Bernanke Archives - Page 2 of 2 - The Automatic Earth

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.

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.

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.

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.

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.

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%.

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.

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.”

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”.

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.

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.

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.

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”.

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.

Debt Rattle October 27 1015

Oct 272015

October 27, 2015 Posted by Raúl Ilargi Meijer at 10:56 am Finance Tagged with: Bernanke, creditors, cross border lending, forest fires, Greece, lions, oil, refugees, Slovenia 3 Responses »

‘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:

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.”

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.”

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.”

“..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.

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.”

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.”

“..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.

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.

“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%.

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.

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.

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.

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.

“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.”

“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.

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.”’

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.

Debt Rattle April 19 2015

Apr 192015

April 19, 2015 Posted by Raúl Ilargi Meijer at 8:38 am Finance Tagged with: Australia, Bernanke, China, college, Draghi, drought, Finland, Greece, IMF, migrants, pope, Russia 3 Responses »

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.”

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.

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.

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.

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.

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.

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.

“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.”

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.

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.

“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.

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.

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.

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.

“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.

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.

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.

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.”

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.

The American Consumer Will Never Be Back

Apr 112015

April 11, 2015 Posted by Raúl Ilargi Meijer at 7:42 am Finance Tagged with: America, Bernanke, Bloomberg, consumer, debt repayments, savings, spending 10 Responses »

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.

Debt Rattle April 5 2015

Apr 052015

April 5, 2015 Posted by Raúl Ilargi Meijer at 9:17 am Finance Tagged with: Bernanke, Cyprus, dark matter, Greece, Monsanto, New Zealand, Ukraine 1 Response »

Alfred Palmer New B-25 bomber at Kansas City plant of North American Aviation 1942

• Greek Parliament Committee to Investigate Who’s Responsible for Crisis (DPA)

• Proposal For Creating A Parallel Currency In Greece (Andresen And Parenteau)

• Greece Has Cash to Make IMF Payment Next Week, Minister Says (Bloomberg)

• Germany Generously Offers To Freeze Bank Accounts Of Wealthy Greeks (Zero Hedge)

• The Mischief Behind Big Unemployment ‘Reveal’ (John Crudele)

• Cyprus Lifts Capital Controls Two Years After Deposits Bail-In (Bloomberg)

• Every TV News Report On The Economy In One (Weekly Wipe)

• Europe’s Currency Manipulation (Kawalec)

• Bernanke’s Latest Target Is Germany (MarketWatch)

• Ukraine Seeks $15.3 Billion From Debt Restructuring (Bloomberg)

• New Zealand Exports Down 27% From Year Ago (RNZ)

• Dairy Slump Hits New Zealand Exports To China (Stufff.co.nz)

• World ‘Awash With Milk’ (RNZ)

• New Zealand’s Economic Winds Of Change (Hickey)

• Monsanto’s “Discredit Bureau” Really Does Exist (DK)

• After the Higgs Boson, Physicists Chase Dark Matter (Bloomberg)

“The opposition opposed the establishment of the committee.” No kidding.

• Greek Parliament Committee to Investigate Who’s Responsible for Crisis (DPA)

Greek Finance Minister Yanis Varoufakis will be in Washington on Sunday to discuss the country‘s reform programme with IMF chief Christine Lagarde, his office said Saturday. The visit takes place ahead of an April 9 deadline for Greece to pay back a €450 million loan tranche to the IMF. Amid ongoing concerns of a possible default, the Greek government on Friday said it would have no problem meeting the deadline. Greek officials say they are confident that they can soon reach a deal with international creditors such as the IMF over a bailout reform plan that foresees an additional €3.7 billion in state revenues this year. A key component of the plan is a clampdown on tax evasion. The government anticipates raising a further €1.5 billion from the sale of the state-owned Pireaus Port Authority and of 14 regional airports.

Also Saturday, a committee of investigation held a ceremonial session to mark the beginning of its mandate to find out who was responsible for Greece‘s debt crisis. President Prokopis Pavlopoulos and Prime Minister Alexis Tsipras took part in the session. Pavlopoulos said as a member of the eurozone Greece has international obligations, but the country also has a right to national sovereignty. The opposition opposed the establishment of the committee. The investigation is to look into the term of socialist prime minister George Papandreou, who was in office from 2009-11; interim prime minister Lucas Papademos, who was in office from 2011-12; and the coalition government of conservatives and socialists that served from 2012-15 under prime minister Antonis Samaras.

Great ideas. Practicality may need to be discussed, but still.

• Proposal For Creating A Parallel Currency In Greece (Andresen And Parenteau)

The premise for the proposal to be presented in the following is that the government has a breathing space of a couple of months. At the end of that period a parallel electronic currency shall be put into circulation. But first, how does a parallel currency (to the euro) work? Proposals resembling the following have been put forth earlier by Andresen and recently by Hillinger. The additional (“parallel”) circulating medium of exchange to be proposed may be designated a Tax Anticipation Note (TAN), a term introduced by Parenteau. The TANs are used by the government to partly pay wages, pensions and for domestic purchases. The TAN enjoys confidence since anyone can use it to pay taxes with one TAN counting as one euro (more on this below).

Transactions are done via mobile phone/SMS, and automatically received and accounted for on a server with ample capacity at the country’s Central Bank or perhaps preferably, for political reasons, at a bank-like facility established for this purpose at the Treasury – from now on just called the TB: “Treasury Bank”. Such a mobile-based transaction system may be implemented through one of the technically proven schemes already in successful operation in some developing countries, also recently put in operation by the central bank of Ecuador. The system may be implemented to work also with older models of mobile phones, since it may be SMS-based (but there will be apps for smartphones).

