Oct 072017
 
 October 7, 2017  Posted by at 8:39 am Finance Tagged with: , , , , , , , ,  4 Responses »
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Vincent van Gogh Landscape at twilight 1890

 

BLS Caught Fabricating Wage Data (ZH)
Tropical Storm Nate Heads Into The Heart Of US Offshore Oil Industry (CNBC)
It’s ‘Crunch Time’ For Australian Households (BI)
JPMorgan Paid Fine for 2008 Mortgage Crisis With .. Phony Mortgages (N.)
EU Official Warns War a Possibility in Catalonia (VoA)
Spain Apologizes, Tone Softens In Catalonia Independence Crisis (R.)
OECD New Approaches to Economic Challenges (Steve Keen)
Mainstream Economists Live In A Parallel Universe (Ren.)
Light It Up (Jim Kunstler)
Russiagate Is More Fiction Than Fact (Nation)
Your Local Bank Could Be the Central Bank (BBG)
US Escalates Trade Dispute With UK And Canada Over Bombardier (G.)
Canada Will Pay Compensation To Thousands Of Indigenous ‘Stolen Children’ (R.)
FDP Chief Says Schaeuble ‘Not Tough Enough’ On Greece (K.)
Greece’s Ruling Syriza Party Falls Apart (K.)
Overcrowded Greek Refugee Camps Ill-Prepared For Winter: UNHCR (R.)

 

 

And loses 33,000 jobs while unemployment falls?! And 935,000 full time jobs are added. Time to stop paying any attention to the B(L)S. You can’t trust it.

BLS Caught Fabricating Wage Data (ZH)

[..] the BLS reported that the annual increase in Average Weekly Earnings was a whopping 2.9%, above the 2.5% expected, and above the 2.5% reported last month. On the surface this was a great number, as the 2.9% annual increase – whether distorted by hurricanes or not – was the highest since the financial crisis. However, a problem emerges when one looks just one month prior, at the revised August data. What one sees here, as Andrew Zatlin of South Bay Research first noted, is that while the Total Private Average Weekly Earnings line posted another solid increase of 0.2% month over month, an upward revision from the previous month’s 0.1%, when one looks at the components, it become clear that the BLS fabricated the numbers, and may simply hard-coded its spreadsheet with the intention of goalseeking a specific number.

Presenting Exhibit 1: Table B-3 in today’s jobs report. What it shows is that whereas there was a sequential decline in the Average Weekly Earnings for Goods Producing and Private Service-producing industries which are the only two sub-components of the Total Private Line (and are circled in red on the table below) of -0.8% and -0.1% respectively, the BLS also reported that somehow, the total of these two declines was a 0.2% increase! Another way of showing the July to August data: • Goods-Producing Weekly Earnings declined -0.8% from $1,118.68 to $1,109.92 • Private Service-Providing Weekly Earnings declined -0.1% from $868.80 to $868.18 • And yet, Total Private Hourly Earnings rose 0.2% from $907.82 to $909.19. What the above shows is, in a word, impossible: one can not have the two subcomponents of a sum-total decline, while the total increases. The math does not work.

This, as Zatlin notes, undermines not only the labor inflation narrative, but it puts into question the rest of the overall labor data, and whether there are other politically-motivated, goalseeked “spreadsheet” errors. We have sent an email to the BLS seeking an explanation for the above data fabrication, meanwhile here is what likely happened: a big, juicy fat-finger error, whether on purpose or otherwise because if one looks at the finalized July weekly earnings of $907.82, it’s precisely the same as what the August preliminary wage number was as released last month, also $907.82. For the excel fans out there, it means that the August totals were simply hard coded when the BLS shifted cells in the spreadsheet, becoming July.

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Will probably be a Cat 2-3 hurricane by then.

Tropical Storm Nate Heads Into The Heart Of US Offshore Oil Industry (CNBC)

As Tropical Storm Nate continued on its course toward the Gulf of Mexico on Friday, energy companies shut down offshore oil and gas platforms, while Louisiana braced for a potential hurricane. Nate is forecast to strengthen as it enters the Gulf and develop into a hurricane by the time it reaches the northern Gulf Coast on Saturday evening, the National Hurricane Center said Friday. Hurricane and storm surge watches are in effect for southeastern Louisiana, including New Orleans, through the Mississippi-Alabama border. The Gulf is home to nearly one-fifth of all U.S. oil output. Drillers who pump crude from offshore platforms have lately produced at record levels above 1.7 million barrels a day. The region already had to contend with Hurricane Harvey in August.

“The major difference between Harvey and Nate is that the trajectory of Nate brings it right through the heart of the U.S. Gulf of Mexico oil and gas producing region,” said Andy Lipow, president of Lipow Oil Associates. BP and Chevron are ceasing production on all platforms in the Gulf of Mexico, Reuters reported. Royal Dutch Shell and Anadarko Petroleum dialed back activity, while Exxon Mobil, Statoil and others are withdrawing workers. If Nate develops into a Category 2 or 3 hurricane, it could impact up to 80% of the Gulf’s output, Lipow forecast. The storm also has the potential to affect about 15% of U.S. refining capacity in the New Orleans area, Mississippi and Alabama. The region’s biggest refineries include Exxon Mobil’s Baton Rouge facility and Marathon Petroleum’s Garyville, Louisiana, plant, both capable of turning out more than 500,000 barrels a day.

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A whole nation full of debt slaves in denial. And not the only nation either.

It’s ‘Crunch Time’ For Australian Households (BI)

Australian households are in a vulnerable financial position, especially those who have taken out a mortgage. And in an era of weak incomes growth, soaring energy prices and high levels of indebtedness, with the prospect of higher interest rates on the way, many intend to cut discretionary spending in anticipation of even tighter household budgets. That’s the finding of the latest AlphaWise survey conducted by Morgan Stanley, which paints an unsettling picture on the outlook for not only Australia’s retail sector, but also the broader economy. Yes, the weakness in retail sales over the past two months may soon become entrenched. The “crunch time” for Australian households, as Morgan Stanley puts it, has begun. “In early June, we expressed the view that the Australian consumer faces a domestic cash flow and credit crunch,” the bank wrote in a note released this week.

“Income growth has not recovered, ‘cost of living’ inflation is re-accelerating and ‘macro-prudential’-related tightening of credit conditions is extending from housing into consumer finance.” In order to test how households may respond to higher interest rates, whether as a result of macroprudential measures to slow investor and interest-only housing credit growth or official moves from the Reserve Bank of Australia (RBA), Morgan Stanley conducted a national survey of 1,836 mortgagors to identify household conditions during late July and early August. Australia’s 2016 census found that 34.5% of households were currently paying off a mortgage. Morgan Stanley says the survey was designed to provide insight into the health of the household balance sheet, including their spending intentions as a result of higher mortgage rates. The news was not good.

“Findings from the AlphaWise survey confirm the stresses in the consumer sector we have been highlighting for some time now,” it says. “Most households have minimal buffers against a shock to their income, and expect to respond to higher debt servicing costs by drawing down on savings and cutting back on expenditure. “Other sectors of the economy may be able to offset some of the headline weakness, but the concentrated exposure of the household sector and economy to an extended housing market is posing an increasingly important structural and cyclical risk to consumer spending.” Of those households surveyed, 54% said they intended to cut back on expenditure in response to higher interest rates, with a further 25% planning to draw down on their savings to cope with higher servicing costs, a pattern that has been seen in Australia’s savings ratio which fell to a post-GFC low in the June quarter.

Somewhat alarmingly, 40% of those surveyed indicated that they did not save at all over the past year, particularly among low-income households. [..] “Only around 13% of respondents expect to be able to save more in the next 12 months..”

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Read the whole thing. It’s completely insane.

JPMorgan Paid Fine for 2008 Mortgage Crisis With .. Phony Mortgages (N.)

You know the old joke: How do you make a killing on Wall Street and never risk a loss? Easy—use other people’s money. Jamie Dimon and his underlings at JPMorgan Chase have perfected this dark art at America’s largest bank, which boasts a balance sheet one-eighth the size of the entire US economy. After JPMorgan’s deceitful activities in the housing market helped trigger the 2008 financial crash that cost millions of Americans their jobs, homes, and life savings, punishment was in order. Among a vast array of misconduct, JPMorgan engaged in the routine use of “robo-signing,” which allowed bank employees to automatically sign hundreds, even thousands, of foreclosure documents per day without verifying their contents.

But in the United States, white-collar criminals rarely go to prison; instead, they negotiate settlements. Thus, on February 9, 2012, US Attorney General Eric Holder announced the National Mortgage Settlement, which fined JPMorgan Chase and four other mega-banks a total of $25 billion. JPMorgan’s share of the settlement was $5.3 billion, but only $1.1 billion had to be paid in cash; the other $4.2 billion was to come in the form of financial relief for homeowners in danger of losing their homes to foreclosure. The settlement called for JPMorgan to reduce the amounts owed, modify the loan terms, and take other steps to help distressed Americans keep their homes. A separate 2013 settlement against the bank for deceiving mortgage investors included another $4 billion in consumer relief.

A Nation investigation can now reveal how JPMorgan met part of its $8.2 billion settlement burden: by using other people’s money. Here’s how the alleged scam worked. JPMorgan moved to forgive the mortgages of tens of thousands of homeowners; the feds, in turn, credited these canceled loans against the penalties due under the 2012 and 2013 settlements. But here’s the rub: In many instances, JPMorgan was forgiving loans on properties it no longer owned. The alleged fraud is described in internal JPMorgan documents, public records, testimony from homeowners and investors burned in the scam, and other evidence presented in a blockbuster lawsuit against JPMorgan, now being heard in US District Court in New York City.

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Big demos today against Catalans.

EU Official Warns War a Possibility in Catalonia (VoA)

The team captain of Spain’s storied football club Barcelona, which has become a focal point of secessionist Catalan sentiment, is urging politicians in Madrid and the Catalan capital to start negotiating about the future of Spain’s restive northeast province. “Before we do ourselves more damage, those in charge must open dialogue with each other. Do it for all of us. We deserve to live in peace,” Andrés Iniesta wrote on his Facebook page, apologizing at the same time for weighing in on “situations that are complex.” His appeal came as a top EU official Thursday warned that the separatist dispute, exacerbated by Catalan secessionists holding an illegal independence referendum Sunday, risks escalating into armed conflict.

“The position is very, very alarming. Civil war is conceivable there, in the middle of Europe,” Gunther Oettinger, the Germany EU commissioner said at an event in Munich. Oettinger and the EU Commission, the European bloc’s governing body, which fears Catalan independence might stir up separatism elsewhere in Europe, have also urged the authorities in Madrid and Barcelona to start negotiations and to avoid further provocations. But there are little signs of that happening. Both sides appear to be standing firm in Spain’s worst constitutional crisis since an attempted coup in 1981. [..] Nationalist sentiment is deepening fast: in Madrid observers have noted more buildings are sporting the Spanish national flag. Spaniards have long harbored an historical fear of dismemberment – Catalan nationalist sentiment was a key factor behind the Spanish civil war of the 1930s.

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Wonder how long that holds.

Spain Apologizes, Tone Softens In Catalonia Independence Crisis (R.)

Spain apologized on Friday for a violent police crackdown on Catalonia’s independence referendum, in a conciliatory gesture as both sides looked for a way out of the nation’s worst political crisis since it became a democracy four decades ago. Spain’s representative in northeast Catalonia, which accounts for a fifth of the national economy, made the apology just as Catalonia’s secessionist leader appeared to inch away from a plan to declare independence as early as Monday. “When I see these images, and more so when I know people have been hit, pushed and even one person who was hospitalized, I can’t help but regret it and apologize on behalf of the officers that intervened,” Enric Millo said in a television interview.

[..] Moments earlier, a Catalan parliament spokeswoman said the regional government’s leader, Carles Puigdemont, had asked to address lawmakers on Tuesday, in timing that appeared at odds with earlier plans to move an independence motion on Monday. Puigdemont wanted to speak on the “political situation”. The softer tone contrasted with remarks earlier on Friday from Catalonia’s head of foreign affairs who told BBC radio it would go ahead with an independence debate in the regional parliament. Spanish Prime Minister Mariano Rajoy has offered all-party political talks to find a solution, opening the door to a deal giving Catalonia more autonomy. But he has ruled out independence and rejected a Catalan proposal for international mediation.

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Steve in the lion’s den. “The OECD was one of the formal economic policy groups that wildly misinterpreted the economic data of 2007..”

OECD New Approaches to Economic Challenges (Steve Keen)

This is one of the highlights so far of my life as a rebel economist: giving an invited talk at the OECD. The OECD was one of the formal economic policy groups that wildly misinterpreted the economic data of 2007, believing that it heralded “sustained growth in OECD economies … underpinned by strong job creation and falling unemployment.” Five years later, they established the New Approaches to Economic Challenges (NAEC) initiative, and they’re trying to expand the horizons of economics beyond the narrow and fallacious confines of Neoclassical economics. Being invited to speak there, and getting such a positive reception from OECD Ambassadors, confirmed my belief that if change is to come in economics, it will come from formal economic bodies (the OECD, IMF, Central Banks and Treasuries) rather than university departments.

Formal bodies have to wear the consequences of being wrong about the economy, whereas Neoclassical-dominated university departments can retreat into isolation when the real world fails to conform to their fantasies about it. Nothing is certain however. The desire to fall back into ideologically comfortable but practically false ways of thinking about the economic system is strong. Groups like NAEC within the OECD need support, and they themselves need to support the young students in Rethinking Economics, who are far more amenable to a new paradigm than their hidebound academic instructors in the major Universities.

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“Neoclassical economists are not experts on money but experts in finding reasons to believe you can model capitalism as though money banks and debt don’t exist. “And then you give them the right to control the banking system.”

Mainstream Economists Live In A Parallel Universe (Ren.)

Neoclassical economic theory claims that the human being is a rational self-serving profit maximising unit. It claims to prove the market can handle anything. Classical economists model the economy based on the concept of rational consumers maximising utility and firms maximising profits. Their vision of the world claims that equilibrium is reached and the world functions best if there is no government, no trade unions and no monopolies. Professor Keen says mainstream economist change reality to fit their model. University campuses used to be about education, challenging people exposing them to ideas they didn’t necessarily have in the first instance. But Professor Keen says economics actually leads away from this possibility. “Economics starts by inculcating a view of how you should think about the economy that rules out a whole range of alternatives,” he said.

“It rules out thinking about the sort of work that I do, working from the top down, looking at the overall economy and modelling that way. They say ‘no, you’ve got to start from the isolated individual and you have to talk about individuals for maximising utility’. We’re talking about them as consumers or firms who are maximising profits. “In their mind that is the definition of a perfectly functioning system, but it is not the definition of the world in which we live. “Once you’ve got the mathematical structure of trying to do that, you have a very hard time treating anything else as a sensible analysis of capitalism. They rule out a whole lot of other ways of thinking.”

[..] “Imagine capitalism with no banks, no debt, and no money,” says Professor Keen. “You’re getting pretty close to being a neoclassical economist.” “Neoclassical economists are not experts on money but experts in finding reasons to believe you can model capitalism as though money banks and debt don’t exist. “And then you give them the right to control the banking system.”

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“..with half of the flyover population in an opiate daze, and chain-stores shuttering to the tune of 10,000 this year, and car leases expiring into a car market dependent on liar loans bundled into janky securities, and the debt problem festering away like a something dead under the floor boards.”

Light It Up (Jim Kunstler)

Grinning like Wonderland’s Cheshire Cat, the Golden Golem of Greatness pronounced this interval of fine fall weather “the calm before the storm.” Hmmmm. Talk about cryptic. This was less than a week after he verbally smacked down Secretary of State Rex Tillerson for “wasting his time” trying to diplomatically reach “Little Rocket Man… “ whereby Rex riposted, calling the President a “moron.” Ordinarily — say, during the past 220-odd years of this nation’s existence — talk like that would prompt a resignation (though, there are no other instances of talk like that). illerson must think that for the good of the country he can’t resign, and God knows what kind of desperate notes are being swapped around between the State Department and the Pentagon.

