Jul 272018
 
 July 27, 2018  Posted by at 9:23 am Finance Tagged with: , , , , , , , , , , ,  


Pablo Picasso The three dancers 1925

 

The Mirage That Will Be Q2-GDP (Roberts)
Household Debt In UK ‘Worse Than At Any Time On Record’ (G.)
BRICS Nations Pledge Unity As Trade War Threatens (AFP)
Facebook’s $120 Billion Rout Biggest Loss In Stock Market History (CNBC)
Trade Deal With EU Greater In Scope Than Expected – US Official (R.)
Macron ‘Not In Favour’ Of Vast New US-EU Trade Deal (AFP)
EU’s Barnier Kills Off Theresa May’s Brexit Customs Proposals (G.)
Trump Threatens Turkey Sanctions Over Detained Pastor (AP)
US Government Misses Judge’s Midnight Deadline For Reunifying Families (Ind.)
Taxation Strangles Greece’s Growth Prospects (WSJ)
Death Toll From Greek Wildfires Rises To 85, Scores Stll Missing (K.)
Only 13% Of World’s Oceans Are Still Untouched Wilderness (Ind.)

 

 

Another great piece by Lance Roberts. Here’s the part on debt. It now takes $3.71 of debt to create $1 of economic growth. That won’t last.

The Mirage That Will Be Q2-GDP (Roberts)

With wage growth stagnant, corporations struggling to pass through rising commodity and tariff related costs and debt service requirements on the rise as the Fed continues to hike rates, the drag from the consumption side of the economic equation will likely dwarf the current boosts in the next two quarters. Furthermore, as I noted previously, tax cuts and reform, tariffs and other fiscal remedies promoted by the current administration fail to address the main drag to economic growth over time. The debt. “It now requires $3.71 of debt to create $1 of economic growth which will only worsen as the debt continues to expand at the expense of stronger rates of growth.”

In fact, as recently noted by our friends at the Committee for a Responsible Federal Budget, the U.S. deficit is set to surge. To wit: “The White House Office of Management and Budget recently released its annual mid-session review which updated deficit projections in its fiscal year 2019 budget request. The report projected deficits will reach $1.085 trillion in FY 2019 under their budget, which is double the $526 billion called for in the FY 2018 budget.” The report specifically addresses the biggest point of concern:

“The last time the nation experienced trillion-dollar deficits was during a serious economic downturn, no less – lawmakers took the issue seriouly. PAYGO laws were established, a fiscal commission was formed, new discretionary spending caps were implemented and policymakers entered a multi-year debate on how best to bring down long-term debt levels. This time around, with the emergence of trillion-dollar deficits during a period of economic strength – when we should be saving for future downturns – few seem to even take notice. On our current course, debt will overtake the size of the entire economy in about a decade, and interest will be the largest government program in three decades or less. This will weaken both our economy and our role in the world.”

Read more …

And more debt. And then some more.

Household Debt In UK ‘Worse Than At Any Time On Record’ (G.)

British households spent around £900 more on average than they received in income during 2017, pushing their finances into deficit for the first time since the credit boom of the 1980s. The Office for National Statistics said the shortfall amounted to nearly £25bn – equal to almost a quarter of the NHS budget – and the overspend was mostly paid for with borrowed money, though households also ran down savings. The figures pose a challenge to the government, which was warned last year that Britain’s consumer credit bubble of more than £200 billion was unsustainable. A dramatic rise in debt-fuelled spending since 2016 has also taken place against the backdrop of the Brexit vote, which triggered a rise in inflation at a time of weak wage growth. .

Analysts warned that a squeeze on household incomes from benefit cuts, lacklustre wages and high inflation would continue to force poorer households to borrow more to pay basic bills. Tom Selby, a research analyst at financial adviser AJ Bell, said the figures presented ministers with a significant challenge as they sought “to build financial resilience in the UK”. Researchers at the ONS said the situation was worse than at any time on record after the £25bn deficit last year surpassed the £300m deficit recorded in 1988. British household finances also slumped from being among the most solvent in the 1990s to being among the most indebted compared with households in other major western countries.

Read more …

42% of global GDP.

BRICS Nations Pledge Unity As Trade War Threatens (AFP)

Five of the biggest emerging economies on Thursday stood by the multilateral system and vowed to strengthen economic cooperation in the face of US tariff threats and unilateralism. The heads of the BRICS group – Brazil, Russia, India, China and South Africa – met in Johannesburg for an annual summit dominated by the risk of a US-led trade war, although leaders did not publicly mention President Donald Trump by name. “We express concern at the spill-over effects of macro-economic policy measures in some major advanced economies,” they said in joint statement. “We recognise that the multilateral trading system is facing unprecedented challenges. We underscore the importance of an open world economy.”

Trump has said he is ready to impose tariffs on all $500 billion of Chinese imports, complaining that China’s trade surplus with the US is due to unfair currency manipulation. Trump has already slapped levies on goods from China worth tens of billions of dollars, as well as tariffs on steel and aluminium from the EU, Canada and Mexico. “We should stay committed to multilateralism,” Chinese President Xi Jinping said on the second day of the talks. “Closer economic cooperation for shared prosperity is the original purpose and priority of BRICS.” Russian President Vladimir Putin, who held a controversial meeting with Trump last week, echoed the calls for closer ties among BRICS members and for stronger trade within group. “BRICS has a unique place in the global economy — this is the largest market in the world, the joint GDP is 42% of the global GDP and it keeps growing,” Putin said.

Read more …

For what it’s worth.

Facebook’s $120 Billion Rout Biggest Loss In Stock Market History (CNBC)

Facebook on Thursday posted the largest one-day loss in market value by any company in U.S. stock market history after releasing a disastrous quarterly report. The social media giant’s market capitalization plummeted by $119 billion to $510 billion as its stock price plummeted by 19 percent. At Wednesday’s close, Facebook’s market cap had totaled nearly $630 billion, according to FactSet. No company in the history of the U.S. stock market has ever lost $100 billion in market value in just one day, but two came close. On Sept. 22, 2000, Intel shed $90.74 billion in market value as the dot-com bubble burst. Earlier that year, Microsoft lost $80 billion from its market cap in one day.

Other companies that have experienced similar one-day losses in dollar amount include Apple in 2013, when it lost $59.6 billion, and Exxon Mobil in 2008, when it lost $52.5 billion. Facebook’s enormous loss in value came a day after the company reported weaker-than-expected revenue for the second quarter as well as disappointing global daily active users, a key metric for Facebook. The company also said it expects its revenue growth rate to slow in the second half of this year. Several analysts downgraded Facebook’s stock, including Nomura Instinet’s Mark Kelley. “With stagnating core user growth, we think there is too much near- to mid-term uncertainty to recommend shares at this point,” Kelley, who downgraded the stock to neutral from buy, said in a note.

Read more …

But who’s winning?

Trade Deal With EU Greater In Scope Than Expected – US Official (R.)

The U.S. administration got more out of a trade deal with the European Union than it had expected and the two will work together to deal with China’s market abuses, a top White House official told Reuters on Thursday. President Donald Trump and Jean-Claude Juncker, president of the European Commission, the EU’s executive body, struck a surprise deal on Wednesday that ended the risk of an immediate trade war between the two powers. “The EU came into the conversation and they were open to the proposals we had made about getting rid of tariffs, non-tariff barriers and subsidies,” said the official, who spoke on condition of anonymity.

Trump agreed on Wednesday to refrain from imposing car tariffs while the two sides launch negotiations to cut other trade barriers. Europe agreed to increase purchases of U.S. liquefied natural gas and lower trade barriers to American soybeans. The official stressed on Thursday that Trump retained the power to implement tariffs on cars if needed and said there was no deadline for the completion of talks. He said Trump was committed to getting zero tariffs from the European Union.= As part of the deal, the United States and Europe will work together on China. The two powers in the past have cooperated on measures to deal with theft of company secrets by Chinese entities.

Read more …

France doesn’t want to include agriculture. It gets 100s of billions in subsidies. So Macron talks about steel instead.

Macron ‘Not In Favour’ Of Vast New US-EU Trade Deal (AFP)

French President Emmanuel Macron said Thursday he viewed talks between US President Donald Trump and EU Commission chief Jean-Claude Juncker as “useful”, but he was “not in favour” of a “vast new trade deal” between the European Union and the United States. “European and France never wanted a trade war and the talks yesterday were therefore useful in as far as they helped scale back any unnecessary tension, and working to bring about an appeasement is useful,” the French leader said after a meeting with Spanish Prime Minister Pedro Sanchez in Madrid. “But a good trade discussion… can only be done on a balanced, reciprocal basis, and in no case under any sort of threat,” Macron said. “In this regard, we have a number of questions and concerns that we will clarify”.

Macron said he was “not in favour of us launching a vast trade agreement, along the lines of the TTIP, because the current context does now allow for that,” referring to a transatlantic free-trade deal which stalled two years ago. And he reaffirmed his opposition to including agriculture in any such deal. “I believe that no European standard should be suppressed or lowered in the areas of the environment, health or food, for example.” Macron went on to insist that “clear gestures are needed from the US, signs of de-escalation on steel and aluminium, on which the United States have imposed illegal taxes. That, for me, would constitute a prelude to making further concrete headway” on trade.

Read more …

Rinse and repeat.

EU’s Barnier Kills Off Theresa May’s Brexit Customs Proposals (G.)

Michel Barnier has warned that attempts to appeal to EU leaders over his head were a waste of time as he rejected Theresa May’s proposals on customs after Brexit, in effect killing off the Chequers plan. On Friday Theresa May travels to Austria to meet Chancellor Sebastian Kurz and the Czech prime minister Andrej Babis, before heading off on her summer holiday. May’s trip follows the EU chief Brexit negotiator insisting there was no difference of opinion in European capitals to exploit. “Anyone who wants to find a sliver of difference between my mandate and what the heads of government say they want are wasting their time, quite frankly,” he told reporters at a joint press conference with the new Brexit secretary, Dominic Raab, in Brussels.

The British negotiators have become increasingly frustrated with the EU’s attitude to the white paper thrashed out at the prime minister’s country retreat. They feel that it will take an intervention by leaders, most likely at a summit in Salzburg in September, to move the dial in favour of a deal. A number of cabinet ministers have been despatched around EU capitals to make their case for greater flexibility. The impasse in the negotiations was laid bare in the press conference in the European commission’s Berlaymont headquarters as a thunderstorm broke outside. While Raab insisted that with “political will” a deal on trade and on avoiding a border on the island of Ireland was achievable by a crunch summit in October, Barnier offered a damning verdict on a major element of the UK’s vision of the future.

Read more …

And the lira plunges some more…

Trump Threatens Turkey Sanctions Over Detained Pastor (AP)

President Donald Trump says the U.S. will hit Turkey with “large sanctions” over a American pastor detained on terror and espionage charges, and he called for the pastor’s immediate release. Tweeting from aboard Air Force One, Trump said: “The United States will impose large sanctions on Turkey for their long time detainment of Pastor Andrew Brunson, a great Christian, family man and wonderful human being.” Trump said Brunson “is suffering greatly. This innocent man of faith should be released immediately!”

Just hours earlier, Vice President Mike Pence said that if Turkey does not take immediate action to free Brunson, “the United States of America will impose significant sanctions on Turkey.” Pence spoke at the close of a three-day conference in Washington on religious freedom. Brunson, 50, an evangelical Christian pastor originally from North Carolina, was let out of jail Wednesday, after 1 1/2 years, to serve house arrest because of “health problems,” according to Turkey’s official Anadolu news agency.

Read more …

Hope Judge Sabraw comes down hard on them. When he set the deadlines a month ago, he said: “These are firm deadlines; they’re not aspirational goals.”

US Government Misses Judge’s Midnight Deadline For Reunifying Families (Ind.)

US lawyers and activists have described “chaos and confusion” at immigrant detention facilities as the Trump administration scrambles to reunify the more than 2,500 migrant children it separated from their parents at the border in recent months. The government is rushing to meet a Thursday night deadline set by US District Court Judge Dana Sabraw, who ordered all of the families reunified as part of a lawsuit brought by the American Civil Liberties Union last month. As of Tuesday, officials said they had identified 1,634 parents possibly eligible for reunification with their children, and successfully reunified some 1,012 of them. The government was scheduled to provide an updated count to Judge Sabraw on Friday morning.

But the government also said more than 900 parents may not be eligible for reunification because they had waived their right to reunification, had criminal backgrounds, or were otherwise deemed unfit. Some 462 of those parents had already left the country, the administration said, though it was unclear whether they had volunteered to leave or had been deported against their will. Lee Gelernt, the lead attorney on the case, took issue with this number, saying the Trump administration was “unilaterally picking and choosing who is eligible for reunification”. “We will continue to hold the government accountable and get these families back together,” he said in a statement.

Immigrants’ rights groups warned that many of the parents who had left the country already may have done so under duress or coercion, or armed with bad information. Advocates described parents being pressured by Immigration and Customs Enforcement (ICE) to sign paperwork they didn’t understand, or being told that they would not be reunified with their children unless they agreed to be deported.

Read more …

The Wall Street Journal forgets to mention that consumers have nothing left to spend. Growth prospects?

Taxation Strangles Greece’s Growth Prospects (WSJ)

Greece is scheduled to exit its marathon bailout this summer after hitting the tough fiscal targets set by its creditors. But the country has done so by raising taxes so high that they are strangling the small businesses that form the backbone of its economy. At the Dandy restaurant in downtown Athens, owner Charalampos Bonatsos said rising taxes have forced him to lay off half his staff and cut his remaining workers’ wages. He said he still struggles to cope with the last three years’ increases in corporate income tax, property tax and sales tax. “All that matters is reaching the bailout goals. No one cares whether doing business is possible with this policy,” Mr. Bonatsos said.

The tax increases have left Greece with some of Europe’s highest tax rates across several categories, including 29% on corporate income, 15% on dividends, and 24% on value-added tax (a rough equivalent of U.S. sales tax). Individuals pay as much as 45% income tax, plus an extra “solidarity levy” of up to 10%. Furthermore, workers and employers pay social-security levies of up to 27% of their salaries. The elevated taxes under Greece’s bailout program have fallen most heavily on small and midsize businesses and self-employed people. Lawyers and engineers, most of whom are self-employed, are fighting the government in court over having to pay what they say is up to 80% of their average monthly takings in taxes and levies.

Some also have to pay retroactive social-security contributions, to the point where professional associations say some of their members are having to pay more to the state than they make. The painfully high taxes reflect the tough demands of Greece’s main creditors: other eurozone countries led by Germany, and the IMF. Since Greece’s finances spun out of control, its bailout lenders have forced the country to cut its budget deficit from over 15% of GDP in 2009 to a surplus of around 1% in 2017. [..] The tax burden creates a serious disincentive for economic activity. It mainly hits the most productive part of the Greek society,” said George Pagoulatos, professor of economics at the Athens University of Economics and Business. “Greece resembles Scandinavian-style taxation, but its welfare state has nothing to compare to theirs: You don’t get anything in return.”

Read more …

Words fail. Yesterday, heavy rains flooded areas 25km from Mati.

Death Toll From Greek Wildfires Rises To 85, Scores Stll Missing (K.)

The death toll from the deadly blaze that ravaged the coastal town of Mati in east Attica on Monday rose to 85 on Thursday, after a 73-year-old man who was in intensive care in Athens’ Evangelismos hospital died and two more bodies were discovered by rescue crews. Earlier in the day, a fire service spokesperson told journalists the number had risen to 82. Stavroula Malliri said rescuers are looking for missing people but have not yet entered closed houses in affected areas. About 300 firemen and volunteers combed through the area looking for dozens reported missing, among them two 9-year old sisters.

“Understanding the agony of the relatives of those missing, we inform you that the search to find them will not stop until all buildings and areas affected by the blaze have been checked,” she told journalists. Malliri called on the relatives of those missing to visit the forensics department of the University of Athens in Goudi until Friday (8 a.m. to 8 p.m.) where they will be briefed about the procedure followed to identify the victims. The Infrastructure Ministry announced earlier on Thursday that 1,218 buildings (48.93 pct) out of the 2,489 assessed by its engineers since Tuesday were deemed uninhabitable.

Read more …

Don’t worry, we’ll get to that yet.

Only 13% Of World’s Oceans Are Still Untouched Wilderness (Ind.)

The area of the ocean that remains undamaged by humans is tiny, according to the first ever comprehensive analysis of “marine wilderness”. Global shipping, fishing operations and pollution running into the sea from land have all taken their toll on the world’s seas, including some of the most remote areas. Areas of true wilderness are vital as they are some of the most diverse parts of the ocean and the last places on Earth still inhabited by sizeable numbers of large predators like sharks. Even the few fragments that remain are threatened as advanced fishing technologies and melting sea ice expose them to human activity. Most of the remaining wilderness, which covers no more than 13% of the world’s oceans, can be found in the polar regions and around remote Pacific Island nations.

The scientists behind the study have called for international agreements to recognise the unique value of these zones. Kendall Jones of the University of Queensland, who led the research, said they were “astonished by just how little marine wilderness remains”. “The ocean is immense, covering over 70% of our planet, but we’ve managed to significantly impact almost all of this vast ecosystem,” he said. Crucially, less than 5% of the remaining wilderness is officially protected. “This means the vast majority of marine wilderness could be lost at any time, as improvements in technology allow us to fish deeper and ship farther than ever before,” explained Mr Jones. “Thanks to a warming climate, even some places that were once safe due to year-round ice cover can now be fished.”

Read more …

Apr 192016
 
 April 19, 2016  Posted by at 9:37 am Finance Tagged with: , , , , , , , , , ,  


G.G. Bain Pelham Park Railroad, City Island monorail, NY 1910

The Hole at the Center of the Rally: S&P Margins in Decline (BBG)
US Nonfinancial Debt Rises 3.5 Times Faster Than GDP (Mauldin)
Asia’s Rich Urged to Buy US Dollars (BBG)
It’s All Suddenly Going Wrong in China’s $3 Trillion Bond Market (BBG)
China Will Bring All The BRICS Tumbling Down (Forbes)
China March Home Prices Rise At Fastest Rate In Two Years (Reuters)
Why Obama Administration Tries to Keep 11,000 Documents Sealed (Matt Taibbi)
Obama Official: Seed Money That Created Al Qaeda Came From Saudi Arabia (P.)
Saudis Are Going For The Kill But The Oil Market Is Turning Anyway (AEP)
A New Map for America (NY Times)
No One Worries Enough About Black Swans (ZH)
Credit Suisse: Germany’s Large Surplus Is The Problem, Not the ECB (BBG)
Talks With Creditors To Resume But Athens Rejects Fresh Austerity (Kath.)
Every Move You Make Is Being Monitored (Whitehead)
The Elephant Cometh (Jim Kunstler)
Over 400 Migrants Drown On Their Way To Italy (Reuters)

“Without the Federal Reserve chipping in with quantitative easing, investors have to go back to valuations and earnings..”

The Hole at the Center of the Rally: S&P Margins in Decline (BBG)

Stocks are rising, the worst start to a year is a memory, and short sellers are getting pummeled. And yet something is going on below the surface of earnings that should give bulls pause. It’s evident in quarterly forecasts for the Standard & Poor’s 500 Index, where profits are declining at the steepest rate since the financial crisis relative to revenue. The divergence reflects a worsening contraction in corporate profitability, with net income falling to 8% of sales from a record 9.7% in 2014. Bears have warned for years that such a deterioration would sound the death knell for a bull market that is about two weeks away from becoming the second-longest on record even as productivity sputters and industrial output weakens.

While none of it has prevented stocks from advancing in seven of the last nine weeks, rallies have seldom weathered a decline in profitability as violent as this one – and the squeeze is often a bad sign for the economy, too. “Analysts have seen the string pull as far as it can go, and there is no way for it to go but to reverse for the moment,” said Barry James at James Investment Research in Xenia, Ohio. “Without the Federal Reserve chipping in with quantitative easing, investors have to go back to valuations and earnings, and both of those – one is high and the other is low – that’s not a very good recipe for stocks.” James said his firm is raising cash amid the recent rally in stocks.

While energy producers are expected to suffer the biggest contraction in margins because of plunging oil prices, with a 28% drop in sales accompanying a first-quarter loss, analyst predicted six of the other 10 S&P 500 industries will also report lower profitability. Financial and raw-materials companies will see income growth trailing sales by at least 12 percentage points.

Read more …

It’s just like China.

US Nonfinancial Debt Rises 3.5 Times Faster Than GDP (Mauldin)

In my recent Outside the Box, good friend Dr. Lacy Hunt of Hoisington Investment Management gave us more ammunition to take on those who just don’t seem to get that the endless piling up of debt is not a sustainable way to run an economy. The most striking feature of the US economy’s performance in 2015, according to Lacy, was a massive advance in nonfinancial debt that kept the economy stuck in the doldrums of subpar growth.

US nonfinancial debt rose 3.5 times faster than GDP last year. (Nonfinancial debt is the sum of household debt, business debt, federal debt, and state and local government debt. Lacy also points out unfavorable trends in each component of nonfinancial debt.

Household debt: Delinquencies in household debt moved higher even as financial institutions continued to offer aggressive terms to consumers, implying falling credit standards. Furthermore, the New York Fed said subprime auto loans reached the greatest%age of total auto loans in ten years. Moreover, they indicated that the delinquency rate rose significantly.

Business debt: Last year business debt, excluding off balance sheet liabilities, rose $793 billion, while total gross private domestic investment (which includes fixed and inventory investment) rose only $93 billion. Thus, by inference this debt increase went into share buybacks, dividend increases, and other financial endeavors…. When business debt is allocated to financial operations, it does not generate an income stream to meet interest and repayment requirements. Such a usage of debt does not support economic growth, employment, higher paying jobs, or productivity growth. Thus, the economy is likely to be weakened by the increase of business debt over the past five years.

Federal debt: US government gross debt, excluding off balance sheet items, gained $780.7 billion in 2015 or about $230 billion more than the rise in GDP…. The divergence between the budget deficit and debt in 2015 is a portent of things to come. This subject is directly addressed in the 2012 book The Clash of Generations, published by MIT Press, authored by Laurence Kotlikoff and Scott Burns. They calculate that on a net present value basis the US government faces liabilities for Social Security and other entitlement programs that exceed the funds in the various trust funds by $60 trillion. This sum is more than three times greater than the current level of GDP.

State and local government debt: State and local governments … face adverse demographics that will drain underfunded pension plans…. The state and local governments do not have the borrowing capacity of the federal government. Hence, pension obligations will need to be covered at least partially by increased taxes, cuts in pension benefits or reductions in other expenditures.

Read more …

The currency wars simmer on. Time for the vigilantes.

Asia’s Rich Urged to Buy US Dollars (BBG)

Money managers for Asia’s wealthy families are telling clients to buy U.S. dollars as a rally this year in regional currencies begins to sputter. Credit Suisse is advising its private-banking clients to bet the greenback will gain versus a basket of peers that includes the South Korean won, Taiwan dollar, Thai baht and Philippine peso. UBS said investors should buy the currency against the Singapore dollar and yen. Stamford Management, which oversees about $250 million for Asia’s rich, urged clients to buy the U.S. dollar each time it falls below S$1.35. The Monetary Authority of Singapore’s unexpected easing on April 14 has fueled speculation that other policy makers, concerned about a worsening global economic outlook, will follow suit.

A gauge of 10 Asian currencies excluding the yen has fallen 0.1% this month. The Bloomberg-JPMorgan Asia Dollar Index climbed 1.9% in the first three months of the year, the first gain in seven quarters, as traders adjusted bets on the timing of U.S. interest-rate increases. “We see good opportunity now to hedge against U.S. dollar strength after the strong rally in Asian currencies in the first quarter,” said Koon How Heng at Credit Suisse in Singapore. “There are risks that other Asian central banks may follow up with some more easing in the second half if their respective growth outlooks deteriorate further.” The prospect of renewed weakness in the Chinese yuan and two interest rate increases by the Federal Reserve in the second half of the year will boost the greenback, Heng said.

Read more …

“China’s aggregate financing – a broad measure of credit that includes corporate bonds – almost doubled from a year earlier to 2.34 trillion yuan [..] Yet even that wasn’t enough to save the seven Chinese companies that reneged on bond obligations this year.”

It’s All Suddenly Going Wrong in China’s $3 Trillion Bond Market (BBG)

The unprecedented boom in China’s $3 trillion corporate bond market is starting to unravel. Spooked by a fresh wave of defaults at state-owned enterprises, investors in China’s yuan-denominated company notes have driven up yields for nine of the past 10 days and triggered the biggest selloff in onshore junk debt since 2014. Local issuers have canceled 60.6 billion yuan ($9.4 billion) of bond sales in April alone, while Standard & Poor’s is cutting its assessment of Chinese firms at a pace unseen since 2003. While bond yields in China are still well below historical averages, a sustained increase in borrowing costs could threaten an economy that’s more reliant on cheap credit than ever before.

The numbers suggest more pain ahead: Listed firms’ ability to service their debt has dropped to the lowest since at least 1992, while analysts are cutting profit forecasts for Shanghai Composite Index companies by the most since the global financial crisis. “The spreading of credit risks is only at its early stage in China,” said Qiu Xinhong at First State Cinda Fund Management. “Many people have turned bearish.” China’s leaders face a difficult balancing act. On one hand, allowing troubled companies to default forces investors to pay more attention to credit risk and accelerates government efforts to curb overcapacity. The danger, though, is that investor panic leads to tighter credit conditions, dealing a blow to President Xi Jinping’s plan to keep the economy growing by at least 6.5% over the next five years.

Economic figures for March reveal a growing dependence on debt. China’s aggregate financing – a broad measure of credit that includes corporate bonds – almost doubled from a year earlier to 2.34 trillion yuan, exceeding all 24 forecasts in a Bloomberg survey as policy makers turned on the taps to support economic growth. Yet even that wasn’t enough to save the seven Chinese companies that reneged on bond obligations this year. Three of those were part-owned by China’s government, seen not long ago as a provider of implicit guarantees for bondholders. Dongbei Special Steel on April 13 missed a third payment since its chairman was found dead by hanging last month, while Chinacoal Group failed to make a distribution on April 6.

Read more …

And not just the BRICS.

China Will Bring All The BRICS Tumbling Down (Forbes)

The concept of the BRICs isn’t heard much these days beyond some cooperative institution building efforts. Originally a Goldman Sachs authored attempt to identify growth opportunities for investors (referring to Brazil, Russia, India and China), it was picked up by those countries to symbolise a hoped-for rotation in the world order: away from the old hierarchy of the West and the Rest, towards a more balanced configuration of global economic progress. For inclusiveness, the ‘s’ was eventually capitalised into ‘South Africa’ so that the African continent was not left out. With hindsight, it remains curious that the idea was ever taken seriously beyond the confines of investor advice. The nominated states have little in common, although the public diplomacy of developing economy cooperation has a lingering appeal.

The Russian economy was always based largely on hydrocarbons, and Brazil’s expansion was a broader commodity play. Each, therefore, nurtured an important relationship with China. Now, though, as commodity prices have sunk, China is the only buyer left and has no qualms about driving a hard bargain. Massive Chinese infrastructure investment created the temporary illusion of wealth while global debt levels grew relentlessly. The commodity curse then undermined real economic progress around the world, as elites chased diminishing surplus for patronage and popularity. This has left producers exposed; one – Venezuela – rapidly becoming a wasteland. In other countries, what limited democracy there was has been hollowed out, leaving Russia in a state of egregious industrial and demographic decline, and Brazil confirming stereotypes about Latin American corruption.

All because the orders are drying up and the money has run out. Both Brazil and Russia are facing the possibility of imminent collapse. India, by contrast, is its own story, a perpetual tale of slow promise that plays tortoise to China’s hare. The only real story behind the BRICs was always just the ‘C,’ as in China, and the huge investment boom that powered commodity prices towards the fantasy of a ‘super-cycle’ – another word we don’t hear much anymore – drove the whole world mad. There was money for social programs in Brazil to lift up the poor, money for Putin’s new model army in Russia to restore imperial prestige, and money for the Olympics and World Cup in both countries. Then there was money for London palaces, money for Panamanian bank accounts, money for small wars and some leftover for the supposed institutions of a ‘new world order,’ since deferred.