There are no physical/paper TANs in circulation. The government has a TAN account at the TB with no limit. TANs are thus created out of thin air, but they are later destroyed when paid back as taxes. The government account is debited whenever it pays wages or pensions, or buys goods or services. All citizens and domestic firms are automatically assigned cost-free TAN accounts at the TB. Interested foreign entities are offered to have accounts (but we will expect TANs to be used only by domestic agents in an initial phase). The deposit interest rate is zero. At the start this is a pure medium of exchange, in that sense resembling physical cash. Lending is not considered as an organised option in the pioneer period of this system. (But spontaneous peer-to-peer TAN lending will emerge and grow.)

But will they use it?

• Greece Has Cash to Make IMF Payment Next Week, Minister Says (Bloomberg)

Greece won’t default on payments to the IMF next week even as a lack of bailout disbursements has left government coffers nearly empty, according to the minister responsible for meeting the obligations. Greece has an IMF payment of about €450 million due on April 9. With euro-area officials withholding aid payments until an agreement is reached on economic overhauls, the government also has to get through a short-term debt auction a day before, to refinance €1.4 billion of six-month notes due April 14. “The country will pay the IMF on April 9,” Alternate Finance Minister Dimitris Mardas said in an interview on Mega TV on Saturday. “There’s money there for payment of salaries, pensions and whatever else is needed for all of next week. That doesn’t mean that there isn’t for the week after. This is a political decision that will be taken, and we will follow whichever political decision.”

Greece and euro-area authorities are in negotiations about a package of measures proposed by the government to repair its economy, a condition for the release of bailout funds. The standoff has left the nation’s banks dependent on European Central Bank loans, with Greece facing the risk of a possible default within weeks and a potential exit from the euro area. Finance Minister Yanis Varoufakis will meet IMF Managing Director Christine Lagarde in Washington on Sunday for an informal discussion on the Greek government’s reform package, according to an e-mailed statement from the Finance Ministry. Prime Minister Alexis Tsipras will visit Moscow next week, with Russia ready to discuss easing restrictions on Greek food products, according to Russian government officials. Russia isn’t considering financial assistance to Greece, they said.

“.. since in Greece virtually nobody pays the amount of tax they should, this is essentially a carte blanche to freeze and raid the funds of the wealthiest Greeks who have bank accounts in Germany..”

• Germany Generously Offers To Freeze Bank Accounts Of Wealthy Greeks (Zero Hedge)

Greece is on the verge of complete monetary collapse and is now scrambling to “borrow” funds from local pensions and other public sources of scarce capital just to remain in compliance with IMF debt repayments and avoid a hard default. In fact, according to some, Greece may not have the funds to make its next mandatory payment due on April 9 to the IMF with the long overdue Greek exit from the Eurozone to follow in due course. Well, maybe not, because Germany has been kind enough to provide an idea where the foundering Greek “radical leftist” government can find some additional funds: by freezing and raiding the bank accounts of wealthy Greeks.

Of course, the legal loophole provision is that only those suspected (not convicted) of tax fraud would be eligible for such an asset freeze, however since in Greece virtually nobody pays the amount of tax they should, this is essentially a carte blanche to freeze and raid the funds of the wealthiest Greeks who have bank accounts in Germany (and soon in all other European nations) no questions asked. Dow Jones reports:

Germany would be willing to freeze the bank accounts of wealthy Greeks suspected of tax fraud, Economics Minister Sigmar Gabriel said in a newspaper interview on Saturday. “We have offered to freeze the bank accounts of wealthy Greek citizens that owe taxes to their homeland. The offer stands, but for that [to happen] the Greek financial authorities need to get active,” Mr. Gabriel told the German daily Rheinische Post. Europe is willing to help Greece, but the Greek government’s acceptance of previously agreed upon reforms is a prerequisite, he reiterated. Greece’s problems aren’t a result of Troika initiatives, he added. “Greece is a victim of its own economic and political elite,” Mr. Gabriel said.

But wait, we thought it was “austerity” that was to blame for everything. Does Mr. Gabriel, gasp, suggest that “austerity” is the name that crony, corrupt, incompetent European politicians have been giving to their actions to enable the unprecedented theft and transfer of wealth that has taken place in Europe in the past five years?

In this case Gabriel is spot on with this assessment – one which we said was precisely the case two years ago – and as such Germany has a solution: a one-time, sovereign bail-in, funded by the wealthiest Greeks. And here it gets interesting, because suddenly the options becomes very clear for said wealthy, tax-avoiding Greeks: align with Russia, or suffer deposit confiscation at the hands of Germany, or Switzerland, or France, or any other nation that has been alienated by the Syriza government. To be sure Germany tried to smooth out this contingency. Turning to Russia, Mr. Gabriel said he doubts Greece would seek to replace European partners with an allegiance to Russia.

“Even if I try, I can’t imagine that anyone in Athens is seriously considering turning their backs on Europe to throw themselves into the arms of Russia. And I also doubt that Moscow feels any pressing need to gladly fulfill some of Greece’s financial pipedreams, given the economic and financial situation there,” he said.

