Sep 162018
 
 September 16, 2018  Posted by at 1:48 pm Finance Tagged with: , , , , , , , ,  


Salvador Dali Spain 1936-38

 

Yes, it is hard to believe, but still happening: 10 years after Lehman the very same people who either directly caused the financial crisis of 2008 or made things much much worse in its aftermath, are not only ALL walking around freely and enjoying even better paid jobs than 10 years ago, they are even asked by the media to share their wisdom, comment on what they did to prevent much much worse, and advise present day politicians and bankers on what THEY should do.

You know, what with all the wisdom, knowledge and experience they built up. because that’s the first thing you’ll hear them all spout: Oh YES!, they learned so many lessons after that terrible debacle, and now they’re much better prepared for the next crisis, if it ever might come, which it probably will, but not because of but despite what their wise ass class did back in the day.

Which never fails to bring back up the question about Ben Bernanke, who said right after Lehman that the Fed was entering ‘uncharted territory’ but ever after acted as if the territory had started looking mighty familiar to him, which is the only possible explanation for why he had no qualms about throwing trillion after trillion of someone else’s many at the banks he oversaw.

Somewhere along the line he must have figured it out, right, or he wouldn’t have done that?! He couldn’t still have been grasping in the pitch black dark the way he admitted doing when he made the ‘uncharted territory’ comment?! Thing is, he never returned to that comment, and was never asked about it, and neither were Draghi, Kuroda or Yellen. Did they figure out something they never told us about, or were and are they simple blind mice?

 

We have an idea, of course. Because we know central bankers serve banks and bankers, not countries or societies. Ergo, after Lehman crashed, whether that was warranted or not, Bernanke and the Fed focused on saving the banks that were responsible for the crisis, instead of the people in the country and society that were not.

They threw their out-of-thin-air trillions at making the asset markets look good, especially stock markets. Knowing that’s what people look at, and knowing foreclosures are of fleeting interest and can be blamed on borrowers, not lenders, anyway when necessary.

And obviously they knew and know they are and were simply blowing yet another bubble, just this time the biggest one ever, but the wealth transfer that has taken place under the guise of saving the economy has made the rich so much money they can’t and won’t complain for a while. They actually WILL eat cake.

Everyone else, sorry, we ran out of money, got to cut pensions and wages and everything else now. Healthcare? Nice idea, but sorry. Housing, foodstamps? Hey, what part of ‘the government is broke’ don’t you understand? You’re on your own, buddy. Remember the America Dream? Let that be your Yellow Brick Road.

The banking class is going to divest of their shares, while the individuals, money funds and pensions funds who are also in stocks because nothing else made money, will find their cupboards and cabinets replete with empty bags. Right after that the economy will start tanking, and for real this time. Want a loan to buy a home, a car, to start a business? Sorry, told you, there’s no money left.

 

But look, the banks are still standing! You don’t understand this, but that’s much more important. And oh well, those were all honest mistakes. And the ones that perhaps weren’t, shareholders paid big fines for those, didn’t they? See, we can’t have those banking experts in jail, because we need them to build the economy back up after the next crisis. The knowledge and experience, you just can’t replace that.

And it will be alright, you’ll see. Sure, it’ll be like Florence and all of her sisters blew themselves all over flyover country, but hey, that cleans up a lot of stuff too, right? And who needs all that stuff anyway? What is more important for the economy after all, Lower Manhattan or Appalachia?

And who are you going to blame for all this? We strongly suggest you blame Donald Trump, we sure as hell will at the Fed. So just fall in line, that’s better for everyone. Blame his tax cuts, or better even, blame his trade wars. Nobody likes those, and they sound credible enough to have caused the crash when it comes.

Anyway, while you’re stuck with the emergency menu at Waffle House, we hope your socks’ll dry soon, we really do, and we’re sorry about Aunt Mildred and the dogs and cats and chickens that have gone missing, but then that’s Mother Nature, don’t ya know?! Even we can’t help that. All we can really do is keep our own feet dry.

 

Central bankers haven’t merely NOT saved the economy, they have used the financial crisis to feed additional insane amounts of money to those whose interests they represent, and who already made similarly insane amounts, which caused the crisis to begin with. They have not let a good crisis go to waste.

But judging from the comments and ‘analyses’ on Lehman’s 10-year anniversary, the financial cabal still gets away with having people believe they’s actually trying to save the economy, and they just make mistakes every now and then, because they’re only human and uncharted territory, don’t you know?! Well, if you believe that, know that you’re being played for fools. Preferences and priorities are crystal clear here, and you’re not invited.

All the talk about how important it is that a central bank be independent is empty nonsense if that does not also, even first of all, include independence from financial institutions like commercial banks etc. Well, it doesn’t. Ben Bernanke’s Waffle House is nothing but a front for Grand Theft Auto.

 

 

Jun 082018
 


B-25s fly past erupting Vesuvius, Italy 1944

 

Why Bringing Assange Home Would Be The Best Possible Thing For Australia (CJ)
Julian Assange Gets Embassy Visit From Australian Officials (ITV)
Ben Bernanke: US Economy To Go Off The Cliff In 2020 (ZH)
The Return Of King Dollar Could Create A Feeding Frenzy For US Stocks (MW)
Trouble Brewing in Emerging Markets (Rickards)
Deutsche Bank’s Junk Bond Firesale (ZH)
China Trade Surplus Falls, But US Gap Widens (MW)
Argentina Clinches $50 Billion IMF Financing Deal (R.)
Welcome To The Post-Westphalian World (Escobar)
Turkey Suspends Migrant Deal With Greece (R.)
Mediterranean A ‘Sea Of Plastic’ (AFP)
All UK Mussels Contain Plastic And Other Contaminants (Ind.)

 

 

Caitlin Johnstone: “A beautiful continent where the Aboriginal Dreamtime has been paved over with suburbs and shopping centers.”

Why Bringing Assange Home Would Be The Best Possible Thing For Australia (CJ)

Well I’ll be damned, it’s about time. According to a new report by the Sydney Morning Herald, officials from Australia’s High Commission have just been spotted leaving the Ecuadorian embassy in London, accompanied by Julian Assange’s lawyer Jennifer Robinson. Robinson confirmed that a meeting had taken place, but declined to say what it was about “given the delicate diplomatic situation.” So, forgive me if I squee a bit. I am aware how subservient Australia has historically been to US interests, I am aware that those US interests entail the arrest of Assange and the destruction of WikiLeaks, and I am aware that things don’t often work out against the interests of the US-centralized empire. But there is a glimmer of hope now, coming from a direction we’ve never seen before. A certain southerly direction.

If the Australian government stepped in to protect one of its own journalists from being persecuted by the powerful empire that has dragged us into war after war and turned us into an asset of the US war/intelligence machine… well, as an Australian it makes me tear up just thinking about it. It has been absolutely humiliating watching my beloved country being degraded and exploited by the sociopathic agendas of America’s ruling elites, up to and including the imprisonment and isolation of one of our own, all because he helped share authentic, truthful documents exposing the depraved behaviors of those same ruling elites. I have had very few reasons to feel anything remotely resembling patriotism lately. If Australia brought Assange home, this would change.

We Australians do not have a very clear sense of ourselves; if we did we would never have stood for Assange’s persecution in the first place. We tend to form our national identity in terms of negatives, by the fact that we are not British and are not American, without any clear image about what we are. A bunch of white prisoners got thrown onto a gigantic island rich with ancient indigenous culture, we killed most of the continent’s inhabitants and degraded and exploited the survivors [..] That’s pretty much our entire nation right now. A beautiful continent where the Aboriginal Dreamtime has been paved over with suburbs and shopping centers.

[..] Bringing Julian Assange home could be the first step to giving ourselves a bright, shining image of who we are and what we stand for. At the moment, Australia is a lifeless vassal state hooked up to the US power establishment with our every orifice and resource being used to feed the corporatist empire. Anesthetized to the eyeballs and in a state of total submission, the return of Julian might just be the little spark we need to get the old ticker pumping for itself again. Finally standing up for ourselves, for what’s right, and for the things that Julian stands for might just be the very thing we need as a nation to discover who we really are again.

Bring him home. It’s time.

Read more …

It must have been so strange for him. How can he trust these people?

Julian Assange Gets Embassy Visit From Australian Officials (ITV)

WikiLeaks founder Julian Assange has been visited by officials from the Australian High Commission. Two officials went to the Ecuadorian Embassy in London where Mr Assange has been living for almost six years. His internet and phone connections were cut off by the Ecuadorian government six weeks ago and he was denied visitors. The Australian-born campaigner fears being extradited to the US if he leaves the embassy and being questioned about the activities of WikiLeaks. It is believed to be the first time officials from the Australian High Commission in London have visited him.

Jennifer Robinson, a member of Mr Assange’s legal team, said: “I can confirm we met with Australian government representatives in the embassy today. “Julian Assange is in a very serious situation, detained without charge for seven-and-a-half years. “He remains in the embassy because of the risk of extradition to the US. “That risk is undeniable after numerous statements by Trump administration officials, including the Director of the CIA and the US attorney-general. “Given the delicate diplomatic situation we cannot comment further at this time.”

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He probably doesn’t get the irony in contradicting himself.

Ben Bernanke: US Economy To Go Off The Cliff In 2020 (ZH)

Speaking at the American Enterprise Institute, Bernanke echoed Bridgewater’s biggest concern about the sugar high facing the US economy for the next 18 months, saying that the stimulative impact from Trump’s $1+ trillion fiscal stimulus “makes the Fed’s job more difficult all around” because it’s happening at a time of very low unemployment; it also means that the more supercharged the economy gets thanks to the fiscal stimulus, the greater the fall will be when the hangover hits. “What you are getting is a stimulus at the very wrong moment,” Bernanke said Thursday during a policy discussion at the American Enterprise Institute, a Washington think tank. “The economy is already at full employment.”

Stealing further from the Bridgewater note, Bernanke said that while the stimulus “is going to hit the economy in a big way this year and next year and then in 2020 Wile E. Coyote is going to go off the cliff, and it’s going to look down” just when the US economy collides head on with what Bridgewater called “an unsustainable set of conditions.” The irony here is delightful: after all it was Ben Bernanke who consistently blamed Congress for not doing enough to jumpstart the economy during his time in office – a core topic of his 2015 memoir “The Courage to Act: A Memoir of a Crisis and Its Aftermath”; it is the same Bernanke who three years later is now blaming the President and Congress for doing too much. Here is the NYT on the very topic:

“Congress is largely responsible for the incomplete recovery from the 2008 financial crisis, Ben S. Bernanke, the former Federal Reserve chairman, writes in a memoir published on Monday. Mr. Bernanke, who left the Fed in January 2014 after eight years as chairman, says the Fed’s response to the crisis was bold and effective but insufficient. “I often said that monetary policy was not a panacea — we needed Congress to do its part,” he says. “After the crisis calmed, that help was not forthcoming.” And now that Congress has more than done its part, Bernanke predicts collapse in under 2 years.

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It’s starting to feel that way.

The Return Of King Dollar Could Create A Feeding Frenzy For US Stocks (MW)

While Wall Street stocks may well be on their way to fresh highs, the dollar has been taking hits from all comers. That buck weakness is largely due to speculation the ECB may be nearing its own quantitative-easing unwind. The dollar is also sagging a bit as investors fret about the upcoming G-7 and Trump-Kim Jong Un meetings next week. But try to imagine a not-so-distant future, where King Dollar sits on the Iron Throne, while the world burns in chaos. That’s the vision laid out in our call of the day from Santiago Capital CEO Brent Johnson, who predicts the dollar will go “much, much higher” over the next one to two years. That in turn should trigger a global currency crisis and drive investors into U.S. stocks, he argues.

“What it means is we haven’t seen the blowoff top yet. I think equities are going a lot higher. This isn’t a Polyanna view — I’m not saying to go out and buy equities because things are good. I’m saying buy equities because things are bad,” says Johnson in a recent interview with Real Vision . Johnson sees big blowback from the Fed’s unwinding of quantitative easing, already underway and well ahead of the rest of the world’s central banks. That will leave fewer dollars sloshing around the global financial system, even as the world still has a big need for them. He estimates demand for the buck tops $1 trillion a year, just to pay interest on dollar-based debt.

As the Fed tightens and injects less liquidity into the system, it will cause the dollar to go higher and higher, driving more investors toward the buck and then U.S. stocks as well. And a super strong dollar will just cause chaos elsewhere, as other currencies crumble. Just ask emerging-market central bankers how hot it’s getting in the kitchen right now. In Johnson’s opinion, global financial trade revolves around the dollar, which is why it matters so much if it decides to take off in a big way. “And when that money flows into the dollar, it eventually goes into U.S. assets, and I think it is going to push equities to all-time highs,” he says.

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“The U.S. will need to borrow over $3 trillion of new money in the next three years in addition to rolling over the existing $21 trillion in U.S. Treasury debt.”

Trouble Brewing in Emerging Markets (Rickards)

Hot money has been heading out of stocks and moving in the direction of government bonds, where higher risk-adjusted returns await. With this market backdrop in mind, what are the prospects for emerging markets in the months ahead? Outflows from EM stocks have just begun and are set to accelerate dramatically in the months ahead. This could lead to a full-blown emerging-market debt crisis with some potential to morph into a global liquidity crisis of the kind last seen in 2008, possibly worse. Some of the main drivers of this outflow from EMs are:

• China has begun cracking down on excessive leverage, zombie companies and shadow banking. The result will be a slowdown in growth in the world’s second- largest economy as the Communist Party tries to bring a credit bubble in for a soft landing. If they fail, the result will be worse than a slowdown; it could be a made- in-China credit crisis

• President Trump has launched a trade war. Major U.S. trading partners such as China, Canada and Mexico are in the cross hairs. Retaliation by those trading partners will be quick in coming. This trade war is another head wind for world growth and will put added stress on EM exports to developed economies

• The U.S. budget deficit is out of control. The U.S. will need to borrow over $3 trillion of new money in the next three years in addition to rolling over the existing $21 trillion in U.S. Treasury debt. The Federal Reserve is no longer monetizing this debt and is actually reducing its holdings of U.S. Treasuries by shrinking the base money supply and deleveraging its balance sheet. This debt will find buyers at progressively higher interest rates. Since central banks are no longer buyers, private parties will have to buy this debt. Those private buyers will have to sell stocks in developed and emerging markets to have the liquidity to buy government bonds

This is an extremely potent combination. Slower growth in China, a global trade war and an epic portfolio rebalancing from stocks to government bonds will sink U.S. and emerging-market stocks. The best case will be a 30% drawdown in stocks. The worst case will be a new global liquidity crisis that makes 2008 look like a warm-up for the main event.

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The most desperate bank in the world.

Deutsche Bank’s Junk Bond Firesale (ZH)

Deutsche Bank is seeking to sell its portfolio of non-investment grade energy loans, worth about $3 billion, according to people with knowledge of the matter.

The potential firesale comes as Deutsche’s short-dated CDS (counterparty risk) is soaring..

And comes as European HY Energy debt is weakening notably and US HY Energy is as good as it gets… Bloomberg reports that Deutsche is planning to sell the loan book as a whole and has marketed it to North American and European peers, said one of the people. The portfolio is expected to sell for par value, said the people, who asked not to be identified because they weren’t authorized to speak publicly; good luck with that! The bank’s energy business is expected to wrap up on June 30, one of the people said. The bank has been an active lender in the energy space in the past year, participating in the financing of companies including Peabody Energy Corp. and Coronado Australian Holdings Pty., according to data compiled by Bloomberg.

So to summarize: Moody’s is warning that when the economy weakens we will see an avalanche of defaults like we haven’t seen before; Corporate debt-to-GDP and investor risk appetite is reminding a lot of veterans of previous credit peaks; and now the most desperate bank in the world is offering its whole junk energy debt book in a firesale… just as high yield issuance starts to slump. All of which raises more than a single hair on the back of our previous lives in credit necks… and reminds us of this…

Thank you all for coming in a little early this morning. I know yesterday was pretty bad and I wish I could say that today is gonna be less so, but that isn’t gonna be the case. Now I’m supposed to read this statement to you all here, but why don’t you just read it on your own time and I’ll just tell you what the fuck is going on here. I’ve been here all night… meeting with the Executive Committee. And the decision has been made to unwind a considerable position of the firm’s holdings in several key asset classes. The crux of it is… in the firms thinking, the party’s over as of this morning. “For those of you who’ve never been through this before, this is what the beginning of a fire sale looks like.” – Sam Rogers, Margin Call

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“Concerns about more tariffs ahead likely caused some companies to front-load shipments..”

China Trade Surplus Falls, But US Gap Widens (MW)

China’s trade surplus narrowed in May on strong imports, through the gap with the U.S. widened–in part, some economists said, because of concerns that trade tensions could worsen in the months ahead. China reported a trade surplus of $24.92 billion last month, according to customs data released Friday, narrower than April’s $28.78 billion and the $32.6 billion forecast in a poll of economists. Imports were up 26% from a year earlier–driven by rising oil prices and bigger purchases of factory inputs, some economists said–accelerating from April’s 21.5% and beating forecasts. The higher-than-expected figure came after Beijing pledged to its trading partners to increase purchases and narrow trade gaps.

Stripping out price effects, Julian Evans-Pritchard, an economist with Capital Economics, estimated that import volumes in May were still up a seasonally adjusted 5.2% from April, reversing most of the decline since the start of 2018. The increase suggests that industrial activity remains strong following the easing of wintertime pollution controls, he said. Washington and Beijing have skirmished over trade this year, increasing tariffs on some products and threatening to do so on tens of billions of dollars in other goods. Beijing in recent weeks extended an olive branch, announcing plans to increase purchases from abroad and reduce tariffs on automobiles and some consumer products ranging from food and cosmetics.

Even so, China’s trade surplus with the U.S. in May was up 11% from April, at $24.58 billion, according to Friday’s data. Concerns about more tariffs ahead likely caused some companies to front-load shipments, said Liu Xuezhi, an economist with Bank of Communications.

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Shackles.

Argentina Clinches $50 Billion IMF Financing Deal (R.)

Argentina and the International Monetary Fund said on Thursday they reached an agreement for a three-year, $50 billion standby lending arrangement, which the government said it sought to provide a safety net and avoid the frequent crises of the country’s past. Argentina requested IMF assistance on May 8 after its peso currency weakened sharply in an investor exodus from emerging markets. As part of the deal, which is subject to IMF board approval, the government pledged to speed up plans to reduce the fiscal deficit even as authorities now foresee lower growth and higher inflation in the coming years.

The deal marks a turning point for Argentina, which for years shunned the IMF after a devastating 2001-2002 economic crisis that many Argentines blamed on IMF-imposed austerity measures. President Mauricio Macri’s turn to the lender has led to protests in the country. “There is no magic, the IMF can help but Argentines need to resolve our own problems,” Treasury Minister Nicolas Dujovne said at a news conference. Dujovne said he expected the IMF’s board to approve the deal during a June 20 meeting. After that, he said he expects an immediate disbursement of 30% of the funding, or about $15 billion. Argentina will seek to reduce its fiscal deficit to 1.3% of GDP in 2019, down from 2.2% previously, Dujovne said. The deal calls for fiscal balance in 2020 and a fiscal surplus of 0.5% of GDP in 2020.

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Overview of all initiatives to move away from western dominance.

Welcome To The Post-Westphalian World (Escobar)

In his latest, avowedly “provocative” slim volume, Has the West Lost It? former Singaporean ambassador to the UN and current Professor in the Practice of Public Policy at the National University, Kishore Mahbubani frames the key question: “Viewed against the backdrop of the past 1,800 years, the recent period of Western relative over-performance against other civilizations is a major historical aberration. All such aberrations come to a natural end, and that is happening now.” It is enlightening to remember that at the Shangri-la Dialogue two years ago, Professor Xiang Lanxin, director of the Centre of One Belt and One Road Studies at the China National Institute for SCO International Exchange and Judicial Cooperation, described BRI as an avenue to a ‘post-Westphalian world.’

That’s where we are now. Western elites cannot but worry when central banks in China, Russia, India and Turkey actively increase their physical gold stash; when Moscow and Beijing discuss launching a gold-backed currency system to replace the US dollar; when the IMF warns that the debt burden of the global economy has reached $237 trillion; when the Bank for International Settlements (BIS) warns that, on top of that there is also an ungraspable $750 trillion in additional debt outstanding in derivatives. Mahbubani states the obvious: “The era of Western domination is coming to an end.” Western elites, he adds, “should lift their sights from their domestic civil wars and focus on the larger global challenges. Instead, they are, in various ways, accelerating their irrelevance and disintegration.”

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The Greek court system works.

Turkey Suspends Migrant Deal With Greece (R.)

Turkey has suspended its migrant readmission deal with Greece, Foreign Minister Mevlut Cavusoglu was quoted as saying by state-run Anadolu agency, days after Greece released from prison four Turkish soldiers who fled there after a 2016 attempted coup. The four soldiers were released on Monday after an order extending their custody expired. A decision on their asylum applications is still pending. “We have a bilateral readmission agreement. We have suspended that readmission agreement,” Cavusoglu was quoted as saying, adding that a separate migrant deal between the EU and Turkey would continue. Under the bilateral deal signed in 2001, 1,209 foreign nationals have been deported to Turkey from Greece in the last two years, data from the Greek citizens’ protection ministry showed.

Cavusoglu was quoted as saying that he believed the Greek government wanted to resolve the issue about the soldiers but that Greek judges were under pressure from the West. “The Greek government wants to resolve this issue. But we also see there is serious pressure on Greece from the West. Especially on Greek judges,” Cavusoglu was quoted as saying. The eight soldiers fled to Greece following the July 2016 failed coup in Turkey. Ankara has demanded they be handed over, accusing them of involvement in the abortive coup. Greek courts have rejected the extradition request and the soldiers have denied wrongdoing and say they fear for their lives. In May, Greece’s top administrative court rejected an appeal by the Greek government against an administrative decision by an asylum board to grant asylum to one of the Turkish soldiers.

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Worst offender? Turkey.

Mediterranean A ‘Sea Of Plastic’ (AFP)

The Mediterranean could become a “sea of plastic”, the WWF warned on Friday (June 8) in a report calling for measures to clean up one of the world’s worst affected bodies of water. The WWF said the Mediterranean had record levels of “micro-plastics,” the tiny pieces of plastic less than 5mm in size which can be found increasingly in the food chain, posing a threat to human health. “The concentration of micro-plastics is nearly four times higher” in the Mediterranean compared with open seas elsewhere in the world, said the report, “Out of the Plastic Trap: Saving the Mediterranean from Plastic Pollution.” The problem, as all over the world, is simply that plastics have become an essential part of our daily lives while recycling only accounts for a third of the waste in Europe.

Plastic represents 95 per cent of the waste floating in the Mediterranean and on its beaches, with most coming from Turkey and Spain, followed by Italy, Egypt and France, the report said. To tackle the problem, there has to be an international agreement to reduce the dumping of plastic waste and to help clear up the mess at sea, the WWF said. All countries around the Mediterranean should boost recycling, ban single-use plastics such as bags and bottles, and phase out the use of micro plastics in detergents or cosmetics by 2025. The plastics industry itself should develop recyclable and compostable products made out of renewable raw materials, not chemicals derived from oil.

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Bon appetit.

All UK Mussels Contain Plastic And Other Contaminants (Ind.)

All mussels sampled from UK coastlines and supermarkets were found to contain tiny shards of plastic and other debris in a new study. The scientists behind the report said microplastic consumption by people eating seafood in Britain was likely “common and widespread”. Though they were less certain about the resulting impact on human health, the research team emphasised the importance of further studies to determine any potential harm as a result of people eating plastic. In samples of wild mussels from eight coastal locations around the UK and eight unnamed supermarkets, 100 per cent were found to contain microplastics or other debris such as cotton and rayon.

Every 100 grams of mussels eaten contains an estimated 70 pieces of debris, according to the researchers, whose study is published in the journal Environmental Pollution. Mussels feed by filtering seawater through their bodies, meaning they ingest small particles of plastic and other materials as well as their food. There was more debris in the wild mussels, which were sampled from Edinburgh, Filey, Hastings, Brighton, Plymouth, Cardiff and Wallasey, than in the farmed mussels bought in shops. But mussels from the supermarkets, which came from various places around the world, had more particles in them if they had been cooked or frozen than if they were freshly caught, the study found.

Read more …

Sep 272017
 
 September 27, 2017  Posted by at 1:31 pm Finance Tagged with: , , , , , , , ,  


Fan Ho Construction 1952

 

You would think, certainly if you were as naive and innocent as I am, that when you get offered the job of Chair of the Federal Reserve, you must be sure, before accepting, that you have the credentials and the knowledge required. If you don’t, it looks as if you don’t take the job seriously. Janet Yellen, who’s been Chair since January 2014, doesn’t seem to agree.

In a speech Tuesday for the National Association for Business Economics Yellen ‘honestly’ admitted that she doesn’t understand inflation, control of which is the Fed’s no.1 task (it’s debatable whether that’s a good idea). She doesn’t understand a bunch of other issues either. Those are her own words, not mine. Here are these own words:

“My colleagues and I may have misjudged the strength of the labor market, the degree to which longer-run inflation expectations are consistent with our inflation objective, or even the fundamental forces driving inflation..”

Clear enough, you would think. But she didn’t offer her resignation. And for an important post like Fed chair, that is a major problem. As she undoubtedly does. So why is she keeping her job? Doesn’t she realize that when you don’t understand the issues you deal with, you’re prone to make disastrous mistakes?

Yellen and her colleagues work with models, and the models are wrong. The Fed’s predictions for things like inflation are ridiculously off, all the time. That may be news to her, but it’s old hash for many people in her field. So that she’s surrounded solely by people who don’t understand these things either is not an excuse.

So what does she expect now? That she will start to understand them all of a sudden, after years and years of not being able to? That reality will change to comply with her models? We can discount the option that she will suddenly begin using entirely different models, they’re all she has. But what then?

Under her predecessor Ben Bernanke, who never conceded he had no idea either but still didn’t, the Fed lowered interest rates to near zero Kelvin and bought trillions of dollars in bonds and securities. Now Yellen for some reason thinks it’s time to get rid of the stuff.

But on what basis does she make such a decision, if she self-admittedly doesn’t even understand the fundamental forces in play? How is that different from handing a box of matches to a 3-year old? Isn’t she really simply an academic dropped in a casino? From CNBC:

Yellen said a regular pace of rate hikes ahead is likely still warranted, though Fed officials are looking closely at the assumptions underlying those projections. While conceding that the Fed may need to slow the removal of accommodation, she also said the central bank “should also be wary of moving too gradually.”