Now, China’s policy dilemma belongs to everyone. Having spent 15 years sucking consumption and investment from everywhere, China now has a productive capacity it cannot possibly sustain, and faces a world reluctant any longer to make up for the deficiencies in Chinese demand. It therefore confronts a build up of debts it will struggle to pay and investors who expect a return they may not receive.

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Beijing still can’t seem to see the danger.

China March Home Prices Rise At Fastest Rate In Two Years (Reuters)

China’s home prices in March gained at the fastest pace in almost two years but that growth may slow as local authorities tighten home purchase requirements in the two top performing cities on fears of a bubble forming. The southern city of Shenzhen continued to be the top performer, with home prices surging 61.6% from a year ago, followed by Shanghai with a 25% gain. Prices in the two cities were up 3.7% and 3.6% respectively from a month earlier. Average new home prices in 70 major cities rose 4.9% last month from a year ago, picking up from February’s 3.6% rise, according to Reuters calculations based on data released by the National Statistics Bureau (NBS) on Monday. March prices were up 1.1% compared to a month ago.

China’s housing market bottomed out in the second half of 2015 on a series of government support measures, but a strong rebound in prices in the biggest cities has sparked concerns that some markets may be overheating, driving Shanghai and Shenzhen’s authorities to tighten downpayment requirements for second homes and raising the eligibility bar for non-residents. While home sales in the two cities plunged as much as 52% after the tightening, prices eased only by single digit, according to data from China Real Estate Index System (CREIS). April’s official data, which will reflect the impact of the tightening measures, is due to be released in mid-May. Area of property sold in the first quarter grew 33.1% to a near three-year high, according to data from the National Bureau of Statistics (NBS) on Friday.

While property in China’s top-tier cities is booming, prices in smaller centers, where most of China’s urban population lives, are still sinking and complicating government efforts to spread wealth more evenly and arrest slowing economic growth. “(Monthly) price rises among cities still showed big differences. Cities with big rises were concentrated in the first-tier and, in part, the hot tier-two cities. Their growth is much faster than other cities, with the rest of the second-tier and third-tier cities relatively stable,” Liu Jianwei, a senior statistician at the NBS, said in a statement accompanying the data. The NBS data showed 40 of 70 major cities tracked by the NBS saw year-on-year price gains, up from 32 in February.

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Another A-class piece from Taibbi.

Why Obama Administration Tries to Keep 11,000 Documents Sealed (Matt Taibbi)

[..] Even after the state took over the companies in September of 2008, Fannie and Freddie continued to buy as much as $40 billion in bad assets per month from the private sector. Fannie and Freddie weren’t just bailed out, they were themselves a bailout, used to sponge up the sins of private firms. The original takeover mechanism was a $110 billion bailout, followed by a move to place Fannie and Freddie in conservatorship. In exchange, the state received an 80% stake and the promise of a future dividend. All told, the government ended up pumping about $187 billion into the companies. But now here’s the strange part. Within a few years after the crash, the housing markets improved significantly, to the point where Fannie and Freddie started to make money again. Lots of money. The GSEs became cash cows again, and in 2012 the government unilaterally changed the terms of the bailout.

Now, instead of taking a 10% dividend, the government decided that the new number it preferred was 100%. The GSE regulator, the Federal Housing Finance Agency (FHFA), explained the new arrangement. “The 10% fixed-rate dividend was replaced with a variable structure, essentially directing all net income to the Treasury,” the FHFA wrote. “Replacing the current fixed dividend in the agreements with a variable dividend based on net worth helps ensure stability [and] fully captures financial benefits for taxpayers.” “I’m not worried about Fannie and Freddie’s health,” said former House Financial Services Committee chair Barney Frank. “I’m worried that they won’t do enough to help out the economy.” Translation: We’re taking all your money, not just the money you owe. In court filings later on, the government offered a strange excuse for this sudden and dramatic change in the bailout terms. It explained that at the time, the GSEs “faced enormous credit losses” and “found themselves in a death spiral.”

The government claimed that the poor financial condition of the GSEs would force the Treasury to throw more money at the operations, increasing the total commitment of taxpayers and leading quickly to insolvency. It absolutely denied any foreknowledge that the firms were on the verge of massive profitability. It got weirder. Despite the fact that the GSEs went on to pay the government $228 billion over the next three years, or $40 billion more than they owed, none of that money went to paying off Fannie and Freddie’s debt. When Sen. Chuck Grassley asked aloud how it was that the company and its shareholders were not yet square with the government, the Treasury Department testily answered, in essence, that the bailout had not been a loan, but an investment. This was not a debt that could be paid back. Like a restaurant owner who borrows money from a mobster, the GSEs found themselves in an unseverable relationship.

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Obama visits SA on Wednesday…

Obama Official: Seed Money That Created Al Qaeda Came From Saudi Arabia (P.)

President Barack Obama’s deputy national security adviser said that the government of Saudi Arabia had paid “insufficient attention” to money that was being funneled into terror groups and fueled the rise of Al Qaeda. Ben Rhodes was speaking to David Axelrod in his podcast “The Axe Files” out Monday when he was asked about the validity of the accusation that the Saudi government was complicit in sponsoring terrorism. “I think that it’s complicated in the sense that, it’s not that it was Saudi government policy to support Al Qaeda, but there were a number of very wealthy individuals in Saudi Arabia who would contribute, sometimes directly, to extremist groups. Sometimes to charities that were kind of, ended up being ways to launder money to these groups,” Rhodes said.

“So a lot of the money, the seed money if you will, for what became Al Qaeda, came out of Saudi Arabia,” he added. “Could that happen without the government’s awareness?” Axelrod asked. Rhodes said he doesn’t believe the government was “actively trying to prevent that from happening.” But he said that certain people, within the government or their family members, were able to operate on their own which allowed for the money flows. “So basically there was, at certainly, at least kind of a insufficient attention to where all this money was going over many years from the government apparatus,” Rhodes said. The remarks from Rhodes come as Obama prepares to head to Saudi Arabia on Wednesday and confront the strained relations between the two allies.

The Saudis are still fuming over an Atlantic magazine article that described Obama’s frustrations with Saudi Arabia’s religious ideology, its treatment of women and its rivalry with Iran. Obama also suggested in the piece that Saudi Arabia and other Gulf Arab states are “free riders” who rely too much on the U.S. military. Friction has also been created by a push from relatives of people who died on 9/11 and a bipartisan group of lawmakers to allow U.S. courts to hold the Saudi government responsible if it is found to have played a role in the 2001 attacks.

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Ambrose is always hit and miss. This one is BIG miss: “The scare earlier this year was misguided. It is the next oil supply crunch we should fear most.” No, it’s demand.

Saudis Are Going For The Kill But The Oil Market Is Turning Anyway (AEP)

The collapse of OPEC talks with Russia over the weekend makes absolutely no difference to the balance of supply and demand in the global oil markets. The putative freeze in crude output was political eyewash. Hardly any country in the OPEC cartel is capable is producing more oil. Several are failed states, or sliding into political crises. Russia is milking a final burst of production before the depleting pre-Soviet wells of Western Siberia go into slow run-off. Sanctions have stymied its efforts to develop new fields or kick-start shale fracking in the Bazhenov basin. Saudi Arabia’s hard-nosed decision to break ranks with its Gulf allies at the meeting in Doha – and with every other OPEC country – punctures any remaining illusion that there is still a regulating structure in global oil industry.

It told us that the cartel no longer exists in any meaningful sense. Beyond that it was irrelevant. Hedge funds were clearly caught off guard by the outcome since net ‘long’ positions on the futures markets were trading at a record high going into the meeting. Brent crude plunged 7pc to $41 a barrel in early Asian trading, but what is more revealing is how quickly prices recovered. Market dynamics are changing fast. Output is slipping all over the place: in China, Latin America, Kazakhstan, Algeria, the North Sea. The US shale industry has rolled over, though it has taken far longer than the Saudis expected when they first flooded the market in November 2014. The US Energy Department expects total US output to drop to 8.6m barrels per day (b/d) this year from 9.4m last year.

China is filling up the new sites of its strategic petroleum reserves at a record pace. Its oil imports have jumped to 8m b/d this year from 6.7m in 2015, soaking up a large part of the global glut. Some is rotating back out again as diesel: most is being consumed in China. Goldman Sachs says the twin effect of rising demand and supply disruptions across the world is bringing the market back into balance, leading to a “sustainable deficit” as soon as the third quarter. The inflexion point could come sooner than almost anybody expects if a strike this week in Kuwait drags on as oil workers fight pay cuts. The outage is already costing 1.6m b/d. Kuwait’s woes are the first taste of how difficult it will be for the petro-sheikhdoms to impose austerity measures or threaten the cradle-to-grave social contracts that keep a lid on dissent across the Gulf.

There is little doubt that Mohammad bin Salman, the deputy-crown prince and de facto ruler of Saudi Arabia, wanted an excuse to sabotage the Doha deal. He added a fresh demand that non-OPEC Norway should also limit output – a non-starter – as well as hardening the Saudi objection to Iran’s full return to pre-sanctions output. The calculus is that his country has the deepest pockets and will ultimately stand to gain by shaking out weaker players. This is a gamble. Saudi Arabia is running through $10bn of foreign exchange reserves a month to plug its fiscal deficit. The fixed riyal peg makes it much harder to roll with the budgetary punches as Russia is able to do with the floating rouble. Saudi Arabia is not as rich as often supposed. Per capita income is the same as in Greece. Standard & Poor’s has cut its credit rating twice to A-, and for good reason. The Saudis never built up a proper sovereign wealth fund in good times. Their reserve coverage is two-thirds less than in Kuwait, or Abu Dhabi.

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Decentralization goes global.

A New Map for America (NY Times)

These days, in the thick of the American presidential primaries, it’s easy to see how the 50 states continue to drive the political system. But increasingly, that’s all they drive — socially and economically, America is reorganizing itself around regional infrastructure lines and metropolitan clusters that ignore state and even national borders. The problem is, the political system hasn’t caught up. America faces a two-part problem. It’s no secret that the country has fallen behind on infrastructure spending. But it’s not just a matter of how much is spent on catching up, but how and where it is spent. Advanced economies in Western Europe and Asia are reorienting themselves around robust urban clusters of advanced industry. Unfortunately, American policy making remains wedded to an antiquated political structure of 50 distinct states.

To an extent, America is already headed toward a metropolis-first arrangement. The states aren’t about to go away, but economically and socially, the country is drifting toward looser metropolitan and regional formations, anchored by the great cities and urban archipelagos that already lead global economic circuits. The Northeastern megalopolis, stretching from Boston to Washington, contains more than 50 million people and represents 20% of America’s gross domestic product. Greater Los Angeles accounts for more than 10% of G.D.P. These city-states matter far more than most American states – and connectivity to these urban clusters determines Americans’ long-term economic viability far more than which state they reside in. This reshuffling has profound economic consequences.

America is increasingly divided not between red states and blue states, but between connected hubs and disconnected backwaters. Bruce Katz of the Brookings Institution has pointed out that of America’s 350 major metro areas, the cities with more than three million people have rebounded far better from the financial crisis. Meanwhile, smaller cities like Dayton, Ohio, already floundering, have been falling further behind, as have countless disconnected small towns across the country. The problem is that while the economic reality goes one way, the 50-state model means that federal and state resources are concentrated in a state capital – often a small, isolated city itself – and allocated with little sense of the larger whole. Not only does this keep back our largest cities, but smaller American cities are increasingly cut off from the national agenda, destined to become low-cost immigrant and retirement colonies, or simply to be abandoned.

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Taleb’s take-down of Noah Smith on Twitter has been epic.

No One Worries Enough About Black Swans (ZH)

Over the weekend, Bloomberg View’s quasi-economist wrote his latest laughable article, one which supposedly “explained” how “Everyone Worries Too Much About ‘Black Swans'”, which in addition to being a rambling, meandering stream of consciousness that as is regularly the case with this particular author, made little sense, sparked a Twitter feud with the Nassim Taleb, the person who made the concept of a Black Swan into a household name. We were therefore very amused to note that none other than former FX trader and fund manager, Richard Breslow, who also writes for Bloomberg, seemingly had an epileptic fit upon reading the abovementioned drivel and wrote his own scathing reaction from the perspective of an actual trader, a rection which not only threw up on every argument of the so-called economist’s logic, but on everything else that now is passed off simply as, well, “the new normal.” Here is Richard Breslow:

No One Worries Enough About Black Swans

Trading is a hard business. The world is becoming a more complicated place: a number out of China may do more to the price of your U.S. shares in a retailer than, well, U.S. retail sales. Yet creeping, dangerously, into the investment advice dialog is the argument that buying and holding no matter what the event is the winning strategy. If you ever needed a “past results don’t guarantee…” disclaimer it’s especially true now. It’s not surprising that such shallow reasoning is becoming commonplace. Sure beats staying late at the office doing cash-flow analysis. Bad things happen and the Fed will cut rates. Worked time and again. Presto chango, that financial crisis was a buying event, stupid.

It’s gotten much worse post the latest financial crisis, as it’s assumed asset prices are the main (sole) focus of the all powerful central banks. To buy (pun intended) into this you have to presuppose that Black Swan events are easily controllable episodes that last short amounts of time. That the authorities have unlimited firepower to counteract every natural and man-made disaster. Equally scary, academics as well as analysts have taken to arguing that investors are overestimating the probability of crisis events. You don’t need to be a Taleb or Mandelbrot to calculate that we have been having once in a hundred year events on a regular basis for the last thirty years. Did a crisis happen, if you made money?

This flawed logic argues not only buy every dip, but why waste money on hedges? It assumes unlimited deep pockets and the nerve of a non-sentient computer. Just go “all in.” Looking more like today’s world all the time. Portfolio theory thrown right out the window. Perhaps Harry Markowitz will have his Nobel revoked. A portfolio built to only withstand stress thanks to central bank intervention is one destined to blow-up spectacularly. The embedded flaw in this new logic is that central banks give investors perfect foresight. And nothing can go wrong. Re-read the Investment Process section of those prospectuses.

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“His words sounded like a request of a bailout for his countries’ saving industry and savers, in an ironic twist from previous bailout requests coming from the periphery.”

Credit Suisse: Germany’s Large Surplus Is The Problem, Not the ECB (BBG)

Forget about Greek debt sustainability. Another part of the continent is in need of relief—and this time, it’s a part of the core, not the periphery. That’s how Credit Suisse analysts led by Peter Foley characterized comments from German Finance Minister Wolfgang Schaeuble earlier this month. “The German Finance minister said record low interest rates were causing ‘extraordinary problems’ for German financial institutions and pensioners and risked undermining voters’ support for European integration,” writes Foley. “His words sounded like a request of a bailout for his countries’ saving industry and savers, in an ironic twist from previous bailout requests coming from the periphery.” A common criticism of unconventional central bank policy is that the ultra-low interest rates are too onerous for savers. At present, the average German bund yield is barely above zero:

Some analysts have expressed more than a modicum of sympathy for Schaeuble’s position, indicating that the ECB’s policy represents a form of John Maynard Keynes’ prophesied ‘euthanasia of the rentier’ and is not justified by its positive side effects. But instead of blaming the ECB, Foley suggests that German fiscal policymakers should pull the levers at their disposal to help remedy this situation. “Germany has continued to run a large current account surplus, and has increased it further–from 5.7% of GDP in 2009 to 8.5% in 2015,” wrote the analyst, noting that this surplus constituted the largest imbalance among major economies by this metric. “In an environment short on aggregate demand, Germany’s surplus is a problem, both globally and to the rest of the euro area.”

Foley recommends that the German authorities move to more aggressively reduce financial imbalances by increasing public investment, support private demand in certain soft segments, and implement more structural reforms. This would support Germany’s growth as well as that of its European partners, and as an added bonus, would address Schauble’s concerns about the woes of savers all in one fell swoop, the analyst concludes, by lessening the ECB’s need to support the currency union with unconventional stimulus.

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I see a hot summer.

Talks With Creditors To Resume But Athens Rejects Fresh Austerity (Kath.)

With talks set to resume on Tuesday with Greece’s international creditors, Athens said on Monday it has no intention of implementing austerity measures beyond the commitments it signed on to in the third bailout last July and plans to seek “allies” among European countries that believe now is not the time create political instability in Greece. Government spokeswoman Olga Gerovasili said on Monday that Athens will abide by the commitments it made last July, “nothing more, nothing less.” Her comments came after the IMF and the EU, which overcame their differences at the weekend over Greece’s budgetary outlook, took the wind out of the government’s sails by seeking another package of austerity measures to the tune of more than €3 billion (or 2% of GDP) in case there are target shortfalls over the next three years as a “guarantee” that Greece will achieve a primary budget surplus of 3.5% of GDP in 2018.

The government’s apparent defiance on Monday is a departure from its initial response at the weekend, when it implied that it could be open to discussion over the new measures – which relate to 2018 – as long as it received reassurances that it will get debt relief. Failure to wrap up the review could see negotiations drag on into June, which would put a further strain on the SYRIZA-led coalition’s fragile government, already struggling to stay afloat with a very slim majority of three deputies in Parliament. However, the new turn of events could foil the government’s ambitions, which include reaching a staff level agreement by Friday’s Eurogroup meeting in Amsterdam, to unlock vital tranches of rescue funds and pave the way for debt relief talks – a key demand by Greece.

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“..Simply by liking or sharing this article on Facebook or retweeting it on Twitter, you’re most likely flagging yourself as a potential renegade, revolutionary or anti-government extremist—a.k.a. terrorist.”

Every Move You Make Is Being Monitored (Whitehead)

“The way things are supposed to work is that we’re supposed to know virtually everything about what [government officials] do: that’s why they’re called public servants. They’re supposed to know virtually nothing about what we do: that’s why we’re called private individuals. This dynamic – the hallmark of a healthy and free society – has been radically reversed. Now, they know everything about what we do, and are constantly building systems to know more. Meanwhile, we know less and less about what they do, as they build walls of secrecy behind which they function. That’s the imbalance that needs to come to an end. No democracy can be healthy and functional if the most consequential acts of those who wield political power are completely unknown to those to whom they are supposed to be accountable.” – Glenn Greenwald

 

Government eyes are watching you. They see your every move: what you read, how much you spend, where you go, with whom you interact, when you wake up in the morning, what you’re watching on television and reading on the internet. Every move you make is being monitored, mined for data, crunched, and tabulated in order to form a picture of who you are, what makes you tick, and how best to control you when and if it becomes necessary to bring you in line. Simply by liking or sharing this article on Facebook or retweeting it on Twitter, you’re most likely flagging yourself as a potential renegade, revolutionary or anti-government extremist—a.k.a. terrorist. Yet whether or not you like or share this particular article, simply by reading it or any other articles related to government wrongdoing, surveillance, police misconduct or civil liberties is enough to get you categorized as a particular kind of person with particular kinds of interests that reflect a particular kind of mindset that might just lead you to engage in a particular kinds of activities.

Chances are, as the Washington Post reports, you have already been assigned a color-coded threat score—green, yellow or red—so police are forewarned about your potential inclination to be a troublemaker depending on whether you’ve had a career in the military, posted a comment perceived as threatening on Facebook, suffer from a particular medical condition, or know someone who knows someone who might have committed a crime. In other words, you might already be flagged as potentially anti-government in a government database somewhere—Main Core, for example—that identifies and tracks individuals who aren’t inclined to march in lockstep to the police state’s dictates. The government has the know-how.

As The Intercept recently reported, the FBI, CIA, NSA and other government agencies are increasingly investing in and relying on corporate surveillance technologies that can mine constitutionally protected speech on social media platforms such as Facebook, Twitter and Instagram in order to identify potential extremists and predict who might engage in future acts of anti-government behavior. Now all it needs is the data, which more than 90% of young adults and 65% of American adults are happy to provide.

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“This will go on until it can’t, which is what discontinuity is all about.”

The Elephant Cometh (Jim Kunstler)

The elephant’s not even in the room, which is why the 2016 election campaign is such a soap opera. The elephant outside the room is named Discontinuity. That’s perhaps an intimidating word, but it is exactly what the USA is in for. It means that a lot of familiar things come to an end, stop, don’t work the way they are supposed to — beginning, manifestly, with the election process now underway in all its unprecedented bizarreness. One reason it’s difficult to comprehend discontinuity is because so many operations and institutions of daily life in America have insidiously become rackets, meaning that they are kept going only by dishonest means. If we didn’t lie to ourselves about them, they couldn’t continue.

For instance the automobile racket. Without a solid, solvent middle-class, you can’t sell cars. Americans are used to paying for cars on installment loans. If the middle class is so crippled by prior debt and the disappearance of good-paying jobs that they can’t qualify for car loans, well, the answer is to give them loans anyway, on terms that don’t really pencil out — such as 7-year loans at 0% interest for used cars (that will be worth next to nothing long before the loan expires). This will go on until it can’t, which is what discontinuity is all about. The car companies and the banks (with help from government regulators and political cheerleaders) have created this work-around by treating “sub-prime” car loans the same way they treated sub-prime mortgages: they bundle them into larger packages of bonds called collateralized loan obligations.

These, in turn, are sold mainly to big pension fund and insurance companies desperate for “yield” (higher interest) on “safe” investments that ostensibly preserve their principal. The “collateral” amounts to the revenue streams of payments that are sure to stop because the payers are by definition not credit-worthy, meaning it was baked in the cake that they would quit making payments — especially when they go “under water” owing ever more money for junkers that have lost all value. It’s easy to see how that ends in tears for all concerned parties, but we “buy into it” because there seems to be no other way to a) boost the so-called “consumer” economy and b) keep the matrix of car-dependant suburban sprawl in operation. We took what used to be a fairly sound idea during a now-bygone phase of history, and perverted it to avoid making any difficult but necessary changes in a new phase of history.

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There is a very strange silence in western media about this.

Over 400 Migrants Drown On Their Way To Italy (Reuters)

Somalia’s government said on Monday about 200 or more Somalis may have drowned in the Mediterranean Sea while trying to cross illegally to Europe, many of them teenagers, when the boat they were on capsized after leaving the Egyptian shore. Italian President Sergio Mattarella had said earlier on Monday that several hundred people appeared to have died in a new tragedy in the Mediterranean, after unconfirmed reports spoke of up to 400 victims of capsizing near Egypt’s coast. More than 1.2 million African, Arab and Asian migrants have streamed into the EU since the start of last year, many of them setting off from North Africa in rickety boats that are packed full of people and which struggle in choppy seas.

“We have no fixed number but it is between 200 and 300 Somalis,” Somali Information Minister Mohamed Abdi Hayir told Reuters by telephone when asked about possible Somali deaths in the latest incident. Another Somali government statement, which offered condolences, put the number at “nearly 200”, saying they were mostly teenagers. It said the boat they were on had capsized after leaving Egypt. “There is no clear number since they are not traveling legally,” the minister said, adding that he understood the boat might have been carrying about 500 people, of which 200 to 300 were Somalis “and most of them had died”. He did not give a precise timing for the incident.

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Sep 112015
 
 September 11, 2015  Posted by at 9:57 am Finance Tagged with: , , , , , , , , , ,  


John Collier Japanese restaurant, Monday after Pearl Harbor, San Francisco Dec 8 1941

It Is In Warsaw Not Athens That The March Of The Euro Will Be Halted (Telegraph)
The German Counter-Attack On Juncker’s Euro Plans (FT)
Brussels Plans Radical New Eurozone Treasury And Euro Parliament (Telegraph)
Oil Could Drop as Low as $20, Goldman Says (Bloomberg)
Shale Drillers Turn to Asset Sales as Early Swagger Wanes (Bloomberg)
Emerging-Market Currencies: Things Look to Get Worse (WSJ)
Brazil Reduced To Junk As BRICS Facade Crumbles (AEP)
China’s ‘New Normal’ Growth Model Is Starting to Get Expensive (Bloomberg)
Is Today’s Volatility an Echo of 1987? (A. Gary Shilling)
UN Votes For New Debt Rules But UK, US Try To Block (Jubilee Debt Campaign)
The ECB Could Kick-Start The Economy With A Limited Basic Income (BI.org)
Rajoy’s Trump-Like Candidate Poses Trump-Like Risks in Catalonia (Bloomberg)
Bribes, Debt, $100 Billion Lost: Nigeria Can’t Keep the Power On (Bloomberg)
Auckland House Prices Rising $345 A Day (NZ Herald)
Sue Your Bank, Keep Your Home, Repeat (Bloomberg)
The Civil War In Syria – Part 2 (Beppe Grillo)

“It is about as keen on the euro as Nigel Farage.”

It Is In Warsaw Not Athens That The March Of The Euro Will Be Halted (Telegraph)

Another week, and another Greek crisis looms. It might seem only yesterday that the markets were on tenterhooks over whether the country would finally bring its miserable experiment in sharing a currency with Germany and France to an end, or whether there would be a last-minute compromise that would keep the show on the road for a few more months. Now, with elections due on September 20, and no clear victor likely, the whole circus is about to start up again. Investors could be forgiven for tuning out of the whole saga, and going back to worrying about whether anyone will actually pay £60 for an Apple Pencil, or what dramas lie in store for the Crawley family in the new series of Downton Abbey instead.

There is, however, an election coming up that genuinely matters to the future of the single currency – only it is taking place not in Greece, but in Poland. When that country elects a new government next month, the likely victor, the Law & Justice Party, will effectively close off the option of joining the euro one day. In reality, Greece was always too small and chaotic an economy to matter one way or another to the eurozone. But if Poland, along with the other rising economic powers of eastern Europe, turns its back on the euro, then that is far more serious. [..] When the big new countries of eastern Europe joined the EU, all of them were technically committed to joining the single currency as well. A few of the smaller ones have done so. Slovakia, Slovenia, Latvia and Lithuania have all joined since the currency was launched.

But with a combined population of less than 12m people, none of them has the weight to make much of an impact. The big countries are a different matter. With a combined population of 60m, Poland, Hungary and the Czech Republic are of a similar size, taken together, to Britain or France. Whether they ultimately join or not can have a big impact. From next month, that is going to be increasingly unlikely. Parliamentary elections are likely to result in the Right-wing Law & Justice party taking power. The party’s Andrzej Duda already overturned the odds to win the presidency earlier this year. It is about as keen on the euro as Nigel Farage. Only this week, Duda insisted that if Poland was to ever join the euro there would have to be a referendum: there is more chance of Nicola Sturgeon getting elected MP for Tunbridge Wells than of any country voting to join the euro – it usually gets pushed through without consultation.

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Translation: France vs Germany.

The German Counter-Attack On Juncker’s Euro Plans (FT)

When Jean-Claude Juncker this week told a packed European Parliament he intends to forge a eurozone system for guaranteeing bank deposits, the European Commission president’s intention was to send a firm message of determination to strengthen the single currency’s foundations. But just days after Juncker’s “state of the union” address, his attempt to sow hopeful seeds has hit stony ground in Berlin, where the plan was taken more as a declaration of war. Germany’s fightback begins when finance ministers gather in Luxembourg on Friday, and is set out in a “non paper” obtained by the FT. Unlike the series of emergency gatherings on Greece this summer, the weekend “informal” meeting of eurozone finance ministers was intended to be a calmer, and above all shorter, stocktaking of the health of the common currency.

Now, however, Germany has decided to use it as an opportunity to put down clear red lines in an attempt to redirect the eurozone reform discussion, which gained momentum following the mess of the July Greek bailout deal on what Berlin believes is an unacceptable course. Several other eurozone governments – notably France – were urging a speeding up of the eurozone reforms as a way to build confidence in the single currency after the tremors caused by a near “Grexit”, but the German paper, by so openly breaking with the EC, may instead highlight the deep differences that still exist. For Germany, Juncker’s announcement that he intends to “move swiftly on all fronts – economic, financial, fiscal and political Union,” seems to be viewed as a classic case of Europe seeking to put German taxpayers’ money where the EU’s mouth is. Or, alternatively, of putting the cart of shared financial risks, before the cart of tough creditor discipline.