[..] We are entering a slot of time where an awful lot of things might go wrong. What gets me is seeing the stock markets make new record highs every other day, whether Puerto Rico is destroyed overnight or hundreds of people are shot in a Las Vegas parking lot — and notwithstanding the overall phony-baloney condition of the American economy, with half of the flyover population in an opiate daze, and chain-stores shuttering to the tune of 10,000 this year, and car leases expiring into a car market dependent on liar loans bundled into janky securities, and the debt problem festering away like a something dead under the floor boards. Some kind of financial accident with a this-sucker-is-going-down flavor feels like it’s waiting to happen.

I don’t think Trump was referring to that either, but what if it came down around the same moment that we decided to light up North Korea? Or, alternately, if Rex Tillerson, Mike Pence, and a score of other senior politicos decide that its time for Trump to go? The president is looking mighty friendless these days, and more than a little reckless. I mean, for the good of the country, ladies and gentlemen, what are they waiting for? Will his generals defend him? Nah. Fuggedabowdit. I wonder what the code-name for their action will be. Operation Moron Overboard? The whole spectacle is starting to look like a Coen Brothers movie. When the time comes, I hope they will make the documentary about these strange days of October, 2017.

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But it will just keep going.

Russiagate Is More Fiction Than Fact (Nation)

In the electrified aftermath of the election, aides to Hillary Clinton and Obama pored over polling numbers and turnout data, looking for clues to explain what they saw as an unnatural turn of events. One of the theories to emerge from their post-mortem was that Russian operatives who were directed by the Kremlin to support Trump may have taken advantage of Facebook and other social media platforms to direct their messages to American voters in key demographic areas in order to increase enthusiasm for Trump and suppress support for Clinton. These former advisers didn’t have hard evidence that Russian trolls were using Facebook to micro-target voters in swing districts—at least not yet—but they shared their theories with the House and Senate intelligence committees, which launched parallel investigations into Russia’s role in the presidential campaign in January.

The theories paid off. A personal visit in May by Democratic Senator Mark Warner, vice-chair of the Senate Intelligence Committee, “spurred the company to make some changes in how it conducted its internal investigation.” Facebook’s announcement in August of finding 3,000 “likely” Russian ads is now an ongoing “scandal” that has dragged the company before Congressional committees. Other election threats loom. A recent front-page New York Times article linking Russian cyber operations to voting irregularities across the United States is headlined, “Russian Election Hacking Efforts, Wider Than Previously Known, Draw Little Scrutiny.” But read on and you’ll discover that there is no evidence of “Russian election hacking,” only evidence-free accusations of it.

Voting problems in Durham, North Carolina, “felt like tampering, or some kind of cyberattack,” election monitor Susan Greenhalgh says, and “months later…questions still linger about what happened that day in Durham as well as other counties in North Carolina, Virginia, Georgia and Arizona.” There is one caveat: “There are plenty of other reasons for such breakdowns—local officials blamed human error and software malfunctions—and no clear-cut evidence of digital sabotage has emerged, much less a Russian role in it.” The evidence-free concern over Russian hacking expanded in late September when the Department of Homeland Security informed 21 states that they had been targeted by Russian cyber-operations during the 2016 election. But three states have already dismissed the DHS claims, including California, which announced that after seeking “further information, it became clear that DHS’s conclusions were wrong.” Recent elections in France and Germany saw similar fears of Russian hacking and disinformation—and similar results.

In France, a hack targeting the campaign of election winner Emmanuel Macron ended up having “no trace,” of Russian involvement, and “was so generic and simple that it could have been practically anyone,” the head of French cyber-security quietly explained after the vote. Germany faced an even more puzzling outcome: Nothing happened. “The apparent absence of a robust Russian campaign to sabotage the German vote has become a mystery among officials and experts who had warned of a likely onslaught,” the Post reported in an article headlined “As Germans prepare to vote, a mystery grows: Where are the Russians?” The mystery was so profound that The New York Times also explored it days later: “German Election Mystery: Why No Russian Meddling?”

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RIpping apart the blockchain.

Your Local Bank Could Be the Central Bank (BBG)

In practice it is difficult to envisage a sustainable digital currency that would not be accessible to all; cryptocurrencies are increasingly attractive to the general public. As for privacy, a decentralized ledger, on top of the security advantage it brings, makes the anonymity attached to cash transactions technically possible, and is thus nothing new. The BIS acknowledges as much: While it may look odd for a central bank to issue a cryptocurrency that provides anonymity, this is precisely what it does with physical currency, i.e. cash. Perhaps a key difference is that, with a retail CBCC, the provision of anonymity becomes a conscious decision.

Some might argue that an anonymous payment network would run against the current trend in anti-money-laundering regulation, where the origin of invested cash is carefully vetted to avoid criminal or tax evasion activities. Technically, there is nothing to prevent central bank digital currencies from being fully traceable. Even a decentralized ledger (where transactions are recorded digitally across many computers) only provides the potential for anonymity but does not guarantee it. But if there is no desire for anonymity, then there would be no need for the ledger to be decentralized. The logical outcome would be for central banks themselves to offer retail services, taking deposits from the general public. The BIS considers this possibility:

“We argue that the main benefit that a consumer-facing retail CBCC would offer, over the provision of public access to (centralized) central bank accounts, is that the former would have the potential to provide the anonymity of cash. In particular, peer-to-peer transfers allow anonymity vis-à-vis any third party. If third-party anonymity is not of sufficient importance to the public, then many of the alleged benefits of retail CBCCs can be achieved by giving broad access to accounts at the central bank.” A central bank e-minting monopoly would fundamentally change the structure of the banking system, leading to an increased monetary basis and seigniorage. Any temptation to abuse the enhanced minting monopolies would be reduced not by new technology but by the competitive alternatives offered by other countries’ digital currencies, or even, if necessary, old-fashioned valuable commodities.

The introduction of CBBCs that are traceable would also bring about a revolutionary transformation of the financial system architecture. This is, quite obviously, the opposite of the libertarian ideology underpinning the original cryptocurrencies. It would also accelerate the dismantling of the banking system as we know it. With central banks offering retail services, commercial banks would lose deposits, and with it their ability to lend. It would curtail or end the role of the money multiplier – whereby banks lend more than they receive in deposits, thus increasing the overall money supply – in the economy, and so necessitate massive monetary creation to maintain levels of liquidity in the market. Lending would increasingly be made by regulated specialized funds.

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Strange and ugly.

US Escalates Trade Dispute With UK And Canada Over Bombardier (G.)

The US has escalated its trade dispute with Britain and Canada by announcing plans to slap a further 80% duty on the export of planes built by Bombardier. The move follows complaints by Boeing that Canadian-owned Bombardier, which employs more than 4,000 people in Belfast, had dumped its C Series jets at “absurdly low” prices. Bombardier is facing a planned 220% tariff as part of a separate investigation, the US Department of Commerce confirmed. A second levy of 80% is also being applied to Bombardier’s sales to the US after a preliminary finding that the jets were sold below cost price to Delta Air Lines in 2016. Boeing claimed that 75 aircraft were sold at nearly £10.6m below cost price. Bombardier dismissed the claim as “absurd”. The company is due to begin delivering a blockbuster order for up to 125 new jets to Atlanta-based Delta next year.

The US commerce secretary, Wilbur Ross, said: “The United States is committed to free, fair and reciprocal trade with Canada, but this is not our idea of a properly functioning trading relationship. We will continue to verify the accuracy of this decision, while doing everything in our power to stand up for American companies and their workers.” [..] The proposed duties would not take effect unless affirmed by the US International Trade Commission (ITC) early next year. To win its case before the ITC, Boeing must prove it was harmed by Bombardier’s sales, despite not using one of its own jets to compete for the Delta order. Bombardier said it was confident that the ITC would find Boeing had not been harmed, calling the Department of Commerce decision a case of “egregious overreach”. Delta said the decision was preliminary and it was confident the ITC “will conclude that no US manufacturer is at risk” from Bombardier’s plane.

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Australia next?! US?

Canada Will Pay Compensation To Thousands Of Indigenous ‘Stolen Children’ (R.)

Canada will pay up to C$750m in compensation to thousands of aboriginals who were forcibly removed as children from their families decades ago, promising to end “a terrible legacy”. The move is the latest attempt by the Liberal government of the prime minister, Justin Trudeau, to repair ties with Canada’s often-marginalised indigenous population, which says it has been the victim of systemic racism for centuries. In the so-called “Sixties Scoop”, welfare authorities took about 20,000 aboriginal children from their homes between the 1960s and 1980s and placed them in foster care or allowed them to be adopted by non-indigenous families. The compensation package is designed to settle many of the lawsuits launched by survivors, who say the forced removal deprived them of their heritage and led to mental disorders, substance abuse and suicide.

“Language and culture, apology, healing – these are essential elements to begin to right the wrong of this dark and painful chapter,” said Carolyn Bennett, the federal minister in charge of relations with the indigenous population. Canada’s 1.4 million aboriginals, who make up about 4% of the population, experience higher levels of poverty and incarceration and have a lower life expectancy than other Canadians. They are often victims of violent crime and addiction. Indigenous activists complain Trudeau has broken repeated promises to improve their lives since taking office in late 2015. He reshuffled his cabinet in August to put more emphasis on helping aboriginal people. Bennett, at times fighting back tears, told a news conference she had heard “truly heartbreaking stories” about loss of identity and alienation.

Marcia Brown Martel, an aboriginal chief who led the campaign for compensation, lamented the “stealing of children” and noted some of those involved lived as far away as New Zealand. “Think of it as a puzzle, a great big puzzle. Pieces, people are missing,” she told reporters. [..] Trudeau and other Canadian leaders have already apologized for the many abuses committed over a 150-year period when 150,000 aboriginal children were forcibly separated from their parents and sent to church-run residential schools. In 2015, an official report said the schools were an attempt to end the existence of aboriginals as distinct legal, social, cultural, religious and racial entities in Canada.

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A look at the future.

FDP Chief Says Schaeuble ‘Not Tough Enough’ On Greece (K.)

The leader of Germany’s Free Democrats (FDP), Christian Lindner, seen as a likely successor at the finance ministry if his pro-business party enters a coalition with Chancellor Angela Merkel’s Christian Democrats (CDU), has criticized outgoing Finance Minister Wolfgang Schaeuble for not being tough enough on Greece. “Mr Schaeuble did not manage to impose himself over the chancellor in many questions of European policy. Just remember the third aid package for Greece, which he originally did not want to do,” Lindner told German daily Handelsblatt in an interview Friday. The 38-year-old politician managed to lead the FDP back into parliament after a four-year absence on the back of a pledge to limit financial perils from the eurozone and an illiberal assault on Merkel’s open-doors refugee policy.

In the same interview, Lindner called for the creation of an insolvency law for eurozone states, while arguing that countries should be able to leave the common currency area while remaining in the European Union. In May, the FDP chief said that Greece should leave the euro temporarily until its economy was back on track. If the Greek debt is not sustainable as the IMF claims, Lindner said at the time, then it has to be restructured – and this cannot take place within the eurozone. Lindner avoided to say if his party would push to take over the Finance Ministry. “For us a change in fiscal policy is more important than a new minister,” said Lindner, who also expressed doubts about the prospects of a three-way alliance between CDU, FDP and the Greens, known as the “Jamaica coalition.”

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Due to lack of identity.

Greece’s Ruling Syriza Party Falls Apart (K.)

An overwhelming majority of SYRIZA’s “Socialist Trend” faction under MEP Costas Chrysogonos have voted to part ways with the ruling leftists over differences in policy. In a ballot held on Friday, the proposal was backed by 1,678, or 82.6%, of the faction’s 2,032 members. Only 31 wanted to stay with SYRIZA. Officials said the faction will take steps to transform into an independent political grouping. They added that more details will be announced next week. Representatives of the faction also accused SYRIZA of turning into “a true replica of the centralized mainstream parties.”

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“..four of the five island camps are hosting two or three times as many people as they were designed for..”

Overcrowded Greek Refugee Camps Ill-Prepared For Winter: UNHCR (R.)

Greece must speed up winter preparations at refugee camps on islands in the Aegean Sea where there has been a sharp rise in arrivals, the United Nations refugee agency said on Friday. Nearly 5,000 refugees, mostly Syrian or Iraqi families, crossed from Turkey in September – a quarter of all arrivals this year, UNHCR data shows. While that is a fraction of the nearly 1 million who arrived in 2015 – due to a European Union deal with Turkey to block that route – four of the five island camps are hosting two or three times as many people as they were designed for. “UNHCR urges action on the islands to ease overcrowding, improve shelter, and stock and distribute appropriate and sufficient aid items,” said Philippe Leclerc, UNHCR representative in Greece.

In the Moria camp on the island of Lesbos, one of the main entry points, more than 1,500 people are in makeshift shelters or tents without insulation, flooring or heating, UNHCR said. They include pregnant women, people with disabilities, and very young children. On nearby Samos, about 400 people are living in “very difficult” conditions and another 300, including families and lone children, are sleeping in tents in the woods due to a lack of space in the camp, UNHCR said. More than 3,000 people on Samos are crammed into facilities designed to hold 700. In January, refugees in Greece suffered sub-zero temperatures when an icy spell gripped parts of the country and scores of summer tents were weighed down by snow. More than 60,000 refugees and migrants have been trapped in Greece since Balkan countries along the northward overland route to western Europe sealed their borders in March 2016.

UNHCR has been gradually reducing its involvement on the islands since national institutions took over most services in August.

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Sep 012017
 
 September 1, 2017  Posted by at 9:40 am Finance Tagged with: , , , , , , , , ,  5 Responses »
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Vincent van Gogh Seine with Pont de Clichy 1887

 

Monetary Stimulus: How Much Is Too Much? (Lebowitz)
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Why We’re Doomed: Stagnant Wages (CHS)
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Wells Fargo Says 3.5 Million Accounts Involved In Scandal (AP)
World’s Biggest Wealth Fund Reveals Bleak View on Global Trade (BBG)
New Math Deals Minnesota’s Pensions the Biggest Hit in the US (BBG)
Six Big Banks To Create A Blockchain-Based Cash System (R.)
Putin Warns Of ‘Major Conflict’ Over North Korea, Urges Talks (AFP)
Trump, Nuclear War And Climate Change Among Gravest Threats To Humanity (PA)
Greece Doesn’t Want Any More Rescues – But It Does Need Something Else (CNBC)
Hurricane Irma Turning Into Monster (ZH)

 

 

Take their power away or else.

Monetary Stimulus: How Much Is Too Much? (Lebowitz)

The amount of monetary stimulus increasingly imposed on the financial system creates false signals about the economy’s true growth rate, causing a vast misallocation of capital, impaired productivity and weakened economic activity. To help quantify the amount of stimulus, please consider the graph. Federal Reserve (Fed) monetary stimulus comes in two forms. First in the form of targeting the Fed Funds interest rate at a rate below the nominal rate of economic growth (blue). Second, it stems from the large scale asset purchases QE) by the Fed (orange). When these two metrics are quantified, it yields an estimate of the average amount of monetary stimulus (red) applied during each post-recession period since 1980. It has been almost ten years since the 2008 financial crisis and the Fed is applying the equivalent of 5.25% of interest rate stimulus to the economy, dwarfing that of prior periods.

The graph highlights that the Fed has been increasingly aggressive in both the amount of stimulus employed as well as the amount of time that such monetary stimulus remains outstanding. Amazingly few investors seem to comprehend that despite the massive level of monetary stimulus, economic growth is trending well below recoveries of years past. Additionally, as witnessed by historically high valuations, the rise in the prices of many financial assets is not based on improving economic fundamentals but simply the stimulative effect that QE and low interest rates have on investor confidence and financial leverage. Now consider the ramifications of a Fed that continues to increase the Fed Funds rate and moves forward with plans to slowly remove QE.