There comes a point when naive innocent me starts asking: what does that even mean? Rate hikes are warranted but we don’t know why? Accommodative policies have been going too fast but they shouldn’t be too slow? Based on what? It can only be based on models that have proven faulty, can’t it, because they have no others.

 

Here are a few pointers for the occupants of the Marriner S. Eccles Federal Reserve Board Building. Inflation is money velocity multiplied by money and credit supply. MV = PY. M is money supply, V is velocity, P is price level and real GDP is Y.

Velocity of money means consumer spending. 70% of US GDP is consumer spending. But American consumers are neck deep in debt and have very little money left to spend. Much of what they spend, they must borrow.78% of Americans live paycheck to paycheck. So forget about money velocity.

 

 

Moreover, as for the Fed’s second mandate after inflation, full employment, they don’t get that one either. They seem to act on the presumption that any one job is just like the other. And then bleat: “My colleagues and I may have misjudged the strength of the labor market”.

But America has turned into a nation where the gig economy (the natural successor to first the knowledge economy, then the service economy), waiters, greeters and people working 3 jobs just to make ends meet have become the norm. When in the present circumstances you claim to have almost ‘achieved’ full employment, as Yellen and the Fed do, you must really be blind as a bat.

The other side of the equation is money supply. Interestingly, the Fed has issued tons of it, but handed it all to its owner banks. If they had spent it inside the economy itself, we could have been looking at a whole other picture. If those trillions would have gone to investment, manufacturing etc., instead of propping up banks and companies buying their own shares, Yellen might have actually seen some inflation.

If Americans have no money to spend, there can not be inflation. Simple. But the same stupid faulty predictions just keep coming:

 

 

So why is anybody still paying attention to Janet Yellen? Well, because she has her finger on the biggest financial trigger on the planet. No matter how shaky and uneducated that finger may be. Or do we pay attention exactly because we know what’s behind that shaky finger? Do we all put everything on red just because grandma does it too?

The craziest thing of all is that in reactions in the media to Yellen’s speech, she’s praised for admitting she has no clue what she’s doing. That takes the cake. And eats it too. Praised for admitting you’re terribly unfit for your job. That’s just great. That’s Bizarro world.

It’s well past best before time to get rid of Janet Yellen, and all the intellectual but idiots who work at the Fed. What is it, 1,000 PhDs, or was that 10,000? But the only thing that makes any real sense of course, the only thing that can save the nation, is to get rid of the Fed and its braindead mandates, interests and occupants altogether.

Hedgeye got this one painfully right:

 

 

And yeah, I know Yellen could be fired too if she doesn’t resign, but with Goldman Sachs all over the White House, what are the odds? And who would come in when she goes? She’s ideal, who’s going to get angry at a barely 5′ grandmother even is she clearly out of her depth and league?

 

 

Sep 242017
 
 September 24, 2017  Posted by at 9:00 am Finance Tagged with: , , , , , , , , , , ,  


Elliott Erwitt Gateway Center Demolition Area Pittsburgh 1950

 

All The Bubbles That Are About To Pop In One Chart (Dillian)
America’s $20 Trillion Debt In Global Context (HowMuch)
Accounting Error Spells Chaos For Global Economy (Graeber)
The American Golden Calf (PL)
Boobs on Credit (Jim Quinn)
Bernanke Past the Point of No Return (AM)
Janet Yellen’s 78-Month Plan for US National Monetary Policy (AM)
A Private Solution For China’s Zombie Company Problem? Unlikely (R.)
More Chinese Cities Impose Property Control Measures (R.)
The Tide Is Starting To Turn Against The World’s Digital Giants (G.)
Why Uber’s Fate Could Herald Backlash Against ‘Digital Disruptors’ (G.)
France’s Far-Left Leader Urges French ‘Resistance’ Against Macron (R.)
Spain Rebuffed in Boosting Control Over Catalonia’s Police (BBG)
No Storm Ever Destroyed a Grid Like Maria Ruined Puerto Rico’s (BBG)

 

 

It’s big graphs day today. This is Jared Dillian’s.

All The Bubbles That Are About To Pop In One Chart (Dillian)

It wasn’t always this way. We never used to get a giant, speculative bubble every seven to eight years. We really didn’t. In 2000, we had the dot-com bubble. In 2007, we had the housing bubble. In 2017, we have the everything bubble. I did not coin the term “the everything bubble.” I do not know who did. Apologies (and much respect) to the person I stole it from. Why do we call it the everything bubble? Well, there is a bubble in a bunch of asset classes simultaneously. And the infographic below that my colleagues at Mauldin Economics created paints the picture best. I don’t usually predict downturns, but this time I bet my reputation that a downturn is coming. And soon.

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Private debt would be more useful. But okay…

America’s $20 Trillion Debt In Global Context (HowMuch)

The U.S. federal government just passed a record $20 trillion in publicly held debt. That’s bigger than the entire economy of every country in the European Union, combined. The debt will only grow higher unless President Trump and the U.S. Congress can agree to unprecedented spending cuts combined with tax increases. Don’t count on that happening anytime soon. Most people think that an eye-popping $20+ trillion debt is insurmountable, and in fact, it is the largest in the world by far. But when you look at another fiscal measure—the ratio of debt-to-GDP—the U.S. is not in the worst situation. Our visualization allows you to quickly see how the U.S. government’s debt compares to other countries around the world. The size of the country correlates to the size of the debt. The U.S. and Japan stand out because they have the highest debts in the world ($20.17T and $11.59T, respectively).

Other countries, like Germany and Brazil, appear much smaller because their debts are comparatively tiny ($2.45T and $1.45T, respectively). We then color-coded each country according to its debt-to-GDP ratio. Green countries have a healthy margin, but dark red and fuchsia countries have debts that are even bigger than their entire economies. The debt-to-GDP ratio is a critical metric for evaluating a country’s fiscal health. It makes a lot of sense for the American government to have a higher debt than a much smaller country, like Germany. That’s why it’s important to consider the GDP of each country, a number which represents the sum of all transactions occurring in the economy. Once you understand the public debt as a percentage of GDP, you get a level playing field for countries on different economic scales. When you think about it like this, the U.S. isn’t even among the ten worst sovereign debts in the world.

Top 10 countries with the Worst Debt-to-GDP Ratios
1. Japan (245% at $11.59B)
2. Greece (173% at $338B)
3. Italy (138% at $138B)
4. Portugal (133% at $274B)
5. Belgium (111% at $111B)
6. Spain (106% at $106B)
7. Canada (106% at $106B)
8. Ireland (105% at $105B)
9. France (98% at $98B)
10. Brazil (82% at $82B)

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Dave Graeber suggests (strongly) that official UK numbers miss -intentionally or not- a huge chunk of household debt. Government debt could be involved, but even then.

Accounting Error Spells Chaos For Global Economy (Graeber)

The thing that always struck me is how much the morality of debt—that anyone in debt has only themselves to blame, that deadbeats are contemptible—stubbornly refuses to die. Even now, when the situation is largely engineered by government policy, the first impulse of pundits and other popular moralists is invariably to assume the real problem must, somehow, be a bunch of lazy freeloaders, living beyond their means. As a result, by the standards of public discourse that exist today—that is, the sort of things it’s considered acceptable coming from the mouth of a politician or TV commentator or government economist—it’s not really legitimate to worry about rising levels of household debt simply because it causes misery or deprivation, if it means millions of actual flesh and blood human beings will be living lives of fear, anxiety, and constant humiliation.


Illustration Rachel Bolton

It’s only really legitimate to worry about rising levels of household debt insofar as it might be likely to cause another financial crisis. (Such a crisis, after all, might well affect the lives of the rich and upper reaches of the professional and managerial classes, that is, the kind of lives that policy-makers feel they have to take account of.) And even then, it must be posed as a moral problem caused by irresponsible self-indulgence—as one Daily Mail headline recently put it: “Your neighbour’s shiny new SUV is about to crash the economy!” Yet the two impulses are clearly in tension. To look at debt in macro-economic terms does make it easier to see it as a structural problem, as the result of self-conscious policy decisions. As a result, everyone seems to want to minimise the problem. Here are the numbers that they published in 2017, which a friend of mine who works in the City translated into handy tabular form:

The attentive reader will note that the image is symmetrical. Up to around 2014, at least, the top and bottom half exactly mirror one another. This is exactly as things should be: it’s an “accounting identity”, as in a ledger sheet, debits and credits have to add up. The remarkable thing is that after 2014, they don’t, and in the projected future, the top and bottom are actually quite different. When I first saw this diagram I was startled and confused. Was I missing something? Was there something about the math I didn’t understand? I passed the image on to two different economists and asked just that: isn’t there something wrong with the numbers here?

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A version of the ugly duckling. Behind Trump’s words on athletes and the anthem. Many people like the athletes, but some 75% of Americans think they should respect the flag. Trump thought this through.

The American Golden Calf (PL)

As a young boy, I enjoyed my family’s bantam chickens that laid very small eggs and hatched very small chicks. Theirs was a small and miniature world. One day one of my bantams started sitting on eggs to hatch its chicks. Something happened to her eggs but she continued to sit, so I decided to put a duck egg under her. Duck eggs are at least three times bigger than bantam eggs and take a few days longer to hatch, but she dutifully sat on the egg several days longer. She hatched the duckling and, as you can imagine, it thought that his world was normal and that the bantam hen was his mother. The duckling eventually grew into a full sized mallard duck, probably five or six times the size of its bantam mother. The full-grown duck would follow its hen mother around as would normal chicks. It was a funny sight to watch.

But I remember thinking, even as a small boy, that the duck’s entire reality was that the bantam hen was his mother and that was the way the world worked. He had no need to consider anything else. This is the world of the American people today. Their perceptions of reality control them and they who control their perceptions control the American people. Our perception of America has always been that she is the mother country and ordained by God, good and just and a beacon of freedom. This is hammered into our psyches from our early days. From pre-school up, we are taught to worship the state. I don’t know if it is still done, but in the public (non)education system, for many years, schoolchildren across the South — and elsewhere, I suppose — recited the Pledge of Allegiance each morning.

Political rallies and government meetings are still often begun with a recitation of the pledge. People say it with patriotic fervor, with their hands placed dutifully on their hearts. Sporting events, political rallies and other public venues are often kicked off with the playing and/or singing of the Star Spangled Banner. Before the song begins, people are instructed to rise, men to remove their hats,and people place their hands over their hearts. They don’t realize its value as a propaganda tool. We have come to equate the flag, the pledge and the national anthem with patriotism, and patriotism with government, country and support for government, support for foreign wars and veterans. Anything less is “un-American.”

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“What happens when a bimbo defaults on her boob loan? How narrow minded of me.”

Boobs on Credit (Jim Quinn)

As I was driving to work yesterday morning on the Schuylkill Expressway a commercial comes on the radio from a plastic surgeon advertising for anyone looking for a better set of boobs. I had never heard a plastic surgeon commercial before, so I thought that was unusual. But, that wasn’t the best part. This plastic surgeon was offering no money down 18 month interest free financing on your new boobs. I wonder if they are moving boobs with subprime debt the same way the auto companies have used subprime debt to move cars. Of course, when a deadbeat defaults on an auto loan the car is easily repossessed. What happens when a bimbo defaults on her boob loan? How narrow minded of me. What happens when some dude who wants to be a bimbo defaults on his/her loan? I guess it was just a matter of time before breast enhancement met debt enhancement in this warped world of materialism, narcissism, financialization, and delusions.

Now that revolving credit has reached a new all-time high of $1 trillion and total consumer debt outstanding has exceeded it’s 2008 peak at $12.8 trillion, the Fed has completed its job of helping the average American again in-debt themselves up to their eyeballs. This is considered a success story in this twisted, perverted, bizarro world we call America today. The solution to an epic debt induced global financial catastrophe caused by Federal Reserve easy money, Wall Street fraud, and Washington DC corruption has been to increase global debt by 50% since 2007, with virtually all of it created by central bankers and the governments they control. In what demented Ivy League educated academic mind would piling $68 trillion more debt on the backs of taxpayers as a cure for a disease caused by the initial $149 trillion of debt be considered rational and sustainable? It’s like having pancreatic cancer and trying to cure it with a self inflicted gunshot.

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The following two pieces are fom the same article.

Bernanke Past the Point of No Return (AM)

In late November 2008, Federal Reserve Chairman Ben Bernanke put in place a fait accompli. But he didn’t recognize it at the time. For he was blinded by his myopic prejudices. Bernanke, a self-fancied Great Depression history buff with the highest academic credentials, gazed back 80 years, observed several credit market parallels, and then made a preconceived diagnosis. After that, he picked up his copy of A Monetary History of the United States by Milton Friedman and Anna Schwartz, turned to the chapter on the Great Depression, and got to work expanding the Fed’s balance sheet. Now here is something all those “Great Depression experts” always neglect to mention: the Fed’s holdings of government securities expanded my more than 400% between late 1929 and early 1933.

Friedman’s often repeated assertion that the Fed “didn’t pump enough” in the early 1930s – which is held up as the gospel truth by nearly everyone – is simply untrue. It is true that the money supply collapsed anyway – but not because the Fed didn’t try to pump it up. Many contingent circumstances mitigated against money supply expansion: too many banks went bankrupt, taking all their uncovered deposit money to money heaven, as there was no FDIC insurance; only 50% of all banks were even members of the Federal Reserve system; no-one wanted to borrow or lend in view of the massive economic contraction and the Hoover administration’s ill-conceived interventionism. We can also tentatively conclude that the economy’s pool of real funding was under great pressure, which was exacerbated as a result of the trade war triggered by the protectionist Smoot-Hawley tariff enacted in June 1930.

The collapse in international trade and investment meant that the pool of savings of the rest of the globe was no longer accessible. Bernanke’s dirty deed commenced with the purchase of $600 billion in mortgage-backed securities, using digital monetary credits conjured up from thin air. By March 2009, he’d run up the Fed’s balance sheet from $900 billion to $1.75 trillion. Then, over the next five years, he ballooned it out to $4.5 trillion. All the while, Bernanke flattered his ego with platitudes that he was preventing Great Depression II. Did it ever occur to him he was merely postponing a much-needed financial liquidation and rebalancing? Did he comprehend that his actions were distorting the economy further and setting it up for an even greater bust?

Perhaps Bernanke understood exactly what he was doing. As many readers have insisted over the years, the Fed works for the big banks and big money interests. Not Main Street. Regardless, the Fed recognizes that the optics of its $4.5 trillion balance sheet have become a bit skewed. The Great Recession officially ended over eight years ago. Why is the Fed’s balance sheet still extremely bloated?


US broad true money supply TMS-2 and assets held by the Federal Reserve

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A 6.5 year plan.

Janet Yellen’s 78-Month Plan for US National Monetary Policy (AM)

By our back of the napkin calculation, starting with October’s initial $10 billion reduction, then incrementally increasing the reduction by $10 billion each quarter until hitting $50 billion per month, and then contracting by $50 billion a month from there, it will take 78-months for the Fed to get its balance sheet back to $900 billion (i.e., where it was before Bernanke’s act of depravity). Thus, in roughly six and a half years, or in March 2024, monetary policy will be back to normal. If you recall, the Soviets operated under five-year plans for the development of the national economy of the USSR. Now, Yellen, an ardent central planner and control freak, has charted the Fed’s 78-month plan for the national monetary policy of the United States. Have you ever heard of something so ridiculous?

However, while the Soviets were zealous believers in their plans, we suspect the Fed will be as committed to the cause as a fat person to a New Year’s Day diet. In truth, the Fed will never, ever reduce its balance sheet to $900 billion. They won’t even get close; they are well past the point of no return. In the early 1930s the Soviet planners under Stalin had a great idea: why not fulfill the 5 year plan in four years? This showed that nothing was impossible for the “new Soviet man” and two plus two was henceforth five. As Marxists will explain, this is in perfect keeping with the rules of polylogism. Even the laws of mathematics must bend to proletarian logic. For starters, financial markets will not allow the Fed to execute its 78-month tightening program according to plan. At some point, credit markets will have a severe reaction.

This would ripple through stock markets and nearly all assets that are propped up by cheap credit. What’s more, if this doesn’t panic the Fed from its master 78-month monetary policy plan, the economy will. No doubt, at some point within the next 78-months the U.S. economy will shrink. What will the Fed do then? Will they continue to tighten in the face of a contracting economy? No way. They will ease, and then they will ease some more. They won’t stop until it is near impossible for an honest person to work hard, save their money, and pay their way in life. Many fine fellows were already pickled over by the Fed in the last easing cycle and lost their way. More are bound to follow.


Guess who’s lying in wait… it will be found out that a creature long held to be extinct was merely hibernating in its cave, sharpening its claws.

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China’s just shifting debt around, hoping it’ll end up under a carpet some place. But the zombies merely start infecting healthy businesses.

A Private Solution For China’s Zombie Company Problem? Unlikely (R.)

China’s latest push to revive its bloated state-owned sector is set to pick up pace this year, with bankers and investors expecting possible spin-offs and asset sales to follow a key Communist Party Congress in October. But the effort is likely to only involve a limited role for private money, even as Beijing has been promoting it as crucial for reforming state-owned enterprises (SOEs), according to people familiar with China’s plans. Beijing would likely lean on cash-rich SOEs like China Life Insurance and Citic Group to bail out the largest of the struggling companies, the people said. They cited China Life stepping in to help China Unicom raise $12 billion last month. A limited role for private capital would raise questions about the depth of any overhaul of the SOEs.

China hopes to speed up the reforms in order to meet ambitious economic growth targets and manage its corporate debt burden. “The current model allows winners, companies doing better, to partially own those doing worse,” said Alicia Garcia-Herrero, chief Asia Pacific economist at Natixis. “In other words, this is a reshuffling of profit, loss among SOEs to a large extent.” China Life is in talks with China Three Gorges New Energy, a unit of the country’s top hydropower developer, according to sources familiar with the matter. China’s state-run companies dominate the country’s key industries, from banking to insurance, energy, and telecoms. They retain an edge over their private rivals in investing both locally and overseas, in part thanks to easier financing.

But they also produce lower returns than their private counterparts and account for the biggest proportion of the bad loans on the books of the country’s banks. The fund raising by Unicom, a state-owned telecoms group, had sparked hopes for the mixed ownership effort, as outlined in a 2015 government plan. The partial privatization of Unicom in August, involving 14 investors, including the tech giants Alibaba and Tencent, was welcomed by markets. But, as Beijing balanced the need for cash with the need for control, China Life ended up with a 10.6 percent stake in the company, nearly a third of the total sold. New investors, including China Life, were given three of 15 board seats.

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Feels half ass.

More Chinese Cities Impose Property Control Measures (R.)

A number of second-tier cities in China have rolled out property speculation curbs in an effort to cool home property sales, according to the official Xinhua News Agency and documents published by some municipal governments. The city of Shijiazhuang, southwest of Beijing, has banned investors from selling newly bought homes for up to five years, while Changsha in Hunan province banned homeowners from buying a second property for up to three years from the time of their first home purchase, Xinhua said. Changsha has also limited property sales to non local residents to one unit per person. The city of Chongqing, as well as Nancang in the southern province of Jiangxi, meanwhile, banned transactions of new and second-hand homes for two years after purchase.

The various measures took effect last week. Additionally, Xian in Shaanxi province has asked real estate developers from Monday to report home prices to local price-monitoring departments before sale and reiterated its pledge to crack down on property price manipulation and speculation. The latest property clampdowns follow moves in June by two Chinese cities, Xian in Shaanxi and Zhenzhou in Henan province, to cool their property markets. Average new home prices in China’s 70 major cities rose 0.2 percent in August from a month ago, data from the statistics bureau showed.

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I’m not convinced. Besides, Google and Facebook already are branches of the intelligence industry.

The Tide Is Starting To Turn Against The World’s Digital Giants (G.)

In his wonderful book The Swerve: How the Renaissance Began, the literary historian Stephen Greenblatt traces the origins of the Renaissance back to the rediscovery of a 2,000-year-old poem by Lucretius, De Rerum Natura (On the Nature of Things). The book is a riveting explanation of how a huge cultural shift can ultimately spring from faint stirrings in the undergrowth. Professor Greenblatt is probably not interested in the giant corporations that now dominate our world, but I am, and in the spirit of The Swerve I’ve been looking for signs that big changes might be on the way. You don’t have to dig very deep to find them. Some are pretty obvious. In 2014, for example, the European Court of Justice decided that EU citizens had the so-called “right to be forgotten” and that Google would have to comply if it wanted to continue to do business in Europe.

In May this year, the European commission fined Facebook €110m for “providing misleading information” about its takeover of WhatsApp. And in June the commission levied a whopping €2.4bn fine on Google for abusing its monopoly in search. Since the European commission is the only regulator in the world that seems to have the muscle and inclination to take on the internet giants, these developments were relatively predictable. What’s more interesting are various straws in the wind that show how digital behemoths are losing their shine. Many of these relate to Brexit and the election of Donald Trump, and to the dawning of a realisation that Google and Facebook in particular may have played some role in these political earthquakes.

This was not because the leadership of the two companies actively sought these outcomes, but because people began to realise that the infrastructure they had built for their core business of extracting users’ data and selling it to companies for ad-targeting purposes could be – and was – “weaponised” by political actors in order to achieve political goals. Public concern about these discoveries was not exactly mollified by the responses of the companies’ bosses – which were variously dismissive, evasive (“it’s just the algorithms – nothing to do with us”), disingenuous, inept and politically naive. They had to be like that, because a franker response would reveal that taking responsibility for what happens on their platforms would vaporise the business model that has made them so rich and powerful.

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Why let Uber grow as big as it has and only then act?

Why Uber’s Fate Could Herald Backlash Against ‘Digital Disruptors’ (G.)

In the mind of many Uber supporters, the Transport for London (TfL) decision – coming a few days before Khan’s appearance at the Labour party conference – revealed an organisation in thrall to established labour interests. Sources told the Observer that the decision was communicated to Uber only two minutes before it was announced and that there had been only one meeting in the last year between the company and the senior team at TfL who insisted that the licence renewal could not be discussed. “TfL has once again caved into pressure from unions who never miss an opportunity to rip off passengers,” said Alex Wild, research director at the rightwing pressure group Taxpayers’ Alliance. The pushback against the laissez-faire philosophy of the US west coast’s tech community is being waged on both sides of the Atlantic.

In the US, calls to regulate technology companies have made strange bedfellows of Democratic senator Elizabeth Warren and ex-White House aide and Breitbart chief Steve Bannon. Last week the former chief strategist to Donald Trump reiterated his view that firms such as Facebook and Google should be regulated like “public utilities”. Meanwhile progressives such as Warren warn of the monopolistic behaviour of Google, Amazon, and Apple while pushing for a renewed debate over antitrust laws. “Silicon Valley is going from being heroes to villains,” said Vivek Wadhwa, a distinguished fellow and adjunct professor at Carnegie Mellon University. “It’s been brewing for quite a while, but there’s a big shift happening.” But, still, the speed of this shift has surprised many. “In our wildest dreams we didn’t think TfL would refuse the licence,” said Maria Ludkin, legal director at the GMB union. “We thought they’d attach conditions to make sure Uber would improve passenger and driver safety.”

[..] Ironically, while many drivers like Abdul have leapt to Uber’s defence, it was the company’s treatment of them that drew attention to the aggressive corporate culture which brought about its downfall in the capital. Last October, following a case brought by the GMB that has wide-ranging implications for all companies in the gig economy, an employment tribunal ruled that Uber’s UK drivers should be classed as workers rather than as self-employed. “We’d had an epidemic of companies saying their people are self-employed when in fact, when you examine their rights and responsibilities, the way they’re acting each day, it’s pretty clear they’re either fully employed or are workers entitled to sickness pay, etc,” Ludkin said. “We brought the Uber case because we had so many drivers coming to us. We looked at their contracts and thought it was a ludicrous idea that 30,000 of them were self-employed, which was Uber’s position.”

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Let’s see what’s left of the famed French protests. Note: the US is not alone in contesting crowd sizes.

France’s Far-Left Leader Urges French ‘Resistance’ Against Macron (R.)

French far-left opposition party leader Jean-Luc Melenchon drew tens of thousands to a rally on Saturday against President Emmanuel Macron’s labor reforms, aiming to reinforce his credentials as Macron’s strongest political opponent. Trade union protests against Macron’s plan to make hiring and firing easier and give companies more power over working conditions seem to be losing steam, but Melenchon said his “France Unbowed” party was calling on unions to join them and together “keep up the fight”. “The battle is not over, it is only starting,” Melenchon told the crowd gathered on the Place de la Republique where the rally against what Melenchon has called “a social coup d‘etat” ended.

In a warning to Macron, who has said he will not bow to street pressure, Melenchon said: “It is the street that defeated the kings, it is the street that defeated the Nazis,” while the crowd chanted “Resistance! Resistance!” It remains to be seen whether Melenchon and his party have the capacity to mobilize the kind of street resistance which forced the last two presidents to dilute their own attempts to loosen the labor code. Melenchon tweeted that over 150,000 demonstrators had turned up while police put the number at 30,000. A campaign rally in March, weeks before the presidential election, drew some 130,000 people, party officials had said.

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Pitting police forces against each other is a recipe for trouble. Peaceful resistance is teh way to go for Catalonia. But…

Spain Rebuffed in Boosting Control Over Catalonia’s Police (BBG)

Police in Spain’s rebel region of Catalonia rejected giving more control to the central government in defiance of authorities in Madrid who are trying to suppress an independence referendum on Oct. 1. The SAP union, the largest trade group for the 17,000-member Mossos d’Esquadra regional force, said it would resist hours after prosecutors Saturday ordered that it accept central-government coordination. The rejection echoed comments by Catalan separatist authorities. “We don’t accept this interference of the state, jumping over all existing coordination mechanisms,” the region’s Interior Department chief Joaquim Forn said in brief televised comments. “The Mossos won’t renounce exercising their functions in loyalty to the Catalan people.”

The disobedience may fuel speculation the Mossos aren’t committed to work with the national Civil Guard in Spain’s largest regional economy. The standoff came a day after Prime Minister Mariano Rajoy’s government acknowledged it’s sending more reinforcements to help control street demonstrations and carry out a separate court order to halt the vote. Officials in Madrid have quietly rented cruise ships including the Rhapsody and moored them in Catalan ports as temporary housing for riot police and other security officials being sent to the region in what El Correo newspaper said may ultimately exceed the number of Mossos by the referendum date.