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Europe had better stop this nonsense.

Brussels Plans Radical New Eurozone Treasury And Euro Parliament (Telegraph)

The survival of economic and monetary union will require the creation of new supra-national institutions, including a joint eurozone treasury and a separate euro parliament, according to the single currency’s bail-out chief. Klaus Regling, head of the European Stability Mechanism (ESM), joined a clamour of voices in Brussels who are pushing for member states to cede sovereignty in bid to establish a full-blown fiscal union on the Continent. The first step will be the creation of a eurozone finance ministry, backed by a separate chamber for the currency’s 19 member states in the European parliament, said Mr Regling, who oversees the euro’s €500bn rescue fund. The move is necessary to “increase the robustness and minimise the vulnerabilities of the currency union”, said Mr Regling.

He added it would “imply a significant transfer of sovereignty, requiring democratic legitimacy”, which could be provided by a “special chamber of the European Parliament composed of deputies solely from euro area Member States”. His comments follow on from Jean-Claude Juncker, president of the European Commission, who is pushing for the creation of a euro treasury, along with a system of common deposit insurance and beefed-up tax and spending powers for the European parliament. Details of the new treasury – which would act as a finance ministry, pooling funds from euro member states – remain sketchy. But the notion has long been championed by France who want to steer EMU away from simply an enforcer of fiscal discipline, into a true economic government of Europe. Paris has also called for the eurozone to have a permanent finance minister.

Benoit Couere, France’s executive board member on the ECB, has called for the new treasury to be founded on the principles of the ESM – which currently pools contributions guaranteed by all members states for use in times of emergency financial stress. The ESM will be providing up to €60bn of Greece’s latest rescue deal, and has been deployed to bail-out Spanish and Cypriot banks over the last three years. But plans to forge ahead with a political and fiscal union are likely to meet fierce resistance in Berlin. Germany, Europe’s largest creditor state and biggest contributor to eurozone rescue schemes, has rejected surrendering tax and budget powers to Brussels before tougher rules are put in place to limit spending and punish errant governments – including the French. “It’s much more of a French idea rather than something according to Germany’s vision for the euro,” said Michael Wohlgemuth, director of the Open Europe think-tank in Berlin. “Germans don’t even have a word for ‘treasury'”.

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Everyone must and will drill drill drill for cash flow.

Oil Could Drop as Low as $20, Goldman Says (Bloomberg)

The global surplus of oil is even bigger than Goldman Sachs thought and that could drive prices as low as $20 a barrel. While it’s not the base-case scenario, a failure to reduce production fast enough may require prices near that level to clear the oversupply, Goldman said in a report e-mailed Friday. The bank cut its forecast for Brent and WTI crude through 2016 on the expectation that the glut will persist on OPEC production growth, resilient non-OPEC supply and slowing demand expansion. “The oil market is even more oversupplied than we had expected and we now forecast this surplus to persist in 2016,” Goldman analysts including Damien Courvalin wrote in the report. “We continue to view U.S. shale as the likely near-term source of supply adjustment.”

Goldman trimmed its 2016 estimate for West Texas Intermediate to $45 a barrel from a May projection of $57. The bank also reduced its 2016 Brent crude prediction to $49.50 a barrel from $62. WTI for October delivery fell as much as 45 cents, or 1%, to $45.47 a barrel on the New York Mercantile Exchange and is heading for a weekly decline. Prices are down 14% this year. Brent for October settlement is 1.7% lower this week. Oil in New York has slumped more than 25% from its June closing peak amid signs the glut will persist. Leading members of OPECs are sustaining output, while Iran seeks to boost supply once international sanctions are lifted. U.S. stockpiles remain about 100 million barrels above the five-year seasonal average.

“We now believe the market requires non-OPEC production to shift from our prior expectation of modest growth to large declines in 2016,” Goldman said. “The uncertainty on how and where that adjustment will take place has increased.” The U.S. pumped 9.14 million barrels a day of oil last week, almost 3 million barrels above the five-year seasonal average, according to data from the Energy Information Administration. While the EIA this week cut its 2015 output forecast for the nation by 1.5% to 9.22 million barrels a day, production this year is still projected to be the highest since 1972. OPEC, the supplier of 40% of the world’s crude, has produced above its 30-million-barrel-a-day quota for the past 15 months. Iranian Oil Minister Bijan Namdar Zanganeh has vowed to increase output by 1 million barrels a day once sanctions are removed as the nation seeks to regain market share.

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What’s a company worth that is forced to sell its assets?

Shale Drillers Turn to Asset Sales as Early Swagger Wanes (Bloomberg)

A renewed plunge in oil prices and the winding down of other financial lifelines is forcing shale drillers to auction off once-prized assets and settle for less in potential deals. This week, companies such as Chesapeake Energy Corp. said they are embracing the strategy as they confront the reality of a prolonged, painful crash. While executives have assured investors that it won’t be a fire sale, recent deals suggest that prices have fallen significantly from even a few months ago, according to data compiled by Bloomberg. With one-sixth of major independent oil and gas producers facing debt payments that are more than 20% of their revenue, austerity has replaced the swagger that characterized the earliest days of the oil bust.

Contracts that locked in higher prices are expiring, leading banks to reduce credit lines in coming months. Drillers caught in the squeeze may be forced to auction off some of their best holdings to raise cash or accept more expensive financing to avoid bankruptcy, according to more than a dozen bankers, lawyers and company officials who specialize in energy deals. “These companies are starting to be a little more realistic about their situation and to face up to the fact that they will probably have to do something they don’t want to do,” said Omar Samji, a partner in law firm Jones Day in Houston. “There’s not going to be an easy lifeline.” The first wave of deals is already looming: sales of land holdings in prolific oil regions. Oil market gyrations since July have made valuations hard to pin down, dimming the outlook for sales of whole companies.

Instead, executives are looking to shore up their balance sheets by selling land or wooing deep-pocketed private equity groups or hedge funds to invest in their operations in exchange for a share of revenue, Samji said. Cobalt sold off discoveries in Angola last month and EOG has begun an auction for acreage in Colorado and Wyoming. Anadarko said it will continue to weigh offers, and Chesapeake said Tuesday it’s still pursuing asset sales. The Oklahoma City-based producer is said to be seeking buyers for dry gas acreage in the Utica shale formation, according to people with knowledge of the matter. “Chesapeake is not desperate,” Chief Executive Officer Doug Lawler told investors Tuesday. “We are not going to have a fire sale on any asset.”

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And more worserer after that.

Emerging-Market Currencies: Things Look to Get Worse (WSJ)

Investor bets that Brazil and South Africa will default on their debt hit their highest level since the financial crisis, underscoring the stress mounting on emerging-market economies heading into the most anticipated Federal Reserve meeting in years. The cost to buy credit-default swaps—insurance-like contracts that compensate users for debt defaults—is far from the only sign that investor anxiety is building ahead of the Fed’s two-day meeting concluding Sept. 17. Currencies in Turkey, South Africa and Malaysia have plunged to the weakest levels in many years against the dollar. The average 10-year government debt yield in emerging countries has increased significantly, even as U.S. yields have slipped this summer. Bond yields move inversely to prices.

Many investors believe the Fed will raise short-term interest rates this year for the first time since 2006, intensifying the strain on developing nations that in many cases already are struggling with slowing growth, substantial debt and crumbling demand for the commodities that are at the heart of many of their domestic economies. Turkey and Brazil are considered especially vulnerable by many investors, thanks to economic imbalances that will likely be exacerbated by the declines of their currencies. Turkey’s external debt, or debt borrowed from foreigners, as a%age of its GDP is among the highest of all emerging countries, while Brazil is facing problems including weaker commodity prices, sluggish Chinese demand for its goods and the government’s struggles to cut spending without hitting revenue.

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“Signatures were accumulating at 30,000 an hour on the pro-impeachment website on Thursday.”

Brazil Reduced To Junk As BRICS Facade Crumbles (AEP)

Brazil’s currency has plummeted to an all-time low and borrowing costs have tightened viciously after Standard & Poor’s slashed the country’s debt to junk status, warning that the budget deficit has reached danger levels. The downgrade is a painful blow to a nation that thought it had finally escaped the Latin American curse of boom-bust cycles and joined the top league of rich economies. It is the second of the big emerging market (EM) economies to be stripped of its investment grade rating this year after Russia crashed out of the club in January. Little remains of the BRICS allure that captivated the world seven years ago, and now looks like a marketing gimmick. The Brazilian real tumbled to 3.90 against the US dollar as markets braced for parallel moves by Fitch or Moody’s.

The currency has lost 31pc of its value this year and more than 60pc since early 2011, when slums in the favelas of Rio were selling for the price of four-bedroom houses in the US. “The numbers are going to get much worse before they get better. We see nothing on the horizon that could be perceived as ‘good’ news,” said Win Thin from Brown Brothers Harriman. Mr Thin expects the real to reach 4.50 over the next three to six months in a cathartic overshoot, with the Bovespa index of equities likely to fall by another two-fifths, testing its post-Lehman low of 29,435 as the excesses of the credit bubble come home to roost. Investors have begun to shed holdings of Brazilian debt, afraid that some funds may be forced to eject Brazil from their indexes and liquidate holdings if a second agency joins S&P.

Yields on 10-year domestic bonds spiked almost one%age point to 15.6pc in panic trading in Sao Paolo on Thursday. S&P said Brazil’s government has failed to get a grip on rampant over-spending as tensions erupt between President Dilma Rousseff’s Workers Party (PT) and her coalition partners, and the economy slides into deep recession, leaving it badly exposed as the US Federal Reserve starts to drain liquidity from the global economy. “We now expect the general government deficit to rise to an average of 8pc of GDP in 2015 and 2016,” it said. Mrs Rousseff said Brazil would “pay all its bills and meet all its obligations”. Yet it is unclear how long she can last as momentum builds for impeachment over her role in the Petrobras corruption scandal.

Signatures were accumulating at 30,000 an hour on the pro-impeachment website on Thursday. “People are sick of this government, which has yet to offer any way out of the crisis. It is utterly incapable of governing,” said opposition leader Mendoca Filho. The country is now in a classic stagflation trap. S&P expects the economy to contract by 2.5pc this year and 0.5pc next year, causing the debt ratio to ratchet up quickly. Mrs Rousseff is being forced to tighten policy into the recession in a belated bid to salvage credibility, just as the commodity slump eats into export revenues from iron ore and other raw materials. The current account deficit is 4pc of GDP.

Gabriel Gersztein, from BNP Paribas, said nothing short of a 400 to 500 point rise in rates would stabilize the currency, but the central bank cannot plausibly do this because it would deepen the downturn, playing havoc with debt dynamics. Bhanu Baweja, from UBS, said public debt is likely to reach 72.5pc of GDP by 2018 and could rise relentlessly after that as the country passes its demographic sweet spot and starts to age rapidly. “The clock slowly ticks on, asking ever louder questions about public debt sustainability,” he said.

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Command P.

China’s ‘New Normal’ Growth Model Is Starting to Get Expensive (Bloomberg)

When Premier Li Keqiang took the stage Thursday at the World Economic Forum s Summer Davos meeting in Dalian, he told business leaders that although China faces challenges, growth is on track and fundamentals remain sound. The upbeat message is all part of a New Normal narrative from China s leadership as the economy transitions from relying on heavy industry and debt to one driven by consumption and services. What Li didn t mention was the spiraling bill associated with keeping the economy on course to hit the Communist Party s growth target of about 7% for this year.

From building bridges and highways to shoring up the nation’s currency and stock markets, China is rolling out hundreds of billions of dollars in its biggest stimulus since the package that followed the 2008 global financial crisis. More spending is coming, with the finance ministry this week urging an acceleration of projects and promising to cut fees and taxes for companies, while provinces are taking their own steps to support growth. Beijing has turned on the taps, lifting spending on everything from infrastru cture to public services, said Frederic Neumann at HSBC in Hong Kong. The nation’s authorities cannot be accused of sitting idly by as growth decelerates, with measures announced year-to-date amounting to substantial policy support, he said.

The world’s second-largest economy is growing at its slowest pace in 25 years, forcing the central bank to cut interest rates five times since November and funnel credit to local governments to finance new construction. Estimates vary on the overall size of spending given the difficulty in netting out new expenditure and money that would have been spent anyway. Shen Jianguang at Mizuho Securities expects the stimulus package to be as large as the one rolled out in 2009 and 2010, with fixed asset investment of up to 10 trillion yuan ($1.57 trillion) over the next two to three years.

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No, Gary. Today’s markets are their own echo.

Is Today’s Volatility an Echo of 1987? (A. Gary Shilling)

Volatility – the rate at which prices move up or down – has leaped in many security markets recently. The St. Louis Fed’s Financial Stress Index, whose 18 components include yields on junk and corporate bonds, an index of bond market volatility, and the Standard & Poor’s 500 index, is almost at a four-year high. I believe the restrictions on bank trading imposed by the 2010 Dodd-Frank Act, including the ban on banks’ proprietary trading and increased capital requirements, are a key reason, at least in the U.S. Large banks and other financial institutions simply aren’t carrying the big trading positions they once did, and therefore, liquidity in many markets has atrophied.

Then there’s China’s stock-market nosedive and currency devaluation. They provided a wake-up call about China’s slowing growth and the global effects on commodity prices, emerging markets and money flows. Volatility in U.S. markets may also be due in part to the delayed effects of the ending of quantitative easing by the U.S. Federal Reserve late last year. Since stocks began to revive in March 2009, equities have been floating on a sea of Fed money with little connection to the slowly growing economy beneath – something I dubbed “the Grand Disconnect.” Then there’s the shaky base of corporate earnings growth. With slower economic growth, sales gains have been slight. And business pricing power has been almost nonexistent, with minimal inflation and a strong dollar.

So top-line revenue growth – the foundation for profit gains – has been largely missing. Resourceful American businesses have cut costs ruthlessly to make up for the lack of revenue growth. As a result, profits’ share of national income leaped from the lows of the 2007-2009 recession. But profits’ share has stalled over the last several years, reflecting the slowing of productivity growth. Also, stocks aren’t cheap relative to earnings. The price-to-earnings ratio on the S&P 500 index over the last year is 18.2, compared with the norm of 19.4 over the last 20 years. But the better measure is the cyclically adjusted ratio, developed by Robert Shiller, which uses real earnings over the preceding 10 years to iron out cyclical fluctuations. On that basis, the current price-to-earnings ratio of 25.84 is 55% above the long-run norm of 16.6. And since the norm has been about 16.6 almost since 1992, price-to-earnings should run below trend for years to come, assuming the 16.6 remains valid.

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Now you know where bankers rule.

UN Votes For New Debt Rules But UK, US Try To Block (Jubilee Debt Campaign)

The United Nations General Assembly has voted to accept new rules to guide sovereign debt restructurings. At a vote in New York on Thursday evening, the set of nine principles were adopted with 136 votes in favour, just 6 against and 41 abstentions. However, implementation of the principles is in doubt as the majority of international debt is governed by US or UK law. Both the US and UK were amongst the just six countries which voted against. The other four countries which voted against were Canada, Germany, Israel and Japan.

Commenting on the vote, Tim Jones, policy officer, Jubilee Debt Campaign, said: “This could prove to be a historic breakthrough. The vast majority of nations have spoken out for a change to the broken debt system. From the Greek debt debacle, to Argentina being held to ransom by vulture funds, to decades-old debt crises in Jamaica and El Salvador the need for change has never been clearer. It is outrageous that the UK has chosen to put reckless lenders ahead of people around the world by voting against these principles.”

The vote adopted nine principles that should be respected when restructuring sovereign debt: sovereignty, good faith, transparency, impartiality, equitable treatment, sovereign immunity, legitimacy, sustainability and majority restructuring. The principles come from negotiations over the last year, which most EU countries refused to take part in.

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But will do QEn instead.

The ECB Could Kick-Start The Economy With A Limited Basic Income (BI.org)

QE thus does not appear to be the best way forward for Europe. This is why there are economists who propagate a more efficient alternative, the so-called “helicopter money” approach. For as long as the economy fails to recover, newly printed money is simply distributed directly to the general population, as if it were dropped from a helicopter. Research shows that the money would be spent pretty much straight after it’s received, which would restore confidence to invest among businesses. It would also restore business confidence to take on new employees, who in turn respond by consuming more. And so the result becomes a virtuous circle. But there are drawbacks. Sharing out helicopter money is a temporary measure that can only be adopted in exceptional circumstances.

If at some point it transpires that the ECB has gone too far and created a threat of runaway inflation, it is very difficult to remove the newly created money from the economy. This is why there is a clear need for a structural and flexible policy measure which the central bank is able to use to kick-start the economy as and when it is necessary. A variation on the helicopter theme, a monetary basic income, provides a way forward. Under this scenario, the ECB would distribute an amount of money to each citizen on a monthly basis, calculated as a%age of average income (the amount therefore varies between countries). Let’s assume for the sake of simplicity that the amount is €400 a month throughout the Eurozone. It’s important that the individual Eurozone countries remain responsible for raising the €400 – for example by reducing benefit payments or tax allowance levels – whereupon they pay it back to the ECB.

So far, this is a neutral measure that shuffles money around without creating a stimulus. This remains the case except in times of crisis when the central bank increases the monthly payment to, say, €600, until the economy recovers. Meanwhile, each national authority keeps its repayment levels fixed at €400. The ECB thereby ends up printing an additional €200 per person per month, and this money is relatively quickly spent. As the economy recovers and growth and inflation figures rise, the basic income can be returned to the neutral level of €400. In cases where the ECB had been too generous, the basic income level could even be lowered temporarily to €300 until inflation stabilizes. This would essentially remove money from the economy.

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Bring on the crazies.

Rajoy’s Trump-Like Candidate Poses Trump-Like Risks in Catalonia (Bloomberg)

Prime Minister Mariano Rajoy’s decision to pick a Donald Trump-style candidate to fire up his base in Catalonia is exposing Spain’s governing party to risks that Republican leaders in the U.S. may recognize. Xavier Garcia Albiol, a 47-year-old former basketballer who stands six foot eight inches (2 meters) tall, defied the People’s Party’s declines across most of Catalonia in 2011 to become mayor of the region’s third-biggest city with a campaign that demonized immigrants. While Rajoy may have calculated Albiol’s track record was worth the risk, he probably didn’t bank on the kind of off-message comments that have seen the would-be Republican presidential candidate rile his party’s establishment in the U.S. – in an interview last week, Albiol attacked the PP’s strategy for containing Catalonia’s efforts to break away from Spain and said the prime minister had made mistakes.

Rajoy is trying to revive his party’s fortunes in Catalonia’s Sept. 27 regional election to create a firebreak against Ciudadanos, a rival for the anti-independence, pro-business vote that is set to deny the prime minister an outright majority in December’s general election. The election campaign proper kicks off on Friday when the separatist parties aim to bring hundreds of thousands of supporters onto the streets of Barcelona. Spain’s 10-year bonds fell yesterday with yields rising 2 basis points to 2.102% after a survey by the state pollster, CIS, showed separatist parties might win a majority with 68 or 69 deputies in the 135-strong chamber.

The PP is set to win as few as 12 seats, with barely half the votes of Ciudadanos, the poll showed. Outflanked by Ciudadanos’s early opposition to Catalonia’s separatist president, Artur Mas, Rajoy is betting that Albiol’s ability to attract blue-collar voters by playing on their concerns about immigrants can limit the damage for his party. “It shows that the PP is fully aware of its marginal role in Catalonia,” Lluis Orriols, a political scientist at Madrid’s Carlos III University, said in a phone interview. “Like Donald Trump, the PP candidate can mobilize a group of voters you can’t reach otherwise, but you can hardly aspire to win like that.”

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A sign of things to come.

Bribes, Debt, $100 Billion Lost: Nigeria Can’t Keep the Power On (Bloomberg)

Five minutes into Frank Edozie’s presentation on the challenges facing Nigeria’s power industry, the electricity cut out in the Jasmine Hall at the upmarket Eko Hotel in Lagos. “Very timely,” Edozie, a former power ministry adviser and a senior consultant to the U.K.-funded Nigerian Infrastructure Advisory Facility, said over the low muttering and laughter of an audience of more than 100 people. “We probably ran out of gas.” There’s no end in sight to the daily blackouts that the government says are costing Africa’s largest economy about $100 billion a year in missed potential and that President Muhammadu Buhari calls a “national shame.”

Gas shortages, pipeline vandalism, inadequate funding, unprofitable prices and corruption mean fixing the electricity cuts two years after a partial sale of state power companies to private investors won’t be easy. Generated output has never risen above 5,000 megawatts, which is about a third of peak demand, and if it did the state-owned transmission system can’t deliver any more than that before it starts breaking down. South Africa, with a less than a third of Nigeria’s population of about 180 million, has nine times more installed capacity and it too is grappling with blackouts. Nigeria, Africa’s biggest oil producer, ranked the worst of 189 countries after Bangladesh and Madagascar on the ease of getting electricity connected to businesses, costing almost 7% of lost sales each month, according to a 2015 World Bank Doing Business report.

The power bottleneck comes on top of slump in oil prices and currency that are threatening Nigeria’s role as a destination for investors. Economic growth slowed to 2.4% on an annual basis in the second quarter from 6.5% a year earlier. About two-thirds of Nigeria’s people have no access to electricity, and at the current plant commissioning rate, supply will barely meet 9,500 megawatts by 2020, according to a 2014 World Bank project document. Demand is expected to increase 10% each year. Buhari’s party promised before he won power in March’s election to generate 40,000 megawatts within four to eight years.

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Blindly stumbling towards the cliff.

Auckland House Prices Rising $345 A Day (NZ Herald)

Auckland house prices were up $125,950 on last year – or $345 a day – according to sales data out from the Real Estate Institute. The city’s median sale price rose from $614,050 last August to $740,000 last month and prices were up $5000 since July. Colleen Milne, REINZ chief executive, said the presence of Auckland buyers in other regions was becoming more noticeable with a surge in Auckland investors buying in Dunedin and continued strong demand for properties in the Waikato and Bay of Plenty from Auckland buyers.

Nationally, 7766 homes were sold last month, up 41.7% annually but down 4.4% on the previous month of July. The national median price rose $45,000 annually to $465,000. The figures from REINZ come as the Reserve Bank cut official interest rates to 2.75%, and banks followed suit, cutting their floating mortgage rates. Most economists expect the Reserve to now retain an easing bias, with some tipping the rate to drop to 2% by early next year.

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Almost funny.

Sue Your Bank, Keep Your Home, Repeat (Bloomberg)

Four years ago, Robert and Joan Potter were facing a crisis. The monthly payments on their two-bedroom home in the coastal suburb of Laguna Niguel, Calif., had ballooned from $2,000 to $5,000 in the decade since they bought it for about $360,000. Now the retirees were rapidly falling behind. “It was my parents’ dream home,” said their son, Derrick, 43. Derrick, who works as a mortgage consultant, said Robert and Joan got suckered into the kind of inflationary deal known as a negative amortization loan, since outlawed by state legislators. “They had some sleazy mortgage broker who said my mom, who hasn’t worked in 25 years, made $10,000 a month.” Still, there was hope. The Potters heard about a firm called Brookstone Law, which was pioneering a novel strategy for challenging allegedly predatory banks.

The best part: As long as Brookstone was representing Robert and Joan, the bank would hold off on collecting mortgage payments or foreclosing. In 2011, Robert and Joan paid Brookstone $6,000 to become the lead plaintiffs in a “mass joinder” lawsuit against their lender, JPMorgan Chase Bank. Similar to class actions, mass joinders allow large numbers of people to collectively sue one defendant, except that in a mass joinder the plaintiffs do not have identical claims. Settlements, if there are any, get sorted out individually, depending on each plaintiff’s circumstances. Brookstone’s case against Chase alleged mortgage-related misconduct such as wrongful foreclosure and breach of contract. It demanded that the bank pay for lost home equity, lowered credit scores, and further damages.

It claimed that when the Potters refinanced in 2006, the bank manipulated them into taking a loan they couldn’t afford and hid its true interest rate. The suit was filed in Los Angeles County Superior Court on April 15, 2011. Eventually, Brookstone signed up more than 250 clients to join it. Casting itself as defending the little guys caught up in the subprime crisis, Brookstone, founded by a 41-year old attorney named Vito Torchia Jr., has represented at least 4,000 clients in a dozen mass joinder lawsuits against big banks, including Wells Fargo and Bank of America. Court documents indicate Brookstone’s earnings during 2011 and 2012 could be in the tens of millions of dollars. Yet the firm has yet to win a single one of these cases on the merits.

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“For the Washington-Ankara-Riyadh axis, the objective of getting rid of ISIL implies the real objective which is to get rid of Assad.”

The Civil War In Syria – Part 2 (Beppe Grillo)

Foreign Fighters. The proliferation of Islamic militias in the region has been helping to create a jihadist “melting pot” in the last few months. In Iraq and in Syria this is channeling the ambitions of hundreds of foreign fighters who have set off to get to the front to join up with the rebel militias who are fighting against Assad’s government troops. This is a crucial element in the Syrian civil war. Today it’s estimated that the two most important jihadist groups, the al-Nusra Front, and the Islamic State in Iraq and the Levant have recruited to their ranks at least 9,000 non-Syrian fighters which is about 20% of the total. Including the other islamic groupings and the Free Syrian Army, this brings the overall figure to between 11,000 and 15,000.

According to estimates from our intelligence services, there are more than 60 of our fellow citizens who have gone off to fight side by side with the terrorists and at least 10 of these are Italians or naturalised Italians. Anyway, it’s a tiny number compared to the more than 1,500 who have set off from France, and the 800-1000 from Britain, or the 650 Germans and the 400 from the Netherlands and from Belgium. In this process, even the women have had leading roles: the Italian woman Maria Giulia Sergio is one of the young people that has recently chosen to convert to Islam to then join up in Syria. Since al-Baghdadi’s proclamation of the Caliphate, the Centre for the Study of Radicalisation and Political Violence in London has estimated that at least 4,000 western citizens have joined the conflicts in Iraq and Syria. Of these, about 550 are thought to be women who have set off from Europe and are now in the territory controlled by ISIL.

The controversial role of Ankara and the weapons going to the Peshmerga. In this coming and going of presumed and potential jihadists, Turkey is playing a crucial role. According to some people, even though Turkey is a member of NATO and a close ally of the West, it is in fact thought to be one of the leading supporters of ISIL. And anyway, it’s not by chance that the main strongholds of the terrorist group are situated along the border with Turkey. Meanwhile, the United States is arming and training the “moderate“ rebels and now ISIS fighters have rifles bearing the inscription: “Property of US Govt“. This was discovered by a governmental organisation: Conflict Armament Research.

The international coalition and the Washington-Riyadh axis . Having understood, with a certain delay, the danger of the expansion of the jihadist militias in the region, in August 2014, Obama made an agreement with a few partners in Europe, including ltaly, to establish an international coalition to fight ISIS. To support this, our government has so far sent 2.5 million dollars-worth of weapons, including machine guns, grenades, fighter planes and more than a million rounds of ammunition, as well as humanitarian assistance. The mission has given many people to believe that all of a sudden, Washington has changed tack and has decided to support the Syrian regime. That’s just not true. For the Washington-Ankara-Riyadh axis, the objective of getting rid of ISIL implies the real objective which is to get rid of Assad.

This can be seen in the words spoken by Obama who recently when he said that he was even ready to hit Syrian government positions if attacks on the ciilian population were found to be coming from such positions. However, the humanitarian factor carries very little weight on the political stage. The crucial point today is exclusively the future of Assad: Moscow and Teheran are asking for him to stay in power, the West is continuing to exert pressure to have him resign. Anyway, history teaches us that up until now, outside interference has never had the outcomes that were hoped for. In fact, it has always contributed to increasing sectarian clashes. Dividing up power into ethnic and religious quotas on the basis of one’s own interests is thought to be a deterrent for any sort of peaceful transition in preparation for national unity. Iraq, Lebanon, Afghanistan and Libya should tell us something.

