Nov 242017
 
 November 24, 2017  Posted by at 9:50 am Finance Tagged with: , , , , , , , , ,  


Dorothea Lange Migrant agricultural workers in California 1935

 

The Party Is Over for Australia’s $5.6 Trillion Housing Frenzy (BBG)
The UK’s Future Economic Storm Just Got Worse (CNBC)
UK Consumer Confidence Hits Lowest Level Since Aftermath Of Brexit Vote (BBG)
After Sudden Rout, China Stock Traders Question Beijing Put
China Bank Profits Face Squeeze From Tighter Rules – Fitch (BBG)
China Reports Breaking Up Gang That Moved $3 Billion Abroad (AP)
Bitcoin Mining Now Consumes More Electricity Than 159 Countries (PCUK)
Mexico Revokes Monsanto Permit To Market GMO Soy In Seven States (R.)
Turkey, Iran, Russia and India are Playing the New Silk Roads (Escobar)
Greek PM Tsipras ‘Proud’ Of Living Conditions Of Refugees (K.)
Greece Vows Greater Effort To Protect Refugees Over Winter (AP)
Greek Pensioners March Against Government That ‘Took Everything’ (R.)

 

 

In case you were wondering just how big the bubble has become. Look at New Zealand too.

The Party Is Over for Australia’s $5.6 Trillion Housing Frenzy (BBG)

The party is finally winding down for Australia’s housing market. How severe the hangover is will determine the economy’s fate for years to come. After five years of surging prices, the market value of the nation’s homes has ballooned to A$7.3 trillion ($5.6 trillion) – or more than four times gross domestic product. Not even the U.S. and U.K. markets achieved such heights at their peaks a decade ago before prices spiraled lower and dragged their economies with them. Australia’s obsession with property is firmly entrenched in the nation’s economy and psyche, fueled by record-low interest rates, generous tax breaks, banks hooked on mortgage lending, and prime-time TV shows where home renovators are lauded like sporting heroes. For many, homes morphed into cash machines to finance loans for boats, cars and investment properties. The upshot: households are now twice as indebted as China’s.

So far, the Reserve Bank of Australia has relied on banking regulators to apply the brakes with lending curbs. It reckons the financial system is well-placed to withstand any shocks, but isn’t so confident on consumers. That puts it out of step with developed-world peers that are incrementally tightening policy, with Governor Philip Lowe this week making clear local interest rates aren’t going anywhere soon. To be sure, there are key dynamics that differentiate Australia’s housing boom with those that soured in recent years around the world. Aussie banks can claim against other income and assets or chase individuals into bankruptcy if borrowers default. Tax deductions for interest paid on investment loans also support demand, as does a rich pipeline of demand from Asian buyers, especially Chinese. But with prices in major cities like Sydney finally leveling off and a wave of new apartments about to hit markets in Brisbane and Melbourne, it’s worth taking a look at housing’s out-sized influence on Australia’s economy.

The weight of Australian homes on the economy is heavier than policy makers would like. On one hand, the dizzy valuations reflect a desirable location and strong population growth. But they also reflect the massive liabilities that are now tied to these assets. “The risk is that it leaves the Australian economy extremely exposed, and a minor shock could become far more significant,” said Daniel Blake, an economist at Morgan Stanley in Sydney.

The increasing treatment of housing as a financial commodity has seen borrowers rush into a byzantine maze of mortgage-related products. That’s made banks very profitable, but very exposed. While the RBA is satisfied that lenders have adequate buffers to cope with any downturn, banks may find it harder to value their collateral in a falling market as investors look to consolidate their portfolios of multiple homes, said Blake.

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Projecting until 2070 may not be the most useful exercise. The next 10 years is wobbly enough.

The UK’s Future Economic Storm Just Got Worse (CNBC)

Britons should better get used to austerity. Even though the U.K. government has mostly fixed its short-run fiscal problems caused by the global financial crisis, the long-run challenge of keeping fiscal policy on a sustainable path has grown even bigger, according to the latest economic projections published alongside Wednesday’s Autumn Budget. Over the medium term, U.K. fiscal policy looks to be heading towards calm waters. Combining the progress made under then-Finance Minister George Osborne from 2010 until early 2016 with the tax and spending plans announced on Wednesday by the incumbent Philip Hammond, will manage to get the annual fiscal deficit down from a peak of 8% of GDP in 2009 to less than 2.5% this year, and eventually to close to 1% by early next decade.

This should be enough for debt as a percentage of GDP to begin to fall gradually from around 87% of GDP from next year onwards into the 2020s. This is good news. But looking further out, U.K. fiscal policy appears to be heading towards a storm. Back in January, the Office for Budget Responsibility (OBR), the U.K.’s independent fiscal watchdog, projected that U.K. public debt will rise again from the 2030s onwards to nearly 250% of GDP by the 2070s. Rising health, state pension and long-term social care costs linked to demographic factors are likely to cause the fiscal deficit to surge again. U.K. public sector debt is projected to reach highs not seen since World War II. It gets worse. Keep in mind that the projections made in January assumed that productivity growth, the major determinant of economic growth, would average 2% per year into the long run.

Yesterday, the OBR downgraded this judgement to 1.3%. While productivity growth has declined across the advanced world in the past decade, the Brexit-stricken U.K. is suffering an extra hit by weakening the economic ties with its biggest market, the EU. In this new context, the earlier forecast that debt would rise to 250% of GDP within 50 years looks like a significant underestimate, to put it mildly. By reducing projected growth rates for wages and profits, the new lower outlook for trend productivity growth steepens the U.K.’s future fiscal hill. Unlike revenues from taxation, which mostly rise and fall in line with the rate of economic growth, future costs coming from the ageing population are independent of economic factors.

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Everyone can see the clowns in the news everyday.

UK Consumer Confidence Hits Lowest Level Since Aftermath Of Brexit Vote (BBG)

U.K. consumer confidence tumbled in November, reaching the lowest level since the aftermath of the Brexit vote. YouGov and the Centre for Economics and Business Research said optimism suffered its biggest monthly decline since the month after the referendum, with all eight measures that make up the index falling. The score for household financial situations in the past 30 days dropped to its lowest since January 2014, and a gauge of home owners’ expectations for values over the next 12 months slid to the least in a year following the Bank of England’s rate increase on Nov. 2. The report on Friday comes after official data this week highlighted the importance of consumers to the U.K. economy, as a jump in household spending offset slowing business investment and a drag from trade to drive a 0.4% expansion in the third quarter.

It also follows Chancellor of the Exchequer Philip Hammond’s announcement of a downgrade to the economic outlook as a result of a sluggish productivity and Brexit headwinds. Warnings of a consumer slowdown are coming ahead of the crucial Christmas shopping period as the squeeze on incomes from inflation continues. Figures last week showed retail sales fell in October from a year earlier, the first decline in more than four years. “Households are understandably worried.” said Christian Jaccarini, an economist at the CEBR. “The first interest-rate hike in over a decade triggered fears that higher borrowing costs will compound the inflation-induced squeeze on household incomes.”

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How do you go from running a casino to having actual stock markets?

After Sudden Rout, China Stock Traders Question Beijing Put

What happened to the Beijing put? That’s what investors in China are asking themselves after a gauge of large-cap stocks plunged 3% on Thursday, rattling a market that’s grown accustomed to state support when losses get extreme. While there were signs over the past week that the government was looking to cool gains in high-flying shares like Kweichow Moutai – along with concerns over rising corporate bond yields – the severity of Thursday’s slump caught some traders off guard. The biggest surprise was that losses accelerated into the close. The nation’s CSI 300 Index sank 52 points in the final 45 minutes of trading, the steepest afternoon decline since the depths of China’s stock market crash in January 2016. Such late-day selloffs have been rare this year, with the index rising an average 2.9 points.

