusion from social benefits at the end of 2013, according to Eurostat, the statistics agency of the European Commission. “There is a humanitarian crisis,” said Spyros Economides, a professor in international relations and European politics at the London School of Economics. “It’s not just the problems on the street, it’s much more endemic and deeper than that with people fearing they might get evicted from their homes, who can’t pay their electricity bills, who are having problems feeding their families.”

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At least something. But even this could get ugly.

EU, Greece To Start Technical Loan Talks Wednesday (Reuters)

Warning Greece it had “no time to lose”, euro zone ministers agreed technical talks between finance experts from Athens and its international creditors would start on Wednesday with the aim of unlocking further funding. “We’ve talked about this long enough now,” an impatient-sounding Dutch Finance Minister Jeroen Dijsselbloem said after chairing Monday’s meeting of euro zone colleagues, their first since Feb. 20, when they extended Greece’s bailout deal to June. “We only have four months,” he said. “Let’s get it done.” The new left-wing Greek government, keen to show voters it is keeping election promises to break with EU-imposed austerity, has tried patience among its EU peers by arguing over the form and venue for detailed talks required to establish its needs and whether it has met conditions the creditors have set on reforms.

In a compromise, Dijsselbloem said the negotiations among financial experts from Greece and the creditor institutions – the EC, ECB and IMF – would start in Brussels on Wednesday, not in Athens as has been normal for EU bailout programs so far. Those talks, however, would be “supported” by international teams working in Athens to obtain and check information. The Greek government has insisted it will no longer deal with the “troika”, as the three institutions have been called in a term that is now anathema for many Greeks who associate it with massive cuts in public spending. It has also said it will not tolerate irksome foreign inspection visits to Athens. The Eurogroup now calls the troika “the institutions” and the talks will, formally at least, be based in Brussels. EU ministers say they do not want “semantics” to get in the way of negotiations intended to prevent Greece going bankrupt and potentially being forced to abandon the single currency.

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Is the Troika back for real?

Draghi Urged Greece to Allow Officials Back Before It’s Too Late (Bloomberg)

ECB President Mario Draghi told Greek officials they face a critical situation and must let euro-area representatives return to Athens if they are ever going to obtain more aid, according to two European officials. Draghi told Greek Finance Minister Yanis Varoufakis at a meeting on Monday in Brussels the government’s books needed to be examined to determine its financing shortfall, said the people, who asked not to be named because the conversation was private. Representatives from the European Commission and IMF had a similar message, one of the officials said.\ Greece agreed to allow experts representing the commission, ECB and IMF to start work in Athens on Wednesday, the Netherlands’s Jeroen Dijsselbloem said, after chairing the meeting of euro-region finance ministers.

With financial markets closed, and the central bank keeping its banks on a tight leash, the Greek treasury could face a cash crunch in one, two or three weeks, a different euro-area official said Monday. Without getting access to the books, it’s impossible to know for sure, the official added. Prime Minister Alexis Tsipras is trying to access European bailout funds for Greece without completely ditching the anti-austerity agenda that won him election seven weeks ago. So far he’s dropped demands for a writedown on Greek debt, abandoned his plan to halt privatizations and accepted that he won’t get “bridge financing” without signing up to conditions. In return he’s won concessions to shift some meetings to Brussels and persuaded European officials to describe the country’s official creditors as “institutions” rather than “the troika.”

“The troika is a cabal of technocrats that used to arrive in Athens and enter the ministries with a kind of power play that smacked of a colonial attitude,” Varoufakis said at a press conference after the meeting. “That practice is finished. We shall endeavor to do whatever it takes to provide the institutions with whatever information they need.” Greece won’t get any more cash from its €240 billion rescue program until its official creditors are satisfied that Tsipras is committed to all the economic fixes needed to meet its conditions, Dijsselbloem said. It’s impossible for Greece’s creditors to adequately audit the government’s accounts without sending officials to Athens, a troika official said. The government would need to fly hundreds of Greek officials to Brussels for the work to be done there, he added.

As Draghi pressed Varoufakis to accept the return of the troika officials, the minister said that the idea that Greece was opposed to such a move was a misunderstanding, according to one of the officials with direct knowledge of the exchange. Can they start soon? Draghi asked. Varoufakis agreed. Wednesday? And the deal was done.

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“Wolfgang Schäuble declared that the outcome of the fractious negotiations would be decided by the “troika”. He repeated the term several times, despite the new Greek government’s insistence that the troika is dead.”

Eurozone Calls On Greece To Come Up With Credible Economic Reforms (Guardian)

Greece’s eurozone creditors have stepped up the pressure on Athens over reforms that might unleash billions more in bailout loans and save the country from bankruptcy over the next three months. Finance ministers from the single currency area broke off a discussionabout Greece on Monday, after little more than one hour in Brussels. The Greek finance minister, Yannis Varoufakis, was told to come up with what the creditors view as a realistic programme of economic and fiscal reforms. The chair of the eurozone finance ministers’ group displayed his frustration at the pace of the Greek government response since Athens secured a bailout extension last month. “Little has been done since the last Eurogroup [meeting two weeks ago] in terms of talks, in terms of implementation,” he said before the talks. “We have to stop wasting time and really start talks seriously.”

The Greek government led by prime minister Alexis Tsipras reached an agreement on extending the eurozone bailout by four months a fortnight ago, but it has to commit to a programme of reforms credible to its creditors by the end of April to access more than €7bn (£5bn) still available in loans. Ministers voiced impatience and irritation with Greece’s efforts to deliver a reform menu that would satisfy the lenders. Varoufakis was uncharacteristically silent going into the meeting after delivering two separate lists of vague reforms over the past fortnight, including a proposal to employ students and tourists to snoop on tax-dodgers and report them to the authorities.

It was clear that key eurozone policymakers were less than impressed with the suggestions from Greece, which faces a financing gap in the coming months and has to repay or redeem billions of euros in debts. Wolfgang Schäuble, the German finance minister, who has been feuding with Varoufakis for weeks, declared that the outcome of the fractious negotiations would be decided by the “troika”. He repeated the term several times, despite the new Greek government’s insistence that the troika is dead. It refers to the triumvirate of officials from the ECB, the EC, and the IMF, which has run the €240bn bailout of Greece since 2010, dictating the country’s fiscal policies and a massive programme of austerity.

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Will this turn vs Syriza or vs Germany?

Greece Sees First Shortages In Imported Goods (Kathimerini)

The first occurrences of shortages in imported goods and raw materials have arisen as a result of Greek enterprises’ inability to pay with cash in advance for the entire cost of the commodities they import, and the situation is even worse than in 2012. Market professionals have told Kathimerini that there are already some problems in the cases of mechanical equipment and electronic appliances, while in the food and drinks sector there are shortages in certain premium products such as a well-known Belgian beer.

Difficulties have also been noted in imports of chemical commodities, both end products and raw materials, which is hampering the production of fertilizers and pesticides. Even reliable clients have been hit with the same demands from foreign suppliers, while the phenomenon is creating a chain reaction across other sectors as well. “A number of tourism companies wanted to renew their equipment ahead of the new season but now face a serious problem,” Ioannis Papageorgakis, the president of the Athens Association of Commercial representatives and Distributors (SEADA), told Kathimerini.

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Serious enough as well.

Liquidity Fears Slow Greek Government Payments (Kathimerini)

Payments to state procurers have stopped as the General Accounting Office has blocked any state expenditure not related to salaries and pensions as a part of the efforts being made toward optimum cash management during the state’s current liquidity crisis. Coming up with cash appears particularly difficult, increasing concerns regarding a possible “accident” over the course of this month. Sources say that the Accounting Office is examining every detail of public spending and putting off payments that are not pressing or even curtailing other spending considered excessive. Its officials say the budget has 4,772 expenditure categories that are not salary-related and concern procurements and operating expenses, among others.

Their review has already saved some €180 million that can be used to finance the program aimed at fighting the humanitarian crisis, they add. The Accounting Office is also trying to postpone obligations in the coming months so as to secure a cushion for the state’s needs. Payments to procurers, subsidies and other obligations are being postponed till later in a bid to lighten the March spending program. Even the heating oil benefit has not yet been credited to recipients’ bank accounts in its entirety.The state’s liquidity remains marginal: The 500 million euros from the HFSF bank bailout fund has not yet yet been drawn as it requires a special law amendment.

The directors of social security funds have not approved the utilization of their cash reserves in commercial banks, meaning the state cannot use that liquidity which amounts to €2 billion. In this context the Finance Ministry’s projections regarding the flow of revenues and expenditure show that there may be a shortfall of €1 billion toward the end of March. This week the ministry has to cover two debt maturities, concerning the repayment of €350 million to the International Monetary Fund on Friday and treasury bills worth €1.6 billion that mature on the same day, with a fresh T-bill auction to that amount expected tomorrow. Officials say these obligations will be fulfilled normally.

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Rhetoric.

Creditors Reject Greece’s Reform Proposals (Bloomberg)

Greece’s provisional agreement with creditors to avert a default started to crack as European officials said the country’s latest proposals fell far short of what was put forward two weeks ago and Greek ministers floated the prospect of a referendum if their reforms are rejected. The list of measures Greece’s government sent to euro-region finance ministers last Friday, including the idea of hiring non-professional tax collectors, is “far” from complete and the country probably won’t receive an aid disbursement this month, Eurogroup Chairman Jeroen Dijsselbloem said on Sunday. German Deputy Finance Minister Steffen Kampeter said ministers are not expected to advance on Greece today.

“It’s not enough to exchange letters with non-committal statements,” Kampeter told Deutschlandfunk radio. “What’s needed is hard work and tough discussions.” Greece’s anti-austerity government, elected in January on a promise to renegotiate the terms of a €240 billion bailout, has to present detailed proposals to European creditors or risk running out of cash as soon as this month. The renewed tensions threaten to temper a rally in Greek bonds sparked by optimism over the provisional accord. “It seems their money box is almost empty,” Dijsselbloem said at an event in Amsterdam. Greece must adhere to its commitments as a “first step to restore trust” among its euro-area peers, Valdis Dombrovskis, European Commission vice-president for euro policy, said.

Greek bonds fell, with the yield on 10-year government bonds gaining 40 basis points to 9.8%. The Athens Stock Exchange index declined 3% as of 11:33 a.m. local time. The country is seeking the disbursement of an outstanding aid tranche totaling about €7 billion. Without access to capital markets, its only sources of financing are emergency loans from the euro area’s crisis fund and the IMF. Its banks are being kept afloat by an Emergency Liquidity Assistance lifeline, subject to approval by the European Central Bank.

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“Corruption is not just the scoundrels who put their hands in the till, it’s also the rich 1% who own as much as 70% of the population,”

Spain’s Post-Franco Elite Under Attack From Popular Podemos Party (Bloomberg)

Pablo Iglesias was a foreign exchange student in Italy when reports of the 1999 protest riots at the World Trade Organization meeting in Seattle inspired him to switch to political science from law. Today, leading Spain’s most popular party less than a year before a general election, he’s aiming to clear out the political old guard and set the country’s economy on a new path. The eruption of Iglesias’s group, Podemos, over the past year is part of a tectonic shift stemming from the seven-year slump that destroyed more than 3 million jobs and threatens to unseat the political and economic elite that emerged to control Spain after the death of Francisco Franco 40 years ago. If the rupture gives Iglesias a chance to implement his program, the shock waves will be felt far beyond the Iberian peninsula.

At the center of the Podemos’s platform is a plan to force a restructuring of Spain’s €1 trillion of government debt in what would be the biggest sovereign reorganization in history. The proposal has helped Podemos top 10 opinion polls in Spain since November.
Iglesias’s project, which would potentially affect five times more securities than Greece’s 2012 default, the current record holder, has yet to sink in with financial markets. Spain’s €21 billion of January 2016 bonds were yielding less than 0.1% last week. By the time that debt comes due, Iglesias could be prime minister. Investors are being “complacent,” Alastair Newton at Nomura in London, said in an interview. “We’re going to start getting some choppiness.”

Prime Minister Mariano Rajoy’s People’s Party and his main parliamentary opposition, the Socialists, have governed Spain since 1982, transforming an isolated economy that had lagged behind most of Europe under Franco. Under their rule, the country consolidated its democracy after an attempted coup, joined the European Union and NATO, and saw the economy more than double in size. Spain’s benchmark stock index, the Ibex-35, rose 500% between 1988 and its 2007 peak, almost double the gains on the U.K.’s FTSE 100. But since 2008, that model has unraveled, with the pain of the crisis compounded for many Spaniards by reports of widespread graft at both the main parties and the network of public savings banks they controlled.

Iglesias captured that narrative with a single expression: “the caste.” For his supporters, the caste is a corrupt elite that kept most of the gains from the boom years and left ordinary people to shoulder the cost of the crisis. “Corruption is not just the scoundrels who put their hands in the till, it’s also the rich 1% who own as much as 70% of the population,” Iglesias told hundreds of thousands of supporters gathered in downtown Madrid on Jan. 31. “Rajoy’s policies don’t create jobs, they spread misery.”

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“The whole ZIRP and QE game, for instance, can be boiled down to a basic wish to get something for nothing, that is, prosperity where nothing of value is created”

truthinesslessness (Jim Kunstler)

Finance is complicated, but not as complex as the wizards employed in it would have you believe. They would have you think it is an order of magnitude more abstruse and recondite than particle physics, when, in fact, it is often not much more than a Three Card Monte switcheroo. The whole ZIRP and QE game, for instance, can be boiled down to a basic wish to get something for nothing, that is, prosperity where nothing of value is created. Now, that’s not so hard to understand, is it? Until the economics wardrobe team comes in and dresses it up in martingales and bumrolls of metaphysics and you end up in a contango of mystification.

More galling and worrisome, though, is the failure of anyone even remotely in authority to stand up and publically object to the tidal wave of lies washing over this dying polity, actually killing it softly with truthinesslessness. The code of anything goes and nothing matters is turning lethal and the more it is kept swaddled in lies, the more perverse, surprising, and destructive the damage will be. The more our leaders lie about misbehavior in banking — including especially the actions of the Federal Reserve — the worse will be the instability in currencies. The more central bankers intervene in price discovery mechanisms, the more unable to reflect reality all markets will become. The more that the US BLS lies about the employment picture in America, the worse will be the eventual wrath of citizens who can’t get paid enough to heat their houses and feed their children.

An economist (sic) named Richard Duncan last week proposed the interesting theory that Quantitative Easing can go on virtually forever in an endless chain of self-canceling debt. Government spends money it doesn’t have and cannot raise, issues bonds to “investors,” buys its own bonds and stashes them in a storage vault so deep that the sun will not shine on them until it becomes a blue dwarf — long after the cockroaches have taken charge of Earthly affairs. Duncan forgets one detail: consequences. The consequence of this behavior will not be eternal virtual prosperity, but rather a wrecked accounting system for the operations of civilized human life. We’ve stepped across the event horizon of that consequence, but we just don’t know it yet. My bet is that we start feeling the effects sooner rather than later and when it is finally felt, all the Kardashian videos in this universe and a trillion universes like it will not avail to distract us from the flow of our own blood.

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Purely defense.

US Deploying 3,000 Troops To The Baltics (DW)

The United States is sending 3,000 troops to the Baltic states to partake in joint military exercises with NATO partners in Estonia, Latvia, and Lithuania over the next three months, US defense officials announced Monday. The mission, part of “Operation Atlantic Resolve” is designed to reassure NATO allies concerned over renewed Russian aggression amid the ongoing crisis in Ukraine. Around 750 US Army tanks, fighting vehicles and other military equipment arrived in Latvia Monday, and US ground troops are expected to begin arriving next week, US Army Col. Steve Warren told reporters. According to a US military source speaking on condition of anonymity, the military equipment will remain in the Baltics even after the US troops return to base.

The deployment is designed to “demonstrate resolve to President (Vladimir) Putin and Russia that collectively we can come together,” US General John O’Connor said. Vladimir Putin’s actions in Ukraine have raised concerns the Russian President could act against other eastern European countries. The military equipment, including the tanks and fighting vehicles will stay “for as long as required to deter Russian aggression,” O’Connor said. Russia’s recent annexation of Crimea and its support of anti-government rebels in Ukraine has sparked fears that Moscow might pursue similar actions against the Baltic nations, which have little military equipment of their own.

British Defense Secretary Michael Fallon recently said Putin represented a “real and present danger” to the Baltic nations, warning that the Russian leader could launch an undercover campaign to destabilize Estonia, Latvia and Lithuania. Putin was quoted in September as saying, “if I wanted, Russian troops could not only be in Kyiv in two days, but in Riga, Vilnius, Tallinn, Warsaw or Bucharest, too.” The US deployment also comes amid reports Putin made the decision to annex Crimea after a night-long meeting at the Kremlin following the ouster of Ukrainian president Viktor Yanukovych. The Baltic nations have been members of NATO since 2004, and the military alliance is seeking to counter potential Russian aggression by developing a rapid reaction force of 5,000 troops, to be stationed in the Baltic states as well as Bulgaria, Poland, and Romania.

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The dark side of the moon.