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America: the House that Debt Built.

Yes, You Should Be Concerned With Consumer Debt (Roberts)

First, the calculation of disposable personal income, income less taxes, is largely a guess and very inaccurate due to the variability of income taxes paid by households. Secondly, but most importantly, the measure is heavily skewed by the top 20% of income earners, needless to say, the top 5%. As shown in the chart below, those in the top 20% have seen substantially larger median wage growth versus the bottom 80%.

Lastly, disposable incomes and discretionary incomes are two very different animals. Discretionary income is what is left of disposable incomes after you pay for all of the mandatory spending like rent, food, utilities, health care premiums, insurance, etc. According to a Gallup survey, it requires about $53,000 a year to maintain a family of four in the United States. For 80% of Americans, this is a problem even on a GROSS income basis.

This is why record levels of consumer debt is a problem. There is simply a limit to how much “debt” each household can carry even at historically low interest rates. It is also the primary reason why we can not have a replay of the 1980-90’s. “Beginning 1983, the secular bull market of the 80-90’s began. Driven by falling rates of inflation, interest rates, and the deregulation of the banking industry, the debt-induced ramp up of the 90’s gained traction as consumers levered their way into a higher standard of living.”

“While the Internet boom did cause an increase in productivity, it also had a very deleterious effect on the economy. As shown in the chart above, the rise in personal debt was used to offset the declines in personal income and savings rates. This plunge into indebtedness supported the ‘consumption function’ of the economy. The ‘borrowing and spending like mad’ provided a false sense of economic prosperity. During the boom market of the 1980’s and 90’s consumption, as a%age of the economy, grew from roughly 61% to 68% currently. The increase in consumption was largely built upon a falling interest rate environment, lower borrowing costs, and relaxation of lending standards. (Think mortgage, auto, student and sub-prime loans.) In 1980, household credit market debt stood at $1.3 Trillion. To move consumption, as a% of the economy, from 61% to 67% by the year 2000 it required an increase of $5.6 Trillion in debt. Since 2000, consumption as a% of the economy has risen by just 2% over the last 17 years, however, that increase required more than a $6 Trillion in debt.

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Doomed growth projections.

Why We’re Doomed: Stagnant Wages (CHS)

Despite all the happy talk about “recovery” and higher growth, wages have gone nowhere since 2000–and for the bottom 20% of workers, they’ve gone nowhere since the 1970s. GDP has risen smartly since 2000, but the share of GDP going to wages and salaries has plummeted: this is simply an extension of a 47-year downtrend. [..] .. our system requires ever-higher household incomes to function–not just in the top 5%, but in the top 80%. Our federal social programs–Social Security, Medicare and Medicaid–are pay-as-you-go: all the expenditures this year are paid by taxes collected this year. As I have detailed many times, the so-called “Trust Funds” are fictions; when Social Security runs a deficit, the difference between receipts and expenses are filled by selling Treasury bonds in the open market–the exact same mechanism ther government uses to fund any other deficit.

The demographics of the nation have changed in the past two generations. The Baby Boom is retiring en masse, expanding the number of beneficiaries of these programs, while the number of full-time workers to retirees is down from 10-to-1 in the good old days to 2-to-1: there are 60 million beneficiaries of Social Security and Medicare and about 120 million full-time workers in the U.S. Meanwhile, medical expenses per person are soaring. Profiteering by healthcare cartels, new and ever-more costly treatments, the rise of chronic lifestyle illnesses–there are many drivers of this trend. There is absolutely no evidence to support the fantasy that this trend will magically reverse.

Costs are skyrocketing and the number of retirees is ballooning, but wages are going nowhere. Do you see the problem? All pay-as-you-go programs are based on the assumption that the number of workers and the wages they earn will both rise at a rate that is above the underlying rate of inflation and equal to the rate of increase in pay-as-you-go programs. If 95% of the households are earning less money when adjusted for inflation, and their wealth has also declined or stagnated, then how can we pay for programs which expand by 6% or more every year? The short answer is you can’t.

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Are we going to add this to the cost of Harvey?

US Fuel Shortages From Harvey To Hamper Labor Day Travel (R.)

Travelers and fuel suppliers across the United States braced for higher prices and shortages ahead of the Labor Day holiday weekend as the country’s biggest fuel pipelines and refineries curb operations after Hurricane Harvey. Just six days after Harvey slammed into the heart of the U.S. energy industry in Texas, the effects are being felt not just in Houston, but also in Chicago and New York, and prices at the pump nationwide have hit a high for the year. Supply shortages have developed even though there are nearly a quarter of a billion barrels of gasoline stockpiled in the United States. But much of it is held in places where it cannot be accessed due to massive floods, or too far away from the places it is needed. Some of it is unfinished, meaning it needs to be blended before it can go to gas stations.

Harvey has highlighted another weakness in the system: pipeline terminals typically only have a five-day supply in storage to load into the lines. Some of the biggest pipelines in the United States, supplying the northeast market and the Chicago area, have already shut down or reduced operations because they have no fuel to pump. “Gasoline is very much a ‘just-in-time’ fuel, for as many million barrels as they think we have,” said Patrick DeHaan, petroleum analyst at GasBuddy. “Sure, they are somewhere, but they still have to be mixed and blended together.” At least two East Coast refiners, including Philadelphia Energy Solutions and Irving Oil, have already run out of gasoline for immediate delivery as they have rushed to send supplies to the U.S. Southeast, Caribbean, Mexico and South America to offset the lack of exports since Harvey.

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Lock them up!

Wells Fargo Says 3.5 Million Accounts Involved In Scandal (AP)

The scope of Wells Fargo’s fake accounts scandal grew significantly on Thursday, with the bank now saying that 3.5 million accounts were potentially opened without customers’ permission between 2009 and 2016. That’s up from 2.1 million accounts that the bank had cited in September 2016, when it acknowledged that employees under pressure to meet aggressive sales targets had opened accounts that customers might not have even been aware existed. People may have had different kinds of accounts in their names, so the number of customers affected may differ from the account total. Wells Fargo said Thursday that about half a million of the newly discovered accounts were missed during the original review, which covered the years 2011 to 2015.

After Wells Fargo acknowledged the fake accounts last year, evidence quickly appeared that the sales practices problems dated back even further. So Wells Fargo hired an outside consulting firm to analyze 165 million retail bank accounts opened between 2009 and 2016. Wells said the firm found that, along with the 2.1 million accounts originally disclosed, 981,000 more accounts were found in the expanded timeline. And roughly 450,000 accounts were found in the original window. The scandal was the biggest in Wells Fargo’s history. It cost then-CEO John Stumpf his job, and the bank’s once-sterling industry reputation was in tatters. The company ended up paying $185 million to regulators and settled a class-action suit for $142 million. New managers have been trying to amends with customers, politicians and the public.

But it’s been tough, as new revelations keep coming. Wells Fargo said last month that roughly 570,000 customers were signed up for and billed for car insurance that they didn’t need or necessarily know about. Many couldn’t afford the extra costs and fell behind in their payments, and in about 20,000 cases, cars were repossessed. Other customers have filed lawsuits against Wells Fargo saying they were victims of unfair overdraft practices. Wells Fargo is also still under several investigations for its sales practices problems, including a congressional inquiry and one by the Justice Department. Wells Fargo said Thursday that of the 3.5 million accounts potentially opened without permission, 190,000 of those incurred fees and charges. That’s up from 130,000 that the bank originally said. Wells Fargo will refund $2.8 million to customers, in addition to the $3.3 million it already agreed to pay.

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Wise.

World’s Biggest Wealth Fund Reveals Bleak View on Global Trade (BBG)

Yngve Slyngstad, chief executive officer of Norges Bank Investment Management, as the fund is known, says the heyday of cross-border trade is probably behind us. “The question investors are asking themselves is if the easy wins already have been made,” Slyngstad said in an Aug. 29 interview from his office on the top floor of Norway’s central bank in Oslo. “The global supply chains have in a way had a one-time gain primarily through outsourcing of multinationals to China.” Norway’s wealth fund owns 1.3% of globally listed stocks, spread out over almost 80 countries. And with interest rates at record lows, the investor has cut its long-term return expectations to about 3% from 4%, even after winning approval from parliament to raise its share of equities to 70% from 60%.

Slyngstad, who became CEO in 2008 just as the global economy was sinking into the worst crisis since the Great Depression, noted that back then the fund rode out the turmoil by dumping bonds and buying stocks. “I don’t expect that we will act differently in any similar crisis in the future,” he said. During a recent conference on globalization, the fund’s chief strategist, Bjorn Erik Orskaug, suggested the world might be at an “inflection point” in trade, with shallower value chains and less cross-border production. And then there’s the protectionist agenda some governments are pursuing. “Is there also a political situation that could make it more challenging?” Slyngstad said. “Time will tell, but there’s of course a risk on the horizon.” He says the wealth fund’s extremely long-term investment timeline allows it to look past the noise coming from governments that come and go.

The fund will probably stay over-weighted in Europe, where it’s more of an active investor. But the only two economies that really matter are the U.S. and China, Slyngstad said. [..] As the fund approaches $1 trillion in value, its stated goal is to safeguard today’s oil wealth for future generations of Norwegians. It has surged in size since its inception two decades ago, generating an annual nominal return of 5.89%. Norway’s government last year started taking cash out of the fund for the first time, to make up for lower oil revenue. Withdrawals are set to hit about 72 billion kroner ($9.3 billion) in 2017, and remain at that level in coming years amid stricter fiscal rules.

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Once the creative accounting is removed, there won’t be much left.

New Math Deals Minnesota’s Pensions the Biggest Hit in the US (BBG)

Minnesota’s debt to its workers’ retirement system has soared by $33.4 billion, or $6,000 for every resident, courtesy of accounting rules. The jump caused the finances of Minnesota’s pensions to erode more than any other state’s last year as accounting standards seek to prevent governments from using overly optimistic assumptions to minimize what they owe public employees decades from now. Because of changes in actuarial math, Minnesota in 2016 reported having just 53% of what it needed to cover promised benefits, down from 80% a year earlier, transforming it from one of the best funded state systems to the seventh worst, according to data compiled by Bloomberg. “It’s a crisis,” said Susan Lenczewski, executive director of the state’s Legislative Commission on Pensions and Retirement.

The latest reckoning won’t force Minnesota to pump more taxpayer money into its pensions, nor does it put retirees’ pension checks in any jeopardy. But it underscores the long-term financial pressure facing governments such as Minnesota, New Jersey and Illinois that have been left with massive shortfalls after years of failing to make adequate contributions to their retirement systems. The Governmental Accounting Standards Board’s rules, ushered in after the last recession, were intended to address concern that state and city pensions were understating the scale of their obligations by counting on steady investment gains even after they run out of cash – and no longer have money to invest. Pensions use the expected rate of return on their investments to calculate in today’s dollars, or discount, the value of pension checks that won’t be paid out for decades.

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Everybody wants their share of the pie.

Six Big Banks To Create A Blockchain-Based Cash System (R.)

Six new banks have joined a UBS-led effort to create a digital cash system that would allow financial markets to make payments and settle transactions quickly via blockchain technology. The group aims to launch the system late next year. Barclays, Credit Suisse, Canadian Imperial Bank of Commerce, HSBC, MUFG and State Street have joined the group developing the “utility settlement coin” (USC), a digital cash equivalent of each of the major currencies backed by central banks, UBS said on Thursday. The group is in discussions with central banks and regulators and is aiming for a “limited ’go live’” in the latter part of 2018, UBS’s head of strategic investment and fintech innovation told the Financial Times.

The Swiss bank first launched the concept in September 2015 with London-based blockchain company Clearmatics, and was later joined on the project by BNY Mellon, Deutsche Bank, Santander and brokerage ICAP. The USC would be convertible at parity with a bank deposit in the corresponding currency, making it fully backed by cash assets at a central bank. Spending a USC would be the same as spending the real currency it is paired with. Blockchain works as a tamper-proof shared ledger that can automatically process and settle transactions using computer algorithms, with no need for third-party verification. Because it does not require manual processing, nor authentication through intermediaries, the technology can make payments faster, more reliable and easier to audit.

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Better talk with him.

Putin Warns Of ‘Major Conflict’ Over North Korea, Urges Talks (AFP)

Russian President Vladimir Putin warned Friday of a “major conflict” looming on the Korean Peninsula, calling for talks to alleviate the crisis after Pyongyang fired a missile over Japan this week. “The problems in the region will only be solved via direct dialogue between all concerned parties, without preconditions,” Putin said. “Threats, pressure and insulting and militant rhetoric are a dead end,” a statement from his office said, adding that heaping additional pressure on North Korea in a bid to curb its nuclear programme was “wrong and futile.” Tensions on the Korean Peninsula are at their highest point in years after a series of missile tests by Pyongyang.

Early on Tuesday, the reclusive state fired an intermediate-range Hwasong-12 over Japan, prompting US President Donald Trump to insist that “all options” were on the table in an implied threat of pre-emptive military action. The UN Security Council denounced North Korea’s latest missile test, unanimously demanding that Pyongyang halt the programme. US heavy bombers and stealth jet fighters took part in a joint live fire drill in South Korea on Thursday, intended as a show of force against the North, Seoul said. Putin said he feared the peninsula was “on the verge of a major conflict” and called for all sides to sign up to a mediation programme drawn up by Moscow and Beijing. He echoed comments by Foreign Minister Sergei Lavrov who in a Wednesday telephone call with US counterpart Rex Tillerson “underscored… the need to refrain from any military steps that could have unpredictable consequences.”

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Prime candidate for worst report ever. The Independent tweeetd: “12 Nobel Prize winners just warned Trump is one of the gravest threats to humanity “. But that’s not what the article by the Press Association says. It says two.

Trump, Nuclear War And Climate Change Among Gravest Threats To Humanity (PA)

Nobel Prize winners consider nuclear war and US President Donald Trump as among the gravest threats to humanity, a survey has found. More than a third (34%) said environmental issues including over-population and climate change posed the greatest risk to mankind, according to the poll by Times Higher Education and Lindau Nobel Laureate Meetings. But amid rising tensions between the US and North Korea, almost a quarter (23%) said nuclear war was the most serious threat. Of the 50 living Nobel Prize winners canvassed, 6% said the ignorance of political leaders was their greatest concern – with two naming Mr Trump as a particular problem. Peter Agre, who won the Nobel Prize for chemistry in 2003, described the US President as “extraordinarily uninformed and bad-natured”. He told Times Higher Education: “Trump could play a villain in a Batman movie – everything he does is wicked or selfish.”

Laureates for chemistry, physics, physiology, medicine and economics took part in the survey, with some highlighting more than one threat. Peace Prize and Literature Prize recipients were not canvassed. Infectious diseases and drug resistance were considered the gravest threats to humankind by 8% of respondents, while 8% cited selfishness and dishonesty and 6% cited terrorism and fundamentalism. Another 6% spoke of the dangers of “ignorance and the distortion of truth”. Despite high-profile figures Elon Musk and Professor Stephen Hawking expressing concern about the dangers associated with artificial intelligence, just two of those surveyed identified it as among the biggest threats facing humans.

John Gill, editor of Times Higher Education, said the survey offers “a unique insight into the issues that keep the world’s greatest scientific minds awake at night”. He said: “There is a consensus that heading off these dangers requires political will and action, the prioritisation of education on a global scale, and above all avoiding the risk of inaction through complacency.”

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Stockholm Syndrome?

Greece Doesn’t Want Any More Rescues – But It Does Need Something Else (CNBC)

Greece wants nothing more than to avoid another bailout — which means it needs debt relief. And so far, that’s the sticking point. “There is now light at the end of the tunnel,” Greek Finance Minister Euclid Tsakalotos said hopefully in June. After months of wrangling, the European Union and International Monetary Fund had just agreed to release more rescue funds to the perennially troubled nation, bringing the total from its third bailout alone to €40.2 billion ($47.75 billion). Euro zone finance ministers took very light steps toward debt relief at that time — they said they were willing to keep deferring interest on financial assistance Greece had already received — but those measures fell short of the relief Greek Prime Minister Alexis Tsipras was pressing for.