While it’s unclear why state funds allowed shares to tumble this time, analysts said the episode may help wring some of the complacency out of China’s stocks. Before Thursday’s slump, the CSI 300 had climbed 28% this year to the highest level since July 2015. Margin debt, while still well below its bubble peak in 2015, has increased for six straight months. “Some investors might have been just taking profit in the morning, and that turned into a selling stampede in the afternoon,” said Wang Chen, Shanghai-based partner with XuFunds Investment Management Co. “Investments in blue chips were overcrowded, and a lot of them were bought with margin financing.”

[..] For Sun Jianbo, president of China Vision Capital Management, valuations among large-cap shares are too expensive for state-backed funds to intervene. The CSI 300 traded at its highest level relative to the broader Shanghai Composite Index in at least 12 years at the start of this week as investors flocked to large caps such as Moutai and Ping An Insurance. “There’s no need to prop up the market yet,” Sun said. “A lot of big caps are still expensive and it would do more harm than good to state-backed funds if they buy now.”

The divergence between large-cap shares and the rest of the market may be one reason why the government took aim at Moutai. Before Xinhua warned last week that gains in the liquor maker were excessive, the stock had more than doubled this year. Given that much of the gains in Chinese shares this year can be explained by improving earnings prospects, it’s likely that government’s bigger target is leverage, according to Ken Peng at Citi Private Bank in Hong Kong.

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Aimed at the shadows, but…

China Bank Profits Face Squeeze From Tighter Rules – Fitch (BBG)

Profit margins at Chinese banks will be squeezed next year and credit growth is likely to slow as increasing regulation eats up capital, Fitch Ratings said. The lending businesses of the country’s smaller banks face the most pressure and they will rely more on larger state-owned rivals for liquidity, the ratings company said in a statement Friday. At the same time, the shadow-banking sector, which one brokerage values at about $19 trillion, will attract even more regulatory scrutiny in 2018, Fitch said. Chinese regulators are sweeping through the country’s $40 trillion financial sector in a bid to contain risk after total debt ballooned to about 260 percent of the size of the economy. In the past week alone, they’ve proposed rules governing returns from asset-management products, laid out limits on bank shareholdings and unveiled a purge of cash micro-lenders.

“Credit growth is likely to decelerate next year, given the tighter regulatory stance,” Fitch said. “Funding conditions are likely to remain tight, pointing to continued margin pressure at smaller banks which rely more on non-deposit funding.” The predictions from Fitch and S&P Global Ratings on Thursday suggest the cost of the system-wide measures will be sluggish profit growth at domestic banks, which include Industrial & Commercial Bank of China, the world’s largest by assets. New rules pushing shadow-banking items back on to lenders’ balance sheets will lead to an increase in risk that could weigh on bank capital, Fitch said. Net income growth in the banking sector will remain in the “low single digits” in 2018, it said. The ratings company kept its outlook on Chinese banks at stable, saying sovereign support for the sector remains “very strong.”

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“..as many as 10,000 people might have been involved..”

China Reports Breaking Up Gang That Moved $3 Billion Abroad (AP)

Chinese police say they have broken up a gang that smuggled 20 billion yuan ($3 billion) out of the country, evading financial controls imposed by Beijing to stem an outflow of capital from the economy. Seven suspects were detained in the case centered in the southern city Shaoguan near Hong Kong but as many as 10,000 people might have been involved, the official Xinhua News Agency reported. Chinese authorities have steadily tightened foreign-exchange controls to stem a multibillion-dollar outflow of capital that they say hampers financial management in the world’s second-largest economy. The group in Shaoguan is accused of moving money illegally using 148 bank accounts opened in 20 provinces with stolen identity cards, according to Xinhua.

It said they made unspecified “huge profits” by trading on the difference in exchange rates between Hong Kong dollars and the mainland’s yuan. Beijing allowed an informal financial industry to flourish over the past two decades to support entrepreneurs but is tightening controls due to mounting concern about financial stability. Regulators are especially worried about unauthorized cross-border movement of money at a time when they are trying to stem an outflow of capital. Companies and investors rushed to export money after a change in the mechanism used to set the government-controlled exchange rate in 2015 prompted expectations the yuan would weaken in value. That forced the Chinese central bank to spend heavily to shore up the yuan.

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“In the past month alone, Bitcoin mining electricity consumption is estimated to have increased by 29.98%..”

Bitcoin Mining Now Consumes More Electricity Than 159 Countries (PCUK)

Bitcoin’s ongoing meteoric price rise has received the bulk of recent press attention with a lot of discussion around whether or not it’s a bubble waiting to burst. However, most the coverage has missed out one of the more interesting and unintended consequences of this price increase. That is the surge in global electricity consumption used to “mine” more Bitcoins. According to Digiconomist’s Bitcoin Energy Consumption Index, as of Monday November 20th, 2017 Bitcoin’s current estimated annual electricity consumption stands at 29.05TWh. That’s the equivalent of 0.13% of total global electricity consumption. While that may not sound like a lot, it means Bitcoin mining is now using more electricity than 159 individual countries. More than Ireland or Nigeria. If Bitcoin miners were a country they’d rank 61st in the world in terms of electricity consumption.

Here are a few other interesting facts about Bitcoin mining and electricity consumption:

• In the past month alone, Bitcoin mining electricity consumption is estimated to have increased by 29.98%
• If it keeps increasing at this rate, Bitcoin mining will consume all the world’s electricity by February 2020.
• Estimated annualised global mining revenues: $7.2 billion USD (£5.4 billion)
• Estimated global mining costs: $1.5 billion USD (£1.1 billion)
• Number of Americans who could be powered by bitcoin mining: 2.4 million (more than the population of Houston)
• Number of Britons who could be powered by bitcoin mining: 6.1 million (more than the population of Birmingham, Leeds, Sheffield, Manchester, Bradford, Liverpool, Bristol, Croydon, Coventry, Leicester & Nottingham combined) Or Scotland, Wales or Northern Ireland.
• Bitcoin Mining consumes more electricity than 12 US states (Alaska, Hawaii, Idaho, Maine, Montana, New Hampshire, New Mexico, North Dakota, Rhode Island, South Dakota, Vermont and Wyoming)

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Gracias Mexico.

Mexico Revokes Monsanto Permit To Market GMO Soy In Seven States (R.)

Monsanto said on Thursday that Mexico’s agriculture sanitation authority SENASICA had revoked its permit to commercialize genetically modified soy in seven states, criticizing the decision as unjustified. Monsanto said in a statement that the permit had been withdrawn on unwarranted legal and technical grounds. The company said it would take the necessary steps to safeguard its rights and those of farmers using the technology, but did not elaborate. Mexican newspaper Reforma cited a document saying the permit had been withdrawn due to the detection of transgenic Monsanto soya in areas where it was not authorized. Monsanto rejected that argument, saying in its statement that authorities had not done an analysis of how the soy on which their decision was based was sown. The revocation applies to the states of Tamaulipas, San Luis Potosi, Veracruz, Chiapas, Campeche, Yucatan and Quintana Roo and follows a 2016 legal suspension of the permit.

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China will build much of it all, but it won’t pay for it. It’s exporting a Ponzi.

Turkey, Iran, Russia and India are Playing the New Silk Roads (Escobar)

Vladimir Putin, Recep Tayyip Erdogan and Hassan Rouhani will hold a summit this Wednesday in Sochi to discuss Syria. Russia, Turkey and Iran are the three power players at the Astana negotiations – where multiple cease-fires, as hard to implement as they are, at least evolve, slowly but surely, towards the ultimate target – a political settlement. A stable Syria is crucial to all parties involved in Eurasia integration. As Asia Times reported, China has made it clear that a pacified Syria will eventually become a hub of the New Silk Roads, known as the Belt and Road Initiative (BRI) – building on the previous business bonanza of legions of small traders commuting between Yiwu and the Levant. Away from intractable war and peace issues, it’s even more enlightening to observe how Turkey, Iran and Russia are playing their overlapping versions of Eurasia economic integration and/or BRI-related business.