The Isolation of Donetsk: A Visit to Europe’s Absurd New Border (Spiegel)

One can argue whether the separatists are to be blamed or whether Kiev is exacting revenge. But either way, Donetsk is now just as isolated as West Berlin once was. Even from the east, where the border to Russia lies nearby, hardly any goods are allowed through. The rebels control the border, and they only allow the propaganda-driven aid shipments from Moscow to pass. Everything from milk to meat and vegetables is becoming scarce in the city. And the Ukrainian government has all but sealed off access to the “People’s Republic.” More recently, anyone wishing to cross the line between the two warring camps must present a “propusk,” a small, white identity card with a large “B” printed on it.

The Ukrainians have divided the demarcation line between their forces and the separatists into sections. The propusk is the Open Sesame for crossing the line in “zone B.” Since January, no one has been able to cross the line without this propusk. The problem is that it’s difficult to get. There is currently a two to four-week waiting period to obtain the propusk, which is issued in Velyka Novosilka, a village 90 kilometers west of Donetsk. But a “Sector B” propusk is required to reach Velyka Novosilka from Donetsk in the first place. The result is that people from Donetsk are in a paralyzing catch-22. Even in divided Berlin, such problems were more effectively solved. West Berliners were able to obtain travel permits from East Berlin officials in West Berlin so that they could cross the Wall. It was a small gesture of goodwill in the Cold War.

“It’s a theater of the absurd,” says Yevgeny, while another driver calls the situation at the border Kafkaesque. “Just look at the people over there, who have come from Donetsk. They give their documents to Ukrainian soldiers, hoping that the documents will somehow reach Velyka Novosilka. And then they come back, two weeks later, and spend days standing outside in the cold here to get their propusk.”

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Mar 092015
 
 March 9, 2015  Posted by at 7:05 am Finance Tagged with: , , , , , , , , ,  5 Responses »


NPC Skating night, Washington DC 1919

The Global Dollar Funding Shortage Is Back With A Vengeance (Zero Hedge)
“Ignore This Measure Of Global Liquidity At Your Own Peril” (Zero Hedge)
China Inc Flocks To Euro Debt For Funding (FT)
Heta Damage Spreads in Austrian Downgrades, German Losses (Bloomberg)
Europe Is Being Torn Apart – And The Torture Will Be Slow (Guardian)
IMF Could Do More For EU Than ECB’s QE (CNBC)
Tsipras At Crossroads Between Euro And Drachma (Kathimerini)
Juncker Urges EU To Face Up To ‘Serious’ Greek Troubles (AFP)
Jean-Claude Juncker Calls For EU Army (Guardian)
Greece Mulls Referendum as No Deal With Lenders in Sight (Bloomberg)
Greece Threatens New Elections If Eurozone Rejects Planned Reforms (Guardian)
Eurozone: Greek Reform Outline Helpful, But Needs ‘Troika’ Scrutiny (Reuters)
UK Treasury ‘Not Ready For Next Financial Crisis’ (Guardian)
An Inflection Point For Keynesian Parlor Tricks (Mark St. Cyr)
Goldman Sachs Stress Test Results Could Endanger Big Profit Source (NY Times)
Russia’s Anti-US Sentiment Now Is Even Worse Than It Was In Soviet Union (WaPo)
How Everything Will Change Under Climate Change (Naomi Klein)
Upcoming Supermoon Eclipse Will Dazzle Britain, Hit Europe’s Power Grids (RT)

“..different to previous episodes of dollar funding shortage such as the ones experienced during the Lehman crisis or during the euro debt crisis, the current one is not driven by banks.”

The Global Dollar Funding Shortage Is Back With A Vengeance (Zero Hedge)

[..].. all else equal, there is at least enough downside to push the fx basis as far negative at -50 bps: this would make the USD shortage the most acute it has ever been, at least as calculated by this key metric! And since this is essentially a risk-free arb for credit issuers, and since there are many more stock buybacks that demand credit funding, one can be certain that the current fx basis print around – 20 bps will most certainly accelerate to a level never before seen, a level which would also hint that something is very broken with the financial system and/or that transatlantic counterparty risk has never been greater. Unlike us, JPM hedges modestly in its forecast where the basis will end up:

Whether the above YTD trends continue forward is a difficult call to make. The widening of USD vs. EUR credit spreads shown in Figure 4 has the propensity to sustain the strength of Reverse Yankee issuance putting more downward pressure on the basis. On the other hand, this potential downward pressure on the basis should be offset to some extent by Yankee issuance the attractiveness of which increases the more negative the basis becomes.

In all, different to previous episodes of dollar funding shortage such as the ones experienced during the Lehman crisis or during the euro debt crisis, the current one is not driven by banks. It is rather driven by the monetary policy divergence between the US and the rest of the world. This divergence appears to have created an imbalance in funding markets and a shortage in dollar funding. It is important to monitor how this dollar funding shortage and issuance patterns evolve over time even if the currency implications are uncertain.

And to think the Fed’s cheerleaders couldn’t hold their praise for the ECB’s NIRP (as first defined on these pages) policy. Because little did they know that behind the scenes the divergence in Fed and “rest of the world” policy action is leading to two things: i) the fastest emergence of a dollar shortage since Lehman and ii) a shortage which will be arbed to a level not seen since Lehman, and one which assures that over the coming next few months, many will be scratching their heads as to whether there is something far more broken with the financial system than merely an arbed way by US corporations to issue cheaper (hedged) debt in Europe thanks to Europe’s NIRP policies.

If and when the market finally does notice this gaping dollar shortage (as is usually the case with the mandatory 3-6 month delay), watch as the Fed will once again scramble to flood the world with USD FX swap lines in yet another desperate attempt to prevent the global dollar margin call from crushing a matched synthetic dollar short which according to some estimates has risen as high as $10 trillion. Until then, just keep an eye on the Fed’s weekly swap line usage, because if the above is correct, it is only a matter of time before they are put to full use once again. Finally what assures they will be put to use, is that this time the divergence is the direct result of the Fed’s actions, and its insistence that despite what is shaping up to be a 1% GDP quarter, that it has to hike rates. Well, as JPM just warned it in not so many words, be very careful what you wish for, and what you end up getting in your desire to telegraph just how “strong” the US economy is.

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Absolute must read: “when the dollar rallies strongly, as is the case now, FX intervention rapidly dries up and can even reverse, exerting a massive monetary tightening on emerging economies and ultimately the entire over-inflated global financial complex…”

“Ignore This Measure Of Global Liquidity At Your Own Peril” (Zero Hedge)

With all eyes squarely on the ECB as Mario Draghi prepares to flood the EMU fixed income market with €1.1 trillion in new liquidity starting Monday, Soc Gen’s Albert Edwards reminds us that “another type of QE” is drying up thanks largely to the relative strength of the US dollar. The printing of currency to buy US dollar denominated assets in an effort to prop up “mercantilist export-led growth models [is] no different to the Fed’s QE,” Edwards says, explicitly equating EM FX intervention with the asset purchase programs employed by the world’s most influential central banks in the years since the crisis. Via Soc Gen:

Clearly when the dollar is declining sharply, global FX intervention accelerates as the Chinese central bank, for example, needs to debauch its own currency at the same rate. Conversely, when the dollar rallies strongly, as is the case now, FX intervention rapidly dries up and can even reverse, exerting a massive monetary tightening on emerging economies and ultimately the entire over-inflated global financial complex… The swing in global foreign exchange reserves is one key measure of the global liquidity tap being turned on and off ? with the most direct and immediate effect being felt in emerging economies.

Given the above, we should expect to see global foreign exchange reserves falling…

… with the most pronounced move in EM reserves…

Edwards goes on to note that even as China dials back the market’s expectations for Chinese GDP growth, a look at the variables that Premier Li Keqiang himself has said are a better proxy for economic growth in the country (electricity usage, rail freight volume, and credit growth) suggest GDP growth in China may actually be running below 4%…

The bottom line is that in a world of over-inflated asset values, the strength of the dollar is resulting is a rapid tightening of global liquidity as emerging economies (and indeed the Swiss) stop printing money to buy the US dollar. This should be seen for what it is a clear tightening of global liquidity. Traditionally these periods of dollar strength are highly disruptive to emerging markets and often end in the weakest links blowing up the entire EM and commodity complex and sometimes much else besides! Investors ignore this at their peril.

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The craziness continues unabated.

China Inc Flocks To Euro Debt For Funding (FT)

Chinese companies are ditching the renminbi and flocking to the euro to raise new offshore debt, as the imminent launch of quantitative easing in the single currency bloc sends ripples through global markets. So far this year, mainland-based companies have sold $2.9 billion worth of euro-denominated debt, according to Dealogic, compared with nothing in the first quarter of last year and within striking distance of the $3.3 billion raised during the whole of 2014. Meanwhile, Chinese borrowers have shunned offshore renminbi debt, known better as “dim sum” bonds. The total raised in the market this year is only $250 million, a dramatic drop from the $6.6 billion issued during the first three months of last year. US dollar borrowing has been steadily high, with $16.3 billion of bonds sold this year.

Funding costs for euro debt have been tumbling since the ECB announced plans to start its own program of quantitative easing, which is due to begin on Monday. More than €1.5 trillion of sovereign eurozone bonds now offer investors negative yields, according to JPMorgan estimates. The new focus on euro debt also marks a change in Chinese corporate funding habits, in part a reflection of increasing eurozone assets held by some of Asia’s most acquisitive companies. Euro bonds can be used for deal financing or for currency management. In the past six months, the euro has dropped 13% against the renminbi, which has a managed peg to the US dollar.

Beijing-based State Grid, which owns stakes in grid operators in Portugal and Italy, borrowed €1 billion in January. Another euro bond issuer, Fosun International, already owns financial and healthcare assets in Portugal, duty free shops in Greece, and German fashion brand Tom Tailor. It successfully completed a €939 million deal for French holiday resort group Club Méditerranée last month. “Going out and borrowing in euros is a pretty good way to hedge,” said Jon Pratt, head of debt capital markets in Asia at Barclays, adding that many more Chinese companies were expected to tap the euro market in the coming months. “Investors are starting to follow it as an asset class. It’s reaching a real critical mass.”

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Wait till German exposure starts to hit.

Heta Damage Spreads in Austrian Downgrades, German Losses (Bloomberg)

Austria’s decision to wind down Heta Asset Resolution sent ripples through the financial system, causing credit rating downgrades in Austria and bank losses in Germany. Moody’s cut the rating of Carinthia province, which guarantees €10.2 billion of Heta’s debt, by four levels to Baa3 from A2, and said it may lower the ratings of three state-owned Austrian banks exposed to it. Dexia’s German unit, Deutsche Pfandbriefbank and NRW.Bank said yesterday they own Heta bonds that may suffer losses. “Notwithstanding the intention of the central government to protect taxpayers under the new banking resolution regime, Moody’s sees the steps taken so far as adding higher uncertainty to developments,” the ratings company said late Friday in a statement on the Carinthia downgrade. “Susceptibility to an adverse scenario has increased as a result.”

Austria paved the way for imposing losses on Heta’s bondholders when it ruled out further support for the “bad bank” of Hypo Alpe-Adria-Bank March 1. Using powers set out in European Union and Austrian bank laws covering debt reorganization, the Finanzmarktaufsicht regulator ordered a 15-month debt moratorium while it plans resolution of Heta’s €18 billion of assets. Carinthia’s guarantees, which peaked at €25 billion in 2006, were the main justification for Hypo Alpe’s public rescue in 2009 and the biggest conundrum in its wind-down. With budgeted revenue of €2.36 billion this year, the southern province of 556,000 people would be unable to honor the guarantees if they came due now or in a year’s time, Governor Peter Kaiser told Austrian radio ORF on Tuesday.

The guarantees “could exceed Carinthia’s liquidity resources, lead to increased financial leverage and could require some form of extraordinary central government support,” Moody’s said. Finance Minister Hans Joerg Schelling has said repeatedly that the Austrian government isn’t liable to cover Carinthia’s guarantees. Among Heta’s liabilities affected by the moratorium and a future bail-in are €1.24 billion Heta owes to Pfandbriefbank, which issues bonds on behalf of Austrian provincial banks.

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“There is a great deal of ruin in a nation,” said Adam Smith.”

Europe Is Being Torn Apart – And The Torture Will Be Slow (Guardian)

“If the euro fails, Europe fails”: thus spake Angela Merkel. Unfortunately, the euro is failing, but it is failing slowly. Even if Greece grexits, the eurozone seems unlikely to fall apart in the near future, although there is still a chance that it will. There is a much higher chance that it will grind along like a badly designed Kazakh tractor, producing slower growth, fewer jobs and more human suffering than the same countries would have experienced without monetary union. However, the misery will be unevenly distributed between debtor and creditor countries, struggling south and still prospering north. These different national experiences will be reflected through rational elections, creating more tensions of the kind we have already seen between Germany and Greece. Eventually, something will give, but that process may take a long time.

“There is a great deal of ruin in a nation,” said Adam Smith. Given the extraordinary achievements of the 70 years since 1945, and the memories and hopes still invested in the European project, there is a lot of ruin still left in our continent. I recently participated in an event in Frankfurt attended by representatives of leading European investors. A multiple-choice instant poll was taken, offering a number of scenarios for how the eurozone would look in five years’ time, and asking which we found most probable. Nearly half those present opted, as I did, for “Japan in the 1990s”. Around 20% voted for “what eurozone?”; 18% went for “the UK after Thatcher”, by which they presumably meant a leaner, meaner economy, with the policies of austerity and structural reform producing growth, but also dislocation and inequality.

The catch is that even in this last, “best” case, the inequality would not be within one country, such as Britain, but unevenly distributed between different countries. Germans and a few other north European nations would go on taking most of the gain, others the pain. To say this is to endorse an economic analysis that mainstream German politicians and economists will fiercely dispute. Austerity and structural reform are the one true way to salvation, they insist. As Merkel put it in 2013: “What we have done, everyone else can do.”

There are at least three problems with this. First, as every wise doctor knows, even the theoretically right medicine can be disastrous if administered in too strong a dose to a weakened patient. Second, Greeks, Italians and French are not Germans. Their economies certainly need structural reforms, which have, for example, boosted exports from Spain, but their societies and companies simply do not respond in the same way. Third, even if the whole eurozone becomes one giant German-style Exportweltmeister, who will be the consumer? Some of the demand must come from inside the eurozone, and especially from richer countries such as Germany. If everyone else is to behave more like Germany, then Germany must behave a bit less like Germany. But Germany is not prepared to do that.

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Curious notion.

IMF Could Do More For EU Than ECB’s QE (CNBC)

Have you ever thought of the IMF as a peacemaker? Here is what Christine Lagarde, the IMF’s managing director, was telling the warring Ukrainians last Wednesday (March 4): “… We are trying to help Ukraine with … a set of reforms, massive financial support, but all of that is really going to depend on how it stabilizes … the east … and how the … conflict stops.” She went on to say that the fighting in the eastern part of Ukraine “has been a huge distraction” for the country’s leaders who, in her view, “are really determined to reform the economy.” The message is clear: Stop fighting, strive for peace and we – the IMF and international investors – will help you to rebuild, reform and modernize your economy. And here is the money. Ms. Lagarde announced that over the next four years $40 billion – half of that from the IMF – would be provided to support the Ukrainian economy.

If there is peace, you can think of these $40 billion as seed money. With its vast and fertile land, its skilled labor force and a diversified (if rusty) industrial base this beautiful country could easily attract large private direct investment inflows. The IMF is clearly playing a key role here, because it is hard to see how large-scale fund disbursements to support Ukraine’s meaningful and sustainable economic reforms can be carried out unless the guns fall silent. With no other source of finance readily available, the IMF’s political clout could be decisive in the successful implementation of the latest round of cease-fire and peace agreements negotiated in Minsk, Belarus, on February 12, 2015. Europe would then be extricated from the claws of its old demons of division, exclusion and medieval savagery.

That is what some European leaders are counting on. Their foreign policy chief Federica Mogherini told a meeting of the group’s top diplomats last Friday (March 6) that “… around our continent … cooperation is far better than confrontation.” She was echoing increasingly pressing calls to stop Ukraine’s fighting and restore Europe’s unimpeded flows of commerce and finance. All this puts the IMF in an interesting position. By forcing the warring parties in Ukraine to seek peace as a condition of economic survival, the IMF can also help the recovery of the European economy by removing obstacles to intra-regional trade that are costing hundreds of thousands of jobs.

Arguably, that would be of far greater help than the ECB’s debasement of the euro with an avalanche of new liquidity that no area economy needs with an already record-low interest rate of 0.05%. Even Germany opposed that ill-conceived policy. Never an advocate of a weak currency, Germany does not need a sinking euro to maintain a trade surplus exceeding 7% of its economy.

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“Clearly Tsipras has been persuaded that the eurozone and the ECB will not allow Greece to go bankrupt and that things will change politically in Europe come autumn.”