Perhaps, but keep in mind that it was the threat of the world’s wealthiest losing all their accumulated wealth that forced the Fed and its central bank peers to launch the biggest ever bail out of capitalism in 2008, at the cost of destroying the livelihood for hundreds of millions of middle-class Americans and Europeans. Because when there is nothing but desperation left, the rich do silly, self-serving things. The question is will Greece’s wealthiest make it clear to Tsipras that their money is off limits, and unless he can find a Eurofacing resolution that preserves their wealth, then he should promptly turn to Putin. With Greek money about to run out in the coming days, we should have the answer very soon.

“But wait, there’s more.”

• The Mischief Behind Big Unemployment ‘Reveal’ (John Crudele)

The Census Bureau had trouble compiling the nation’s jobless rate in March and, because of this, I’m told, questionable shortcuts were taken. So when the Labor Department announces the new unemployment rate on Friday at 8:30 a.m. — and experts are predicting the figure will remain at 5.5% — take it with a giant grain of salt. Here’s why. Census, which is part of the Commerce Department, tallies the unemployment rate after conducting thousands of household surveys. It then projects what it gets from those surveys into a nationwide result. As you probably already know, the Fed is among the many organizations and companies that carefully monitor the unemployment rate and make important decisions based on that number.

So it’s a big nuisance if this figure is unreliable. But that’s exactly what it is — unreliable to the point of being nearly useless at best and fraudulent at worst. Just so you have it straight, let me go over the list of players I am mentioning in this column: Labor hires Census, which is part of Commerce, to conduct interviews that lead to the figure we know as the official unemployment rate. If you’re the type who can’t get enough government gibberish, you should know that this figure is also called the U-3 unemployment rate, which is the “total unemployed as a%age of the civilian labor force.” Here’s how the U-3 survey works. Census randomly picks the homes that are to be surveyed. Labor requires that 90% of those surveys be successfully completed.

Most of the homes are getting repeat surveys, so not everyone is a first timer. Before I started reporting on the method and lack of honesty in taking these surveys back in 2013, Census was easily able to reach that 90% goal. After The Post investigation, Census started coming up short. That led to a congressional inquiry and a probe by Commerce’s inspector general. Unable to cheat once a light was shown on its shady methods, all six Census regions showed declining survey success rates. March’s numbers were way down. Census was only able to complete 85.59% of March unemployment surveys nationwide, sources tell me. And that below-the-threshold number was only reached after Census extended its survey two extra days.

The survey should have ended on Tuesday, March 24, but was extended until Thursday, March 26, because the success rate was only 80.38% as of that Monday night. I’m not an expert on statistics, but this awful performance would seem to invalidate the results of a survey that relies on consistency to measure the ebb and flow of employment. When the survey finally ended on March 26, not one of the six Census regions had hit the 90% goal. The Atlanta region came closest at 89.19%, sources said. New York, which has always been a laggard, had a miserable 81.27%. So how much faith will you have in Friday’s unemployment number? But wait, there’s more.

“The lifting of the restrictions confirms the full restoration of confidence in the banking system..” Oh, boy!

• Cyprus Lifts Capital Controls Two Years After Deposits Bail-In (Bloomberg)

Cyprus will lift next week the last of the capital controls that were imposed two years ago as part of a €10 billion European bailout. The last restrictions on international transfers will be lifted on April 6, Cyprus government spokesman Nikos Christodoulides said in an e-mailed statement to Bloomberg. Domestic capital controls ended in May 2014. “The lifting of the restrictions confirms the full restoration of confidence in the banking system, the significantly improved business climate and essentially marks the return of the economy to normal conditions,” he said. Cyprus is emerging from the crisis that forced it to seek a bailout and impose a levy on depositors two years ago while Greece, which in 2010 became the first country to be rescued by its euro-area partners, continues its tug-of-war with creditors.

The end of the last capital transfer restrictions is the result “of all our hard work and consistency in the implementation of the obligations we undertook,” Cyprus President Nicos Anastasiades said in Nicosia today. Deposits have shrunk since the crisis, standing at €46.5 billion at the end of February compared with €67.5 billion in the same month of 2013, and Standard & Poor’s says lifting the controls may put the stability of deposit levels at risk. “We see uncertainty regarding the impact of the elimination of the remaining controls on international transactions on the stability of private-sector deposits,” S&P analysts led by Marko Mrsnik said on March 27.

Brilliant.

• Every TV News Report On The Economy In One (Weekly Wipe)

Charlie Brooker’s Weekly Wipe: Every TV news report on the economy in one.

“.. at more than $300 billion, the eurozone’s current-account surplus for 2014 was about 50% larger than China’s. ”

• Europe’s Currency Manipulation (Kawalec)

The Transatlantic Trade and Investment Partnership (TTIP), which the European Union and the United States currently are negotiating, would, studies say, boost welfare and reduce unemployment in both economies, as well as in other countries. At the same time, the TTIP could help to restore confidence in Europe and the transatlantic community. But there is one major barrier to realizing these benefits: the euro. The problem stems from currency manipulation. Over the past three decades, the US has de facto tolerated currency manipulation by its major Asian trading partners, which built up large trade and current-account surpluses by suppressing the value of their currencies. But the US is unlikely to accept such behavior within free-trade zones.

Indeed, a bipartisan majority in the US Congress is already demanding that the Trans-Pacific Partnership (TPP) – a mega-regional free-trade deal involving 12 Pacific Rim countries – should include provisions barring currency manipulation. Discussions about currency manipulation have long focused on China, which is not part of the TPP, but could join it, or a similar arrangement, in the future. But the economy with the biggest current-account surplus today is not China; it is the eurozone. In fact, at more than $300 billion, the eurozone’s current-account surplus for 2014 was about 50% larger than China’s.