Much has to do with the energy/transportation connectivity between railway networks – and, further on the down the road, high-speed rail – and what I have described, since the early 2000s, as Pipelineistan. The Baku-Tblisi-Ceyhan (BTC) pipeline, a deal brokered in person in Baku by the late Dr Zbigniew “Grand Chessboard” Brzezinski, was a major energy/geopolitical coup by the Clinton administration, laying out an umbilical steel cord between Azerbaijan, Georgia and Turkey. Now comes the Baku-Tblisi-Kars (BTK) railway – inaugurated with great fanfare by Erdogan alongside Azerbaijani President Ilham Aliyev and Georgian Prime Minister Giorgi Kvirikashvili, but also crucially Kazakh Prime Minister Bakhytzhan Sagintayev and Uzbek Prime Minister Abdulla Aripov. After all, this is about the integration of the Caucasus with Central Asia.

Erdogan actually went further: BTK is “an important chain in the New Silk Road, which aims to connect Asia, Africa, and Europe.” The new transportation corridor is configured as an important Eurasian hub linking not only the Caucasus with Central Asia but also, in the Big Picture, the EU with Western China. BTK is just the beginning, considering the long-term strategy of Chinese-built high-speed rail from Xinjiang across Central Asia all the way to Iran, Turkey, and of course, the dream destination: the EU. Erdogan can clearly see how Turkey is strategically positioned to profit from it.

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Alexis, Alexis, we know you don’t mean it that way, so why risk getting caught with your foot in your mouth?

Greek PM Tsipras ‘Proud’ Of Living Conditions Of Refugees (K.)

Prime Minister has said he is “proud” of living conditions for refugees on the Greek mainland, although he admitted that “the situation remains difficult” for those stranded on the islands of the eastern Aegean. Speaking to France’s Le Figaro newspaper on the occasion of his visit to Paris, Tsipras also defended a deal between the European Union and Ankara to stem migrant flows in the Aegean. “The deal between the EU and Turkey is hard but necessary; it helped put an end to the daily deaths in the Aegean. We have received more than 60,000 refugees on mainland Greece who live in good conditions, with access to health and education. It is something I am proud of,” Tsipras said.

“The situation on the islands remains difficult. There is a large number of migrants and refugees and asylum procedures are time-consuming,” he said. Greece has seen a surge of migrant arrivals in recent months. With winter fast approaching and migrant reception centers on the Aegean islands reaching breaking point due to overcrowding, 20 human rights groups this week sent a letter to the Greek government calling for immediate action.

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People are dying already. It’s only autumn.

Greece Vows Greater Effort To Protect Refugees Over Winter (AP)

Greece has promised to step up efforts to protect migrants and refugees over the winter on the Greek islands, but defended a 2016 deal between Turkey and the European Union to stop the westward flow of migrants into Europe. On a visit to France, Prime Minister Alexis Tsipras told the country’s Figaro newspaper on Thursday that the agreement was difficult but necessary. His remarks followed strongly criticism from aid agencies and human rights groups over conditions at migrant shelters on Lesvos and other Greek islands. Greece has seen a surge of migrant arrivals in recent months. On Thursday, Greek border police recovered the body of a man believed to be a migrant in a river that divides Greece and Turkey – the second such incident in two days.

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“They’re killing us and they’re mocking us at the same time..”

Greek Pensioners March Against Government That ‘Took Everything’ (R.)

Several hundred elderly Greeks marched through Athens on Thursday, protesting against a government they say “took everything” with a new round of cuts to pensions and crumbling health care benefits. Greece’s three bailouts since 2010 have repeatedly taken aim at the pension system. Cuts have pushed nearly half its elderly below the poverty line with incomes of less 600 euros ($710.70) a month. With nearly a quarter of the workforce unemployed, a quarter of children living in poverty and benefits slashed, parents have grown dependent on grandparents for handouts. But after the cuts to pensions, some Greeks have seen their monthly cheque fall between 40 and 50 percent in seven years. After rent, utility bills and health care, they barely make ends meet.

“I have never seen the country in this state, not even during war,” said 80-year-old Nikos Georgiadis, a former hotel employee whose pension has been reduced by 40 percent. “Pensioners are impoverished, and not only can they not afford to buy medicines, some are looking for food in the trash,” he said, leaning on a tree to catch his breath. Fotini Karavidou, a 75-year-old retired accountant who joined the march in a wheelchair, said she had to “cut back on everything” to afford medicine. “It’s simple – many pensioners cannot afford to eat and to buy medicine,” said Yiannis Karadimas, 67, who heads a local pensioners association. Karadimas said it was “a joke” that the government had legalised marijuana for medical purposes while cutting back on health care spending. “They’re killing us and they’re mocking us at the same time,” he said.

The popularity of Prime Minister Alexis Tsipras has waned since he first won elections in 2015. In an effort to rebuild public support, the government gave Greece’s 1.3 million pensioners a one-off Christmas bonus last year, worth 300 to 500 euros each. But the handouts have failed to whip up any obvious increase in support. Pensioners have taken to the streets time and again in recent months. About 2,000 people joined Thursday’s march. “Unfortunately, I voted for them, and they turned out to be the biggest liars of all,” Georgiadis, the pensioner, said. “It [the government] promised us everything, and it took everything.”

Read more …

Apr 172015
 
 April 17, 2015  Posted by at 9:21 am Finance Tagged with: , , , , , , , , , , ,  


Jack Delano Myrtle Beach, S.C. Air Service Command Technical Sergeant Choken 1943

The REAL Issue With a Grexit/Greek Default is Derivatives (Phoenix)
Grexit Dangers Mount: Yanis Varoufakis Warns Of ‘Liquidity Asphyxiation’ (AEP)
Germany: Has Any Country Ever Had It So Good? (Bloomberg)
Greece To Raid Coffers As IMF Dashes Hopes Of Resolving Crisis (Telegraph)
Greece Deal Appears Distant Amid Deadlock In Reform Talks (Kathimerini)
Finland: ‘Not As Bad As Greece, Yet, But It’s Only Matter Of Time’ (Guardian)
China’s Incredible Shrinking Factory (Reuters)
‘Beijing Put’ May Be Driving China’s Stock-Market Fever (MarketWatch)
China’s Smart Money Is Riding the Stock Boom as Amateurs Rush In (Bloomberg)
China’s Kaisa Keeps Creditors Guessing as Dollar Default Looms (Bloomberg)
Australia Steeled For China Slowdown As Iron Ore Prices Fall (FT)
New Zealand Housing: Human Rights Commisioner Calls For Drastic Action (NZH)
New Zealand Government, Central Bank Clash On Housing (CNBC)
5 Financial Crisis Regulators Cashing In On New Careers (Fortune)
Stephen F. Cohen: U.S./Russia/Ukraine History The Media Won’t Tell You (Salon)
Why A Greek Call For German War Reparations Might Make Sense (MarketWatch)
BP Dropped Green Energy Projects Worth Billions, Prefers Fossil Fuels (Guardian)
Saudi Arabia Adds Half a Bakken to Oil Market in a Month (Bloomberg)
Italy Calls For Help Rescuing Migrants As 40 More Reportedly Drown (Guardian)

It’s all derivatives all the way down.