Tsipras At Crossroads Between Euro And Drachma (Kathimerini)

Prime Minister Alexis Tsipras will soon find himself having to choose between the euro and the drachma. He can’t take the euro road with Panayiotis Lafazanis and certain other SYRIZA officials on his team. Privatizations, looser labor laws, pension cuts and other measures required for a eurozone deal will not be approved by MPs who are of a completely different mindset. Nevertheless, the eurozone “bosses” have decided that rules are rules and that if the preliminary agreement with Tsipras and Finance Minister Yanis Varoufakis is not implemented swiftly the country’s liquidity will remain at zero. Meanwhile, the prime minister believes our partners are trying to bring back the troika and the memorandums through the back door.

Well, they never hid their intentions. While they may have dubbed the troika “institutions” and the memorandum “funding program,” they have never suggested that there would be no evaluation or a new program. Meetings with the troika may be taking place in Brussels and certain Greek government initiatives may be accepted but at the end of the day it comes down to strict supervision and the program. Some think that it is only Berlin insisting on terms. They are mistaken; everyone is behind it, from the governments of southern Europe, to the ECB and the IMF. People who care about our country, such as Commission chief Jean-Claude Juncker, have spent plenty of political capital by supporting Greece but will eventually give up. Besides, we have eroded their trust through leaks, irresponsible comments and an unbelievable lack of professionalism. We are losing friends on a daily basis and won’t admit it.

Clearly Tsipras has been persuaded that the eurozone and the ECB will not allow Greece to go bankrupt and that things will change politically in Europe come autumn. The problem is that autumn is too far away and a Greek default is no longer such a big threat. The IMF thinks it’s manageable, in contrast to 2012 when Christine Lagarde persuaded Angela Merkel of the opposite. Markets also believe it manageable and this is bad in terms of our own negotiating capital. Certain cabinet officials still suggest that a solution could come from China or Russia. Whatever assistance these countries could offer, it would not solve Greece’s funding problem or entail a rift with Europe.

Tsipras must keep his party and ministers under control in order to move on with the negotiation. He will also need to offer a couple of major trade-offs in order to persuade the “bosses” not to cut off the country’s cash flow. I don’t know what these could be but I can safely predict that they will not be an easy sell to his party. Tsipras cannot take the euro road as his party stands today. The danger is if he starts leaning toward a euro exit without actually having decided to do so, simply because time and political capital are running out.

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He may feel forced to act if Grexit takes shape. He’s responsible for keeping it all together.

Juncker Urges EU To Face Up To ‘Serious’ Greek Troubles (AFP)

European Commission head Jean-Claude Juncker called on the European Union to recognize the gravity of the situation in Greece — both for the country’s impoverished citizens and for the wider risks to the eurozone. “We must be sure that the situation does not continue to deteriorate in Greece. What worries me is that not everyone in the European Union has understood how serious the situation in Greece is,” Juncker told German paper Die Welt in an interview published Saturday. He did not specify whom his comments were aimed at, but they appeared two days after the European Central Bank took a tough stance on extending more financial help to Greece. Juncker noted in his comments that a quarter of Greeks are not covered by social security, unemployment is the highest in the eurozone and the country sees regular protests.

Although Greece’s debt problems are far from being resolved, Juncker repeated previous assertions that Athens should not leave the eurozone, noting this would amount to an “irreparable loss of reputation” for the single currency. However, the European Commission president also advised Greece to stick to reforms agreed upon with its creditors. “If the government wants to spend more money, it must compensate with savings or supplemental income,” he added. After July, when Greek bonds held by the European Central Bank come due, there needs to be “reflecting about the ways international creditors must behave toward countries that find themselves in a critical economic situation,” Juncker said. “It is not acceptable that a prime minister must negotiate reforms with civil servants. One is an elected official, the others are not,” he added.

Juncker did not directly mention the meeting of eurozone finance ministers set for Monday in Brussels nor the date of his next meeting with Greek Premier Alexis Tsipras. Tsipras called for the meeting just after a speech Thursday from ECB President Mario Draghi, which stated that all supplemental help to Greece would be conditional on the rapid completion of reforms promised by Athens. The ECB “is still holding the rope which we have around our necks,” said Tsipras, according to excerpts of an interview with German magazine Der Spiegel. The remark came after Athens received no help from the Frankfurt-based institution to address a cash squeeze caused by the non-delivery of promised loans.

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“Europe’s image has suffered dramatically and also in terms of foreign policy, we don’t seem to be taken entirely seriously.”

Jean-Claude Juncker Calls For EU Army (Guardian)

The EU needs its own army to help address the problem that it is not “taken entirely seriously” as an international force, the president of the European commission has said. Jean-Claude Juncker said such a move would help the EU to persuade Russia that it was serious about defending its values in the face of the threat posed by Moscow. However, his proposal was immediately rejected by the British government, which said that there was “no prospect” of the UK agreeing to the creation of an EU army. “You would not create a European army to use it immediately,” Juncker told the Welt am Sonntag newspaper in Germany in an interview published on Sunday. “But a common army among the Europeans would convey to Russia that we are serious about defending the values of the European Union.”

Juncker, who has been a longstanding advocate of an EU army, said getting member states to combine militarily would make spending more efficient and would encourage further European integration. “Such an army would help us design a common foreign and security policy,” the former prime minister of Luxembourg said. “Europe’s image has suffered dramatically and also in terms of foreign policy, we don’t seem to be taken entirely seriously.” Juncker also said he did not want a new force to challenge the role of Nato. In Germany some political figures expressed support for Juncker’s idea, but in Britain the government insisted that the idea was unacceptable. A UK government spokesman said: “Our position is crystal clear that defence is a national – not an EU – responsibility and that there is no prospect of that position changing and no prospect of a European army.”

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Would make sense. As I said earlier on, they need a mandate to act.

Greece Mulls Referendum as No Deal With Lenders in Sight (Bloomberg)

Greece’s anti-austerity coalition is considering calling a referendum on government policy as euro-area finance ministers are set to withhold further aid payments at a meeting in Brussels tomorrow. European Commission Vice President Valdis Dombrovskis said he doesn’t expect the Eurogroup to make any decisions on Greece on Monday. Reform proposals must first be approved by the Greek parliament and then implemented before the next bailout disbursement is made, Dombrovskis said in an interview with Frankfurter Allgemeine Zeitung. Dutch Finance Minister Jeroen Dijsselbloem said Greek reform plans are “far from” complete. No disbursements are seen in March, Dijsselbloem, who also chairs the meetings of the currency bloc’s finance ministers, said at an event organized by de Volkskrant in Amsterdam.

Greece’s anti-austerity coalition has so far been unable to agree with creditors on the terms for the disbursement of an outstanding aid tranche totaling about 7 billion euros ($7.6 billion). The deadlock threatens to lead the country into defaulting on its payments, since Greece’s only sources of financing are emergency loans from the euro area’s crisis fund and the International Monetary Fund. Its banks are being kept afloat by an Emergency Liquidity Assistance lifeline, subject to approval by the European Central Bank. “I can only say that we have money to pay salaries and pensions of public employees,” Greek Finance Minister Yanis Varoufakis told Italy’s Il Corriere della Sera in an interview today. “For the rest we will see.” In separate interviews this weekend, Greece’s finance and defense ministers said that if the country’s creditors raise requests which aren’t acceptable to the government, then the people of Greece may have to decide on how to break the deadlock.

Prime Minister Alexis Tsipras also signaled the referendum option is being considered. “If we were to hold a referendum tomorrow with the question, ‘do you want your dignity or a continuation of this unworthy policy,’ then everyone would choose dignity regardless of difficulties that would accompany that decision,” Tsipras told Der Spiegel Magazine, in an interview published Saturday. Greece may call new elections or hold a referendum if European finance ministers reject the government’s reform proposals, Varoufakis told Corriere della Sera. A referendum would only be held if negotiations with creditors fail, spokesman Gabriel Sakellaridis said by telephone. The government believes a solution will be found in negotiations with creditors, though it doesn’t expect an aid tranche disbursement decision from tomorrow’s meeting, Sakellaridis said. Any referendum is unlikely, and if held, it would approve or reject government policy, not consider Greece’s euro membership, he added.

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“If [lenders] question the will of the Greek people and of the government, one possible response would be to carry out a referendum..”

Greece Threatens New Elections If Eurozone Rejects Planned Reforms (Guardian)

Greece’s anti-austerity government has raised the spectre of further political strife in the crisis-plagued country by saying it will consider calling a referendum, or fresh elections, if its eurozone partners reject proposed reforms from Athens. Racheting up the pressure ahead of a crucial meeting of his eurozone counterparts on Monday, the Greek finance minister, Yanis Varoufakis, said the leftist-led government would hold a plebiscite on fiscal policy if faced with deadlock. “We are not attached to our posts. If needed, if we encounter implacability, we will resort to the Greek people either through elections or a referendum,” he told Italy’s Il Corriere della Sera in an interview on Sunday. Varoufakis was the second high-ranking official in as many days to suggest the possibility of a referendum being held.

On Saturday, Panos Kammenos, who heads the government’s junior partner in office, the small, rightwing Independent Greeks party, said such a ballot could be a “possible response” to protracted disagreement with creditor bodies propping up Greece’s debt-stricken economy. “If [lenders] question the will of the Greek people and of the government, one possible response would be to carry out a referendum,” Kammenos, who is also defence minister, told the financial weekly Agora. Reforms have been set as a condition for unlocking a €7.2bn (£5.2bn) tranche of aid that Athens has yet to draw down from its €240bn bailout programme agreed with the EU, ECB and IMF. With Greece shut out of capital markets, the disbursement is vital to meeting debt obligations.

A letter outlining prospective government reforms – including the novel idea of clamping down on tax evasion by enlisting the support of tourists and housewives – was dispatched to the Euro group chairman Jeroen Dijsselbloem on Friday. But with the proposals reportedly receiving a lukewarm response, the Greek finance ministry spent the weekend feverishly fine-tuning the policies. One EU official in Brussels was quoted as saying that the leaked letter “bore no relation” to the deal recently reached between Athens and its creditors enabling the country to extend its current bailout programme until June. Another described the proposals as “amateurish”. Faced with the prospect of a new credit crunch, the prime minister, Alexis Tsipras, also worked the phones at the weekend, speaking with French President François Hollande and the ECB president Mario Draghi.

Insolvent Greece has reached this point before. But patience is also running out with Athens. The elevation to office of Tsipras’ anti-establishment Syriza party has strained relations with partners – not least Germany, which has provided the bulk of Athens’s bailout finds – more than ever before.

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Lovely choice of words/

Eurozone: Greek Reform Outline Helpful, But Needs ‘Troika’ Scrutiny (Reuters)

The reform outline sent by Greece to eurozone ministers to unblock loans is “helpful,” but needs to be scrutinized by representatives of the country’s creditors, according to the head of the Eurogroup of eurozone finance ministers. Jeroen Dijsselbloem, whose group meets on Monday to discuss Greece, was responding to a letter he received on Friday from the new left-wing government in Athens asking for an immediate resumption of talks with creditors. It also described seven reforms it wants to launch to achieve goals agreed to by the previous government. Once steps to reach these goals are taken, Greece would become eligible for more credit from the euro zone and the International Monetary Fund, and its banks could again finance themselves at ECB open market operations. But time is pressing because Greece will run out of cash later this month.

“This document will be helpful in the process of specifying the first list of reform measures,” Dijsselbloem said in a written reply to the Greek letter ahead of Monday’s meeting. Greece’s main creditors are eurozone governments and the IMF. They are represented in talks with Athens by three institutions dubbed the troika – the European Commission, the ECB and the IMF. “The proposals described in your letter will thus need to be further discussed with the institutions,” Dijsselbloem wrote in the letter, obtained by Reuters. “Let me also clarify that in the course of the current review the institutions will have to take a broad view covering all policy areas,” Dijsselbloem wrote. His remarks refer to plans of the new Greek government to replace some of the budget consolidation measures agreed to by the previous government with different reforms. Eurozone officials say such substitution is fine only if the end result in budgetary terms will be the same.

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Never will be.

UK Treasury ‘Not Ready For Next Financial Crisis’ (Guardian)

The Treasury is not doing enough to prepare for the possibility of another financial crash, a cross-party committee of MPs said on Monday. The Commons public administration committee said that it was surprised financial and economic risks were not included in the government’s national risk register and that, although some planning has taken place, it has not been thorough enough. “The Treasury has done a lot, but there is more to be done to be ready for another financial crisis,” said Bernard Jenkin, the Conservative MP and chair of the committee, which set out its comments in a general report on how Whitehall addresses future challenges. “We still have institutions which are ‘too big to fail’ but with so much national borrowing capacity used up, they may prove ‘too big to save’ if it happens again.

We did not find evidence that government and the City are actively practising and exercising for this worst case scenario.” The committee said that financial risks should be included in the government’s national risk register, and that the Treasury should plan for financial crises that could be triggered by non-financial events. It also said there was “no comprehensive understanding across government as a whole of the future risks and challenges facing the UK”. But a Treasury spokesman flatly rejected the committee’s analysis, saying the report “takes no account of the relevant facts”. He went on: “By focusing on Whitehall procedures they have entirely missed the point: the lessons of the financial crisis have been learned and acted upon by putting in place a reformed regulatory system, ring-fencing the banks, ending the ‘too big to fail’ problem, and dealing with the risks posed to the economy by an unsustainable deficit.

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“.. the rabbit falling out comatose in front of all the children seated in the front rows.”

An Inflection Point For Keynesian Parlor Tricks (Mark St. Cyr)

Suddenly everywhere you look, one after another, a story is making its way into the main stream press (albeit a trickle but that’s a tidal wave in comparison) that we may be, in fact; experiencing a “bubble” in stock prices. All I can say is the line made famous by Jim Nabors as Gomer Pyle, “Well surprise – surrrr-prise!” But there’s a whole lot more going on here and it too is bubbling up more and more for all to see. The once magic trick performed by the Federal Reserve via QE is turning from a one time grand spectacle of illusion used to levitate the markets; and is quickly being laid bare and exposed for its street corner value of tricks. That fact is becoming unavoidable. Even those who still believe in unicorns and rainbows (cue CNBC™) are finding it harder and harder to hold onto the magic.

Anyone with just a smidgen of common sense knows what’s being presented as “a miracle of economic intervention” has been nothing more than a grand escapade only made possible through the use of monetary smoke and mirrors. Everyone now knows how the tricks are being done. And those who continue espousing that this market is based on “fundamentals” as well as “fairly priced” (cue the media’s next in-rotation “everything is awesome” fund manager) are being hard pressed to control the snickering if not out right fits of laughter by others as they continue trying to make their case. e.g., “This past earnings season was a bona-fide beat!” In reality we all know its only been possible through the use of extraordinary record stock buy backs made possible by a ZIRP, along with such an adulteration of GAAP via Non-GAAP: it’s a wonder why they even need calculators any more.

These numbers (in my opinion) have more in common with illusion and magical thinking than anything based in reality – so why even bother. Be honest, just go for it, and declare, “We’re making all this shit up!” because: it just isn’t fooling anyone anymore. Now the real issue from here for both the Fed. as well as Keynesians everywhere will be in trying to maintain some form, as in: “illusion of control” going forward. Surely there’s more magical thinking and sleight of hand needed now more than ever to keep up this grand deceptive appearance or “wealth effect” we were all told we’d be experiencing by now. After all, unemployment just hit 5.5% and the markets are at record levels. “Where’s the pony?” Who needs an economy based on fundamental monetary principles when you can report economic numbers like this?

Unless you’re one of the over 92 million souls unable to find work. The Keynesian answer to this? You just apply today’s version of Keynesian economic math and principles to any statistic that gets in the way of the illusion. Then “poof” just like magic, another irritating issue to the “everything is awesome” narrative is gone. No cape required for that one. Yet the Fed board of magic seemed to have an issue with the illusion of “control” as it faltered a bit on Friday. Having more in common with an assistant dropping the magician’s hat: and the rabbit falling out comatose in front of all the children seated in the front rows.

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Crazy world. Making a profit from buying back your own shares.

Goldman Sachs Stress Test Results Could Endanger Big Profit Source (NY Times)

Concerns have emerged that Goldman Sachs — long the leader on Wall Street — may lose an important engine of profitability. On the Federal Reserve stress tests last week, Goldman performed poorly compared with other big banks. Now analysts and investors are worried that the bank could be barred by regulators from buying back its own stock or increasing dividends. Goldman has used dividends and share buybacks to appeal to investors at a time when other elements of the bank’s business have faced challenges. When companies buy shares of their own stock on the open market, it generally increases the amount of profits attributed to every share, an important metric for investors.

Several analysts have released research questioning whether the Federal Reserve would allow Goldman to continue its buyback programs given the results of the stress tests. Brian Kleinhanzl, an analyst with Keefe, Bruyette & Woods, estimated that if Goldman is unable to repurchase shares, it could earn 42 cents a share less than expected this year, and $1.78 a share less than expected next year. “There is an expectation that they could be at risk,” said Steve Chubak, a bank analyst with Nomura. Shares of Goldman fell 1.7% on Friday, the day after the stress tests, while the broader bank sector was up.