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“100% of the system run by the Puerto Rico Power Authority is offline”. How long till people will start dying in hospitals?

No Storm Ever Destroyed a Grid Like Maria Ruined Puerto Rico’s (BBG)

You don’t even have to leave the airport to see that Hurricane Maria has laid waste to Puerto Rico’s power grid. On Friday, the San Juan airport was abandoned. No electricity meant no air conditioning, and no air conditioning meant hot and muggy air wafting through the terminals. Ceilings were leaking. Floors were wet. Only the military, relying on its own sight and radar systems, was landing planes. The airport is one of the first places crews will restore power – whenever they can get to it. Hundreds are still waiting for the all-clear to move in and start the arduous task of resurrecting Puerto Rico’s grid. The devastation that Maria exacted on Puerto Rico’s aging and grossly neglected electricity system when it slammed ashore as a Category 4 storm two days ago is unprecedented – not just for the island but for all of the U.S.

100% of the system run by the Puerto Rico Power Authority is offline, because Maria damaged every part of it. The territory is facing weeks, if not months, without service as utility workers repair power plants and lines that were already falling apart. “I have seen a lot damage in the 32 years that I have been in this business, and from this particular perspective, it’s about as large a scale damage as I have ever seen,” said Wendul G. Hagler II, a brigadier general in the National Guard, which is assisting in the response. No federal agency dared on Friday to estimate how long it’ll take to re-energize Puerto Rico. If it’s any indication of how far they’ve gotten, the island’s power authority known as Prepa is only now starting to assess the damage.

“We are only a couple of days in from the storm – there could be lots of issues and confusion at the beginning of something like this,” said Kenneth Buell, a director at the U.S. Energy Department who is helping lead the federal response in Puerto Rico. “We are in the phase where we have people queued up and lining up resources.” What Buell does know is Puerto Rico’s power plants seem inexplicably clustered along the island’s south coast, a hard-to-reach region that was left completely exposed to all of Maria’s wrath. A chain of high-voltage lines thrown across the island’s mountainous middle connect those plants to the cities in the north.

Puerto Rico’s rich hydropower resources have also taken a hit. On Friday, the National Weather Service pleaded for people to evacuate an area in the northwest corner of the island after a dam burst. “All areas surrounding the Guajataca River should evacuate NOW. Their lives are in DANGER!,” the service said on Twitter. And that’s not to mention the state of Puerto Rico’s grid before the storm. Government-owned Prepa, operating under court protection from creditors, has more than $8 billion in debt but little to show for it. Even before the storm, outages were common, and the median plant age is 44 years, more than twice the industry average.

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Jun 272017
 
 June 27, 2017  Posted by at 10:00 am Finance Tagged with: , , , , , , , , ,  


Egon Schiele Port of Trieste 1907

 

Trump Eager For Big Meeting With Putin; Some Advisers Wary (AP)
Three Journalists Quit CNN In Fallout From Retracted Russia Story (Fox)
US Congress To Stop Arms Sales To Gulf Until Qatar Crisis Is Solved (G.)
Democrats Help Corporate Donors Block California Single-Payer (IBT)
Bernanke: Economists Missed Populism, Inequality, But Are Here To Help (CNBC)
Europe’s Inequality Highly Destabilizing – Draghi (R.)
Change the Way Money Is Created, Or More Inequality, Disorder Inevitable (CHS)
ECB Chief Draghi Rules Out Greece Joining QE Soon (K.)
Europe’s Gradualist Fallacy (Varoufakis)
Italy Bank Deal Makes Germans Wary of Macron’s Euro Agenda
Italy’s Latest Bank Bailout Has Created A Two-Speed Eurozone (Coppola)
Brazil Top Prosecutor Charges President With Bribery (AFP)
The Technicolor Swan (Jim Kunstler)
California To List Glyphosate As Cancer-Causing; Monsanto Vows Fight (R.)

 

 

What a great idea to try and prevent the US President from talking to other world leaders (i.e. doing his job).

Trump Eager For Big Meeting With Putin; Some Advisers Wary (AP)

President Donald Trump is eager to meet Russian President Vladimir Putin with full diplomatic bells and whistles when the two are in Germany for a multinational summit next month. But the idea is exposing deep divisions within the administration on the best way to approach Moscow in the midst of an ongoing investigation into Russian meddling in the U.S. elections. Many administration officials believe the U.S. needs to maintain its distance from Russia at such a sensitive time – and interact only with great caution. But Trump and some others within his administration have been pressing for a full bilateral meeting. He’s calling for media access and all the typical protocol associated with such sessions, even as officials within the State Department and National Security Council urge more restraint, according to a current and a former administration official.

Some advisers have recommended that the president instead do either a quick, informal “pull-aside” on the sidelines of the summit, or that the U.S. and Russian delegations hold “strategic stability talks,” which typically don’t involve the presidents. The officials spoke anonymously to discuss private policy discussions. The contrasting views underscore differing views within the administration on overall Russia policy, and Trump’s eagerness to develop a working relationship with Russia despite the ongoing investigations. Asked about the AP report that Trump is eager for a full bilateral meeting, Putin’s spokesman Dmitry Peskov told reporters in Moscow on Monday that “the protocol side of it is secondary.” The two leaders will be attending the same event in the same place at the same time, Peskov said, so “in any case there will be a chance to meet.”

Peskov added, however, that no progress in hammering out the details of the meeting has been made yet. There are potential benefits to a meeting with Putin. A face-to-face meeting can humanize the two sides and often removes some of the intrigue involved in impersonal, telephone communication. Trump — the ultimate dealmaker — has repeatedly suggested that he can replace the Obama-era damage in the U.S.-Russia relationship with a partnership, particularly on issues like the ongoing Syria conflict. There are big risks, though. Trump is known to veer off-script, creating the possibility for a high-stakes diplomatic blunder. In a brief Oval Office meeting with top Russian diplomats last month, Trump revealed highly classified information about an Islamic State group threat to airlines that was relayed to him by Israel, according to a senior administration official. The White House defended the disclosures as “wholly appropriate.”

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Here’s why people don’t want Trump to talk to Putin.

Three Journalists Quit CNN In Fallout From Retracted Russia Story (Fox)

Three CNN journalists who worked on a now-retracted story about Russia and a top Trump adviser are leaving the network. CNN is casting their departure as resignations in the wake of the fiasco, but the network has come under substantial criticism since apologizing for the story. The move would also help CNN’s legal position in case of a lawsuit. Anthony Scaramucci, the Trump adviser who is the target of the story, told me that he has no plans to sue. He said he has accepted CNN’s apology and wants to move on. But Scaramucci also told me in an earlier interview, “I was disappointed the story was published. It was a lie.” Lex Harris, executive editor of CNN’s investigative unit, was the highest-ranking official to resign. Thomas Frank, who wrote the story, and Eric Lichtblau, who edited it, also turned in their resignations.

Lichtblau is a highly regarded reporter who spent nearly a decade and a half at the New York Times. The story tried to draw a link between Scaramucci and the Russian Direct Investment Fund. Scaramucci was a Trump transition team member who has been nominated to an ambassadorial-level post based in Paris. The CNN.com article said that Scaramucci, back in January, held a secret meeting with an official from the Russian fund. According to an unnamed source, Scaramucci discussed the possibility of lifting U.S. sanctions at the meeting. But Scaramucci told me there was no secret meeting. He said he had given a speech on Trump’s behalf at Davos, and fund official Kirill Dmitriev approached him in a restaurant to say hello and they had a brief conversation, with no discussion of sanctions. In the retraction, the network said the story “did not meet CNN’s editorial standards.” The network is now requiring approval from two top editors before any Russia-related story can be published.

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Amazing how easy it can be. Now make it permanent.

US Congress To Stop Arms Sales To Gulf Until Qatar Crisis Is Solved (G.)

The Republican chairman of the Senate foreign relations committee has said the US Congress will hold up approval of arms sales to the Gulf as a result of the Saudi-led blockade of Qatar. Senator Bob Corker said the nations of Gulf Cooperation Council had failed to take advantage of a summit with President Trump in May to overcome their differences and had “instead chosen to devolve into conflict”. Corker continued: “For these reasons, before we provide any further clearances during the informal review period on sales of lethal military equipment to the GCC states, we need a better understanding of the path to resolve the current dispute and reunify the GCC.”

Earlier this month, the Senate narrowly fended off a bid to block a Trump administration plan to sell Saudi Arabia $500m in precision-guided munitions, part of a proposed $110bn arms sales package announced during the president’s visit to Riyadh last month. Congress has the power to block individual sales during a 30-day review period from when the state department gives notification of an impending sale. A Saudi-led coalition that includes Egypt, the United Arab Emirates and Bahrain cut ties with Qatar on 5 June, but only provided a justification 18 days later with the presentation of a list of 13 demands. They want Doha to close the al-Jazeera TV channel, restrict diplomatic ties with Iran, halt the construction of a Turkish military base in the country, and sever contacts with extremist organisations.

Qatar has been given 10 days to meet the demands, but the Saudi-led group has not said what action it would take if the deadline is not met. The US has sent mixed signals on the standoff. In the immediate aftermath of the embargo, Trump gave Riyadh and its allies fulsome support, echoing Saudi claims about Qatari funding for terrorism. However, Rex Tillerson, the secretary of state, last week called on the coalition present its complaints and negotiate a solution. Since the list of 13 demands was presented, Tillerson has been non-committal, observing that some of them would be “very difficult for Qatar to meet”, but arguing there were “significant areas which provide a basis for ongoing dialogue leading to resolution.”

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David Sirota: “Jerry Brown campaigned for president supporting single-payer, then he got big cash from insurers/drugmakers, now he refused to back the bill.”

Single payer is the only thing that can save US health care. But all sides are in debt to the very interests who will block it.

Democrats Help Corporate Donors Block California Single-Payer (IBT)

As Republican lawmakers grapple with their unpopular bill to repeal Obamacare, Democrats have tried to present a united front on health care. But for all their populist rhetoric against insurance and drug companies, Democratic powerbrokers and their allies remain deeply divided on the issue — to the point where a political civil war has spilled into the open in America’s largest state. In California last week, Democratic state Assembly Speaker Anthony Rendon helped his and his party’s corporate donors block a Democrat-sponsored bill to create a universal health care program in which the government would be the single payer. Rendon’s decision shows how progressives’ ideal of universal health care remains elusive — even in a liberal state where government already foots 70% of the total health care bill.

Until Rendon’s move, things seemed to be looking up for Democratic single-payer proponents in deep blue California, which has been hammered by insurance premium increases. There, the Democratic Party — which originally created Medicare — just added a legislative supermajority to a Democratic-controlled state government that oversees the world’s sixth largest economy. That 2016 election victory came as a poll showed nearly two-thirds of Californians support the creation of a taxpayer-funded universal health care system in a state whose population is roughly the size of Canada — which already has such a system. California’s highest-profile federal Democratic lawmaker recently endorsed state efforts to create single-payer systems, and 25 members of its congressional delegation had signed on to sponsor a federal single-payer bill.

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They missed everything so far, but now we need them.

Bernanke: Economists Missed Populism, Inequality, But Are Here To Help (CNBC)

Former chairman of the Federal Reserve Ben Bernanke said Monday that economists have a “responsibility” to help address populist frustrations. “The credibility of economists has been damaged by our insufficient attention, over the years, to the problems of economic adjustment and by our proclivity toward top-down, rather than bottom-up, policies,” Bernanke, now distinguished fellow in residence, Brookings Institution, said in prepared remarks for a dinner speech called “When growth is not enough.” “Nevertheless, as a profession we have expertise that can help make the policy response more effective, and I think we have a responsibility to contribute wherever we can,” the former Fed chair said.

In the last 18 months, growing populist sentiment contributed to the UK’s surprise vote to leave the European Union last June, and the election of U.S. President Donald Trump last November. Trump promised to bring jobs back from China and Mexico to the U.S., winning him support. The U.S. Census Bureau’s latest report on household income showed the Gini index of income inequality for the U.S. in 2015 of 0.482 was significantly higher than the prior year’s 0.480. “This increase suggests that income inequality increased across the country,” the report said. “Policymakers in recent decades have been slow to address or even to recognize those trends, an error of omission that has helped fuel the voters’ backlash,” Bernanke said. He was speaking at the European Central Bank’s Forum on Central Banking in Sintra, Portugal.

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Bernanke and Draghi greatly increased inequality with their ZIRP and NIRP policies. And today both all of a sudden come out as being worried about it?

Europe’s Inequality Highly Destabilizing – Draghi (R.)

Europe’s growing inequality is highly destabilizing and needs to be tackled with education, innovation and investment in human capital, particularly jobs for young people, ECB President Mario Draghi said on Monday. Income inequality has grown among euro zone countries since the global financial crisis and some measures also show divergence between the bloc’s richer and poorer members, a source of tension for the 19-member currency bloc. “Is this a seriously destabilizing factor that we should cope with?” Draghi said in a rare town-hall style meeting with university students in Lisbon. “Yes it is.” “We have to fight against inequality,” Draghi in response to a student question. Draghi, leading one of Europe’s most respected institutions, has for years called on governments to enact fundamental reforms, arguing that the ECB is able to prop up growth, but only temporarily, giving governments a window of opportunity.

Eurostat data has shown that only a handful of countries have managed to shrink income inequality since the crisis while it has grown sharply in places like France or Spain. Figures also show the highest level of income inequality in the bloc’s periphery, like Greece, Spain and Portugal, hit hardest by the crisis. Calling convergence among euro zone members “fundamental,” Draghi said the best way to fight inequality is by creating jobs, which comes from an increased investment in education, skills development and innovation. He also called on governments to consider better income and wealth redistribution policies. Defending the ECB’s ultra easy monetary policy, Draghi said that super low rates create jobs, foster growth and benefit borrowers, ultimately easing inequality. He also rejected calls to exit super easy monetary policy quickly, arguing that premature tightening would lead to a fresh recession and more inequality.

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Here’s how ZIRP creates more inequality.

Change the Way Money Is Created, Or More Inequality, Disorder Inevitable (CHS)

Compare the limited power of an individual with cash and the enormous power of unlimited cheap credit. Let’s say an individual has saved $100,000 in cash. He keeps the money in the bank, which pays him less than 1% interest. Rather than earn this low rate, he decides to loan the cash to an individual who wants to buy a rental home at 4% interest. There’s a tradeoff to earn this higher rate of interest: the saver has to accept the risk that the borrower might default on the loan, and that the home will not be worth the $100,000 the borrower owes. The bank, on the other hand, can perform magic with the $100,000 they obtain from the central bank. The bank can issue 19 times this amount in new loans—in effect, creating $1,900,000 in new money out of thin air.

This is the magic of fractional reserve lending. The bank is only required to hold a small%age of outstanding loans as reserves against losses. If the reserve requirement is 5%, the bank can issue $1,900,000 in new loans based on the $100,000 in cash: the bank holds assets of $2,000,000, of which 5% ($100,000) is held in cash reserves. This is a simplified version of how money is created and issued, but it helps us understand why centrally issued and distributed money concentrates wealth in the hands of those with access to the centrally issued credit and those who have the privilege of leveraging every $1 of cash into $19 newly created dollars that earn interest. Imagine if we each had a relatively modest $1 million line of credit at 0.25% interest from a central bank that we could use to issue loans of $19 million.

Let’s say we issued $19 million in home loans at an annual interest rate of 4%. The gross revenue (before expenses) of our leveraged $1 million would be $760,000 annually –let’s assume we net $600,000 per year after annual expenses of $160,000. (Recall that the interest due on the $1 million line of credit is a paltry $2,500 annually). Median income for workers in the U.S. is around $30,000 annually. Thus a modest $1 million line of credit at 0.25% interest from the central bank would enable us to net 20 years of a typical worker’s earnings every single year. This is just a modest example of pyramiding wealth.

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So Draghi whines about inequality and at the same time makes sure Greece gets hammered even more economically. Does his ass know where his mouth is located?

ECB Chief Draghi Rules Out Greece Joining QE Soon (K.)

The president of the European Central Bank, Mario Draghi, said on Monday that Greece will not join its quantitative easing program (QE) until international creditors specify what sort of debt relief measures the country can expect. “Until sufficient details are given on debt-related measures, serious concerns remain about the sustainability of Greek government debt,” he said in response to a question from Popular Unity (LAE) MEP Nikos Hountis over whether the ECB had completed its own debt sustainability analysis (DSA), and if it had come to any conclusions on the issue. Draghi said that ECB experts “are not currently in a position to complete a fully fledged DSA analysis of Greece’s public debt.” Up until very recently, Greece was banking on its inclusion in QE as a way to return to bond markets, which would put an end to its dependence on bailout programs.

If the ECB were to buy Greek debt it would boost the confidence of investors about the prospects of the Greek economy. But given Draghi’s comment on Monday and the failure of the government to secure more concrete language on debt relief at the Eurogroup on June 15, Athens now believes it can achieve the goal to enter bond markets without having to join QE. And it believes that it has three windows of opportunity to issue a bond in the period stretching from July until early next year. These three opportunities are, reportedly, in July, given the improved climate in international markets. The second chance will be at the end of September and beginning of October after German elections, while the third will be at the end of the year or early 2018, as predicted by the head of the European Stability Mechanism (ESM), Klaus Regling.

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Macron is Merkel’s messenger boy. France has nothing to say in the EU. That’s the essence of Europe’s problem.

Europe’s Gradualist Fallacy (Varoufakis)

Europe is at the mercy of a common currency that not only was unnecessary for European integration, but that is actually undermining the European Union itself. So what should be done about a currency without a state to back it – or about the 19 European states without a currency that they control? The logical answer is either to dismantle the euro or to provide it with the federal state it needs. The problem is that the first solution would be hugely costly, while the second is not feasible in a political climate favoring the re-nationalization of sovereignty. Those who agree that the cost of dismantling the euro is too high to contemplate are being forced into a species of wishful thinking that is now very much in vogue, especially after the election of Emmanuel Macron to the French presidency.

Their idea is that, somehow, by some unspecified means, Europe will find a way to move toward federation. “Just hang in there,” seems to be their motto. Macron’s idea is to move beyond idle optimism by gaining German consent to turn the eurozone into a state-like entity – a federation-lite. In exchange for making French labor markets more Germanic, as well as reining in France’s budget deficit, Germany is being asked to agree in principle to a common budget, a common finance ministry, and a eurozone parliament to provide democratic legitimacy. Macron knows that such a federation would be macroeconomically insignificant, given the depth of the debt, banking, investment, and poverty crisis unfolding across the eurozone. But, in the spirit of the EU’s traditional gradualism, he thinks that such a move would be politically momentous and a decisive step toward a meaningful federation.

“Once the Germans accept the principle, the economics will force them to accept the necessary magnitudes,” is how a French official put it to me recently. Such optimism may seem justified in light of proposals along those lines made in the past by none other than Wolfgang Schäuble, Germany’s finance minister. But there are two powerful reasons to be skeptical. First, Chancellor Angela Merkel and Schäuble were not born yesterday. If Macron’s people imagine a federation-lite as an entering wedge for full-blown political integration, so will Merkel, Schäuble, and the reinvigorated Free Democrats (who will most likely join a coalition government with Merkel’s Christian Democrats after the September federal election). And they will politely but firmly reject the French overtures.

Second, in the unlikely event that Germany gives federation-lite the go-ahead, any change to the functioning of the eurozone would, undoubtedly, devour large portions of the reformers’ political capital. If it does not produce economic and social results that improve, rather than annul, the chances of a proper federation, as I suspect it will not, a political backlash could ensue, ending any prospect of a more substantial federation in the future. In that case, the euro’s dismantling will become inevitable, will cost more, and will leave Europe in even greater shambles.

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Germany doesn’t care one bit about Macron’s agenda; they may pay lip service, but that’s it. In this particular case, do you think Germany wants an Italian bank collapse a few months before Merkel’s election?

Italy Bank Deal Makes Germans Wary of Macron’s Euro Agenda

Germany sounded the alarm over Italy’s latest bank bailout, saying the apparent bending of EU rules casts doubt on efforts to further integrate the euro zone. The government in Rome announced the country’s biggest bank rescue to date on Sunday evening as it committed as much as €17 billion ($19 billion) to clean up two failed banks. While the European Commission approved the plan, German officials pointed to the involvement of state aid to shield senior creditors from losses as working around EU law established to deal with bank failures. That exemption drew criticism from members of Chancellor Angela Merkel’s ruling coalition, who cited the need to uphold European law without setting unhealthy precedents.

“We’re in a phase where we are faced with the question of whether we can succeed at applying European law, irrespective of all the understandable domestic policy discussions,” Alexander Radwan, a lawmaker from Merkel’s CSU Bavarian sister party who sits on the Bundestag’s finance committee, said in an interview on Monday. “Cases like these make it more difficult to think about deepening the economic and monetary union.” The growing drumbeat for closer euro-area integration following Emmanuel Macron’s election in France is making some German lawmakers increasingly uneasy. Citing election results in France and the Netherlands this year that open “an opportunity for moving Europe forward,” Merkel has spoken of joint projects with France and left the door open to creating a euro-area budget and a joint finance minister.

“This decision discredits the further completion of the banking union and moves the common deposit-guarantee scheme into the distant future,” said Carsten Schneider, a deputy head of the Social Democrat caucus in Germany’s lower house. “It’s not acceptable that bank wind-downs under national rules offer better conditions for creditors than under the European regime.” Italy’s decision is “a grave mistake,” Schneider said in emailed comments to Bloomberg.

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Brussels hubris in its full splendor. (BRRD= Bank Recovery and Resolution Directive)

Italy’s Latest Bank Bailout Has Created A Two-Speed Eurozone (Coppola)

The bailout is dressed up as a rescue by a larger bank along the same lines as Santander’s recent acquisition for a nominal 1 euro of the insolvent Banco Popular. Like Santander, Intesa Sanpaolo, Italy’s second-biggest lender, will buy the two banks 1 euro. But there the similarity ends. Santander took on full responsibility for recapitalizing Banco Popular, for which it announced a 7bn euro rights issue. But Intesa isn’t taking financial responsibility for anything. The Italian government is paying Intesa about 5bn euros in cash to take over the two banks, and is additionally providing guarantees worth 12bn euros for the two banks’ bad assets. The total bailout amount is thus around 17bn euros, though according to the European Commission, the net cost will be much lower: Both guarantees and cash injections are backed up by the Italian State’s senior claims on the assets in the liquidation mass. Correspondingly, the net costs to the Italian State will be much lower than the nominal amounts of the measures provided.

The bailout imposes losses on the two banks’ shareholders and subordinated debtholders. But the all-important seniors have been spared, and small subordinated debtholders will be compensated by Intesa from the funds provided by the Italian government. The BRRD has effectively been sidestepped. Did the EU oppose this sleight of hand? Not a bit of it. In this statement, the European Commission approved the use of taxpayers’ funds to bail out these banks: “The Commission found these measures to be in line with EU State aid rules, in particular the 2013 Banking Communication. Existing shareholders and subordinated debt holders have fully contributed to the costs, reducing the cost of the intervention for the Italian State. Both aid recipients, BPVI and Banca Veneto, will be wound up in an orderly fashion and exit the market, while the transferred activities will be restructured and significantly downsized by Intesa, which in combination will limit distortions of competition arising from the aid.”

Remarkable. Winding up two banks in the Venetian area would cause massive economic disruption. So the solution is to create an effective banking monopoly in that area. And this doesn’t distort competition, apparently. I detect a distinct odor of Eurofudge. Italy’s decision, supported by the European Commission, tramples the BRRD to death. Senior creditors need never again fear losses due to a failing bank. If it is systemically important, it will be given a precautionary recapitalization at taxpayers’ expense. If it is not, an excuse will be found to bail it out at taxpayers’ expense. Either way, seniors and unsecured depositors are safe. That is, they are as safe as politicians want them to be. Italy is able to bail out these banks – and will no doubt in due course bail out others too – because it is a big country which can easily borrow the funds needed.

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“..”abundant” proof that the president received bribe money..”

Brazil Top Prosecutor Charges President With Bribery (AFP)

Brazil’s top prosecutor charged President Michel Temer with bribery on Monday, plunging Latin America’s biggest country into what could be prolonged new political turmoil. The bribery charge filed by Prosecutor General Rodrigo Janot swept Temer into the forefront of a giant graft scandal that has engulfed Latin America’s biggest country over the last three years. Although several past Brazilian presidents and scores of other politicians are currently being investigated for corruption in the “Car Wash” probe, Temer is the first leader in the country’s history to face criminal charges while still in office. Temer acted “in violation of his duties to the state and to society,” Janot wrote, citing “abundant” proof that the president received bribe money.

For Temer to go on trial, the lower house of Congress must first approve Janot’s charge by a two-thirds majority. Temer would then be suspended for six months for the trial. Janot is also probing Temer for alleged obstruction of justice and membership of a criminal group. He could file those charges at a later date, guaranteeing a sustained legal assault. However, Temer’s aides say they are confident he has sufficient support in Congress to get the charges thrown out. In his first comments since returning from a trip to Russia and Norway, the president was defiant. “There is no plan B,” he said at a ceremony to sign a new bill in the capital Brasilia. “Nothing will destroy us – not me and not our ministers.”

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Nothing black about it.

The Technicolor Swan (Jim Kunstler)

I registered as a Democrat in 1972 — largely because good ole Nixon was at the height of his power (just before his fall, of course), and because he was preceded as party leader by Barry Goldwater, who, at the time, was avatar for the John Birch Society and all its poisonous nonsense. The Democratic Party was still deeply imbued with the personality of Franklin Roosevelt, with a frosting of the recent memory of John F. Kennedy and his brother Bobby, tragic, heroic, and glamorous. I was old enough to remember the magic of JFK’s press conferences — a type of performance art that neither Bill Clinton or Barack Obama could match for wit and intelligence — and the charisma of authenticity that Bobby projected in the months before that little creep shot him in the kitchen of the Ambassador Hotel. Even the lugubrious Lyndon Johnson had the heroic quality of a Southerner stepping up to abolish the reign of Jim Crow.