The REAL Issue With a Grexit/Greek Default is Derivatives (Phoenix)

The situation in Greece boils down to the single most important issue for the financial system, namely collateral. Modern financial theory dictates that sovereign bonds are the most “risk free” assets in the financial system (equity, municipal bond, corporate bonds, and the like are all below sovereign bonds in terms of risk profile). The reason for this is because it is far more likely for a company to go belly up than a country. Because of this, the entire Western financial system has sovereign bonds (US Treasuries, German Bunds, Japanese sovereign bonds, etc.) as the senior most asset pledged as collateral for hundreds of trillions of Dollars worth of trades. Indeed, the global derivatives market is roughly $700 trillion in size. That’s over TEN TIMES the world’s GDP. And sovereign bonds… including even bonds from bankrupt countries such as Greece… are one of, if not the primary collateral underlying all of these trades.

Lost amidst the hub-bub about austerity measures and Debt to GDP ratios for Greece is the real issue that concerns the EU banks and the EU regulators: what happens to the trades that EU banks have made using Greek sovereign bonds as collateral? This story has been completely ignored in the media. But if you read between the lines, you will begin to understand what really happened during the previous Greek bailouts. Remember: 1) Before the second Greek bailout, the ECB swapped out all of its Greek sovereign bonds for new bonds that would not take a haircut. 2) Some 80% of the bailout money went to EU banks that were Greek bondholders, not the Greek economy. Regarding #1, going into the second Greek bailout, the ECB had been allowing European nations and banks to dump sovereign bonds onto its balance sheet in exchange for cash.

This occurred via two schemes called LTRO 1 and LTRO 2 which happened in December 2011 and February 2012 respectively. Collectively, these moves resulted in EU financial entities and nations dumping over €1 trillion in sovereign bonds onto the ECB’s balance sheet. Quite a bit of this was Greek debt as everyone in Europe knew that Greece was totally bankrupt. So, when the ECB swapped out its Greek bonds for new bonds that would not take a haircut during the second Greek bailout, the ECB was making sure that the Greek bonds on its balance sheet remained untouchable and as a result could still stand as high grade collateral for the banks that had lent them to the ECB. So the ECB effectively allowed those banks that had dumped Greek sovereign bonds onto its balance sheet to avoid taking a loss… and not have to put up new collateral on their trade portfolios.

Which brings us to the other issue surrounding the second Greek bailout: the fact that 80% of the money went to EU banks that were Greek bondholders instead of the Greek economy. Here again, the issue was about giving money to the banks that were using Greek bonds as collateral, to insure that they had enough capital on hand. Piecing this together, it’s clear that the Greek situation actually had nothing to do with helping Greece. Forget about Greece’s debt issues, or protests, or even the political decisions… the real story was that the bailouts were all about insuring that the EU banks that were using Greek bonds as collateral were kept whole by any means possible. This is why the current negotiations in Greece boil down to one argument: whether or not it will involve an actual restructuring of Greek debt that will affect bondholders across the board.

Greece wants this. The ECB and EU leaders don’t for the obvious reasons that any haircut of Greek debt that occurs across the board will: 1) Implode a small, but significant amount of EU bank derivatives trades. 2) Be immediately followed by Spain, Italy and ultimately France asking for similar deals… at which point you’re talking about over $3 trillion in high grade collateral being restructured (collateral that is likely backstopping well over $30 trillion in derivatives trades at the large EU banks). Remember, EU banks as a whole are leveraged at 26-to-1. At these leverage levels, even a 4% drop in asset prices wipes out ALL of your capital. And any haircut of Greek, Spanish, Italian and French debt would be a lot more than 4%. The next round of the great crisis is coming. The ECB bought two years of time with its pledge to do “whatever it takes,” but the global bond bubble is still going to burst. And when it does, it’s going to make 2008 look like a joke.

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“I would willingly, eagerly, accept any terms offered to us if they made sense.”

Grexit Dangers Mount: Yanis Varoufakis Warns Of ‘Liquidity Asphyxiation’ (AEP)

Greek finance minister Yanis Varoufakis has acknowledged that his country is desperately short of funds, accusing Europe’s creditor powers of trying to force his country to its knees by “liquidity asphyxiation”. “Liquidity is drying up in Greece. It is true,” he told a gathering at the Brookings Institution in Washington. Mr Varoufakis said a conspiracy of forces was trying to “snuff out” Greece’s Syriza government but warned that this could have devastating effects. “Toying with Grexit, or amputating Greece, is profoundly anti-European. Anybody who says they know what will happen if Greece is pushed out of the euro is deluded,” he said.

The warnings were echoed by Eric Rosengren, head of the Boston Federal Reserve, who said Europe risks sitting off uncontrollable contagion if it mishandles the Greek crisis, even though Greece may look too small to matter. “I would say to some European analysts who assume that a Greek exit would not be a problem, people thought that Lehman wouldn’t be a problem. If you measured the size of Lehman relative to the size of the US economy it was quite small,” he told a group at Chatham House. “I wouldn’t be overly confident that just because the Greek economy is small relative to the size of the European economy that something like that wouldn’t be a major dislocation. I think everybody should be a little bit concerned,” he said.

Christine Lagarde said the IMF is worried about the “liquidity situation” in Greece but made it clear that the institution would not give the country any leeway on €1bn of debt repayments coming due in early May. “We have never had an advanced economy asking for payment delays. It is clearly not a course of action that would be fit or recommended,” she said. Mrs Lagarde insisted that the the Fund would defend the interests of its contributors, many of them much poorer countries than Greece. Mr Varoufakis said the ECB and the EMU authorities were deliberately tightening the tourniquet on Greece until the arm was “gangrenous” in order to pressure his Syriza government to give in.

“I would willingly, eagerly, accept any terms offered to us if they made sense. Insisting on a primary budget surplus of 4.5pc in a depressed economy with no functioning banking system is absurd. We have the right to challenge the logic of a programme that has failed,” he said. He was speaking before a reception to celebrate Greek independence at the White House. It is understood that he spoke privately with President Barack Obama, though not at the Oval Office.

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Greece’s almost nieghbor lives off the fat of the rest of Europe’s land.

Germany: Has Any Country Ever Had It So Good? (Bloomberg)

How much good news can one country handle? If you work in the German Ministry of Finance—the Bundesfinanzministerium—you might be wondering that at the moment. This morning the average yield on German sovereign debt turned negative for the first time ever. This wasn’t the only good news today. The German economy is built on manufacturing, and it is by far the largest car builder in the euro area. So data released this morning showing that European car sales were up 11% in March, the fastest growth in 15 months, is certainly welcome. That is not to say the German export sector has been waiting on tenterhooks for an increase in European car sales for a boost; Germany has been running a positive trade balance for decades.

Unemployment is at an all-time low, and employment in the economy has never been higher. Which is great for the German economy. Even better, it has the added benefit of a falling currency. Importantly for Germany, it has managed all this without stoking inflation. With this background, it should come as no surprise that Germany is determined (and able) to balance its budget. So no shortage of customers, no shortage of jobs for its citizens, and no shortage of revenue. Has any country ever had it so good? In fact, as projections released by Eurostat this morning show that the only thing Germany is likely to have a shortage of soon is Germans. Germany currently has the lowest proportion of population under the age of 15 of any country in the European Union, and Eurostat’s projections indicate that will continue to be the case for the foreseeable future.

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“..labour relations, the social security system, the VAT increase and the rationale regarding the development of state property.”

Greece To Raid Coffers As IMF Dashes Hopes Of Resolving Crisis (Telegraph)

Cash-strapped Greece is planning to resort to drastic measures to stay afloat, as the country’s bail-out drama moves to Washington today. Finance minister Yanis Varoufakis is due to drum up support for his debt-stricken nation when he meets with President Obama at the White House later today. The meeting with the world’s most powerful leader comes as a desperate Athens could raid the country’s pensions funds in order to continue paying out its social security bill. Greece’s deputy finance minister Dimitris Mardas hinted that state-owned enterprises may have to transfer their cash balances to the Bank of Greece if the state was to avoid going bankrupt. The government has long protested it will run out of funds to continue paying out a €1.7bn monthly wage and pension bill if a release of cash is not arranged in the next few days.