The reason for this is simple: monetary expansion, which leads to currency depreciation, is the only macroeconomic tool available to the ECB to boost the competitiveness of struggling economies like Greece, Spain, Italy, Portugal, and France. As a result, current-account deficits in the southern countries have diminished or disappeared, while surpluses in countries like Germany have increased, causing the eurozone’s overall surplus to swell. An unsolvable problem for the ECB is that the euro remains too strong for the depressed southern countries and too weak for Germany. While allowing it to appreciate would help to reduce the current-account surplus, it would also exacerbate the economic distress in the depressed southern countries.

This, in turn, would further strengthen the populist and anti-European political movements that have capitalized on social hardship to win support. Some observers believe that the eurozone’s internal imbalances can be reduced if Germany increases infrastructure spending and allows wages to rise faster. But for many Germans, who withstood difficult social-security and labor-market reforms in 2003-2005, a deliberate effort to diminish hard-won competitiveness gains is not an option. The fact that 63% of German exports go to countries outside the eurozone – meaning that German companies must be able to compete with their counterparts all over the world, not just in the monetary union – makes the issue even more sensitive.

Shouldn’t someone shut him up?

• Bernanke’s Latest Target Is Germany (MarketWatch)

First, former Federal Reserve Chairman Ben Bernanke targeted critics of the central bank in Congress. Then he took a swipe at the economic theories of former Treasury Secretary Larry Summers. Now, Bernanke is taking a shot at the eurozone’s largest economy, Germany. In his third blog post of the week, the Brookings Institution fellow took aim at Germany for its large trade surplus. He notes that at international gatherings, like the coming International Monetary Fund meeting, China gets criticized for its large and persistent trade surplus. But he points out China has worked to reduce its surplus—and Germany really has not.

True, Bernanke admits, Germany makes products that foreigners want to buy. “But other countries make good products without running such large surpluses,” Bernanke says. He says the euro is too weak to be consistent with balanced German trade. While that’s not Germany’s fault, he concedes, it nonetheless helps German exports. But what is the country’s fault is its tight fiscal policy that suppresses domestic spending. He gives three things that Germany could do—invest in public infrastructure, raise the wages of German workers, and use targeted reforms like tax incentives for private domestic investment. Bernanke also scolds Germany for not supporting the ECB’s quantitative easing program.

“It’s true that easier monetary policy will weaken the euro, which by itself would tend to increase rather than reduce Germany’s trade surplus,” he writes. “But more accommodative monetary policy has two offsetting advantages: First, higher inflation throughout the eurozone makes the adjustment in relative wages needed to restore competitiveness easier to achieve, since the adjustment can occur through slower growth rather than actual declines in nominal wages; and, second, supportive monetary policies should increase economic activity throughout the eurozone, including in Germany.”

Ok, want to restructure? Let’s talk Greece then. At least they won’t buy guns with the difference.

• Ukraine Seeks $15.3 Billion From Debt Restructuring (Bloomberg)

Ukraine’s government approved a list of debt that should be restructured under an IMF program to save the nation $15.3 billion, including $3 billion in Eurobonds sold to Russia. Ukraine’s sovereign and corporate debt incurred before Feb. 28, 2014 is included, the Finance Ministry said Saturday on its website. The last category covers state banks, the railways operator and the city of Kiev, according to the statement. Ukraine is trying to reach an agreement with creditors including Franklin Templeton, which holds about $7 billion in the debt, to save $15.3 billion through the restructuring. Russia says it bought the Eurobonds in 2013 to support the government of then-Ukrainian President Viktor Yanukovych and is already contributing by not demanding early repayment.

“Up to now, we’ve been repeatedly saying that Russia doesn’t plan to restructure the Ukrainian debt and isn’t in talks on the issue,” Svetlana Nikitina, an aide to Russian Finance Minister Anton Siluanov, said on Saturday by phone. The ministry hasn’t seen the Ukrainian decision yet, she said. The list of debts included may be published as soon as Monday, the Ukrainian Finance Ministry said in response to questions from Bloomberg. The decision on debt comes amid a relative lull in the one-year military conflict in two eastern Ukrainian regions that led the government in Kiev to seek assistance from the IMF. While casualties have waned following a cease-fire agreed on Feb. 12, Ukraine still has to complete negotiations on losses for international bondholders by May to keep funds flowing from the IMF.

That’s not kids’ stuff.

• New Zealand Exports Down 27% From Year Ago (RNZ)

Confidence among manufacturers and exporters has taken a hit with export sales in February down 27% compared with a year ago. A survey found net confidence – which includes measures of cash flow, profitability, investment, staff and sales – fell into negative territory for the first time since April 2013. Net confidence was minus 13, down from 21 in January. The sample of Manufacturers and Exporters Association members covered companies with combined annual sales of $178 million, with 68% of those from exports. Association president Tom Thomson said currency volality was the biggest issue for exporters, with the big jump in the US dollar forcing up the price of some raw materials.

“We’ve been caught a little bit like a possum in the headlights,” said Mr Thomson. “We’ve not only got weakening against the US dollar but we’re also seeing a huge strengthening against the Australian dollar. “We’ve definitely got a double whammy effect going on at the moment.” Mr Thomson said exporters to Europe and Asia were experiencing similar problems. Demand from China had yet to bounce back after the Chinese New Year. Mr Thomson said big swings in exchange rates were challenging, but manufacturers were “resilient” and he was confident they would adapt.

And 36% is an even bigger drop.