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Jul 212015
 
 July 21, 2015  Posted by at 10:05 am Finance Tagged with: , , , , , , , , ,  


Harris&Ewing The White House kitchen, Washington DC 1909

Greek Banks Face Full Nationalisation (BBC)
Greek Banks Face Stress Tests At The Worst Time (Guardian)
National Bank of Greece Creditors Offer Funds to Prevent Losses (Bloomberg)
Greece: Plea For Unity As Banks Reopen (Guardian)
How Bad Things Were for Greek Banks When Capital Controls Were Introduced (BBG)
Syriza Inherited A Non-State (Fouskas and Dimoulas)
Commodity Rout Worsens as Prices Tumble to Lowest Since 2002 (Bloomberg)
Gold, Silver Near Five-Year Lows in Asia Trade (WSJ)
Why Gold Is Falling And Won’t Get Up Again (MarketWatch)
Greek VAT Rise Hurts As Bailout Terms Start To Bite (Reuters)
Yanis Varoufakis: Greece ‘Made Mistakes, There’s No Doubt’ (CNN)
In Greek Crisis, One Big Unhappy EU Family (Reuters)
“Athens Streets Will Fill With Tanks”: Kathimerini Reveals Grexit Shocker (ZH)
German Government Divided Over Greece (Handelsblatt)
How Can Greece Take Charge? (New Yorker)
Hollande Calls For Vanguard Of States To Lead Strengthened Eurozone (EUOberver)
Fed Tells Big Banks to Shrink (WSJ)
US Banks Prepare For Oil And Gas Company Loans To Worsen (Reuters)
BRICS Countries Launch New Development Bank In Shanghai (BBC)
Pope Francis Leading The New American (Socialist) Revolution (Paul B. Farrell)
Earth’s Most Famous Climate Scientist Issues Bombshell Sea Level Warning (Slate)

The Greeks better be fast then, or there’ll be nothing left to nationalize. The banks are part of the €50 billion asset sales plan.

Greek Banks Face Full Nationalisation (BBC)

Just because the doors of Greek banks are open today, don’t be fooled into thinking they and the Greek economy are anywhere near back to recovery. There are still major restrictions on the ability of their customers to obtain their cash or move it around: a) withdrawals per week are capped at €420; b) there is a ban on using deposits to repay loans early (because many Greeks would rather repay debts than risk seeing their savings wiped out in a bank crash or in a so-called bail-in which would see savings converted to bank shares of dubious value); c) it is still incredibly difficult for small and medium size businesses to purchase vital raw materials or other goods from abroad, because banks won’t make new loans and there are severe restrictions on foreign payments.

The symbolic importance of the ECB turning on the emergency lending tap again was important, but it has only been turned on a fraction. It has given enough additional Emergency Liquidity Assistance, €900m, to keep the banks alive in a technical sense. There is no possibility of them thriving for months and even possibly years. To put it in a Hellenic nutshell, the banks and the Greek economy remain in intensive care. The transmission of money is being facilitated in the most basic way, but there is no creation of new credit; and this credit freeze is a major impediment to consumer spending, and – perhaps more importantly – will lead to many businesses going bust in the coming weeks and months.

Which gives a certain frisson to a statement made only in May by Europe’s top banking supervisor, Daniele Nouy, chair of the so-called Single Supervisory Mechanism, the bank supervisory arm of the ECB. She said of Greek banks, in an interview with the Wall Street Journal, that “these banks have gone through important restructuring, important recapitalisations and a redefinition of their business models. They have never been better equipped to go through this kind of stressful situation”. Really? Just a few days ago, eurozone leaders and the IMF more or less pronounced the entire Greek banking system kaput, with their declaration that the banks need additional capital of €25bn euros – which, relative to the size of the Greek economy, represents one of the biggest banking black holes in the history of capitalism.

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“The Greek banks, stripped of many of their assets by the ECB, will need the ECB to make a reappearance in Athens to aid their recovery.”

Greek Banks Face Stress Tests At The Worst Time (Guardian)

Plenty of dangers lie in wait for Greek banks. Already short of cash, they may need lots more when stress tests of their solvency are carried out in a month or two. And unable to access the international money markets, they will be in a similar position to the Greek god Telephus, who was wounded by Achilles and yet needed Achilles to return as a doctor before he could be healed. The Greek banks, stripped of many of their assets by the ECB, will need the ECB to make a reappearance in Athens to aid their recovery. On a day when the Greek banks opened their doors for the first time in three weeks, the debate about future funding needs seemed far away.

Allowing access to the unknown treasures found in countless deposit boxes triggered a cheer, especially among the better off over-60s, if a quick glance at the queues outside branches was anything to go by. A couple of months from now, the story could take a grim turn. Not only will hundreds of millions of deposits have been withdrawn in that time, the weakening effects of a broader economic slowdown will have taken their toll. For one thing, the economy is likely to be another 5% smaller by the autumn than when the banks were stress-tested last time. Many businesses and personal customers will have acquired bigger debts with their banks. Others will have declared themselves bankrupt.

And this deterioration in loan quality will be reflected in a lower credit rating and a bigger need for replacement funding. The big four – Piraeus, Alpha Bank, Eurobank and National Bank of Greece – are already underpinned by €130bn of ECB funds. As their liquidity squeeze intensifies, that figure could soar. Swiss investment bank UBS warned that the stress tests may reveal a situation that is so bad the government will be forced to follow Cyprus and impose a haircut on all deposit accounts containing more than €100,000 . Even the hint of such a move will cause more panic. No doubt the ECB is working hard to limit any further harm.

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“As sophisticated investors in financial institutions, our clients would consider increasing their financial commitments to NBG under appropriate circumstances..” Appropriate meaning “All Your Base Are Belong To Us”

National Bank of Greece Creditors Offer Funds to Prevent Losses (Bloomberg)

A group of senior creditors to National Bank of Greece said they’ll consider recapitalizing the troubled lender to avoid incurring losses on their bonds. “As sophisticated investors in financial institutions, our clients would consider increasing their financial commitments to NBG under appropriate circumstances,” Shearman & Sterling LLP, the law firm representing the group, wrote in a July 17 letter to international creditors including the ECB and obtained by Bloomberg. “Our clients intend to ensure that their rights under all applicable laws are fully respected.” Greece’s tentative bailout deal puts senior bank bondholders explicitly in line for losses because it requires the country to adopt the EU’s Bank Resolution and Recovery Directive as a condition for aid.

Greece’s existing insolvency law excludes a bail-in of the debt, according to Fitch Ratings. The bondholders are seeking to ensure that Greece explores private-sector solutions before resorting to a bank resolution and that senior creditors are protected should it come to that, according to the letter, which was also addressed to the European Stability Mechanism, the vehicle set up to finance loans to distressed euro area countries, the president of the Eurogroup and the governor of the Bank of Greece. The group holds about 25% of NBG’s €750 million of senior bonds due April 2019, according to a person familiar with the matter who asked not to be identified because the information is private.

The bonds rose to 37 cents on the euro today after dropping by more than 70% since the start of the year to a record 21 cents on July 8, according to data compiled by Bloomberg. The notes represent about 40% of the €1.9 billion of privately-held senior debt issued by Greece’s four major banks, according to data compiled by Bloomberg. “The recent crisis arose entirely from decisions made by Greek and European political and monetary authorities that were wholly outside of NBG’s control,” the letter said. “Before additional capital and liquidity can be made available to Greek banks such as NBG, investors such as our clients, must have confidence in the Greek and European supervisory and resolution frameworks, and be assured of fair treatment.”

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“What worries me is that some people still think that there would be no austerity if we were out of the euro. This argument is absolutely false,” said state minister Nikos Pappas.”

Greece: Plea For Unity As Banks Reopen (Guardian)

The reopening of banks and repayment of debts returned Greece to a semblance of normality on Monday but the ruling Syriza party admitted it faced considerable political challenges in pushing through reforms. After a drama-filled month that saw the country come close to being ejected from the eurozone, the government, led by the prime minister, Alexis Tsipras, appealed for unity as it faced another make-or-break vote in Athens on Wednesday. As customers queued outside banks – after lenders opened their doors for the first time in three weeks – officials warned that the left-led coalition could fall if dissidents failed to endorse reforms set by international creditors as the price of further aid.

“What worries me is that some people still think that there would be no austerity if we were out of the euro. This argument is absolutely false,” said state minister Nikos Pappas, one of Tsipras’s closest aides. Addressing reporters, the foreign minister Nikos Kotzias said he believed fresh elections were “inevitable” in September or October because the government could not continue depending on the political opposition for support. The first package of reforms voted through by the Greek parliament last week was passed with the backing of three opposition parties, which have argued that Greece must be kept in the eurozone at any cost. But government officials have said elections could be held as early as 13 September amid fears that such an arrangement cannot last in the long term.

Amid mounting talk of early elections, Nikos Filis, the ruling Syriza party’s chief parliamentary representative, highlighted the dangers that lay ahead, saying the government would collapse if rebels rejected the measures. “When a government does not have [the support of] 120 MPs, legally there is no issue but politically there is,” he said. Last week, Syriza saw its support being whittled down from 149 to 123 MPs as lawmakers broke ranks over the controversial terms of an aid package worth as much as €86bn (£60bn) to keep the insolvent country afloat. The reforms included changes to the Greek pension system and VAT regime. The loss of support has meant that Tsipras now has a two-pronged battle on his hands: to meet the exacting terms of creditors while convincing increasingly hostile members of his own party to back them.

By Wednesday, the Greek parliament must, as requested by creditors, pass a law to overhaul its civil justice system, with the aim of speeding up processes and reducing costs. The government must also transpose the EU’s bank recovery and resolution directive into law. This law was part of Europe’s response to the 2008 banking crisis and should have been put into national law months ago.

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Excuse me? “Savers formed long queues in front of ATMs..”? Huh? How stupid does that sound?

How Bad Things Were for Greek Banks When Capital Controls Were Introduced (BBG)

Today the Greek central bank released its monthly balance sheet for June 2015. The balance sheet is dated to June 30—the day after capital controls were introduced in Greece. The seven-month jog on Greek lenders was about to turn into a full blown bank run during that last weekend of June, after Prime Minister Alexis Tsipras broke talks with creditors and called a referendum over the terms attached to the country’s bailout. Savers formed long queues in front of ATMs as doubts over the country’s place in the euro area spurred them to withdraw their cash from banks. The new data from the central bank shows that the total value of banknotes in circulation in Greece reached an all time high of €50.5 billion. That’s an increase of more than €5 billion in the month of June alone.

Tsipras was forced to impose a limit on withdrawals on June 28, after the ECB capped Emergency Liquidity Assistance (ELA) for Greek lenders, refusing to plug the hole from continuing deposit outflows. Much of the damage had been done already as Greek bank reliance on ECB operations, including ELA, meant that Greek Target2 liabilities with the rest of the eurosystem reached an all-time high at the end of the month. With the ECB limit on ELA, nobody, not even ordinary depositors, wanted to be exposed to Greek banks. Capital controls were the only option. That Tsipras and his then-finance minister were willing to allow things to get this serious before introducing capital controls underscores the high-risk strategy they were engaged in at the time.

Greek banks reopened this Monday, following a three-week forced holiday and only after Tsipras capitulated to creditors’ demands and committed to more austerity measures and structural economic overhauls. Still, draconian capital controls, including restrictions on withdrawals and transfers of money abroad, remain in place, and Greeks queued outside branches to get only basic services from their lenders.

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Syriza inherited a non-state, a completely dilapidated administrative apparatus with civil servants shivering in fear over who will be next to lose his/her job..”

Syriza Inherited A Non-State (Fouskas and Dimoulas)

Obviously, without Keynesian instruments at the national level and without a European federal state at the European level you cannot have any form of Keynesian policies. Too much reliance on the ECB – which, first and foremost, is a bank – and the “good will of European partners”, coupled with lack of institutional preparation to return to a national currency, has brought Syriza’s negotiating team to a standstill. Others, quite rightly, have argued that there has been no real negotiation since Syriza assumed office back in January 2015. The Germans, this argument goes, wanted regime change as they could not agree with the Greek Finance Minister’s reasonable demands – which included restructuring of the debt, ie debt relief.

In fact, this insight is correct: after the referendum of 5 July, the Greek PM sacked Finance Minister, Yanis Veroufakis, in order to keep his cabinet in place and avoid being pushed out by the creditors (mainly via financial and media warfare and permanently blocking liquidity to the Greek banks). Yet, what we have not seen being tackled is the following really dramatic issue. The creditors seem to be of the opinion that there is a Greek state in place that can implement and a Greek society that can accept the new austerity measures. This is reminiscent of the gruelling rationale behind America’s various wars post-9/11, but also before: we go to Afghanistan, Iraq and elsewhere to bring about the lights of liberal democracy, human rights and free market freedom capitalism.

This indicates total ignorance of the concrete societies and states they supposedly want to change and improve. In fact, wherever American power went, it only made things worse. Greece and the European periphery should be seen in the same light. Greek political elites, mixed with big comprador and corrupt interests, as well as the institutional materiality of the state as such, have always been fragmented, deeply inefficient and in the service of clientelist, corrupt and nepotistic deals and practices. But Syriza did not inherit just this. Syriza inherited a non-state, a completely dilapidated administrative apparatus with civil servants shivering in fear over who will be next to lose his/her job. Society itself, with 27% unemployment and 57% youth unemployment and unpaid salaries for months, swims in this strange mixed mood of anger, radicalization and demoralisation.

Recent administrative reforms in municipalities (the “Kapodistrias” and “Kallikratis” plans) caused havoc, further distancing the citizen from the state. Add to this the factional warfare within Syriza and the government and you will have one of the most inefficient ‘ruling’ machines in the west. In other words, Syriza’s state cannot reach the 1% primary surplus fiscal target; it will be unable to effect privatizations and other neo-liberal reforms required by the creditors in order to receive bail-out funds. The new anti-austerity package will fail. Even Syriza MPs who voted for it in the parliament may well boycott it. The PM himself said publicly that he does not believe it is a good deal.

Equally and arguably, for the same reason, a debtor-led default and exit from the Euro-zone will fail. A transition to the national currency requires a strong and well-organised state apparatus to lead an impoverished society through hardship to eventually achieve renewal and something positive at the end of a long and arduous journey. We argue that there is not enough state capacity in place to hold sway over the implementation of a new austerity package or indeed to buttress and deliver Grexit. So what is to be done now and in order to avoid a new election in Greece that is bound to achieve nothing of substance?

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Zombie money going “Poof”… Or, if you will, liquidity is drying up fast.

Commodity Rout Worsens as Prices Tumble to Lowest Since 2002 (Bloomberg)

The rout in commodities deepened with prices touching the lowest since 2002 as the prospect of higher U.S. interest rates sent gold tumbling. Raw materials are losing favor with investors as the dollar gains amid signals from Federal Reserve Chair Janet Yellen that the central bank may raise rates this year on the back of an improving U.S. economy. Higher borrowing costs curb the attractiveness of commodities such as gold, which doesn’t pay interest or give returns like assets including bonds and equities. The Bloomberg Commodity Index dropped as much as 1.4%, falling for a fifth day in the longest stretch of declines since March.

Gold futures sank to the weakest in more than five years while industrial metals, grains, Brent crude and U.S. natural gas also slid as a measure of the dollar climbed to the highest since April 13. “Any increase in U.S. interest rates should further strengthen the dollar, prompting more fund outflows from commodities, metals and emerging-market assets,” Vattana Vongseenin, the chief executive officer of Phillip Asset Management in Bangkok, said by phone. The Bloomberg Commodity Index slid 1.3% to 96.2949 at 10:10 a.m. New York time, after touching 96.1913, the lowest since June 2002. With raw materials fetching lower prices, shares of commodity producers are tumbling. The 15-member Bloomberg Intelligence Global Senior Gold Valuation Peers Index, which includes AngloGold Ashanti Ltd. and Newcrest Mining Ltd., dropped as much as 8.4%.

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Not a lot of objective opinions about why this is happening.

Gold, Silver Near Five-Year Lows in Asia Trade (WSJ)

Gold and silver prices continued to trade close to their lowest level in five years in Asia trade Tuesday amid rising expectations the U.S. Federal Reserve will raise interest rates later this year. Gold dipped below the psychological mark of $1,100 an ounce in early Asia hours, but quickly nudged above that level on bargain hunting. It was recently trading at $1,104.08/oz. “I think there is still going to be a little bit of pressure,” said Victor Thianpiriya, a commodity strategist at ANZ Bank. “Prices could head lower.” Mr. Thianpiriya said the yellow metal could test $1,000/oz in the near term, a level at which several mining companies might find it difficult to profit from extracting the commodity.

The gold market has turned bearish, with hedge funds that invest huge sums in gold futures reducing their long positions to nine-year lows. At the same time, speculators’ short positions—bets that gold could be bought cheaper in the future—have jumped in recent days. Analysts say a sustained rebound in gold prices is unlikely any time before the U.S. raises interest rates, a decision that is expected later this year after comments from U.S. Federal Reserve Chairwoman Janet Yellen last week. A rising dollar makes raw materials less affordable to overseas investors, while higher interest rates tend to draw money into yield-bearing assets and away from commodities, which pay their holders nothing and often carry storage costs.

Gold gained investors’ favor because of its safe-haven appeal after the 2008 financial crisis, but investors’ risk appetite seems to have increased with a modest economic recovery under way in the U.S. Moreover, the cost of holding gold looks set to increase because of an expected rise in U.S. interest rates. Other precious metals such as silver, platinum and palladium have fallen in gold’s slipstream. Silver prices nudged up from the opening price of $14.63 a troy ounce to $14.76 Tuesday, close to levels seen in early 2010. Platinum prices are at $974.70 a troy ounce, close to a six-and-half-year low, while palladium is near its lowest level since November 2012 at $605/oz.

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This is just one opinion. We are far more neutral.

Why Gold Is Falling And Won’t Get Up Again (MarketWatch)

Do you remember gold? It was kind of an analog bitcoin. It was a universal legal tender. Governments held it in forts. Your bank kept it in a safe. It was the most precious of precious metals. And investors bought gold GCQ5, -0.11% for safety’s sake when markets and economies crashed and the value of paper currency was in doubt. But that was a long time ago. Gold is down 40% from its financial-crisis peak in 2011. As Jeff Reeves notes in his column Monday: “The long-term trend remains decidedly against gold.” Reeves honorably calls himself a gold “agnostic” because he doesn’t want to get into conspiracy theories and some of the nonsense that surrounds the gold market. He wants to talk about the investment. I want to talk about the investors.

Because I don’t think it’s possible to separate the two. Gold has always been the favorite commodity of a fringe crowd that doesn’t trust governments, central banks, politicians and the financial system. This part of the gold market drives a lot of the buying and selling; it whips up a lot of frenzy. I don’t have any hard evidence, but I’d argue that gold’s value is inflated by people who aren’t investing in a commodity but in a belief system that may or may not include black helicopters and a U.S. invasion of Texas. The sad part is that gold always has been a sucker’s bet. It’s supposed to protect against inflation. It doesn’t. It’s supposed to retain its value. It doesn’t. For those reasons, gold is supposed to be the ultimate currency. It’s not. As fund manager and blogger Barry Ritholtz said of gold’s fundamentals: “It has none.”

Wall Street, of course, welcomes the business. Gold, after all, is hardly a useful commodity. If it had significant real purpose, it wouldn’t be sitting in vaults around the world. But, hey, we’ll trade it. We’ll trade anything. By and large, these special breed of gold bugs have ignored history. In the past century, gold has bubbled and popped at least a half dozen times, with crashes coming in 1915-20, 1941, 1947, 1951-66, 1974-76, 1981, 1983-85, 1987-2000 and 2008. If many of those dates seem to have a common thread, it’s because they do. They were, for the most part, periods of economic expansion. Who wants gold, when the stock market is booming or housing prices are soaring? Fundamentally, today’s gold market is no different. Stocks are holding near all-time highs. Interest rates could rise before the end of the year. Gold, on the other hand, is slip-sliding away.

What is different is how deep and long this gold bottom could go. As we move into an ever-techier world, gold has more competition: namely cryptocurrencies such as bitcoin that cater to the new generation of skeptics. The bitcoin market touts itself as an alternative to the currency markets and a hedge against inflation. Bitcoin’s value, like gold, is based on the confidence of the buyer, nothing more. Cryptocurrencies may also even prove to be useful (at which point they most likely will be unattractive to bitbugs).

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“When everything costs me 10% more, isn’t my pension’s buying power much weaker? It’s like a pension cut..”

Greek VAT Rise Hurts As Bailout Terms Start To Bite (Reuters)

To tourists wandering the narrow streets of central Athens, 20 cents on the price of souvlaki – a Greek favourite of grilled meat on a skewer – may not seem much. But for waiter Stavros Giokas, Monday’s jump in value-added tax is a big worry. The VAT rise, demanded by Greece’s lenders in return for a rescue deal, forced the restaurant where Giokas works to push up the price of souvlaki – wrapped in flatbread with salad and drizzled in tzatziki garlic yogurt – to €2.40 from €2.20. While a bargain for well-to-do northern European visitors, for Greeks worn down by years of austerity, the price increase is one more reason not to eat out. “People are counting every cent, not just for souvlakis,” Giokas said as he waited for customers, surrounded by empty tables decked in yellow and green tablecloths.

Some big, foreign-owned firms will absorb the rise in VAT on processed food and public transport from 13 to 23% without passing it on to customers. Other businesses may simply try to dodge paying the tax on some of their sales, a widespread practice that has contributed to Greece’s economic problems. But for many of those that do pay, there may be no other option than to pass on the rise to clients. “We can’t absorb the cost. Everything is getting more expensive: tomatoes, onions, tzatziki,” Giokas said. The tax hike will affect not only the cost of restaurant meals, processed food in shops and even salt, but also taxi fares and private school fees.

VAT jumped less than a week after the rise was approved in parliament as the leftist government of Prime Minister Alexis Tsipras tries to show other euro zone countries he is serious about reforms required to start talks on an 86 billion euro bailout deal that Greece needs to stay afloat. But across the country, workers, pensioners and economists alike worried about the impact of the increase on a population suffering from unemployment of over 25% and on an economy that was already forecast to contract this year. “When everything costs me 10% more, isn’t my pension’s buying power much weaker? It’s like a pension cut,” 65-year-old Nikos Koulopoulos said.

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“It’s not true we did not have a Plan B. We had a Plan B.” “We, in the Ministry of Finance, developed it. Under the egis of the Prime Minister, who ordered us to do this, even before we came in the Ministry of Finance.”

Yanis Varoufakis: Greece ‘Made Mistakes, There’s No Doubt’ (CNN)

Greece’s divisive former finance minister, Yanis Varoufakis, admitted on Monday that Greece made mistakes over its bailout negotiations, but he continued to lay the preponderance of blame for the Greek woes on the country’s creditors. “We made mistakes, there’s no doubt about that,” he told CNN’s Christiane Amanpour in his first international TV interview since stepping down earlier this month. “And I hold myself responsible for a number of them.” “But the truth of the matter, Christiane, is that the very powerful troika of creditors were not interested in coming a sensible, honorable, mutually beneficial agreement,” he said, referring to the IMF, the ECB, and the EC.

“I think that close inspection is going to reveal the truth of what I am saying: They were far more interested in humiliating this government and overthrowing it, or at least making sure that it overthrows itself in terms of its policies, than they were interested in an agreement that would for instance ensure that they would get most of their money back.” “It’s very hard for me, however much I would like to, to take responsibility for a policy over which I resigned.” Greece last week accepted terms for a third bailout that many say was on harsher terms than the potential deal that was on the table earlier this year. Varoufakis’ casual style, leather jackets, and motorcycle riding won him newspaper covers, but his negotiating style grated on his counterparts. He made sure to emphasize that he “resigned,” and was not “dismissed.”

He stepped down on the night of a controversial referendum, introduced by Prime Minister Alexis Tsipras, in which the majority of Greeks rejected the harsh austerity the government would later accept. “The people voted ‘no’ to this extending and pretending, but it became abundantly clear to me on the night of the referendum that the government’s position was going to be to say yes to it.” Despite his resignation of conscience, Varoufakis said he had sympathy for his former boss. “He was faced with a choice: Commit suicide or be executed.” “Alexis Tsipras decided that it [would] be best for the Greek people for this government to stay put and to implement a program which the very same government disagrees with.” “People like me thought that it would be more honorable, and in the long term more appropriate, for us to resign. This is why I resigned. But I recognize his arguments as being equally powerful as mine.”

[..] “It’s not true we did not have a Plan B. We had a Plan B.” “We, in the Ministry of Finance, developed it. Under the egis of the Prime Minister, who ordered us to do this, even before we came in the Ministry of Finance.” “Of course, you realize that these plans – Plan Bs – are always, by definition, highly imperfect, because they have to be kept within a very small circle of people, otherwise if they leak, a self-fulfilling prophecy emerges.” That plan, he said, was not for Greece to leave the Eurozone, a Grexit, but rather for the government to create “euro-denominated currency” – in other words, for the government to print its own, temporary currency, pegged to the value of the euro. “The fact of the matter is that that Plan B was not energized — I didn’t get the green light to effect it, to push the button, if you want.” That, he said, was one of the “main reasons why I resigned.”

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I love the absurdity embedded in the term “predictable chaos”.

In Greek Crisis, One Big Unhappy EU Family (Reuters)

The latest paroxysm of Greece’s debt crisis has exposed growing rifts in the euro zone which, unless addressed soon, could lead to the break-up of European monetary union, the EU’s most ambitious project. The most worrying sign for European leaders is that public opinion and domestic politics are pulling them increasingly in opposing directions – not just between Greece and Germany, the biggest debtor and the biggest creditor, but almost everywhere. Germans, Finns, Dutch, Balts and Slovaks no longer want taxpayers’ money to go to bail out Greeks, while the French, Italians and Greeks feel the euro zone is all about austerity and punishment and lacks solidarity and economic stimulus.

With central and east European states growing more assertive and the Dutch and Finns facing mounting domestic constraints, a compromise between euro zone leaders Germany and France, increasingly hard to find over Greece, is no longer sufficient to settle the problems. There are so many stakeholders with divergent views that crisis management is becoming ever more difficult. A far-reaching reform of the 19-nation currency area’s flawed structure seems a remote prospect. After weeks of late-night emergency meetings of leaders and finance ministers, culminating in a tense all-night summit, the euro zone produced a fragile deal to keep Greece afloat by making it a virtual protectorate under intrusive supervision. Few, if any, of the main protagonists think it will work.

Greek Prime Minister Alexis Tsipras said it was a bad deal that would make life worse for Greece but he had swallowed it because the alternative was worse. German Finance Minister Wolfgang Schaeuble said Athens would have done better to leave the euro zone – “temporarily” – to get a debt write-off. Chancellor Angela Merkel, Europe’s dominant leader, made clear the main virtue of the deal was to avoid something worse. “The alternative to this agreement would not be a ‘time-out’ from the euro … but rather predictable chaos,” she said. A senior EU official involved in brokering the compromise, who spoke on condition of anonymity, said there was now a “20, maybe 30% chance of success”. “When I look at the next two to three years, the next three months, I see only black clouds,” the official said. “All we succeeded in doing was to avoid a chaotic Grexit.”

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“..if implemented this plan, the streets of Athens will sound tracks of tanks.”