The current bailout program is set to end in September of next year. Greece has been wracked by perennial financial crises since 2010, and it even appeared at risk of leaving the euro zone altogether in 2015. Tsipras’s objective is to re-gain full market access to international bond markets and to leave institutional help behind, so the subject of long-term debt is one that will continue to dominate discussions as it draws closer to September 2018. In July, Greece dipped into bond markets after a 3-year hiatus, issuing 5-year debt at an average yield of 4.66%. Greece is expected to return to the market again in the next 12 months. But Greece’s debt isn’t manageable in the long-run without being either extended or forgiven, according to the IMF, which is pressing for easier budgetary targets for Greece while simultaneously undertaking reforms.

Its European creditors currently require it to achieve a primary surplus before debt service of 3.5% of gross domestic product. The ECB has also been emphatic that it will not include Greek government bonds in its own debt-buying mechanism, the Public Sector Purchase Program. In a June letter, ECB President Mario Draghi ruled out that possibility, saying the central bank’s staff wasn’t in a position to fully analyze Greece’s public debt. Analysts at Barclays have estimated that the inclusion of Greek debt into ECB’s bond-buying program would entail monthly purchases of around 115 million euros ($136.5 million).

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Not looking good.

Hurricane Irma Turning Into Monster (ZH)

Hurricane Irma continues to strengthen much faster than pretty much any computer model predicted as of yesterday or even this morning. Per the National Hurricane Center’s (NHC) latest update, Irma is currently a Cat-3 storm with sustained winds of 115 mph but is expected to strengthen to a devastating Cat-5 with winds that could top out at 180 mph or more. Longer term computer models still vary widely but suggest that Irma will make landfall in the U.S. either in the Gulf of Mexico or Florida. Meteorological Scientist Michael Ventrice of the Weather Channel is forecasting windspeeds of up to 180 mph, which he described as the “highest windspeed forecasts I’ve ever seen in my 10 yrs of Atlantic hurricane forecasting.”

In a separate tweet, Ventrice had the following troubling comment: “Wow, a number of ECMWF EPS members show a maximum-sustained windspeed of 180+mph for #Irma, rivaling Hurricane #Allen (1980) for record wind”. The Weather Channel meteorologist also calculated the odds for a landfall along the eastern seaboard at 30%. Meanwhile, the Weather Channel has the “most likely” path of Irma passing directly over Antigua, Puerto Rico and Domincan Republic toward the middle of next week.

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Aug 102016
 
 August 10, 2016  Posted by at 9:35 am Finance Tagged with: , , , , , , , , , , ,  Comments Off on Debt Rattle August 10 2016
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Lewis Wickes Hine Workshop of Sanitary Ice Cream Cone Co., OK City 1917

Bank Of England Suffers Stunning Failure On Second Day Of QE (ZH)
Bank of England QE and the Imaginary “Brexit Shock” (AM)
Negative-Yield Debt Is Doing The Opposite Of What It Was Supposed To Do (CNBC)
The Private Pain of China’s Economy (WSJ)
Oil Companies Face $110 Billion Debt Wall Over Next 5 Years (BBG)
The Problem With Europe Is The Euro (Stiglitz)
The EU Enters Its Endgame (Dowd)
Marc Faber: Tesla Shares Are Going To $0 (CNBC)
The US Public Pensions Ponzi (ZH)
Housing ‘Shell Shock’ Faces Danes Who Think Market Can Only Rise (BBG)
Call Blockchain Developers What They Are: Fiduciaries (Walch)
Construction Of Giant Dam In Canada Prompts Human Rights Outcry (G.)

 

 

Did Carney really not see this coming? That would be stunning indeed. Not hard at all to find out.

Bank Of England Suffers Stunning Failure On Second Day Of QE (ZH)

It started off well enough. On the first day of the Bank of England’s resumption of Gilt QE after the central bank had put its monetization of bonds on hiatus in 2012, bondholders were perfectly happy to offload to Mark Carney bonds that matured in 3 to 7 years. In fact, in the first “POMO” in four years, there were 3.63 offers for every bid of the £1.17 billion in bonds the BOE wanted to buy. However, earlier today, when the BOE tried to purchase another £1.17 billion in bonds, this time with a maturity monger than 15 years, something stunning happened: it suffered an unexpected failure which has rarely if ever happened in central bank history: only £1.118 billion worth of sellers showed up, meaning that the BOE’s second open market operation was uncovered by a ratio of 0.96.

Simply stated, the Bank of England encountered an offerless market. What makes this particular failure especially notable – and troubling – is that while technically uncovered sales of government securities happen frequently, and Germany is quite prominent in that regard as numerous Bund auctions have failed to find enough demand in the open market in recent years forcing the “retention” of the offered surplus, when it comes to a central bank’s buying of securities, there should be, at least in practice, full coverage of the operation as the central bank is willing and able to pay any price to sellers to satisfy its quota. For example, in today’s operation, the scarcity led to the BOE accepting all submissions, even as some investors offered prices above the prevailing market.

The highest accepted price for the 4% bond due in 2060, for example, was 194.00, compared with a weighted average of 192.152, which means that the happy seller obtained a yield well in excess of that implied by the market. And yet, despite having a completely price indiscriminate buyer, some £52 million worth of bond sellers simply refused to sell to the BOE at any price! The QE failure quickly raised alarm signals among the bond buying community. In a Bloomberg TV interview, Luke Hickmore at Aberdeen Asset Management said that “lots of people are bidding us for bonds – Mark Carney is now bidding me for bonds and he still can’t have them. The problem is he was trying to buy 15-year plus bonds today in the gilt market. That’s a really difficult area.”

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“One might as well try to improve one’s health by playing a few rounds of Russian roulette every morning before breakfast.”

Bank of England QE and the Imaginary “Brexit Shock” (AM)

For reasons we cannot even begin to fathom, Mark Carney is considered a “superstar” among central bankers. Presumably this was one of the reasons why the British government helped him to execute a well-timed exit from the Bank of Canada by hiring him to head the Bank of England (well-timed because he disappeared from Canada with its bubble economy seemingly still intact, leaving his successor to take the blame). The adulation he receives is really a major head-scratcher. What has he ever done aside from operating the “Ctrl. Prnt.” buttons? As far as we are aware, nothing. As we have discussed previously, his main legacy is that he has left Canada with one of the greatest and scariest real estate and consumer credit bubbles extant in the world today. Some accomplishment!

With respect to his economic analysis, it seems not the least bit different from the neo-Keynesian/ semi-monetarist mumbo jumbo we get to hear from central bankers everywhere. This is by the way no surprise: they’re an incestuous bunch and have largely received their education at the same institutions. Most of them seem genuinely convinced that central planning not only works, but is necessary to improve on the alleged drawbacks of an “unfettered market” (i.e., the mythical unhampered free market economy no-one alive today has ever experienced). If one looks closely at what they are actually doing, it soon becomes clear that it is in principle not much different from what John Law did in France in the early 18th century (the difference is one of degree only).

The much-dreaded “Brexit” has now given Mr. Carney the opportunity to do what he does best, namely open the monetary spigots wide. One might as well try to improve one’s health by playing a few rounds of Russian roulette every morning before breakfast.

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NIRP scares the sh*t out of people. And rightly so.

Negative-Yield Debt Is Doing The Opposite Of What It Was Supposed To Do (CNBC)

Paying someone to borrow your money sounds like a questionable idea on paper, and seems not to be working out so well in practice. Yet that’s exactly what people who buy negative-yielding bonds do: Instead of collecting payments in the form of yields, investors have to pay someone to take their cash. Investors ostensibly hope they can sell the debt elsewhere and make a profit, as prices go up when yields fall. It’s a strange arrangement that nonetheless has become policy in Japan and parts of Europe. The goal that sovereign debt issuers and central banks hope to achieve is a world where money is pushed toward risk and all that no-yielding debt causes inflation that leads to growth.

However, as the arrangement spreads around the world to the point where more than $11 trillion of global debt holds negative yields, questions are growing quickly about its efficacy. “It’s the definition of insanity: Keep doing the same thing over and again and expect a different result. That’s my assessment of central banks in a nutshell,” said Kim Rupert, managing director of global fixed income analysis at Action Economics. “I never thought I’d say that. I had a lot of respect for central bankers. But they’re getting way overindulgent with very little success as far as I can tell.”

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“..urged local officials to “chant bright songs about the China economy loudly” to boost confidence..”

The Private Pain of China’s Economy (WSJ)

Private investment is withering in China. Companies are shying away from risking their capital, discouraged by a cloudy global outlook and four years of slowing Chinese growth, intermittent deflation and conflicting policy messages. The development risks setting back Beijing’s aim to shift the economy from low-end manufacturing to the kind of high-tech industries and services that dynamic private companies tend to provide. Private investment on capital goods like factories and trucks grew by just 2.8% in the year’s first half following nearly 30% annual average growth over the past decade. In June, it fell for the first time since China started tracking the data in 2004. The July figure, to be released Aug. 12, is expected to show further weakness.

In a bid to reverse the trend, Beijing has stepped up efforts to slash red tape and reduce barriers for entrepreneurs and urged local officials to “chant bright songs about the China economy loudly” to boost confidence, according to one circular. Beijing also has tried to flood the economy with credit to compensate for the decline in private investment. It boosted total social financing, a broad measure of credit that includes both bank loans and nonbank lending, to a first-quarter record. But state banks, China’s main lenders, aren’t always cooperating. In the second quarter, state banks charged private companies interest rates that were 6 percentage points higher than for their public-sector counterparts, according to investment bank CICC. Officials at two state banks said they are careful when lending to smaller private borrowers given concerns over risk and lack of sufficient collateral.

Private companies also report more difficulty in raising informal loans from nonbank lenders, friends and relatives as bad loans increase and lenders grow more cautious. China’s leaders also have pressured state-owned firms to invest more. They responded with a 23% first-half jump in investment that helped prop up economic growth. But the strategy sidelines private companies that account for three-fifths of China’s economy and four-fifths of its workforce. “The government plans a lot of large-scale investments but rarely thinks about private investors getting squeezed out,” said Jon Chan Kung, founder of research group Beijing Anbound Information Co. “Companies are facing a lot of confusion and questions about China’s future.”

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It’s all about hoping prices will rise. If they don’t, and soon, these guys are toast.

Oil Companies Face $110 Billion Debt Wall Over Next 5 Years (BBG)

The worst may be yet to come for some strained oil services companies as $110 billion in debt, most of it junk rated, creeps closer to maturity. More than $21 billion of debt from oilfield services and drilling companies is estimated to be maturing in 2018, almost three times the total burden in 2017, according to a report from Moody’s Investors Service on Aug. 9. More than 70% of those high-yield bonds and term loans are rated Caa1 or lower, and more than 90% are rated below B1. Speculative-grade debt is becoming increasingly risky, as the default rate is expected to reach 5.1% in November, according to a separate Moody’s report.

The 12-month global default rate rose to 4.7% in July, up from its long-term average of 4.2%, Moody’s wrote. Of the 102 defaults this year, 49 have come from the oil and gas sector, Moody’s noted. “While some companies will be able to delay refinancing until business conditions improve, for the lowest-rated entities, onerous interest payments and required capital expenditure will consume cash balances and challenge their ability to wait it out,” Morris Borenstein, an assistant vice president at Moody’s, said in the report.

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The problem is the silly assumptions it was built on.

The Problem With Europe Is The Euro (Stiglitz)

Advocates of the euro rightly argue that it was not just an economic project that sought to improve standards of living by increasing the efficiency of resource allocations, pursuing the principles of comparative advantage, enhancing competition, taking advantage of economies of scale and strengthening economic stability. More importantly, it was a political project; it was supposed to enhance the political integration of Europe, bringing the people and countries closer together and ensuring peaceful coexistence. The euro has failed to achieve either of its two principal goals of prosperity and political integration: these goals are now more distant than they were before the creation of the eurozone. Instead of peace and harmony, European countries now view each other with distrust and anger.

Old stereotypes are being revived as northern Europe decries the south as lazy and unreliable, and memories of Germany’s behaviour in the world wars are invoked. The eurozone was flawed at birth. The structure of the eurozone – the rules, regulations and institutions that govern it – is to blame for the poor performance of the region, including its multiple crises. The diversity of Europe had been its strength. But for a single currency to work over a region with enormous economic and political diversity is not easy. A single currency entails a fixed exchange rate among the countries, and a single interest rate. Even if these are set to reflect the circumstances in the majority of member countries, given the economic diversity, there needs to be an array of institutions that can help those nations for which the policies are not well suited.

Europe failed to create these institutions. Worse still, the structure of the eurozone built in certain ideas about what was required for economic success – for instance, that the central bank should focus on inflation, as opposed to the mandate of the Federal Reserve in the US, which incorporates unemployment, growth and stability. It was not simply that the eurozone was not structured to accommodate Europe’s economic diversity; it was that the structure of the eurozone, its rules and regulations, were not designed to promote growth, employment and stability. Why would well-intentioned statesmen and women, attempting to forge a stronger, more united Europe, create something that has had the opposite effect? The founders of the euro were guided by a set of ideas and notions about how economies function that were fashionable at the time, but that were simply wrong.

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Strong by Kevin Dowd: “..what is the point of her insisting that the UK maintain completely open borders with the EU when nearly a dozen continental EU members no longer do so?”

The EU Enters Its Endgame (Dowd)

The list of countries with strong sentiment for their own Exit votes is a long one: according to a recent opinion poll, over half of the French and Italian electorates want their own exit referenda, and around 40% of the Swedish, Belgian, German, Hungarian, Polish and Spanish electorates want them. There is also strong support in Austria, Denmark, Finland, the Netherlands, Portugal, Slovakia and Sweden. Other opinion polls suggest even stronger support, but by my count, there is strong support for exit referenda in at least 16 of the 28 member countries of the EU—and then there is Greece, which has its own bone or two to pick with the EU.

Further afield, there were calls for secessionist votes in the United States and the Canadian Prime Minister was soon fending off calls for a Quexit vote. The cat is well and truly out of Pandora’s bag. The issues now are not whether there will be a similar referendum in another country but rather which country will be next and then how many will follow after that. Brexit was merely the first domino. The EU will not survive the process—and by that I do not mean that it will not survive in its current form, which is obvious—I mean that it will not survive at all. The EU “project”—the attempt to establish a federalist European superstate against the wishes of many of its subjects—has failed and the EU itself is unraveling. The only question now is how unpleasant the endgame will be.

[..] A week or so ago, I saw the German Chancellor on the news again repeat her mantra that the UK will only have access to the Single Market if it complies with her demand that it maintain free movement of peoples across what is still now the EU. I found myself scratching my head. Memo to Planet Merkel: does she not see that free movement no longer exists? Schengen has largely broken down: border controls within the EU are already a reality and the Nordics are preparing or already have plans to impose further controls to prevent their welfare states being overwhelmed by migrants. So would someone please explain to me: what is the point of her insisting that the UK maintain completely open borders with the EU when nearly a dozen continental EU members no longer do so?

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“Anybody in the world can make it eventually, at much lower cost and probably much more efficiently..”

Marc Faber: Tesla Shares Are Going To $0 (CNBC)

Marc Faber, editor of the Gloom, Boom & Doom Report, is well-known his perennially bearish take on the overall market. But there are also some specific stocks of which the investor known as “Dr. Doom” takes a particularly dim view – and right now, prime among those is Tesla. “What they produce can be produced by Mercedes, BMW, Toyota, Nissan. Anybody in the world can make it eventually, at much lower cost and probably much more efficiently,” Faber said Monday on CNBC’s “Trading Nation.”

“The market for Toyota and these large automobile companies is simply not big enough, but the moment it becomes bigger, they’ll move into the field and then Tesla will have a lot of competition.” Faber sees this increased competition causing more than a small dent in the company’s business and stock performance. “I think Tesla is a company that is likely to go to zero eventually,” Faber said.