The bank’s predicament highlights how the Fed’s stress test, which has become a powerful tool for Wall Street regulators, can trip up even a bank like Goldman, which came out of the financial crisis looking stronger than many rivals. The stress tests are intended to ensure that banks have an adequate cushion to sustain losses if another financial crisis hits. The Fed does not allow banks to give money back to shareholders if it would leave the banks with less of a cushion than they would need in a severe crisis. The Fed will not publicly give its final verdict on Goldman’s buyback plans until Wednesday. Its decision is likely to hinge on how it analyzes the results of the stress test, and it may have determined that Goldman is strong enough to use profits to buy back shares.

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The WaPo just can’t believe it… How can they not love us? It must be that conspiracy propaganda…..

Russia’s Anti-US Sentiment Now Is Even Worse Than It Was In Soviet Union (WaPo)

Thought the Soviet Union was anti-American? Try today’s Russia. After a year in which furious rhetoric has been pumped across Russian airwaves, anger toward the United States is at its worst since opinion polls began tracking it. From ordinary street vendors all the way up to the Kremlin, a wave of anti-U.S. bile has swept the country, surpassing any time since the Stalin era, observers say. The indignation peaked after the assassination of Kremlin critic Boris Nemtsov, as conspiracy theories started to swirl – just a few hours after he was killed – that his death was a CIA plot to discredit Russia. (On Sunday, Russia charged two men from Chechnya, and detained three others, in connection with Nemtsov’s killing.) There are drives to exchange Western-branded clothing for Russia’s red, blue and white. Efforts to replace Coke with Russian-made soft drinks. Fury over U.S. sanctions.

And a passionate, conspiracy-laden fascination with the methods that Washington is supposedly using to foment unrest in Ukraine and Russia. The anger is a challenge for U.S. policymakers seeking to reach out to a shrinking pool of friendly faces in Russia. And it is a marker of the limits of their ability to influence Russian decision-making after a year of sanctions. More than 80% of Russians now hold negative views of the United States, according to the independent Levada Center, a number that has more than doubled over the past year and that is by far the highest negative rating since the center started tracking those views in 1988. Nemtsov’s assassination, the highest-profile political killing during Vladiimir Putin’s 15 years in power, was yet another brutal strike against pro-Western forces in Russia. Nemtsov had long modeled himself on Western politicians and amassed a long list of enemies who resented him for it.

The anti-Western anger stands to grow even stronger if President Obama decides to send lethal weaponry to the Ukrainian military, as he has been considering. The aim would be to raise the cost of any Russian intervention by making the Ukrainian response more lethal. But even some of Putin s toughest critics say they cannot support that proposal, since the cost is the lives of their nation’s soldiers. “The United States is experimenting geopolitically, using people like guinea pigs,” said Sergey Mikheev, director of the Kremlin-allied Center for Current Politics, on a popular talk show on the state-run First Channel last year. His accusations, drawn out by a host who said it was important to “know the enemy,” were typical of the rhetoric that fills Russian airwaves. “They treat us all in the same way, threatening not only world stability but the existence of every human being on the planet,” Mikheev said.

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A 2nd chapter from her book.

How Everything Will Change Under Climate Change (Naomi Klein)

The alarm bells of the climate crisis have been ringing in our ears for years and are getting louder all the time – yet humanity has failed to change course. What is wrong with us? Many answers to that question have been offered, ranging from the extreme difficulty of getting all the governments in the world to agree on anything, to an absence of real technological solutions, to something deep in our human nature that keeps us from acting in the face of seemingly remote threats, to – more recently – the claim that we have blown it anyway and there is no point in even trying to do much more than enjoy the scenery on the way down. Some of these explanations are valid, but all are ultimately inadequate. Take the claim that it’s just too hard for so many countries to agree on a course of action. It is hard.

But many times in the past, the United Nations has helped governments to come together to tackle tough cross-border challenges, from ozone depletion to nuclear proliferation. The deals produced weren’t perfect, but they represented real progress. Moreover, during the same years that our governments failed to enact a tough and binding legal architecture requiring emission reductions, supposedly because cooperation was too complex, they managed to create the World Trade Organisation – an intricate global system that regulates the flow of goods and services around the planet, under which the rules are clear and violations are harshly penalised. The assertion that we have been held back by a lack of technological solutions is no more compelling.

Power from renewable sources like wind and water predates the use of fossil fuels and is becoming cheaper, more efficient, and easier to store every year. The past two decades have seen an explosion of ingenious zero-waste design, as well as green urban planning. Not only do we have the technical tools to get off fossil fuels, we also have no end of small pockets where these low carbon lifestyles have been tested with tremendous success. And yet the kind of large-scale transition that would give us a collective chance of averting catastrophe eludes us.

Is it just human nature that holds us back then? In fact we humans have shown ourselves willing to collectively sacrifice in the face of threats many times, most famously in the embrace of rationing, victory gardens, and victory bonds during world wars one and two. Indeed to support fuel conservation during world war two, pleasure driving was virtually eliminated in the UK, and between 1938 and 1944, use of public transit went up by 87% in the US and by 95% in Canada. Twenty million US households – representing three fifths of the population – were growing victory gardens in 1943, and their yields accounted for 42% of the fresh vegetables consumed that year. Interestingly, all of these activities together dramatically reduce carbon emissions.

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Sounds awesome.

Upcoming Supermoon Eclipse Will Dazzle Britain, Hit Europe’s Power Grids (RT)

This spring should reward plenty of star-gazers, especially in Britain, which will experience its deepest solar eclipse in 15 years, as well as a Supermoon, all at the same time – an event that will sink the island into twilight for two whole hours. The Supermoon eclipse, as the phenomenon is known, is an astronomical alignment where the Moon is sent on a trajectory between the Sun and the Earth, depriving us of light. The event will occur on March 20 at around 8:40GMT. Scotland will have it best though, with a whopping 98% of the sky darkened, compared to about 85% for the south of England. For best results the Scottish need to look up starting 9:36 am. Other areas in Britain will only get around 30%. Similar events took place in 2006, 2008 and 2011, but neither of them can touch the upcoming Supermoon eclipse, except an event that occurred in 1999.

[..] Britain will remain relatively unscathed, compared to its European neighbors, where up to 10% of energy is generated sustainably, meaning they depend more on the sun. According to the UK’s energy body, only 1.5% of power there is generated by solar panels. And since people will be going out in droves to watch the spectacle, energy consumption should drop almost at the same time the shortages will strike, it says. The European Network Transmission System Operators for Electricity says, according to the Independent, “with the increase of installed photovoltaic energy generation, the risk of an incident could be serious without appropriate countermeasures.” “Within 30 minutes the solar power production would decrease from 17.5 gigawatts to 6.2GW and then increase again up to 24.6GW. This means that within 30 minutes the system will have to adapt to a load change of -10GW to +15GW,” said Patrick Graichen, executive director of the Berlin-based think-tank on renewable energy Agora Energiewende, as cited by the FT.

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Mar 082015
 
 March 8, 2015  Posted by at 1:21 pm Finance Tagged with: , , , , , , , , ,  1 Response »


DPC Sternwheeler Falls City, the levee, Vicksburg, Mississippi 1900

Austria Is Fast Becoming Europe’s Latest Debt Nightmare (Telegraph)
Tsipras: ‘We Don’t Want to Go on Borrowing Forever’ (Spiegel)
Eurogroup To Consider Greek Reform Proposals Amid Scramble For Funding (Kath.)
The ECB’s Lunatic Full Monty Treatment (Tenebrarum)
7 Things To Know About The ECB’s QE Game Plan (MarketWatch)
30 Years Of A Polarised Economy Have Squeezed Out The Middle Class (Observer)
Foreign Banks Tighten Lending Rules For China State-Backed Firms (Reuters)
China’s February Exports Surge 48.3% (CNBC)
Azerbaijan Should Be Very Afraid of Victoria Nuland (GR)
EU Won’t Be Pushed Into Confrontation Over Ukraine – Foreign Policy Chief (RT)
Why Do Russians Still Support Vladimir Putin? (New Statesman)
The Dark Undercurrents Of The War In The Ukraine (Saker)
‘Give Peace A Chance, Decide Sanctions Later’: EU Rethinks Russia (RT)
Layoffs And Empty Streets As Australia’s Boom Towns Go Bust (Reuters)
Venezuela To Get South American Help For Food Crisis (BBC)
Why Fresh Water Shortages Will Cause The Next Great Global Crisis (Guardian)
The Francis Miracle: Inside The Transformation Of The Pope And The Church (TIME)

The hills are alive with the sound of too little money.

Austria Is Fast Becoming Europe’s Latest Debt Nightmare (Telegraph)

Ah Austria, land of schnitzel, lederhosen, Mozart, alpine meadows and beer drinking. Less widely appreciated is its special place in the history of catastrophic banking crises. It was the failure of Creditanstalt, a Viennese bank founded in 1855 by Anselm von Rothschild, that arguably sparked the Great Depression, setting off an unstoppable chain reaction of bankruptcies throughout Europe and America. No-one would think that what happened last week at Austria’s failed Hypo Alpe-Adria Bank International falls into quite the same category; we are meant to be in the recovery phase of the latest global banking crisis, so this is more about re-setting the system than again bringing it to its knees, right? Well, make up your own mind. I suspect neither financial markets nor policymakers have yet caught onto the full significance of the latest turn of events.

In a nutshell, the Austrian government has had enough of funding the bank’s losses, and announced plans to “bail-in” external creditors to the tune of €7.6bn instead. As such, this marks a test case of new European rules to make creditors pay for failing banks. About time too, you might say. What took them so long? Only in this case, the bonds are notionally guaranteed by the Austrian state of Carinthia, which now theoretically becomes liable for the bail-in. It’s an echo of the mess Ireland got itself into at the height of the banking crisis, when it foolishly attempted to stem the panic by underwriting all Irish banking liabilities; the move very nearly ended up bankrupting the entire country. Hypo will bankrupt Carinthia. Essentially, what the Austrian government is doing is cutting loose an entire region, rather in the way the federal authorities in the US allowed Detroit to go bust a number of years ago.

It’s a mini-Greece going off in the heartlands of Europe. In Hypo’s case, the bail-in also threatens knock-on consequences for public bodies elsewhere, including Bayern Landesbank, a big holder of Hypo bonds which is owned by the German state of Bavaria, and the Munich based FMSW, which is again publicly underwritten. All this is just the tip of the iceberg; Europe is awash with interlinked banking and public liabilities, many of which will never be repaid and basically need to be written off. Massive creditor losses are in prospect. The European authorities had us all half convinced that Europe’s debt crisis was over. In truth, it may have barely begun.

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Good interview. Read.

Tsipras: ‘We Don’t Want to Go on Borrowing Forever’ (Spiegel)

SPIEGEL: Mr. Prime Minister, most of your European partners are indignant. They accuse you of saying one thing in Brussels and then saying something completely different back home in Athens. Do you understand where such accusations come from?
Tsipras: We say the same things in Germany as we do in Greece. But sometimes, problems can be viewed differently, depending on the perspective. (He points to his water glass.) This glass here can be described as being half full or half empty. The reality is that it is a glass filled half-way with water.

SPIEGEL: In Brussels, you have given up your demands for a debt haircut. But back home in Athens, you continue talking about a haircut. What does that have to do with perspective?
Tsipras: At the summit meeting, I used the language of reality. I said: Prior to the bailout program, Greece had a sovereign debt that was 129% of its economic output. Now, it is 176%. No matter how you look at that, it’s not possible to service that debt. But there are different ways to solve this problem: via a debt cut, debt restructuring or bonds whose payback is tied to growth. The most important thing, though, is solving the true problem: the austerity which has driven debt way up.

SPIEGEL: Are you a linguist or a politician? You told the Greeks that you got rid of the troika and sold it as a victory. But the European Commission, the International Monetary Fund (IMF) and the European Central Bank (ECB) are still monitoring your reforms. Now, they are simply called “the institutions.”
Tsipras: No, it isn’t a question of terminology. It has to do with the core of the issue. Every country in Europe has to work together with these institutions. But that is something very different than a troika that is beholden to nobody. Its officials came to Greece to strictly monitor us. Now, we are again speaking directly with the institutions. Europe has become more democratic because of this change.

SPIEGEL: What change? You still have to submit your reform plans to three “institutions” for approval.
Tsipras: The reforms won’t be approved by the institutions. They have a say in the process and establish a framework that applies to all in Europe. Previously, the situation was such that the troika would send an email telling the Greek government what it had to do. Our planned reforms are necessary, but we are deciding on them ourselves. They aren’t being forced onto us by anyone. We want to stop large-scale tax evasion and tax fraud more than anybody. Thus far, it has only been the low earners and not the wealthy that paid. We also want to make the state more efficient.

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Lots of emptiness.

Eurogroup To Consider Greek Reform Proposals Amid Scramble For Funding (Kath.)

Greece faces another tough Eurogroup summit Monday when a slew of reform proposals from Athens are to come under the microscope in Brussels, with the two sides apparently far from a compromise even as state coffers in Athens are close to emptying. Finance Minister Yanis Varoufakis is expected to face a barrage of questions from his eurozone counterparts on a series of proposals set out in an 11-page letter he sent to Eurogroup President Jeroen Dijsselbloem, which include the creation of a so-called fiscal council to generate budget savings, the revision of licensing for gaming and lotteries and the hiring of non-professionals, including students and tourists, as tax agents to help a foundering crackdown on tax evasion.

Sources suggested over the weekend that the proposals had met with skepticism from eurozone officials. In comments on Saturday on the sidelines of a conference in Venice, Varoufakis said he had received a response from Dijsselbloem. He added that Greece was keen to move forward with reforms but that the two sides must agree on “the process by which the reforms will be made more specific, implemented and evaluated so that they can be reviewed by the Eurogroup.” Varoufakis added that Greece’s reform program would be “discussed by technical teams that will convene shortly in Brussels.” Some eurozone officials appeared to be running out of patience. ECB governing council member Luc Coene said in an interview on Saturday that Greece must realize “there is no other way than to reform,” noting that Greeks had been sold “false promises.”

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“Perhaps the cupboards of the monetary bureaucrats are short a few plates and in need of a little pharmacological fine-tuning. Just saying.”

The ECB’s Lunatic Full Monty Treatment (Tenebrarum)

The belief that the market economy requires “steering” by altruistic central bankers, who make decisions influencing the entire economy based on their personal epiphanies, has rarely been more pronounced than today. Most probably it has actually never been stronger. It is both highly amusing and disconcerting that so many economists who would probably almost to a man agree that it would be a very bad idea if the government were to e.g. take over the computer industry and begin designing PCs and smart phones by committee, think that government bureaucrats should determine the height of interest rates and the size of the money supply.

We know of course that central banks are the major income source for many of today’s macro-economists, so it is in their own interest not to make any impolitic noises about these central planning institutions and their activities. Besides, most Western economists have not exactly covered themselves with glory back when the old Soviet Union still existed. Even in the late 1980s, Über-Keynesian Alan Blinder for instance still remarked that the question was not whether we should follow its example and adopt socialism, but rather how much of it we should adopt. The recent ECB announcement detailing its new “QE” program once again confirms though that there is nothing even remotely “scientific” about what these planners are doing. Common sense doesn’t seem to play any discernible role either. [..]

Leaving for the moment aside how sensible it is for the bond yields of virtually insolvent governments mired in “debt trap” dynamics to trade at less than 1.3%, one must wonder: what can possibly be gained by pushing them even lower? Does this make any sense whatsoever? Meanwhile, the ECB let it be known that it wouldn’t buy any bonds with a negative yield-to-maturity exceeding 20 basis points – the level its negative deposit rate currently inhabits as well. What a relief! What makes just as little sense is that the economic outlook presented by Mr. Draghi on occasion of his press conference was actually quite upbeat. To summarize: yields are at record lows, with about €2 trillion in European government bonds sporting negative yields to maturity. The economic outlook is said to be good.

The current slightly negative HICP rate is held to be a transitory phenomenon (it very likely will be). Needless to say, the arbitrary 2% target for “price inflation” makes absolutely no sense anyway. Not a single iota of wealth can be created by pushing prices up. Last but certainly not least, year-on-year money supply growth in the euro area has soared into double digits recently. And the conclusion from all this is that the central bank needs to boost its balance sheet by €1 trillion with a massive debt monetization program? Are these people on drugs? If not, then they should perhaps see a shrink. Perhaps the cupboards of the monetary bureaucrats are short a few plates and in need of a little pharmacological fine-tuning. Just saying.

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It’s no longer useful to view this from an investor point of view.

7 Things To Know About The ECB’s QE Game Plan (MarketWatch)

After years of discussion, months of urgent calls and weeks of preparation, the European Central Bank is about to write history—on Monday it will kick of its €1.1 trillion-euro, quantitative-easing program. Unlike its U.S., U.K. and Japanese central-bank peers, the ECB never resorted to sovereign QE at the height of the global financial crisis. Instead, it’s attempted an array of other extraordinary policy measures, including a negative deposit rate, programs to provide cheap funding to eurozone banks, and a less-powerful bond-buying program, often called “private QE,” focused on purchasing asset-backed securities and covered bonds. Now, as investors prepare for the launch of full-blown QE on March 9, here’s what we know about the program so far.