“Athens Streets Will Fill With Tanks”: Kathimerini Reveals Grexit Shocker (ZH)

And it wasn’t just outside observers drawing up Grexit plans. Despite the fact that EU officials denied the existence of a “Plan B” right up until German FinMin Wolfgang Schaeuble’s “swift time-out” alternative was “leaked” last weekend, no one outside of polite eurocrat circles pretends that a Greek exit wasn’t contemplated all along and indeed Yanis Varoufakis contends that Athens was threatened with capital controls as early as February if it did not acquiesce to creditor demands. Now, in what is perhaps the most shocking revelation yet about what EU officials really thought may happen in the event Greece crashed out of the EMU and unceremoniously reintroduced the drachma, Kathimerini is out with a description of what the Greek daily calls the “Grexit Black Book,” which purportedly contained the suggestion that civil war would breakout in Greece in the event the country was forced out of the currency bloc. Here’s more (Google translated):

“On the 13th floor of the building Verlaymont in Brussels, a few meters from the office of the European Commission President, Jean-Claude Juncker, stored in a special security room and in a safe Greece’s exit plan from the Eurozone. There, in a multi-page volume, written in less than a month from 15-member team of the European Commission, answered questions on how to tackle such an outflow, including, as shocking as it may sound, even the possibility of the country out of the Schengen Treaty, and not only being driven outside the euro, but also outside the EU.

According to European official, in that the European Commission Summit already had a bound volume, a multi-page document, which described the Greek prime minister, before the start of the session, by the same Mr. Juncker with all the details of a Grexit , giving him to understand the legal and political context of such a decision. In multipage document in accordance with European official who has the ability to know its contents, there are detailed answers to 200 questions that would arise in case Grexit. These questions, as he explains official, are interrelated, as an exit from the euro would create a cascade of events, which would evolve in a relatively short time. From the drachmopoiisi economy to foreign exchange controls that would take place at the country’s borders and which will ultimately lead at the exit of Greece from the Schengen Treaty.

The authors of the draft, according to European official, conducted under conditions of absolute secrecy. A special group of 15 people of the European Commission, by direct contact with Greece started to prepare, and was also in direct contact with a number of senior officials and DGs in the European Commission who had expertise in specific areas. The writing of the project started when the expiry date of the program (end of June) was approaching, so it is the Commission prepared for every eventuality, and by the time the referendum was announced, Friday, June 26, the relevant procedures were accelerated. The weekend of the work referendum intensified, so now two days later, Tuesday of that Synod, the project has been finalized.

According to well-informed source, involved in creating the plan worked “suffer the pain” as typically describe the “K” and “overwhelmed” because they could not believe that things had reached this point, and most of them had direct involvement with the Greek rescue programs. The European Commission also was hoped that even until the last minute solution would be found as members of this group knew better than anyone the consequences exit of Greece from the Eurozone and understand the cost of such a decision. One of those involved with direct knowledge of Greek reality in the critical phase of the training, he said the rest of the group that “if implemented this plan, the streets of Athens will sound tracks of tanks.”

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Merkel equals spineless.

German Government Divided Over Greece (Handelsblatt)

Angela Merkel was understandably cautious in her response: “Nobody came to me and asked for any kind of dismissal,” the German chancellor said in an interview with public broadcaster ARD on Sunday. The question was about Wolfgang Schäuble, her finance minister and fellow Christian Democratic Party (CDU) member, who in an interview with Germany’s Der Spiegel magazine on Sunday said he was prepared to resign if ever forced to take a position on Greece that he didn’t agree with. “We have a joint result, and the finance minister will now lead these negotiations just as I will,” Ms. Merkel said. She added, firmly: “We will now work together in this coalition and of course together in the [Christian Democratic] Union.”

These words were aimed as much at her fiercely independent finance minister as anyone else, and were designed to smooth over the massive gulf of opinion within her own party over Greece. The issue of Greece, and whether or not the troubled country deserves its third bailout in five years to stave off bankruptcy, has opened up a chasm in Ms. Merkel’s governing coalition. On the one side is Mr. Schäuble and the right wing of the CDU party. While Ms. Merkel says a “Grexit” has been off the table since euro zone leaders agreed to give Greece a third, final bailout last week, her finance minister believes it remains very much in the cards. On the other side is Ms. Merkel’s junior coalition partner, the Social Democrats, led by deputy chancellor and economics minister Sigmar Gabriel.

Sources in Berlin say that the relationship between Mr. Schäuble and Mr. Gabriel has been irreparably damaged by the Greece crisis. For now, Ms. Merkel’s coalition is holding. The German parliament, the Bundestag, voted overwhelmingly on Friday in favor of the E.U. starting talks with Greece over a third bailout aimed at keeping Greece inside the 19-nation currency bloc. The vote removed a final stumbling block, allowing E.U. negotiators to this week get down to the business of ironing out the details of the bailout package. But, like Mr. Schäuble, many parliamentarians remain hugely skeptical that the negotiations will really bear fruit. Significantly 65 members of the CDU did not back the government on Friday in the Greek vote.

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More of the “Greece should be like Germany” meme.

How Can Greece Take Charge? (New Yorker)

Even if Greece gets the debt relief that the IMF is recommending, the next few years will be grim. As James Galbraith, an economist at the University of Texas at Austin, who assisted the former Greek finance minister during this year’s negotiations, told me, “What’s going to happen in Greece is going to be very sad.” So what can Greece do? It really has only one option—to make the economy more productive and, above all, to export more. It’s easy to focus on Greece’s huge pile of debt, but, according to Yannis Ioannides, an economist at Tufts University, “debt is ultimately the lesser problem. Productivity and the lack of competitive exports are the much more important ones.”

There are structural issues that make this challenging. Greece is never going to be a manufacturing powerhouse: almost half of all Greek manufacturers have fewer than fifty employees, which limits productivity and efficiency, since they don’t enjoy economies of scale. Greece also has a legal and business environment that discourages investment, particularly from abroad. Contractual disputes take more than twice as long to resolve as in the average E.U. country. Greece has been among the most difficult European countries in which to start and run a business, and it has myriad regulations designed to protect existing players from competition. All countries have rules like this, but Greece is an extreme case. Bakeries, for instance, can sell bread only in a few standardized weights.

Recently, Alexis Tsipras, the Greek Prime Minister, had to promise that he would “liberalize the market for gyms.” The scale of these problems makes Greece’s task sound hopeless, but simple reforms could have a big impact. Contrary to its image in Europe, Greece has already made moves in this direction: between 2013 and 2014, it jumped a hundred and eleven places in the World Bank’s “ease of starting a business” index. And reform doesn’t mean Greece needs to abandon the things that make it distinctive. In fact, in the case of exports, the country has important assets that it hasn’t taken full advantage of. Greek olive oil is often described as the best in the world. Yet 60% of Greek oil is sold in bulk to Italy, which then resells it at a hefty markup.

Greece should be processing and selling that oil itself, and similar stories could be told about feta cheese and yogurt; a 2012 McKinsey study suggested that food products could add billions to Greece’s G.D.P. Similarly, tourism, though it already accounts for 18% of G.D.P., has a lot more potential. Most tourists in Greece are Greek themselves, a sign that the country could do a much better job of tapping the booming global tourism market. Doing so would require major investments in improving ports and airports, and in marketing. But the upside could be huge. Greece also needs to stem its current brain drain. It produces a large number of scientists and engineers, but it spends little on research and development, so talent migrates abroad. And there are other ways that Greece could capitalize on its climate and its educated workforce; as Galbraith suggests, it’s an ideal location for research centers and branches of foreign universities.

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“People turn away because they have been bypassed..” So you just bypass them some more?

Hollande Calls For Vanguard Of States To Lead Strengthened Eurozone (EUOberver)

French president Francois Hollande has called for a stronger more harmonised eurozone following a politically turbulent few weeks in which crisis with Greece has exposed the fault-lines in how the single currency is managed. “What threatens us is not too much Europe, but too little Europe,” he said in a letter published in the Journal du Dimanche. He called for a vanguard of countries that would lead the eurozone, which should have its own government, a “specific budget” and its own parliament. “Sharing a currency is much more than wanting convergence. It is a choice that 19 countries have made because it is in their interest,” he wrote adding that this “choice” requires a “strengthened” organisation.

French prime minister Manuel Valls Sunday said the vanguard should include the six founding countries of the EU: France, Germany, Italy, Belgium, Luxembourg and the Netherlands. He said France would prepare “concrete proposals” in the coming weeks. “We must learn the lessons and go much further,” he added, referring to the Greek crisis. “Europe has let its institutions weaken and the 28 governments struggle to agree to move forward. Parliaments are too far from decisions. People turn away because they have been bypassed,” said Hollande. He added that “populists” have seized upon this “disenchantment” with Europe. Hollande’s calls come as the eurozone is locked in recriminations over its handling of Greece.

The country is set to get a third bailout following eleventh hour negotiations last week however neither the Athens government nor Berlin, the main architect of the bailout programme, believe it will be a success. It exposed divisions between a camp of hardliners led by Germany, whose finance minister advocated a eurozone exit for Greece, and a camp led by France and Italy, which argued that the EU as a whole would be damaged if Greece left the euro.

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” The Fed “clearly intends the very largest U.S. banks to buckle under this new capital regime, restructuring quickly and dramatically..”

Fed Tells Big Banks to Shrink (WSJ)

Federal Reserve sent a message to the largest U.S. financial firms: Staying big is going to cost you. The Fed’s warning, articulated in a pair of rules it finalized Monday, is among the central bank’s starkest postcrisis regulatory moves pressing Wall Street banks to reconsider their size and appetite for risk. The Fed completed one rule stating that the eight largest banks in the country should maintain an additional layer of capital to protect against losses, its plainest effort yet to encourage them to shrink. At the same time, it offered a reprieve to General Electric’s finance unit from more-intensive regulation, after the company promised to cut its assets by more than half. The moves reinforce the central mandate of the Dodd-Frank financial overhaul law signed by President Barack Obama five years ago.

Regulators have pushed big banks to expand their capital buffers to better absorb losses, reduce their reliance on volatile forms of funding, improve their risk management and cut back on risky assets. So-called stress tests measure banks’ resilience each year and can restrict shareholder payouts at firms that don’t pass. For Wall Street banks and their investors, the emerging regime presents a series of choices: specifically whether to pay the cost of new regulation, which will fall to the bottom line, or change their business models by shedding businesses or withdrawing from certain markets, such as owning commodities. The Fed “clearly intends the very largest U.S. banks to buckle under this new capital regime, restructuring quickly and dramatically,” said Karen Petrou at Federal Financial Analytics.

J.P. Morgan Chase, the largest U.S. bank with assets worth $2.449 trillion, will have to maintain more capital than any of its peers, with its minimum capital requirement raised by 4.5% of assets under management as a result of the new rule. J.P. Morgan has resisted calls from lawmakers and others to break up its operations, and instead has jettisoned or adjusted businesses to comply with the new mandates. “Everything’s doable—it just costs money,” said Glenn Schorr, a banking-industry analyst with Evercore ISI. Mr. Schorr said banks could hold less capital but would have to cut parts of their business.

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You’d be forgiven for presuming they already did that.

US Banks Prepare For Oil And Gas Company Loans To Worsen (Reuters)

U.S. banks are setting aside more money to cover bad loans to energy companies after oil prices plunged over the last year, raising the possibility that deteriorating loans could start to weigh on their earnings, some analysts said. Loan credit quality for U.S. banks has been improving since the financial crisis. In the first quarter, 2.49% of loans on banks’ books were delinquent, the lowest level since the fourth quarter of 2007, according to the Federal Reserve, which hasn’t released second quarter data. The rate peaked at 7.4% in the first quarter of 2010. Weakness among energy company loans could be a sign that overall credit quality among U.S. banks has little room to improve, analysts said.

Executives from both JPMorgan Chase and Wells Fargo told investors last week, when posting earnings, that they were increasingly concerned about loans to oil and gas companies. Texas bank Comerica on Friday set aside about three times as much money to cover bad loans as analysts had expected, sending the regional bank’s shares lower by more than 6% after the bank reported earnings Friday. Setting aside more money, known as “provisioning,” hurts earnings. “The banks really have very low credit costs and those can go higher,” said Fred Cannon, who heads research at Keefe Bruyette & Woods. While “energy overall is not a life threatening issue for the banks, it is earnings threatening,” he said.

JPMorgan said on Tuesday it provisioned another $252 million to cover potentially bad wholesale business loans in the quarter, with $140 million of that related to oil and gas lending. Oil prices rallied in March and April, but in recent weeks have fallen again on expectations that loosened sanctions against Iran create the potential for greater supplies. U.S. crude oil prices fell below $50 a barrel on Monday for the first time since April.

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This could come back to hurt the west a lot.

BRICS Countries Launch New Development Bank In Shanghai (BBC)

The Brics group of emerging economies on Tuesday launched its New Development Bank (NDB) in Shanghai. The bank is backed by Brazil, Russia, India, China and South Africa – collectively known as Brics countries. The NDB will lend money to developing countries to help finance infrastructure projects. The bank is seen as an alternative to the World Bank and the IMF, although the group says it is not a rival. “Our objective is not to challenge the existing system as it is but to improve and complement the system in our own way,” NDB President Kundapur Vaman Kamath said. The Brics nations have criticised the World Bank and the IMF for not giving developing nations enough voting rights. The bank is expected to issue its first loans early next year.

The opening comes two weeks after the last Brics summit in the Russian city Ufa, where the final details were discussed. At the time, Russian Foreign Minister Sergei Lavrov said that the five countries “illustrate a new polycentric system of international relations”.
The bank is to start out with a capital of $50bn though the amount is to be doubled in the coming years. The biggest contributor will be the world’s second largest economy China, which also led the establishment of another new international bank, the Beijing-based Asian Infrastructure Development Bank. The NDB is to be headed by a rotating leadership with the first president, Mr Kamath, coming from India. It was first proposed in 2012 but protracted negotiations over headquarters, management and funding have long delayed the actual launch.

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Farrell keeps at it.

Pope Francis Leading The New American (Socialist) Revolution (Paul B. Farrell)

Yes, Pope Francis is encouraging civil disobedience, leading a rebellion. Listen closely, Francis knows he’s inciting political rebellion, an uprising of the masses against the world’s superrich capitalists. And yet, right-wing conservatives remain in denial, tuning out the pope’s message, hoping he’ll just go away like the “Occupy Wall Street” movement did. Never. America’s narcissistic addiction to presidential politics is dumbing down our collective brain. Warning: Forget Bernie vs. Hillary. Forget the circus-clown-car distractions created by Trump vs. the GOP’s Fab 15. Pope Francis is only real political leader that matters this year. Forget the rest. Here’s why:

Pope Francis is not just leading a “Second American Revolution,” he is rallying people across the Earth, middle class as well as poor, inciting billions to rise up in a global economic revolution, one that could suddenly sweep the planet, like the 1789 French storming the Bastille. Unfortunately, conservative capitalists — Big Oil, Koch billionaires, our GOP Congress and all fossil-fuel climate-science deniers — are blind to the fact their ideology is on the wrong side of history, that by fighting a no-win battle they are committing suicide, self-destructing their own ideology. The fact is: The era of capitalism is rapidly dying, a victim of its own success, sabotaged by greed and a loss of a moral code. In 1776 Adam Smith’s capitalism became America’s core economic principle.

We enshrined his ideal of capitalism in our constitutional freedoms. We prospered. America became the greatest economic superpower in world history. But along the way, America forgot Smith’s original foundation was in morals, values, doing what’s right for the common good. Instead we drifted into Ayn Rand’s narcissistic “mutant capitalism,” as Vanguard’s founder Jack Bogle called the distortion of Adam Smith’s principles in his classic, “The Battle for the Soul of Capitalism.” The battle is lost. In the generation since the Reagan Revolution, America’s self-centered, consumer-driven, mutant capitalism lost its moral compass, drifting: Inequality explodes, income growth stagnates, the poor keep getting poorer. Yet across the world, billionaires have explode from 322 in 2000 to 1,826 in 2015, with 11 trillionaire capitalist families predicted to control the planet by 2100.

But not for much longer, as Pope Francis’ revolution accelerates, as his relentless socialist message of sacred rights for all people makes clear. Why? Our mutating capitalist elite have triggered a massive backlash, a “profound human crisis, the denial of the primacy of the human person. The worship of the ancient golden calf has returned in a new and ruthless guise in the idolatry of money.”

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“..sea level rise of at least 10 feet in as little as 50 years.”

Earth’s Most Famous Climate Scientist Issues Bombshell Sea Level Warning (Slate)

In what may prove to be a turning point for political action on climate change, a breathtaking new study casts extreme doubt about the near-term stability of global sea levels. The study—written by James Hansen, NASA’s former lead climate scientist, and 16 co-authors, many of whom are considered among the top in their fields—concludes that glaciers in Greenland and Antarctica will melt 10 times faster than previous consensus estimates, resulting in sea level rise of at least 10 feet in as little as 50 years. The study, which has not yet been peer reviewed, brings new importance to a feedback loop in the ocean near Antarctica that results in cooler freshwater from melting glaciers forcing warmer, saltier water underneath the ice sheets, speeding up the melting rate.

Hansen, who is known for being alarmist and also right, acknowledges that his study implies change far beyond previous consensus estimates. In a conference call with reporters, he said he hoped the new findings would be “substantially more persuasive than anything previously published.” I certainly find them to be. To come to their findings, the authors used a mixture of paleoclimate records, computer models, and observations of current rates of sea level rise, but “the real world is moving somewhat faster than the model,” Hansen says. Hansen’s study does not attempt to predict the precise timing of the feedback loop, only that it is “likely” to occur this century. The implications are mindboggling: In the study’s likely scenario, New York City—and every other coastal city on the planet—may only have a few more decades of habitability left.

That dire prediction, in Hansen’s view, requires “emergency cooperation among nations.”We conclude that continued high emissions will make multi-meter sea level rise practically unavoidable and likely to occur this century. Social disruption and economic consequences of such large sea level rise could be devastating. It is not difficult to imagine that conflicts arising from forced migrations and economic collapse might make the planet ungovernable, threatening the fabric of civilization.”

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Jul 072015
 
 July 7, 2015  Posted by at 10:57 am Finance Tagged with: , , , , , , ,  


DPC Main Street, Buffalo, NY 1900

ECB Turns The Screws On Greek Banks (Kathimerini)
Greece Should Immediately Begin To Print Drachma (Martin Armstrong)
Giving In To Greece Could ‘Blow Apart’ The Euro, Warns Merkel (DM)
Merkel Warns Greece Time Is Running Out to Save Place in Euro (Bloomberg)
Be Bold, Frau Merkel (Philippe Legrain)
Europe: The Paradox Of The Superego (New Statesman)
Yanis Varoufakis: The Economist Who Wouldn’t Play Politics (Paul Mason)
Tsipras Taps Longtime Ally to Soothe Debt Confrontation (Bloomberg)
The Euro: Austerity vs Democracy (Aditya Chakrabortty)
Italy and Spain Have Funded a Massive Backdoor Bailout of French Banks (CFR)
Greece May Apply For BRICS bank, But Not Discussed Officially – Putin Aide (RT)
Mario Draghi, Goldman Sachs and Greece (Zero Hedge)
As China Intervenes to Prop Up Stocks, Foreigners Head for Exits (Bloomberg)
Financial Nonsense Overload (Dmitry Orlov)
Welcome to Blackswansville (Jim Kunstler)

And Spain and Italy are watching its every move.

ECB Turns The Screws On Greek Banks (Kathimerini)

The bank holiday has been extended by at least two days (until Wednesday night), but local lenders are now just a step away from serious solvency problems after the ECB decided on Monday to increase the haircut on the collateral they use to draw liquidity. Frankfurt’s decision sent shock waves through Greece’s banking sector as hardly anyone had expected it would use a haircut on collateral to send its own message before the political decisions expected on Tuesday in Brussels. In doing so, the ECB is further increasing the pressure on the Greek government to agree to a deal at Tuesday’s eurozone summit, otherwise the country’s banks may face a sustainability problem on top of their liquidity woes.

The haircut increase reduces the last cash banks can draw from the emergency liquidity assistance (ELA) by two-thirds, running the risk of finding themselves unable to complete any transactions and thus be deemed insolvent. The European Stability Mechanism (ESM) warned late last week that Greece’s failure to pay a €1.6 billion tranche to the IMF on June 30 constitutes a payment default and allows the ESM to immediately demand all the funds it has lent to Greece and confiscate all bank shares controlled by the Hellenic Financial Stability Fund (HFSF). Banks estimate that after Monday’s decision the ceiling on the cash available for them to withdraw has dropped from €18 billion before the haircut increase to just €5 billion.

A similar increase at Wednesday’s ECB meeting would mean that Greek banks would be unable to cover the liquidity they have already drawn with new collateral. The ECB also kept the limit on the ELA available to Greek lenders unchanged and will review the situation at Wednesday’s meeting, i.e. after the completion of Tuesday’s eurozone summit. Bank officials are clearly saying that the country has reached the point of no return and is at risk of bankruptcy unless there is an immediate agreement between the SYRIZA-led government and Greece’s creditors.

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“..the bulk of transactions today are electronic, meaning we are dealing with an accounting issue more than anything. The euro existed electronically BEFORE it became printed money; Greece should do the same right now.”

Greece Should Immediately Begin To Print Drachma (Martin Armstrong)

Brussels has been dead wrong. The stupid idea that the euro will bring stability and peace, as it was sold from the outset, has migrated to European domination as if this were “Game of Thrones”. Those in power have misread history, almost at every possible level. The assumption that the D-marks’ strength was a good thing that would transfer to the euro has failed because they failed to comprehend the backdrop to the D-mark. Germany moved opposite of the USA toward extreme austerity and conservative economics because of its experience with hyperinflation. The USA moved toward stimulation because of the austerity policies that created the Great Depression, which led to a shortage of money, and many cities had to issue their own currency just to function.

The federal government thought, like Brussels today, that they had to up the confidence in the bond market and that called for raising taxes and cutting spending at the expense of the people. The same thinking process has played out numerous times throughout history. Our problem is that no one ever asks – Hey, did someone try this before? Did it work? This is why history repeats – we do ZERO research when it comes to economics. It is all hype and self-interest. Greece should immediately begin to print drachma. By no means has the introduction of a new currency been a walk in the park. There is always a learning curve, as in the case of East Germany’s adoption of the Deutsche mark, the Czech-Slovak divorce of 1993, and the creation of the euro itself .

However, the bulk of transactions today are electronic, meaning we are dealing with an accounting issue more than anything. The euro existed electronically BEFORE it became printed money; Greece should do the same right now. The difference concerning East Germany and others was the fact that there was no history. This is more akin to the 1933 devaluation of the dollar by FDR whereby an executive order reneged on promises to pay prior debt in gold. This would be similar. The new drachma should be issued at two-per euro, only because the people will think the drachma should be worth less than a euro based on pride. If the new drachma is issued at par, the speculators will sell, assuming it will decline. Issue it at 50% and you will eventually see the opposite trend emerge once people see the contagion begin to spread.

Brussels already cut off the banks in Greece. All accounts in Greece should be electronically switched to drachmas. Begin to issue printed drachma for small change. The umbilical cord to Brussels must be cut immediately for Greece to stand on its own. You cannot negotiate with people who will not change their view of the world, for their own self-interest will cloud their perspective. All EXTERNAL debt should be suspended. Any future resolution of debt should be reduced by 50% to account for the overvaluation of prior debt, thanks to the euro, and any interest previously paid should be deducted from the total loan.

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She’s got it upside down.

Giving In To Greece Could ‘Blow Apart’ The Euro, Warns Merkel (DM)

Germany warned last night that the euro could ‘blow apart’ if the single currency’s members give in to demands from Greece to water down austerity measures. Angela Merkel and Francois Hollande were locked in a bitter stand-off ahead of yet another bid by eurozone leaders to prevent the debt-ridden state crashing out of the single currency. Athens yesterday extended its ‘bank holiday’ until at least Thursday after the European Central Bank deferred a decision on whether to continue propping up the country’s financial institutions. But one American hedge fund, Balyasny, yesterday warned investors that Greek banks were on the verge of running dry, leaving the country 48 hours from civil unrest.

In a further signal that Greece’s financial woes could spark a wider geo-political crisis for the West, Greek Prime Minister Alexis Tsipras yesterday held talks by phone with Russian President Vladimir Putin. Moscow said the call had been arranged ‘at the request’ of Mr Tsipras, with the two men discussing the outcome of the referendum. Some observers believe Moscow could agree to bail out Greece in return for Athens blocking further EU sanctions against Russia. France was last night pushing for an EU brokered deal, with Mr Hollande saying it was vital to Europe to show ‘solidarity’ with Greece. The French President said ‘the door is open’ to further discussions with Mr Tsipras, who is expected to table fresh proposals in Brussels today.

But Germany gave no sign it is willing to back down in the face of the Greek referendum on Sunday, when voters overwhelmingly rejected the austerity measures demanded as a condition of future bailout funds. Mrs Merkel said the conditions for a deal ‘are not there yet’. She added: ‘We have already shown a great deal of solidarity to Greece and the latest proposal put forward to them was extremely generous.’ Sigmar Gabriel, the German vice-chancellor and economy minister, said there could be no question of writing off Greek debt because other countries that have had loans such as Ireland, Portugal and Spain would demand equal treatment.

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Empty rethoric.

Merkel Warns Greece Time Is Running Out to Save Place in Euro (Bloomberg)

Greek Prime Minister Alexis Tsipras was given hours to come up with a plan to keep his country in the euro as citizens endure a second week of capital controls. German Chancellor Angela Merkel said “time is running out” as she and French President Francois Hollande, leaders of the two biggest countries in the euro bloc, responded to Sunday’s referendum. The European Central Bank piled on the pressure by making it tougher for Greek banks to access emergency loans. Finance ministers and leaders from the 19-member region gather Tuesday.

After promising Greek voters a “no” outcome against austerity would strengthen his negotiating hand, the onus is on Tsipras to prove he can get a deal with creditors insistent on tax hikes and spending cuts as the price for a new bailout of Europe’s most indebted nation. “The last offer that we made was a very generous one,” Merkel said Monday at the Elysee Palace in Paris. “On the other hand, Europe can only stand together, if each nation takes on its own responsibility.” Heading into the Brussels talks – 1 p.m. for the finance chiefs, and 6 p.m. for the leaders – Greece made a pre-emptive concession to its trio of creditors with the resignation of outspoken Finance Minister Yanis Varoufakis who clashed with his counterparts from other countries, especially Germany’s Wolfgang Schaeuble.

U.S. President Barack Obama spoke by phone with Hollande and the two agreed on the need for a way forward that’ll allow Greece to resume reforms and return to growth within the euro area, according to a White House statement. Treasury Secretary Jack Lew spoke with Tsipras and new finance chief Euclid Tsakalotos and urged a constructive outcome. With bank closures extended through Wednesday to stem deposit withdrawals, Greek lenders are being kept on the equivalent of a drip feed by the ECB.

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She won’t Philippe. She’s dug in deeply.

Be Bold, Frau Merkel (Philippe Legrain)

The Greek people have spoken, delivering a defiant oxi (no) to their creditors’ terms. Blackmailed with the threat of being forced out of the eurozone and under siege in an economy starved of cash by the political European Central Bank, Greeks resoundingly rejected — by 61.3% to 38.7% — the prospect of being a permanently depressed colony bled dry by their incompetent creditors. Now what? Most spreadsheet shifters and politicians on the creditor side want to persist with the logic of confrontation. To quote Oscar Wilde, they know “the price of everything and the value of nothing.” But even in narrow accounting terms, their strategy is flawed: Contrary to their expectations, Greeks have not surrendered, and pushing them out of the eurozone would be more costly to the creditors than clinching a deal.

Besides, the stakes are much bigger than that. Does the eurozone really want to be an empire that tramples on democracy and crushes dissent? Is fear enough to hold it together, or might disintegration have a domino effect? What about the cost of neglecting all the other big issues that Europe’s leaders ought to be addressing? For everyone’s sake, it is time to break free of the narrow, destructive logic of creditor nationalism and draw a line under the Greek crisis.For everyone’s sake, it is time to break free of the narrow, destructive logic of creditor nationalism and draw a line under the Greek crisis. The creditors pretend their small-mindedness is a point of principle: Everyone has to obey eurozone rules, and these stipulate that governments must pay their debts. Except they don’t stipulate that.