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“Others have suggested that returns should be closer to risk-free rates which would imply an even more draconian $8.4 trillion underfunding.”

The US Public Pensions Ponzi (ZH)

Defined Benefit Pension Plans are, in many cases, a ponzi scheme. Current assets are used to pay current claims in full in spite of insufficient funding to pay future liabilities… classic Ponzi. But unlike wall street and corporate ponzi schemes no one goes to jail here because the establishment is complicit. Everyone from government officials to union bosses are incentivized to maintain the status quo…public employees get to sleep better at night thinking they have a “retirement plan,” public legislators get to be re-elected by union membership while pretending their states are solvent and union bosses get to keep their jobs while hiding the truth from employees.

We even published a note several days ago entitled “Establishment Tries To Suppress “Dissident Actuaries” Explosive Report On Public Pensions,” which pointed out that the American Academy of Actuaries and the Society of Actuaries killed a report that would have warned about the implications of lowering long-term expected returns on pension assets. Apparently the truth was just too scary. Bill Gross has been warning of the unintended consequences of low interest rates for years, and reiterated his concerns to Bloomberg recently: “Fund managers that have been counting on returns of 7% to 8% may need to adjust that to around 4%, Gross, who runs the $1.5 billion Janus Global Unconstrained Bond Fund, said. Public pensions, including the California Public Employees’ Retirement System, the largest in the U.S., are reporting gains of less than 1% for the fiscal year ended June 30.”

To our great surprise, certain pension funds are finally taking notice. Richard Ingram of Illinois’s largest pension fund recently announced that he would be taking another look at long-term return expectations noting that “anybody that doesn’t consider revisiting what their assumed rate of return is would be ignoring reality.” Ingram’s Illinois Teachers’ Retirement System is only 41.5% funded and currently assumes annual returns of 7.5%, down from 8% in 2014. We decided to take a look at what would happen if all federal, state and local pension plans decided to heed the advice of Mr. Gross. As one might suspect, the results are not pleasant.

We conservatively assume that public pensions are currently $2.0 trillion underfunded ($4.5 trillion of assets for $6.5 trillion of liabilities) even though we’ve seen estimates that suggest $3.5 trillion or more might be more appropriate. We then adjusted the return on asset assumption down from the 7.5% used by most pensions to the 4.0% suggested by Mr. Gross and found that true public pension underfunding could be closer to $5.5 trillion, or over 2.5x more than current estimates. Others have suggested that returns should be closer to risk-free rates which would imply an even more draconian $8.4 trillion underfunding.

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There’s lots of this in Europe.

Housing ‘Shell Shock’ Faces Danes Who Think Market Can Only Rise (BBG)

Denmark’s biggest mortgage bank is urging homeowners to remember that a seemingly unstoppable series of price gains can end, and even go into reverse. At Nykredit, chief analyst Mira Lie Nielsen says Danes need to start putting the possibility of housing price declines “on their radars” or risk going into “shell shock when it happens.” “Our expectation isn’t that home prices will fall in the near future, but it’s important to say, again and again, that especially apartment prices can also fall,” Nielsen said in an e-mail. After almost half a decade of negative interest rates, many homeowners in Denmark are being paid to borrow, excluding bank fees.

Most analysts estimate Danish rates won’t go positive until 2018 at the earliest, threatening to create an atmosphere of complacency as borrowers take on bigger mortgages based on assumptions that low rates are here to stay. Home prices rose an annual 4.5% across Denmark in July, according to Boligsiden.dk, a web portal that tracks the property market. Copenhagen apartment prices soared 9.4%, underpinning the “continued need to be particularly aware” of the potential risks, Nielsen said. “Prices for city dwellings are at a markedly higher level today and are in a range where few people who aren’t already benefiting from the price gains can join in,” Nielsen said.

“So the price level is playing its own damping role on the market, because incomes haven’t quite been able to keep up. This is already visible in Copenhagen.” Apartment prices in Denmark are about 5% above their 2006 peak, according to the latest data from Statistics Denmark. Back then, the country’s bubble burst and apartment prices slumped about 30% through 2009. But there’s also a flip side to record-low interest rates. Banks have suffered fewer writedowns as borrowers find it easier to repay cheaper loans. The number of homeowners unable to honor their mortgage commitments is falling, with just 0.19% failing to meet payment deadlines in the first quarter, according to industry data published on Tuesday.

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“..the romance of decentralization..”

Call Blockchain Developers What They Are: Fiduciaries (Walch)

The recent hack of the DAO (short for Decentralized Autonomous Organization) and the subsequent reversal of funds on Ethereum’s blockchain should finally put an end to a decentralization charade. People are, in fact, governing public blockchains, and we need to be able to trust them. From the beginning, the core developers (who write, evaluate and modify the software code) and the powerful miners (holders of significant chunks of computing power within the network) have been the governing bodies of these so-called decentralized systems. Yet the romance of decentralization – with the seductive idea that we don’t have to trust anyone because no human is doing anything – has allowed many to overlook this important truth.

In the techno-utopian world of blockchain technology, it has become fashionable to proclaim that software code and its operation can replace the need for human governance. Hence, the push toward “decentralized autonomous organizations,” which are essentially corporations run through code rather than by people. The first of these, the DAO, began operating in May 2016, raising $150 million from investors to operate as a venture fund for blockchain technology. The DAO is just software, coded by an ambitious group at the company Slock.It. It was embarrassingly compromised through a computer hack for $60 million within a month of its inception.

The theft’s fallout has been dramatic. Since the DAO was built on the Ethereum blockchain, everyone involved with the technology was affected: DAO investors, owners of ether (the cryptocurrency of Ethereum) and anyone building anything on Ethereum, which has sought to be a platform for so-called smart contracts. This raised serious questions like: Should folks try to get the stolen ether back? Should they leave it be, as the hack was simply an exploitation of a bug in the purportedly unstoppable code?

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“The rivers are the arteries of the Earth. When we block them up, the earth becomes unhealthy.”

Construction Of Giant Dam In Canada Prompts Human Rights Outcry (G.)

Human rights campaigners are calling on Canadian authorities to halt construction of a huge hydroelectric dam in western Canada over concerns that the mega-project tramples on the rights of indigenous peoples in the area. A global campaign launched by Amnesty International on Tuesday called on the federal government and the provincial government of British Columbia to withdraw all permits and approvals for the Site C hydroelectric dam, a C$9bn project that will see more than 5,000 hectares (12,350 acres) of land – roughly equivalent to about 5,000 rugby fields – flooded in north-east British Columbia. The land is part of the traditional territories of indigenous peoples in the region, said Craig Benjamin of Amnesty International Canada.

“It’s an area that people have used for thousands upon thousands of years. Their ancestors are buried in the land; there are hundreds of unique sites of cultural importance; there is cultural knowledge of how to live on land that is associated with this specific spot.” Many continue to rely on the land to hunt, fish, plant medicines, gather berries and conduct ceremonies. “There are really few other places where they can go to practice their culture and to exercise their rights because this is a region that has been so heavily impacted by large-scale resource development.” Amid protests by several First Nations groups, the project was approved by provincial and federal authorities in 2014, allowing preparatory work to begin last summer.

Earlier this year, as clear-cutting began in the area, part of the construction was held up by a protest camp set up by indigenous activists. “This is home,” said Helen Knott, one of the half a dozen protesters who occupied the site. “The rivers are the arteries of the Earth. When we block them up, the earth becomes unhealthy. It’s about being able to protect something to pass on to our children.” After two months in the snow and braving temperatures that dropped as low as -20C, a provincial court ordered them to dismantle the camp.

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Jun 182016
 
 June 18, 2016  Posted by at 8:41 am Finance Tagged with: , , , , , , , , ,  Comments Off on Debt Rattle June 18 2016
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Harris&Ewing F Street N.W., Washington, DC 1918

Stocks Slump Most In 4 Months As Global Financial Stress Nears 5-Year Highs (ZH)
The Fed And Other Central Banks Have Lost Their Magic Powers (Das)
ECB Closes Ranks With Bank Of England To Avert Brexit Crunch (AEP)
Canada’s Housing ‘Affordability Crisis’ Fueled By Overseas Money: Trudeau (G.)
Rio State Declares ‘Public Calamity’ Over Finances Weeks Before Olympics (BBC)
Japan: A Future of Stagnation (CH Smith)
EU Is Too Big and ‘Sinking’, UK Should Leave (CNBC)
Money and Banking, Keen and Krugman (Legge)
All You Need To Know About Blockchain, Explained Simply (WEF)
Digital Currency Ethereum Is Cratering Because Of A $50 Million Hack (BI)
German Minister Criticises ‘Warmongering’ NATO (BBC)
Greece Sidelines Officials Who Blocked Expulsion Of Refugees To Turkey (G.)
MSF Rejects EU Funds Over ‘Shameful’ Migrant Policy (AFP)

Oh what fun it is to play….

Stocks Slump Most In 4 Months As Global Financial Stress Nears 5-Year Highs (ZH)

Global Financial Stress Index spikes up most since Aug 2011…

 

As Brexit polls surge towards "Leave"…

 

As USDollar Scarcity (panic demand) rears its ugly head again…

 

And GDP-weighted European Sovereign risk surged to 2 year highs…

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They were always only illusionary.

The Fed And Other Central Banks Have Lost Their Magic Powers (Das)

During the financial crisis of 2008-09, politicians facing difficult and electorally unpopular decisions cleverly passed the responsibility for the economy to central bankers. These policymakers accepted the task to nurse the global economy to health. But there are increasing doubts about central banks’ powers and their ability to deliver a recovery. Policymakers have engineered an artificial stability. Budget deficits, low-, zero-, and now negative interest rates , and quantitative easing (QE) have not restored global growth or increased inflation to levels necessary to bring high-debt under control. Instead, low rates and the suppression of volatility have encouraged asset-price booms in many world markets.

Since prices of assets act as collateral for loans, central banks are being forced to support these inflated values because of the potential threat to financial institutions holding the debt. As the tried and tested policies lose efficacy, new unconventional initiatives have been viewed by markets with increasing suspicion and caution. Key to this debate is negative interest rate policy (NIRP), now in place in Europe and Japan, and most recently affecting German bonds. Markets do not believe that NIRP will create the borrowing-driven consumption and investment that generates economic activity. Existing high-debt levels, poor employment prospects, low rates of wage growth, and overcapacity have lowered potential growth rates, sometimes substantially.

NIRP is unlikely to create inflation for the same reasons, despite the stubborn belief among economic clergy that increasing money supply can and will ultimately always create large changes in price levels. There are toxic by-products to this policy. Low- and negative rates threaten the ability of insurance companies and pension funds to meet contracted retirement payments. Bank profitability also has been adversely affected. Potential erosion of deposits may reduce banks’ ability to lend and also reduce the stability of funding.

The capacity of NIRP to devalue currencies to secure export competitiveness is also questionable. The euro, yen and Swiss franc have not weakened significantly so far, despite additional monetary accommodation. One reason is that these countries have large current account surpluses: the eurozone (3.0% of GDP), Japan (2.9% of GDP), and Switzerland (12.5% of GDP). The increasing ineffectiveness of NIRP in managing currency values reflects the fact that the underlying problem of global imbalances remains unresolved.

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Crumbling.

ECB Closes Ranks With Bank Of England To Avert Brexit Crunch (AEP)

The European Central Bank has pledged to flood the financial system with euro liquidity if credit markets seize up after a Brexit vote. The move came as European bank stocks plummeted across the board for another day, the epicentre of stress as nerves fray over the potential fall-out from British referendum. The Euro Stoxx index of bank equities fell to a four-year low, and is nearing levels last seen in during the eurozone debt crisis in 2012. Europe’s banks have lost half their value in the last year. “We have taken the necessary precautionary measures to meet liquidity needs,” said Ewald Nowotny, Austria’s central bank governor and an ECB board member. “We have assured that there will be no liquidity bottlenecks, either among English banks or European banks, if it becomes necessary,” he said.

The soothing words put to rest any fear that the ECB might withhold full cooperation from the Bank of England in the poisonous political mood after a withdrawal vote. A spat might have sparked fears of a funding crunch for international banks in the City of London with short term debts in foreign currencies. The Bank of England cannot print euros or dollars. The world’s central banks tend to work closely together as an Olympian fraternity, knowing that their fates are bound together regardless of the political fighting around them. The US Federal Reserve and the central banks of Japan, Switzerland, Sweden, and Canada are all working as tightknit team with the Bank of England and the ECB, determined to avoid being caught off guard as they were when the payments system went into meltdown after the Lehman crisis.

[..] German banks are in surprisingly deep trouble, struggling with the corrosive effects of negative interest rates on their profit margins. But Italian lenders worry regulators most as tougher capital adequacy rules come into force, and the eurozone’s new ‘bail-in’ policy for creditors turns the sector into a lepers’ colony. The non-performing loans of Italian banks have reached 18pc of their balance sheets, the legacy of Italy’s economic Lost Decade. This is coming into focus as premier Matteo Renzi bleeds support and risks losing a make-or-break referendum in October.

Euro Intelligence reports that he faces an “insurrection” after ex-premier Massimo D’Alema – supposedly a Renzi ally – said he has switched his support to the radical Five Star movement of comedian Beppe Grillo. It is no longer implausible to imagine a Five Star government in charge of Italy within months, setting off a political earthquake. The picture is equally dramatic in Spain where the ultra-Left Podemos coalition has pulled well ahead of the establishment Socialist Party (PSOE) in the polls and has an outside chance of winning the elections on June 26, opening the way for an anti-austerity government in Madrid. The possibility of a ‘Syriza-style’ rebellion in Spain is viewed with horror in Brussels.

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No shit, Justin.

Canada’s Housing ‘Affordability Crisis’ Fueled By Overseas Money: Trudeau (G.)

An influx of capital from Asia is partly responsible for soaring housing prices in Vancouver and Toronto, Justin Trudeau has said, as a new study showed more than 90% of all detached homes in Vancouver are now worth more than C$1m($772,141). “We know that there is an awful lot of capital that left Asia in the past few years,” Canada’s prime minister told public broadcaster CBC on Friday. “Obviously overseas money coming in is playing a role” in Canada’s housing affordability crisis, he said. Trudeau provided no supporting data Friday to back up his remarks, although his government set aside funds to study the widespread perception that overseas investors and speculators are to blame for Canada’s housing bubble.

Concern over the overheated property market has focused on Vancouver, where the proportion of million-dollar homes in the city has climbed this year to 91%. The figure marks a leap from two years ago, when around 59% of houses were worth a million or more, according to the study by Andy Yan, acting director of Simon Fraser University’s City Program. “This shows how what used to be the earnest product of a lifetime of local work is perhaps quickly becoming a leveraged and luxurious global commodity,” Yan said. The median household income in Vancouver, meanwhile, rose just 8.6% between 2009 to 2013, according to the most recent data from Statistics Canada. Adjusted for inflation, it would be about C$77,000 a year in 2016.

That puts typical incomes well below the threshold needed to purchase million-dollar homes, said Yan, noting other factors must be driving the sharp increase in home values in Vancouver. “It’s global cash, meeting cheap money, meeting limited supply,” he said, adding that all three factors are working to “magnify each other” and drive further speculation.

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To quote myself: “You sure about those Olympics?”

Rio State Declares ‘Public Calamity’ Over Finances Weeks Before Olympics (BBC)

The Brazilian state of Rio de Janeiro has declared a financial emergency less than 50 days before the Olympics. Interim Governor Francisco Dornelles says the “serious economic crisis” threatens to stop the state from honouring commitments for the Games. Most public funding for the Olympics has come from Rio’s city government, but the state is responsible for areas such as transport and policing. Interim President Michel Temer has promised significant financial help. The governor has blamed the crisis on a tax shortfall, especially from the oil industry, while Brazil overall has faced a deep recession.