What’s the aim of the QE? Under quantitative easing, a central bank creates money electronically, which it then uses to buy securities, such as government bonds, from banks and other institutions. It’s hoped that these institutions will then use the new bank reserves to buy other assets, lowering interest rates and encouraging spending. The ECB hopes QE will revive growth and inflation in the eurozone. Despite repeated attempts to spur an economic recovery, the currency bloc is still grappling with painfully high unemployment, slow growth and negative inflation among its members.

Will the ECB buy government bonds with negative yields?Yes, but nothing that carries a yield below the ECB’s own deposit rate, which currently stands at negative 0.2%. The limit means that bonds currently yielding more than the deposit rate have room to fall further. Even before the big QE bazooka has been fired, yields for most eurozone countries have tanked. For Germany, France, Austria, Belgium, Holland and Finland borrowing costs for shorter-dated debt are now negative, meaning that bondholders essentially agree to pay issuers to hold their debt.

What will QE do to bond yields? Initially, sovereign QE and lower bond yields should march together hand in hand. As the ECB buys large quantities of government debt, bond prices should go up, which will send yields lower. On Friday, borrowing costs for Italy, Spain and Portugal dropped to record lows in anticipation of QE takeoff. However, big moves in the bond markets show much of the impact may have already been priced in. Longer-term, as the QE liquidity injection begins to work on the eurozone economy, and likely boost inflation and growth, bond yields should start to rise to reflect the stronger economy. The latest eurozone data indicate that the region may be turning a corner, leaving room for higher borrowing costs.

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London is a wasteland. It may be rich, but it’s still a wasteland. No there there.

30 Years Of A Polarised Economy Have Squeezed Out The Middle Class (Observer)

London has always been a city of extremes but the extent to which it has become polarised between rich and poor is laid bare in research that reveals a 43% decrease in middle-income households between 1980 and 2010. England is increasingly divided between the rich and the poor, with a 60% increase in poor households and a 33% increase in wealthy households. This has come at a time – 1980 to 2010 – when the number of middle-income households went down by 27%. But the trend is most marked in London, according to an analysis of census data by Benjamin Hennig and Danny Dorling of the School of Geography and the Environment at the University of Oxford.

Over the three decades, the capital has seen an 80% increase in poor households, an 80% increase in wealthy households – and a 43% decrease in middle households. Around 36% of London households are now classified as poor (up from 20% in 1980), while 37% are middle income (down from 65%). The largest%age point fall in households in the middle has been in Westminster, which saw its middle reduce from nearly three-quarters of all households to just one-third. The largest%age-point increase in wealthy households has been in Richmond-upon-Thames, where more than half of households are now wealthy, compared with a fifth in 1980. In contrast, in Newham, almost one in two households is now poor.

The researchers have drawn up maps of England according to wealth, described by Dorling as “fancy pie charts”. The polarising of wealth has been exacerbated in recent years, with economic growth having been slower than had been hoped, and wages in the middle failing to rise in parallel with the recovery. The economic divide between the beneficiaries of the property bubble and non-homeowners also continues to widen in the country as a whole, with upward pressure on land values. Dorling said: “This analysis shows that England is becoming more polarised, with an increase in households that are poor and those that are wealthy. The number of households in poverty has jumped by 60% since 1980, meaning that now almost three in 10 are poor.

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So more PBOC QE too?

Foreign Banks Tighten Lending Rules For China State-Backed Firms (Reuters)

Some banks are adopting stricter lending criteria for China’s state-owned enterprises (SOEs), demanding collateral from some companies they used to deem as safe as government debt, as Beijing tries to reform its bloated firms and the economy slows. Singapore’s DBS Group, which recently suffered a loss on a bad loan to an SOE-related firm it had assessed as risk-free, plans to launch a “decision grid” to assess the creditworthiness of SOEs, according to draft internal risk guidelines reviewed by Reuters. A banker at Taiwan’s Chang Hwa Commercial Bank said that from the beginning of this year his bank would only lend to state-owned Chinese companies that provide collateral, in recognition that SOEs were no longer risk free.

Such changes in policy suggest some foreign banks are preparing for a rise in defaults in the world’s second-largest economy, which is growing at its slowest pace in a quarter of a century and where the government is trying to make the state sector more efficient.
DBS will now lend more conservatively to SOEs seen as receiving less government support, as China plans to prioritize SOEs in strategic sectors. The January-dated DBS document said: “Not all SOEs receive the same degree of government support. It is our further belief that the differentiation of such support will widen in the future as the government continues to pursue market economy.” DBS will now divide SOEs into tiers according to their likely level of government support, with subsidiaries considered more risky than top-level holding companies.

Group companies that are not consolidated into the parent SOE’s financial statements will be evaluated as an ordinary borrower, the decision grid shows. DBS effectively acknowledges that lenders can no longer take for granted implicit support from above. “Compared to ordinary corporates, implicit support obtained from the parents of SOEs are subject to higher risks because of the risk of policy and people changes,” the document said. A DBS spokeswoman said: “It is still business as usual for us in China. With slower regional economic growth, we continue to be disciplined and watchful of risks in all the markets we operate in..”

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C’mon, admit it, you were due for a good laugh.

China’s February Exports Surge 48.3% (CNBC)

China’s exports surged 48.3% on year in February, sharply above analysts’ forecasts, potentially signaling stronger economic growth for its trade partners. Imports fell 20.5% for the period, according to data from China’s customs department. A Reuters poll had forecast exports would rise 14.2% and imports would fall 10%. For January and February combined – a common metric to help smoothe distortions from the Lunar New Year holiday period – exports rose 15% from a year earlier, while imports declined 20.2%. “The demand from the advanced economies bodes well,” ANZ said in a note Sunday, citing data showing shipments to the U.S. and European Union rose 40.3% and 36.6% on-year respectively.

But the bank noted that the jump in exports could be due to a base effect. “The February 2014 figures were extremely low as Chinese authorities cracked down the round-tripping trade flows,” it said. “We still see strong headwinds facing China’s exports this year,” ANZ said, citing weak export order PMI data. ANZ attributed the decline in imports to weak commodity demand compounded by sharp drops in commodity prices, citing as an example the 45.4% on year drop in the value of iron-ore imports, although the iron-ore import volume only fell 0.9%. As well, “Chinese commercial banks have significantly tightened the trade financing facilities for commodity traders,” ANZ said.

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“..it is not likely that she came to Baku with positive intentions, or even with a positive image of the country in her mind.”

Azerbaijan Should Be Very Afraid of Victoria Nuland (GR)

The US’ Assistant Secretary of State for European and Eurasian Affairs, Victoria Nuland, visited Baku on 16 February as part of her trip to the Caucasus, which also saw her paying stops in Georgia and Armenia. While Azerbaijan has had positive relations with the US since independence, they’ve lately been complicated by Washington’s ‘pro-democracy’ rhetoric and subversive actions in the country. Nuland’s visit, despite her warm words of friendship, must be look at with maximum suspicion, since it’s not known what larger ulterior motives she represents on behalf of the US government. [..]

Given the ideological context in which Nuland likely sees eye-to-eye on with her husband, plus her experience in instigating the Color Revolution in Ukraine, it is not likely that she came to Baku with positive intentions, or even with a positive image of the country in her mind. This is all the more so due to the recent scandal over Radio Free Europe/Radio Liberty. The US-government-sponsored information agency was closed down at the end of December under accusations that it was operating as a foreign agent. While the US has harshly chided the Azeri government for this, at the end of the day, it remains the country’s sovereign decision and right to handle suspected foreign agents as it sees fit. Azerbaijan’s law is similar to Russia’s, in that entities receiving foreign funds must register as foreign agents, and interestingly enough, both of these laws parallel the US’ own 1938 Foreign Agents Registration Act (FARA).

So why does the US feel that it reserves the sole right to register foreign agents and entities, and if need be, identify and punish those that are acting in the country illegally, but Azerbaijan is deprived of this exercise of sovereignty? The reason is rather simple, actually – it’s the US that is the most likely to use these foreign agents to destabilize and potentially overthrow governments (as in Ukraine most recently), whereas Azeri agents in America, should they even exist, are nothing more than an administrative nuisance incapable of inflicting any real harm on the authorities. This double standard is at the core of the US’ relations with all countries in the world, not just Azerbaijan, but it’s a telling example of the power and leverage Washington attempts to hold over Baku, which is seen most visibly by the blistering criticism leveled on the government after Radio Free Europe/Radio Liberty’s closing in compliance with the law.

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Too little too late. Fait accompli.

EU Won’t Be Pushed Into Confrontation Over Ukraine – Foreign Policy Chief (RT)

The EU is resisting calls from hotheads to supply arms to Ukraine, saying it won’t be pulled into a confrontation with Russia. Europeans cite the progress in implementing a ceasefire in eastern Ukraine between Kiev and local rebels. The idea of providing lethal aid to Kiev is popular among many NATO officials and American politicians. US House Speaker John Boehner and a bipartisan group of top lawmakers called on President Barack Obama to deliver the weapons. But Europeans are opposing the move, which would likely escalate tensions with Russia. “The European Union today is extremely realistic about developments in Russia. But we will never be trapped or forced or pushed or pulled into a confrontative [sic] attitude,” the EU’s Foreign Policy Chief Federica Mogherini told the media on Friday, following an informal meeting of EU foreign ministers in Riga, Latvia.

“We still believe that around our continent – not only in but around – cooperation is far better than confrontation. We still argue for that,” she added. Austrian Foreign Minister Sebastian Kurz said the EU’s goal in Ukraine is “a ceasefire, not an escalation.” Germany has been among the most vocal critics of sending arms to Ukraine and now German officials question the assessment of the situation in the country voiced by Kiev armament pundits. “The statements [on Ukraine] from our source do not fully coincide with the statements made by NATO and the US,” German FM Frank-Walter Steinmeier said after the conference. “We are interested in not allowing it to grow into a misunderstanding.” The German Spiegel magazine reported on Saturday that Chancellor Angela Merkel’s government suspects the US and NATO of trying to derail the EU’s mediation effort in Ukraine.

The Minsk ceasefire agreement between Kiev and rebels in eastern Ukraine was brokered last month by Germany, France and Russia. So far, it’s mostly holding, with both parties pulling some of their heavy weapons back from the front line, and OSCE monitors reporting a significant reduction in violence. The EU says it wants to increase the number of OSCE observers on the ground, doubling its current ceiling of 500. “The main point is obviously working to increase the number of selected and skilled people that can do the job,” Mogherini said. The more observers the tougher it would be to violate the conditions of the Minsk agreement with impunity. Kiev and its foreign backers, particularly in Washington, accuse Russia of propping up the rebel forces with weapons and troops. Moscow insists that it has no involvement in the armed conflict and has only delivered humanitarian aid to the ravaged areas.

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“86% of the respondents approve of Vladimir Putin as Russia’s president. When asked to name five or six politicians or government officials they trust, 59% responded: ”Putin”.”

Why Do Russians Still Support Vladimir Putin? (New Statesman)

The news of the assassination of Boris Nemtsov, a Russian opposition politician, dominated the news this weekend. It was possible to imagine – just for a day or two – that the charismatic Boris Nemtsov, who first entered the national political arena in Russia back in the Yeltsin days, had been a prominent figure without whom the opposition would struggle to have a say against Kremlin. Unfortunately, the truth is that Nemtsov was hardly a force to be reckoned with. However open his position on Putin was and however brave his last interview to the Moscow radio station Echo Moskvy was, just hours before his death, Boris Nemtsov was not important. Like any other opposition leader in Russia, he was a scribble on the margin of current affairs. The overwhelming majority of the Russian population supports the country’s president, Vladimir Putin.

A recent poll, conducted between 20-23 February 2015 among 1,600 Russians aged 18 or more in 46 different regions of Russia by an independent Russian not-for-profit market research agency Levada Centre for Echo Moskvy radio station, found that 54% of the population agreed that “[Russia] is moving in the right direction”. 86% of the respondents approve of Vladimir Putin as Russia’s president. When asked to name five or six politicians or government officials they trust, 59% responded: ”Putin”.

Let’s put aside the possibility of rigged polls because there is little to suggest Putin’s popularity is fake. Putin is respected, if not revered. He is referred to as batyushka, the holy father. Many Russians are particularly upset and angry about Nemtsov’s murder because western fingers are pointing at Putin. In their opinion, Nemtsov was most likely killed as a provocation to destabilise Russia and fuel hostility between Kremlin and the west. “With all due respect to the memory of Boris Nemtsov, in political terms he did not pose any threat to the current Russian leadership or Vladimir Putin, said presidential press secretary Dmitriy Peskov. “If we compare popularity levels, Putin’s and the government’s ratings and so on, in general Boris Nemtsov was just a little bit more than an average citizen.”

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Who’s “our son of a bitch“?

The Dark Undercurrents Of The War In The Ukraine (Saker)

The situation in the Ukraine is more or less calm right now, and this might be the time to step back from the flow of daily reports and look at the deeper, underlying currents. The question I want to raise today is one I will readily admit not having an answer to. What I want to ask is this: could it be that one of the key factors motivating the West’s apparently illogical and self-defeating desire to constantly confront Russia is simply revanchism for WWII? We are, of course, talking about perceptions here so it is hard to establish anything for sure, but I wonder if the Stalin’s victory against Hitler was really perceived as such by the western elites, or if it was perceived as a victory against somebody FDR could also have called “our son of a bitch“. After all, there is plenty of evidence that both the US and the UK were key backers of Hitler’s rise to power (read Starikov about that) and that most (continental) Europeans were rather sympathetic to Herr Hitler.

Then, of course and as it often happens, Hitler turned against his masters or, at least, his supporters, and they had to fight against him. But there is strictly nothing new about that. This is also what happened with Saddam, Noriega, Gaddafi, al-Qaeda and so many other “bad guy” who began their careers as the AngloZionists’ “good guys”. Is it that unreasonable to ask whether the western elites were truly happy when the USSR beat Nazi Germany, or if they were rather horrified by what Stalin had done to what was at that time the single most powerful western military – Germany’s? [..] for the western elites, [..] they must have known that their entire war effort was, at most, 20% of what it took to defeat Nazi Germany and that those who had shouldered 80%+ were of an ideology diametrically opposed to capitalism. Is there any evidence of that fear? I think there is and I already mentioned them in the past:

Plan Totality (1945): earmarked 20 Soviet cities for obliteration in a first strike: Moscow, Gorki, Kuybyshev, Sverdlovsk, Novosibirsk, Omsk, Saratov, Kazan, Leningrad, Baku, Tashkent, Chelyabinsk, Nizhny Tagil, Magnitogorsk, Molotov, Tbilisi, Stalinsk, Grozny, Irkutsk, and Yaroslavl.

Operation Unthinkable (1945) assumed a surprise attack by up to 47 British and American divisions in the area of Dresden, in the middle of Soviet lines.This represented almost a half of roughly 100 divisions (ca. 2.5 million men) available to the British, American and Canadian headquarters at that time. (…) The majority of any offensive operation would have been undertaken by American and British forces, as well as Polish forces and up to 100,000 German Wehrmacht soldiers.

Operation Dropshot (1949): included mission profiles that would have used 300 nuclear bombs and 29,000 high-explosive bombs on 200 targets in 100 cities and towns to wipe out 85% of the Soviet Union’s industrial potential at a single stroke. Between 75 and 100 of the 300 nuclear weapons were targeted to destroy Soviet combat aircraft on the ground.

But the biggest proof is, I think, the fact that none of these plans was executed, even though at the time the Anglosphere was safely hidden behind its monopoly on nuclear weapons (and have Hiroshima and Nagasaki not been destroyed in part to “scare the Russians”?). And is it not true that the Anglos did engage in secret negotiations with Hitler’s envoys on several occasions? (The notion of uniting forces against the “Soviet threat” was in fact contemplated by both Nazi and Anglo officials, but they did not find a way to make that happen.) So could it be that Hitler was, really, their “son of a bitch”?

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“We support sanctions that bring the other side to the negotiation table.. But we are against sanctions that are imposed simply because someone is angry.”

‘Give Peace A Chance, Decide Sanctions Later’: EU Rethinks Russia (RT)

The latest EU meeting has shown that many of its members are in no rush to extend the sanctions which were imposed on Russia last year following a US example, or to exert any more pressure on Moscow, as long as the Minsk ceasefire agreement is holding. Most foreign ministers at the EU two-day meeting in the Latvian capital expressed hopes that the latest Minsk agreement would be a success, and there would be no need to impose further sanctions on Russia. The meeting had a format of an informal discussion, where the ministers touched the topics of the Minsk agreements and the OSCE mission in Ukraine, as well as the possible stepping up of pressure on Russia to “promote peace.”

Scheduled ten days before an official summit in Brussels, the meeting has shown that the EU can’t yet agree even on the automatic extension of existing sanctions – a move that some of the hawkish states have been actively promoting. “In my opinion, we must not make any other steps, we have to give peace a chance. The extension could take place, but only if there is no improvement of the situation,” Spanish FM Jose Manuel Garcia-Margallo said, expressing his views after the meeting , according to Russian news agency RIA Novosti. The Spanish FM is heading to Moscow, during which he will not only discuss the Ukrainian crisis, but will also meet with the Russian Energy minister.