• Dairy Slump Hits New Zealand Exports To China (Stufff.co.nz)

New Zealand posted a small trade surplus of just $50 million in February with dairy exports down heavily, especially to China, New Zealand’s top export market. Some economists had expected a monthly surplus of about $350m. The trade shortfall for the year ended February 2015 was a deficit of $2.2 billion. Exports to China have boomed in the past few years, but melted down last year as dairy product prices plunged. Total exports to China in February were worth $740m, down more than 36% on the same month last year. However, Statistics NZ figures showed an 11% lift in seasonally adjusted exports to China between January and February, a gain of $64m.

China remains New Zealand’s biggest export market, worth almost $9b in the past year, just slightly ahead of Australia. But the trend for exports to China has been falling for the past year, and is down 45% from the peak in late 2013. In fact, it has returned to levels seen in 2012. Beef exports, on the other hand, are up from a year ago, with strong sales to the United States. Total exports were worth $3.9b for the month, just barely ahead of monthly imports which were also about $3.9b. Seasonally adjusted exports fell 3.2% between January and February, while imports rose 5.8%.

Even before the EU lifted the quota’s.

• World ‘Awash With Milk’ (RNZ)

The Government is blaming a slump in milk prices on the world market being awash with milk. But New Zealand First leader Winston Peters said National’s economic policies and the high value of the New Zealand dollar were not helping dairy farmers. In the Global Dairy Trade auction prices dropped 10.8% overnight to $US2746 a tonne, the second fall in a fortnight. Mr Peters said he predicted the fall and it was a sign of rural areas lagging behind. “I’ve been saying it for a long long time – what you’ve got is a fixation with Auckland, hollowing out the provincial economies and sucking all the attention and money to Auckland and that is not going to go on any longer.” But Minister for Primary Industries Nathan Guy has told Parliament the dairy market fluctuated.

“The world is basically awash with milk. We’ve got milk currently that is displaced from the Russia ban from the EU looking for a new home, and of course we’ve got some stockpiling in China. So all of those things mean that right now we are in a very volatile dairy market.” Mr Peters said New Zealand had a free market system that no other country followed and he would legislate to control the exchange rate, similar to Singapore’s system. “The one country that’s not devaluing at the moment is New Zealand – every other economy has. And consequently we are leaving our people terribly exposed and the consequences are being seen in the Gisborne’s, the Whanganui’s, all round the country.” Economic Development Minister Steven Joyce firmly rejected that idea.

“Well, with the greatest respect to Winston I am old enough, and so is he, to remember the last time we tried to set the exchange rate in this country and it wasn’t that successful… “What he is basically saying is that he would legislate, presumably, to put the exchange rate at a level it won’t naturally go and that means effectively increasing costs for the consumer and decreasing costs for exporters.” Mr Joyce remained pragmatic about the fall in dairy prices. “It is challenging obviously for farmers and that makes it a bit challenging generally, but we fortunately are in a position where we have a lot of industries doing very well at the moment so it is probably less challenging than it would have been three or four years ago.”
Meanwhile, the Fonterra Shareholders Council said some frustrated farmers were considering leaving the co-operative due to the price slump.

“One of the flappiest at the moment is the global iron ore price. It’s barely noticed here but it’s an indicator of growing trouble..”

• New Zealand’s Economic Winds Of Change (Hickey)

Chaos theory calls it the butterfly effect. It’s the idea that a butterfly flapping its wings in the Amazon could cause a tornado in Texas. The New Zealand economy has plenty of its own butterflies changing the weather for GDP growth, jobs, interest rates, inflation and house prices. Not all cause tornadoes, but there are plenty of head and tailwinds for different parts of the country. One of the flappiest at the moment is the global iron ore price. It’s barely noticed here but it’s an indicator of growing trouble inside our largest trading partner, China, and it is knocking our second-largest partner, Australia, for six. It fell to a 10-year low of almost US$50 a tonne this week and is down from a peak of more than US$170 a tonne in early 2011. Australia and Brazil are the biggest suppliers of iron ore to China.

China embarked on an infrastructure spree after the global financial crisis. Over the three years to 2013, China poured 6.4 gigatonnes of concrete, which was more than was poured in the US in the entire 20th century. All that concrete needed reinforcing with steel and China didn’t have enough iron ore and coking coal to make it. That building boom created a glut of apartments and debt, which China now needs to digest. The elevation of President Xi Jingping to China’s top leadership post in late 2012 was a key moment in the flapping of those iron ore wings. He realised China needed to move to a more consumer-friendly economy with cleaner air, water and food. Dirty steel plants have closed and projects mothballed. Apartment prices have fallen sharply over the past six months and demand from steel foundries has slowed.

At the same time, iron ore production in Australia has only now ramped up to its peak levels. Weak demand met high supply to produce a price slump. This all may seem irrelevant to New Zealand, but it’s not. The Australian dollar has fallen in response to the iron ore crash, while New Zealand’s dollar has remained strong because our economy is humming along, thanks to building surges in Christchurch and Auckland and plenty of spending and investment. That divergence between the Australasian economies drove the New Zealand dollar to a record high of well over A.98 this week. Westpac has started offering $1 for every A$1 sent by telegraphic transfer.

Dollar parity would make all those winter holidays on the Gold Coast and trips to shows in Sydney and Melbourne cheaper and generate a fierce headwind for manufacturing exporters and tourism businesses here that sell to Australians. President Xi has reinforced the contrasting effects of the changes in China on Australia and New Zealand by encouraging consumers and investors to spend more of China’s big trade surpluses overseas. Tourism from China was up 40% in the first two months of this year from a year ago, and there remains plenty of demand from investors in China for New Zealand assets.