With their coffers running dry, Greek officials reportedly made an informal request to delay loan repayments to the IMF, but were rebuffed, according to reports in the Financial Times, However, the Fund’s managing director Christine Lagarde said a moratorium on repayments was “not a course of action that would be fit or recommended”. “We have never had an advanced economy asking for payment delays,” Ms Lagarde said today, adding that any period of clemency would constitute additional financial aid to a debtor economy. “This would mean additional contributions by the international community and some of these countries are in a dearer situation than those seeking the delays,” said Ms Lagarde, who will meet with Mr Varoufakis today. “We will do everything we can so lending to the Fund remains the safest lending route any debtor can adopt.”

Greece came to the brink of falling into an arrears process with its senior creditor last month, but avoided the ignominy of becoming the first developed country to ever fall into an IMF default. The debtor nation, which has received no emergency cash since August 2014, faces a €2.5bn IMF loan bill over May and June. Hinting at the gulf between Greece and its creditors, Greek Prime Minister Alexis Tsipras said “political disagreements” were continuing to block a bail-out extension. Mr Tsipras said there were four areas of disagreement over its reform programme. These were ” labour relations, the social security system, the VAT increase and the rationale regarding the development of state property.” However, the Leftist premier added he was confident Europe would not “choose the path of an unethical and brutal financial blackmail” and ensure Greece remained in the monetary union.

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They just throw everything out that Greece proposes.

Greece Deal Appears Distant Amid Deadlock In Reform Talks (Kathimerini)

With negotiations between Greece and its creditors effectively deadlocked, a potential deal that could unlock crucially needed funding appeared more distant than ever on Thursday with doubts appearing about whether an agreement can be reached in time for a Eurogroup planned for May 11, well after the next scheduled eurozone finance ministers’ summit in Riga next Friday, which had been the original deadline. Even representatives of the European Commission, which has been Greece’s closest ally in the talks, appeared to be losing their patience. In comments on Thursday spokesman Margaritis Schinas said the EC was “not satisfied” with the level of progress in talks and called for work to “intensify” ahead of next week’s Eurogroup summit.

Sources indicated that the so-called Brussels Group, comprising officials from the government and Greece’s creditors, was to convene in the Belgian capital on Saturday. But a European official told Kathimerini he had no such information and that talks were likely to resume on Monday. The aim is for that meeting to yield a detailed list of reforms that could form the basis for a staff-level agreement and potentially lead to the disbursement of much-needed aid. But the two sides remain far apart. In a statement to Reuters on Thursday Tsipras highlighted several points of agreement – on areas such as tax collection, corruption and redistributing the tax burden – but also conceded that the two sides disagreed on four major issues: labor rules, pension reform, a hike in value-added taxes and privatizations, which he referred to as “development of state property” rather than asset sales.

Despite the differences and “the cacophony and erratic leaks and statements in recent days from the other side,” Tsipras said he was “firmly optimistic” his government would reach an agreement with its creditors by the end of April. “Because I know that Europe has learned to live through its disagreements, to combine its parts and move forward.” Finance Minister Wolfgang Schaeuble, who has leveled some of the harshest criticism against Greece in recent days, indicated that creditors remained ready to help but expected concessions. “If Greece wants support, we will give this support as in recent years, but of course within the framework of what we agreed,” he told Bloomberg. “Whatever happens, we know that Greece is part of the European Union and that we also have a responsibility for Greece and we will never disregard this solidarity.”

In a speech at the Brookings Institution in Washington on Thursday, Schaeuble said Greece was welcome to seek other sources of funding but might have difficulties. “If you find someone else, whether it’s in Beijing, in Moscow, in Washington DC, or in New York who will lend you money, OK, fine, we would be happy. But it’s difficult to find someone who is lending you in this situation amounts [of] 200 billion euros.” He added that Greece must seek to boost competitiveness and its primary surplus.

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“The public finances are completely screwed, it can’t go on like this..”

Finland: ‘Not As Bad As Greece, Yet, But It’s Only Matter Of Time’ (Guardian)

A sudden flurry of spring snow has dusted the steps of an evangelical church in central Oulu, northern Finland, where about 100 people are crowded together for a Friday sermon. But perhaps the true object of their devotion is inside black binliners by the door. Once a week, food parcels and a free meal attract a mix of unemployed men, single mothers and pensioners to the church. The most highly prized items are packs of sausages just within their sell-by date. Shops used to donate meat, but now they too are feeling the pinch. “There is a group of people in Finland that has dropped out of the employment market,” says pastor Risto Wotschke, whose example has encouraged other churches to offer food handouts.

The weakest economy in the eurozone this year might not prove to be Greece or Portugal, but Finland. The Nordic country is entering its fourth year of recession, with output still well below its 2008 peak. The north of Finland, home to the “Oulu miracle” that was built on the twin pillars of plentiful timber and mobile phone technology, has been hit in particular. Although a paper mill still dominates Oulu’s skyline, jobs in pulp and cellulose have moved abroad, while the collapse of Nokia’s handset business knocked the guts out of the local economy. With unemployment officially at more than 17% – almost twice the Finnish average – this once-booming city of 200,000 people has gone from a poster child of prosperity to a symbol of deepening cracks in the Nordic model.

“It’s not yet as bad here as Greece, but that’s only a matter of time,” says Seppo, a 43-year-old software engineer who lost job along with 500 others last summer after Microsoft, the new owner of Nokia’s mobile devices and services division, abandoned Oulu. Seppo, who asked that his full name not be used, has since found work, but it is 375 miles (600km) away. Every Sunday night he leaves his family for a rented room. “The public finances are completely screwed, it can’t go on like this,” he says, as he stands outside a polling booth on the outskirts of Oulu, where people are already queuing to vote early in Finland’s general election on Sunday. “The politicians are promising everything to everybody, but they won’t take any hard decisions until we are in a really deep crisis.”

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Their markets have dried up.

China’s Incredible Shrinking Factory (Reuters)

Eight years ago, Pascal Lighting employed about 2,000 workers on a leafy campus in southern China. Today, the Taiwanese light manufacturer has winnowed its workforce to just 200 and leased most of its space to other companies: lamp workshops, a mobile phone maker, a logistics group, a liquor brand. “It used to be as long as you had more orders, you could get everything you needed to expand your factory, and you could expand,” says Johnny Tsai, Pascal’s general manager. No longer. The Chinese factory – an institution that was once so large, it was measured in football fields – is shrinking. Rising labor costs, higher real estate prices, less favorable government policies and smaller order volumes are forcing Chinese plants to downsize just to survive.

Their contraction suggests a new model of light manufacturing emerging from China’s economic slowdown: smaller plants are replacing the vertically integrated behemoths that defined Chinese manufacturing in the early 2000s. Cankun, an appliances factory in southern China featured in the documentary Manufactured Landscapes, had more than 22,000 manufacturing employees in 2005, according to its annual report. Today, that number has shrunk to just 3,000. Some Hong Kong-owned factories in southern China have cut their staff numbers by 50-60%, according to Stanley Lau, chairman of the Federation of Hong Kong Industries. To be sure, the giant Chinese factory is hardly extinct. Taiwan’s Foxconn still employs about 1.3 million people during peak production times, many of them piecing together Apple iPhones.

And factories that can afford to, including Foxconn, are increasing automation. But for industries where the product design changes frequently, such as lighting, robots add little value. Chinese factories’ contraction illustrates how much the advantages they once enjoyed have eroded. In the 1990s and early 2000s, cities in Chinese coastal regions competed to offer investors discounted land. Today, the same land is scarce, and dear. New labor and environmental laws have been introduced, too, making life tougher for employers. And the workforce has changed. China’s working age population began to contract in 2012.