Nowhere in the Maastricht Treaty that created the euro does it state that governments have to pay their debts in full. How could it? Sometimes they can’t. But instead of creating a mechanism for restructuring the debts of an insolvent sovereign, the treaty drafters left a blank in the hope that such a situation would never arise. They did stipulate, though, that governments should not bail out their peers. When Greece became insolvent in 2010, its debts ought to have been restructured, as independent analysts and IMF experts advised. Instead, eurozone governments made a catastrophic policy choice. Insisting that debts were sacrosanct and the stability of the entire eurozone was at stake, they decided to breach the no-bailout rule and lend European taxpayers’ money to Greece. As Karl Otto Pöhl, the former president of the Bundesbank, put it: “It was about protecting German banks, but especially the French banks, from debt write-offs.… Now we have this mess.”

Critics contend that this is ancient history, but it isn’t. That tragic decision and subsequent mistakes have transformed the political economy of the eurozone. Initially a voluntary union of equal member states, it has become a hierarchical relationship in which eurozone institutions have become instruments for creditors to impose their will on debtors. The bailout of Greece’s private creditors has also set Europeans against each other: Germans, Spaniards, Slovaks, and others now have an interest in resisting the debt relief that Greece needs to recover. To find an amicable solution to the Greek crisis, the eurozone needs to escape from this destructive logic.

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“The debt providers and caretakers of debt basically accuse the Syriza government of not feeling enough guilt – they are accused of feeling innocent.”

Europe: The Paradox Of The Superego (New Statesman)

In western Europe we like to look on Greece as if we are detached observers who follow with compassion and sympathy the plight of the impoverished nation. Such a comfortable standpoint relies on a fateful illusion – what has been happening in Greece these last weeks concerns all of us; it is the future of Europe that is at stake. So when we read about Greece, we should always bear in mind that, as the old saying goes, de te fabula narrator (the name changed, the story applies to you). An ideal is gradually emerging from the European establishment’s reaction to the Greek referendum, the ideal best rendered by the headline of a recent Gideon Rachman column in the Financial Times: “Eurozone’s weakest link is the voters.”

In this ideal world, Europe gets rid of this “weakest link” and experts gain the power to directly impose necessary economic measures – if elections take place at all, their function is just to confirm the consensus of experts. The problem is that this policy of experts is based on a fiction, the fiction of “extend and pretend” (extending the payback period, but pretending that all debts will eventually be paid). Why is the fiction so stubborn? It is not only that this fiction makes debt extension more acceptable to German voters; it is also not only that the write-off of the Greek debt may trigger similar demands from Portugal, Ireland, Spain. It is that those in power do not really want the debt fully repaid. The debt providers and caretakers of debt accuse the indebted countries of not feeling enough guilt – they are accused of feeling innocent.

Their pressure fits perfectly what psychoanalysis calls “superego”: the paradox of the superego is that, as Freud saw it, the more we obey its demands, the more we feel guilty. Imagine a vicious teacher who gives to his pupils impossible tasks, and then sadistically jeers when he sees their anxiety and panic. The true goal of lending money to the debtor is not to get the debt reimbursed with a profit, but the indefinite continuation of the debt that keeps the debtor in permanent dependency and subordination. For most of the debtors, for there are debtors and debtors. Not only Greece but also the US will not be able even theoretically to repay its debt, as it is now publicly recognised. So there are debtors who can blackmail their creditors because they cannot be allowed to fail (big banks), debtors who can control the conditions of their repayment (US government), and, finally, debtors who can be pushed around and humiliated (Greece).

The debt providers and caretakers of debt basically accuse the Syriza government of not feeling enough guilt – they are accused of feeling innocent. That’s what is so disturbing for the EU establishment about the Syriza government: that it admits debt, but without guilt. They got rid of the superego pressure. Varoufakis personified this stance in his dealings with Brussels: he fully acknowledged the weight of the debt, and he argued quite rationally that, since the EU policy obviously didn’t work, another option should be found.

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And who shouldn’t have to.

Yanis Varoufakis: The Economist Who Wouldn’t Play Politics (Paul Mason)

Why did Varoufakis go? The official reason, on his blog, was pressure from creditors. But there are a whole host of other reasons that made it easier for him to decide to yield to it. First, though he came from the centre-left towards Syriza, Varoufakis ended up consistently taking a harder line than many others in the Greek cabinet over the shape of the deal to be done, and the kind of resistance they might have to unleash if the Germans refused a deal. Second, because Varoufakis is an economist, not a politician. His entire career, and his academic qualifications are built on the conviction that a) austerity does not work; b) the Eurozone will collapse unless it becomes a union for recycling tax from rich countries to poor countries; c) Greece is insolvent and its debts need to be cancelled.

By those measures, any deal Greece can do this week will falls short of what he thinks will work. On top of that, politicians are built for compromise. Tsipras has to work the party machine, the government machine, the machine of parliament. Varoufakis’ machine is his own brain. If he wound up the creditors it was for a reason: they’d convinced themselves that Tsipras was a Greek Tony Blair and would simply betray his promises and compromise on taking office. The lenders detested Varoufakis because he looked and sounded like one of them. He spoke the language of the IMF and ECB, and turned their own logic against them. But he achieved his objective: he convinced the lenders Greece was serious.

Varoufakis critics in Greek politics accused him of flamboyant gestures and adopting a stance he could not deliver on. His critics in Syriza believed from the outset he was “a neo-liberal”. Among the lenders it was always the north European politicians who could not live with Varoufakis. Though he was at odds with the IMF’s Christine Lagarde and at odds with the IMF over all matters of substance they at least spoke the same language. His policy was total honesty, and when it could not be honesty in public it was honesty in private. He exploded the world of Brussels journalism, which had become back-channel stenography, by publishing the key documents, usually sometime after midnight.

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Trojan horse.

Tsipras Taps Longtime Ally to Soothe Debt Confrontation (Bloomberg)

Greek Prime Minister Alexis Tsipras is counting on a change of style, if not necessarily substance, by turning to a longtime ally to seek a deal with creditors to keep his nation in the euro. Euclid Tsakalotos was named finance minister to replace Yanis Varoufakis, who resigned Monday after more than five months of fruitless back-and-forth. An Oxford-educated economist who was previously deputy foreign minister, Tsakalotos had already begun to take a leading role in debt talks before Tsipras’s surprise referendum call brought them to a halt on June 27. Tsipras is betting that a new, less confrontational face will help him bring German Chancellor Angela Merkel and other European leaders back to the table after Greeks voted to reject further austerity in Sunday’s vote.

Varoufakis had vowed to “cut off my arm” rather than sign a bad deal, and was involved in a long series of spats with negotiating partners in his six months on the job. “It’s an important symbolic and necessary move,” Famke Krumbmuller, an analyst at political consultancy Eurasia Group, said by e-mail. Creditors “now really need to see the trust restored by a serious and credible commitment from the Greek side to implement reforms,” she said. Time is running short: Greek banks are almost out of cash and commerce is grinding to a halt in the absence of a new bailout deal and lifeline from the ECB. Tsipras’s government has extended bank closures and capital controls through Wednesday to stem withdrawals. [..]

Tsakalotos became more prominent in Greece’s debt negotiations in June as relations between Varoufakis and creditors worsened. Varoufakis today said he was resigning because “there was a certain preference” among some European governments that he be “absent” from the next round of talks, if and when they begin. Though Tsakalotos’s button-downed style may help endear him to creditors, he’s still a staunch supporter of Syriza’s more radical policies and a harsh critic of European austerity, putting him on the opposite side of the ideological spectrum from key politicians including Germany’s Wolfgang Schaeuble.

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That’s all the flavors we have.

The Euro: Austerity vs Democracy (Aditya Chakrabortty)

The challenge facing Europe today goes far wider and deeper than how to handle a small bankrupt country holding only 2% of the EU’s population. No, the bigger question is this: can Europe handle democracy, however awkward and messy and downright truculent it may be? The answer to that will probably decide whether the euro lives on as the currency of 19 nations. Say what you like about the referendum held in Greece this Sunday, it was democracy at its most raw. Yes, the ballot question was impenetrable, and Alexis Tsipras, the Greek prime minister, came close to urging voters to say oxi (no) to a deal he’d pretty much said nai (yes) to just a couple of days earlier.

Yet in the face of the country’s political and media establishment warning Greeks to vote yes – echoing every major European leader (and quite a few faceless ones) – and the shock-and-awe tactics of the ECB in pulling the plug on Greek banks, the country still delivered a loud no to austerity, troika-style. Intelligent pragmatists might look at that landslide and argue that it is time for the troika – made up of the EU, ECB and IMF – to react by altering both policy and tone. My colleague Jonathan Freedland neatly expressed that attitude on these pages a couple of days ago, petitioning the European commission, the ECB and the IMF “to demonstrate that the euro and austerity are not synonymous terms”.

I sympathise with Freedland’s view – but am far more pessimistic about the ability of the euro’s leading powers to change course. Austerity is not some policy mistake the eurozone’s leaders have absent-mindedly made – like a weekend motorist blindly following the satnav into a cul-de-sac. On the contrary, the bone-headed and self-defeating policy of forcing Greece to make severe spending cuts amid an economic depression is a direct product of the eurozone’s lack of democracy. Just how closely fused austerity and the eurozone’s unrepresentative politics are can be seen from the insistence of European leaders in the run-up to the referendum that any vote against austerity was tantamount to a vote for leaving the euro.

That attitude reached its apex in the insistence last week of Martin Schulz, the European parliament president, that the troika could only deal with Greece if it were represented by an unelected “technocratic government”. This is the former leader of the European parliament’s Progressive Alliance of Socialists & Democrats calling for regime change against an elected government.

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Still the main story on Greece.

Italy and Spain Have Funded a Massive Backdoor Bailout of French Banks (CFR)

In March 2010, two months before the announcement of the first Greek bailout, European banks had €134 billion worth of claims on Greece. French banks, as shown in the right-hand figure above, had by far the largest exposure: €52 billion – this was 1.6 times that of Germany, eleven times that of Italy, and sixty-two times that of Spain. The €110 billion of loans provided to Greece by the IMF and Eurozone in May 2010 enabled Greece to avoid default on its obligations to these banks. In the absence of such loans, France would have been forced into a massive bailout of its banking system. Instead, French banks were able virtually to eliminate their exposure to Greece by selling bonds, allowing bonds to mature, and taking partial write-offs in 2012. The bailout effectively mutualized much of their exposure within the Eurozone.

The impact of this backdoor bailout of French banks is being felt now, with Greece on the precipice of an historic default. Whereas in March 2010 about 40% of total European lending to Greece was via French banks, today only 0.6% is. Governments have filled the breach, but not in proportion to their banks’ exposure in 2010. Rather, it is in proportion to their paid-up capital at the ECB – which in France’s case is only 20%. In consequence, France has actually managed to reduce its total Greek exposure – sovereign and bank – by €8 billion, as seen in the main figure above. In contrast, Italy, which had virtually no exposure to Greece in 2010 now has a massive one: €39 billion. Total German exposure is up by a similar amount – €35 billion. Spain has also seen its exposure rocket from nearly nothing in 2009 to €25 billion today.

In short, France has managed to use the Greek bailout to offload €8 billion in junk debt onto its neighbors and burden them with tens of billions more in debt they could have avoided had Greece simply been allowed to default in 2010. The upshot is that Italy and Spain are much closer to financial crisis today than they should be.

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They will and should.

Greece May Apply For BRICS bank, But Not Discussed Officially – Putin Aide (RT)

Although there are speculations in the media about Greece applying to join the BRICS bank, the issue hasn’t been discussed at an official level, one of President Putin’s top aides told RT, VGTRK and Ria in an interview. Rumors about Greece possibly joining the bank emerged ahead of the leaders of Russia, China, Brazil, India and South Africa preparing to launch their own development bank at a the seventh summit of the organization in Russia’s Ufa later this week. “There has been speculation in the media that Greece may apply for accession to the New Development Bank. We know of these assumptions, but so far no one has officially discussed such an option with us,” Yury Ushakov, President Putin’s aide, said.

The top official revealed that the upcoming discussions are going to “touch on the parameters of the practical operation of the BRICS’ New Development Bank (NDB) and currency reserve pool.” “They don’t constitute an attempt to oppose the International Monetary Fund or the World Bank,” Ushakov stressed. These institutions are rather new instruments for “addressing our shared objectives,” he said. The NDB is just launching its operations, Ushakov noted, and it still has to “set out its priorities and start to function.” “And it certainly won’t start its operations with Greece,” Ushakov added, pointing out that the NBD has “its own tasks and challenges to deal with.”

The issue of Greece is going to be discussed anyway, but not in the context of its accession to the NDB “even in the long term,” the presidential aid said. The BRICS’ New Development Bank has an initial capital of $US 50 blillion and is believed to have triggered a major reshape of the Western-dominated financial system. The NDB is expected to be up and running by the end of the year. The BRICS countries are also busy creating an alternative to the US-dominated western SWIFT payment system.

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Revealing.

Mario Draghi, Goldman Sachs and Greece (Zero Hedge)

Back in June 2012, the ECB, whose head was the recently crowned Mario Draghi who had less than a decade ago worked at none other than Goldman Sachs, was sued by Bloomberg’s legendary Mark Pittman under Freedom of Information rules demanding access to two internal papers drafted for the central bank’s six-member Executive Board. They show how Greece used swaps to hide its borrowings, according to a March 3, 2010, note attached to the papers and obtained by Bloomberg News. The first document is entitled “The impact on government deficit and debt from off-market swaps: the Greek case.” The second reviews Titlos Plc, a securitization that allowed National Bank of Greece SA, the country’s biggest lender, to exchange swaps on Greek government debt for funding from the ECB, the Executive Board said in the cover note. From Bloomberg:

In the largest derivative transaction disclosed so far, Greece borrowed €2.8 billion from Goldman Sachs in 2001 through a derivative that swapped dollar- and yen-denominated debt issued by the nation for euros using a historical exchange rate, a move that generated an implied reduction in total borrowings.

“The Greek authorities had never informed Eurostat about this complex issue, and no opinion on the accounting treatment had been requested,” Eurostat, the Luxembourg-based statistics agency, said in a statement. The watchdog had only “general” discussions with financial institutions over its debt and deficit guidelines when the swap was executed in 2001. “It is possible that Goldman Sachs asked us for general clarifications,” Eurostat said, declining to elaborate further.

The ECB’s response: “the European Central Bank said it can’t release files showing how Greece may have used derivatives to hide its borrowings because disclosure could still inflame the crisis threatening the future of the single currency.”

Considering the crisis of the (not so) single currency is very much “inflamed” right now as it is about to be proven it was never “irreversible”, perhaps it is time for at least one aspiring, true journalist, unafraid of disturbing the status quo of wealthy oligarchs and central planners, to at least bring some closure to the Greek people as they are swept out of the Eurozone which has so greatly benefited the very same Goldman Sachs whose former lackey is currently deciding the immediate fate of over €100 billion in Greek savings.

Because something tells us the reason why Mario Draghi personally blocked Bloomberg’s FOIA into the circumstances surrounding Goldman’s structuring, and hiding, of Greek debt that allowed not only Goldman to receive a substantial fee on the transaction, but permitted Greece to enter the Eurozone when it should never have been allowed there in the first place, is that the person who oversaw and personally endorsed the perpetuation of the Greek lie is none other than Goldman’s Vice Chairman and Managing Director at Goldman Sachs International from 2002 to 2005. The man who is also now in charge of the ECB. Mario Draghi.

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Big bust in the making.

As China Intervenes to Prop Up Stocks, Foreigners Head for Exits (Bloomberg)

Foreign investors are selling Shanghai shares at a record pace as China steps up government intervention to combat a stock-market rout that many analysts say was inevitable. Sales of mainland shares through the Shanghai-Hong Kong exchange link swelled to an all-time high on Monday, while dual-listed shares in Hong Kong fell by the most since at least 2006 versus mainland counterparts. Options traders in the U.S. are paying near-record prices for insurance against further losses after Chinese stocks on American bourses posted their biggest one-day plunge since 2011. The latest attempts to stem the country’s $3.2 trillion equity rout, including stock purchases by state-run financial firms and a halt to initial public offerings, have undermined government pledges to move to a more market-based economy, according to Aberdeen Asset Management.

They also risk eroding confidence in policy makers’ ability to manage the financial system if the rout in stocks continues, said BMI Research, a unit of Fitch. “It’s coming to a point where you’re covering one bad policy with another,” said Tai Hui at JPMorgan Asset Management. “A lot of investors are still concerned about another correction.” Strategists at BlackRock. Credit Suisse, Bank of America and Morgan Stanley last month warned the nation’s equities were in a bubble. When the Shanghai Composite reached its high on June 12, shares were almost twice as expensive as they were when the gauge peaked in October 2007 and more than three times pricier than any of the world’s top 10 markets, on a median estimated earnings basis.

A 29% plunge by the gauge through Friday, the steepest three-week rout since 1992, prompted a flurry of measures to stabilize the market. A group of 21 brokerages pledged Saturday to invest at least 120 billion yuan ($19.3 billion) in a stock-market fund, executives from 25 mutual funds vowed to buy shares and hold them for at least a year, while Central Huijin Investment Ltd., a unit of China’s sovereign wealth fund, said it was buying exchange-traded funds.

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“..collective punishment of one country to have it serve as a warning to others is beyond the pale.”

Financial Nonsense Overload (Dmitry Orlov)

“Those whom the gods wish to destroy they first make mad” goes a quote wrongly attributed to Euripides. It seems to describe the current state of affairs with regard to the unfolding Greek imbroglio. It is a Greek tragedy all right: we have the various Eurocrats—elected, unelected, and soon-to-be-unelected—stumbling about the stage spewing forth fanciful nonsense, and we have the choir of the Greek electorate loudly announcing to the world what fanciful nonsense this is by means of a referendum. As most of you probably know, Greece is saddled with more debt than it can possibly hope to ever repay. Documents recently released by the IMF conceded this point. A lot of this bad debt was incurred in order to pay back German and French banks for previous bad debt.

The debt was bad to begin with, because it was made based on very faulty projections of Greece’s potential for economic growth. The lenders behaved irresponsibly in offering the loans in the first place, and they deserve to lose their money. However, Greece’s creditors refuse to consider declaring all of this bad debt null and void—not because of anything having to do with Greece, which is small enough to be forgiven much of its bad debt without causing major damage, but because of Spain, Italy and others, which, if similarly forgiven, would blow up the finances of the entire European Union. Thus, it is rather obvious that Greece is being punished to keep other countries in line. Collective punishment of a country—in the form of extracting payments for onerous debt incurred under false pretenses—is bad enough; but collective punishment of one country to have it serve as a warning to others is beyond the pale.

Add to this a double-helping of double standards. The IMF won’t lend to Greece because it requires some assurance of repayment; but it will continue to lend to the Ukraine, which is in default and collapsing rapidly, without any such assurances because, you see, the decision is a political one. The ECB no longer accepts Greek bonds as collateral because, you see, it considers them to be junk; but it will continue to suck in all sorts of other financial garbage and use it to spew forth Euros without comment, keeping other European countries on financial life support simply because they aren’t Greece. The German government insists on Greek repayment, considering this stance to be highly moral, ignoring the fact that Germany is the defaultiest country in all of Europe. If Germany were not repeatedly forgiven its debt it would be much poorer, and in much worse shape, than Greece.

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Jim’s dead on. De-centralization, de-complexity. That’s our future.

Welcome to Blackswansville (Jim Kunstler)

While the folks clogging the US tattoo parlors may not have noticed, things are beginning to look a little World War one-ish out there. Except the current blossoming world conflict is being fought not with massed troops and tanks but with interest rates and repayment schedules. Germany now dawdles in reply to the gauntlet slammed down Sunday in the Greek referendum (hell) “no” vote. Germany’s immediate strategy, it appears, is to apply some good old fashioned Teutonic todesfurcht — let the Greeks simmer in their own juices for a few days while depositors suck the dwindling cash reserves from the banks and the grocery store shelves empty out. Then what? Nobody knows. And anything can happen. One thing we ought to know: both sides in the current skirmish are fighting reality.

The Germans foolishly insist that the Greek’s meet their debt obligations. The German’s are just pissing into the wind on that one, a hazardous business for a nation of beer drinkers. The Greeks insist on living the 20th century deluxe industrial age lifestyle, complete with 24/7 electricity, cheap groceries, cushy office jobs, early retirement, and plenty of walking-around money. They’ll be lucky if they land back in the 1800s, comfort-wise. The Greeks may not recognize this, but they are in the vanguard of a movement that is wrenching the techno-industrial nations back to much older, more local, and simpler living arrangements. The Euro, by contrast, represents the trend that is over: centralization and bigness. The big questions are whether the latter still has enough mojo left to drag out the transition process, and for how long, and how painfully.

World affairs suffer from the disease of terminal excessive complexity. To make matters worse, much of the late-phase complexity operates in the service of accounting fraud of one kind or another. The world’s banking system is mired in the unreality of so many unmeetable obligations, cooked books, three-card-monte swap gimmicks, interest rate euchres, secret arbitrages, market manipulation monkeyshines, and countless other cons, swindles, and hornswoggles that all the auditors ever born could not produce a coherent record of what has been wreaked in the life of this universe (or several parallel universes). Remember Long Term Capital Management? That’s what the world has become. What happens in the case of untenable complexity is that it tends to unravel fast and furiously..

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May 232015
 
 May 23, 2015  Posted by at 10:31 am Finance Tagged with: , , , , , , , , , , ,  


G. G. Bain Hudson-Fulton celebration. Union League Club. New York. 1909

Our $58 Trillion Love Affair With Debt, In One Crazy Chart (CNBC)
Fed On Track To Hike Rates As Economic Headwinds Wane: Yellen (Reuters)
BRICS To Establish New Multi-Currency Financial Order (RT)
How ‘Mathiness’ Made Me Jaded About Economics (Bloomberg)
Jim Chanos Thinks China Could Be The Next Greece (MarketWatch)
Greece and Creditors Struggle for Elusive Deal (WSJ)
Eurozone Says No Greek Deal Without IMF (FT)
Yanis Varoufakis Is More Than His Clothes (AlJazeera)
How Politics Will Seal The Fate Of Greece (FT)
German Business Morale Weakens And Trade Dampens Q1 Growth (Reuters)
The Strikes Sweeping Germany Are Here To Stay (Guardian)
Bank Of England Secretly Investigates Financial Fallout Of Brexit (Guardian)
GM Inquiry Said to Find Criminal Wrongdoing (NY Times)
Ireland Says Yes To Same-Sex Marriage By Up To 2:1 Margin (Ind.ie)
‘March Against Monsanto’ in 38 Countries, 428 Cities (RT)
Bayer CEO: The World Needs An Antibiotics Bailout (Reuters)
California Accepts Offer By Farmers To Cut Water Usage By 25% (Guardian)
Attacks On The Last Elephants And Rhinos Threaten Entire Ecosystems (Monbiot)
Yet Another Antarctic Ice Mass Is Becoming Destabilized (WaPo)

The one area where the US sees actual growth.

Our $58 Trillion Love Affair With Debt, In One Crazy Chart (CNBC)

Those having a hard time finding growth in the U.S. economy are looking in the wrong places. Forget about real estate, technology or manufacturing: The real American growth industry is debt. While gross domestic product has lingered in the 2 to 2.5% growth range for years, the level of debt as measured through credit market instruments has exploded. As the nation entered the 1980s, there was comparatively little debt—just about $4.3 trillion. That was only about 1.5 times the size of gross GDP. Then a funny thing happened. The gap began to widen during the decade, and then became basically parabolic through the ’90s and into the early part of the 21st century.

Though debt took a brief decline in 2009 as the country limped its way out of the financial crisis, it has climbed again and is now, at $58.7 trillion, 3.3 times the size of GDP and about 13 times what it was in 1980, according to data from the Federal Reserve’s St. Louis branch. (The total debt measure is not to be confused with the $18.2 trillion national debt, which is 102% of GDP and is a subset of the total figure.) Of the total debt, nonfinancial debt leads the way at $41.4 trillion, which breaks down as household and nonprofits holding just shy of $13.5 trillion, nonfinancial business debt at $12 trillion and total government debt at $15.9 trillion.

Growth, such as it is, has been present in all debt categories: In the fourth quarter of 2014, when GDP was growing at just a 2.2% rate, business debt jumped 7.2%, federal government debt surged 5.4% and household debt rose 2.7%, with overall domestic nonfinancial debt up 4.7. So while many economists have bemoaned the 0.2% GDP growth in the first quarter and the dimming prospects for growth the remainder of the year, the debt engine is keeping things humming along—until, of course, the next crisis comes and we start all over again.

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What was it? 0.2% GDP growth in Q1? That can’t be the reason. The Fed made up its mind a long time ago.

Fed On Track To Hike Rates As Economic Headwinds Wane: Yellen (Reuters)

Federal Reserve Chair Janet Yellen was clearer than ever on Friday that the central bank was poised to raise interest rates this year, as the U.S. economy was set to bounce back from an early-year slump and as headwinds at home and abroad waned. Yellen spoke amid growing concern at the Fed about volatility in financial markets once it begins to raise rates, and a desire to begin coaxing skeptical investors toward accepting the inevitable: that a 6-1/2-year stretch of near-zero interest rates would soon end. In a speech to a business group in Providence, Rhode Island, Yellen said she expected the world’s largest economy to strengthen after a slowdown due to “transitory factors” in recent months, and noted that some of the weakness might be due to “statistical noise.”

The confident tone suggested the Fed wants to set the stage as early as possible for its first rate rise in nearly a decade, with Yellen stressing that monetary policy must get out ahead of an economy whose future looks bright. While cautioning that such forecasting is always highly uncertain, and citing room for improvement in the labor market, the Fed chief said delaying a policy tightening until employment and inflation hit the central bank’s targets risked overheating the economy. “For this reason, if the economy continues to improve as I expect, I think it will be appropriate at some point this year to take the initial step to raise the federal funds rate target,” and begin normalizing monetary policy, Yellen told the Providence Chamber of Commerce.

In a speech in March, Yellen said only that a rate hike “may well be warranted later this year,” though the Fed was at the time giving “serious consideration” to making the move. Investors globally are attempting to predict when the Fed will modestly tighten policy. Most economists point to September, while traders in futures markets held firm on December. Ahead of a three-day U.S. holiday weekend, Treasury yields hit session highs after Yellen spoke on Friday, and short-term interest rate futures extended losses, hitting session lows. U.S. stocks were largely flat. “This is probably the most telegraphed Fed lift-off in some time,” said Bruce Zaro at Bolton Global. “I think they’re concerned about the market’s reaction – they don’t want to have a period of volatility that causes the market to react in a crash-type form.”

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At some point it will reach critical mass.

BRICS To Establish New Multi-Currency Financial Order (RT)

The new BRICS initiatives break the monopoly of existing western institutions over the financial order – a very important symbolic change, as it’s the first time a global financial institution is led by developing countries, said experts to RT. “If the new development bank experiment succeeds, it will show the world that the emerging countries can do and manage a multilateral economic institution by themselves,” Akshay Mathur, geo-economic fellow head of research at the Indian Council on Global Relations, told RT at the BRICS academic forum. While talking about the bank’s challenge to western-dominated financial system, he said that one of its goals is to stimulate lending to countries in local currencies for the new projects in that region.

“Right now the bank has clauses in its charter to encourage lending in local currencies. It can do it for lending in the new projects in the East, for Russian projects in the ruble,” he said. BRICS has already employed tools to move away from US dollar dominance, believes H.H.S. Viswanathan, Distinguished Fellow at India’s Observer Research Foundation. “A lot of trade between China and Russia is already taking place in local currencies. As far as India is concerned, it’s not that advanced, but in some areas – yes, we are using local currencies,” he said adding that the main advantage of the banks’ moving away from the dollar is that trading in local currencies reduces the operational cost.