“Dr. Moar, perhaps forgetting that this was a public event, then revealed that Monsanto indeed had “an entire department” (waving his arm for emphasis) dedicated to “debunking” science which disagreed with theirs.”

• Monsanto’s “Discredit Bureau” Really Does Exist (DK)

Reuters is reporting that Monsanto is demanding a sit-down with members of the World Health Organization (WHO) and the International Agency for Research on Cancer (IARC). This international scientific body is being called on the carpet for reporting that Monsanto’s most widely sold herbicide, which is inextricably linked to the majority of their genetically engineered products, is probably carcinogenic to humans. In a DO-YOU-KNOW-WHO-WE-ARE moment, Monsanto’s vice president of global regulatory affairs Philip Miller said the following in interview: “We question the quality of the assessment. The WHO has something to explain.” Evidence for the carcinogenicity of Glyphosate comes from a peer-reviewed study published in March of 2015 in the respected journal The Lancet Oncology:

“Carcinogenicity of tetrachlorvinphos, parathion, malathion, diazinon, and glyphosate”. “Glyphosate is a broad-spectrum herbicide, currently with the highest production volumes of all herbicides. It is used in more than 750 different products for agriculture, forestry, urban, and home applications. Its use has increased sharply with the development of genetically modified glyphosate-resistant crop varieties. Glyphosate has been detected in air during spraying, in water, and in food. There WAS limited evidence in humans for the carcinogenicity of glyphosate. “Glyphosate has been detected in the blood and urine of agricultural workers, indicating absorption. Soil microbes degrade glyphosate to aminomethylphosphoric acid (AMPA). Blood AMPA detection after poisonings suggests intestinal microbial metabolism in humans. Glyphosate and glyphosate formulations induced DNA and chromosomal damage in mammals, and in human and animal cells in vitro. One study reported increases in blood markers of chromosomal damage (micronuclei) in residents of several communities after spraying of glyphosate formulations.”

Recently, I attended a talk by Monsanto’s Dr. William “Bill” Moar who presented the latest project in their product pipeline dealing with RNA. Most notably, he also spoke about Monsanto’s efforts to educate citizens about the scientific certainty of the safety of their genetically engineered products. The audience was mostly agricultural students many of whom were perhaps hoping for the only well-paid internships and jobs in their field. One student asked what Monsanto was doing to counter the “bad science” around their work. Dr. Moar, perhaps forgetting that this was a public event, then revealed that Monsanto indeed had “an entire department” (waving his arm for emphasis) dedicated to “debunking” science which disagreed with theirs.

As far as I know this is the first time that a Monsanto functionary has publicly admitted that they have such an entity which brings their immense political and financial weight to bear on scientists who dare to publish against them. The Discredit Bureau will not be found on their official website. The challenge for Monsanto’s Discredit Bureau is steep in attacking the unimpeachably respected Lancet and the international scientific bodies of WHO and IARC. However, they have no choice but to attack since the stakes are so very high for them. Glyphosate is their hallmark product upon which the majority of their profits are based.

Smart cookies.

• After the Higgs Boson, Physicists Chase Dark Matter (Bloomberg)

The world’s most epic physics experiment will flip back on as early as Saturday. After a two-year tuneup, the Large Hadron Collider (LHC) will run at twice the power it needed in 2012 to find the Higgs boson, the long-theorized particle that confers mass onto matter. As monumental as the Higgs discovery was — its theorists won the Nobel Prize in Physics the next year — physicists still have very little idea what’s going on in the universe, beyond the stuff we can see, touch, and smell. A big question concerns “dark matter,” what scientists call the stuff that makes up 80% of galaxies but that doesn’t interact with light, atoms, and molecules. They know it’s there, but it’s hiding from us. With the Higgs in hand, finding traces of dark matter is the next big hunt in high-energy physics.

The Standard Model of physics is what scientists consider their working picture of how fundamental particles behave and interact. But it “has some holes in it,” says Verena Martinez Outschoorn, an assistant professor of physics at the University of Illinois at Urbana-Champaign. “We know that our worldview, our model, our understanding of particles and their interactions is kind of a subset of a bigger picture,” she says. “We have reason to believe there are other particles out there.” The LHC is located at CERN, the scientific research juggernaut in Meyrin, Switzerland. It’s a network of superpowered, supercold, super empty magnet-driven beam pipes that zip protons around a 17-mile loop.

Some circle the ring in one direction; some trace the opposite path. How high-powered? Ultimately, 14 tera-electron volts, or 14 trillion electron volts (eVs). That’s a lot of anything. Neutrons popping out of a radioactive nucleus — nuclear fission — have about a million electron volts. Medical X-rays have about 200,000 eVs. Electrons hit old-fashioned cathode-ray television screens with about 20,000 eVs. How cold? At 1.9 kelvins (-456F), the LHC magnets are colder than outer space. How empty? The vacuum beam pipes that carry the particles around in circles are so empty they make the moon’s atmosphere look like a choking smog.

Life Lessons To Derive From QE And Stress Tests

Oct 282014

October 28, 2014 Posted by Raúl Ilargi Meijer at 9:56 pm Finance Tagged with: Bernanke, chains, Draghi, EU, France, Greece, Italy, QE, slaves, Stress Test, Yellen 1 Response »

Arthur Rothstein Texas Panhandle Dust Bowl Mar 1936

I already proposed a few days ago that the recent ECB stress test exercise was such a shambles, it may well have been designed to fail on purpose. In order for Mario Draghi and his Goldman made men to be freed from that pesky German resistance against full blown QE, i.e. large scale purchases of government bonds from the 18 countries that make up the eurozone.