Lately, people refer to this bygone era of the 1960s as “the American High” — and by that they are not talking about smoking dope (though it did go mainstream then), but rather the post World War Two economic high, when American business might truly ruled the planet. Perhaps the seeming strength of American political leaders back then was merely a reflection of the country’s economic power, which since has been squandered and purloined into a matrix of rackets loosely called financialization — a criminal magic act whereby wealth is generated without producing anything of value. Leaders in such a system are bound to be not just lesser men and women but something less than human. Hillary Clinton, for instance, lost the 2016 election because she came off as demonic, and I mean that pretty literally.

To many Americans, especially the ones swindled by the magic of financialization, she was the reincarnation of the little girl in The Exorcist. Donald Trump, unlikely as it seems — given his oafish and vulgar guise — was assigned the role of exorcist. Unlike poor father Merrin, he sort of succeeded, even to his very own astonishment. I say sort of succeeded because the Democratic Party is still there, infested with all its gibbering demons, but it has been reduced politically to impotence and appears likely to soon roll over and die. None of this is to say that the other party, the Republicans, have anything but the feeblest grip on credibility or even an assured continued existence. First of all there is Trump’s obvious plight as a rogue only nominally regarded as party leader (or even member).

Then there is the gathering fiasco of neither Trump nor his party being able to deliver remedies for any of the ills of our time that he was elected to fix. The reason for that is simple: the USA has entered Hell, or at least a condition that looks a lot like it. This is not just a matter of a few persons or a party being possessed by demons. We’ve entered a realm that is populated by nothing but demons — of our own design, by the way. Our politics have become so thoroughly demonic, that the sort of exorcism America needs now can only come from outside politics. It’s coming, too. It’s on its way. It will turn our economic situation upside down and inside out. It’s a Technicolor swan, and you can see it coming from a thousand miles out. Wait for it. Wait for it.

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It’s crazy that we’re still talking about this.

California To List Glyphosate As Cancer-Causing; Monsanto Vows Fight (R.)

Glyphosate, an herbicide and the active ingredient in Monsanto Co’s popular Roundup weed killer, will be added to California’s list of chemicals known to cause cancer effective July 7, the state’s Office of Environmental Health Hazard Assessment (OEHHA) said on Monday. Monsanto vowed to continue its legal fight against the designation, required under a state law known as Proposition 65, and called the decision “unwarranted on the basis of science and the law.” The listing is the latest legal setback for the seeds and chemicals company, which has faced increasing litigation over glyphosate since the World Health Organization’s International Agency for Research on Cancer said that it is “probably carcinogenic” in a controversial ruling in 2015.

Dicamba, a weed killer designed for use with Monsanto’s next generation of biotech crops, is under scrutiny in Arkansas after the state’s plant board voted last week to ban the chemical. OEHHA said the designation of glyphosate under Proposition 65 will proceed following an unsuccessful attempt by Monsanto to block the listing in trial court and after requests for stay were denied by a state appellate court and the California’s Supreme Court. Monsanto’s appeal of the trial court’s ruling is pending. “This is not the final step in the process, and it has no bearing on the merits of the case. We will continue to aggressively challenge this improper decision,” Scott Partridge, Monsanto’s vice president of global strategy, said.

Listing glyphosate as a known carcinogen under California’s Proposition 65 would require companies selling the chemical in the state to add warning labels to packaging. Warnings would also be required if glyphosate is being sprayed at levels deemed unsafe by regulators. Users of the chemical include landscapers, golf courses, orchards, vineyards and farms. Monsanto and other glyphosate producers would have roughly a year from the listing date to re-label products or remove them from store shelves if further legal challenges are lost.

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Jul 182016
 
 July 18, 2016  Posted by at 8:54 am Finance Tagged with: , , , , , , , , , ,  


Arthur Rothstein General store and railroad crossing, Atlanta, Ohio 1938

Ireland Hits Brexit Alarm in Biggest Foreign Crisis in 50 Years (BBG)
Yuan Declines to 2010 Low as Property Prices Slow, Dollar Rises (BBG)
Goodbye Lenin, Hello Bernanke (ABC.au)
Stocks and Bonds Are on a Collision Course (DR)
Bubbles in Bond Land (David Stockman)
Chinese Cities’ Expansion Plans Could House 3.4 Billion People (BBG)
Slowing China Home Price Rises Add To Doubts About Economy (R.)
Under-35s Could Be The First Generation To Earn Less Than Their Parents (DM)
Boom to Bust (Salt)
Justice Department ‘Uses Aged Computer System To Frustrate FOIA Requests’ (G.)
MH-17: Russia Convicted By Propaganda (PCR)
Donald Trump’s Ghostwriter Tells All (New Yorker)
Six Wealthiest Countries Host Less Than 9% Of World’s Refugees (G.)
20 Migrants Dead, 366 Saved From Boats In Mediterranean (NW)

 

 

Huh? Didn’t Ireland grow 26% just last week?

Ireland Hits Brexit Alarm in Biggest Foreign Crisis in 50 Years (BBG)

The prime minister is under pressure, economists are slashing growth forecasts and companies are warning of Brexit’s dire consequences. London? No, Dublin. The intertwining of trade and finance means no other country is feeling the fallout from the U.K.’s vote to leave the European Union more than Ireland. In the year the Irish marked the centenary of their uprising against British rule, the country remains at the mercy of the unfolding drama in its closest neighbor. “It’s the most serious, difficult issue facing the country for 50 years,” said John Bruton, 69, who was Irish prime minister between 1994 and 1997 and later served as the EU’s ambassador to the U.S.

Exporters have warned the plummeting pound will erode earnings and economic growth, just as a recovery had taken hold after the 2010 international bailout that followed the banking meltdown. Irish shares have declined, not least because the U.K. is the top destination for the country’s exports after the U.S. and the biggest for its services. Meantime, Prime Minister Enda Kenny is fending off demands by Northern Irish nationalists for a reunification poll as he comes to terms with the loss of a key EU ally and plotters from his own party try to topple him. Then there’s the future of the U.K.’s only land border with the EU. “The consequences are mind-boggling,” said Eoin Fahy, chief economist at Kleinwort Benson Investors in the Irish capital.

Britain and Ireland joined the European Economic Community in 1973. Ireland was drawn in part to escape what one politician called “our gate-lodge attitude towards England.” More than four decades later, the two countries remain woven together economically as well as culturally and linguistically. Ireland uses the euro, yet does about $45 billion of trade with the U.K. About 380,000 Irish citizens living in Britain were eligible to vote in the Brexit referendum. Britain also chipped in for Ireland’s bailout six years ago, despite not being part of the euro region. When Theresa May took over as British prime minister last Wednesday, Kenny was among three leaders she spoke to, along with Germany’s Angela Merkel and Francois Hollande of France.

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Bloomberg should simply say: “The yuan fell, and we have no idea why”.

Yuan Declines to 2010 Low as Property Prices Slow, Dollar Rises (BBG)

China’s yuan fell to the weakest level since 2010, pulled down by cooling property prices, a dollar rebounding on haven demand and a weaker central bank fixing. New home prices rose in fewer cities in June compared with a month earlier, according to official data released Monday, blunting optimism prompted by last week’s figures showing forecast-beating economic growth. The monetary authority weakened the yuan’s daily fixing to the lowest since 2010 after the dollar strengthened Friday following a coup attempt in Turkey.

The greenback was supported on Monday also as China said it would hold military exercises in the South China Sea. “The dollar strengthened as orders to buy the currency jumped, pressuring the yuan and the rest of Asian currencies lower,” said Andy Ji, a Singapore-based foreign-exchange strategist at Commonwealth Bank of Australia. “There’s news that China will hold military exercises in the South China Sea later this month,” which could spur some haven-demand for the greenback.

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Lookalike contest.

Goodbye Lenin, Hello Bernanke (ABC.au)

Maybe it’s just me, but have you noticed the striking similarity between Vladimir Lenin and Ben Bernanke lately? Superficially, there’s the obvious physical resemblance; whippet build, glabrous pate, facial hair and a penchant for stylish, if somewhat conservative, garb. More significantly, both appear to harbour the same ideological distrust of free markets or, at the very least, a burning desire to control them as much as possible. Separated by almost a century, both men have made it a lifelong ambition to impose state control over the economy. And it has to be said, while Vladimir Ilyich Ulyanov Lenin achieved significant success in spreading the word from Russia through developing nations, he and his successors never quite got across the line when it came to the so-called free world.

Maybe it was his reputation as a firebrand, an over-reliance on bloody revolution by force and the frightening prospect – for the ruling elite at least – that wealth would be redistributed to the poor. Enter Ben Bernanke. In the space of a mere eight years, the former Federal Reserve chief has managed to achieve what Vladimir could barely conceive. He’s convinced the United States of America, the United Kingdom, Japan and Europe to embark on a revolutionary journey to completely subvert free market instincts. Unlike his Russian predecessor, Ben has opted for the calm, congenial exterior of Central Banker from Central Casting, complete with a mogadon monotone designed to lull his audience into a state of torpor.

He’s also wisely decided to modify the wealth distribution bit. As western governments have raided the kitty, plunging themselves into an ocean of debt, much of the proceeds have flowed directly into asset markets – stocks, bonds and property – which has helped maintain the flow of wealth towards the wealthy. Brilliant! Last week, Ben was in Japan. And that got twitchy fingered traders across the globe all hot under the collar. Ben, after all, is the man who pioneered the implementation of “unorthodox monetary policy”.

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“Bond markets are signaling something very nasty coming down the road at us — an all-encompassing, worldwide deflation.”

Stocks and Bonds Are on a Collision Course (DR)

One of the following is correct: A) The stock market is lying. B) The bond market is lying. They both can’t be true. Consider: The stock market has sprung to record highs this week. Shocking, given the world was coming to an end after Brexit. But it’s true. Both the S&P and the Dow eclipsed previous records this week. What does that normally indicate? A rollicking economy in high gear, stability, investor belief in the future. Maybe some “healthy” inflation into the bargain. Now consider: Bonds are also trading at record highs. Meaning yields are at historic lows (prices and yields move in opposite directions – the higher the price, the lower the yield, and vice versa). Yields on 10-year Treasuries plunged to all-time lows this month. Same with 30-year Treasuries.

That would normally signal an economy on the brink of ruin and investors panicking into government bonds. It also means deflation of the hide-the-women-and-children variety. TheTelegraph: “Bond markets are signaling something very nasty coming down the road at us — an all-encompassing, worldwide deflation.” Two completely different narratives. One wrong, one right. Someone’s in for a nasty shock – and probably soon. Says analyst William Koldus, founder of The Contrarian: The tug of war between inflationary and deflationary assets is likely to be resolved in 2016. Either U.S. stock prices, which have been an outlier to the upside, are wrong, and a significant correction awaits stock investors, or U.S. bond prices, and global sovereign bond yields, which have priced in a significant deflationary head wind, are wrong, and safe-haven bondholders are set for losses.

Who’s the jury to believe? Generally, the bond market. As Neil Irwin of The New York Times explains, “Savvy economic analysts have always known the bond market is the place to look for a real sense of where the economy is going, or at least where the smart money thinks it is going.” Here he dumps more rain on the parade: “And right now, if the bond market is correctly predicting the economic path ahead, we should all be terrified.”

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“Surely, BOJ Governor Kuroda will go down in history as the stupidest central banker of all-time.”

Bubbles in Bond Land (David Stockman)

Last year Japan lost another 272,000 of its population as it marches steadily toward its destiny as the world’s first bankrupt old age colony. At the same time, the return on Japan’s 40-year bond during the last six months has been an astonishing 48%. That’s right! We aren’t talking Tesla, the biotech index or the FANGs. To the contrary, like the rest of the Japanese Government Bond (JGB) yield curve, this bond has no yield and no prospect of repayment. But that doesn’t matter because it’s not really a sovereign bond, anyway. It has actually morphed into a risk free gambling chip. Leveraged front-runners are scooping up whatever odds and sots of JGBs that remain on the market and are selling them to the Bank of Japan (BOJ) at higher, and higher and higher prices.

At the same time, these punters face virtually no risk. That’s because the BOJ already owns 426 trillion yen of JGBs, which is nearly half of the bonds outstanding. And it is buying up the rest at a rate of 80 trillion yen per year under current policy, while giving every indication of sharply stepping up its purchase rate as it segues to outright helicopter money. It can therefore be well and truly said that the BOJ is the ultimate roach motel. Virtually every scrap of Japan’s gargantuan public debt will go marching into its vaults never to return, and at “whatever it takes” bond prices to meet the BOJ’s lunatic purchase quotas. Surely, BOJ Governor Kuroda will go down in history as the stupidest central banker of all-time.

But in the interim the man is contributing — along with Draghi, Yellen and the rest of the central bankers guild — to absolute mayhem in the global fixed income market. That’s because these fools have succeeded in unleashing a pincer movement among market participants that is flat-out suicidal. That is, the leveraged fast money gamblers are chasing prices ever higher as sovereign bonds become increasingly scarce. At the same time, desperate bond fund managers, who will lose their jobs for just sitting on cash, are chasing yields rapidly lower on any bond that still has a positive current return. This is the reason the 30-year U.S. treasury bond has produced a 22% return during the last six months. To say the least, that’s not shabby at all considering that its current yield is just 2.25%.

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Want to see a real housing crisis?

Chinese Cities’ Expansion Plans Could House 3.4 Billion People (BBG)

New areas planned by China’s small cities could accommodate 3.4 billion people by 2030 – or almost half the world’s current population – a target that even Chinese state media calls problematic. A report by the National Development & Reform Commission, China’s central planning agency, found that small- and medium-sized cities were planning more than 3,500 new areas that could accommodate more than twice the country’s current population of 1.4 billion. The entire world has a population of 7.4 billion, according to U.S. Census estimates. The findings were detailed in an analysis by the official Xinhua News Agency, which criticized the planned new areas as unworkable: “Who’s going to live in them? That’s a problem,” the piece said.

The expansion comes amid urbanization calls by President Xi Jinping and Premier Li Keqiang as China prepares for another 100 million people to move from the countryside to urban metropolises by the end of the decade. People tend favor bigger markets with more opportunities and fewer than 1-in-10 migrant workers moved to small cities last year, according to an NDRC report published in April. Even without the new areas, China already has more housing than it needs and “ghost cities” have proliferated. China has been building more than 10 million new units annually for the past five years, outstripping an estimated of demand of less than 8 million, according to an analysis by Bloomberg Intelligence Economists Tom Orlik and Fielding Chen.

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Look, Reuters, there comes a point where things like “..a construction-led rebound in the economy may not be sustainable..” become meaningless. We reached that point quite a while ago.

Slowing China Home Price Rises Add To Doubts About Economy (R.)

Home price rises in China slowed in June for a second straight month, adding to fears that a construction-led rebound in the economy may not be sustainable. The property market is a key driver of the world’s second-largest economy and a robust recovery in home prices and sales gave a stronger-than-expected boost to activity in the first half of the year. But slowing price growth in smaller cities and cooling property investment show the bounce may already be fading, raising the risk of weaker economic growth in coming months. Home prices in China’s 70 major cities rose 7.3% in June from a year earlier, an official survey showed on Monday, accelerating from a 6.9% rise in May.

To be sure, some of the biggest cities showed eye-popping gains on a yearly basis, with prices in the southern boomtown of Shenzhen up 46.7% and Shanghai up 27.7%. Gains on a monthly basis continued to slow, however, as cities tightened policies amid fears of a housing price bubble. The monthly rise slowed slightly to 0.8% in June, easing from 0.9% in May, according to a Reuters calculation based on data issued by the National Bureau of Statistics (NBS). “We continue to expect the property rebound to subside and property investment growth to fall in the second half of the year,” economists at Nomura said in a note, predicting sales would stabilize and a large glut of unsold homes would keep pressure on prices in some areas.

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Stupidest term in a long time: “generational pay progress”.

Under-35s Could Be The First Generation To Earn Less Than Their Parents (DM)

Millennials could become the first generation to earn less than their predecessors, analysis by a think-tank has found. The Research Foundation found that under-35s have been hit hardest by the recent pay squeeze and earned £8,000 less during their 20s than a typical person in the previous generation – known as generation X. The finding comes just days after new Prime Minister Theresa May warned of a ‘growing divide between a more prosperous older generation and a struggling younger generation’. The report, which comes as the thank-tank launches its Intergenerational Commission, warns that a post-Brexit downturn could depress millennials’ wages further.

The Intergenerational Commission report states that while some of the pay squeeze is down to millennials entering the job market as the recession hit, it also found generational pay progress had actually stopped before the 2007/08 financial crash. If the future pay of millennials follows the path of generation X, that would reduce their lifetime earnings to around £825,000 – making them the first ever generation to earn less than their predecessors over the course of their working lives. The comparable figure for Generation X is around £832,000. Even if their wages followed a more optimistic path and improved rapidly like their baby boomer parents, their lifetime earnings would be around £890,000. This would be just 7% more than generation X and a third of the size of the pay progress that generation X are set to enjoy over the baby boomers.

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“Boomers got the Pill, free love, free education and easy jobs. Gen X got AIDS, HECS and the GFC.”

Boom to Bust (Salt)

I feel sorry for Generation X, those of you born between 1965 and 1983 and who are now straddling the load-bearing years of the late 30s and 40s. There is no escaping the big responsibilities at this time in the life cycle. At this very moment, Xers are raising families and paying taxes and working flat out… and yet nary a peep from this lot does anyone hear. It’s all about the baby boomers, and if it’s not about the baby boomers and their interminable retirement woes then it’s all about their gifted Generation-Y children. Are we paying you enough, Gen Y? Is anyone being mean to you? Can I get you a pillow? You do realise that I am a Generation Xer, trapped inside a baby boomer body. The reason I feel sorry for the Xers is that they’re always in the wrong place at the wrong time.

Xers are the pissed-off generation. They are heartily sick of baby boomers and their cultural chest-beating. Yes, boomers, we know it was you who saved humanity from the Vietnam War. Yes, we know you discovered free love in the 1960s. No one had thought of sex prior to that, had they? This is what I mean about being pissed off. Baby boomers got the Pill and free love when they were coming of age. But what did older Xers get when they passed through their teens and 20s? The 1980s. Out went the concept of free love; in came the mortal threat of HIV-AIDS. Kind of puts a dampener on the sex thing, don’t you think?

Boomers got fee-free university education courtesy of Gough Whitlam. When did most Xers go to uni? Oh, that’d be after 1989, when we decided fee-free tertiary education was unsustainable and in came HECS. When did many Xers enter the workforce? Oh, that’d be in the early 1990s, when unemployment peaked at nearly 12 per cent. And then they worked for baby boomer managers, biding their time, pacing, scheming, forever waiting for the boomers to let go of the reins. And when was it that baby boomer management let go of the reins? Oh, that’d be around the time of the global financial crisis. “Here you go Xers, it’s your turn now. We’re off on a Rhine River cruise. Make sure you pay your taxes. Bye.”

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If the Department of Justice won’t obey the law, what do you get?

Justice Department ‘Uses Aged Computer System To Frustrate FOIA Requests’ (G.)

A new lawsuit alleges that the US Department of Justice (DoJ) intentionally conducts inadequate searches of its records using a decades-old computer system when queried by citizens looking for records that should be available to the public. Freedom of Information Act (Foia) researcher Ryan Shapiro alleges “failure by design” in the DoJ’s protocols for responding to public requests. The Foia law states that agencies must “make reasonable efforts to search for the records in electronic form or format”. In an effort to demonstrate that the DoJ does not comply with this provision, Shapiro requested records of his own requests and ran up against the same roadblocks that stymied his progress in previous inquiries.

A judge ruled in January that the FBI had acted in a manner “fundamentally at odds with the statute”. Now, armed with that ruling, Shapiro hopes to change policy across the entire department. Shapiro filed his suit on the 50th anniversary of Foia’s passage this month. Foia requests to the FBI are processed by searching the Automated Case Support system (ACS), a software program that celebrates its 21st birthday this year. Not only are the records indexed by ACS allegedly inadequate, Shapiro told the Guardian, but the FBI refuses to search the full text of those records as a matter of policy. When few or no records are returned, Shapiro said, the FBI effectively responds “sorry, we tried” without making use of the much more sophisticated search tools at the disposal of internal requestors.

“The FBI’s assertion is akin to suggesting that a search of a limited and arbitrarily produced card catalogue at a vast library is as likely to locate book pages containing a specified search term as a full text search of database containing digitized versions of all the books in that library,” Shapiro said.

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Will be a big story again when Holland produces its ‘objective’ report. Which has lost all credibility way before publication.

MH-17: Russia Convicted By Propaganda (PCR)

Today is the second anniversary of the downing of Malaysia Airlines Flight 17, and we still do not know the explanation. Washington and its European vassal politicians and media instantly politicized the event: The Russians did it. End of story. After 15 months of heavy anti-Russian propaganda had imprinted the message on peoples’ minds, the Dutch Safety Board issued its inconclusive report. By then, it was irrelevant what the report said. Everyone already knew that “the Russians did it.” I remember when pre-trial media accusations resulted in dismissed cases. Anyone declared guilty prior to presentation of evidence and conviction was considered to have been convicted in advance and unable to receive a fair trail. Such cases were dismissed by judges.

Washington’s story never made any sense. Neither Russia nor the separatists in the Donetsk region had any reason to shoot down a Malaysian airliner. In contrast Washington had enormous incentives as Washington’s propaganda machine could place the blame on Russia and use the incident to compel European governments to accept Washington’s sanctions placed on Russia. It worked for Washington. Washington successfully used the incident to wreck Europe’s political and economic relationships with Russia. Four months into the anti-Russian propaganda campaign, a website called Bellingcat, claiming to be an open source site for citizen journalists, but which could be a MI-5, MI-6, or CIA front, issued a report that the Buk missile was fired by a Russian unit, the 53rd Buk Brigade, based in the Russian city of Kursk.

This allegation exposed the propaganda for what it is. Whereas it is possible that separatists unfamiliar with the Buk weapon system could accidentally shoot down a civilian airliner, it is not possible for a Russian military unit to make such a mistake. Moreover, it is unclear why separatists or the Ukrainian government would have any reason to use Buk missiles in their conflict. The separatists have no air force. The Ukrainians attack the separatists at ground level with ground attack aircraft and helicopters, not with high altitude bombing. The Buk missile is a high altitude missile. The only way the separatists could have acquired Buk missiles is by overrunning and capturing Ukrainian positions that for unfathomed reasons had deployed Buk missiles.

It seems to me that if a Buk missile was present in the conflict area, it was moved there for a reason unrelated to the conflict. A European air traffic controller said that MH-17 and the airliner carrying Russian President Vladimir Putin were initially on the same course. Possibly Washington and its vassal in Kiev thought MH-17 was Putin’s plane and destroyed the Malaysian flight by mistake.

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Brought to you by the Clinton Foundation: “I put lipstick on a pig,” he said. “I feel a deep sense of remorse that I contributed to presenting Trump in a way that brought him wider attention and made him more appealing than he is.” He went on, “I genuinely believe that if Trump wins and gets the nuclear codes there is an excellent possibility it will lead to the end of civilization.”

Donald Trump’s Ghostwriter Tells All (New Yorker)

Last June, as dusk fell outside Tony Schwartz’s sprawling house, on a leafy back road in Riverdale, New York, he pulled out his laptop and caught up with the day’s big news: Donald J. Trump had declared his candidacy for President. As Schwartz watched a video of the speech, he began to feel personally implicated. Trump, facing a crowd that had gathered in the lobby of Trump Tower, on Fifth Avenue, laid out his qualifications, saying, “We need a leader that wrote ‘The Art of the Deal.’ ” If that was so, Schwartz thought, then he, not Trump, should be running. Schwartz dashed off a tweet: “Many thanks Donald Trump for suggesting I run for President, based on the fact that I wrote ‘The Art of the Deal.’ ”

Schwartz had ghostwritten Trump’s 1987 breakthrough memoir, earning a joint byline on the cover, half of the book’s five-hundred-thousand-dollar advance, and half of the royalties. The book was a phenomenal success, spending forty-eight weeks on the Times best-seller list, thirteen of them at No. 1. More than a million copies have been bought, generating several million dollars in royalties. The book expanded Trump’s renown far beyond New York City, making him an emblem of the successful tycoon. Edward Kosner, the former editor and publisher of New York, where Schwartz worked as a writer at the time, says, “Tony created Trump. He’s Dr. Frankenstein.”

Starting in late 1985, Schwartz spent eighteen months with Trump—camping out in his office, joining him on his helicopter, tagging along at meetings, and spending weekends with him at his Manhattan apartment and his Florida estate. During that period, Schwartz felt, he had got to know him better than almost anyone else outside the Trump family. Until Schwartz posted the tweet, though, he had not spoken publicly about Trump for decades. It had never been his ambition to be a ghostwriter, and he had been glad to move on. But, as he watched a replay of the new candidate holding forth for forty-five minutes, he noticed something strange: over the decades, Trump appeared to have convinced himself that he had written the book. Schwartz recalls thinking, “If he could lie about that on Day One—when it was so easily refuted—he is likely to lie about anything.”

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While being responsible for 91% of them fleeing in the first place.

Six Wealthiest Countries Host Less Than 9% Of World’s Refugees (G.)

The six wealthiest countries in the world, which between them account for almost 60% of the global economy, host less than 9% of the world’s refugees, while poorer countries shoulder most of the burden, Oxfam has said. According to a report released by the charity on Monday, the US, China, Japan, Germany, France and the UK, which together make up 56.6% of global GDP, between them host just 2.1 million refugees: 8.9% of the world’s total. Of these 2.1 million people, roughly a third are hosted by Germany (736,740), while the remaining 1.4 million are split between the other five countries. The UK hosts 168,937 refugees, a figure Oxfam GB chief executive, Mark Goldring, has called shameful.

In contrast, more than half of the world’s refugees – almost 12 million people – live in Jordan, Turkey, Palestine, Pakistan, Lebanon and South Africa, despite the fact these places make up less than 2% of the world’s economy. Oxfam is calling on governments to host more refugees and to do more to help poorer countries which provide shelter to the majority of the world’s refugees. “This is one of the greatest challenges of our time yet poorer countries, and poorer people, are left to shoulder the responsibility,” said Mark Goldring, chief executive of Oxfam GB. “It is a complex crisis that requires a coordinated, global response with the richest countries doing their fair share by welcoming more refugees and doing more to help and protect them wherever they are.

“Now more than ever, the UK needs to show that it is an open, tolerant society that is prepared to play its part in solving this crisis. It is shameful that as one of the richest economies the UK has provided shelter for less than 1% of refugees.”

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Look away.