The number of strikes more than doubled last year compared to 2013. Jobs have shifted into the services sector. And labor costs have more than quadrupled in US dollar terms since 2005. Nor are orders what they used to be. On Monday, China announced that export volumes fell 15% in March compared to the same period the year before. China’s manufacturing PMI, which measures activity in the industrial sector, has been hovering around 50, the inflection point between expansion and contraction, for nearly two years.

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Beijing is playing with pitchforks. From housing bubble to stock bubble to..?

‘Beijing Put’ May Be Driving China’s Stock-Market Fever (MarketWatch)

China’s stock markets are climbing to feverish heights as a record number of ordinary Chinese, including teenagers, flood into equities. But in the eyes of many, the share-buying frenzy and wild bull market are all due to one thing: The Chinese government wants it that way. Like the “Greenspan put” of the dot-com era, in which U.S. investors believed then Federal Reserve chairman Alan Greenspan was backstopping the market, Shanghai now seems to be surging on the belief in a “Beijing put.” Although emerging markets have been doing quite well recently — the MSCI EM Index has risen by more than 10% so far this year – the surge in China markets is particularly prominent.

By the close of Thursday trade, the benchmark Shanghai Composite Index was up 30% year-to-date, and it has more than doubled in just the past 10 months. The boom has also spilled over to the nearby Hong Kong equity market, where the city’s benchmark Hang Seng Index has surged nearly 18% since the start of January, while the mainland-China-tracking Hang Seng China Enterprises Index has climbed by 22% over the same period. Emboldened by the astounding advance, an increasing number of ordinary Chinese have joined what the state-run China News Service has called the “great army of stock investors,” lining up outside of brokerage firms to open new trading accounts.

The sharp increase in new investors and market volume has even caused system breakdowns for China Securities Depository and Clearing Corp. (CSDC) — the national clearing house — as well as individual securities firms. Statistics from CSDC show that last week the number of new stock-trading accounts opened hit a fresh all-time high of 1.68 million, beating the previous 1.67 million recorded for the week of March 27. In only the past month, mainland Chinese investors opened more than 6 million such accounts, according to the data. The CSDC said that this “steep rise” in new stock-account applications left it unable for a while on Tuesday to handle the barrage of requests, while Haitong Securities, the second-largest securities firm in the country, also encountered “a system breakdown” the same day, according to a report in the Beijing Youth Daily.

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For professionals, it’s fish in a barrel. Clean out grandma.

China’s Smart Money Is Riding the Stock Boom as Amateurs Rush In (Bloomberg)

Individual investors aren’t the only ones pouring cash into Chinese stocks after they surged faster than any other market worldwide. Five of the 11 professional money managers from mainland China, Hong Kong and Taiwan surveyed by Bloomberg from April 8 to 16 said they plan to boost holdings of yuan-denominated A shares this quarter, while four will maintain positions and just two will reduce their stakes. Technology, consumer, health-care and financial shares were preferred industries among the managers, who oversee a combined $41 billion. The responses show the Shanghai Composite Index’s 99% surge over the past year, driven by a record pace of new stock-account openings, still has support outside the Chinese individuals who comprise at least 80% of trading.

Institutional investors are betting that sustained inflows, interest rate cuts and prospects for an improving economy will keep the rally going. “New funds have been continuing to flow into the market and I need to follow the trend,” Dai Ming, a money manager at Hengsheng Asset Management said in Shanghai. “Furthermore, China’s economy will make headway going forward.” Mainland investors have opened a record 10.8 million new stock accounts this year, more than the total number for all of 2012 and 2013 combined, data from China Securities Depository and Clearing show.

The flood of money from these rookie stock pickers has helped feed market momentum after policy makers stepped up efforts to bolster an economy expanding at the slowest pace since the global financial crisis six years ago. The government won’t allow growth to fall below this year’s target of 7%, said Hao Hong, head of China research at Bocom International in Hong Kong, who forecasts at least three more interest-rate cuts in 2015 following reductions in November and March. Premier Li Keqiang said this week that China will accelerate targeted measures to support the economy after it expanded at the slowest pace since 2009 in the first quarter.

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Yeah, let the no. 1 developer default, see what happens then.

China’s Kaisa Keeps Creditors Guessing as Dollar Default Looms (Bloomberg)

Kaisa has until Monday to find $52 million for missed payments on two of its dollar bonds as it seeks to avoid default. The troubled developer must pay the interest on its 2017 and 2018 notes that was due on March 18 and March 19 respectively after the expiry of a 30-day grace period. The delay is the latest twist in a saga that has seen Kaisa’s founder Kwok Ying Shing make an unexpected return to the company, projects in Shenzhen blocked, a near default on a loan in December and a takeover offer from Sunac. Standard & Poor’s doesn’t expect Kaisa to pay and downgraded it to default last month. “Kaisa in the last four months has been mysterious and unpredictable, and Kwok coming back is equally surprising,” said Ashley Perrott at UBS. “It wouldn’t be a good signal if they didn’t pay the coupon.”

The mishaps threaten to make Kaisa the first Chinese developer to default on its dollar-denominated bonds as it seeks ways to service interest-bearing debt to onshore and offshore lenders that totaled 65 billion yuan ($10.5 billion) as of Dec. 31. Kaisa has also been tied to a corruption probe amid President Xi Jinping’s crackdown on graft, called the harshest since the 1949 founding of the People’s Republic of China by official Chinese media. Kwok exited the company he founded more than 15 years ago on Dec. 31, citing health reasons. Kaisa said in a Hong Kong stock exchange filing April 13 that he’d been appointed chairman and executive director.

In the interim, Sunac agreed to buy a controlling 49.3% stake from the Kwok family on Jan. 30, subject to a debt restructuring that would require investors to accept lower coupons and defer repayment by up to five years. Kaisa has said offshore creditors would stand to recover just 2.4% in a liquidation. Independent research firm CreditSights said Kwok’s reappointment should boost confidence and may be good news for debt investors, while Citigroup Inc. said he’s likely to regain control of the builder. Sunac Chairman Sun Hongbin said on April 15 his company’s takeover of Kaisa is still proceeding. Kaisa was to pay $16.1 million of interest on its $250 million of 2017 notes on March 18 and $35.5 million on its $800 million of 2018 securities March 19. Given the end of the 30-day grace period falls over a weekend, Kaisa technically has until Monday.

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Steeled my ass.

Australia Steeled For China Slowdown As Iron Ore Prices Fall (FT)

The last time Western Australia was engaged in a dispute with Canberra of this magnitude, it threatened to secede during a financial crisis sparked by the 1930s Depression. The current friction is linked to China’s slowdown — a sign of how closely Australia’s fortunes are tied to Beijing’s appetite for its commodity exports. “It’s not secession but it is tension and disengagement,” Colin Barnett, Western Australia’s premier, said this week when Canberra and other states rejected a request to help plug a widening hole in the state budget caused by plunging iron ore prices. Western Australia is a mining state that enjoyed a decade-long boom selling iron ore — a key ingredient in steel — to China. Known by some as “China’s quarry”, the state hosts BHP Billiton, Rio Tinto and Fortescue, which have spent billions of dollars building mines, railways and ports to almost double iron ore production to 717 million tons over the past five years.

But just as global supply hits record levels, China’s economy is slowing and its desire for the reddish-brown ore may have plateaued. Since peaking at US$190 in 2011, iron ore prices have slid more than 70% to about US$50 a ton. This is denting tax revenues, forcing smaller mining companies to close and lay off thousands of employees. “Western Australia was the big beneficiary of the China boom,” says Chris Richardson at Deloitte. “But it is suffering now as the mine construction phase ends and commodity prices fall amid a surge in iron ore supply and faltering demand.” In 2013 the state lost its triple-A credit rating. On Tuesday, Standard & Poor’s warned it may face a further downgrade because of its budget problems.