Meanwhile, Italian FM Paolo Gentiloni told reporters the he sees “encouraging signals” on the ground in eastern Ukraine, and so “at the moment we don’t need either new sanctions or automatic renewals.” Austrian Foreign Minister Sebastian Kurz shared the views of his Italian counterpart, saying that there is a “glimpse of hope” following the Minsk agreements: “We should do everything now to improve the situation and decide later whether that improvement really happened and we can reduce the sanctions, or, if we have to, extend them,” Kurz said. Greece has also spoke out against any new sanctions as long as Russia supports the Minsk agreements, with Greek Foreign Minister Nikos Kotzias saying the Greek experience suggests that “not every sanction is constructive” and can succeed. “We support sanctions that bring the other side to the negotiation table,” Kotzias told German ARD. “But we are against sanctions that are imposed simply because someone is angry.”

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Wait! Where have we heard this before? “Owner will throw in a brand new car..” “Just pick your favorite colour.”

Layoffs And Empty Streets As Australia’s Boom Towns Go Bust (Reuters)

When Probo Junio got a visa to work in Australia, he thought he had won a ticket to the good life. In 2013, the 45-year-old boilermaker left his hometown of Cebu in the Philippines, where he was getting paid about $10 a day, to work in Karratha in Western Australia for $30 an hour. Enough to support his relatives and build a new life Down Under. What Junio didn’t expect was that Australia’s booming resources industry would go bust less than two years later, taking his job, and leaving him just 60 days to find work or go home. “It’s very difficult because most of the companies don’t want 457 visa holders,” he said, referring to temporary permits for skilled workers.Across the country, people like Junio are falling victim to downsizing. Jobs, once plentiful and well paid, are scarce.

Real estate prices in boom towns are sinking and even the notoriously high coffee prices in mining capital Perth have levelled off at under $4. Prices of iron ore and coal, the country’s two biggest export earners, have plunged during the last two years amid falling demand from China, in the wake of its economic slowdown. Just a few years ago, foreign workers were flooding into Australia, lured by huge pay as the resources industry scrambled to fill positions. Truck driving and cooking jobs offering $100,000 a year made headlines abroad. But those workers, like Junio, are now hard-pressed to find work, especially if they are on temporary visas. Even permanent residents have to take lower pay. “There is reality coming into the marketplace about salaries,” said John Downing, who runs global resources recruiting firm Downing Teal, adding that salary expectations have fallen 10% to 25%.

“For Lease” signs are everywhere in West Perth, the headquarters of many mining, oil and gas companies. “You could shoot a cannon down those streets,” said resources analyst Peter Strachan. “There’s nobody there.”Commercial vacancy rates in the city are near a 20-year high of 15% as resources companies downsize or shut down, said Joe Lenzo, of the Property Council of Australia. The real estate market has also been hit in the coal country of Queensland, across the continent. “Owner will throw in a brand new car,” read advertisements for houses in the coal-mining town of Moranbah. “Just pick your favorite colour.”

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There’s something very positive about South America.

Venezuela To Get South American Help For Food Crisis (BBC)

Foreign ministers from 12 South American nations gathering in Caracas have promised to help Venezuela overcome an ongoing shortage of food, medicine and other products. The regional Unasur bloc agreed with President Nicolas Maduro to provide items that have gone missing from many Venezuelan supermarkets. The shortage of staples has contributed to popular discontent. Unasur highlighted the importance of safeguarding democratic stability. “The idea is to get all the countries to support the distribution of staples,” said Ernesto Samper, Secretary-General of Unasur (Union of South American Nations). “We will work together with the Venezuelan authorities to strengthen the distribution networks in our countries so they help Venezuela,” said Mr Samper.

He criticised recent anti-government protests in Venezuela that descended into violence. The opposition must “express its opinions in a democratic, peaceful and lawful manner,” said Mr Samper. The Unasur ministers will meet opposition leaders and government officials in the next few days to seek guarantees that Venezuela will be able to hold free and fair elections later this year. Opposition leader Henrique Capriles told the AFP news agency on Tuesday that Mr Maduro could cancel the vote, which is scheduled for the second half of this year. “The government had never had such a large deficit [in the polls] heading into an election. Now it does. How does it change that? It rigs the game,” said Mr Capriles. Mr Maduro said the elections would go ahead as planned.

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“For us, water is [now] more important than oil.”

Why Fresh Water Shortages Will Cause The Next Great Global Crisis (Guardian)

Water is the driving force of all nature, Leonardo da Vinci claimed. Unfortunately for our planet, supplies are now running dry – at an alarming rate. The world’s population continues to soar but that rise in numbers has not been matched by an accompanying increase in supplies of fresh water. The consequences are proving to be profound. Across the globe, reports reveal huge areas in crisis today as reservoirs and aquifers dry up. More than a billion individuals – one in seven people on the planet – now lack access to safe drinking water. Last week in the Brazilian city of São Paulo, home to 20 million people, and once known as the City of Drizzle, drought got so bad that residents began drilling through basement floors and car parks to try to reach groundwater.

City officials warned last week that rationing of supplies was likely soon. Citizens might have access to water for only two days a week, they added. In California, officials have revealed that the state has entered its fourth year of drought with January this year becoming the driest since meteorological records began. At the same time, per capita water use has continued to rise. In the Middle East, swaths of countryside have been reduced to desert because of overuse of water. Iran is one of the most severely affected. Heavy overconsumption, coupled with poor rainfall, have ravaged its water resources and devastated its agricultural output. Similarly, the United Arab Emirates is now investing in desalination plants and waste water treatment units because it lacks fresh water.

As crown prince General Sheikh Mohammed bin Zayed al-Nahyan admitted: “For us, water is [now] more important than oil.” The global nature of the crisis is underlined in similar reports from other regions. In south Asia, for example, there have been massive losses of groundwater, which has been pumped up with reckless lack of control over the past decade. About 600 million people live on the 2,000km area that extends from eastern Pakistan, across the hot dry plains of northern India and into Bangladesh, and the land is the most intensely irrigated in the world. Up to 75% of farmers rely on pumped groundwater to water their crops and water use is intensifying – at the same time that satellite images shows supplies are shrinking alarmingly.

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“I look at . . . so many forests, all cut, that have become land . . . that can [no] longer give life..”

The Francis Miracle: Inside The Transformation Of The Pope And The Church (TIME)

It was probably inevitable that the first pope named Francis—inspired by a saint who preached to birds and gave pet names to the sun and the moon—has turned out to be a strong environmentalist. In fact, Francis has said that concern for the environment is a defining Christian virtue. (The young Jorge Bergoglio trained as a chemist, so he has a foundation to appreciate the scientific issues involved.) This element of the social gospel bubbled to the surface as early as his inaugural mass, when Francis issued a plea to “let us be ‘protectors’ of creation, protectors of God’s plan inscribed in nature, protectors of one another and of the environment.” St. Francis’s imprint on this pope is clearly strong. In unscripted comments during a meeting with the president of Ecuador in April 2013, he said, “Take good care of creation. St. Francis wanted that.

People occasionally forgive, but nature never does. If we don’t take care of the environment, there’s no way of getting around it.” The two previous popes were also environmentalists. The mountain-climbing, kayaking John Paul II was a strong apostle for ecology, once issuing an almost apocalyptic warning that humans “must finally stop before the abyss” and take better care of nature. Benedict XVI’s ecological streak was so strong that he earned a reputation as “the Green Pope” because of his repeated calls for stronger environmental protection, as well as gestures such as installing solar panels atop a Vatican audience hall and signing an agreement to make the Vatican Europe’s first carbon-neutral state. Francis is carrying that tradition forward.

Among other things, he told French President François Hollande during a January 2014 meeting that he is working on an encyclical on the environment. (An encyclical is considered the most developed and authoritative form of papal teaching.) The Vatican has since confirmed that Francis indeed intends to deliver the first encyclical ever devoted entirely to environmental issues. In a July 2014 talk at the Italian university of Molise, Francis described harm to the environment as “one of the greatest challenges of our times.” It’s a challenge, he said, that’s theological as well as political in nature. “I look at . . . so many forests, all cut, that have become land . . . that can [no] longer give life,” the pope continued, citing South American woodlands in particular. “This is our sin, exploiting the Earth. . . . This is one of the greatest challenges of our time: to convert ourselves to a type of development that knows how to respect creation.”

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Mar 042015
 
 March 4, 2015  Posted by at 10:40 am Finance Tagged with: , , , , , , , , , ,  3 Responses »


NPC “.. the hearty cereal beverage with flavor and tang, Altemus-Hibble truck” 1920

Only Mass Default Will End The World’s Addiction To Debt (Telegraph)
Eurozone Faces First Regional Bankruptcy In Austria’s Carinthia (AEP)
Shelby Says Fed Should Be Held Accountable for Its Actions (Bloomberg)
Yellen Says Fed Seeks to Avert ‘Capture’ by Banks It Oversees (Bloomberg)
Draghi’s Rescue Plan Has Created a $103 Billion Problem (Bloomberg)
ECB Glimpse of Cyprus Debt Mountain Shows Limits of Bank Cleanup (Bloomberg)
$2 Trillion Euro Government Bonds Trading At Negative Yield (David Stockman)
Greece Taps Public Sector Cash To Help Cover March Needs (Reuters)
Can Greece Really Thrive Inside the Euro? (George Magnus)
ECB Will Need More Creative Accounting To Deal With Greece (MarketWatch)
Greece vs Europe: Who Blinked First In The Bail-out Battle? (Telegraph)
Athens Preparing Reform Proposals For Eurogroup (Kathimerini)
Oil at $95 a Barrel Discovered in SEC Rules on Reserves (Bloomberg)
The Latest Sign the Oil-Price Plunge Is Hitting the Job Market (Bloomberg)
Wall Street Has Its Eyes on Millennials’ $30 Trillion Inheritance (Bloomberg)
Japan Public Debt Keeps BNP Chief Credit Analyst Awake at Night (Bloomberg)
Ukraine Looks Ready To Default (MarketWatch)
Ukraine Raises Interest Rates To 30% (BBC)
Financial Collapse Leads To War (Dmitry Orlov)
NATO Rolls Out ‘Russian Threat’ In Budget Battle (RT)
Massive Swarms of Jellyfish Wreak Havoc on Fish Farms, Power Plants (Bloomberg)

“Finally, creditors are being made to pay for the consequences of their own folly.”

Only Mass Default Will End The World’s Addiction To Debt (Telegraph)

In a valedictory speech at the weekend of characteristically Latin American duration – a mind-numbing three hours – the Argentine president, Cristina Fernandez de Kirchner, claimed that her country was the only one in the world to have reduced its national debt over recent years. I doubt she is right about being alone in this “achievement” – there must surely be others – but even if she is, I’m not sure that reduction in the national debt via the mechanism of default is anything to boast of. Only Kirchner could think this a matter of national pride. Nonetheless, where Argentina treads, others will surely soon be following. The world is sinking under a sea of debt, private as well as public, and it is increasingly hard to see how this might end, except in some form of mass default. Greece we already know about, but the coming much wider outbreak of debt repudiation will not be confined to sovereign nations.

Last week, there was another foretaste of what’s to come in developments at Austria’s failed Hypo Alpe-Adria-Bank International. Taxpayers have had enough of paying for the country’s increasingly crisis-ridden banking sector, and have determined to bail in private creditors to the remnants of this financial road crash instead – to the tune of $8.5bn in the specific case of Hypo Alpe-Adria. Finally, creditors are being made to pay for the consequences of their own folly. You might have thought that a financial crisis as serious as that of the past seven years would have ended the world economy’s addiction to debt once and for all. It has not. If anything, the position has grown even worse since the collapse of Lehman Brothers. According to recent analysis by McKinsey, global debt has increased to the tune of $57 trillion, or 17pc, since 2007, with little sign of a slowdown in sight.

Much of this growth has been in emerging markets, which were comparatively unaffected by the financial crisis. Yet even in the developed West, private sector deleveraging has been limited and, in any case, more than outweighed by growing public indebtedness. The combined public sector debt of the G7 economies has grown by 40pc to around 120pc of GDP since the crisis began. There has been no overall deleveraging to speak of. Where the West left off, Asia has taken up the pace, with a credit-induced real estate bubble that makes its pre-crisis Western counterpart look tame by comparison, much of it fuelled, as in Western economies, by growth in the shadow banking sector. China’s total indebtedness has quadrupled since 2007 to $28 trillion, according to estimates by McKinsey. At 282pc of GDP, the debt burden is now bigger, relative to output, that the US.

Attempts to rein in this growth have so far proved problematic. The Chinese property market has slowed markedly, which in turn has knocked the stuffing out of the all-important construction sector and its feeder industries. Starved of its regular fix of debt, the Chinese economy seems as incapable of generating decent levels of growth as the mature economies of the West. The addiction to credit has gone global.

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“While Austria remains a rich and successful country, it is slithering towards the bottom of the reform league. France looks less sluggish by comparison, and Greece looks almost Thatcherite.”

Eurozone Faces First Regional Bankruptcy In Austria’s Carinthia (AEP)

The Alpine region of Carinthia faces probable bankruptcy after Austria’s central government refused to vouch for debts left by a disastrous banking expansion in eastern Europe and the Balkans. It would be the first sub-sovereign default in Europe since the Lehman Brothers crisis, comparable in some respects to the bankruptcy of California’s Orange County in 1994 or the city of Detroit in 2013. Austria’s finance minister, Jörg Schelling, said Vienna would not cover €10.2bn (£7.4bn) in bond guarantees issued by the Carinthian authorities for the failed lender Hypo Alpe Adria, or for the “Heta” resolution fund that succeeded it. This leaves the 550,000-strong province on the Slovene border to fend for itself as losses spin out of control. “The government won’t waste another euro of taxpayer money on Heta,” he said, insisting that there must be an end to moral hazard.

The Hypo affair has alredy cost taxpayers €5.5bn. The Austrian state has said it will cover €1bn of its own guarantees “on the nail” but nothing more. Sources in Vienna suggested that even senior bondholders are likely to face a 50pc writedown, becoming the first victims of the eurozone’s tough new “bail-in” rules for creditors. These rules are already in force in Germany and Austria, and will be mandatory everywhere next year. “We are at a very delicate phase when Europe’s banking system switches from a bail-out regime into a much tougher bail-in regime, and Austria has just thrown this into sharp relief,” said sovereign bond strategist Nicholas Spiro. The biggest bondholders are Deutsche Bank’s DWS Investment, Pimco, Kepler-Fonds and BlackRock. The World Bank also owns €150bn of Hypo debt.

Austria’s banking regulators surprised markets by intervening over the weekend to wind down Heta and suspend debt payments until 2016 after discovering a further shortfall in capital of €7.6bn. The surge in the Swiss franc in January after the collapse of Switzerland’s currency floor against the euro appears to have been the last straw, setting off another wave of likely losses from eastern European mortgages denominated in francs. “This is getting bigger and bigger,” said Marc Ostwald from Monument. “They kept kicking the can down the road but it is finally catching up with them, and Heta won’t be the last. There is a whiff of the Irish situation in this story. Carinthia stood as guarantor for debts that it could not possibly cover,” he said. There are many regions that could slide into difficulties, including Belgium’s Wallonia, or the Italian region of Sicily.

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Of course it should. Everyone should.

Shelby Says Fed Should Be Held Accountable for Its Actions (Bloomberg)

Richard Shelby, the Alabama Republican who heads the Senate Banking Committee, said lawmakers should consider ways to overhaul the Federal Reserve’s structure and tighten oversight by Congress. “We will further explore options to improve the oversight and structure of the Fed,” Shelby said Tuesday in prepared remarks at a hearing. Arguing the Fed has failed to explain the impact of its extraordinary monetary policies, he said it should “be held accountable for its actions.” Sherrod Brown of Ohio, the committee’s senior Democrat, said the group should focus on the Fed’s governance, not monetary policy. “Rather than attempting to interfere in, or even dictate, monetary policy, Congress should focus on whether the Federal Reserve is protecting consumers, ensuring safety and soundness, and strengthening the financial stability of our economy,” he said.

The Fed is under pressure from both parties in Congress to be more transparent and accountable. Republicans are unhappy with its aggressive monetary policy and some of the regulatory powers it has gained since the financial crisis. Democrats have criticized the New York Fed for being too close to the big Wall Street banks that it oversees. “Federal Reserve officials have stressed the importance of the Fed’s independence,” Shelby said in prepared remarks. “But, such independence does not mean that it is immune from congressional oversight.” Shelby said last week at Bloomberg TV that he’s looking “very strongly” at a proposal from Dallas Fed President Richard Fisher to strip the New York Fed of its permanent vote on the Federal Open Market Committee in favor of an equal vote rotation among all 12 regional reserve banks.

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Sure.