And perhaps the other 10 that are part of the EU without using the common currency. The sky’s the limit. Just how bad that would be is hinted by Tracy Alloway for the FT as she describes how QE tempts investors into asset classes with far more risk than they should have on their hands, simply because they feel the Fed – or some other central bank – has their back.

Sounds like the perfect way to separate a whole lot of people from their money. Which is why Draghi is so tempted to try it on. QE destroys societies, economies and financial systems, it doesn’t heal them. So maybe it’s a touch of genius that the great powers of global finance have first pushed Keynes into the academic world and then academics like Bernanke and Yellen into positions such as head of the Fed, making everyone blind to the fact that what they think is beneficial, including many who think they’re real smart, actually hurts them most.

When you looked at it in that light, you would be forgiven for thinking Draghi had better hurry, because higher rates and a higher dollar will give away much of that game. And not just in America.

But Stupor Mario has one great excuse left: his hands are tied. Not for long anymore, perhaps, since the ECB is set to become the sole EU banking supervisor, but that is not the same as having a full banking union, the prize the real big banking boys have their eyes on. Control over all EU banks from one central point, with the power to shut them down, squeeze them dry, and make them beg for mercy. Athens, Greece based economics professor Yanis Varoufakis has some words on how Mario’s hands are tied:

The ECB’s Stress Tests And Our Banking Dis-Union: A Case Of Gross Institutional Failure

What gives the Fed-FDIC power over banks is the common knowledge that, when it assesses that a bank is insolvent, it has no serious qualms saying so. The reason, of course, is that it not only has powers of supervision (i.e. access to their books) but, crucially, powers of resolution and, if it so judges, the power to force mergers or to recapitalise the failing bank.

Suppose that, instead, the Fed-FDIC had, as the ECB does, only the power to scrutinise the banks’ books. Imagine now that, with only this power, the Fed-FDIC were to discover that some bank in Nevada or Missouri is in trouble. If the Fed-FDIC’s charter precluded it from doing anything else other than to announce the bank’s insolvency, its supervisory power would mean little.

For if it were common knowledge that the fiscally stressed State of Nevada or Missouri would have to borrow from money-markets to pay for the depositors’ guaranteed deposits, as well as for any new capital the banks needed to be salvaged, the rest of the state’s banks would face a run, the states would see their borrowing costs skyrocket and, soon, a combined banking and fiscal crisis could be rummaging throughout the ‘dollar zone’.

To put this crudely, the good people at the Fed would have no alternative than to keep their mouths shut, to conceal the bad news, to cover up for the bank’s problems and try to find some hush-hush way of bolstering its capitalisation.

This is precisely the sad state our so-called Banking Union has pushed the ECB’s supervisors into. As long as the ECB is not the sole authority on bank resolution, and as long as funds for dealing with insolvent banks are to come (in the final analysis) from the fiscally stressed states, the death embrace between weak states and fragile banks will continue.

If the ECB guys have too narrow a mandate for their own taste, or they don’t like their salaries or perks, they should speak out about that. Not behind closed doors, but in public. And not only in general terms, but in specifics, if it leads to situations like this where an entire year and millions of euros are spent on an audit that they know beforehand will be way less than truthful, let alone useful. These people receive generous salaries provided by European taxpayers, and the least they should do is be honest. I know, who am I kidding, right?

So what’s the solution for Europe, handing over the whole shebang to Draghi and his ilk? No, it isn’t, but they’re getting real close to achieving just that. And once the banking union is a fact, it will be that much harder – and expensive – for Greece and Italy and Cyprus and Spain and Portugal to wrestle themselves out of the straightjacket the EU has become.

It’s no coincidence that it was Greek and Italian banks who got hit hardest by the tests, flawed and fake as these were. The EU has become a power game more than anything, a ploy to induce so much fear into the financially weakest they’ll lose the belief that they can stand their own legs. And then they can be subordinated slaves forever.

As I said Sunday in Europe Redefines ‘Stress’, the stress tests were little more than a joke. They were designed that way.

In that article, I referred to Bloomberg’s Mark Whitehouse writing about a different, more or less parallel stress test, performed by the Center for Risk Management in Lausanne, inTesting Europe’s Stress Tests. My comment then:

The ECB’s Comprehensive Assessment says $203 billion was raised since 2013, leaving ‘only’ €25 billion yet to be gathered. The Swiss report says €487 billion is needed just for 37 of the 130 banks the ECB stress-tested. Of the banks the Swiss identify as having the greatest capital shortfalls, most passed the EU tests. Judging from the graph, the 7 banks in need of most capital have an aggregate shortfall of some €300 billion alone.

Among them the 3 main, and TBTF, French banks, who all passed with flying colors and got complimented for it by French central bank governor Christian Noyer today, but according to the Center for Risk Management are about €200 billion short between them. Which means France as a nation has a stressed capital shortfall of over 10% of its GDP, more than twice as much as the next patient.