Akshay Mathur also pointed out the potential risks the bank may face, cautioning that China, the largest of the five BRICS economies, could end up dominating the new financial institution. China has already shown notable success in internationalizing yuan. It is issuing foreign loans in its national currency and has currency swaps with 21 countries. “China is lending now more than the World Bank and the IMF combined in Africa and Latin America. So, what I mean about the risk of Chinese financial architecture is that we want to move to a more multilateral multi-currency equitable architecture, because now we have been moving from the risks of one currency to the risks of another,” he said.

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“..math is central to everything that economists do. But the way math is used in macroeconomics isn’t the same as in the hard sciences..”

How ‘Mathiness’ Made Me Jaded About Economics (Bloomberg)

Economics has a lot of math. In no other subject except mathematics itself will you see so many proofs and theorems. Some branches of econ, such as game theory, could legitimately be housed in university math departments. But even in fields such as macroeconomics, which ostensibly deal with real-world phenomena, math is central to everything that economists do. But the way math is used in macroeconomics isn’t the same as in the hard sciences. This isn’t something that most non-economists realize, so I think I had better explain.

In physics, if you write down an equation, you expect the variables to correspond to real things that you can measure and predict. For example, if you write down an equation for the path of a cannonball, you would expect that equation to let you know how to aim your cannon in order to actually hit something. This close correspondence between math and reality is what allowed us to land spacecraft on the moon. It also allowed engineers to build your computer, your car and most of the things you use. Some economics is the same way, especially in microeconomics, or the study of individuals’ actions — you can predict which kind of auction will fetch the highest prices, or how many people will ride a train. But macroeconomics, which looks at the broad economy, is different.

Most of the equations in the models aren’t supported by evidence. For example, something called the consumption euler equation is at the core of almost every modern macroeconomic model. It specifies a relationship between consumption growth and interest rates. But when researchers looked at real data on consumption growth and interest rates, they found that the equation gives exactly the wrong predictions! Yet it continues to be used as the core of almost every macro model. If you read the macro literature, you see that almost every famous, respected paper is chock full of these sort of equations that don’t match reality. This paper predicts that everyone will hold the same amount of cash. This paper predicts that people buy financial assets that only pay off if people are able to change the wage that they ask to receive.

These and many other mathematical statements don’t remotely correspond to observable reality, nor do they have any evidence in support of them. Yet they are thrown into big multi-equation models, and those models are then judged only on how well they fit the aggregate data (which usually isn’t very well). That whole approach would never fly in engineering. Engineering is something you expect to work. But macroeconomists often treat their models as simply ways, in the words of David Andolfatto, vice president of the Federal Reserve Bank of St. Louis, to “organize our thinking” about the world. In other words, macroeconomists use math to make their thoughts concrete, to persuade others, and to check the internal consistency of their (sometimes preposterous) ideas, but not to actually predict things in the real world.

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So do I: .

Jim Chanos Thinks China Could Be The Next Greece (MarketWatch)

China could be the next Greece and its debt woes may even exceed the European country’s in the next few years, predicts prominent hedge-fund manager Jim Chanos of Kynikos Associates. “I joke to my Chinese friends, somewhat half-seriously, another three-four years they are going to be like my homeland Greece,” said Chanos in an interview, which will air this weekend on Wall Street Week, a show hosted by Anthony Scaramucci, co founder of investment-management firm SkyBridge Capital. The perennial China bear pointed to China’s debt-to-GDP ratio of nearly 300% and projected that the ratio is likely to balloon to 400% over the next few years. Here’s an excerpt from the interview:

“The problem is the credit story,” Chanos said. “China’s banking system is bloated and it’s basically taking on more and more leverage.” Chanos declined to elaborate further when contacted for comments but he has been an unabashed critic of China’s debt-fueled economic growth and has been sounding alarm bells of possible hard landing for the world’s second largest economy for several years. A so-called hard landing can refer to a rapid economic slowdown that occurs typically as a government’s central bank is attempting to tighten fiscal policy and combat inflation. China’s total debt hit $28.2 trillion in 2014, equivalent to 280% of its gross domestic product, according to The Wall Street Journal. Chinese monetary officials earlier this month lowered interest rates to combat a worse-than-expected economic slowdown as companies and governments struggled under heavy debt. China’s GDP rose 7% in the first quarter, slowing from the 7.3% growth in the fourth quarter, the National Bureau of Statistics said in April.

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As I predicted, the June 5 date is no longer a stumbling block. The 16th looks darker, though.

Greece and Creditors Struggle for Elusive Deal (WSJ)

Greece and its lenders are casting around for ways to prevent the country from defaulting on debts to the International Monetary Fund in June, as negotiations to unlock bailout aid barely inch forward and the Athens government runs dangerously low on cash. Greece needs financial help in some form by mid-June in order to repay a series of IMF loans falling due, several officials from the country and its creditors said. The Greek government is expected to be able to cover pensions and public-sector wages in May, and it can probably scrape together enough cash to repay a €300 million IMF loan on June 5, these people said.

But three subsequent IMF payments totaling €1.25 billion due in mid-June pose a severe challenge to Athens’s bare treasury, the officials say, and could force the government to either take politically costly measures such as raiding pension funds or delay the payments and risk an unpredictable fallout at home and abroad. Missing an IMF payment would signal that Athens’s coffers are empty. That could spark heavy deposit withdrawals from Greek banks and force capital controls, deepening the country’s economic crisis, said Jacob Kirkegaard, senior fellow at the Peterson Institute for International Economics in Washington.

The looming IMF payments are putting massive pressure on the government, led by the left-wing Syriza party, to agree by early June to the economic-overhaul demands of its creditors. The IMF itself, which is withholding fresh loans pending a deal on policy measures, wants tough pension cutbacks and labor deregulation, without which it believes Greece can’t achieve sustainable growth or solvency. Those measures are anathema to Syriza, elected in January on an antiausterity platform, leaving Greek Prime Minister Alexis Tsipras faced with only unappealing options. Signing the creditors’ terms and putting them to parliament could split his party. A referendum or elections would need time, which is fast running out, and could trigger uncertainty, bank runs and capital controls.

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The White House will be needed to get the IMF in line.

Eurozone Says No Greek Deal Without IMF (FT)

European leaders have told Greece there will be no deal to release desperately needed bailout aid without approval from the more hardline IMF, setting up a stand-off that could leave cash-strapped Athens without funds well into June. The message, delivered by Angela Merkel, the German chancellor, to Alexis Tsipras, her Greek counterpart, at a private meeting in Riga, Latvia’s capital, as well as by lower-level European officials to their Greek interlocutors, comes as the IMF has been weighing whether to withhold its €3.6bn portion of the €7.2bn bailout tranche Athens needs to avoid default. Eurozone and Greek negotiators have been pushing to complete a deal by the end of the month to free up bailout funds before the first in a series of loan repayments owed the IMF totalling €1.5bn falls due June 5.

But securing IMF approval for a bailout deal significantly complicates that timeline. IMF officials believe Mr Tsipras’s government has reversed many of the economic reforms the IMF had agreed with previous Greek governments and do not feel Athens will be able to hit budget targets that would allow its growing debt pile to be reduced quickly. IMF staff have told their board they would not disburse aid without a “comprehensive” deal that started to lower debt levels. They also want EU assurances that Greece will be able to pay its bills for the next 12 months, a demand that could require eurozone governments to commit to another bailout programme. “It has to be a comprehensive approach, not a quick and dirty job,” Christine Lagarde, IMF chief, said at an event in Rio de Janeiro on Friday..

Greek officials have told their eurozone counterparts they are worried about the IMF’s hardline stance and have argued their conditions are politically undeliverable, especially when it comes to the pension reforms, which remain the biggest stumbling block. The IMF has clashed with the European Commission over how tough a line to take, with the commission going so far as to moot cutting the IMF out of a deal. But German officials have bristled at the commission’s interventions and have made clear all three bailout monitors — the IMF, the commission and the ECB — must approve any deal. “The deal must be concluded with the three institutions,” Ms Merkel said at a gathering of leaders from the EU and former Soviet states on Friday. “There is very, very intensive work to be done.”

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“..when close to a solution, the EU goes back to the table with demands that make no sense in the current context..”

Yanis Varoufakis Is More Than His Clothes (AlJazeera)

As the media picked apart Varoufakis, from his smirk to his casual footwear, ugly stereotypes about Greeks resurfaced. In a German daily, the reporter wrote that while “the other finance ministers looked pale and tired, Varoufakis looked as if he had just come back from vacation.” The fallacy of hardworking northerners and lazy southerners should have been put to rest with the 20th century but is still around in 2015. The press briefings cited in most media — which come almost exclusively from unofficial, anonymous sources — said that the discussions that took place over the past few months were no better. They spoke of Greece having no viable proposals and of living in an alternative reality.

They accused Varoufakis of being an ideologue, as though German Chancellor Angela Merkel’s notion of “expansionary contraction,” which was used to justify the austerity dogma, wasn’t in and of itself an ideological intervention (let alone a contradiction in terms). They even complained that Varoufakis was lecturing them on macroeconomics. He was, in a way. “One of the great ironies of the Eurogroup is that there is no macroeconomic discussion. It’s all rules based, as if the rules are God given and as if the rules can go against the rules of macroeconomics,” Varoufakis said in The Irish Times, in response to a criticism by Ireland’s finance minister that he was “too theoretical.”

For now, Varoufakis, like Greece, enjoys too much unwanted attention. While support for Syriza is growing and the party is now leading with 21 percentage points over New Democracy, everyone from everyday supporters of the party (as recent polls have shown) to Greek businesses agrees that the negotiations have gone on too long. But it’s also becoming obvious that when close to a solution, the EU goes back to the table with demands that make no sense in the current context. Earlier this week The Wall Street Journal reported that German Finance Minister Wolfgang Schäuble “showed no willingness to compromise in the negotiations to unlock the final installment of Greece’s €245 billion bailout.”

And in late-night talks on Thursday, Greek Prime Minister Alexis Tsipras met with his counterparts from France and Germany; the atmosphere, Bloomberg reported, was convivial, but the team failed to reach an agreement to release additional bailout funds. We’re running out of time, as we’re only a few weeks before Greece is forced to default on billions of euros in debt repayments. Europe and the international media should stop talking about its finance minister’s clothes and address his nation’s needs and the ideas that he is putting on the table.

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Wait, who said that before? “The Greek crisis was always as much about politics as economics. Now it is all about politics.” I sure didn’t use the same ‘logic’, however: Greece Is Now Just A Political Issue .

How Politics Will Seal The Fate Of Greece (FT)

Forget debt ratios, fiscal balances, liquidity crunches and the rest. The EU and IMF technicians negotiating with Athens are going through the motions. The Greek crisis was always as much about politics as economics. Now it is all about politics. There are two theories of the Syriza government led by Alexis Tsipras. One presents a cast of bungling amateurs who have spent the past several months digging Greece into an ever deeper economic hole — all the while squandering the trust and goodwill of its eurozone partners. The other says the antics of Yanis Varoufakis, finance minister, are an elaborate political charade calculated to set Greece free from the shackles of merciless creditors.

The first hypothesis is the most popular. The preening and pirouetting, the interviews in glossy magazines, the undergraduate Marxism and love of the limelight — all point to a colossal failure on Mr Varoufakis’s part to grasp the depth of Greece’s plight or the sensitivities of its European partners. Along the way, tens of billions of dollars have drained from Greek banks as citizens stash their savings elsewhere. The conspiracy theory, though, also has its adherents. They start with the assumption that no one could be quite as witless as Syriza has often seemed. Mr Tsipras’s government knew from the outset that it could not reconcile its domestic promises with Greece’s international obligations.

The problem was that Greeks had voted at once for an end to austerity and to stay in the euro. A crisis had to be manufactured to show the government’s hand had been forced. By the Germans, of course. I lean towards the former theory, but it hardly matters. Even at this late hour it would be unwise to say that a deal with creditors is absolutely impossible. High-stakes politics occasionally demands that pigs are seen to fly. What strikes me, though, is how far the conversation in other capitals has moved on. The risk of contagion in the rest of the eurozone has long been discussed. The talk now is about the chaos that would descend on Greece after default and euro exit. Would it be manageable or would the EU be left with a failed state?

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More ‘logic’: “..in view of the long recovery the German economy already has behind it, it was normal that its growth rate would be weaker than the rest of the euro zone..”

German Business Morale Weakens And Trade Dampens Q1 Growth (Reuters)

German business morale deteriorated slightly in May for the first time in seven months though it remained at a high level overall, a leading survey showed, adding to signs of softening in Europe’s largest economy. Although growth levels remain decent, separate data published on Friday showed the slowing of the German economy during the first quarter was down to a drag from foreign trade, which had propelled the economy for much of the past decade. The Munich-based Ifo think tank said its business climate index, based on a monthly survey of 7,000 firms, edged down to 108.5 in May from 108.6 in April. That was slightly above the Reuters consensus forecast for 108.3, sending the euro to a day’s high against the dollar.

It comes after ZEW’s survey this week showed investor sentiment weakening and a purchasing managers’ survey (PMI) showed private sector expansion slowing. “With today’s GDP data, yesterday’s PMIs and now the Ifo, new doubts about the strength of the German economy could emerge again,” said Carsten Brzeski, economist at ING. “Germany is at the end of a very positive reform-growth cycle, which is artificially extended by external tailwinds,” he said, adding that in view of the long recovery the German economy already has behind it, it was normal that its growth rate would be weaker than the rest of the euro zone. The Ifo survey showed companies were more optimistic about the current situation than at any point since June 2014 but they became slightly more pessimistic about their future prospects.

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Germany is not used to inequality.

The Strikes Sweeping Germany Are Here To Stay (Guardian)

German strikes once seemed like German jokes: a contradiction in terms. But no more: this year, Europe’s largest economy is on course to set a new record for industrial action, with everyone from train drivers, kindergarten and nursery teachers and post office workers staging walkouts recently. The strike wave is more than a conjunctural blip: it is another facet of the inexorable disintegration of what used to be the “German model”. Good economic conditions play a part, but unions in the thriving export industries are not the ones that are striking these days. Strikes cluster in domestic services, especially the public sector, and indications are that they are here to stay.

In the old days, the powerful unions of the metalworkers set the pace for wage increases throughout the economy. But the last time IG Metall went on a nationwide strike was in 1984. In the 1990s, its members, in particular those in the large car factories, learned the hard way that manufacturing jobs could more easily than ever be moved abroad, to China or the formerly communist eastern Europe. International competition is now no longer just about market share, but also employment. It did not take long for the union leadership to notice this. Fear of unemployment, incidentally, accounts also for German manufacturing workers’ unwillingness to contribute to macroeconomic balance under European monetary union by pushing for higher wages in order to bring down the German export surplus.

Today, the action has shifted to services, where job export is more difficult. But other factors also account for the rise of industrial disorder. Since unification, public employers, in pursuit of fiscal consolidation, have broken up Germany’s peculiar public sector collective bargaining regime, which covered everyone from refuse collectors to professors and generated, essentially, the same yearly wage increases for all. Moreover, several occupations – including train drivers, teachers and postal workers – lost the uniquely German employment status of Beamter, of civil servants without a right to strike but with lifelong tenure and guaranteed pay raises in line with the rate of economic growth.

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How is this a big story? Of course the BoE studies Brexit.

Bank Of England Secretly Investigates Financial Fallout Of Brexit (Guardian)

Bank of England officials are secretly researching the financial shocks that could hit Britain if there is a vote to leave the European Union in the forthcoming referendum. The Bank blew its cover on Friday when it accidentally emailed details of the project – including how the bank intended to fend off any inquiries about its work – direct to the Guardian. According to the confidential email, the press and most staff in Threadneedle Street must be kept in the dark about the work underway, which has been dubbed Project Bookend. It spells out that if anyone asks about the project, the taskforce must say the investigation has nothing to do with the referendum, saying only that staff are involved in examining “a broad range of European economic issues” that concern the Bank.

The revelation is likely to embarrass the bank governor, Mark Carney, who has overhauled the central bank’s operations and promised greater transparency over its decision-making. MPs are now likely to ask whether the Bank intended to inform parliament that a major review of Britain’s prospects outside the EU was being undertaken by the institution that acts as the UK’s main financial regulator. Carney is also likely to come under pressure within the Bank to reveal whether there are other undercover projects underway.

Officials are likely to have kept the project under wraps to avoid entering the highly charged debate around the EU referendum, which has jumped to the top of the political agenda since the Conservatives secured an overall majority. Many business leaders and pro-EU campaigners have warned that “Brexit” would hit British exports and damage the standing of the City of London.

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More cooperative criminals?!

GM Inquiry Said to Find Criminal Wrongdoing (NY Times)

Justice Department investigators have identified criminal wrongdoing in General Motors’ failure to disclose a defect tied to at least 104 deaths, and are negotiating what is expected to be a record penalty, according to people briefed on the inquiry. A settlement could be reached as soon as this summer. The final number is still being negotiated, but it is expected to eclipse the $1.2 billion paid last year by Toyota for concealing unintended acceleration problems in its vehicles, said the people, who did not want to be identified because the negotiations weren’t complete. GM’s eagerness to resolve the investigation – a strategy that sets it apart from Toyota, which fought prosecutors – is expected to earn it so-called cooperation credit, one of the people said.

That credit could translate into a somewhat smaller penalty than if GM had declined to cooperate. Former GM employees, some of whom were dismissed last year, are under investigation as well and could face criminal charges. Prosecutors and GM are also still negotiating what misconduct the company would admit to. For more than a year, federal prosecutors in Manhattan and the F.B.I. have homed in on whether the company failed to comply with laws requiring timely disclosure of vehicle defects and misled federal regulators about the extent of the problems, the people who were briefed on the inquiry said. The authorities also examined whether GM committed fraud during its bankruptcy proceedings in 2009 by not disclosing the defect.

An agreement with the Justice Department, which could still fall apart, would represent a crucial step as GM tries to move past a scandal-laden year that tainted its reputation for quality and safety and damaged its bottom line. “We are cooperating fully with all requests,” the automaker said in a statement. “We are unable to comment on the status of the investigation, including timing.” In February 2014, the automaker began recalling 2.6 million Chevrolet Cobalts and other small cars with faulty ignitions that could unexpectedly turn off the engine, disabling power steering, power brakes and the airbags. The switch crisis prompted a wave of additional recalls by GM for various safety issues. All told, GM recalled more than 30 million vehicles worldwide last year – a record for the automaker.

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Is there any other choice?

Ireland Says Yes To Same-Sex Marriage By Up To 2:1 Margin (Ind.ie)

The same-sex marriage referendum will be comfortably passed, based on early tallies from across the country. The margin of victory is tipped to be heading towards a 2:1 majority. The high turnout favoured Yes campaigners as the efforts to get the vote out worked effectively, particularly among young voters. Few, if any locations, are showing a No vote winning the referendum. Even in traditionally conservative rural area, the vote is coming in at 50:50. Dublin will be strongly Yes, right across the city and county. But this trend is being matched in locations across the country.

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“Monsanto is a monopoly, and it’s acting like one. It’s basically controlling 90% of the seed market in the United States..”

‘March Against Monsanto’ in 38 Countries, 428 Cities (RT)

Hundreds of thousands of demonstrators in 428 cities are expected to turn out this weekend to protest agribusiness giant Monsanto. The third annual ‘March Against Monsanto’ seeks to highlight the company’s part in control of the food supply. The worldwide protest scheduled for May 23 is a continuation of growing awareness and opposition to industrial agriculture’s increasing consolidation of farming resources and methods, according to organizers. In 2013, the first March Against Monsanto garnered more than 2 million protesters in 436 cities across the world, according to a previous report by RT. Similar numbers were reported for last year’s demonstrations.

Monsanto’s track record has been scrutinized ever since it aided US warfare during the Vietnam war. Agent Orange was manufactured for the US Department of Defense primarily by Monsanto Corporation, the use of which is estimated to have killed and maimed around 400,000 while causing birth defects for 500,000 children. Scientific studies have linked the chemicals in Monsanto’s biocides to Parkinson’s disease, Alzheimer’s disease, autism, and cancer. “People are fed up. We should break up Monsanto,” Adam Eidinger of Occupy Monsanto told RT. “Monsanto is a monopoly, and it’s acting like one. It’s basically controlling 90% of the seed market in the United States. We wouldn’t let one cell phone company control 90% of the cell phones. But for some reason we let food be controlled.”

As the most powerful multinational biotech corporation today, Monsanto has drawn the ire of those within the movement for its firm grip on the global food chain. The company’s control and advancement of genetically modified organism (GMO) seeds is of prime concern. “In polls conducted by the New York Times, Washington Post, Consumer Reports, and many others, over 90% of respondents were in support of national GMO labeling – an initiative that has been defeated time and time again at the state level thanks to heavy spending by Monsanto-backed lobbying groups,” wrote March Against Monsanto in a news release.

Amid a wave of concern over genetically engineered foods sweeping through the US and around the world, major agribusiness and biotechnology conglomerates like Monsanto have spent immense amounts of cash to cloud the ‘right-to-know’ movement in the US. According to the Center for Food Safety, dozens of US states have in recent years considered labeling legislation and ballot initiatives while a handful have passed laws mandating GMO transparency. Vermont’s governor signed the nation’s first clean GMO-labeling requirement into law in 2014, to take effect in 2016, but a coalition of biotech firms filed a lawsuit to prevent that from happening. Other states have passed labeling laws, but with strings attached.

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These are the people who are instrumental in creating the problem, and now want us to pay them for a solution.

Bayer CEO: The World Needs An Antibiotics Bailout (Reuters)

German drugmaker Bayer expects the world’s largest economies to pool billions of euros in funding for the development of antibiotics against the growing threat of drug-resistant superbugs, its chief executive said on Friday. “I expect a multinational fund for antibiotics research. One country alone can’t shoulder it,” CEO Marijn Dekkers told Germany’s Der Spiegel magazine, according to an excerpt of an interview provided to Reuters on Friday. The funds were expected to be pledged during the June summit of the Group of Seven (G7) wealthy nations in Germany, he was quoted as saying. He mentioned reports that four new antibiotics would cost $22.4 billion to develop, saying that was “maybe a bit too much, but it will be really expensive”.

The World Health Organization has deemed the rising tide of drug-resistant bacteria, or so-called superbugs, as the “single greatest challenge in infectious diseases”. Germany’s health ministry has said Berlin would seek to address drug-resistant superbugs as part of the country’s presidency of the G7, leading up to the G7 summit in Bavaria in June. Governments should award development contracts for more antibiotics to pharmaceuticals companies, modelled on development contracts tendered to the defence industry, Dekkers told Der Spiegel. The pharma industry has argued that the private sector was being deterred from funding the development of new antibiotics because, to prevent the emergence of even more resistant bacteria, they would only be used when existing therapies have failed.

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A frist step. But nobody knows if it will be enough.

California Accepts Offer By Farmers To Cut Water Usage By 25% (Guardian)

California’s drought has produced a plot twist too singular even for Chinatown: farmers volunteering to give up a quarter of their water. Scores of farmers in the delta of the Sacramento and San Joaquin rivers made the unprecedented offer on Friday in a deal to stave off even steeper mandatory cuts. Agricultural players have fiercely guarded their water rights since the 19th century, rebuffing competing claims from cities and other rivals in the so-called water wars, a web of intrigues immortalised in Roman Polanski’s Chinatown. The film’s fictional farmers never countenanced voluntarily cutting their water use but as California endures a fourth year of drought growers in the delta calculated it was the lesser evil.

By promising to forfeit a quarter of this season’s water – by fallowing land or finding other measures to cut usage – they have averted harsher restrictions from state authorities. The State Water Board had warned it was days away from ordering some of the first cuts in more than 30 years to senior water rights holders. “This proposal helps delta growers manage the risk of potentially deeper curtailment, while ensuring significant water conservation efforts in this fourth year of drought,” State Water Board chair Felicia Marcus said in a statement.

“It allows participating growers to share in the sacrifice that people throughout the state are facing because of the severe drought, while protecting their economic well-being by giving them some certainty regarding exercise of the State Water Board’s enforcement discretion at the beginning of the planting season.” The agreement applies only to so-called riparian rights holders – farmers with direct access to streams. Those who participate can opt to reduce water diversions from streams by 25%, or fallow 25% of their land. In both cases, the reductions will be from 2013 levels.

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They threaten my mental sanity, too.

Attacks On The Last Elephants And Rhinos Threaten Entire Ecosystems (Monbiot)

Until 2008, conservationists, in some places at least, appeared to be winning. But in that year the number of rhinos killed in South Africa rose (from 13 in 2007) to 83. By 2011, the horrible tally had risen to 448. It climbed to 668 in 2012, 1004 in 2013 and 1215 in 2014. In the first four months of this year, 393 rhinos have been killed there, which is 18% more than in the same period last year. The reasons for this acceleration in the Great Global Polishing are complex and not always easy to tease out. But they appear to be connected to rising prosperity in Vietnam, the exhaustion of illegal stocks held by Chinese doctors and, possibly, speculative investment in a scarce and tangible asset during the financial crisis. Corruption and judicial failure help to keep the trade alive.

Already, the western black rhino is extinct (the declaration was made in 2011). The northern white rhino has been reduced to five animals: a male at the end of its anticipated lifespan and four females, scattered between Kenya, the US and the Czech Republic. Similar stories can be told about some populations of elephants – in particular the forest elephants of west and central Africa. It’s not just these wonderful, enchanting creatures that are destroyed by poaching, but also many of the living processes of the places they inhabit. Elephants and rhinos are ecological engineers, creating conditions that hundreds of other species have evolved to exploit. As the paper in Science Advances notes, the great beasts maintain a constantly shifting mosaic of habitats through a cycle of browsing and toppling and trampling, followed by the regrowth of the trees and the other plants they eat.

They open up glades for other herbivores, and spaces in which predators can hunt. They spread the seeds of trees that have no other means of dispersal (other animals are too small to swallow the seeds whole, and grind them up). Many trees in Africa and Asia are distributed exclusively by megaherbivores. They transport nutrients from rich places to poor ones and in some places reduce the likelihood of major bushfires, by creating firebreaks and eating twigs and leaves that would otherwise accumulate as potential fuel on the ground. Many animal species have co-evolved with them: the birds that eat their ectoparasites, the fish that feed on hippos’ fighting wounds (some of these species, I believe, are now used for fish pedicures), the wide range of life that depends on their dung for food and moisture, on their wallows for habitats, on the fissures they create in trees for nesting holes.

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Crumbling stability all around.

Yet Another Antarctic Ice Mass Is Becoming Destabilized (WaPo)

The troubling news continues this week for the Antarctic peninsula region, which juts out from the icy continent. Last week, scientists documented threats to the Larsen C and the remainder of the Larsen B ice shelf (most of which collapsed in 2002). The remnant of Larsen B, NASA researchers said, may not last past 2020. And as for Larsen C, the Scotland-sized ice shelf could also be at potentially “imminent risk” due to a rift across its mass that is growing in size (though it appears more stable than the remainder of Larsen B). And the staccato of May melt news isn’t over, it seems.

Thursday in Science, researchers from the University of Bristol in Britain, along with researchers from Germany, France and the Netherlands, reported on the retreat of a suite of glaciers farther south from Larsen B and C along the Bellingshausen Sea, in a region known as the Southern Antarctic Peninsula. Using satellite based and gravity measurements, the research team found that “a major portion of the region has, since 2009, destabilized” and accounts for “a major fraction of Antarctica’s contribution to rising sea level.” The likely cause of the change, they say, is warmer waters reaching the base of mostly submerged ice shelves that hold back larger glaciers — melting them from below.

This has been a common theme in Antarctica recently — a similar mechanism has been postulated for melting of ice shelves in nearby West Antarctica (which contains vastly more ice, and more potential sea level rise, than does the Antarctic peninsula). “This is one of now three really quite substantial signals that we’ve seen from different parts of West Antarctica and the Antarctic peninsula that is all going in the same way,” said Jonathan Bamber of the University of Bristol, one of the paper’s authors. The other two are the losses of ice in the Larsen ice shelf region — where glaciers have sped up their seaward lurches following past ice shelf collapses — and in West Antarctica.