The measure could accelerate the release of federal emergency funds. Rio state employees and pensioners are owed wages in arrears. Hospitals and police stations have been severely affected. In a decree, Mr Dornelles said the state faced “public calamity” that could lead to a “total collapse” in public services, such as security, health and education. He authorised “exceptional measures” to be taken ahead of the Games that could impact “all essential public services”, but no details were given.

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Make that the entire western world.

Japan: A Future of Stagnation (CH Smith)

One of our longtime friends in Japan just sold the family business. The writing was on the wall, and had been for the past decade: fewer customers, with less money, and no end of competition for the shrinking pool of customers and spending. Our friend is planning to move to another more vibrant economy in Asia. She didn’t want to spend the rest of her life struggling to keep the business afloat. She wanted to have a family and a business with a future. It was the right decision, not only for her but for her family: get out while there’s still some value in the business to sell. [..] The Keynesian Fantasy is that encouraging people to borrow money to replace what they no longer earn is a policy designed to fail, and fail it has.

Borrowing money incurs interest payments, which even at low rates of interest eventually crimps disposable earnings. Banks must loan this money at a profit, so interest rates paid by borrowers can’t fall to zero. If they do, banks can’t earn enough to pay their operating costs, and they will close their doors. If banks reach for higher income, that requires loaning money to poor credit risks and placing risky bets in financial markets. Once you load them up with enough debt, even businesses and wage earners who were initially good credit risks become poor credit risks. Uncreditworthy borrowers default, costing the banks not just whatever was earned on the risky loans but the banks’ capital.

The banking system is designed to fail, and fail it does. Japan has played the pretend-and-extend game for decades by extending defaulting borrowers enough new debt to make minimal interest payments, so the non-performing loan can be listed in the “performing” category. Central banks play the game by lowering interest rates so debtors can borrow more. This works like monetary cocaine for a while, boosting spending and giving the economy a false glow of health, but then the interest payments start sapping earnings, and once the borrowed money has been spent/squandered, what’s left is the interest payments stretching into the future.

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“These opportunities come along once in a generation where people actually get to vote on what they want.”

EU Is Too Big and ‘Sinking’, UK Should Leave (CNBC)

The European Union is too big and is “sinking,” and the United Kingdom should take the chance to get out while it can, economist David Malpass said Friday. British citizens vote next Thursday on whether the U.K. should exit the union. “The EU is just too big. It’s too expensive. It doesn’t work,” the president of Encima Global said in an interview with CNBC’s “Power Lunch.” “They haven’t even made progress on their mission, which was fiscal responsibility, banking reforms, defending the external borders. They’re just not doing the job.” He believes the Brits should not squander the opportunity, noting that the last referendum the country held was in 1975. “These opportunities come along once in a generation where people actually get to vote on what they want.”

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More on an old feud.

Money and Banking, Keen and Krugman (Legge)

Keen carved out a major distinction between his approach and that of Krugman, but also of that of many of the economists who agree that money is not neutral. He argues that an increase in bank lending affects the macro economy by increasing demand. It follows that measured growth should be decomposed into workforce growth, productivity growth, and debt growth. Keen’s third term is deeply disturbing, because he goes on to argue that that a major part of the observed economic growth since 1980 has been driven by rising household debt levels.

Since all household debt involves interest, there must be a point at which households have all the debt that they can carry, and don’t take on any more. At this point, argues Keen, the affected economy will become a “debt zombie”, stuck in a low or even negative growth trajectory. Keen proposes a “debt jubilee” to write off excessive household debt and allow growth to resume. On its own, this would only postpose the debt/stagnation crisis; but perhaps after one debt jubilee they could become regular events.

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101. But nothing on security threats. Hmm.

All You Need To Know About Blockchain, Explained Simply (WEF)

Many people know it as the technology behind Bitcoin, but blockchain’s potential uses extend far beyond digital currencies. Its admirers include Bill Gates and Richard Branson, and banks and insurers are falling over one another to be the first to work out how to use it. So what exactly is blockchain, and why are Wall Street and Silicon Valley so excited about it? Currently, most people use a trusted middleman such as a bank to make a transaction. But blockchain allows consumers and suppliers to connect directly, removing the need for a third party. Using cryptography to keep exchanges secure, blockchain provides a decentralized database, or “digital ledger”, of transactions that everyone on the network can see. This network is essentially a chain of computers that must all approve an exchange before it can be verified and recorded.

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What’s that about the chain and its weakest link?

Digital Currency Ethereum Is Cratering Because Of A $50 Million Hack (BI)

The value of the digital currency Ethereum has dropped dramatically amid an apparent huge attack targeting an organisation with huge holdings of the currency. The price per unit dropped to $15 from record highs of $21.50 in hours, with millions of units of the digital currency worth as much as $50 million stolen at post-theft valuations. At a pre-theft valuation, it works out as a staggering $79.6 million. Ethereum developers have proposed a fix that they hope will neutralise the attacker and prevent the stolen funds from being spent. The core Ethereum codebase does not appear to be compromised. Ethereum is a decentralised currency like bitcoin, but it is built in such a way that it also allows for decentralised organisations to be built on top of its blockchain (the public ledger of transactions) and for smart contracts that can execute themselves automatically if certain conditions are met.

One of these organisations is the DAO, the Decentralised Autonomous Organisation, which controls tens of millions of dollars’ worth of the digital currency. ( The bitcoin news site CoinDesk has a good feature explaining more about how the DAO operates.) The DAO is sitting on 7.9 million units, known as ether, of the currency worth $132.7 million. Early Friday morning, it appears to have been hit with a devastating attack, with unidentified attackers appearing to exploit a software vulnerability and draining drain millions of ether – with a theoretical value in the tens of millions of dollars. One ether wallet identified by community members as a recipient of the apparently stolen funds holds more than 3.5 million ether. At an exchange rate of about $14 a unit, that works out at $47 million. At $21.50, the value of ether before the hack, it’s significantly more – $79.6 million.

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Germany wants to be able to talk to Russia.

German Minister Criticises ‘Warmongering’ NATO (BBC)

German Foreign Minister Frank-Walter Steinmeier has criticised Nato military exercises in Eastern Europe, accusing the organisation of “warmongering”. Mr Steinmeier said that extensive Nato manoeuvres launched this month were counterproductive to regional security and could enflame tensions with Russia. He urged the Nato military alliance to replace the exercises with more dialogue and co-operation with Russia. Nato launched a simulated Russian attack on Poland on 7 June. The two-week-long drill involves about 31,000 troops, including 14,000 from the US, 12,000 from Poland and 1,000 from the UK. It will also feature dozens of fighter jets and ships, along with 3,000 vehicles.

“What we shouldn’t do now is inflame the situation further through sabre-rattling and warmongering,” Mr Steinmeier said in an interview to be published in Germany’s Bild am Sontag newspaper. “Whoever believes that a symbolic tank parade on the alliance’s eastern border will bring security, is mistaken. “We are well-advised to not create pretexts to renew an old confrontation,” he said. The exercises are intended to test Nato’s ability to respond to threats, and take place every two years. But Russia has repeatedly said that Nato troops close to its borders are a threat to its security.

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This is serious. No sovereignty, no independent legal system, and hardly a constitution left. The political system trumps all. This is the EU. And Tsipras should never sign off on it, of course. Bus boy.

Greece Sidelines Officials Who Blocked Expulsion Of Refugees To Turkey (G.)

The Greek government has sidelined members of an independent authority that had blocked the deportation of Syrian refugees, following sustained pressure from other European countries. Greek MPs voted on Thursday to change the composition of the country’s asylum appeals board, in an attempt to sideline officials who had objected on legal grounds to the expulsion of Syrians listed for deportation to Turkey. The appeals board had jeopardised the EU-Turkey migration deal, the agreement enacted in March that is meant to see all asylum seekers landing on the Greek islands detained in Greece – and then deported. While Greek police had enacted the first part of the plan,

Greek appeals committees have largely held up the planned deportations – potentially giving Syrians greater incentive to reach Greece. The appeals committees argued that Turkey does not uphold refugee law, and is therefore not a safe country for refugees. Currently the three-person appeals committees consist of one government-appointed official, and two appointed independently by the UN refugee agency and Greece’s national committee for human rights. After pressure from European politicians who feared a new surge in arrivals to Greece, Greek MPs have voted to create new committees formed of two administrative judges and one person appointed by the UN, meaning that state officials will now outnumber independent ones on the committees.

An independent appeals committee member interviewed by the Guardian in the run-up to the law change said it was a political move designed to bend an independent judicial process to the will of the executive. Speaking on condition of anonymity, the official said the change was “a serious blow to the independence of the committee. We think like legal scientists. We have a specific view that is based on legal analysis. If we lose our [places on the committee] then the cases will be handled the way that politicians want.”

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This mirrors the long held view of our friend Kostas, who we actively support with TAE funds here in Athens: “We cannot accept funding from the EU or the Member States while at the same time treating the victims of their policies..

MSF Rejects EU Funds Over ‘Shameful’ Migrant Policy (AFP)

Aid group Doctors Without Borders said on Friday that it would no longer take funds from the EU in protest at its “shameful” policies on the migration crisis including a deal with Turkey. The charity, more widely known by its French acronym MSF, received €56 million from EU institutions and the 28 member states last year.”MSF announces today that we will no longer take funds from the EU and its Member States in protest at their shameful deterrence policies and their intensification of efforts to push people and their suffering back from European shores,” the group said in a statement. The group singled out for criticism the EU’s deal with Turkey in March to stem the biggest flow of migrants into the continent since World War II.

“For months MSF has spoken out about a shameful European response focused on deterrence rather than providing people with the assistance and protection they need,” Jerome Oberreit, international secretary general of MSF, told a press conference. “The EU-Turkey deal goes one step further and has placed the very concept of ‘refugee’ and the protection it offers in danger.” [..] Oberreit also criticised a proposal last week to make similar deals with African and Middle Eastern countries. He added: “We cannot accept funding from the EU or the Member States while at the same time treating the victims of their polices. It’s that simple.” MSF said it received €19 million from EU institutions and €37 million from member states in 2015, amounting to 8% of its funding. It added that its activities are 90% privately funded.

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 March 31, 2016  Posted by at 8:40 am Finance Tagged with: , , , , , , , , ,  5 Responses »
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DPC Station at foot of incline, American Falls, Niagara Falls 1890

Americans Are Spending Again – But With Less Income (WSJ)
Britain Sacrifices Steel Industry To Curry Favour With China (AEP)
China Produced More Steel In 2 Years Than The UK Did Since 1870 (Conway)
China Ends This Quarter With The World’s Worst-Performing Stock Market (BBG)
China Investment Bank Defaults On ‘Dim Sum’ Bond (FT)
China’s Little Emperors Prop Up Aussie Housing Market (BBG)
China’s Largest Banks Post Lowest Annual Profit In A Decade (WSJ)
Saudi Aramco Expanding Oil and Gas Projects Even With Low Prices (BBG)
The World’s Largest Public Oil And Gas Companies (Rapier)
Bitcoin Technology’s Next Big Test: Trillion-Dollar Repo Market (WSJ)
Growth Of Fintech Forecast To Spur Almost 2 Million Banking Job Cuts (FT)
The Bribe Factory – How The West Corrupts The Middle East (SMH)
Pathocracy: The Rise Of The Political Psychopath (Whitehead)
Russia Vows ‘Totally Asymmetrical’ Response To US Troop Build-Up In Europe (RT)
Sea Levels Set To ‘Rise Far More Rapidly Than Expected’
Europe Is Too Important To Be Left To Its Clueless Rulers – Varoufakis (Tel.)
Refugees Run For Rio Olympic Dream Team (AFP)
Austria To Tighten Asylum Rules (P.)
Refugee Arrivals To Greece Rise Sharply Despite EU-Turkey Deal (Reuters)

There’s one way left only in which spending today can increase: debt must increase too: “..in 2004, a typical household in the lower third had $1,500 left over after expenses. By 2014, such households were $2,300 in the red.”

Americans Are Spending Again – But With Less Income (WSJ)

U.S. household spending has fully recovered since the latest recession, but income hasn’t, squeezing budgets and pushing many lower-income families into the red, according to a Pew Charitable Trusts report out Wednesday. “The lack of financial flexibility threatens low-income households’ financial security in the short term and their economic mobility in the long term,” the report said. Pew tracked inflation-adjusted expenditures and incomes of working-age Americans, ages 20 to 60, from 1996 to 2014. The results show the downturn and recovery for spending in the aftermath of the 2007-09 recession but also highlight stagnating incomes (including wages, government benefits and transfers, pensions, child support and other sources).

The study helps illustrate broader economic themes, including a slow recovery underpinned by steady job creation and rising consumer spending, alongside paltry wage growth and growing income inequality. Pew found that as of 2014, median income before taxes had fallen by 13% from a decade earlier, while expenditures had increased by nearly 14%. That left families across the income spectrum with fewer funds for savings and investment in things like education. Housing, transportation and food drove much of the rise in spending, leaving families with less financial wiggle room. Low-income families may not see much of an alternative to spending more on shelter, commuting costs and putting food on the table. Indeed, rent is now eating up nearly half of the income of low-income families, Pew found.

“That increase in the cost for shelter is a really important piece about why families at the bottom don’t feel financially stable,” said Erin Currier, director of the financial security and mobility project at Pew. “So many families are walking a financial tightrope—their core needs are getting more expensive and incomes aren’t rising to meet those costs.” That’s left many running a personal budget deficit despite spending less on restaurants, entertainment and other discretionary goods and services. Pew’s analysis found that in 2004, a typical household in the lower third had $1,500 left over after expenses. By 2014, such households were $2,300 in the red.

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Cameron has to save face now because of the publicity on the topic.

Britain Sacrifices Steel Industry To Curry Favour With China (AEP)

Britain’s special relationship with China is becoming more expensive by the day. It now threatens to destroy the British steel industry, a foundation pillar of our manufacturing economy. Britain is not alone. Most of Europe’s steel foundries are heading for annihilation under the current EU trade regime, with unthinkable consequences through the network of European and British supply chains. It is hard to pin down the exact moment when George Osborne’s love affair with China turned into a Faustian Pact. What we know is that the British government has for the last three years been blocking efforts by the EU to equip itself with the sort of anti-dumping weaponry used by Washington to confront China. The EU trade directorate has been rendered toothless by a British veto. So much for the canard that the UK has no influence in Brussels.

“The British are sacrificing an entire European industry to say thank you to China for signing up to the nuclear power project at Hinkley Point, and pretending it is about free trade,” said one official in Brussels bitterly. What they are blocking is a change to an EU regulation intended to beef up Europe’s ‘trade defence instruments’ (TDI), enabling it to respond much more quickly to Chinese dumping and too impose much tougher penalties. The British have cobbled together a blocking minority in the council, much to the annoyance of the French, Italians, Spanish, and Germans. The UK view is that the Commission mixed up good changes with bad changes, and that punitive tariffs merely hurt your own consumers, so you shoot yourself in the foot.

Yet the outcome is that it still takes Brussels 16 months to crank up full sanctions, twice as long as it takes the US. It is why the EU limits itself to a ‘Lesser Duty’ regime that often fails to reflects the full injury. While Washington has slapped penalties of 267pc on Chinese cold-rolled steel, the EU peashooter has so far managed just 13pc. Redcar has already paid the price for this ultra-free trade ideology, and Port Talbot is about to follow. There will eventually be little left if the current drift in trade policy is allowed to continue. China’s share of global steel output has risen from 10pc to 50pc over the last decade. It has installed capacity of 1.2bn tonnes a year that it can never hope to absorb as the construction boom deflates.

On OECD estimates it has built up 400m tonnes of excess capacity, twice the EU’s entire steel production. China’s unwanted steel is finding its way systematically into Europe, greased by export subsidies, tax breaks, cheap state credit, and the panoply of measures used by a mercantilist power to rig global trade. China has captured 45pc of the UK market for high fatigue rebar steel, from near zero four years ago. The price of hot rolled steel in Europe has fallen to $369 a tonne from an average of $650 from 2009 to 2013.