20 Migrants Dead, 366 Saved From Boats In Mediterranean (NW)

Rescuers saved 366 migrants from rickety boats trying to cross the Mediterranean to Italy but at least 20 people were reported to have drowned, Italian police said on Saturday. The survivors, who were rescued in four separate operations, were crammed onto three rubber dinghies and a wooden fishing boat. They were all taken to the Sicilian port of Augusta, where they were questioned on Friday evening by the Italian police unit Interforce, which combats illegal immigration.

The Norwegian ship Siem Pilot went to the aid of one dinghy that sank in the Sicilian Channel, but many migrants were already in the sea when it arrived, Antonio Panzanaro, an Interforce official, told Reuters. One corpse was recovered but survivors said that at least 20 people had drowned before the ship arrived, he said. There were 82 women and 25 children among the 366 people rescued, he said. The survivors were mainly from Nigeria, Ethiopia, Eritrea and Bangladesh. Seven people were arrested from the four boats, including their drivers, on suspicion of people-trafficking, he said.

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Jul 122016
 
 July 12, 2016  Posted by at 8:30 am Finance Tagged with: , , , , , , , , ,  


NPC L.E. White Coal Co. yards, Washington 1922

Asian Shares Rally As Wall Street Strikes New Record High (R.)
Abe Orders New Stimulus Package To Water ‘Seeds Of Growth’ (R.)
Japan Turns Again to Bernanke, as Fruits of Abenomics Wither (BBG)
Bernanke’s Black Helicopters Of Money (David Stockman)
The Trillions Spent By Central Banks Has Been A Dud: BofA (MW)
Ground Zero of China’s Slowdown Leaves Locals Looking for Exit (BBG)
HSBC Avoided US Money Laundering Charges Because Of ‘Market Risk’ Fears (BBC)
Brexit Seen Biting Profit for Years at US Banks (BBG)
Italy ‘Facing 20 Years Of Economic Woe’: IMF (BBC)
Dutch Bonds Just Did Something That We Haven’t Seen In 499 Years (BI)
Citibank To Close Key Venezuela Payment Account: Maduro (AFP)
European Commission Under Fire Over Barroso’s Goldman Sachs Job (EuO)
Oligarchs of the Treasure Islands (MWest)
Trump Wins -Even If He Loses- (Nomi Prins)

 

 

Everyone’s betting on the helicopter arriving soon.

Asian Shares Rally As Wall Street Strikes New Record High (R.)

Asian stocks rose to a 2-1/2-month peak on Tuesday, a day after Wall Street shares hit a record high thanks to a combination of upbeat U.S. data and expectations of more stimulus from global policymakers. MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.6% to hit its highest level since late April. Japan’s Nikkei jumped 2.5% as investors bet the country’s government may inject $100 billion in fiscal spending to boost the economy, possibly financed by the central bank’s money-printing, a policy mix that is often dubbed “helicopter money”. European shares are seen opening flat to slightly lower, with spread-betters expecting Britain’s FTSE 100 and Germany’s DAX to fall 0.1% and France’s CAC 40 to be flat.

On Wall Street, the S&P 500 index on Monday broke a new record high, its first in more than a year, extending its gain after Friday’s bumper job figures reduced worries about slowdown in employment. The benchmark closed at a record 2,137.16, overtaking the previous high of 2,130.82 hit on May 21, 2015. Globally low interest rates from central bank stimulus in both Japan and Europe are supporting risk assets. Bond yields in the U.S., Japan, Germany, France and the U.K all hit record lows last week as investors bet on more stimulus following the Brexit shock.

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Follow the strong leader no matter what he says or does. A culture fraught with danger.

Abe Orders New Stimulus Package To Water ‘Seeds Of Growth’ (R.)

Japanese Prime Minister Shinzo Abe ordered a new round of fiscal stimulus spending after a crushing election victory over the weekend as evidence mounted the corporate sector is floundering due to weak demand. Abe did not give details on the size of the package, but Japanese stocks jumped nearly 4 percent and the yen weakened over perceptions a landslide victory in upper house elections now gives him a free hand to draft economic policy. An unexpected decline in machinery orders shows the economy needs something to overcome consistently weak corporate investment. Economists worry, however, that Abe’s focus on public works spending will not tackle the structural issues around a declining population and workforce.

More public works also increases pressure on the Bank of Japan to keep interest rates low and the yen weak to make sure stimulus spending will gain traction. The government was ready to spend more than 10 trillion yen ($100 billion), ruling party sources told Reuters before the election. “We are going to make bold investment into seeds of future growth,” Abe told a news conference on Monday at the headquarters for his ruling Liberal Democratic Party (LDP). [..] Abe said he wanted to strengthen agriculture exports from rural areas and improve infrastructure, such as trains and ports, to welcome more tourists and cruise ships from overseas. “We have promised through this election campaign that we will sell the world the agricultural products and tourism resources each region is proud of,” he said.

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Abe has no more ideas.

Japan Turns Again to Bernanke, as Fruits of Abenomics Wither (BBG)

Less than three weeks before the Bank of Japan’s next scheduled policy meeting, Governor Haruhiko Kuroda met with former Federal Reserve Chairman Ben S. Bernanke over lunch on Monday. The BOJ issued no statement on the substance of the talks, which come as the central bank confronts a fresh strengthening in the yen this year that risks undermining inflation and weakening the appetite for investment and wage increases. Prime Minister Shinzo Abe will meet Bernanke at 3 p.m. local time on Tuesday, according to Abe’s office. For Bernanke, offering views on Japan’s challenges and policy options would be nothing new. He delivered a famous 2003 speech calling for greater cooperation between monetary and fiscal policy makers to defeat deflation and spur the economy.

In the room during Bernanke’s meetings with Japanese officials 13 years ago in Tokyo: Abe and Kuroda, who a decade hence unleashed an unprecedented stimulus to revive Japan. Now, that project is increasingly at risk with inflation moving away from the BOJ’s target, and GDP growth far from Abe’s goals. Bernanke’s 2003 visit, when he was a Federal Reserve Board member, and his message at the time is still discussed by BOJ officials. Japan has a tradition of seeking the advice of overseas experts, something that’s been taken to a new level under Abe, who consulted with Nobel laureates Paul Krugman and Joseph Stiglitz prior to his decision in June to delay a sales-tax hike. Unlike with this week’s Bernanke visit, the meetings with Krugman and Stiglitz were well-publicized.

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Stockman uses strange definitions of inflation and deflation. Nobody should use CPI.

Bernanke’s Black Helicopters Of Money (David Stockman)

Ben Bernanke is one of the most dangerous men walking the planet. In this age of central bank domination of economic life he is surely the pied piper of monetary ruin. At least since 2002 he has been talking about “helicopter money” as if a notion which is pure economic quackery actually had some legitimate basis. But strip away the pseudo scientific jargon, and it amounts to monetization of the public debt—–the very oldest form of something for nothing economics. Back then, of course, Ben’s jabbering about helicopter money was taken to be some sort of theoretical metaphor about the ultimate powers of central bankers, and especially their ability to forestall the boogey-man of “deflation”.

Indeed, Bernanke was held to be a leading economic scholar of the Great Depression and a disciple of Milton Friedman’s claim that Fed stringency during 1930-1932 had caused it. This is complete poppycock, as I demonstrated in The Great Deformation, but it did give an air of plausibility and even conservative pedigree to a truly stupid and dangerous idea. Right about then, in fact, Bernanke grandly promised during a speech at Friedman’s 90th birthday party that today’s enlightened central bankers – led by himself – would never let it happen again. Presumably Bernanke was speaking of the 25% deflation of the general price level after 1929.

The latter is always good for a big scare among modern audiences because no one seems to remember that the deflation of the 1930’s was nothing more than the partial liquidation of the 100%-300% inflation of the general price level during the Great War. In any event, Bernanke was tilting at windmills when he implied that the collapse of the US wartime and Roaring Twenties boom had anything to do with the conditions of 2002. Even the claim that Japan was suffering from severe deflation at the time was manifestly false. In fact, during the final stages of Japan great export and credit boom, the domestic price level had risen substantially, increasing by nearly 70% between 1976 and 1993. It then simply flattened-out – and appropriately so – after the great credit, real estate and stock market bubble collapse of 1990-1992.

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And this is the end result of QE et al.

The Trillions Spent By Central Banks Has Been A Dud: BofA (MW)

Toasts all around? U.S. stocks charged into record territory on Monday after Friday’s jobs report helped restore confidence in the U.S. economic recovery. But not so fast. The solid data mask a worrisome reality — despite the trillions collectively spent by central banks to breathe life into their economies since the 2008 financial crisis, authorities have been largely shooting blanks, according to Bank of America Merrill Lynch. The S&P 500 climbed to an intraday high of 2,143 Monday, passing the previous intraday record of 2,134.72 set on May 21, 2015. Stocks gained in part because the U.S. economy added 287,000 new jobs last month, far better than the gain of 170,000 projected by economists in a MarketWatch survey.

Yet the same report revealed that the labor participation rate—a metric to measure those who are employed or actively searching for jobs—is hovering at a 38-year low of 62.7%. A weak labor participation rate is an indication that an increasing number of people are leaving the labor force either through retirement or because they’re discouraged by not finding employment. It is also a sign that job growth isn’t tracking as robustly as it should considering that the U.S. economy expanded to $18 trillion in 2015 from $2.4 trillion in 1978. What’s more, the official unemployment rate edged up to 4.9% in June from 4.7% in May as more people entered the labor force looking for jobs. This headline number, however, excludes millions of part-time workers who would really rather work full time, as well as those who have become too discouraged to look for work, period. If this broader group was accounted for, the actual jobless rate would be closer to 10%.

It all suggests that the labor market, and by extension the economy, may not be as healthy as it should be given the prolonged period of accommodative monetary policy in the U.S. and elsewhere. It’s against this backdrop that a team led by Michael Hartnett, chief investment strategist at Bank of America Merrill Lynch, demonstrated how ineffective they believe central banks’ collective quantitative easing has been. Central banks around the world have cut interest rates a combined 659 times since Lehman Brothers filed for bankruptcy on Sept. 15, 2008, resulting in negative rates in many major economies, according to Hartnett. “Incited by the belief that every single interest rate in the world is heading to zero, the mountain of cash on the sidelines has induced fresh ‘irrational upside’ in government and corporate bonds,” said the strategist, in a note.

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A picture of the real China.

Ground Zero of China’s Slowdown Leaves Locals Looking for Exit (BBG)

Tea-shop manager Zhang Yue is so desperate about her home city of Tieling’s future that she’s borrowed about five times her annual income to buy a work visa to leave for Japan – an economy that’s flat-lined for a generation. “Two years ago, everything was fine and I bought whatever I wanted,” said Zhang, 29, whose husband’s wages have since halved and her own have stalled. “Then, suddenly, the slump started. The economy went straight down. It’s in free fall.” The home to about 3 million people in the northeast rust-belt province of Liaoning is ground zero in China’s slowdown – the worst-performing city in the worst-performing province. Ads offering work visas abroad are peppered across hoardings, and billboards offer loans for people in “urgent need.”

Shuttered car-parts factories flank the highway to the high-speed train station. In the center, a closed wedding-photograph studio has a notice in the window that reads: “Owner is going overseas. Shop for sale.” Tieling is among the places hardest hit by a slowdown across the nation of 1.4 billion people triggered in recent years by a commodity-price slump, housing correction and campaign to rein in wasteful investment. The city has seen a triple whammy from the three dynamics, which left the local economy contracting 6.2% last year – compared with national growth of near 7%. Fixed-asset investment in Tieling – largely property and infrastructure investment – plummeted 39%, steel output plunged 89%, industrial output dropped 18% and coal production was down almost 8%.

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Keep this up and tar and feathers are your part.

HSBC Avoided US Money Laundering Charges Because Of ‘Market Risk’ Fears (BBC)

US officials refused to prosecute HSBC for money laundering in 2012 because of concerns within the Department of Justice that it would cause a “global financial disaster”, a report says. A US Congressional report revealed UK officials, including Chancellor George Osborne, added to pressure by warning the US it could lead to market turmoil. The report alleges the UK “hampered” the probe and “influenced” the outcome. HSBC was accused of letting drug cartels use US banks to launder funds. The bank, which has its headquarters in London, paid a $1.92bn settlement but did not face criminal charges . No top officials at HSBC faced any charges. The report says: “George Osborne, the UK’s chief financial minister, intervened in the HSBC matter by sending a letter to Federal Reserve Chairman Ben Bernanke… to express the UK’s concerns regarding US enforcement actions against British banks.”

The letter said that prosecuting HSBC could have “very serious implications for financial and economic stability, particularly in Europe and Asia”. Justice Department spokesman Peter Carr said a series of factors were considered when deciding how to resolve a case, including whether there may be “adverse consequences for innocent third parties, such as employees, customers, investors, pension holders and the public”. The report also accuses former US Attorney General Eric Holder of misleading Congress about the decision. The report says Mr Holder ignored the recommendations of more junior staff to prosecute HSBC because of the bank’s “systemic importance” to the financial markets.

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Nonsensical article. If any of this were valid, US banks were so weak pre-Brexit, lower profits were cast in stone no matter what.

Brexit Seen Biting Profit for Years at US Banks (BBG)

When U.S. banks post second-quarter results in days, it’ll boil down to this: Bonus cuts are coming for just about everyone this year, says Wall Street recruiter Richard Lipstein. “If you are break-even, it’s an achievement.” That’s the picture taking shape as analysts trim estimates for the quarter and overhaul long-term projections for banks’ main businesses after the U.K.’s vote to leave the European Union. Starting this week, JPMorgan Chase, Citigroup and Goldman Sachs probably will say they saw a quick bump in trading after the June 23 referendum, but that deals are stalling and years of pain lie ahead. Combined net income at the six biggest U.S. banks is estimated to fall 18% in the second quarter from a year earlier, according to analysts surveyed by Bloomberg.

Fred Cannon, global research director at Keefe, Bruyette & Woods, said many analysts are just starting to rework projections for future periods to account for Brexit’s fallout, such as the prolonging of low interest rates. “We went from lower for longer into what seems like lower forever,” he said. That will erode interest from lending. Market turmoil and economic drags linked to Brexit will hurt investment banking revenue as companies reconsider acquisitions and selling new securities. And that’s after trading units suffered their worst first quarter since 2009.

For the full year, analysts predict combined earnings at the six U.S. banks – which also include Bank of America, Wells Fargo and Morgan Stanley – will drop 14%. It may only partially recover in 2017, the estimates show. The projections for both years tumbled after markets swung earlier this year, and then slipped further after the U.K. vote as analysts began updating research. “Up until June 24, everybody thought the second quarter was building a nice recovery, and now you have to question that,” said Chris Kotowski, a bank analyst at Oppenheimer & Co., referencing the day ballots were tallied. “I’m more cautious than I was.”

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As long as the country stays in the eurozone, yes.

Italy ‘Facing 20 Years Of Economic Woe’: IMF (BBC)

The IMF has warned that Italy faces two decades of stagnant economic growth. Its latest report on the country puts growth this year at under 1%, down from its previous 1.1% estimate, and forecasts growth in 2017 of about 1% – down from a 1.25% estimate. The IMF says Italy will not reach pre-crisis levels until 2025, by which time its neighbours will have economies 20-25% above 2008 levels. Italy is the third largest eurozone country. It has 11% unemployment and a banking sector in crisis, with government debt second only to that of Greece. The country’s banks are under pressure because the long-standing poor economic performance has depressed tax revenue and increased the chances of businesses getting into difficulty and being unable to maintain their loan payments.

Italian banks are weighed down by massive bad debts, and may need a significant injection of funds. The IMF says any recovery is likely to be prolonged and subject to risks. Among those risks are the UK’s withdrawal from the European Union, which it said last week had prompted it to downgrade its forecasts for growth for the entire eurozone. Other problem areas include “the refugee surge, and headwinds from the slowdown in global trade”.

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Just in case it wasn’t clear yet just how crazy our times are.

Dutch Bonds Just Did Something That We Haven’t Seen In 499 Years (BI)

Dutch 10-year government bond yields dropped below zero for the first time ever on Monday, making them the latest to join the negative yield club. The Netherlands’ 10-year dipped by 0.08 %age points to as low as -0.007%. It has fallen by about 30 basis points since the June Brexit vote. There’s roughly $13 trillion of global negative-yielding debt now, according to data from Bank of America Merrill Lynch, cited by the Wall Street Journal on Sunday. By comparison, there was about $11 trillion ahead of the UK’s vote on EU referendum.

When a bond is negative yielding, it means investors get less back when the debt is due than what they pay for it today. The Dutch bond yields are the lowest the country has ever seen. Amazingly, there’s nearly half a millennium of records to compare that against, as record keeping began in 1517. As a historical reference point, that’s the same year that Martin Luther published his 95 Theses. You can see the history of the Dutch 10-year going back to 1517 in the chart below, which was shared by Deutsche Bank’s Jim Reid in his Monday note to clients.

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America wants revenge.

Citibank To Close Key Venezuela Payment Account: Maduro (AFP)

Citibank plans to close the account Venezuela uses to make international payments, President Nicolas Maduro said Monday, accusing the US-based bank of a “financial blockade.” “Citibank, with no warning or communication, says that it is going to close the Central Bank and Bank Of Venezuela account. That is what you call a financial blockade,” the embattled president said in televised remarks. He said the move amounted to an “inquisition” by US President Barack Obama’s administration. Maduro said his South American nation, a major oil producer, uses the account to make payments “within 24 hours, to other accounts in the United States and worldwide.” Maduro’s socialist government has often claimed that US interests and local business elites were trying to blockade his state-led economy and prevent Venezuela’s access to international credit.

“Do you think they are going to stop us by putting in place a financial blockade? No, ladies and gentlemen, nobody stops Venezuela! With Citibank or without it, we are moving forward. With Kimberly or without, we are moving.” Venezuela’s government said just hours earlier that it would take over operations at facilities where US consumer goods giant Kimberly-Clark recently shut down, citing unworkable economic conditions. The American company announced on Saturday it would cease production, saying that it was impossible to get enough hard currency to buy raw materials, and that inflation was surging. “We are going to sign, at the workers’ request… to authorize immediate occupation of the workplace known as Kimberly-Clark de Venezuela… by its workers,” Labor Minister Oswaldo Vera said at the facility’s plant in the central city of Maracay.

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Look, they just don’t care. That’s what Britain has a unique oppottunity to step away from. It doesn’t mean there’s no corruption in Britain, but inside the EU it would be guaranteed. Note: it’s quite an achievement to get France’s socialists and Marine le Pen on the same page. But Barroso gets it done. AND he’ll remain eligible for his (very rich) EU benefits and pension …

European Commission Under Fire Over Barroso’s Goldman Sachs Job (EuO)

[..] “Barroso’s decision … is morally and politically deplorable”, said Gianni Pittella, leader of the Socialist and Democrats group in the European Parliament. “After 10 years of mediocre governance of the EU, now the former EU Commission president will serve those who aim to undermine our rules and values,” he added. The Brussels-based lobby watchdog, Corporate Europe Observatory’s (CEO), said the commission’s line – that Barroso acted within the rules – was “pathetic”. “Major loopholes exist in both the rules and the way in which they are implemented … there should be a mandatory cooling-off period of at least five years for former commission presidents regarding direct and indirect corporate lobbying activities,” the NGO’s Nina Holland said. She noted that nine of Barroso’s former commissioners had gone to work for big business after their terms ended in 2014.

Meanwhile, the timing of Barroso’s move could hardly have been worse for the commission. Eurosceptic movements around Europe have long accused EU officials of trampling on ordinary people’s welfare to serve the interests of elites in developments that came to a head in the Brexit vote. France’s far-right Marine Le Pen tweeted that the Barrose move was “not a surprise for people who know that the EU does not serve people but high finance”. French socialist MEPs called on Goldman Sachs to let him go. In a statement on Monday they called the appointment “outrageous and shameful”. They said that he breached the EU treaty and should be stripped of his EU benefits and pension.

They cited article 245 of the EU treaty, which says that commissioners should respect the “obligations arising therefrom and in particular their duty to behave with integrity and discretion as regards the acceptance, after they have ceased to hold office, of certain appointments or benefits.” Barroso led the commission through the tumultuous years of the euro crisis and related bailouts. Under his tenure, the EU set up financial rescue funds to help troubled countries and their banks, but at the cost of severe austerity in Greece, Ireland and Portugal. Goldman Sachs was one of the US investment banks at the heart of the 2008 financial crisis that triggered the events when lenders traded failing mortgages as parts of complex financial instruments.

Earlier this year, the Wall Street firm agreed to a civil settlement of up to $5 billion with federal prosecutors and regulators to resolve claims resulting from the marketing and selling of faulty mortgage securities to investors. Goldman Sachs also helped Greece to hide part of its deficit in the early 2000s, by using so called currency swaps. But the currency trades end up doubling the Greek deficit and leading to the edge of ruin. Barroso himself had been a student leader in an underground Maoist group during his university years. The 60 year-old served as prime minister of Portugal between 2002 and 2004 before heading the EU’s executive for 10 years.

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Accountants, unaccountable.

Oligarchs of the Treasure Islands (MWest)

The “Big Four” global accounting firms – PwC, Deloitte, KPMG and Ernst & Young – are the masterminds of multinational tax avoidance, the architects of tax schemes which cost governments and their taxpayers more than $US1 trillion a year. Although presenting as “the guardians of commerce” they are unregulated and unaccountable; they have infiltrated governments at every level and should be broken up. This is the view of George Rozvany, Australia’s most published expert on transfer pricing, which is one of the principal ways large corporations pursue cross-border tax avoidance. Rozvany stepped down last year as head of tax in Australia for the world’s biggest insurance company, Allianz. Formerly, he was an insider at Ernst & Young, PwC and Arthur Andersen.

“The Big Four have, under a Rasputin-like cloak of illusion strayed from their original and critical role of verifying the accuracy of financial accounts for all stakeholders, to be “accountants of fortune” merely representing the accounting position for multinationals and developing aggressive international tax avoidance practices,” he told michaelwest.com.au. Rozvany is writing a series of books on corporate tax ethics. “This is not a victimless crime,” he says. “While Western governments have been cutting back their aid to the most underprivileged in society, from the homeless to orphaned children in Africa, multinational companies have been diverting ever larger profits into tax havens”.

“The global community must also recognise the links between aggressive taxation behaviour, money laundering, corruption, organised crime and terrorism, of which the Brussels bombings and 9/11 are chilling reminders. This, unquestionably, is the financial sewer of humanity where the purpose for such money, no matter how malevolent, is simply hidden until used”, Rozvany says. [..] “Their signage adorns the skyline in every major city in the world. They have meticulously manicured their public image. They are spectacularly profitable but beyond the law. They are trusted but not trustworthy. They have become too big, too big to fail, so they must be broken up. Break up is hardly radical. It has been done in many industries including banking, oil and communications”.

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He’ll get stronger in the face of adversity.

Trump Wins -Even If He Loses- (Nomi Prins)

Once upon a time not so long ago, making America great again involved a bankroll untainted by the Republican political establishment and its billionaire backers. There would, The Donald swore, be no favors to repay after he was elected, no one to tell him what to do or how to do it just because they had chipped in a few million bucks. But for a man who prides himself on executing only “the best” of deals (trust him) this election has become too expensive to leave to self-reliance. One thing is guaranteed: Donald Trump will not pony up a few hundred million dollars from his own stash. As a result, despite claims that he would never do so, he’s finally taken a Super PAC or two on board and is now pursuing more financial aid even from people who don’t like him.

Robert Mercer and his daughter Rebekah, erstwhile influential billionaire backers of Ted Cruz, have, for instance, decided to turn their Make America Number 1 Super PAC into an anti-Hillary source of funds – this evidently at the encouragement of Ivanka Trump. In the big money context of post-Citizens United presidential politics, however, these are modest developments indeed (particularly compared to Hillary’s campaign). To grasp what Trump has failed to do when it comes to funding his presidential run, note that the Our Principles Super PAC, supported in part by Chicago Cubs owners Marlene Ricketts and her husband, billionaire T.D. Ameritrade founder J.

Joe Ricketts, has already raised more than $18.4 million for anti-Trump TV ads, meetings, and fundraising activities. (On the other hand, their son, Pete, Republican Governor of Nebraska, has given stump speeches supporting Trump.) To put this in context, that $18.4 million is more than the approximately $17 million that all of Trump’s individual supporters, the “little people,” have contributed to his campaign.

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Oct 272015
 
 October 27, 2015  Posted by at 10:56 am Finance Tagged with: , , , , , , , ,  


‘Daly’ Store, Manning, South Carolina 1941

What’s Happened To International Bank Lending? (WEF)
Greek Creditors Refuse To Make Next Loan Payment (Zero Hedge)
‘Giant Wave of Money’ Headed for Sweden Creates Policy Nightmare (Bloomberg)
Oil Supply Hits 85-Year High in US (Bloomberg)
Bakken Oil Companies Declare Bankruptcy (BT)
Economists Prove That Capitalism Is Unnecessary (Steve Keen)
Keen vs. Keen: Will the Real Steve Keen Please Stand Up? (Mish)
Bernanke’s Bogus Contra-Factual, 1: The Myth Of Great Depression 2.0 (Stockman)
Something Happened (Jim Kunstler)
Rajoy Calls Election for Spain Against Backdrop of Party Unrest (Bloomberg)
Portugal’s Constitutional Crisis Threatens All European Democracies (Telegraph)
Goldman Sachs Banker Likely To Face Jail Amid Rare Criminal Charges (Guardian)
EC Approves Aid As Greece Prepares To Host More Migrants (Kath.)
Slovenia To Hire Private Security Firms To Manage Migrant Flows (Reuters)
Italy Says EU’s Response ‘Inadequate’ as Refugee Numbers Surge (Bloomberg)
Using The Refugee Crisis (Boukalas)
Big-Game Hunters Are Killing African Lions In Record Numbers (Bloomberg)
Indonesia’s Forest Fires Labelled A ‘Crime Against Humanity’

Deflation.