Yellen Says Fed Seeks to Avert ‘Capture’ by Banks It Oversees (Bloomberg)

Fed Chair Janet Yellen, countering criticism from members of Congress, said the central bank is trying to avoid being too cozy with the Wall Street firms it supervises and wants to ensure that regulators aren’t afraid to confront the financial industry. “The risk of regulatory capture is something the Federal Reserve takes very seriously and works very hard to prevent,” Yellen said in remarks prepared for a speech in New York on Tuesday night. “It is important that anyone serving the Fed feel safe speaking up when they have concerns about bias toward industry, and that those concerns be addressed.” The Fed has been criticized by Democratic lawmakers, including Senator Elizabeth Warren, who say it’s deferential to large banks. The issue was the subject of a Senate hearing in November following allegations by Carmen Segarra, a former examiner at the Fed of New York, who said her colleagues had been too soft on Goldman Sachs.

At the hearing, Warren told New York Fed President William C. Dudley that he needs to fix a “cultural problem” or “we need to get someone who will.” The Fed has also come under fire from Republicans, including Richard Shelby of Alabama, the Senate Banking Committee chairman, who called for more Fed transparency and greater congressional oversight at a hearing Tuesday. Yellen, in her speech to the Citizens Budget Commission, also took aim at ethical lapses at large banks supervised by the Fed. “We expect the firms we oversee to follow the law and to operate in an ethical manner,” she said. “Too often in recent years, bankers at large institutions have not done so, sometimes brazenly.” Such incidents “raise legitimate questions of whether there may be pervasive shortcomings in the values of large financial firms that might undermine their safety and soundness,” she said.

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Pensions and low rates. A poisonous combination.

Draghi’s Rescue Plan Has Created a $103 Billion Problem (Bloomberg)

There’s a corner of the pension world that needs to brace itself for Mario Draghi. His ECB’s €1.1 trillion bond-buying plan might have already blown a €92 billion hole in defined-benefit pension plans by depressing bond yields, Standard & Poor’s said Feb. 26. And if the actual start of QE pushes yields further, for longer, companies may have to take drastic measures to make ends meet, and could face a hit to their credit ratings. The ECB is expected to announce further details of its asset-purchase program after it meets in Cyprus Thursday. S&P estimates that the anticipation of quantitative easing in Europe squashed bond yields so much that the liabilities of defined-benefit pension plans rose by up to 18% last year.

Its analysis looked at the top 50 European companies it rates that have defined-benefit pension plans and are “materially underfunded,” meaning, the plans have deficits of more than 10% of adjusted debt, and that debt is more than 1 billion euros. In 2013, liabilities outstripped obligations for that group by more than 30% on average. “The challenge for companies in coming years will be how to rein in plan deficits in the new post-QE low interest-rate environment in Europe,” Paul Watters, credit analyst at S&P, said in a statement. “This will become a more material credit consideration where defined-benefit plan deficits are significant.”

Among the measures S&P says companies may have to take to adjust to this new low-yield world are freezes on pensionable salaries, raising the retirement age, and closing plans to new or even to existing members.vAnd that’s not the end of it. A potential cocktail of low bond yields, sluggish growth and faster inflation, which could result if QE fails to kickstart activity, could push those deficits out a further 10-15%. “The risk remains that QE achieves nothing more than promoting stagflation in the euro area,” Watters said. “A combination of weak growth, inducing the ECB to continue with its aggressive monetary-policy stance, and rising inflation would be a treacherous combination for DB-pension schemes already struggling to contain their plan deficits.”

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” I realized I could afford to pay my children’s university expenses or my loan. I chose my kids and no one can blame me.”

ECB Glimpse of Cyprus Debt Mountain Shows Limits of Bank Cleanup (Bloomberg)

There was a time when a Cypriot on a moderate income could take a gamble on foreign real-estate worth more than his life savings. One banking crash, three and a half years of recession and an international bailout later, 58-year-old Stelios Charalambous is among the Mediterranean island nation’s many debtors who realize that time has passed. “I took a €70,000 loan six years ago from a cooperative bank in the days when no one asked you many questions, and I bought six plots of land in Romania,” the Nicosia-based chiropractor said in an interview. “Now I’m earning half what I was and no one wants to buy my Romanian land. I realized I could afford to pay my children’s university expenses or my loan. I chose my kids and no one can blame me.”

The ECB, which holds a policy meeting in the euro area’s easternmost capital on Thursday, cares about such cases as they add up to almost €900 billion of soured credit in the region and hobble lenders’ ability to serve the economy. Yet Cyprus, where non-performing exposures account for more than half the country’s loan-book, also shows how politics can get in the way of a cleanup. The nation made euro-era history in March 2013 when it imposed capital controls for the first, and so far only, time in the single currency’s existence. The measures came alongside a €10 billion rescue led by the euro area, the merger of the country’s two largest lenders, and the seizure of almost half the savings of some 21,000 customers.

The crisis gave birth to a new class of individuals and small businesses that could not, or would not, service their debt, turning Cyprus into the country with the highest bad-debt ratio in the currency bloc. That meant banks had to tie up large chunks of their capital in loss provisions instead of making fresh loans to companies and households. To relieve the blockage, a new foreclosure law enabling banks to seize property from defaulters was introduced in 2014, only to be held up repeatedly by opposition politicians nervous of the impact on businesses and families. Implementation – and the disbursement of further bailout funding which is contingent on the law – is still pending. The economic slump and legal uncertainty created a “perfect storm” for the banks, Euan Hamilton at Bank of Cyprus said.

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“Never before have speculators been gifted with such stupendous, easily harvested windfalls. And these adjectives are not excessive.”

$2 Trillion Euro Government Bonds Trading At Negative Yield (David Stockman)

That investors anywhere in this age of fiscal profligacy would pay to own the notes and bonds of sovereign states is a testament to the financial deformations of modern central banking. But the fact that nearly $2 trillion of debt issued by European governments is currently trading at negative yields——now that’s a flat-out derangement. After all, the aging, sclerotic economies of the EU have been making a bee line toward fiscal insolvency for most of the last decade. So it goes without saying that this giant agglomeration of pay-to-own government debt is not reflective of an outbreak of fiscal rectitude or any other rational economic development.

It’s purely an artificial trading result stemming from central bank destruction of every semblance of honest price discovery. In this case, the impending ECB purchase of $70 billion of government debt and other securities per month for the next two years has transformed the financial casinos of Europe and elsewhere into a front runner’s paradise. As today’s Bloomberg piece tracking Europe’s $2 trillion of exuberant irrationality makes clear, sovereign bond prices are soaring because traders are accumulating, not selling, in anticipation of the ECB’s big fat bid hitting the market in the weeks ahead:

“It is something that many would not have pictured a year ago,” said Jan von Gerich at Nordea Bank in Helsinki. “It sounds very awkward in a sense, but if you look at it more, the central bank has a deposit rate in negative territory, and there’s a huge bond-buying program coming. People are holding on to these bonds and so you don’t have many willing sellers.”

Needless to say, this is the opposite of at-risk price discovery; it amounts to shooting fish in a barrel. Never before have speculators been gifted with such stupendous, easily harvested windfalls. And these adjectives are not excessive. The hedge fund buyers who came to the game early after Draghi’s “anything it takes”ukase have enjoyed massive price appreciation, but have needed to post only tiny slivers of their own capital, financing the balance at essentially zero cost in the repo and other wholesale funding venues. Indeed, the more risk, the bigger the windfall. German yields have now been driven below the zero bound on all maturities through seven years, emboldening speculators to move out on the risk curve. So doing, they have gorged on peripheral nation debt and have been generously rewarded. In the case of the 10-year bond of Ireland – a state which was on the edge of bankruptcy only a few years ago – leveraged speculator gains are now deep into three figures.

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“March is sorted.”

Greece Taps Public Sector Cash To Help Cover March Needs (Reuters)

Greece is tapping into the cash reserves of pension funds and public sector entities through repo transactions as it scrambles to cover its funding needs this month, debt officials told Reuters on Tuesday. Shut out of debt markets and with aid from lenders frozen, Athens is in danger of running out of cash in the coming weeks as it faces a €1.5 billion loan repayment to the IMF this month. The government has sought to calm fears and says it will be able to make the IMF payment and others, but not said how. At least part of the state’s cash needs for the month will be met by repo transactions in which pension funds and other state entities sitting on cash lend the money to the country’s debt agency through a short-term repurchase agreement for up to 15 days, debt agency officials told Reuters. However, one government official said they could not be used to repay the IMF unless Athens was able to repay the state entities the cash it borrowed from them.

Debt officials sought to play the repos as advantageous for both sides, arguing that the funds get a better return on their cash than what is available in the interbank market. “It is not something new, it’s a tactic that started more than a year ago and is a win-win solution. It’s a proposal, we are not twisting anyone’s arm,” one official said. In such repo transactions, a pension fund or government entity parks cash it does not immediately need at an account at the Bank of Greece, which becomes the counterparty in the deal with the debt agency. The money is lent to the debt agency for one to 15 days against collateral – mostly Greek treasury paper held in its portfolio – and is paid back with interest at expiry. The lender can always opt to roll over the repurchase agreement and continue to earn a higher return than what is available in the interbank market.

One source familiar with the matter has previously said Athens could raise up to €3 billion through such repos, but that it was not clear how much of that had already been used up by the government. “There is a sum that has already been raised this way,” the debt official said without disclosing specific numbers. Athens – which has monthly needs of about €4.5 billion including a wage and pension bill of €1.5 billion – is running out of options to fund itself despite striking a deal with the euro zone to extend its bailout by four months. Faced with a steep fall in revenues, it is expected to run out of cash by the end of March, possibly sooner, though the government is trying to assure creditors it will not default. “We are confident that the repayments will be made in full, particularly to the IMF, and there will be liquidity to get us through the end of the four-month period,” Finance Minister Yanis Varoufakis said on Greek TV on Monday. “March is sorted.”

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Of course not. Only the north can, at the cost of the south.

Can Greece Really Thrive Inside the Euro? (George Magnus)

After a lot of hubbub, in the end the Greek government submitted a list of policy proposals that elicited a positive response from Brussels, judging them to be “sufficiently comprehensive” to permit the four-month extension of the existing loan arrangements until June. The responses from the IMF and the ECB were rather more circumspect, indicating strongly that the next four months of negotiations to determine Greece’s relationship with the Eurosystem will be tough and most probably tense. The IMF noted that the Greek government’s “policy parameters” didn’t go far or weren’t detailed enough, especially about VAT and pension reforms, privatizations and policies to open up closed sectors, including the labor market. The ECB urged the Greek authorities to act swiftly to “stabilize the payments culture and refrain from any unilateral action to the contrary.”

This is believed to refer to matters such as Greek regulations on mortgage foreclosures and to tax and payments arrears in public policy. The “deal” between Greece and its Eurogroup partners has been widely welcomed, and spun according to what people thought would or should happen. I think that the current “deal” is just Act I in a play with an unpredictable, but very likely bad, ending — where “bad” equals Euro system fragmentation, or Grexit, if you prefer. (Or the even tonier “Grexident.”) I think it’s fair to say that however people judge the deal and what they think is good or positive about it from Greece’s point of view is really about one thing only: relief that the integrity of the Eurosystem has been preserved. That is some achievement, given that it looked as though it might not happen. Now, the hope (rather than conviction) prevails that the upcoming negotiations will see a realignment of interests and trust between Greece and its creditors.

Well, who wouldn’t wish for such an outcome? The problem though, as I see it, is that the economic and social policy agenda on which Syriza scored such a stunning electoral victory is entirely appropriate for Greece, but wholly incompatible with a Eurosystem that I call colloquially, Teutonia. While Teutonia normally refers to the geography of Germany or parts of Northern Europe, I use it to connote a German culture in economics and finance. In Teutonia, Germany doesn’t always win all the arguments, nor does it or can it impose a policy agenda by diktat. But in the absence of political and fiscal union – of which none of the major countries is in favor – the terms of the (narrow) monetary union will always reflect largely the interests of Germany and a relatively orthodox financial establishment viscerally opposed to the establishment of a genuine transfer, joint liability union.

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“Given the overriding political resolve to keep Greece in the eurozone, above all because the precarious geopolitics of southeast Europe, some form of compromise is likely here, too.”

ECB Will Need More Creative Accounting To Deal With Greece (MarketWatch)

The ECB faces pressure to carry out a new feat of creative accounting to meet Greek Finance Minister Yanis Varoufakis’s request for renegotiation of €6.7 billion in ECB bonds due to mature in July and August. In a round of interviews, Varoufakis has pledged that his country will make repaying its debts to the IMF its main priority. About €2 billion needs to be repaid to the Fund this month. But the Greek minister has drawn a strong distinction with the ECB, making it likely that the central bank may have to bring in further conditionality into its traditional insistence that it should always be treated as a preferred creditor on a par with the IMF.

Leading European politicians have long claimed that the ECB will have to show flexibility in rolling over some of the total of €30 billion in Greek bonds it still holds in its portfolio, resulting from its efforts started in 2010 to prop up weaker members of the euro. Further bruising tussles between Greece and its creditor look inevitable in view of the deliberate ambiguity the Greek government built into the provisional agreement with creditors clinched last month after several finance minister sessions in Brussels. Speaking in Berlin on Monday, German Chancellor Angela Merkel said Greece would have to make its reform proposals more specific and agree to the program with the “three institutions” (formerly called “the troika”) of the European Commission, the ECB and the IMF.

Similarly, Jeroen Dijsselbloem, the Dutch finance minister who heads the euro finance ministers’ group, says Greece must immediately start adopting the creditors’ list of reforms, as a condition for gaining access to emergency funds needed to meet March cash deadlines. There is little doubt that, provided Europe’s main capitals give political backing to the still-ambivalent Greek reform approach, the ECB will bend to the politicians’ will — even though it will face further charges of a watering down of its constitutional independence. The Greek government is calling for concessions such as the lifting of a €15 billion ceiling on the issue of short-term treasury bills. Given the overriding political resolve to keep Greece in the eurozone, above all because the precarious geopolitics of southeast Europe, some form of compromise is likely here, too.

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“Greece’s economy minister vowed to cancel the Piraeus deal and pursue sweeping changes to the terms of already completed sales. Defending his government’s stance, Yanis Varoufakis claims there is enough “creative ambiguity” in the text submitted to Brussels to provide enough wiggle room for Syriza to re-open the question of the sale of Piraeus and Greece’s airports..”

Greece vs Europe: Who Blinked First In The Bail-out Battle? (Telegraph)

The Greek parliament will not be voting on the country’s bail-out extension. Following internal turmoil among the ruling Syriza party over the terms of the reprieve, the Greek legislature will only be given the chance to “debate”, rather than officially ratify, the four-month extension. In an ironic twist of the EU’s democratic procedures, Greece’s 18 fellow eurozone parliaments will still need to rubber-stamp the deal. The move has prompted some to ask whether this represents Syriza’s “worst capitulation” in an already protracted and strained series of negotiations with its international creditors. Last week, Athens drew up a series of reforms in return for the remaining €7.2bn it needs to complete its bail-out programme.

At the time, finance minister Yanis Varoufakis insisted the country had become the “co-author of its own destiny” rather than the subject of EU diktats. But dissent among Syriza’s more Leftist elements started bubbling from the onset. Syriza MP and London-based academic Costas Lapavitsas has dismissed the deal as one agreed under “economic duress”. The nascent anti-austerity government now faces a four-week race to draft legislation and pass the laws that will see it come good on its promises. Only then will Greece’s creditors decide whether or not to disburse the vital cash the country needs to say afloat until June. But what exactly has Athens signed up for and could domestic political wranglings now put a brake on the country’s bid to avert bankruptcy?

One of the cornerstones of Syriza’s plans to end Greece’s “ritual humiliation” has been an increase in the country’s minimum wage. In a vociferous speech to his parliament last month, Prime Minister Alexis Tsipras repeated his promise to raise the minimum wage by around 10pc to €750-a-month. Of the 22 EU member states with a national minimum wage, Greece is the only country that has seen its fall since the financial crisis. The country’s nominal gross wage is now 14pc lower compared to 2008, as Greece has undergone a progressive reduction in its labour costs in a bid to restore competitiveness in the stricken economy. The current €684-a-month puts Greece between its Iberian counterparts, both of whom have seen a steady rise in their mandated wage floors over the last seven years: Spain’s minimum wage has risen 8pc, while Portugal’s has gone up by 19pc.

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If they refuse the proposals, Syriza may throw the towel.

Athens Preparing Reform Proposals For Eurogroup (Kathimerini)

A collection of reform proposals are being put together by the government so Finance Minister Yanis Varoufakis can present them at Monday’s Eurogroup, with Athens hoping that this will help it secure part of the remaining €7.2 billion in bailout installments. Government sources said on Tuesday night that the six proposals Varoufakis is due to present will be measures to tackle the humanitarian crisis, administrative reform, a new scheme to settle overdue debts to the state, changes to tax collection, the creation of a fiscal council (a nonpartisan body to monitor and advise on fiscal policy) and the setting up of a new body for targeted tax inspections. The measures are due to be put forward at the Euro Working Group on Wednesday or Thursday but the Greek government is hoping that eurozone finance ministers will deem the proposals enough to pave the way for the release of some funding to Athens within March.