Western Australia says that if iron ore prices stay at US$50 per ton it would wipe out A$4 billion (US$3 billion) in projected royalty revenues in 2015-16, 12% of the state budget. Unemployment in the state, although still modest at 5.8%, has risen from 3.8% when iron ore prices peaked. House prices have started to fall in the state capital Perth, while they continue to grow in Sydney and Melbourne. Mr Barnett wants other states to give Western Australia a greater share of revenues from a nationwide goods and services tax. But so far Canberra and other states have rejected his pleas. On Friday, state premiers will discuss the dispute. Weak Chinese data are fueling concerns that Western Australia’s problems could spread across a country that has avoided recession for two decades by riding China’s commodities boom.

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Smart guy. But why doesn’t he know it’s the – Australian-owned – banks that control the country, and they want to continue as is?

New Zealand Housing: Human Rights Commisioner Calls For Drastic Action (NZH)

New Zealand’s human rights watchdog has added its voice to those calling for drastic action to tackle New Zealand’s housing problems. Chief human rights commissioner David Rutherford said today all political parties should make a cross-party accord to tackle the “very serious” issues of adequate housing in this country. His comments followed a warning by the Reserve Bank this week that Government needed to do more to dampen demand in the face of increasing housing pressures. Mr Rutherford said the housing issues in New Zealand were “many and varied” and there was no co-ordinated plan to address them.

“We’re seeing housing issues being talked about as separate issues when in fact they need to be addressed as a whole: housing affordability in Auckland and Canterbury, the provision of adequate housing in Northland, South Auckland and other places throughout the country, which would reduce the incidence of childhood illnesses due to cold, damp, overcrowded accommodation, and the call for more of our elderly to be cared for in homes which are in many cases likely to be unsuitable for elderly habitation to name just a few of the issues.” He said the human right to adequate housing was a binding legal obligation for the state, which meant the Government had a duty to protect this right and a responsibility to provide remedies.

Mr Rutherford said it would take decades to solve myriad problems but immediate action was needed, beginning with a cross-party accord. “We have had a talkfest about these issues for over 30 years, mainly centred on how many State-owned houses should or should not be built. “In that time, a state like Singapore has surpassed New Zealand in providing adequate housing and that in turn has led to higher levels of wealth and health in Singapore than New Zealand.” The Green Party hailed the Chief Commissioner’s message, saying a lack of action was denying New Zealanders the basic human right of adequate housing. “The Government’s do-nothing approach hasn’t worked,” housing spokesman Kevin Hague said. “It is time for all parties to put their political colours aside and work together to find enduring solutions to the housing crisis.”

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Politicians want bubbles to keep going.

New Zealand Government, Central Bank Clash On Housing (CNBC)

Increasing supply is the only way to cool off New Zealand’s red-hot housing market, the country’s deputy prime minister told CNBC, ignoring the central bank’s call for a capital gains tax. Property markets across New Zealand’s major cities are steadily climbing, prompting fears of a sharp correction. Sales volume in March rose to an eight-year high, with median prices in the capital city of Auckland soaring 13% on year, nearly double the nation’s 8% gain, the Real Estate Institute of New Zealand (REINZ) said on Tuesday. New Zealand is one of the few advanced economies that hasn’t experienced a major price correction in the past 45 years. Those statistics prompted an unusually aggressive warning from the Reserve Bank of New Zealand (RBNZ).

In a speech on Wednesday, deputy governor Grant Spencer said he “would like to see fresh consideration of possible policy measures to address the tax-preferred status of housing, especially investor related housing.” That’s a clear reference to a capital gains tax on the sale of investment properties, economists widely agreed. However, Bill English, deputy prime minister & minister of finance of New Zealand, told CNBC on Thursday that he believes increased housing supply is the best way to fix the issue. “We just need more houses on the ground faster to deal with the inflows from migration and the positive attitudes of many New Zealand households in a world of lower interest rates,” adding that the government is going through a deliberate, long and complicated process to improve supply.

But the RBNZ believes supply-side solutions are unlikely to yield quick results, noting that increased supply will take a number of years to eliminate the housing shortage. Waiting that long has severe risks, the bank said: “Rising house price inflation, particularly in Auckland, represents a risk to financial and economic stability. The longer excess demand persists, the further prices will depart from their underlying fundamental determinants and the greater the potential for a disruptive correction.”

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More revolving doors. They want the Bernank for who he knows, not his brilliant insights.

5 Financial Crisis Regulators Cashing In On New Careers (Fortune)

The man who occupied one of the most important economic posts in the U.S. during the financial crisis will soon be collecting his paychecks from one of the largest hedge funds on Wall Street. Former Federal Reserve board chairman Ben Bernanke, who oversaw the country’s central bank from 2006 until last year, will be a senior adviser to Citadel, the hedge fund announced Thursday morning. Founded by billionaire Kenneth Griffin, Citadel manages $25 billion in assets. Bernanke, a former economics professor at Princeton University, left the Fed more than a year ago at which point he was succeeded by current chair Janet Yellen. Bernanke’s new role will find him advising Citadel on global economic and financial matters and monetary policy.

Speaking with The New York Times about his new career path, Bernanke said he had spent the past year scouting job opportunities, and that Citadel represented the prudent choice due to the fact that the asset manager is not regulated by the Fed. Bernanke also told the Times that he is well aware of the public’s poor reception to the so-called “revolving door” that escorts so many Washington regulators to cushy Wall Street positions. That is exactly why he chose Citadel over various banking and lobbying positions he was offered elsewhere in the industry, Bernanke said.

After all, Bernanke’s tenure at the Fed will primarily be remembered for his role helping to engineer the government bailout of the financial industry, as well as for implementing the Fed’s economic stimulus program. As the former Fed chair alluded to, though, Bernanke is far from the only high-profile government employee to have spent the late-2000’s fiscal crisis trying to right the Wall Street ship only to eventually land a lucrative gig in the financial industry. Here are five former regulators from the financial crisis who left the government to make millions.

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Fascinating read.

Stephen F. Cohen: U.S./Russia/Ukraine History The Media Won’t Tell You (Salon)

Salon: What is your judgment of Russia’s involvement in Ukraine? In the current situation, the need is for good history and clear language. In a historical perspective, do you consider Russia justified?

Cohen: Well, I can’t think otherwise. I began warning of such a crisis more than 20 years ago, back in the ’90s. I’ve been saying since February of last year [when Viktor Yanukovich was ousted in Kiev] that the 1990s is when everything went wrong between Russia and the United States and Europe. So you need at least that much history, 25 years. But, of course, it begins even earlier. As I’ve said for more than a year, we’re in a new Cold War. We’ve been in one, indeed, for more than a decade. My view [for some time] was that the United States either had not ended the previous Cold War, though Moscow had, or had renewed it in Washington. The Russians simply hadn’t engaged it until recently because it wasn’t affecting them so directly. What’s happened in Ukraine clearly has plunged us not only into a new or renewed—let historians decide that—Cold War, but one that is probably going to be more dangerous than the preceding one for two or three reasons.

The epicenter is not in Berlin this time but in Ukraine, on Russia’s borders, within its own civilization: That’s dangerous. Over the 40-year history of the old Cold War, rules of behavior and recognition of red lines, in addition to the red hotline, were worked out. Now there are no rules. We see this every day—no rules on either side. What galls me the most, there’s no significant opposition in the United States to this new Cold War, whereas in the past there was always an opposition. Even in the White House you could find a presidential aide who had a different opinion, certainly in the State Department, certainly in the Congress. The media were open—the New York Times, the Washington Post—to debate. They no longer are. It’s one hand clapping in our major newspapers and in our broadcast networks. So that’s where we are.