Turns out, the Swiss were not the only ones doing an alternative stress test. Sachsa Steffen at the European School of Management (ESMT) in Berlin, and Viral Acharya at the Stern School of Business in New York did one as well. And the similarities between the two alternative ones, as well as the differences between both their results and the ‘official test’ are so big it’s ludicrous. Tom Braithwaite in an excellent piece for FT:

Alternative Stress Tests Find French Banks Are Weakest In Europe

On Sunday, Christian Noyer, governor of the Banque de France, was crowing about the “excellent” performance of French banks on the European stress tests Many of their Italian and Greek counterparts might have flunked but France could be proud of its banking sector. “The French banks are in the best positions in the eurozone,” said Mr Noyer. Not so fast.

Two days earlier, a different test found that the French financial sector was the weakest in Europe. The team with the temerity to deliver this bucket of cold water to Paris works at the wonderfully named Volatility Institute at New York University’s Stern school and presented its findings from a safe distance – a financial conference at the University of Michigan. The chief architect, Viral Acharya, has worked on systemic risk ever since the last crisis, attempting to design a bank safety test that can be run all the time – not at the whim of regulators.

Using his methodology, which he calls SRISK, Mr Acharya found that in a crisis French financial institutions would have a capital shortfall of almost $400bn, worse than the US and UK despite their much bigger financial sectors. Looking just at the French banks tested in the ECB stress tests, which found zero capital shortfall, SRISK came up with €189bn. Mr Acharya did not have access to the 6,000 officials who scoured balance sheets across Europe to gauge the health of the continent’s banks. But his results, which have implications for other countries, including China, should not be ignored. How big is the crisis hole?

Take Société Générale. France’s second-biggest bank by market value did fine on the ECB’s stress test. But on Mr Acharya’s measure, the bank has a large capital shortfall in a crisis. There are a couple of big reasons for the difference. First, SRISK takes into account the banks’ total balance sheet without regard for risk: unlike the ECB, it does not attempt to distinguish between €1m of German Bunds and a €1m loan to a dipsomaniac farmer with a rusty tractor. Second, it does not care what banks’ book value of equity is; it uses what the stock market says it is.

Under the ECB’s methodology, SocGen has €36.6bn of equity today and, in a crisis, would have €30.7bn of equity against €377bn of risk-weighted assets. That equates to a passable 8.1% capital ratio even in a deep recession. According to Mr Acharya’s methodology, the bank has only €30bn of market equity today against €1,322bn of assets for a much weaker capital ratio of 2.3%. In a crisis, when market values would plunge further, SocGen would be left with a shortfall of more than €60bn.

Using the stock market to compute a bank’s equity makes SRISK vulnerable to irrational optimism or irrational pessimism of investors. But Mr Acharya finds three good reasons to use it. “Markets told us that subprime MBS [mortgage-backed securities] had become poor in quality and liquidity; book values and regulatory risk weights did not ..”

Market values are also harder to manipulate by management through understatement of losses or provisions. Finally, banking crises are caused by drying up of credit by financiers. Financiers are not interested in book values or regulatory capital per se, but whether the firm can raise capital if needed to repay them. This is best captured by market value.”

It is not just France’s regulators and banks that might be well-advised to stop patting themselves on the back and consider other measures of systemic risk. Europe’s aggregate SRISK has fallen since 2011, with the deleveraging of balance sheets following the eurozone crisis. Systemic risk in the US has also fallen by half since 2008. But risk in China has picked up significantly and now surpasses the US. If anything, Mr Acharya notes, the problem is likely to be understated because of the amounts of off-balance sheet debt in China.

In the US, JPMorgan Chase’s leverage might be much better than its French counterparts, but its SRISK is bigger: a $98.4bn shortfall in a crisis. MetLife, which is considering suing the US government over its designation as a systemically important company, is found to pose a bigger systemic risk than Goldman Sachs.

If you believe that financial companies always appropriately value their assets and never try to massage the value of their equity and if you believe that officials are always diligent in examining banks’ accounting then SRISK is a waste of time. But if you believe this you haven’t been paying attention for the last decade.

I’m tempted to say someone should save the Greeks and Italians from the power game that’s being played with them, but in reality they should save themselves. That French banks come out of the ECB test with flying colors, while in two separate other tests they look absolutely abysmal, should tell us all enough about what the game is here.

There are two major countries in the eurozone, and they have all the political power there is to go around. As they are sinking, the poorer nations will be forced to make up the difference. Just like the Romans squeezed their peripheral territories so much they caused the end of their empire, and were conquered and flattened by the peoples living there.

I know I’ve said it many times already, but I’m not going to give up: the EU should be broken up, and its delusional leadership structure torn to bits, as soon as possible, or Europe is once going to be a theater of war.

The very thing the EU was supposed to prevent, it will be the source of. In exactly the same way that QE tears apart economies and societies. Presented as the sole solution to the debt crisis, but in reality the driving force behind increased inequality, ever lower wages and ever fewer benefits, and perhaps most of all the nigh complete suffocation of the younger generations, so the older – and therefore richer – can enjoy their so-called well-deserved retirement.

This whole thing is so broken and perverted it’s getting hard to understand why anybody would want to continue clinging on to it. But then, what does anybody know? 95%+ of people have been reduced to pawns in someone else’s game, and they have no idea whatsoever.

And maybe that’s genius. If you see people’s ignorance as a sufficient reason to prey upon them, that is, as many of our ‘leaders’ do. It’s what gives them power, exploiting other people’s weaknesses. And that is then seen as everyone ‘obeying’ some sort of natural law.

That’s what QE and stress tests tell me. That Greeks and Italians are no longer just being preyed upon by their own people, but by others too, with different cultures and languages and entirely different goals and ideals. And that cannot end well. You might as well put them all to work in a chaingang right this moment.

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