Varoufakis is also likely to be prepared to discuss with his counterparts what privatizations the government is willing to carry out. The finance minister said in an interview on Star TV on Monday night that he is in favor of further private investment at Piraeus port and in the Greek railway network. State Minister Alekos Flambouraris said on Tuesday that the coalition would not consider selling the country’s water or electricity firms. The preparation for Monday’s Eurogroup has led to the government making changes to some of the legislation it had planned. For instance, the provision for giving debtors a haircut on the principal they owe to the state has been removed from the legislation introducing a new payment plan for overdue taxes and social security contributions.

There is even a possibility that the dreaded ENFIA property tax will remain for another year, albeit reduced by 15 to 20%. The government wants to replace it with a levy on large property but will need to ensure it can raise revenues of €2.6 billion to do so. A new formula has not been found yet. The coalition has, however, finalized the legislation aimed at tackling the social impact of the crisis. The bill foresees households in “extreme poverty” receiving free electricity for a year. This is estimated to affect 150,000 families. The draft law also provides a rent subsidy of between €70 and €220 per month for up to 30,000 households. Furthermore, food coupons will be provided to up to 170,000 families. The total cost of these interventions is estimated at €200 million.

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This is going to hurt. A lot.

Oil at $95 a Barrel Discovered in SEC Rules on Reserves (Bloomberg)

There’s one place in the world where oil is still $95 a barrel. On paper. The US Securities and Exchange Commission requires drillers to calculate the value of their oil reserves every year using average prices from the first trading days in each of the previous 12 months. Because oil didn’t start its freefall to about $45 till after the OPEC meeting in late November, companies in their latest regulatory filings used $95 a barrel to figure out how much oil they could profitably produce and what it’s worth. Of the 12 days that went into the fourth-quarter average, crude was above $90 a barrel on 10 of them. So Continental Resources reported last month that the present value of its oil and gas operations increased 13% last year to $22.8 billion. For Devon, a pioneer of hydraulic fracturing, it jumped 31% to $27.9 billion.

This year tells a different story. The average price on the first trading days of January, February and March was $51.28 a barrel. That means a lot of pain – and writedowns – are in store when drillers’ first-quarter numbers are announced in April and May. “It has postponed the reckoning,” said Julie Hilt Hannink at New York-based CFRA, an accounting adviser. Companies use the first-trading-day-of-every-month calculation to estimate future cash flow and to tally how much crude can be profitably pumped out of the ground. The SEC introduced the formula in 2009 as part of wider changes in how the regulator required drillers to report reserves. Prior to the shift, the value of the reserves was measured based on the oil price on the last day of the year, which also caused distortions. There are no current plans to revisit or modify SEC reporting rules, Erin Stattel, an SEC spokeswoman, said.

Most shale drillers are reporting increases in what’s known as proved reserves. The SEC requires oil producers to submit an annual tally, along with an estimate of the present value of the future cash flow from those properties. The estimates are limited to what the firm is reasonably certain it can extract from existing wells and prospects scheduled to be drilled within five years. The reports are based on factors such as geology, engineering, historical production – and price. To count as proved, the resources must be economic to develop given existing market conditions. “What the SEC requires isn’t thorough enough to get to the numbers investors really want,” said Mike Kelly with Global Hunter Securities. “What is the true cost of producing a barrel of oil? And what is the real value of the assets?” A similar pricing formula helps determine whether some companies need to write off their oil and gas properties.

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Keep going.

The Latest Sign the Oil-Price Plunge Is Hitting the Job Market (Bloomberg)

As investors prepare for the release of the February U.S. employment data on Friday, we’re getting more inklings of how the shakeout in the oil industry will impact the jobs market, and it doesn’t look great: Demand for workers in energy-related occupations is plunging. Online help-wanted ads for jobs involved in the extraction of oil and gas – derrick operators, wellhead pumpers, roustabouts and the like – declined 42% in the two months through January as oil prices cratered, according to data compiled by the Conference Board and Wanted Technologies.

Occupations in the industry that have higher education requirements, such as petroleum engineers, geoscientists and technicians, also saw demand for their services collapse, with ads dropping 38%, Gad Levanon and his fellow researchers at the Conference Board wrote on their blog this week. The downbeat message from the online ad postings echoes that of a report last month by global outplacement firm Challenger, Gray & Christmas, which showed that 38% of announced job cuts in January were in the energy industry. As we noted last month, employment in oil and gas extraction and related supply industries doubled over the last decade, reaching some 523,500 workers. If the Conference Board and Challenger data are anything to go by, that trend is likely to reverse big-time this year.

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Nice graphics.

Wall Street Has Its Eyes on Millennials’ $30 Trillion Inheritance (Bloomberg)

There have been any number of pieces written about how the millennial generation is consciously refusing to do things that preceding generations thought were perfectly reasonable, such as playing golf or investing in the stock market or even doing a SINGLE NICE THING for someone else! This seems to have caused some consternation on Wall Street, where the powers-that-be would obviously like to see millennials do at least one nice thing for them: hand over all their money. But have no fear, because Wall Street is ON IT! Financial firms are working hard to solve the Rubik’s Cube (err, sorry the 2048) that is the Gen Y zeitgeist, if recent reports from Federated Investors and Goldman Sachs are any indication. Based on the research, here are the highlights of what you need to know about this enigmatic generation: They like skinny ties and skinny jeans and, based on the way these firms are presenting these findings, they seem to only be reachable through cartoon-like graphics and animation.

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“If Japan can’t get its finances under control, people are going to start questioning what exactly the difference between Japan and Greece is.”

Japan Public Debt Keeps BNP Chief Credit Analyst Awake at Night (Bloomberg)

For most of her career, Mana Nakazora has taken a pre-dawn train to work regardless of whether she arrived home just hours earlier. Her colleagues describe BNP Paribas’s Tokyo head of investment research as a powerhouse, and she was Japan’s No. 1 bond picker from 2010 to 2012 and No. 2 for the last two years in Nikkei Veritas newspaper polls. Making it to the top in an industry whose corporate bond sales exceeded $70 billion last year can be tough. “I usually get home on average at about midnight, sometimes it can be 2 a.m.,” Nakazora said in an interview at BNP’s Tokyo offices on the 42nd floor overlooking the nation’s parliament and Imperial Palace. “I get up at 5 a.m., so I don’t sleep much. It has been like that forever.”

One thing keeping her up – analysis of Japan’s public debt, which is expected to climb to 1.06 quadrillion yen ($8.85 trillion) at the end of March. With a population that’s been shrinking for the past six years and annual debt servicing costs that are bigger than New Zealand’s gross domestic product, the world’s third-largest economy is quite simply running out of people who can pick up the tab. “Maybe there’s no point in throwing stones at this huge rock, but if you keep hurling just maybe you can open up a crack,” said Nakazora, who also sits on two government panels including the finance ministry’s fiscal system council that advises on budgetary rectitude. “If Japan can’t get its finances under control, people are going to start questioning what exactly the difference between Japan and Greece is.”

With unprecedented central bank stimulus compressing debt yields, Nakazora said she likes SoftBank’s bonds, which offer investors more than five times the average spread Japanese notes pay. She also recommends the debt of TEPCO, operator of the tsunami-hit Fukushima power plant, but is no longer a fan of Sony debentures because the jury’s still out on whether the electronics maker can revive its fortunes. Nakazora also doesn’t favor the delay in Japan’s sales tax increase. Prime Minister Shinzo Abe in November postponed raising the levy to 10% by 18 months after an increase to 8% from 5% in April plunged the economy into a recession. Japan’s debt will rise to the equivalent of 246% of GDP this year, one of the highest ratios in the world, the IMF forecasts.

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That’s what the US is waiting for.

Ukraine Looks Ready To Default (MarketWatch)

The conflict in the Ukraine is relevant to global investors as it directly affects security in Europe, which is the home of an economy the size of the U.S. The trade bans due to conflict-driven sanctions involve many countries and add to the European deflation at present. Those trade bans might get wider should the conflict intensify based on the realization that a political solution would not give the rebels and their Russian backers what they want — enough autonomy to keep Ukraine out of the EU and NATO. I do not follow this conflict to determine who is right or wrong but to gauge how it affects financial markets.

Most of my conclusions may seem relevant only to institutional investors that deal in currencies, sovereign bonds, credit-default swaps (CDSs), and the energy markets, but I do believe those geopolitical developments affect quite a few individual investors, even those in the U.S. Last week the Ukrainian truce barely took hold when fighting over the strategic Ukrainian town of Debaltseve, which controls rail lines linking Luhansk and Donetsk, threatened to unravel the ceasefire agreement. The rebels decided to take the town “no matter what,” as a prolonged truce made it necessary for them to control logistics in their territory. It has been clear for a long time that Ukraine is a divided country where half the population supports the rebels and the other half supports the government in Kiev — as demonstrated by this map of the 2010 election, which brought Yanukovych to power.

This map also suggests this conflict can quickly carry all the way to Odessa, which Russian ruler Catherine the Great (1729-1796) turned into a key trading hub for the Russian Empire. There is also an unhappy minority of Russians in a strip of Moldova adjacent to Ukraine, where Russian peacekeepers have been stationed for years. It is entirely possible they see this conflict as the opportunity to resolve their situation once and for all. Perhaps because of all of the above considerations, Ukrainian government bonds are at all-time lows. When such a bear market in credit gets to prices like 44 cents on the dollar, this is the bond market saying that Ukraine will likely default.

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Done deal.

Ukraine Raises Interest Rates To 30% (BBC)

Ukraine’s central bank has sharply raised interest rates from 19.5% to 30% in an effort to curb inflation and prop up its beleaguered currency. The new benchmark refinancing rate takes effect on Wednesday. It comes as the government in Kiev is seeking a $17.5bn assistance programme from the IMF. Inflation is expected to hit at least 26% this year and the hryvnia has tumbled against the dollar. The currency has lost 80% of its value since last April, when pro-Russian separatists took up arms in the country’s eastern Donetsk and Luhansk regions, a month after Russia annexed Ukraine’s southern Crimea peninsula. Last week, the hryvnia hit a record low of 33.75 to the dollar before recovering some ground.

The conflict has taken its toll on Ukraine’s economy, which is forecast to shrink by 5.5% in 2015. The interest rate increase is the second in two months, after the central bank raised the rate from 14% in February. On Monday night, Ukraine’s parliament approved a package of reforms that could determine whether it will avoid economic meltdown in the coming weeks. They include changes to the tax and energy laws and the government’s budget. The passing of the reform package was a condition for the IMF rescue package. The IMF’s executive board will meet on 11 March, when it will make its decision. If it says yes, the first tranche of some $5bn will become available within days.

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Not a single doubt.

Financial Collapse Leads To War (Dmitry Orlov)

Scanning the headlines in the western mainstream press, and then peering behind the one-way mirror to compare that to the actual goings-on, one can’t but get the impression that America’s propagandists, and all those who follow in their wake, are struggling with all their might to concoct rationales for military action of one sort or another, be it supplying weapons to the largely defunct Ukrainian military, or staging parades of US military hardware and troops in the almost completely Russian town of Narva, in Estonia, a few hundred meters away from the Russian border, or putting US “advisers” in harm’s way in parts of Iraq mostly controlled by Islamic militants. The strenuous efforts to whip up Cold War-like hysteria in the face of an otherwise preoccupied and essentially passive Russia seems out of all proportion to the actual military threat Russia poses. (Yes, volunteers and ammo do filter into Ukraine across the Russian border, but that’s about it.)

Further south, the efforts to topple the government of Syria by aiding and arming Islamist radicals seem to be backfiring nicely. But that’s the pattern, isn’t it? What US military involvement in recent memory hasn’t resulted in a fiasco? Maybe failure is not just an option, but more of a requirement? Let’s review. Afghanistan, after the longest military campaign in US history, is being handed back to the Taliban. Iraq no longer exists as a sovereign nation, but has fractured into three pieces, one of them controlled by radical Islamists. Egypt has been democratically reformed into a military dictatorship. Libya is a defunct state in the middle of a civil war. The Ukraine will soon be in a similar state; it has been reduced to pauper status in record time—less than a year. A recent government overthrow has caused Yemen to stop being US-friendly.

Closer to home, things are going so well in the US-dominated Central American countries of Guatemala, Honduras and El Salvador that they have produced a flood of refugees, all trying to get into the US in the hopes of finding any sort of sanctuary. Looking at this broad landscape of failure, there are two ways to interpret it. One is that the US officialdom is the most incompetent one imaginable, and can’t ever get anything right. But another is that they do not succeed for a distinctly different reason: they don’t succeed because results don’t matter. You see, if failure were a problem, then there would be some sort of pressure coming from somewhere or other within the establishment, and that pressure to succeed might sporadically give rise to improved performance, leading to at least a few instances of success.

But if in fact failure is no problem at all, and if instead there was some sort of pressure to fail, then we would see exactly what we do see. In fact, a point can be made that it is the limited scope of failure that is the problem. This would explain the recent saber-rattling in the direction of Russia, accusing it of imperial ambitions (Russia is not interested in territorial gains), demonizing Vladimir Putin (who is effective and popular) and behaving provocatively along Russia’s various borders (leaving Russia vaguely insulted but generally unconcerned).

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The level of absurdity is stunning.

NATO Rolls Out ‘Russian Threat’ In Budget Battle (RT)

NATO member-states unwilling or unable to help boost the military spending are being accused of ignoring the “Russian threat,” that has re-emerged as the core of the alliance’s agenda to boost arms sales. A report saying one of major NATO funding contributors, the UK, could fail to fulfil the commitment to spend 2% of its GDP on the alliance in 2015 came as a bombshell for some of the West’s military elite. The head of the US army, General Raymond Odierno, told the Telegraph he was “very concerned” about Britain’s possible defense cuts. “[Odierno] warned that, while the US was willing to provide leadership in tackling future threats, such as Russia and ISIL [the Islamic State, aka IS or ISIS], it was essential that allies such as Britain played their part,” the British daily wrote.

Former MI6 chief, Sir John Sawers, called for a rise in defense spending, also mentioning the “threat” coming out of Russia “not necessarily directly to the UK, but to countries around its periphery.” “The level of threat posed by Moscow has increased and we have to be prepared to take the defensive measures necessary to defend ourselves, defend our allies – which now extend as far as the Baltic States and Central Europe,” Sawers said, according to the Guardian. In turn, Moscow said it will take all “necessary measures” including military, technical and political to neutralize a possible threat from NATO presence in Eastern Europe, Russia’s ambassador to NATO, Aleksandr Grushko, told the Rossiya 24 TV channel on Monday. He added NATO’s actions “significantly impair regional and European security, and pose risks to our security.”

Grushko said NATO has intensified its military drills in Eastern Europe, with about 200 exercises in its eastern member states, mostly in the Baltic and Black seas, Poland and Baltic states. Russia’s Defense Ministry has consistently denied all reports of its personnel or hardware being involved in the conflict in eastern Ukraine, calling NATO’s allegations “groundless.” Among “proof” of the “Russian aggression” there have been fake photos of the Russian tanks, which eventually turned out to have been taken in a different place at a different time, a supposed Russian airplane in British airspace, that turned out to be Latvian, and mysterious “Russian submarines” in Swedish waters – which never were found. “Demonizing” Russia plays well into the hands of the military, believes former NATO intelligence analyst, Lt Cdr Martin Packard.

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On their way to your dinner plate.

Massive Swarms of Jellyfish Wreak Havoc on Fish Farms, Power Plants (Bloomberg)

As the oceans get warmer, jellyfish are causing pain beyond their sting. The marine animals have shut power plants from Sweden to the U.S. while killing thousands of farmed fish in pens held off the U.K. coast. GPS devices normally used to track the behavior of house cats were attached to 18 barrel-jellyfish off the coast of northern France. The study upended previous assumptions about their movement. Climate change may be one reason more jellyfish are congregating in large numbers known as blooms, which can encompass millions of the creatures over tens of kilometers.

Researchers are seeking to develop a system, akin to weather forecasting, to help predict their movement and prevent fish deaths, such as the loss of 300,000 salmon off Scotland last year, or power outages that shut a Swedish nuclear plant in 2013. “Jellyfish blooms may be increasing as a result of climate change and overfishing,” Graeme Hays, the leader of the group from Deakin University in Australia and Swansea University in the U.K. that did the research, said by phone Jan. 28. “They have a lot of negative impacts – clogging power station intakes, stinging people and killing fish in farms.” The study was conducted in 2011 with results published online in January by the journal Current Biology.

Hays plans to replicate the work in Tasmania, Australia, where salmon farming is an industry valued at about A$550 million ($430 million) a year. Combined land and ocean surface temperatures have warmed 0.85 of a degree Celsius since 1880, according to the IPCC. Global warming is “unequivocal” and many observed changes since the 1950s are “unprecedented over decades to millennia,” it said in a 2014 report. “Warmer water is a dream come true for jellyfish,” Lisa-ann Gershwin, a marine scientist who has studied the creatures for about 25 years and author of Stung!: On Jellyfish Blooms and the Future of the Ocean, said by phone Feb. 4. “It amps up their metabolism so they grow faster, eat more, breed more and live longer.”

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