What’s Happened To International Bank Lending? (WEF)

The Bank of International Settlements has just released its latest international banking statistics, which run until the end of June 2015, and they make for some pretty horrible reading. Cross-border lending fell by $910 billion (£589 billion), an enormous slump, and the largest since the fourth quarter of 2008, the worst bit of the global financial crisis. BIS is often referred to as the central bank of central banks, collating information on financial flows around the world and trying to make sense of what’s happening on a global scale. According to today’s data, cross-bank lending retreated at the fastest pace in more than six years. The period between Q1 2014 and Q1 2015 was the strongest run since the crash, with a (very small) contraction recorded in only one quarter, and decent growth in the others. Then it fell off a cliff:

There’s a precise definition of cross-border lending from BIS, which the crucial definition being “when the ultimate obligor or guarantor resides in a country that is different from the residency of the reporting institution.” During the worst quarter of the financial crisis, Q4 2008, cross-border lending shrank more than twice as quickly, plunging by more than $2 trillion, and making Q2 2015’s decline look decidedly less dramatic:

The longer timeframe also offers some perspective on the post-crisis period generally, showing how small the increases in cross-border lending have been, when it’s increased at all. That’s in stark contrast to the years leading up to the crisis, when lending across borders exploded: 10 of the 16 quarters from 2004 to the end of 2007 saw stronger growth than any single quarter since. Taking a look even further back, to 1978, three more things become clear — firstly, cross-border lending has exploded in size over the last 40 years. Secondly, the figures show just how strange the period since the crisis is, interrupting decades of growth (with some interruptions in the early 1990s). And finally, it shows that Q2 2015 was the worst quarter ever, other than Q4 2008. Take a look:

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Not surprised.

Greek Creditors Refuse To Make Next Loan Payment (Zero Hedge)

At first it was cute: when Greece got its first “dramatic” bailout in 2010 sending the global markets and the EUR first plunging then soaring, it was a melodrama of sorts – people still cared. Then, by the time the second and third bailouts rolled around, especially in the aftermath of the most ridiculous referendum in modern history, where a majority of Greeks voted for one thing only to get the other, it became a tragicomedy in what everyone hoped would be its final, “German colonial” season. It wasn’t. Moments ago, Germany’s Suddeutsche Zeitung reported that just two (or is it three, this past summer is one big blur) months after Greece voted through its third bailout, one which will raise its debt/GDP to over 200% on a fleeting promise that someone, somewhere just may grant Greece a debt extension (which will do absolutely nothing about the nominal amount of debt), its creditors have already grown tired with the game and are refusing to pay the next Greek loan tranche of €2 billion.

Specifically, the payment of the first €2b tranche of €3b is now sait to be delayed because Greek Prime Minister Alexis Tsipras failed to implement reforms on schedule, Sueddeutsche Zeitung reports, citing unidentified senior EU official. Wait, you mean the Greeks (over)promised and never delivered? Who could have possibly seen this coming? Not the unidentified EU official who blasts Athens as having implemented only a third of the required projects. As a result, the tranfer probably will only take place in November, if then, since only 14 of the 48 “milestones” linked to payments have been decided on. The report goes on to tell us what we already knew: talks between the government in Athens and the Troika + the ESM (or Quadriga, or whatever it’s called) ended last week without success.

SZ goes into the unpleasant details, noting that there are inconsistencies in how the banks deal with bad loans, estimated that 320,000 apartment owners have mortgage payments in arrears, threatened with foreclosures, evictions, and so on. In other words, the Greek holiday from being held accountable for anything which started in July and lasted until October is over. Yet, there is still hope: in a separate report, Germany’s Bild tabloid cites Deutsche Bank analysts as anticipating a debt reduction for Greece of €200 billion by year-end, and amount which Bild conveniently calculates corresponds to €700 per inhabitant of the Eurozone. It adds that, as noted above, Greek debt would total €340b by year-end, or 200% of Greek GDP, some 140% higher than allowed by European treaties. It concludes by citing Lueder Gerken, Chairman of the Centre for European Policy, as saying that a Greek “haircut is economically inevitable, as well as a fourth rescue package.”

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It’s all in the housing market.

‘Giant Wave of Money’ Headed for Sweden Creates Policy Nightmare (Bloomberg)

European Central Bank President Mario Draghi said boo last week and the krona jumped. With the ECB signaling a new wave of stimulus to prop up the euro zone, the question is how Sweden’s central bank can fight the monetary expansion coming from the south with its own, much smaller toolbox as it tries to stop the krona appreciating. “The nightmare for the Riksbank board is maybe something like this: they are gathered in the south of Sweden, looking out over the Baltic Sea, when they see a giant wave of money coming in from the euro zone and try to fight it with a hose,” Robert Bergqvist, chief economist at SEB in Stockholm and a former researcher at the Riksbank, said by phone. The Riksbank is due to announce its next rate decision on Oct. 28.

Most economists surveyed by Bloomberg see the bank keeping its repo rate at minus 0.35%, though there’s speculation policy makers will need to expand their quantitative easing program. Failure to do so would lead to the krona strengthening “markedly,” Nordea Bank says. Draghi’s stimulus measures to date have already forced his Swedish counterpart, Stefan Ingves, to resort to unprecedented measures to drive up consumer prices in Scandinavia’s largest economy. He cut Sweden’s main rate below zero for the first time in February and started buying bonds, expanding the QE program several times since. Underlying price growth has stayed below the Riksbank’s 2% target since the beginning of 2011.

The stimulus program marks a departure from the cautious approach Ingves had adopted earlier, as he argued that excessively low rates risked overheating Sweden’s already hot property market. Now, there’s a growing chorus of voices from bank executives to analysts warning of unsustainable housing price developments. But Ingves can’t afford to take his attention away from consumer prices. “The Riksbank is fully focused on the inflation target,” Pierre Carlsson, an analyst at Handelsbanken, said by phone. “They’ve let go of the housing market, at least officially, and it’s not something that should keep them from further action. But they’re hardly happy.”

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Consumption vs supply.

Oil Supply Hits 85-Year High in US (Bloomberg)

Hedge funds placed the most bets on falling oil prices since July as rising piles of crude dashed hopes of a near-term recovery. Money managers’ short position in West Texas Intermediate crude jumped by 18% in the week ended Oct. 20, the largest surge since July 21, according to data from the Commodity Futures Trading Commission. That pulled their net-long position down by more than 16,000 contracts of futures and options. Crude stockpiles in the U.S. rose 22.6 million barrels in the past four weeks to the highest October level since 1930, even as producers have idled more than half their drilling rigs in the past year. A global surplus of crude could last through 2016, according to the International Energy Agency. “The decline in U.S. drilling and production is not enough to rebalance even the U.S. market, let alone the global market,” said Tim Evans at Citi Futures Perspective.

“How much do you really want to pay for the next million barrels of inventory you don’t need?” WTI fell 2.4% in the report week to $45.55 a barrel on the New York Mercantile Exchange. The front-month contract dropped 1.4% to settle at $43.98 a barrel on Monday. Oil inventories in the U.S. have risen 5% in the past four weeks to 477 million barrels, the highest seasonal in 85 years, when massive production in east Texas caused the state to empower its Railroad Commission to regulate output. Supplies have risen as refineries have slowed processing to perform seasonal maintenance. U.S. plants ran at 86.4% of capacity last week, compared with 96.1% at the end of July. “We’re in the middle of refinery maintenance season. Utilization is low, imports are up, and we’re building crude,” said David Pursell at investment bank Tudor Pickering Holt & Co. in Houston, said in a phone interview. “The middle of October is an easy time to be bearish on crude.”

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“..the most recent operator in the state to declare bankruptcy, filing in mid-September in hopes of clearing more than $3.25 billion in debt.”

Bakken Oil Companies Declare Bankruptcy (BT)

As crude oil prices hang low, about $43 per barrel Monday, some North Dakota operators are trying to divest interests in the Bakken. Two debt-heavy operators in the state, Tulsa, Okla.-based Samson Resources and Denver-based American Eagle Energy, filed for Chapter 11 bankruptcy, planning to sell off Bakken assets to pay back what they owe. Samson, with production acres in the Three Forks and Middle Bakken plays, has not yet succeeded in selling off acreage, spokesman Brian Maddox said. “We have not currently entered into agreements to divest other larger packages, including our Bakken, Wamsutter, San Juan and non-core Mid-Con assets, because we perceived the value offered was less than the value of retaining those properties when economic factors and the impact to our credit position were considered,” the company said in first-quarter 2015 filings with the U.S. Securities and Exchange Commission.

“Even if we are successful at reducing our costs and increasing our liquidity through asset sales, we do not expect to have sufficient liquidity to satisfy our debt service obligations, meet other financial obligations and comply with restrictive covenants contained in our various credit facilities.” The company is the most recent operator in the state to declare bankruptcy, filing in mid-September in hopes of clearing more than $3.25 billion in debt. As part of the company’s restructuring agreement, second lien lenders own all of the equity of the reorganized company in exchange for providing at least $450 million of new capital to increase liquidity.

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Stevo!!

Economists Prove That Capitalism Is Unnecessary (Steve Keen)

Actually they’ve done no such thing. But they do effectively assume that it’s unnecessary all the time. This transcendental truth became apparent to me in the reactions I have had from mainstream economists to a lecture I gave to my Kingston students this month. In it I explained that, at a very basic level, the original “Neoclassical” mathematical model of a market economy is mathematically unstable: it doesn’t converge to a stable pattern of relative prices and a stable growth path for the economy, as its developer Leon Walras thought it did. Mainstream economists reacted to my lecture by saying that, while the argument, which was first made in the 1960s by Jorgenson (who was applying a mathematical theorem from the early 1900s) was mathematically correct, all one had to do was assume that “economic agents” would then notice the instability and change their behavior. The model would then converge to equilibrium—problem solved.

And how would “economic agents” notice this instability? They would realize that a pattern of relative prices that had occurred once before in the past happened again. Hmmm. O.K.A.Y… I’ve read this sort of nonsense in dozens of mainstream academic papers over the years, and railed against it in an academic sort of way. But maybe because I’d just been reading and teaching Hayek to the same class, the true absurdity of this standard mainstream riposte stood out clearly to me. It’s an assumption that individuals in a market economy are so all-knowing that, in effect, they don’t need markets at all: they can just work it all out in their heads. Yet if anything defines a capitalist economy, it’s the dominance of markets. So effectively the mainstream reaction to anything which disturbs their preferred way of modeling a market economy is to make assumptions that, if they were true, would make a market economy itself unnecessary in the first place.

I know I’m not being original in saying this, by the way: this is the same point that Hayek made, in many different ways, when pointing out that the strength of a market economy was how it let people combine fragmented and incomplete knowledge in a way that no centralized system could do. As he put it:

“The fact that much more knowledge contributes to form the order of a market economy than can be known to any one mind … is the decisive reason why a market economy is more effective than any known type of economic order”.

Hayek’s main target here were socialists who believed that a complex economy could be centrally planned—thus doing away with markets institutionally. But he also criticized his mainstream rivals for assuming the existence of all-seeing, all-knowing “economic agents” to overcome mathematical problems in their equilibrium-obsessed models of the economy. Here he was actually in agreement with his great rival Keynes, since they both said that the only way equilibrium could be achieved would be if people’s expectations about the future were both shared and correct. Quoting Hayek:

“It appears that the concept of equilibrium merely means that the foresight of the different members of the society is in a special sense correct.”

And quoting Keynes:

“I accuse the classical economic theory of being itself one of these pretty, polite techniques which tries to deal with the present by abstracting from the fact that we know very little about the future.”

If the mainstream fantasies about the knowledge levels of individual agents were to be taken seriously, they’d need a convincing model to explain how such a state of mutual wisdom might come about. But as Hayek noted, rather than doing so, mainstream economists simply assumed that everyone was Nostradamus:

“instead of showing what bits of information the different persons must possess in order to bring about that result, we fall in effect back on the assumption that everybody knows everything and so evade any real solution of the problem.”

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Mish’s reaction to Steve’s piece above.

Keen vs. Keen: Will the Real Steve Keen Please Stand Up? (Mish)

In his Debtwatch Manifesto Keen proposes three mechanisms for dealing with the debt crisis. The first is a debt jubilee. The second is a mechanism that would act to restrict share prices. In his third proposal, Keen states “Lenders would only be able to lend up to a fixed multiple of the income-earning capacity of the property being purchased—regardless of the income of the borrower. A useful multiple would be 10, so that if a property rented for $30,000 p.a., the maximum amount of money that could be borrowed to purchase it would be $300,000.”

Hmm. How can Keen, me, or anyone else discern the correct “useful multiple”? Shouldn’t this be left to the free market? Keen also discusses full reserve proposals, one by Irving Fisher, the other HR2990 a bill Proposed by Congressman Dennis Kucinich in 2011.

Keen: Technically, both these [full reserve] proposals would work. I won’t go into great detail on them here, other than to note my reservation about them, which is that I don’t see the banking system’s capacity to create money as the causa causans of crises, so much as the uses to which that money is put. The problem comes when that money is created instead for Ponzi Finance reasons, and inflates asset prices rather than enabling the creation of new assets.

Mish: I propose, the system’s capacity to create money at will is the very problem. The fact of the matter is central banks can create money but not dictate where it goes. Curiously, Keen is willing to let bureaucrats decide what constitutes Ponzi financing, even though history shows government bodies and central banks have a 100% failure rate at identifying bubbles. Keen is concerned about “where the money goes”, yet is willing to trust bureaucrats more than the free market. To quote Keen directly … “And how would economic agents notice this instability? They would realize that a pattern of relative prices that had occurred once before in the past happened again. Hmmm. O.K.A.Y.”

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“..what better excuse to override every principle of free market economics, financial discipline and public policy fairness than stopping a reenactment of the 1930s – putative soup-lines and all?”

Bernanke’s Bogus Contra-Factual, 1: The Myth Of Great Depression 2.0 (Stockman)

It took no “courage” whatsoever to inflate the Fed’s balance sheet from $900 billion to $2.3 trillion during just 17 weeks in September-December 2008. What it actually took was an epochal con job by a naïve Keynesian academic whose single idea about economics was primitive, self-serving, borrowed and wrong. The claim that the Great Depression was caused by the Fed’s failure to go on a bond buying spree in 1930-1933 was Milton Friedman’s monumental error. Professor Bernanke’s scholarship amounted to little more than xeroxing Friedman’s flawed work, and then shouting loudly in the Eccles Building boardroom at the time of the Lehman bankruptcy that Great Depression 2.0 was lurking just around the corner. That was just plain hysterical malarkey.

But at the time, it served the interests of the Wall Street/Washington Corridor perfectly. As Wall Street’s decade long spree of leveraged speculation was being liquidated in September 2008, Goldman Sachs, Morgan Stanley and their posse of hedge fund speculators desperately needed rescue from their own reckless gambles – especially their funding of giant balance sheets swollen by long-dated, illiquid, risky assets with cheap hot funds in the wholesale money market. So what better excuse to override every principle of free market economics, financial discipline and public policy fairness than stopping a reenactment of the 1930s – putative soup-lines and all? At the same time, beltway politicians and fiscal authorities were tickled pink.

They would be able to unleash a monumental $800 billion potpourri of K-street pork and tax and entitlement giveaways to “fight” the recession, knowing that Bernanke & Co would finance it with an eruption of public debt monetization that was theretofore unimaginable. In short, no public official has ever committed an economic folly greater than the horrific misdeed of Ben S. Bernanke when he provided the Great Depression 2.0 cover story for the lunatic outbreak of central bank money printing shown below. It destroyed the last vestige of Wall Street discipline in a financialized economy that had already been bloated and deformed by two decades of Greenspan era Bubble Finance.

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Bernanke on tour.

Something Happened (Jim Kunstler)

Ben Bernanke’s memoir is out and the chatter about it inevitably turns to the sickening moments in September 2008 when “the world economy came very close to collapse.” Easy to say, but how many people know what that means? It’s every bit as opaque as the operations of the Federal Reserve itself. There were many ugly facets to the problem but they all boiled down to global insolvency — too many promises to pay that could not be met. The promises, of course, were quite hollow. They accumulated over the decades-long process, largely self-organized and emergent, of the so-called global economy arranging itself. All the financial arrangements depended on trust and good faith, especially of the authorities who managed the world’s “reserve currency,” the US dollar.

By the fall of 2008, it was clear that these authorities, in particular the US Federal Reserve, had failed spectacularly in regulating the operations of capital markets. With events such as the collapse of Lehman and the rescue of Fannie Mae and Freddie Mac, it also became clear that much of the collateral ostensibly backing up the US banking system was worthless, especially instruments based on mortgages. Hence, the trust and good faith vested in the issuer of the world’s reserve currency was revealed as worthless. The great triumph of Ben Bernanke was to engineer a fix that rendered trust and good faith irrelevant.

That was largely accomplished, in concert with the executive branch of the government, by failing to prosecute banking crime, in particular the issuance of fraudulent securities built out of worthless mortgages. In effect, Mr. Bernanke (and Barack Obama’s Department of Justice), decided that the rule of law was no longer needed for the system to operate. In fact, the rule of law only hampered it. Mr. Bernanke now says he “regrets” that nobody went to jail. That’s interesting. More to the point perhaps he might explain why the Federal Reserve and the Securities and Exchange Commission did not make any criminal referrals to the US Attorney General in such cases as, for instance, Goldman Sachs (and others) peddling bonds deliberately constructed to fail, on which they had placed bets favoring that very failure.

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“Rajoy’s party has the support of about 27% of voters compared with almost 45% in the previous general election..”

Rajoy Calls Election for Spain Against Backdrop of Party Unrest (Bloomberg)

Spanish Prime Minister Mariano Rajoy called a general election for Dec. 20, insisting he is the best candidate to win the ballot despite unrest within his party. Speaking in Madrid, the 60-year-old premier said his government has turned the economy around and honored its pledge to bring down unemployment after it reached a record high on his watch. Rajoy urged Spaniards to vote for continuity and stability, arguing that he’s best placed to safeguard the recovery and create more jobs. “If I didn’t think I was the best candidate I wouldn’t be running,” he said at a televised press conference Monday. Asked about potential coalitions, Rajoy avoided going into detail about what his preferred options would be, but insisted that he wouldn’t try to form a government if his party didn’t win the most votes.

He batted away speculation that he would be prepared to step down to facilitate a coalition government if a junior partner “called for his head.” “My head is well placed and I’m not letting anyone change that place,” he said. Rajoy’s party has the support of about 27% of voters compared with almost 45% in the previous general election, when it secured its best result ever. With the prime minister’s party dogged by corruption allegations, many of its traditional voters have been drawn to pro-market party Ciudadanos, led by 35-year-old former lawyer Albert Rivera. Rajoy denies any wrongdoing. For a party that prides itself on internal discipline, Rajoy has had to suffer a raft of dissent in recent weeks. His predecessor Jose Maria Aznar criticized the party’s performance, Budget Minister Cristobal Montoro launched an attack on his cabinet colleagues and lawmaker Cayetana Alvarez de Toledo announced in a newspaper column that she wouldn’t run again on a list led by the prime minister.

Spaniards will go to the polls with the economy growing at the fastest pace since 2007 and unemployment at the lowest in almost four years. Still, opinion polls suggest about 40% of PP voters are considering other options. “The economic recovery is helping Rajoy recover moderate voters,” said Narciso Michavila, chairman of pollster GAD3. “The question is whether that’s enough.” The PP is outpacing Socialists, the other Spanish incumbent party, by about four%age points, according to the average of 10 polls publicly released since Oct. 5. Ciudadanos is running third with an average support of 18.2%, while Syriza’s ally Podemos is on 13.6%.

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Lots of different views on this, coup or no coup. Wonder how it’ll play out. President plays strange role, but he’s out in January.

Portugal’s Constitutional Crisis Threatens All European Democracies (Telegraph)

On October 4, the ruling conservative coalition that has governed Portugal for four years lost its parliamentary majority. The centre-right alliance, led by Prime Minister Pedro Passos Coelho, had overseen the implementation of one of the toughest austerity packages in the euro following a €78bn bail-out in 2011. The incumbents still emerged as the biggest party with 36.8pc of the vote share, but lost 17 seats and their parliamentary majority in the process. In second place was the main opposition Socialists (PS) led by Antonio Costa. Mr Costa – a moderate who supports Portugal’s euro membership – gained 32.4pc of the vote share. The result was disappointing but not catastrophic for the former mayor of Lisbon, who had been narrowly leading the polls in the electoral run up. But Portugal’s more stridently anti-austerity, eurosceptic parties on the Left – the radical Left Bloc and the anti-euro Communists, saw a surprising surge in support.

Combined, they gained 18.5pc of the vote. Despite the inconclusive result, the election indicated an overall dissatisfaction with Portugal’s dominant pro-austerity, pro-bail-out forces (including the Socialists). The electoral result pointed to the likely continuation of a minority centre-right government led by Mr Passos Coelho. However, for any new government to carry out painful economic reforms demanded by the EU, the PM would require opposition support in parliament. Mr Costa, however, vowed never to back the conservatives. Instead, after a few weeks of political horsetrading, he brokered a historic coalition deal with the radical Left Bloc and Communists in order to clump together a workable political majority of just under 51pc.

Hailed as a “Berlin Wall moment” for the country, the three main parties on the Left managed to put aside internecine squabbles to present themselves as the only government that could secure political stability for Portugal. Despite getting into bed with hardened eurosceptic Communists, Mr Costa promised not to jettison his pro-European principles and to notionally abide by the stringent fiscal targets imposed by Portugal’s former creditors in Brussels. However, the Leftist alliance is of a decidedly anti-austerity bent. Its policies would likely jeopardise the fiscal consolidation of the centre-right, and poison Portugal’s relationship with Brussels, say analysts. “The minimum wage would probably be raised, further tweaks to the social security system would probably be off the table, as would a further liberalisation of the labour market, or a reduction in the tax-burden,” notes Federico Santi at Eurasia Group.

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Goat.

Goldman Sachs Banker Likely To Face Jail Amid Rare Criminal Charges (Guardian)

A Goldman Sachs banker is expected to be jailed over the leaking of confidential information from the New York Fed, the investment banker’s former employer. Federal prosecutors are preparing to this week announce criminal charges against the banker, Rohit Bansal, and an employee of the regulator, according to the New York Times. Lawyers for the men, who were both fired in the wake of the leak, are said to be hammering out a deal with prosecutors. Even if they agree on the plea deal, they are likely to face up to a year in jail. It is rare for criminal charges to be brought directly against bankers in the US, but the attorney general, Loretta Lynch, has set out new guidelines designed to ensure that more executives, bankers and other businesspeople are held personally accountable for their actions.

Under the planned deal, Goldman would not face criminal charges but would pay a fine of as much as $50m and would be forced to admit that it failed to properly supervise Bansal. A spokesman for Goldman said: “Upon discovering that a new junior employee had obtained confidential supervisory information from his former employer, the New York Fed, we immediately began an investigation and notified the appropriate regulators, including the Fed. “That employee and a more senior employee who failed to escalate the issue, were terminated shortly thereafter. We have zero tolerance for improper handling of confidential information. We have reviewed our policies regarding hiring from governmental institutions and have implemented changes to make them appropriately robust.” The case highlights the dangers of a revolving door between banks and regulators. Bansal had spent seven years at the New York Fed before joining Goldman, where he advised one of the same banks he had previously regulated.

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It’s completely unclear to me what, if any, funds the EU has sent to date to Athens to deal with the refugee crisis. Can’t find a single report on the topic. This, too, has been approved, but not paid yet.

EC Approves Aid As Greece Prepares To Host More Migrants (Kath.)

A day after a crisis summit on the refugee problem, where Prime Minister Alexis Tsipras agreed to increase Greece’s reception capacity for migrants to 50,000 by the end of the year, the European Commission approved the release of emergency aid to Athens. Confirming the approval of €5.9 million to help Greece cope with the large numbers of migrants and refugees arriving in the country daily from Turkey, European Commissioner for Migration Dimitris Avramopoulos said on Monday that the aid was aimed at enabling authorities to “cover the transportation costs for a significant number of these persons from the eastern Aegean islands to reception centers in mainland Greece once they have been properly registered, identified and fingerprinted.” A statement issued by the EC indicated that the sum was aimed at paying for the transport of 60,000 people. It remained unclear, however, where those people would stay as Greek authorities are still seeking venues.

Sources in Brussels indicated that Tsipras came under huge pressure at the Sunday summit to set up a large facility for migrants in Athens. In comments after the meeting, Tsipras said the creation of such a facility, “the size of a small city,” was among a series of “unacceptable demands” that he rejected. On Monday, government spokeswoman Olga Gerovasili also presented the outcome of the summit as a minor victory for Greece. “What was asked of us, to place 20,000 people in a giant camp, was rejected,” she said, adding that “there will be no concentration camps in our country.” She added that authorities were preparing a housing program to help up to 20,000 migrants, indicating that this too would require European funding.

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Blackwater looms.

Slovenia To Hire Private Security Firms To Manage Migrant Flows (Reuters)

Slovenia is planning to employ private security firms to help manage the flow of thousands of migrants and refugees travelling through the country toward northern Europe, a senior official has said. Bostjan Sefic, state secretary at the interior ministry, said 50-60 private security guards would assist the police where necessary. More than 76,000 people have arrived in Slovenia from Croatia in the past 10 days. More than 9,000 were in Slovenia on Monday, hoping to reach Austria by the end of the day, while many more were on their way to Slovenia from Croatia and Serbia. The emergency measure was announced by the prime minister, who described the migrant crisis as the biggest challenge yet to the EU.

If a joint solution is not found, [the trade bloc] will start breaking up, Miro Cerar warned. About 2,000 migrants waited in a field in Rigonce on the Croatian border on Monday for buses to take them to a nearby camp to be registered before they are allowed to proceed north. [..] Slovenia, the smallest country on the Balkan migration route, has brought in the army to help police. Other EU states have pledged to send a total of 400 police officers this week to help manage the flow of people. Over the past 24 hours, 8,000 people arrived in Serbia en route to northern Europe, the UN refugee agency, UNHCR, said.

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“The idea that EU border countries should solve 80% of the problem is completely out of touch with reality.”

Italy Says EU’s Response ‘Inadequate’ as Refugee Numbers Surge (Bloomberg)

European Union agreements on the free movement of people may be at risk of collapse unless the bloc eases the burden for border countries forced to handle asylum-seekers, Italian Foreign Minister Paolo Gentiloni said. Gentiloni, whose country has borne the brunt of the influx from Africa and the Middle East, said that common policies to share the burden would leave the EU much better placed to help people fleeing conflict. He also called for clear criteria to define so-called safe countries that migrants could be sent back to. “Europe – with hundreds of millions of people – can accept hundreds of thousands of migrants” so long as there is a common policy, Gentiloni said. “The idea that EU border countries should solve 80% of the problem is completely out of touch with reality.”