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“The Hague ruled that the Greek party’s right for reparations remains intact but the capacity to execute that right against German property was rejected..”

Why A Greek Call For German War Reparations Might Make Sense (MarketWatch)

German officials have dismissed the Greek war reparations claim for Nazi atrocities as a “dumb” attempt to distract from Greece’s looming debt crisis. However, the truth is that a group of Greek citizens, all relatives of people murdered by the Nazis in 1944, have been seeking war reparations from the German government for almost 20 years – and have won rulings in Greek and Italian courts. Germany fought the claims, bringing the case in 2012 all the way to the International Court of The Hague, where the Greek side scored a hollow victory.

The Hague ruled that the Greek party’s right for reparations remains intact but the capacity to execute that right against German property was rejected, due to a legal principle called “sovereign immunity,” which protects one sovereign country from being sued before the court of another country. It is important to note that Germany brought its case against Italy, not Greece, invoking “sovereign immunity.” Germany argued that Italy should not have allowed Greeks to foreclose against property of the German government on Italian soil. Ultimately, The Hague agreed. It ruled in favor of Germany, stating that Italy had in fact violated international law. But the international court never resolved the underlying issue of reparations – it merely issued a judgment on sovereign immunity.

Even as that case was pending in The Hague, Italian Prime Minister Silvio Berlusconi issued a decree that suspended all civil-enforcement procedures against foreign countries on Italian territory. Almost three years have elapsed since the case was closed in The Hague, and as the Greek bailout negotiations continue to drag on and tensions build, the war reparations issue is coming into focus again. Germany’s counterargument has more or less remained the same over the years. Berlin claims the issue was settled in 1960 when West Germany paid 115 million Deutschmarks to Athens in compensation and was finally closed in 1990 with a final settlement, when West and East Germany reunified.

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It’s about the bottom line. Companies are supposed to be in the way we set them up.

BP Dropped Green Energy Projects Worth Billions, Prefers Fossil Fuels (Guardian)

BP pumped billions of pounds into low-carbon technology and green energy over a number of decades but gradually retired the programme to focus almost exclusively on its fossil fuel business, the Guardian has established. At one stage the company, whose annual general meeting is in London on Thursday, was spending in-house around $450m (£300m) a year on research alone – the equivalent of $830m today. The energy efficiency programme employed 4,400 research scientists and R&D support staff at bases in Sunbury, Berkshire, and Cleveland, Ohio, among other locations, while $8bn was directly invested over five years in zero- or low-carbon energy. But almost all of the technology was sold off and much of the research locked away in a private corporate archive.

Facing shareholders at its AGM, company executives will insist they are playing a responsible role in a world facing dangerous climate change, not least by supporting arguments for a global carbon price. But the company, which once promised to go “beyond petroleum” will come under fire both inside the meeting and outside from some shareholders and campaigners who argue BP is playing fast and loose with the environment by not making meaningful moves away from fossil fuels. In 2015, BP will spend $20bn on projects worldwide but only a fraction will go into activities other than fossil fuel extraction. An investigation by the Guardian has established that the British oil company is doing far less now on developing low-carbon technologies than it was in the 1980s and early 1990s. Back then it was engaged in a massive internal research and development (R&D) programme into energy efficiency and alternative energy.

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Jeffrey Brown’s Export Land Model in action.

Saudi Arabia Adds Half a Bakken to Oil Market in a Month (Bloomberg)

Saudi Arabia boosted crude production to the highest in three decades in March, with a surge equal to half the daily output of the Bakken formation in North Dakota. The kingdom boosted daily crude output by 658,800 barrels in March to an average of 10.294 million, according to data the country communicated to OPEC’s secretariat in Vienna. The Bakken formation, among the fastest-growing shale oil regions in the U.S., pumped 1.1 million barrels a day in February, according to data from the North Dakota Industrial Commission. Oil prices have rallied about 16% in New York this month on stronger fuel demand and as a record decline in U.S. rigs fanned speculation that the nation’s production will slow from its highest pace in three decades.

Prices collapsed almost 50% last year as Saudi Arabia led OPEC in maintaining production in the face of a global glut rather than make way for booming U.S. output. “It confirms the new strategy of the Saudis,” Giovanni Staunovo at UBS said. “If OPEC isn’t balancing the market any more, why should the Saudis hold so much spare capacity when they can use it to make money? Production is still likely to increase in the near term as domestic demand will increase.” In the space of 31 days, Saudi Arabia managed a production boost that took drillers in North Dakota’s Bakken almost 3 years to achieve, according to data compiled by Bloomberg. Output from the Bakken shale increased by about 668,000 barrels a day from February 2012 to December 2014, according to data from the state’s industrial commission.

The increase reflects Saudi Arabia’s own growing requirements rather than an attempt to defend market share, according to Harry Tchilinguirian at BNP Paribas in London. “It’s a big jump in Saudi production but it is commensurate with the increase in their domestic needs,” Tchilinguirian said by e-mail. “Saudi Arabia has made large capacity additions in refining, and they’ll probably want to build up crude stocks before demand from local utilities peaks in the summer.” The output figure for Saudi Arabia is in line with a level of 10.3 million a day announced by Oil Minister Ali Al-Naimi in Riyadh on April 7.

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“..this year’s death toll has already reached 909, compared with about 50 deaths in the same period in 2014, when Italy’s Mare Nostrum rescue mission was still in effect. That programme has since been replaced by Europe’s Triton, a far less ambitious border patrol..”

Italy Calls For Help Rescuing Migrants As 40 More Reportedly Drown (Guardian)

Italy has called on the rest of Europe to share the burden of the growing migration crisis in the Mediterranean as news of yet another tragedy emerged, with 41 migrants feared dead after their boat capsized just off the Sicilian coast. Four people survived the disaster, according to witnesses who interviewed them. The demand for Europe-wide action comes just days after 400 people were killed after a boat capsized on its way from Libya, and as the Italian coastguard brought two vessels with an estimated 1,100 rescued migrants on board to Sicily. There were also unconfirmed reports that Italian authorities had arrested 15 people following allegations that 12 migrants had intentionally been killed after a fight broke out on one of the ships.

According to interviews with the four survivors of the most recently capsized boat conducted by the Organisation for Migration (OIM), which follows the issue closely, the inflatable boat left Libya on Sunday with 45 people on board and was at sea for four days when the boat capsized. A spokesperson for OIM said it was likely that the vessel had trouble finding the correct route to Italy, given how long they were at sea. According to the men, who were picked up by the Italian navy vessel Foscari after they were spotted by an aircraft, the boat quickly began losing air forcing the migrants into the water.

Italy’s foreign minister, Paolo Gentiloni, appealed for help in coming to grips with the humanitarian crisis, saying that 90% of the rescue effort in recent weeks had fallen on the Italian navy, which responds to calls for help from migrant boats in international waters close to Libya. “The emergency is not just about Italy,” he said. “We have a duty to save lives and welcome people in a civilised manner, but we also have a duty to seek international engagement.” Another Italian ship, the Fiorillo, arrived in Sicily with about 301 people on board following the rescue of a vessel in distress, and the Dattilo had at least 592 following six separate rescue operations that took place over two days.

Survivors of the disaster earlier this week in which 400 people died said the vessel sank after passengers surged to one side to catch the attention of a passing commercial ship. About 8,500 migrants were rescued in the Mediterranean between Friday and Monday alone. The warm weather and good sea conditions have led to a sharp increase in attempted crossings. According to some estimates, this year’s death toll has already reached 909, compared with about 50 deaths in the same period in 2014, when Italy’s Mare Nostrum rescue mission was still in effect. That programme has since been replaced by Europe’s Triton, a far less ambitious border patrol that monitors incoming vessels within 30 miles of the Italian coast.

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