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Are people ready to acknowledge the extent of China’s bubble? I doubt it.

China Produced More Steel In 2 Years Than The UK Did Since 1870 (Conway)

Here’s a nugget that goes at least some of the way towards explaining the current woes of the British steel industry: in the past two years alone China has produced more steel than the total cumulative output of the UK since the industrial revolution. Or consider this: at today’s rate of production, it would take 68 years for Britain to generate the steel China churns out of its mills in a single year. Take a moment to digest these facts, because you simply cannot understand the pressures faced by the British, or for that matter every country’s steel industry without considering China. Steel is, of course the critical ingredient in modern manufacturing and construction. If you are making something – anything – chances are you will need steel to make it with, whether that’s a car, a rail line, a can of food or a skyscraper.

And to start with, China was a positive story for Britain’s steel industry. As it expanded over recent decades it initially didn’t produce enough steel of its own to satisfy its seemingly limitless domestic appetite for steel – from Chinese construction to Chinese cities desperate to expand, to Chinese manufacturers pumping out goods around the world. It became an important destination for UK exports. However, gradually the country has built its own steel industry – and what an industry. Since 1980 China has gone from producing 5% of the world’s steel to making more than half of it – just over 800m tonnes.

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But of course, this being Bloomberg and all, here comes the silver lining.

China Ends This Quarter With The World’s Worst-Performing Stock Market (BBG)

China’s Shanghai Composite Index is closing out the first quarter as the world’s worst-performing global measure, down 15%, with a rebound in March failing to compensate for a terrible start to the year. Here are some key metrics that may show this month’s 12% recovery may extend into April, including growth in margin lending, a jump in the number of new investors and easing volatility. Leverage is increasing, suggesting individual investors are slowly regaining confidence after getting burned last year. The value of outstanding margin loans, the fuel for the 2015 boom, is up about 6% to about 874 billion yuan ($135 billion) since touching a 15-month low on March 16. A state-backed agency restarted offering some loans to brokerages to fund clients’ borrowed bets, signaling a loosening of policies put in place to stem the market rout.

Volatility is receding. Thirty-day price swings in the Shanghai gauge have plunged since soaring to a four-month high in February. Volatility began to rise at the start of January, when regulators introduced a circuit-breaker system meant to reduce wild market movements. The circuit breakers had the opposite effect – trading was suspended twice in the first week due to steep declines before the mechanism was shelved altogether. The ChiNext index re-entered a bull market this month, rebounding 20% from a February low. The small-cap gauge, dominated by technology and consumer companies, has become a leading indicator for the Shanghai index. It entered a bull market in October, a month before the large-cap gauge did, and lapsed into a bear market a week before the Shanghai gauge followed suit.

The number of new stock investors rose to a nine-month high of 535,000 in the week ended March 25, as a rebound in margin trading and a market recovery led more people to open trading accounts. Retail investors account for 80% of stock trading. While the valuation of the Shanghai Composite is almost down 40% from a June high, it’s still 15% pricier than the MSCI Emerging Market index, according to data compiled by Bloomberg. Almost 60% of the 240 Shanghai-listed companies with full-year earnings estimates compiled by Bloomberg have missed projections so far.

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So far it was oil, steel, gas firms; now the banks start?!

China Investment Bank Defaults On ‘Dim Sum’ Bond (FT)

A unit of Guosen Securities, China’s eighth-largest investment bank, has defaulted on a Kong Kong-traded renminbi bond, according to a document seen by the Financial Times, marking the first debt breach by a state-owned enterprise in China’s offshore bond market in nearly two decades. The technical default by Guosen’s Hong Kong affiliate puts at risk a Rmb38m ($5.9m) coupon payment due April 24 on Rmb1.2bn in “dim sum” bonds sold in 2014. Missing that payment would set a precedent for the offshore units of Chinese SOEs, whose creditors widely assume the onshore parent will always stand behind its affiliates, according to analysts. The default was unexpected because Guosen’s onshore unit is by all appearances in rude health. With the city government of Shenzhen as its largest shareholder, Guosen Securities was fourth on the league table for stock and bond underwriting in 2015, according to AsiaMoney.

The Shenzhen-listed brokerage earned net profit of Rmb14.2bn in 2015, up 188% from a year earlier, according to a filing in January. It ranked eighth among mainland brokerages by assets at the end of 2014, according to industry association figures. Like other Chinese securities companies, Guosen benefited from a surge in stock trading commissions during China’s equity market roller coaster last year. But its offshore unit, Guosen Securities (HK) Financial Holdings, has struggled to gain a foothold in Hong Kong’s capital markets, where foreign and mainland banks compete on a more level playing field. A special purpose vehicle owned by Guosen (HK) issued the bonds in April 2014 at an interest rate of 6.4%.

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It may already be too late to sell.

China’s Little Emperors Prop Up Aussie Housing Market (BBG)

Han Fantong, an accountant, beat almost 60 other bidders to buy a three-bedroom home in Melbourne in November for A$930,000 ($709,000). He had an advantage – full funding from his parents back in China. Han, 32, an Australian permanent resident, bought the house on 688 square meters (7,400 square feet) of land in Ringwood East, about 30 kilometers (19 miles) east of Melbourne’s business district, after a five-month search. His parents sold a 23-year-old two-bedroom apartment in Beijing for 8.1 million yuan ($1.2 million) to help pay for the property, he said by phone. “It comes as a tradition in China to buy a home for a son to establish a family,” said Han who lives in the house with his 29-year-old wife Chen Junyang. “Without my parents, it would still be difficult for us to bear the large mortgage loans.”

Han is among scores of buyers who with the backing of relatives in China are underpinning a housing market in Australia that’s coming off the boil. More than half the buyers of Chinese origin are supported financially by relatives residing in the world’s second-largest economy, according to McGrath, Australia’s only listed real estate agency. The firm’s China desk has assisted in sales worth A$140 million since it was established in September 2013. Such demand, whether from permanent residents or overseas buyers, has triggered community concern that locals are being priced out of Australia’s property market. The government has responded to the unease with tighter scrutiny of foreign investment that critics say may deter much-needed offshore capital.

“Chinese buying in Sydney and Melbourne has stepped up from say where it was five years ago, but publicity around that has created a perception which has run ahead of reality,” said Shane Oliver at AMP Capital Investors in Sydney. “The Chinese demand – both from mainland China and Chinese Australians – is propping up the market and boosting construction.” [..] Purchases by foreigners, many with a connection to China, helped drive an almost 55% jump in home prices across Australia’s capital cities in the past seven years as mortgage rates dropped to five-decade lows. The median Sydney home price reached a record A$800,000 in October, according to research firm CoreLogic data. It has since fallen after a regulatory clampdown led to a slowdown in mortgages to landlords and the first increase in borrowing costs in five years.

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And that’s just official numbers. As is 1.67% in bad loans, which “..could be as high as 8.1% this year; other analysts have projected even higher estimates.” That’s perspective.

China’s Largest Banks Post Lowest Annual Profit In A Decade (WSJ)

China’s biggest banks posted their lowest annual profit growth in a decade, as bad loans mount in an ailing economy that is pushing lenders toward riskier avenues of expansion. Three major banks that reported 2015 results on Wednesday said they wrote off 142 billion yuan ($21.85 billion) in irrecoverable debt last year, 1.4 times the volume in 2014, an indication that their customers—many of them state-owned industrial companies—are struggling to repay loans. Profits for the three banks were nearly flat, compared with industry growth rates of close to 40% just three years ago. Banks are building ever-larger capital buffers to cover bad loans as Chinese companies flounder under a severe overhang of real-estate inventory and excess industrial capacity.

The prevalence of bad loans means booming business for asset-restructuring companies—state-owned “bad banks” set up to soak up and sell off soured debt—prompting conventional banks to explore ways to keep such deals for themselves. Net profit overall among commercial lenders rose 2.4% last year, compared with 9.6% a year earlier, according to figures put out recently by the China Banking Regulatory Commission. On Wednesday, China’s largest bank by assets, Industrial & Commercial Bank of China, posted 0.5% profit growth to 277.1 billion yuan ($42.65 billion) for 2015. “The operating results were achieved on top of a high base in light of mounting growth-related difficulties,” ICBC said in its annual report. “The larger the total profit, the harder the growth will be.”

[..] Industrywide, nonperforming loans rose to 1.67% of total loans last year from 1.25% in 2014, the China Banking Regulatory Commission said. Investment bank China International Capital estimated the true ratio could be as high as 8.1% this year; other analysts have projected even higher estimates. Credit is souring so fast that commercial lenders are having a hard time expanding capital provisions to keep pace. Two years ago, China Construction Bank was setting aside a buffer that was more than twice the size of its bad loans. Last year, that ratio had fallen to 1.5 times, it said Wednesday. Slowing profit growth has forced many Chinese banks, especially midsize lenders, to invest aggressively in shadow-banking assets such as trust and wealth-management products. Such holdings, termed “investment receivables,” are opaque cocktails of high-yield assets that could jeopardize liquidity should banks need to offload them if markets turn turbulent, analysts say.

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They have no choice. No major or even minor oil producer does.

Saudi Aramco Expanding Oil and Gas Projects Even With Low Prices (BBG)

Saudi Arabian Oil Co. is pressing ahead with an expansion of the Khurais oil field despite lower crude prices and plans to double its production of natural gas over the next 10 years, the company’s chief executive officer said. The world’s biggest oil exporter, known as Saudi Aramco, won’t cancel any oil, gas or refining projects, Amin Nasser told reporters during a conference in Al-Ahsa in eastern Saudi Arabia. Aramco is also studying a possible expansion of the country’s largest oil refinery, Ras Tanura, which has a capacity of 550,000 barrels a day, he said. “Until now all of our downstream and upstream projects are continuous,” Nasser said. “No project in our programs got canceled.”

[..][ Khurais oil field’s expansion is due to be complete in 2018, Nasser said. Aramco was seeking to add 300,000 barrels a day to the field’s production to reach a capacity of 1.5 million barrels a day, the company’s former CEO Khalid Al-Falih said in October 2013. Ghawar oil field, the world’s biggest, has been producing for 70 years and will keep pumping oil for “many years to come,” Nasser said at the conference. Sixty% of Saudi Arabia’s crude oil output comes from Ghawar, Abdul Latif Al-Othman, governor of the Saudi Arabian General Investment Authority, said at the same event. Aramco has made a “promising” shale gas discovery at the Jafurah field in the Al-Ahsa region and is assessing and appraising the area for future production, Nasser said. The company plans to double its gas production to 23 billion cubic feet a day over 10 years, he said. Aramco will also keep exploring for oil and gas in the Red Sea area, he said.

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Anything our former Oil Drum colleague Robert Rapier writes is still worth a read.

The World’s Largest Public Oil And Gas Companies (Rapier)

The past two years have been a wild ride for investors in the world’s biggest publicly traded oil companies. Compared with their high-water marks in mid-2014, Big Oil shares are down about 25% and earnings have collapsed. The big irony: even as oil prices have halved, Big Oil is still getting bigger. In July 2014 U.S. oil production was 8.75 million barrels per day, according to the Energy Information Administration. Nearly a year (and a 50% price dip) later, U.S. oil output had grown to 9.69 million bpd, its highest level in 45 years. U.S. production has since declined by more than half a million bpd to 9.07 million bpd, but global production continues to rise. From 92.4 million bpd in 2014, global oil production is up to 94.8 million bpd. A unique aspect of the recent surge is that most of the gains have not come from OPEC’s national oil companies.

While Saudi Arabia’s national oil company, Saudi Aramco, remains the world’s undisputed production leader, Western and Russian companies have added far more production over the past few years. The biggest contributor to new global oil production has been the U.S., where the shale oil boom added more than 4 million bpd of new production since 2010. In total, about two dozen countries expanded their oil production over the past five years, including Saudi Arabia, Canada, United Arab Emirates, Iraq, Kuwait and Russia. On a corporate basis, many of the companies responsible for the production increase are on our list of the World’s 25 Largest Public Oil and Gas Companies. Russian companies dominate the top of the list, which is based on the most recently published production data, accounting for more production than any other region.

Russia has been a major producer of oil and gas for decades, and when privatization took place in the 1990s a handful of extremely large companies were created that rival many of the world’s national oil companies. The U.S. has seven companies in the top 25, more than any other country, led by ExxonMobil, which is the world’s third largest public oil and gas producer. Many may not realize that China is among the world’s Top 5 oil producing countries. But PetroChina, which went public in 2007, produces almost as much oil as does ExxonMobil, and is but one of the three Chinese companies in the Top 25. European countries are well-represented on the list, as four of the world’s six integrated “supermajors” are headquartered in Europe. The largest of this group is BP , still ranked as the 5th largest oil and gas producer in the Top 25, despite its many divestments since the Deepwater Horizon disaster.

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Where wicked witch of the west Blythe Masters enters the blockchain.

Bitcoin Technology’s Next Big Test: Trillion-Dollar Repo Market (WSJ)

Depository Trust & Clearing Corp., a firm at the center of Wall Street’s trading infrastructure, is about to give the technology behind bitcoin a big test: seeing whether it can be used to bolster the $2.6 trillion repo market. DTCC said in a statement Tuesday that it will begin testing an application of blockchain, the digital ledger originally used to track ownership and payments of the cryptocurrency bitcoin, to help smooth over problems in the crucial but increasingly illiquid corner of short-term lending markets known as repurchase agreements, or “repos.” Repos play a critical role in the financial system by keeping cash and securities circulating among hedge funds, investment banks and other financial firms.

DTCC, an industry-owned utility that helps settle trades in the repo market and elsewhere, wants to apply blockchain technology to the market, so that lenders and borrowers can keep track of securities and cash flowing between firms in real time. To test blockchain’s ability to improve repo trading, DTCC has tapped Digital Asset Holdings, a startup run by former J.P. Morgan executive Blythe Masters. Earlier this year, DTCC invested in the firm focused on blockchain applications, along with a range of banks including J.P. Morgan, Goldman Sachs Group Inc., and others. Typically in repos, money-market funds lend cash to brokers in exchange for bonds and an agreement to buy back the securities later at an agreed-upon rate.

During the financial crisis however, problems in the repo markets were singled out for their role in the demise of Bear Stearns and Lehman Brothers. Now, big banks have been shying away from facilitating some repo trades due to new regulations that curtail the firms’ ability to take risks. Murray Pozmanter, managing director and head of clearing services at DTCC, said in an interview the new arrangement with Digital Asset should help because the ledger would provide a way for all firms to agree on trade terms more quickly. Currently, he said, traders have to process two legs of each trade separately: one for the borrower to deliver securities in exchange for cash, and the other in which DTCC unwinds the trade. While the trade is in motion but not yet completed, the banks involved can take on risk.

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Banks will be robots. Is that a good thing?

Growth Of Fintech Forecast To Spur Almost 2 Million Banking Job Cuts (FT)

European and US banks will cut another 1.7m jobs in the next decade as financial technology companies stalk profitable growth areas such as lending and payments, a new report by Citigroup has predicted. The 108-page Citi note takes a forensic look at where “fintech” companies are deploying their resources, how much business they have already won and the consequences for the traditional banking industry. The job cuts — equal to more than 30% of the staff the banks currently employ — come on top of the 730,000 jobs that Citi says US and European banks have already shed from their peak staffing levels. “Obviously the biggest take out will happen in countries that have been through a crisis or are tech savvy,” said Ronit Ghose, one of the authors of the report.

In the US, investment banks clearly have selectively cut a lot of people but US consumer banks haven’t cut as much … in Europe there s been little progress on branch headcount as well. The catalyst for the job cuts is twofold. One factor is the new technologies that enable banks to do more online and less in branches. The other is the financial imperative for banks to be leaner as they deal with an onslaught of new competition in their most profitable niches. High quality global journalism requires investment. Citi’s research found that lending stood out as a key battleground, accounting for 46% of the $19bn in private funding that flowed into fintech during the past six years. The next biggest was payments, accounting for 23% of the investment in fintech.