Europe’s worst refugee crisis since World War II intensified at the end of summer after German Chancellor Angela Merkel said there could be no limit on granting asylum to those who legitimately met the criteria. Migrants also began shifting from a route that once led mainly through Libya to southern Europe to one winding from Turkey to Greece, through the Balkan states, and then further north. With winter approaching and more than a million migrants set to reach the EU this year, the bloc’s leaders are struggling to present a united front as national authorities have tightened their borders and waved asylum seekers through to neighboring countries. Slovenia said at a Sunday meeting in Brussels that Croatia is causing chaos by sending migrants across its frontier with little warning.

In yet another sign of the divisions, Dutch Finance Minister Jeroen Dijsselbloem on Monday said it was a concern that Poland wasn’t accepting more refugees. “Poland is taking only a limited number of people and I find that disturbing,” he said at an event in The Hague. “Poland gets a lot of subsidies. We help to build Poland – they should take up asylum seekers in return.” Gentiloni’s warning came as the United Nations said the influx on the region’s southeastern fringe is growing. As many as 49,000 migrants entered the former Yugoslav Republic of Macedonia, which isn’t an EU member, last week, Mirjana Milenkovski of the UNHCR, said on Monday. The daily average number of people entering Serbia increased to 7,000 from 5,000 a week earlier, she said. “Nothing has been done really adequately,” Gentiloni said. “We are still perhaps not adequate to the dimension and the perspective of these flows.”

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“They are using the refugee crisis as another way to apply pressure on Athens, to demand even more asphyxiating measures. Is this opportunism? Cynicism? Crudeness? Whatever term we choose, none is a synonym for solidarity.”

Using The Refugee Crisis (Boukalas)

Splitting the refugee crisis into three or more parts does not make any political sense nor is it morally acceptable. You can’t say that it’s a Balkan problem or an Italian problem or a French problem. The alliance of 28 states is still called the European Union even though it is blatantly dominated by Germany and even though we see countries expecting to better serve their own interests by gravitating toward Berlin. Therefore, a summit on the refugee crisis organized by the EU is from the onset incomplete when it does not include Italy and France, if, of course, the objective is to find a way to help the refugees and not to solve the refugee “problem” challenging individual states and leaders.

Yet even if we were to accept that the priority is to meet the challenges faced by the so-called Balkan corridor, then it is incomprehensible why Turkey was not invited to attend, given its key role in this avenue of arrival into the European Union. Of course, it is also very understandable given that Angela Merkel’s recent visit to Turkey was as the head of the EU rather than the chancellor of Germany. She’s already taken care of business so discussions with and the participation of the other parties involved, even those which are at the vanguard, is unnecessary. Greece’s position is particularly delicate. There have been many times in history when being at the crossroads of three continents was a problem rather than advantage.

The reality of the refugee crisis in this country is symbolized by a recent photograph showing a girl on the island of Lesvos giving a doll to another little girl, a refugee in her father’s arms, and in the father’s smile, which is full of gratitude and trust. Because of the crisis, which has thrown the welfare state and all of its institutions into complete disarray, what Greece can offer these people is about as much as that offered by the Lesvos girl: a gesture of kindness and whatever has been scraped together. So far, Greece has managed to do this, mainly thanks to the excellent work and dedication of volunteers, both Greek and foreign. Of course there is no shortage of scumbags who charge refugees €20 for access to a plug to charge their cell phones or €5 for a piece of plastic to keep the rain off.

The contribution of the European Union to Greece’s refugee management is extremely small and in many respects restricted to promises. It is also becoming clearer that the problems Greece faces in dealing with the influx does not constitute an important reason for foreign creditors to relax their control of finances but an opportunity to become even stricter. They are using the refugee crisis as another way to apply pressure on Athens, to demand even more asphyxiating measures. Is this opportunism? Cynicism? Crudeness? Whatever term we choose, none is a synonym for solidarity.

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Death penalty.

Big-Game Hunters Are Killing African Lions In Record Numbers (Bloomberg)

Big-game hunters are killing African lions in record numbers as U.S. regulators threaten to curtail one of world’s most exclusive, expensive and controversial pursuits. The U.S. Fish and Wildlife Service has an Oct. 29 deadline to make a final determination on the status of the African lion, which it has proposed to list as threatened under the Endangered Species Act. The agency has also recommended requiring a special permit to import lion trophies. Those findings could curtail the number of slain lions entering the U.S., while also driving up safari costs that are often more than $100,000.

That’s leading to a rush of Americans taking their guns to Africa in pursuit of the king of the jungle. Last year, Americans imported a record 745 African lions as trophies, up 70% since 2011 and more than double the total in 2000, according to data from the Fish and Wildlife Service. “Guys fearing that I’ll never get my opportunity to get a lion, they’re getting it while the getting’s good,” said Aaron Neilson, an African safari broker based in Colorado whose exploits, including lion hunts, are featured on a Sportsman Channel television show. “The overall consensus among everybody selling lion hunts has been, ‘Man, get it now.”’

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Palm oil.

Indonesia’s Forest Fires Labelled A ‘Crime Against Humanity’

Raging forest fires across Indonesia are thought to be responsible for up to half a million cases of respiratory infections, with the resultant haze covering parts of Malaysia and Singapore now being described as a “crime against humanity”. Tens of thousands of hectares of forest have been alight for more than two months as a result of slash and burn – the fastest and quickest way to clear land for new plantations. Indonesia is the world’s largest producer of palm oil and fires are frequently intentionally lit to clear the land with the resulting haze an annual headache. But this year a prolonged dry season and the impact of El Niño have made the situation far worse, with one estimate that daily emissions from the fires have surpassed the average daily emissions of the entire US economy.

The fires have caused the air to turn a toxic sepia colour in the worst hit areas of Sumatra and Kalimantan, where levels of the Pollutant Standard Index (PSI) have pushed toward 2,000. Anything above 300 is considered hazardous. Endangered wildlife such as orangutans have also been forced to flee the forests because of the fires. Six Indonesian provinces have declared a state of emergency. Across the region Indonesia’s haze crisis has been causing havoc – schools in neighbouring Singapore and Malaysia have been shut down, flights have been grounded, events cancelled and Indonesian products boycotted, as millions try to avoid the intense smoke. In the worst affected parts, on Sumatra and Kalimantan, ten people have died from haze-related illnesses and more than 500,000 cases of acute respiratory tract infections have been reported since July 1.

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Apr 192015
 
 April 19, 2015  Posted by at 8:38 am Finance Tagged with: , , , , , , , , , , ,  


DPC Peanut stand, New York 1900

At Global Economic Gathering, US Primacy Is Seen as Ebbing (NY Times)
IMF Credibility Faces Tipping Point Over Greece (USA Today)
‘Bernanke To Go Down As One Of The Most Vilified People Of The Century’ (CNBC)
Markets Face New Threat As US Fed Ponders Interest Rate Rise (Guardian)
Most Americans Think College Is Out of Reach (Bloomberg)
Record Drop In House Prices Suggests China Is Already In A Recession (Zero Hedge)
Germany FinMin Schaeuble Worried About China’s Debt And Shadow Banking (BIA)
Europe Ready For Grexit Contagion As Athens Gets Closer To Russian Cash (AEP)
ECB’s Draghi Says Urgent That Greece Strikes Deal With Creditors (Bloomberg)
Draghi Warns Of Uncharted Waters If Greece Crisis Deteriorates (FT)
Greece Wants EU/IMF Deal But Impasse Could Bring Referendum (Reuters)
Moscow Denies Planning Multibillion Credit To Greece (RT)
Finns Set to Topple Government as Vote Focuses on Economic Pain (Bloomberg)
How Sleepy Finland Could Tear The Euro Apart (Telegraph)
Australia, The Latest Country With Negative Interest Rates (Simon Black)
California’s New Drought Rules Would Require Cuts of Up to 36% (Bloomberg)
Pope Francis Urges EU To Do More To Help Italy With Flood Of Migrants (CT)
Australia Government In Secret Bid To Hand Back Asylum Seekers To Vietnam (SMH)
Air-Pocalypse: Breathing Poison In The World’s Most Polluted City (BBC)

But wait, didn’t Obama say the US has to set the rules for the entire world?

At Global Economic Gathering, US Primacy Is Seen as Ebbing (NY Times)

As world leaders converge [in Washington] for their semiannual trek to the capital of what is still the world’s most powerful economy, concern is rising in many quarters that the United States is retreating from global economic leadership just when it is needed most. The spring meetings of the IMF and World Bank have filled Washington with motorcades and traffic jams and loaded the schedules of President Obama and Treasury Secretary Jacob J. Lew. But they have also highlighted what some in Washington and around the world see as a United States government so bitterly divided that it is on the verge of ceding the global economic stage it built at the end of World War II and has largely directed ever since. “It’s almost handing over legitimacy to the rising powers,” Arvind Subramanian, chief economic adviser to the government of India, said of the United States.

“People can’t be too public about these things, but I would argue this is the single most important issue of these spring meetings.” Other officials attending the meetings this week, speaking on the condition of anonymity, agreed that the role of the United States around the world was at the top of their concerns. Washington’s retreat is not so much by intent, Mr. Subramanian said, but a result of dysfunction and a lack of resources to project economic power the way it once did. Because of tight budgets and competing financial demands, the United States is less able to maintain its economic power, and because of political infighting, it has been unable to formally share it either.

Experts say that is giving rise to a more chaotic global shift, especially toward China, which even Obama administration officials worry is extending its economic influence in Asia and elsewhere without following the higher standards for environmental protection, worker rights and business transparency that have become the norms among Western institutions. President Obama, while trying to hold the stage, clearly recognizes the challenge. Pitching his efforts to secure a major trade accord with 11 other Pacific nations, he told reporters on Friday: “The fastest-growing markets, the most populous markets, are going to be in Asia, and if we do not help to shape the rules so that our businesses and our workers can compete in those markets, then China will set up the rules that advantage Chinese workers and Chinese businesses.”

In an interview on Friday, Mr. Lew, while conceding the growing unease, hotly contested the notion of any diminution of the American position. “There is always a lot of noise in Washington; I’m not going to pretend this is an exception,” he said. “But the United States’ voice is heard quite clearly in gatherings like this.”

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All managing directors are eventually arrested.

IMF Credibility Faces Tipping Point Over Greece (USA Today)

It was perhaps inevitable that the Greek crisis would hijack the spring meeting of International Monetary Fund this week, but the damage to the international lending agency could grow much worse as the situation in Europe becomes increasingly acute. The standoff between a new Greek government seeking debt relief after five years of grinding recession and authorities at the IMF and European Union, who were unbending in their demands to follow through on further austerity measures to get more bailout money, dominated discussions at the meeting that brings economic policymakers from around the world.

The Greek imbroglio overshadowed other messages from IMF officials this week regarding new sources of financial instability in the world, the need to stimulate economies to more vigorous growth and even discussion about other financial and geopolitical hot spots, such as Ukraine. But the unwillingness of IMF Managing Director Christine Lagarde and her staff to countenance any relief for Greece stands to make the agency an accessory to the potential turmoil that could spread well beyond Greece as the chances for a reasonable, agreed solution to the crisis grow slim. A debacle in Greece would further tarnish the reputation of an agency that has already seen its credibility and influence diminished.

It was perhaps a fitting sideshow to the drama in Washington that a former IMF managing director, Rodrigo Rato, was briefly detained Thursday in Spain as part of a money-laundering investigation and may be charged in the case, even as he is being investigated for other infractions. Rato led the IMF from 2004 to 2007, and was succeeded by Dominique Strauss-Kahn, a political heavyweight who aspired to the presidency of France but who had to leave the IMF post under a cloud of scandal in 2011 over charges of sexual assault against a New York hotel maid. Lagarde, then French finance minister, was parachuted in to take his place, though she herself is involved in a long-running judicial probe over an arbitration process she approved that awarded half a billion dollars to a businessman with ties to her center-right political party.

The legal travails of a succession of IMF leaders have diminished its ability to take the moral high ground in forcing lenders to implement the difficult policy measures that are the conditions for its loans. But that is not the only problem. The neoliberal economic principles enshrined in the IMF economic prescription — which generally call for a reduction in government spending and higher taxes even in the midst of recession — are part of a so-called “Washington consensus” that is finding very little consensus in other parts of the world.

Former IMF economist Peter Doyle, a 20-year veteran who left the agency in anger in 2012 saying he was “ashamed” he had ever worked there, this week urged his fellow economists “to turn on the IMF in public.” Citing several leading economists by name, Doyle noted they had expressed support of the Greek position sotto voce. He called upon these economists to “shout, together, right now,” to be on the record against the IMF stance before the “Euro-tinder box” explodes.

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Along with Monti, Draghi, Kuroda and Yellen.

‘Bernanke To Go Down As One Of The Most Vilified People Of The Century’ (CNBC)

Former Federal Reserve Chair Ben Bernanke is heading down a well-beaten path: shuffling through the revolving door between Washington’s policy circles and Wall Street’s big money institutions. In a move announced on Thursday, he’s going from his former position at the Federal Reserve to Wall Street as a senior adviser at Citadel. The latter is what has “Fast Money” trader Guy Adami—and a number of other Street watchers—outraged. The $25 billion hedge fund, Citadel, in a statement said, “Dr. Bernanke will consult with Citadel teams on developments in monetary policy, financial markets and the global economy.” Adding a note from its founder and CEO Ken Griffin, “He has extraordinary knowledge of the global economy and his insights on monetary policy and the capital markets will be extremely valuable to our team and to our investors.”

Adami, however, said this week on Thursday’s Fast Money of Bernanke’s new role: “It’s wrong. It’s wrong on so many levels.” Bernanke “was a hero for a month, [and now] he’s going to go down as one of the most vilified people of the 21st century. Mark my words,” the trader added. In an interview with Andrew Ross Sorkin, co-anchor of CNBC’s “Squawk Box” and a columnist for the New York Times, Bernanke said he understood the concerns about going from Washington to Wall Street. He said he decided in Citadel because the hedge fund “is not regulated by the Federal Reserve and I won’t be doing lobbying of any sort.” He also said banks had approached him about jobs but he declined because “wanted to avoid the appearance of a conflict of interest” by working for an institution the Fed does regulate.

Bernanke is not the first and likely won’t be the last federal worker to jump to Wall Street. In 2008 after handing over the reins to Ben Bernanke, Alan Greenspan joined hedge fund Paulson & Co. as an adviser. And just last month, Ex-Fed Governor Jeremy Stein joined hedge fund Blue Mountain Capital Management. “He shouldn’t have been allowed to leave the Fed, number one,” Adami stated. “He should have saw [quantitative easing] through, in my opinion, and for him to go to a place that can take advantage of the information that he has privy to, it’s just wrong.” Indeed, Wall Street observers were broadly critical of Bernanke’s move into the world of big money hedge funds. The Washington Post said this week that the former Fed chief “deserves a seven figure sinecure” based on hisHerculean efforts to save the world economy from another Great Depression.

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There are no markets left, only casinos.

Markets Face New Threat As US Fed Ponders Interest Rate Rise (Guardian)

The moment US central bank chief Janet Yellen presses the button will be a massive economic event. The prospect that higher interest rates in the world’s largest economy could come this year has already sent the dollar surging against the pound and euro. It has also fuelled fears of a meltdown in countries that have borrowed heavily in the US currency. Borrowing is inherently risky, all the more so when the interest rate can change at short notice. Higher costs for those that have borrowed in dollars could cripple companies in Brazil and Turkey that were enticed by cheap credit to fund a new factory or office building, or just to pay the wages. At the IMF’s spring meeting last week, chief economist Olivier Blanchard dismissed these concerns, arguing that companies may have hedged their position, while investors and finance ministers were well prepared.

But a succession of market shocks in the last two years has convinced many in the financial community that a bigger crash is coming. There have been violent movements in currencies, bonds and commodity prices, especially crude oil and metals. A rise in US interest rates could add to this already volatile situation and drag stock markets towards another sudden crash. The IMF discussed the context in which another financial crash could occur in its latest financial stability report. It highlighted how any shock can send investors fleeing; with only sellers in the market, the price keeps plunging until someone believes it has gone far enough and starts buying. The nervous state of markets these days means there is generally either a surplus of buyers or a surplus of sellers; only rarely have we seen periods of calm with roughly equal numbers.

Last January, for instance, the Swiss franc soared an unprecedented 30% after the central bank conceded that tracking the ailing euro was no longer possible. The previous year, markets had been rocked by the first hint from the US that it would end the era of ultra-cheap credit. It happened after former Fed boss Ben Bernanke let slip that he might stop pumping funds into the US economy through quantitative easing. The “taper tantrum” – referring to the premature “tapering” of QE – sent shock waves through world markets and forced a clarification from the Fed to steady the ship. The IMF’s financial stability report discussed the potential for Taper Tantrum II. The scenario was worse, yet the warning was described by Larry Fink, boss of BlackRock, the world’s biggest private investment fund, as too optimistic.

He is concerned about the European insurance industry, which must pay returns on pensions and other products at a time when the European Central Bank has been driving interest rates in much short-term government debt below zero; in other words, rather than earning interest on government bonds, insurers are paying to park their money in such assets. How could they survive for long under this regime, he asked. The IMF posed the same question, but again expected everything to work out for the best, somehow.

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Young people can’t afford a home, can’t afford an education. What a sad country it has become. And there‘s much worse to come yet.

Most Americans Think College Is Out of Reach (Bloomberg)

Most Americans believe people who want to go to college can get in somewhere—they just don’t think they’d be able to afford it, according to a new Gallup-Lumina Foundation poll. While 61% of adults believe education beyond high school is available to anyone who needs it, only 21% agree that it’s affordable, according to the poll results, released on Thursday. Some racial groups were much more optimistic than others. 51% of Hispanic adults said higher education is still affordable, Gallup found. Just 19% of black adults and 17% of white adults agreed. The results, based on a survey of 1,533 adults who were contacted from November through December 2014, show there’s a sizable gap between the share of Americans who believe people can merely access college and those who believe people can still afford it.

“If a bachelor’s degree is one important way for today’s young adults to achieve the American dream, affordability in particular could jeopardize that dream,” the report said. Tuition at public colleges has risen more than 250% over the last 30 years, the two organizations noted. At the same time, financial aid hasn’t kept up. Students have been leaving school with record amounts of debt: In a separate study, Gallup and Purdue University found more than a third of students who graduated college from 2000 to 2014 were saddled with more than $25,000 in loans. Even if Americans believe anyone, in theory, could find their way to a college classroom, they’re not optimistic anyone could pay to stay there.

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And still many keep claiming China will be just fine.

Record Drop In House Prices Suggests China Is Already In A Recession (Zero Hedge)

Another month, and another confirmation that China’s hard landing is if not here, then likely mere months away. Overnight, the NBS reported that in March, Chinese house prices dropped in 69 of 70 cities compared to a year ago. According to Goldman’s seasonal adjustments, in March home prices dropped another 0.5% from February, the same as the prior month’s decline, suggesting that the February 28 rate cut hasn’t done much to boost housing spirits. However, it is the annual data that truly stands out, because with a drop of 6.1% this was the biggest drop in Chinese house prices in history.

To be sure, the PBOC is now scrambling to halt what, unless it is stopped, will become a full-blown hard landing in months, if it isn’t already. As a result, as shown in the chart below it has recently engaged in several easing steps, with many more to come according to the sell-side consensus. So far these have failed to stimulate the overall economy, which continues to be pressured by a deflation-importing world, but have certainly lead to a massive surge in the Chinese stock market. Incidentally, the ongoing collapse in Chinese home prices is precisely why the PBOC and the Politburo have both done everything in their power to substitute the burst housing bubble with another: that of stocks, by pushing everyone to invest as much as possible in the stock market, leading to the biggest and fastest liquidity and margin debt-driven bubble in history.

Unfortunately for China, as we have shown before, all Chinese attempts to do what every self-respecting Keynesian would do, i.e., replace one bubble with another, are doomed to fail for the simple reason that unlike in the US, where the bulk of assets are in financial form, in China 75% of all household wealth is in real estate. [..]

And this is where things get scarier, because if one compares the history of the Chinese and US housing bubbles, one observes that it was when US housing had dropped by about 6% following their all time highs in November 2005, that the US entered a recession. This is precisely where China is now: a 6.1% drop following the all time high peak in January of 2014. If the last US recession is any indication, the Chinese economy is now contracting! So much for hopes of 7% GDP growth this year. The good news, if any, is that Chinese home prices have another 12% to drop before China, which may or may not be in a recession, suffer the US equivalent of the Lehman bankruptcy.

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All you need to know: “..debt has nearly quadrupled since 2007”.

Germany FinMin Schaeuble Worried About China’s Debt And Shadow Banking (BIA)

Should we concerned about growing debt levels around the world? Wolfgang Schaeuble, Germany’s finance minister, certainly seems to thinks so, stating overnight that debt levels in the global economy continue to give cause for concern. Singling out China in particular, Schaeuble noted that debt has nearly quadrupled since 2007, adding that its growth appears to be built on debt, driven by a real estate boom and shadow banks. Certainly, according to McKinsey’s research, total outstanding debt in China increased from $US7.4 trillion in 2007 to $US28.2 trillion in 2014. That figure, expressed as a percentage of GDP, equates to 282% of total output, higher than the likes of other G20 nations such as the US, Canada, Germany, South Korea and Australia. With China slowing and expectations for further monetary and fiscal easing growing by the day, the concerns raised by Schaeuble may well amplify from here.

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“There will not be the slightest privatisation in the country, particularly of strategic sectors of the economy.”

Europe Ready For Grexit Contagion As Athens Gets Closer To Russian Cash (AEP)

The ECB has warned that a rupture of monetary union and Greek exit from the euro could have dramatic consequences, but insisted that it has enough powerful weapons to avert contagion. Mario Draghi, the ECB’s president, said it would be far better for everybody if Greece recovers within EMU but made it clear that the currency bloc is no longer vulnerable to the immediate chain-reaction seen in earlier phases of the debt crisis. This sends an implicit message to the radical-Left Syriza government that it cannot hope to secure better terms from EMU creditors by threatening to unleash mayhem. “We have enough instruments at this point of time, the OMT (bond-buying plan), QE, and so on, which though designed for other purposes could certainly be used in a crisis if needed,” said Mr Draghi, speaking after a series of tense meetings at the IMF.

“We are better equipped than we were in 2012, 2011.” In effect, the ECB now has the license to act as a full lender-of-last-resort and mop up the bond markets of Portugal, Spain, or Italy, preventing yields from rising. Yet Syriza appears to be countering such pressure with its own foreign policy gambits as events move with electrifying speed in Athens. Greek sources have told The Telegraph that Syriza may sign a deal with Russia for Gazprom’s “Turkish Stream” pipeline project as soon as next week, unlocking as much as €3bn to €5bn in advance funding. This confirms a report in Germany’s Spiegel magazine, initially denied by both the Russian and Greek governments. It is understood that the deal is being managed by Panagiotis Lafazanis, Greece’s energy minister and head of Syriza’s militant Left Platform, a figure with long-standing ties to Moscow.

Mr Lafazanis warned defiantly on Saturday that Syriza would not “betray the people’s mandate” even if this means a full-blown clash with the creditor powers. “There can’t be a deal with neo-liberal, neo-colonial powers that rule the EU and the IMF unless Greece really threatens their deep economic and geo-strategic interests. We still do not know our own strength,” he told Greek television. Mr Tsipras visited the Kremlin last month insisting he would pursue an independent foreign policy “Several of the so-called partners and certainly some in the IMF want to denigrate and humiliate our government, blackmailing us to implement measures against the working classes,” added Mr Lafazanis. “There will not be the slightest privatisation in the country, particularly of strategic sectors of the economy.”

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Draghi’s way out of his league.

ECB’s Draghi Says Urgent That Greece Strikes Deal With Creditors (Bloomberg)

European Central Bank President Mario Draghi said it is urgent that Greece strikes a deal with creditors, although its banks continue to meet the requirements for Emergency Liquidity Assistance. “ELA will continue to be given to the banks if they’re judged to be solvent and if they have adequate collateral which is the case now,” Draghi told reporters on Saturday at the International Monetary Fund’s meetings in Washington. The Frankfurt-based ECB decides on Greece’s financial lifeline on a weekly basis. The funding has so far helped defer a financial meltdown as euro-area governments hold back bailout money, complaining that Prime Minister Alexis Tsipras must do more to revamp his country’s economy.

Draghi said “much more work is needed now and it’s urgent” if Greece and its creditors are to strike a deal to release aid. He said any package of policies should produce “growth, fairness, fiscal sustainability and financial stability.” “We all want Greece to succeed,” he said. “The answer is in the hands of the Greek government.” While Europe is better equipped to deal with any fallout in financial markets if Greek negotiations fail than it was when it first fell into crisis, Draghi said the region is still in “uncharted waters.” Draghi said the euro zone economy is strengthening after the ECB began a €1.1 trillion bond-buying program last month. Still, he warned an extended period of low interest rates could prove “fertile ground” for instability in financial markets. “We should be alert to these risks,” Draghi said, adding the risk was not currently a reason to tighten monetary policy.

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And here he admits he doesn’t have a clue.

Draghi Warns Of Uncharted Waters If Greece Crisis Deteriorates (FT)

Mario Draghi said the euro area was better equipped than it had been in the past to deal with a new Greek crisis but warned of uncharted waters if the situation were to deteriorate badly. The ECB president called for the resumption of detailed discussions aimed at resolving the country’s debt woes and urged the Greek authorities to bring forward proposals that ensured fairness, growth, fiscal stability, financial stability. Asked about the risks of contagion from a new flare-up in Greece, he said: we have enough instruments at this point in time … which although they have been designed for other purposes would certainly be used at a crisis time if needed. The two tools he referred to were the ECB’s so-called outright monetary transactions, which have never been used, and Quantitative Easing, which the ECB launched in January.

He added: we are better equipped than we were in 2012, 2011 and 2010. However Mr Draghi added: Having said that, we are certainly entering into uncharted waters if the crisis were to precipitate, and it is very premature to make any speculation about it. The ECB president was speaking following meetings in Washington that have been overshadowed by renewed fears about the risk of a Greek debt default and possible exit from the euro. US Treasury secretary Jack Lew warned on Friday that a full-blown crisis in Greece would cast a new shadow of uncertainty over the European and global economies, as he put pressure on Athens to come forward urgently with detailed reforms to its economy. Mr Lew said that while financial exposures to Greece had changed significantly since the turmoil of 2012, it was impossible to know how markets would respond to a default.