Lending and payments are both lucrative activities for banks, and losing out on market share is particularly painful when low interest rates are crippling banks’ profitability and low loan demand has made it almost impossible for them to increase revenue. “So far most of the market value in fintech has been created by companies that are embedded in the still relatively new ecosystem of ecommerce,” the report noted. “For banks in many countries, this is an opportunity lost rather than a loss of existing earnings.”

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Very interesting investigation.

The Bribe Factory – How The West Corrupts The Middle East (SMH)

A massive leak of confidential documents has for the first time exposed the true extent of corruption within the oil industry, implicating dozens of leading companies, bureaucrats and politicians in a sophisticated global web of bribery and graft. After a six-month investigation across two continents, Fairfax Media and The Huffington Post can reveal that billions of dollars of government contracts were awarded as the direct result of bribes paid on behalf of firms including British icon Rolls-Royce, US giant Halliburton, Australia’s Leighton Holdings and Korean heavyweights Samsung and Hyundai. The investigation centres on a Monaco company called Unaoil, run by the jet-setting Ahsani clan. Following a coded ad in a French newspaper, a series of clandestine meetings and midnight phone calls led to our reporters obtaining hundreds of thousands of the Ahsanis’ leaked emails and documents.

The trove reveals how they rub shoulders with royalty, party in style, mock anti-corruption agencies and operate a secret network of fixers and middlemen throughout the world’s oil producing nations. Corruption in oil production – one of the world’s richest industries and one that touches us all through our reliance on petrol – fuels inequality, robs people of their basic needs and causes social unrest in some of the world’s poorest countries. It was among the factors that prompted the Arab Spring. Fairfax Media and The Huffington Post today reveal how Unaoil carved up portions of the Middle East oil industry for the benefit of western companies between 2002 and 2012. In part two we will turn to the impoverished former Russian states to reveal the extent of misbehaviour by multinational companies including Halliburton. We will conclude the three-part investigation by showing how corrupt practices have extended deep into Asia and Africa.

The leaked files expose as corrupt two Iraqi oil ministers, a fixer linked to Syrian dictator Bashar al-Assad, senior officials from Libya’s Gaddafi regime, Iranian oil figures, powerful officials in the United Arab Emirates and a Kuwaiti operator known as “the big cheese”. Western firms involved in Unaoil’s Middle East operation include some of the world’s wealthiest and most respected companies: Rolls-Royce and Petrofac from Britain; US companies FMC Technologies, Cameron and Weatherford; Italian giants Eni and Saipem; German companies MAN Turbo (now know as MAN Diesal & Turbo) and Siemens; Dutch firm SBM Offshore; and Indian giant Larsen & Toubro. They also show the offshore arm of Australian company Leighton Holdings was involved in serious, calculated corruption.

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A point I’ve written a lot about. All our major institutions select for sociopaths (a term I’m more comfortable with in the context than psychopath).

Pathocracy: The Rise Of The Political Psychopath (Whitehead)

Twenty years ago, a newspaper headline asked the question: “What’s the difference between a politician and a psychopath?” The answer, then and now, remains the same: None. There is no difference between psychopaths and politicians. Nor is there much of a difference between the havoc wreaked on innocent lives by uncaring, unfeeling, selfish, irresponsible, parasitic criminals and elected officials who lie to their constituents, trade political favors for campaign contributions, turn a blind eye to the wishes of the electorate, cheat taxpayers out of hard-earned dollars, favor the corporate elite, entrench the military industrial complex, and spare little thought for the impact their thoughtless actions and hastily passed legislation might have on defenseless citizens.

Psychopaths and politicians both have a tendency to be selfish, callous, remorseless users of others, irresponsible, pathological liars, glib, con artists, lacking in remorse and shallow. Charismatic politicians, like criminal psychopaths, exhibit a failure to accept responsibility for their actions, have a high sense of self-worth, are chronically unstable, have socially deviant lifestyle, need constant stimulation, have parasitic lifestyles and possess unrealistic goals. It doesn’t matter whether you’re talking about Democrats or Republicans. Political psychopaths are all largely cut from the same pathological cloth, brimming with seemingly easy charm and boasting calculating minds. Such leaders eventually create pathocracies—totalitarian societies bent on power, control, and destruction of both freedom in general and those who exercise their freedoms.

Once psychopaths gain power, the result is usually some form of totalitarian government or a pathocracy. “At that point, the government operates against the interests of its own people except for favoring certain groups,” author James G. Long notes. “We are currently witnessing deliberate polarizations of American citizens, illegal actions, and massive and needless acquisition of debt. This is typical of psychopathic systems, and very similar things happened in the Soviet Union as it overextended and collapsed.” In other words, electing a psychopath to public office is tantamount to national hara-kiri, the ritualized act of self-annihilation, self-destruction and suicide. It signals the demise of democratic government and lays the groundwork for a totalitarian regime that is legalistic, militaristic, inflexible, intolerant and inhuman.

So why do we keep doing it over and over again? There’s no shortage of dire warnings about the devastation that could be wrought if any one of the current crop of candidates running for the White House gets elected. Yet where the doomsayers go wrong is by ignoring the damage that has already been inflicted on our nation and its citizens by a psychopathic government.

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We should be thankful Russia has such patience.

Russia Vows ‘Totally Asymmetrical’ Response To US Troop Build-Up In Europe (RT)

Russia’s envoy to NATO has vowed a “totally asymmetrical” response if the alliance stands by a plan to deploy new armored units to eastern Europe. Citing Russian “aggression” as a pretext, the US has announced “continuous troop rotations” starting 2017. “We are not passive observers, we consistently take all the military measures we consider necessary in order to counterbalance this reinforced presence that is not justified by anything,” Moscow’s permanent representative at the alliance Aleksandr Grushko said in an interview with TV channel Rossiya-24 on Wednesday. “Certainly, we’ll respond totally asymmetrically.” Grushko has not elaborated further on his statement, but said that Russia’s actions would correspond to its “understanding of the extent of the military threat, would not be extremely expensive, but also highly effective.”

“As of today, assessing as a whole what that the US and NATO are doing, the point at issue is a substantial change for the worse in the security situation,” he said. The comments from Russia’s NATO envoy fell shortly after the Pentagon announced a plan to increase its troop presence in “the European theater” of up to three fully-manned Army brigades by the end of 2017, one armored, one airborne and one Stryker brigade. “This Army implementation plan continues to demonstrate our strong and balanced approach to reassuring our NATO allies and partners in the wake of an aggressive Russia in Eastern Europe and elsewhere,” Air Force Gen. Philip M. Breedlove of the US European Command said. “This means our allies and partners will see more capability – they will see a more frequent presence of an armored brigade with more modernized equipment in their countries.”

The first such rotational armored brigade combat team would arrive in Europe in February next year. Each of the brigades will be on nine-month rotations and bring their own equipment to use for exercises across Europe. NATO also wants to enhance Europe’s current equipment and replace it with “the most modern the Army has to offer.” At the same time, the older gear would become a core of the earlier unveiled “Army pre-positioned stocks”, which NATO would keep in Belgium, the Netherlands and Germany. [..] “Reading these materials makes your hair stand on end, because of how some experts discuss with aplomb that if NATO had not taken measures, our [Russia’s] tanks would have already be in Tallinn and Riga,” Grushko said.

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Positive feedback. Accelerating returns.

Sea Levels Set To ‘Rise Far More Rapidly Than Expected’

Sea levels could rise far more rapidly than expected in coming decades, according to new research that reveals Antarctica’s vast ice cap is less stable than previously thought. The UN’s climate science body had predicted up to a metre of sea level rise this century – but it did not anticipate any significant contribution from Antarctica, where increasing snowfall was expected to keep the ice sheet in balance. According to a study, published in the journal Nature, collapsing Antarctic ice sheets are expected to double sea-level rise to two metres by 2100, if carbon emissions are not cut. Previously, only the passive melting of Antarctic ice by warmer air and seawater was considered but the new work added active processes, such as the disintegration of huge ice cliffs.

“This [doubling] could spell disaster for many low-lying cities,” said Prof Robert DeConto, at the University of Massachusetts Amherst, who led the work. He said that if global warming was not halted, the rate of sea-level rise would change from millimetres per year to centimetres a year. “At that point it becomes about retreat [from cities], not engineering of defences.” As well as rising seas, climate change is also causing storms to become fiercer, forming a highly destructive combination for low-lying cities like New York, Mumbai and Guangzhou. Many coastal cities are growing fast as populations rise and analysis by World Bank and OECD staff has shown that global flood damage could cost them $1tn a year by 2050 unless action is taken. The cities most at risk in richer nations include Miami, Boston and Nagoya, while cities in China, Vietnam, Bangladesh and Ivory Coast are among those most in danger in less wealthy countries.

The new research follows other recent studies warning of the possibility of ice sheet collapse in Antarctica and suggesting huge sea-level rises. But the new work suggests that major rises are possible within the lifetimes of today’s children, not over centuries. “The bad news is that in the business-as-usual, high-emissions scenario, we end up with very, very high estimates of the contribution of Antarctica to sea-level rise” by 2100, DeConto told the Guardian. But he said that if emissions were quickly slashed to zero, the rise in sea level from Antarctic ice could be reduced to almost nothing. “This is the good news,” he said. “It is not too late and that is wonderful. But we can’t say we are 100% out of the woods.” Even if emissions are slashed, DeConto said, there remains a 10% chance that sea level will rise significantly.

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A good Yanis article.

Europe Is Too Important To Be Left To Its Clueless Rulers – Varoufakis (Tel.)

It is eight months since Varoufakis resigned as Greece’s finance minister, in the wake of the historic referendum when the Greek people voted to reject the demands of the country’s creditors, the so-called ‘troika’. It was the result that Varoufakis and the Greek prime minster Alexis Tsipras had been campaigning for. But within 24 hours Tsipras had performed a volte-face, accepting the troika’s terms. Varoufakis resigned. A politician without office, Varoufakis now spends his time writing, giving speeches and campaigning to reform Europe from the grass roots up. In February he launched Diem25, a pan-European umbrella group, aiming to pull together left-wing parties, protest movements and ‘rebel regions’ from across the continent, with the object, as he puts it, to ‘shake Europe – gently, compassionately, but firmly’, and bring ‘democracy back to EU decision making.’

He has published a new book, And the Weak Suffer What They Must?, a detailed historical analysis of the origins of Europe’s financial crisis. Its basic thesis is that the eurozone is not the route to shared prosperity it was intended to be but “a pyramid scheme of debt with countries such as Greece, Ireland, Portugal and Spain at its bottom”. Its conclusion, put bluntly, is that Europe “is too important to be left to its clueless rulers”, and that the eurozone must be “fully recalibrated” if Europe is to avoid a “postmodern” repetition of the 1930s, with financial chaos, the rise of fascism, and the spectre of conflict.

He has recently returned from Abu Dhabi, talking to business leaders at the Global Financial Markets Forum. For every 15 lectures he gives for free, he gets paid for one, he says, ‘but that’s good enough’. And the self-described ‘erratic Marxist’ is a popular draw among bankers and financial institutions. ‘I say to them exactly what I say to a left-wing audience,’ he says. ‘For some reason bankers like my analysis of the euro and global crisis. They’ve had enough of people telling them what they think they want to hear, because that hasn’t worked very well for them in the last seven or eight years. The fact they want me to talk to them is a sign of how deep this crisis is.’

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At least at first glance, a great story. Let’s hope they win some golds too.

Refugees Run For Rio Olympic Dream Team (AFP)

High up in Kenya’s rugged Ngong Hills, refugees sprint around an athletics track in intensive training they hope will see them selected for a unique team for the Rio Olympics. Hand-picked from Kenya’s vast refugee camps – including Dadaab, the biggest in the world — to join the training camp just outside the capital Nairobi, the athletes here have their eyes set on racing in Rio de Janeiro in August. “It will be a very great moment for me and the rest of the refugees, who will be so proud for having produced one of their own who has gone to the Olympics,” said 22-year-old Nzanzumu Gaston Kiza, who fled Democratic Republic of Congo after his relatives were massacred in ethnic clashes. Here at Ngong, a high altitude running track some 2,400 meters (7,875 feet) above sea level, some 40 kilometres (25 miles) southwest of Nairobi, athletes from across eastern Africa are chasing the dream of the Olympics.

Amid a world record number of people forced from their homes and their countries, the International Olympic Committee (IOC) this month announced the creation and funding of Team Refugee Olympic Athletes (ROA) to compete in Rio under its flag. The team, expected to include between five to 10 athletes from across the world, is part of the IOC’s “pledge to aid potential elite athletes affected by the worldwide refugee crisis”. “Team ROA” will march just before the hosts Brazil enter the Olympic Stadium at the opening ceremony – carrying the Olympic flag and anthem – a position likely to be given enormous cries of support. While countries may field their own teams, the refugees are unable to return home safely to take part – and instead will run under the Olympic flag. “We want to send a message of hope for all refugees in our world,” IOC president Thomas Bach said when plans for the team were announced.

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International law no longer has any meaning. Welcome to Europe.

Austria To Tighten Asylum Rules (P.)

Austria is to introduce procedures at its borders to speed up asylum applications and limit the influx of refugees into the country, the government announced Wednesday. From May, authorities will determine “within hours” if an applicant can provide sufficient reason not to be sent back to a safe third country of origin, Austrian Interior Minister Johanna Mikl-Leitner and Defense Minister Hans Peter Doskozil said. “We will not accept any more asylum applications, unless we have to because of certain criteria like Article 8 of the human rights convention,” Mikl-Leitner said, referring to an article that grants asylum seekers, among other things, the right to stay in a country where they have a partner or children.

The announcement followed news that legal experts commissioned by the Austrian government found that a cap of 37,500 refugees allowed to apply for asylum per year, introduced by Vienna at the beginning of the year, was incompatible with international law. As of the end of March, 15,000 asylum applications had been submitted in Austria this year, according to the country’s interior ministry.

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This will not stop. It may move from one spot to another, but it will continue no matter what. Such is the despair.

Refugee Arrivals To Greece Rise Sharply Despite EU-Turkey Deal (Reuters)

Arrivals of refugees and migrants to Greece from Turkey rose sharply on Wednesday, just over a week since the European Union and Turkey struck a deal intended to cut off the flow. Greek authorities recorded 766 new arrivals between Tuesday morning and Wednesday morning, up from 192 the previous day. Most arrived on the northeastern Aegean island of Lesvos. Italy reported an even larger jump in arrivals on Tuesday, when officials there said 1,350 people – mostly from Africa – were rescued from small boats taking the longer migration route over the Mediterranean as the weather warmed up. The EU Commission said on Tuesday that the flows in the last week had reduced, with only 1,000 people arriving from Turkey on Greek islands, compared to an average of 2,000 a day in the last couple of months.

It was not clear why numbers had dropped, but the Aegean Sea had been hit with bad weather and gale force winds, making the journey from Turkey on small rubber boats even more dangerous. Under the deal in effect since March 20, migrants and refugees who arrive in Greece will be subject to being sent back once they have been registered and their individual asylum claim processed. The returns are to begin from April 4. More that 51,000 refugees and migrants, among those Syrians, Afghans, Iraqis and other fleeing conflict in the Middle East and Asia, are currently stranded in Greece following border closures across the Balkans. Nearly 6,000 people remain stuck at the country’s biggest port of Piraeus port near Athens, having arrived there on ferries from Greek islands close to Turkey before the deal.

Scores have found shelter in passenger waiting lounges while hundreds more sleep in the open, either in flimsy tents or on blankets spread on the dock. Queues for the few portable toilets are long, and scuffles have broken out in recent weeks over mobile phone chargers and food distribution. International rights group Human Rights Watch has described conditions at the port, including basic hygiene, as “abysmal” and says the situation is akin to a “humanitarian crisis.”

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