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“In the back of our minds these are possibilities of finding a way out, if there is a dead end.”

Greece Wants EU/IMF Deal But Impasse Could Bring Referendum (Reuters)

Greece aims for a deal with its creditors over a reforms package but will not retreat from its red lines, the country’s deputy prime minister told the Sunday newspaper To Vima, not ruling out a referendum or early polls if talks reach an impasse. Athens is stuck in negotiations with its euro zone partners and the International Monetary Fund over economic reforms required by the lenders to unlock remaining bailout aid. Ongoing talks are not expected to produce a deal for the approval of euro zone finance ministers at their next meeting in Riga on April 24 as progress is painfully slow. “Our objective is a viable solution inside the euro,” Yanis Dragasakis told the paper. “We will not back off from the red lines we have set.”

Asked whether the government had thought of calling a referendum or even going to the polls if talks become deadlocked, Dragasakis said this could be a possibility, although the government’s goal was to reach an agreement. “In the back of our minds these are possibilities of finding a way out, if there is a dead end. The aim is (to reach) an agreement.” Greece is quickly running out of cash and in the next few weeks may face a choice of either paying salaries and pensions or paying back loans from the International Monetary Fund. Shut out of bond markets, Athens could get more loans from both the IMF and euro zone governments, but it would first have to implement reforms, agreed with the creditors, to make its finances sustainable and its economy more competitive. The leftist-led government does not want to implement measures including cuts in pensions as it won elections in late January on pledges to end austerity.

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A credit is not the same as an advance payment.

Moscow Denies Planning Multibillion Credit To Greece (RT)

Russia denied media reports that it is going to give Greece a loan of up to $5 billion as advance payment for future transit profits from a future gas pipeline. The sum was mooted by the German magazine Spiegel. Greece is expected to shortly join a joint Russian-Turkish pipeline project that will pump Russian gas to Europe via Turkey. The magazine cited a senior source in the Greek government as saying that the country would get from $3 billion to $5 billion in credit as part of the deal. It was reportedly agreed during Greek Prime Minister Alexis Tsipras’ visit to Moscow last week. But on Saturday, the Russian president’s spokesman Dmitry Peskov said no such loan is planned.

“[Russian President Vladimir] Putin said himself during the media conference that nobody asked for our help. Naturally energy cooperation was discussed. Naturally, the parties of the high level talks agreed to work out all details of these issues at an expert level. Russia didn’t offer financial help because it was not asked,” the spokesman told the Russian radio station Business FM. Earlier Greek and Russian officials said an energy deal that would have Greece join the Turkish stream project would be inked in a matter of days, but no exact date or particular terms were given. If Russia did loan money to Greece, it would help it deal with a looming national default. The new Greek government is in difficult negotiations with Germany and the IMF to secure further loans to help its economy.

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Anti-euro gets a foot in the door.

Finns Set to Topple Government as Vote Focuses on Economic Pain (Bloomberg)

Finns look set to vote out a government marred by political infighting and elect a party led by a self-made millionaire promising a business-driven recovery. After three years of economic decline, Finland’s next government will need to fix chronic budget deficits, a debt load that’s set to breach European Union limits, rising unemployment and economic growth that’s about half the average of the euro zone. Juha Sipila, who leads the opposition Center Party, has promised business-friendly policies he says will create 200,000 private-sector jobs. His party is polling about 6% ahead of the next-biggest groups, according to newspaper Helsingin Sanomat. If he wins Sunday’s vote, Sipila will probably try to form a majority coalition that’s likely to include the euro-skeptic The Finns party.

“Putting together a new, workable government that can turn around Finland’s public finances is the most important economic policy step,” Anssi Rantala, chief economist at Aktia Bank Oyj, said by phone. “The government has to take seriously the gigantic deficits we have in state and municipal budgets, and it has to change the way it implements austerity: most has been through tax increases.” Austerity isn’t what splits Finland’s political parties. All major groups have pledged some combination of belt-tightening and growth policies. The Finance Ministry estimates €6 billion euros of austerity measures are needed by 2019 to prevent debt reaching 70% of gross domestic product. It also says there’s no scope to raise taxes without stifling economic growth.

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Lovely prospect.

How Sleepy Finland Could Tear The Euro Apart (Telegraph)

Finland is the unlikely stage for the latest turn in Greece’s interminable eurozone drama this weekend. With events having decamped temporarily to Washington DC, Athens will be keeping half an eye on developments in Helsinki, where the Nordic state of just 5.4m people heads for the polls on Sunday. In the five years since Greece’s financial woes were revealed to the world, it has been sleepy Finland which has emerged as the most trenchant critic of EU largesse to the indebted Mediterranean. The outcome of the country’s general election could now determine Greece’s future in the monetary union. In a leaked memo seen last month, it was revealed that the Finns had already drawn up contingency plans for a Greek exit from the euro.

Although ostensibly a sensible measure for any finance ministry to contemplate, the document confirmed the Finns’ position as the most uncompromising of the EU’s creditor nations. The reputation is well-deserved. At the height of Greece’s bail-out drama in 2011, Helsinki negotiated an unprecedented bilateral agreement with Athens, receiving €1bn in collateral in return for supporting a rescue deal. A year later, the Finns were prime candidates to become the first dissenters to voluntarily break the sanctity of the monetary union. “We have to be prepared,” the country’s then foreign minister told the Telegraph three years ago. Greece’s current impasse is also partly a result of Finnish obstinacy.

Helsinki was one of the main obstacles to securing a long-term extension to Greece’s bail-out programme under the previous Athens government late last year. The eventual compromise of a three-month, rather than six-month reprieve, has seen the new Leftist regime scramble desperately for cash since February. With the situation in Athens deteriorating by the day, both Finland’s prime minsiter and central bank governor have eschewed high-minded rhetoric about European unity, to insist creditors should be ready to pull the plug on Greece. But unlike its fellow creditor giant Germany, Finland is more economic laggard than European powerhouse. Having been mired in a three-year recession, the country heads to the polls with economic output still 5pc below its pre-crisis levels.

Finland has suffered an economic downturn of almost Greek proportions. The boon from falling oil prices and launch of eurozone QE will still only see the economy expand at a paltry 0.8pc this year, worse only to Italy and Cyprus. Stagnating growth saw Finland stripped of its much coveted Triple-A sovereign debt rating last year. The IMF now recommends a cocktail of structural reforms and fiscal consolidation that would make officials in Athens bristle. “There is no sympathy for Greece any more, especially because our own economy is struggling,” says Jan von Gerich, strategist at Nordea bank in Helsinki.

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“Everyone believed that it would all work out OK. Then one day it didn’t.”

Australia, The Latest Country With Negative Interest Rates (Simon Black)

Let’s talk about idiots. Somewhere out there, some absurdly well-paid banker just placed his investors’ capital in yet another financial instrument which is guaranteed to lose money: Australian government debt. 47 investors participated in the Australian government’s $200 million bond tender; the participants typically bid the amount they’re willing to pay, and the highest bids win the auction. In this case, and for the first time in Australia, every single one of the 47 bidders offered a price so high that it implies a negative interest rate. Even the lowest bid in the auction, for example, implied a net loss… or an effective yield of NEGATIVE 0.015%. The highest price implied a yield of negative 0.085%. What’s really bizarre is that this particular issue was for ‘inflation-linked’ bonds.

Which means that if the government’s official monkey math shows that inflation is falling, the yield could actually become even MORE NEGATIVE. Insane? Of course. But here’s the thing. These bankers aren’t investing their own money. It’s not like some guy is taking his million dollar bonus and saying, “Hey I think I’ll go buy some government debt that guarantees I’ll lose money.” No. He buys a Maserati. Then he picks up this garbage debt with his customers’ money. Not only is this idiotic, it’s borderline criminal. At a minimum it’s seriously unethical. Banks and other money managers have a solemn obligation… a fiduciary responsibility that comes with the sacred charge of safeguarding other people’s money. Just like the golden rule, this obligation is very simple: take care for other people’s money even more than you care for their own.

But that went out the window a long time ago. Back in the 1500s, Renaissance-era merchant bankers risked their own capital alongside their customers, doing meaningful deals that financed exploration and the expansion of world trade. Now it’s all about commissions, obtuse regulations, and following the latest banking fad. This is officially now the latest banking fad—buying government bonds at negative yields. You’ll remember a few years ago when the latest banking fad was handing out no-money-down mortgages to dead people and unemployed bus drivers… or buying “AAA-rated” bonds which pooled these subprime loans together. That didn’t exactly work out so well. Neither will this. In fact there are plenty of similarities between today’s negative interest rates and the early 2000s housing bubble.

Back then, banks were essentially paying people to borrow money. They offered the least creditworthy borrowers absurd amounts of money which sometimes even exceeded the purchase price of the home they were buying. 102% loans were not uncommon back then, which financed the entire purchase along with the extra closing costs. We even saw 105% loans which allowed a little bit extra to make home improvements. It doesn’t take a rocket scientist to figure out that it’s criminally stupid to pay someone to borrow money. Yet that’s exactly what’s happening now. Instead of people, though, it’s governments who are effectively being paid to borrow. We all remember last time how much this impacted the global financial system. Everyone believed that it would all work out OK. Then one day it didn’t. Lehman Brothers went bust, and the entire banking system started to collapse.

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High time to pack up and go.

California’s New Drought Rules Would Require Cuts of Up to 36% (Bloomberg)

California issued proposed rules calling for mandatory reductions in water use by municipal agencies as a historic drought drags into a fourth year. The state’s 411 urban water suppliers would have to cut use by as much as 36%, with those that conserved less facing tougher restrictions and a daily penalty of as much as $500 for not complying, the California State Water Resources Control Board said in the proposed rules released Saturday. The board will meet May 5 and 6 to finalize the rules, which would take effect by June 1. “Some of these communities have achieved remarkable results with residential water use now hovering around the statewide target for indoor water use, while others are using many times more,” the Sacramento-based agency said in its proposal.

The emergency rules would be in effect for 270 days. The regulations are based on an executive order Governor Jerry Brown, a 77-year-old Democrat, issued April 1 calling for a mandatory 25% reduction in water use compared with 2013 levels and requiring 50 million square feet of lawns to be replaced by drought-tolerant landscaping. California, the most-populous U.S. state, and its $43 billion agriculture industry are experiencing the worst of the arid conditions moving across the western U.S., with 67% of the state in an extreme drought, according to the U.S. Drought Monitor.

The agency this week released nearly 300 comment letters from the public, businesses, water agencies and cities on an initial proposal. The planned 35% reduction in water use for Beverly Hills would “place a significant burden on our small permanent customer base” of 42,157 residents, Mahdi Aluzri, interim city manager, said in the letter. Beverly Hills’ daytime population, including commuters who work in the city, shoppers and visitors, can rise to more than 250,000 water users, Aluzri said. California’s residents in February reduced water use by 2.8% below 2013 levels, the worst monthly performance since June, the water board said.

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For this alone, the EU should be dismantled. “A new policy will be presented in May”. May? You should be out there on the water! Another boat with 650 people just capsized as I’m writing this.

Pope Francis Urges EU To Do More To Help Italy With Flood Of Migrants (CT)

Pope Francis on Saturday joined Italy in pressing the European Union to do more to help the country cope with rapidly mounting numbers of desperate people rescued in the Mediterranean during journeys on smugglers’ boats to flee war, persecution or poverty. While hundreds of migrants took their first steps on land in Sicilian ports, dozens more were rescued at sea. Sicilian towns were running out of places to shelter the arrivals, including more than 10,000 this week. The Coast Guard said 74 migrants were saved from a sailboat shortly before it sank Saturday about 100 miles east of the coast of Calabria in southern Italy. A Coast Guard plane and a Dutch aircraft, part of an EU patrol mission, spotted the boat. Passengers included 10 children and three pregnant women.

With his wide popularity and deep concern for social issues, the pope’s moral authority gives Italy a boost in its lobbying for Brussels and northern EU countries to do more. Since the start of 2014, nearly 200,000 people have been rescued at sea by Italy. “I express my gratitude for the commitment that Italy is making to welcome the many migrants who, risking their life, ask to be taken in,” said Francis, flanked by Italian President Sergio Mattarella. “It’s evident that the proportions of the phenomenon require much broader involvement.” “We must never tire of appealing for a more extensive commitment on the European and international level,” Francis said.

Italy says it will continue rescuing migrants but demands that the European Union increase assistance to shelter and rescue them. Since most of the migrants want to reach family or other members of their community in northern Europe, Italian governments have pushed for those countries to do more, particularly by taking in the migrants while their requests for asylum or refugee status are examined. “For some time, Italy has called on the EU for decisive intervention to stop this continuous loss of human life in the Mediterranean, the cradle of our civilization,” Mattarella said. The EU’s commissioner for migration, Dmitris Avramopoulos, says a new policy will be presented in May. Meanwhile, he has also called for member states to help.

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But it can get worse, believe it or not. The Abbott government quite literally has no shame. They send people back to countries they’re fleeing.

Australia Government In Secret Bid To Hand Back Asylum Seekers To Vietnam (SMH)

Vietnamese Australians and human rights activists have blasted the Abbott Government over a secret Navy-led mission to return a group of asylum seekers back to the Communist government of Vietnam. In a new milestone for the Coalition’s hard-line border policy, an Australian Navy ship was entering Vietnamese waters on Friday after what is believed to be a week-long journey to prevent boats reaching Australia. HMAS Choules was close to the the southern port city of Vung Tau, south of Ho Chi Minh City, Defence sources confirmed to Fairfax Media. The vessel was expected to hand over detainees to the Communist government some time after arriving late Friday or in the early hours of Saturday.

The vessel is carrying asylum seekers intercepted by customs and navy vessels earlier this month, north of Australia, the West Australian newspaper reported on Friday. Immigration Minister Peter Dutton’s office said no comment would be made on “operational matters” but human rights activists lashed the Coalition for another on-water action cloaked in secrecy. Daniel Webb, director of the Human Rights Law Centre, said: “Australia should never return a refugee to persecution. All governments – whatever their policy position – should respect democracy and should respect the rule of law. Continually operating behind a veil of secrecy is a deliberate subversion of both. “If the government truly believed its actions were humane, justified and legal, it wouldn’t go to such extraordinary lengths to hide them from view.” [..]

The Vietnamese community, many of whom arrived in Australia by boat after the fall of Saigon in 1975 as the Communist regime of Hanoi took control of the country, expressed horror at asylum seekers being handed back. Thang Ha, president of the Vietnamese Community in Australia, NSW Chapter, said the government should be aware it could be “throwing people back into hell”. He said returnees would likely be left alone initially but would be followed by party operatives and eventually harassed and likely jailed. “Human rights activists, democracy activists, Christians, Buddhists, artists and singers, they have all been harassed. Some people have been hunted down, their family members have been harassed. Some have been thrown in jail and never heard from again,” he said. “They are throwing them back into hell.”

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Yes, we are a smart animal.

Air-Pocalypse: Breathing Poison In The World’s Most Polluted City (BBC)

Saharan dust, traffic fumes and smog from Europe may be clogging up London’s air at present – and causing alarm in the newspapers – but in the world’s most polluted city London’s air would be considered unusually refreshing. That city is Delhi, the Indian capital, where air quality reports now make essential reading for anxious residents. In London last week, the most dangerous particles – PM 2.5 – hit a high of 57; that’s nearly six times recommended limits. Here in Delhi, we can only dream of such clean air. Our reading for these minute, carcinogenic particles, which penetrate the lungs, entering straight into the blood stream – is a staggering 215 – 21 times recommended limits. And that’s better than it’s been all winter. Until a few weeks ago, PM 2.5 levels rarely dipped below 300, which some here have described as an “air-pocalypse”.

Like the rest of the world, those of us in Delhi believed for years that Beijing was the world’s most polluted city. But last May, the World Health Organization announced that our own air is nearly twice as toxic. The result, we’re told, is permanent lung damage, and 1.3 million deaths annually. That makes air pollution, after heart disease, India’s second biggest killer. And yet, it’s only in the past two months as India’s newspapers and television stations have begun to report the situation in detail that we’ve been gripped, like many others, with a sense of acute panic. It’s a little bit like being told you’re living next to an active volcano that might erupt at any moment. At first, we simply shut all our doors and windows and sealed up numerous gaps. No more seductively cool Delhi breezes could be allowed in.

We began checking the air quality index obsessively. Then, we rushed out to buy pollution masks, riding around in our car looking like highway robbers. But our three-year-old wouldn’t allow one anywhere near her face. Our son only wore his for a day, and only because I told him he looked like Spider-Man. Despite our alarm, many Delhi-ites reacted with disdain. “It’s just dust from the desert,” some insisted. “Nothing a little homeopathy can’t solve,” others said. But we weren’t convinced. When we heard that certain potted plants improve indoor air quality, we rushed to the nursery to snap up areca palms, and a rather ugly, spiky plant with the unappealing moniker, mother-in-law’s tongue. But on arrival, the bemused proprietor informed us that the American embassy had already purchased every last one. In any case, we calculated that to make a difference, we needed a minimum of 50 plants. “We could get rid of the sofa to make room for them,” my husband offered.

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 April 11, 2015  Posted by at 7:42 am Finance Tagged with: , , , , , ,  


Harris&Ewing Inauguration of air mail service, Washington, DC 1918

That title may be a bit much, granted, because never is a very long time. I might instead have said “The American Consumer Won’t Be Back For A Very Long Time”. Still, I simply don’t see any time in the future that would see Americans start spending again at a rate anywhere near what would be required for an economic recovery. Looks pretty infinity and beyond to me.

However, that is by no means a generally accepted point of view in the financial press. There’s reality, and then there’s whatever it is they’re smoking, and never the twain shall meet. Admittedly, my title may be a bit provocative, but in my view not nearly as provocative, if not offensive, as Peter Coy’s at Bloomberg, who named his latest effort “US Consumers Will Open Their Wallets Soon Enough”.

I know, sometimes they make it just too easy to whackamole ’em down and into the ground. But even then, these issues must be addressed time and again until people begin to understand, and quit making the wrong decisions for the wrong reasons. People have a right to know what’s truly happening to their lives, and their societies. And they’re not nearly getting enough of it through the ‘official’ press. So here goes nothing:

US Consumers Will Open Their Wallets Soon Enough

People are constantly exhorted to save, but as soon as they do, economists pop up to complain they aren’t spending enough to keep the economy growing. A new blogger named Ben Bernanke wrote on April 1 that there’s still a “global savings glut.” Two days later the Bureau of Labor Statistics announced the weakest job growth since 2013, which economists quickly attributed to soft consumer spending.

The first problem with Coy’s thesis is that even if people open their wallets, far too many of them will find there’s nothing there. And Bernanke simply doesn’t understand what savings are. His ideas through the past decade+ about a Chinese savings glut were always way off the mark, and his global – or American – savings glut theory is, if possible, even more wrong. In the minds of the world’s Bernankes, there’s no such thing as people opening their wallets to find them empty. If they don’t spend, they must be saving. That there’s a third option, that of not having any dollars to spend, is for all intents and purposes ignored.

The U.S. personal savings rate—5.8% in February—is the highest since 2012. “After years of spending as if there were no tomorrow, consumers are now saving like there is a tomorrow,” Richard Moody, chief economist at Regions Financial, wrote to clients in March. Saving too much really can be a problem when spending is weak.

The little man inside, when I read things like that, tells me this is nonsense. So I decided to look up how the US personal savings rate is calculated. Turns out, it’s another one of those whacky goal-seeked government numbers. At least, that’s what I make of it. Mainly, though not even exclusively, because of things like this, from a site called Take A Smart Step:

[The personal savings rate in] November 2012 was 3.6%, this is not even close to where we need to be for financial health. This savings rate barely gives us enough to handle emergencies, and makes us as a nation weaker. The government calculates the personal savings rate as the difference between the after tax income and consumption of Americans. So they include not only retirement savings, but debt repayments, college savings, emergency fund savings, anything that was not spent.

Making paying off your debt (i.e. money you’ve already spent) count towards your savings is a practice fraught with questionable consequences. But useful for economists, and accountants alike, no doubt. The problem with it is that it hides reality behind a veil. Because debt repayments are not really savings at all; people are not free to spend what they put into paying off debt, on something else, like iPads, cars or trinkets. Not even on hookers or crack cocaine, for that matter.

For the vast majority of what is paid off in debt, there’s no such thing as free choices. People pay off debt because they must. Or, to look at it from another, wide lens, angle, Americans would have to stop servicing their debt payments if they want to ‘start spending’ again.

Going through the numbers from various sources, I can see that the US personal savings rate is presently some 5.8% of pre-tax income, and debt repayment is close to 10% of disposable -after tax – income. I’m still trying to make those stats rhyme. But no matter how you read and interpret them, it should be clear that debt repayments are a large part of ‘official’ savings. Even if they really shouldn’t be counted as such.

Of what remains in real savings, retirement/pension savings must necessarily be a substantial percentage, and it would be weird to call those things ‘saving like there is a tomorrow’, if only because they are about, well, tomorrow. But that seems to be the new normal: creating the impression that saving any money at all is somehow detrimental to the economy. A truly crazy notion, if you ask me. Let’s get back to Bloomberg’s Coy:

There are only two things you can do with a dollar, after all: spend it or save it. If you spend it, great—that’s money in someone else’s pocket.

In someone else’s pocket, but no longer in yours. Why would that be so great? It’s only great if that someone has added value to something by doing productive work, not if you simply swap paper assets.

If you save it, the financial system is supposed to recycle your dollar into productive investment with loans for new houses, factories, software, and research and development.

That notion of ‘the financial system is supposed to’ refers to theories such as those that Bernanke and his ilk ‘believe’ in. Theories that have no practical value. What is normal for many everyday Americans is crippling debt levels, and no such thing is recognized in these theories. After all, according to them, whatever amount of dollars you get in, you either spend or save them. And if you use them to pay off previously incurred debt, you’re supposedly actually saving, even though you no longer have possession of the money in any way, shape or sense, nor a choice of what to spend it on.

But if no one’s in the mood to invest more and interest rates are already as low as they can go (as they are in much of the world), the compulsion to save can sap demand and throw people out of work. For the U.S. economy, the good news is that the jump in the personal savings rate is probably no more than a blip. Three economists from Deutsche Bank Securities in New York explained why in a March 25 report called ‘U.S. Consumers: Still Shopping, Not Dropping’. While noting a “deceleration” in consumer spending, they wrote, “we think that concerns about the outlook for the consumer are overstated.” Their model of the U.S. economy predicts the savings rate will fall to 3% to 3.5% by 2017.

Oh sweet lord. Now a falling savings rate has become a beneficial thing, even when and where savings are very low. Not saving will allegedly save the economy. How did that happen? If we may presume that debt repayments will continue virtually unabated, and there seems to be little reason to think otherwise, this means that by 2017 there will be just about nothing saved at all anymore in America. Which means there’d be very little left of the ‘If you save it, the financial system is supposed to recycle your dollar into productive investment’.

The only ‘growth’ perspective America has left is to grow its debt levels continually, continuously and arguably exponentially.

Other economists have also concluded that the spending dropoff is temporary, which is why the slowdown in job growth, to just 126,000 in March, didn’t set off many alarm bells. “Consumer spending is starting to look more and more like a coiled spring,” says Guy Berger, U.S. economist at RBS Securities. One sign that consumers aren’t retrenching: On April 7 the Federal Reserve reported that consumer credit rose $15.5 billion in February, in line with the recent past.

They got deeper into debt, and this is a sign they’re not ‘retrenching’? A coiled spring? Really?

According to Deutsche Bank Securities, the first reason to think consumers will resume spending is that their incomes are rising. Annual growth in average hourly earnings has averaged about 2% since 2010, which isn’t great but does exceed inflation. With more people working as well, aggregate payroll outlays are up 4.9% from the past year, according to Bureau of Labor Statistics data.

The rises in stock and home prices should make consumers more willing to live a little, say the Deutsche Bank authors. They calculate that households’ net worth is almost 6.5 times consumers’ disposable personal income. That’s the highest ratio since before the housing crash.

But that last bit is arguably all due to QE induced asset bubbles. Not an argument the author would make, I know, but nevertheless. Coincidentally, another Bloomberg article published the same day as the one we’re delving in here is called:Why Your Wages Could Be Depressed for a Lot Longer Than You Think. Perhaps the respective authors should have a sit down.

No question, the high savings rate depresses spending in the short run. Purchases of durable goods, from cars to couches, remain well below their 60-year average share of GDP. But all that saving helps consumers get their finances in order, which will allow them to satisfy pent-up demand for that sweet new Ford F-150.

No no no: they just paid off part of their debts. How can that possibly mean they’ll go out and get a new F-150? In real life, they spent their money instead of saving it. Either way, they don’t have it any longer to spend on a F-150. It would mean they need to get into new debt. On top of what they still have left over even AFTER paying down part of it.

Fed data show that financial obligations including debt service, rent, and auto leases are about their lowest in comparison to disposable income since 1981.

Hmm. According to Wikipedia, “Household debt as a % of disposable income rose from 68% in 1980 to a peak of 128% in 2007, prior to dropping to 112% by 2011.” It’s about 105% today. So that’s just a very weird statement. Someone’s wrong, very wrong, and I think I know who that would be. Maybe Peter Coy conveniently ignores mortgage payments when he talks about “financial obligations including debt service, rent, and auto leases”?!

When consumers are ready to borrow more, it won’t hurt that, according to the Fed’s survey of banks’ senior loan officers, banks are easing lending standards.

See? That’s what I said: they can only spend if they acquire new debt. They’re just getting rid of the last batch, and it’s going mighty slowly at that. Lest we forget, when debt as a percentage of income falls, that is due to quite an extent to people failing to make any debt payments at all, and losing their homes and cars. This is a dead economic model. This model is pining for the fjords.

These factors add up to an optimistic consumer.

Oh, c’mon. What is that statement based on? That ‘sky high’ savings rate that is really just poor slobs paying off what they can in debt repayments so they won’t get hit with even more fees and fines?

What I think these factors add up to, is a delusional reporter. There is no excess saving. It’s ludicrous. As far as people have any money at all, they’re using it to pay down their previously incurred debts. And that gets tallied into their savings rate by the government’s creative accounting methods. That’s all there is to the whole story. But it will, regardless, induce a few more poor souls to sign up for more mortgages and car loans and feel like happy American consumers on their way down into the maelstrom.

It’s sad, it really is. Maybe we should first of all stop referring to the American people as ‘consumers’. That might help.