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Mar 042015
 
 March 4, 2015  Posted by at 11:50 am Finance Tagged with: , , , , , , ,  


NPC Communist Party Young Communist League, Washington, DC 1925

It’s not that long ago, in 2001, that Jim O’Neill, then still with Goldman Sachs, coined the term BRICs, for the fast emerging markets of Brazil, Russia, India and China. O’Neill saw a global power shift from the west to these four nations happening. Fast forward to today, and we see Russia under multiple attacks, including economic ones, from the west, as India just announced the second rate cut this year and China is attempting controlled demolition of the possibly biggest financial bubble in the history of the world.

And Brazil? If anything, it’s falling even faster off its pedestal than the other three nations. And in Brazil, it’s as much corruption scandals as it is the financial crisis and the plunge in oil revenues that take center stage. The stories have long been simmering, but they all came together in the media yesterday.

First, a seemingly minor one. Eike Batista was once the richest man in Brazil, and one of the 10 richest men on the planet, having made a fortune in gold mining and later oil. Then he went on to become probably the one man to lose the most money in the shortest time, going from $32 billion in early 2013 to minus $5 billion or so a little over a year later, impossible to pin down exactly for numerous reasons, but spectacular for sure.

Yesterday Mr. Batista made the news when the judge in a case against him for insider trading, was taken off that case for driving one of Batista’s luxury cars to his own home. He claimed the police had no place to store the vehicle…

Brazilian Court Upholds Removal of Judge From Eike Batista Trial

An appeals court on Tuesday upheld a decision to remove the judge presiding over the trial of Brazilian businessman Eike Batista , throwing out many of the judge’s rulings, according to a spokeswoman for the court in Rio de Janeiro. Later Tuesday, the court said it granted the judge— Flávio Roberto de Souza —a medical leave until April 8th. A separate appeals court had ordered last week that Federal Judge de Souza be removed from the case after he allegedly drove one of the cars he had ordered seized from Mr. Batista. Tuesday’s ruling was on a motion filed in December by Mr. Batista’s lawyers to have Judge de Souza removed from the case, claiming he had given a number of news interviews in which he used language demonstrating bias against Mr. Batista.

Judge de Souza has denied being partial. His removal will delay the case, which could be assigned to a new judge as early as Tuesday, the spokeswoman said. Mr. Batista is on trial for market manipulation and insider trading, charges he has denied. The judges who ruled on Tuesday overturned all of Judge de Souza’s actions during the trial until another judge can decide how to continue the case. The freeze on Mr. Batista’s assets ordered by Judge de Souza remains in place, however.

Police in February seized 11 vehicles, including a Porsche Cayenne the judge allegedly drove, as well as a Lamborghini Aventador, from Mr. Batista’s homes. They also took jewelry, a grand piano and a fake Fabergé egg as guarantees to repay investors in the event the entrepreneur is found guilty. The cars were to be sold at auction and the proceeds placed into escrow until the conclusion of the trial, an action allowed under Brazilian law. The piano, which was being kept at the apartment of one of Judge de Souza’s neighbors, along with one of the seized cars have been returned to Mr. Batista…

Then, on the same day, Brazil’s top prosecutor asked the country’s Supreme Court to start 28 separate investigations against 54 individuals, mostly politicians, in the Petrobras kickback scandal (‘under Brazilian law, politicians and cabinet members can only be tried by the Supreme Court.’) I don’t know how many politicians Brazil has, but it would seem 54 is a solid haircut. And, of course, current president Dilma Rousseff was herself head of Petrobras from 2003-2010, the period in which the kickbacks took place. She’s probably not among the 54 to be investigated, however.

Petrobras did Batista one better. Its market capitalization was a reported $310 billion in May 2008. It has since lost $270 billion of that. According to the BBC, $100 billion was lost just since last September.

Petrobras Scandal Takes Politicians To Court

Prosecutor-General Rodrigo Janot’s office did not release the names of the politicians, but plea bargain testimony by defendants in the case leaked to local media indicate that most are members of the ruling Workers’ Party and coalition allies in Congress. O Estado de S. Paulo and other newspapers said the list includes Senate President Renan Calheiros and Speaker of the Chamber of Deputies Eduardo Cunha, both the top leaders of Congress and members of the PMDB party, the largest ally in Rousseff’s ruling coalition. The judge in charge of the case must decide whether to lift a secrecy provision and release the names and plea bargain statements.

The politicians were named by a former senior manager at Petrobras and a black market currency dealer whose arrest last March triggered an investigation into the funnelling of money from overpriced infrastructure contracts into the pockets of corrupt executives and politicians. Some of that money, prosecutors say, may have helped finance election campaigns for political parties, including Rousseff’s Workers’ Party and other members of her governing coalition.

The corruption probe known as “Operation Car Wash” has so far led to 40 indictments on racketeering, bribery and money laundering charges. Officials have indicted two former senior managers at Petroleo Brasileiro as the company is formally called and 23 executives from six of Brazil’s leading construction and engineering firms. The scandal threatens to have a ripple effect on Brazil’s already weak economy, prompting Petrobras to halt or cancel several investment projects.

Prosecutors are seeking the return from construction firms of about $1.6 billion siphoned off Petrobras contracts and are investigating Swiss bank accounts where funds were transferred and in some case laundered through off-shore front companies. The investigation and possible trial of politicians by the Supreme Court could take years. Brazil’s largest political corruption case to date, involving monthly payments to lawmakers in return for support in Congress for the Workers’ Party, took seven years before it went to trial in 2012.

Rousseff has denied knowing about the scheme during those years and has vowed to respect the Judiciary’s independence. A recent opinion poll, however, showed three in four Brazilians believe Rousseff knew about the scam. … even opposition leaders believe that recent calls for her impeachment will go nowhere.

Sabrina Valle and Anna Edgerton, writing for Bloomberg, must have seen this coming. They have a very long article on Rousseff and her power politics, very much worth reading. Some excerpts:

Petrobras CEO Lost Job Over a $30 Billion Disagreement

As the kickback and money-laundering scandal engulfing state-run oil giant Petrobras escalated in late January, Brazilian President Dilma Rousseff got calls from two of her top appointees. They were in the midst of a marathon board meeting and they heatedly disagreed. The first was from her former finance minister and current Petrobras chairman, warning her that the board was discussing the release of a potentially embarrassing number: a $30 billion writedown that company auditors were saying was partially tied to scandal-related losses. The chairman left in the middle of the meeting to call his political benefactor to discuss releasing it – believing it was a bad number conjured up by faulty methodology. Rousseff agreed.

The second call, later in the same evening, came from Maria das Gracas Foster, the Petrobras chief executive officer whom Rousseff had appointed three years earlier. She expressed the opinion that under Brazilian law the $30 billion figure, whether faulty or not, had to be released because if the board now knew the number, the market had a right to know as well. Foster was aware Rousseff preferred the number not be released and hoped her close friend the president would understand her position..

After a dramatic ten-hour boardroom showdown, the number would in fact be included in a note to Petrobras’s overdue third-quarter earnings but it would be costly to Foster. On Feb. 6, Rousseff replaced her with Aldemir Bendine, CEO of state-run Banco do Brasil – a government executive popular with Rousseff’s leftist Workers’ Party. The appointment sent the shares of the company formally known as Petroleo Brasileiro down 6.9% that day.

Rousseff’s replacement of Foster also has ruptured the long-held bond of loyalty the two forged over more than a decade as business and political allies rising up in the ranks among a sea of powerful men. Foster’s departure further helps to isolate Rousseff as Foster joins a cadre of onetime close supporters who have been swept aside in various government dust-ups.

For Brazil and millions of ordinary Brazilians, Petrobras has become both an embarrassment and a source of anger even as they hope for a rebound. Only five years ago, the company was the darling of the global energy world, able to raise a staggering $70 billion at a share sale because of deep-water oil and natural gas finds so huge that they were expected to propel Brazil to decades of growth.

The first allegations of Petrobras corruption came in March of last year [..] Foster, however, seemed to be weathering the storm until October, when video tapes published online by a federal judge in a Parana, Brazil, court showed that same executive confessing to investigators that Petrobras had long been compromised – that for at least nine years he and others siphoned millions in kickbacks from companies to whom Petrobras awarded inflated construction contracts.

As allegations of wrongdoing escalated, the public became more outraged and investors continued to dump Petrobras shares; the hard-charging Foster found the political weather turning foul. [..] Throughout the ordeal, Foster had offered to resign several times. Rousseff wasn’t having it..

But the scandal kept escalating. A growing list of former executives started cooperating with investigators, hoping for reduced sentences. Cash deliverymen went by flamboyant nicknames such as Big Tiger, Watermelon and Eucalyptus, according to testimony before the Parana court. One former Petrobras manager admitted to taking as much as $100 million in kickbacks as part of a plea bargain deal.

As the drama unfolded, the one constant was Rousseff’s support for Foster, the woman she met in the early 2000s when she was an energy secretary for a southern state of Brazil and Foster was Petrobras’s representative for a gas pipeline to Bolivia. This trust began to unravel in December, when Foster decided to ban 23 construction companies caught up in the probe from doing business with Petrobras, according to a person familiar with the situation. Rousseff’s public position was that corrupt individuals — not the companies that employed millions of Brazilians and worked on strategic infrastructure projects — should be held accountable.

Then came the contentious Jan. 27 board meeting. Foster found herself at odds with Guido Mantega, the Italian-born, left-leaning Petrobras chairman. Foster knew that a fight with Mantega was a fight with Rousseff. But at some point, with the back and forth exhausted, Foster signaled to her management team and declared “enough, huh?” according to people who were in the room.

A week later, on Feb. 3, Foster was summoned by Rousseff to the presidential palace about 465 miles away in Brasilia. After two hours of candid discussion, the two came to terms. Foster and her executive team would be replaced by month’s end while a search for successors proceeded… Foster then boarded a commercial flight back to Rio de Janeiro and was booed by other passengers. There was no relief back home. Dozens of protesters greeted her at her Copacabana apartment, banging pots and pans outside her door, demanding she resign.

The CEO was still willing to stay on until Rousseff named a replacement but in a conference call from Brasilia with her five-member executive staff they declined to continue as lame ducks. Since Foster had said publicly she would never serve without her team, she had no choice but to go. The announcement came on the morning of Feb. 4 in a one-line regulatory filing that took the market by surprise.[..]

Petrobras continues to face huge challenges. With its market value shrunken, its debt ratings in the tank and its global image tarnished, it desperately needs to get back to basics. Over the past decade, its oil and gas production has lagged the company’s own projections — due to equipment delivery delays, maintenance issues and faster-than-expected declines in its older fields – even though that is starting to change.

Starting in 2007, stupendous deepwater offshore finds in an area known as the pre-salt had exponentially raised its reserves. Those discoveries still afford Petrobras plenty of potential upside assuming they are managed properly, analysts say. The most productive of its pre-salt wells pumps 35,000 barrels of crude a day. At the Bakken shale formation in North Dakota it takes more than 300 wells to pump that much. That’s in the top 1% for “all oil wells on the planet,” said Cleveland Jones, a geologist and researcher at Rio de Janeiro State University.

I think it might be wise to question the real reserves in those ‘stupendous’ finds. And in any case, the deeply inbred culture of corruption could easily waste all of it even if they are indeed so huge. With Lula as president, things seemed to go well, though he might have just been lucky to be at the right place at the right time. Rousseff has no such luck. And she doesn’t seem able to cope with the power she has, either. But it doesn’t look like she’ll have to bother with that for much longer:

Brazil’s Senate Resists Rousseff’s Austerity Push

Brazil’s Senate on Tuesday threw out a presidential decree that reduces payroll tax breaks for businesses, in a political setback for President Dilma Rousseff’s new fiscal austerity crusade. The Senate’s president Renan Calheiros said the matter was not urgent and should be presented to Congress in a bill rather than a temporary decree that bypasses lawmakers. Rousseff immediately responded by sending Congress a legislative proposal to trim the tax breaks, saying the change does not hamper the government’s fiscal savings plan.

In an action applauded by financial markets, Rousseff on Friday moved to pare back tax breaks on payrolls and export revenues to save the government up to 7 billion reais ($2.39 billion) this year and reduce its widening budget deficit. The new-found fiscal rigor threatens to tip the Brazilian economy into a deep recession, raising opposition from lawmakers and even senior members of her own Workers’ Party who want to water down the savings measures.

Since her narrow re-election win in October, Rousseff has made a dramatic U-turn in economic policy to regain the trust of investors worried with the financial health of an economy that until recently was one of the world’s most dynamic. Calheiros, a member of Rousseff’s main ally in Congress, the PMDB party, said her government was trampling on the constitutional right of Congress to legislate on important matters that affect Brazilians, such as raising taxes.

Opposition leaders praised Calheiros’ decision to assert the independence of the Senate, which will make it harder for Rousseff to push through belt-tightening legislation needed to avoid a credit rating downgrade. The surprise move by Calheiros, who has been a loyal ally to Rousseff during her first term, comes at a time of tension in Congress where politicians are worried that they will be implicated in a corruption scandal engulfing state-run oil company Petrobras.

One of other measures under fire includes a controversial decree that trims unemployment and pension benefits to save state coffers about 18 billion reais this year.

If the Petrobras affair doesn’t bring Rousseff down, her decisions will. You have to be an exceptional politician to survive the kind of huge economic downturn that Brazil finds itself in. Rousseff is no such exceptional politician. And of course most ‘leaders’ are not (that makes the few exceptional). That in turn means we will see increasing numbers of leadership changes as economies go downhill. Argentina went through 5 presidents in less than 3.5 years at the beginning of the century. Don’t be surprised if Brazil goes down that path too. And many other countries.

Nov 062014
 
 November 6, 2014  Posted by at 3:02 pm Finance Tagged with: , , , , , ,  


Dorothea Lange Country store, Person County, NC Jul 1939

Dollar-Yen Breaks Above 115, What Next? (CNBC)
BoJ’s Surprise Easing Showers Wealth On Japan’s Top Billionaires (Bloomberg)
Kuroda Has Draghi in a Bind as Euro Soars Against Yen (Bloomberg)
Kuroda Stimulus Drives Government Borrowing Costs to Record Low (BW)
Japan Union Boss Criticises Pension Fund Strategy Shift (FT)
Ben Bernanke: Quantitative Easing Will Be Difficult For The ECB (CNBC)
BOJ Runs Into Critical Analysts After Kuroda Easing Shock (Bloomberg)
Mario Draghi’s Efforts To Save EMU Have Hit The Berlin Wall (AEP)
It’s Now Total War Against The BRICS (Pepe Escobar)
‘Devil’s Metal’ Burns Investors As Gold Melts Down (CNBC)
Luxembourg Rubber-Stamps Tax Avoidance On Industrial Scale (Guardian)
Interest Rates Are So Low Germans Pay To Keep Money In Banks (Telegraph)
French Banks Warn On Country’s ‘Difficult’, ‘Incoherent’ Economy (CNBC)
Pace Of UK Economic Growth Expected To Halve As Service Sector Slows (Guardian)
300,000 More British Live In Dire Poverty Than Already Thought (Guardian)
The Trouble With Mass Delusions (Paul Singer)
Uncertainties Surround Nicaragua’s New Panama Canal Competitor (Spiegel)
What’s The Environmental Impact Of Modern Warfare? (Guardian)
Texas Oil Town Makes History As Residents Say No To Fracking (Guardian)

120 is the alleged big breaking point. We’re getting close and moving fast.

Dollar-Yen Breaks Above 115, What Next? (CNBC)

The dollar-yen broke above the 115 level for the first time in seven years on Thursday. Active U.S. dollar buying pushed the pair as high as 115.40 in the Asian trading session, according to market participants. The Bank of Japan’s (BoJ) second round of monetary easing, announced last Friday, has ignited a powerful rally in dollar-yen, which is up over 9% year to date. Despite the rapid rise, analysts believe the rally is far from over. “The fact that the easing move on Friday was a surprise provides the market with some scope to ‘chase’ as USD/JPY rises to reflect the policy surprise, and any pull-back is likely to be shallow as market participants use the opportunity to ‘buy the dip’,” Fiona Lake strategist at Goldman Sachs wrote in a note late Wednesday. The bank, which has a target of 125 by end-2016, expects the yen will continue to weaken against the greenback as a function of diverging monetary policies and likely deterioration in Japan’s external balance as the Government Pension Investment Fund (GPIF) buys more external assets.

GPIF, the world’s largest pension fund, last week announced new asset allocation targets. Under the new allocation guidelines, Japanese stocks and foreign stocks will account for 25% of the fund’s holdings, up from 12% each previously. The fund will put 35% of its money in domestic bonds, down from 60%, while the ratio for overseas bonds will rise to 15% from 11%. Nomura expects swifter gains in the dollar-yen, forecasting 121 by end-June 2015 and 125 by end-December. “USD/JPY has already reacted very positively to the two policy announcements, but we still see upside risks for USD/JPY, both in the short and medium term,” Yujiro Goto, foreign-exchange strategist at Nomura wrote in a note this week.

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It’s like cosmic background radiation: The world looks the same wherever you look.

BoJ’s Surprise Easing Showers Wealth On Japan’s Top Billionaires (Bloomberg)

The Bank of Japan’s unexpected stimulus has already made the country’s richest even wealthier, adding more than $3 billion to the four top billionaires’ net worth. Fast Retailing Co. Chairman Tadashi Yanai, Japan’s richest person, saw his fortune grow by about $2 billion in the three trading days since the central bank’s Oct. 31 announcement that sparked a plunge in the yen and a rally in stocks. While billionaires such as Yanai gained, the central bank’s unprecedented asset purchases to support economic growth have yet to show evidence of spreading beyond Japan’s wealthiest people and corporations. Toyota, the country’s biggest company, yesterday cited the weaker yen in raising its annual profit forecast to a record 2 trillion yen ($17 billion). “The top 10% or 20% are getting richer, on the other hand the bottom 20% to 30% are becoming poorer,” said Tatsushi Maeno, head of Japanese equities at Pinebridge Investments Japan Co. “The equity market rally could accelerate this trend.”

Masayoshi Son, founder of SoftBank Corp. and Japan’s second-richest person, is up by $182 million since the BOJ decision, according to the Bloomberg Billionaires Index. Keyence Corp. Chairman Takemitsu Takizaki, the country’s No. 3 billionaire, added $434 million to his fortune and Rakuten Inc. President Hiroshi Mikitani, the next richest, saw an extra $393 million, based on closing prices yesterday. Estimates of billionaires’ net worths were compiled based on the billionaires’ shareholdings and other assets, and the yen’s value versus the dollar as of yesterday. Stocks also rallied after Japan’s $1.1 trillion Government Pension Investment Fund said it would buy more local shares. “The short-term result is good for everybody,” said Masayuki Kubota, chief strategist at Rakuten Securities Economic Research Institute. “It’s the government directly intervening in the Japanese equity market.”

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Looks like Draghi’s in a bind from many different sides. When’s he going to pick up the message and go away?

Kuroda Has Draghi in a Bind as Euro Soars Against Yen (Bloomberg)

Mario Draghi has something new to worry about as he prepares for tomorrow’s European Central Bank policy meeting: the euro-yen exchange rate. The yen approached a six-year low versus the shared European currency after Bank of Japan Governor Haruhiko Kuroda surprised investors late last week by extending his record stimulus program. Kuroda’s actions jeopardize the weaker euro that analysts say Draghi needs to reflate the economy, heaping pressure on him to come up with a policy response. “Kuroda has thrown down the gauntlet to Draghi,” Robert Rennie, the head of currency and commodity strategy at Westpac Banking Corp., said yesterday by phone from Sydney. “Whether Draghi will, or can, accept the challenge remains to be seen.”

Unless Draghi emulates the large-scale government-bond purchases, or quantitative easing, of his BOJ counterparts, money borrowed cheaply in Japan could increasingly flow into European assets, propping up the 18-nation currency, Rennie said. Most analysts expect policy makers to refrain from changes at tomorrow’s meeting, while they remain split over the odds of sovereign asset purchases. Some see a higher likelihood of additional easing at the December gathering. The BOJ got out ahead of many of its peers by announcing on Oct. 31 that it raised the annual target for enlarging its monetary base to 80 trillion yen ($704 billion) from 60 to 70 trillion yen previously.

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Problem is, it’s all so destructive: going back to a normally functioning economy gets harder every day.

Kuroda Stimulus Drives Government Borrowing Costs to Record Low (BW)

Bank of Japan Governor Haruhiko Kuroda’s unexpected expansion of stimulus last week has driven government borrowing costs to an unprecedented low. An auction of 10-year government debt today resulted in the lowest average yield on record at 0.439%, according to Ministry of Finance data. The previous low was 0.470% in June 2003. Last month, investors began paying the government to lend at sales of three-month debt for the first time ever, with average yields as low as minus 0.0041%. The BOJ surprised investors last week by raising the annual target for an increase in Japanese government bond holdings by 60%. Kuroda reiterated today the central bank will do “whatever it can” to end deflation, a pledge he has made since before embarking on quantitative easing in April last year, and driving yields to record lows.

“This isn’t quite a level where you can buy, but with the BOJ basically snapping up all new issuance, there’s no need to worry about the supply-demand balance,” said Takeo Okuhara, a senior fund manager in Tokyo at Daiwa SB Investments Ltd. The central bank’s expanded plan to buy 8 trillion yen to 12 trillion yen of JGBs per month gives Kuroda leeway to soak up all of the 10 trillion yen in new bonds that the Ministry of Finance sells in the market each month. The central bank is already the largest single holder of Japan’s bonds, topping insurers at the end of March for the first time ever. Japan’s 10-year borrowing costs rose 3 1/2 basis points to 0.475% at 2:51 p.m. in Tokyo from yesterday, when they reached 0.435% for a second day, the lowest since April 5 last year, when the record low of 0.315% was set, a day after Kuroda’s initial quantitative easing announcement.

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The argument: it’s very selfish for the older people to want safe pensions, and the young can only get them if we go to the casino. I can see Japan go to war not too long from now, it’ll seem the only thing left.

Japan Union Boss Criticises Pension Fund Strategy Shift (FT)

The head of Japan’s most powerful federation of labour unions has criticised the shake-up at the national pension fund, arguing that the world’s biggest institutional investor should have consulted workers before committing half of its Y127tn ($1.1tn) in assets to stocks. Last week the Government Pension Investment Fund (GPIF) surprised markets by saying it would more than double its allocation to domestic and foreign equities over the next few years, while cutting its target share of Japanese government bonds from 60% to 35%. The new mix was billed as a way to address rising payments to pensioners, while making the GPIF – which has long had a passive, conservative approach compared with similar bodies outside Japan – a more aggressive, returns-minded investor.

But Nobuaki Koga, the 62-year-old president of the federation known as Rengo, was unimpressed, describing the shift as a “big problem”. “Workers and management have had no say in the decision-making process, even though the money the GPIF is investing belongs to them,” Mr Koga told the Financial Times. “If there are big losses on the stock market, who will take responsibility?” The comments reflect concerns among some senior officials in Japan that the GPIF has been co-opted by the administration of Shinzo Abe in its attempt to haul the economy out of years of deflation. Higher stock prices are seen as a key part of that effort, prompting complaints that the prime minister is in effect gambling with the savings of millions of workers.

Friday’s announcement from the GPIF came within hours of another burst of monetary stimulus from the Bank of Japan and confirmation from the finance ministry that it was preparing a fiscal stimulus package. The measures combined to push up the Nikkei 225 stock average by about 8% in two days. Supporters of the GPIF’s move say criticism is to be expected, as people of Mr Koga’s generation have witnessed the Nikkei sink from a peak of almost 40,000 on the last business day of 1989 to a post-Lehman low of 7,054 in March 2009. “Stocks seem risky if you look at the volatility of month-to-month or year-to-year returns but this is a fund for the next 100 years. We can be patient,” said Takatoshi Ito, former chair of a committee advising on the portfolio reallocation and now deputy chair of a committee on reforming the GPIF’s governance. “Our view is that holding JGBs with coupons of 0.5% presents a significant risk in itself.”

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You think, gnome?

Ben Bernanke: Quantitative Easing Will Be Difficult For The ECB (CNBC)

Former Federal Reserve Chairman Ben Bernanke predicted that the European Central Bank (ECB) would have a rough time implementing U.S-style monetary easing. Speaking Wednesday at the Schwab IMPACT conference, the ex-central bank chief said the ECB faces political barriers to enacting such an aggressive program. “The barriers to doing it are not really economic,” he said. “The legal and political barriers being thrown up are going to make it very difficult to do that.” Bernanke also fired back at critics of the Fed’s own easing programs, accusing them of “bad economics” for saying that QE, which has pushed the institution’s balance sheet past the $4.5 trillion mark, would lead to inflation. The easing program began in 2009 and has had two additional versions since, the latest of which the Janet Yellen-led Open Market Committee terminated last week.

“There never was any risk of inflation. The economy was in great slack. If anything we were worried about deflation,” Bernanke said of economic conditions when QE was first launched. “Four years later there’s not a sign of inflation. The dollar is strengthening. They’re saying, ‘Wait another five years, it’s going to happen.’ It’s not going to happen.” QE came into being after the economy fell into recession during the financial crisis. Bernanke and a team that included then-Treasury Secretary Hank Paulson and his eventual successor, Timothy Geithner, who at the time headed the New York Fed, devised a series of alphabet-soup programs that helped stabilize the financial system. Since the advent of the Troubled Asset Relief Program, QE and other initiatives, the stock market also has rebounded, gaining about 200% off its March 2009 lows.

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The experts think they’re part of the plan.

BOJ Runs Into Critical Analysts After Kuroda Easing Shock (Bloomberg)

Hours after the Bank of Japan caught central-bank watchers off guard by boosting stimulus, officials were fending off complaints about its communications. A meeting on Oct. 31 with about 50 analysts and economists on the BOJ’s new outlook ran on for two hours – twice the usual time – as the discussion turned to how well Governor Haruhiko Kuroda and other officials telegraphed their views before the decision, said people who were present. The questions came like a torrent, with some complaining about the BOJ’s bond purchase plan and its communications with the market, according to analysts who asked not to be named as the gathering was private.

While Kuroda said he didn’t intend to surprise anyone with the decision to bolster already-unprecedented easing, springing the news on the market added to the punch. The risk for Kuroda is that he may undermine the BOJ’s credibility with some people in the market who count on central bank officials for clear and timely communication. “We shouldn’t take Kuroda’s comments at face value,” said Noriatsu Tanji, chief rates strategist at RBS Securities in Tokyo. “He offered a completely different view from what he said just three days earlier. Instead of listening to Kuroda, we should look at prices and the distance to the BOJ’s inflation target.”

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Go Mario, while you can with your face intact.

Mario Draghi’s Efforts To Save EMU Have Hit The Berlin Wall (AEP)

Mario Draghi has finally overplayed his hand. He tried to bounce the European Central Bank into €1 trillion of stimulus without the acquiescence of Europe’s creditor bloc or the political assent of Germany. The counter-attack is in full swing. The Frankfurter Allgemeine talks of a “palace coup”, the German boulevard press of a “Putsch”. I write before knowing the outcome of the ECB’s pre-meeting dinner on Wednesday night, but a blizzard of leaks points to an ugly showdown between Mr Draghi and Bundesbank chief Jens Weidmann. They are at daggers drawn. Mr Draghi is accused of withholding key documents from the ECB’s two German members, lest they use them in their guerrilla campaign to head off quantitative easing. This includes Sabine Lautenschlager, Germany’s enforcer on the six-man executive board, and an open foe of QE.

The chemistry is unrecognisable from July 2012, when Mr Draghi was working hand-in-glove with Ms Lautenschlager’s predecessor, Jorg Asmussen, an Italian speaker and Left-leaning Social Democrat. Together they cooked up the “do-whatever-it-takes” rescue plan for Italy and Spain (OMT). That is why it worked. We now learn from a Reuters report that Mr Draghi defied an explicit order from the governing council when he seemingly promised to boost the ECB’s balance sheet by €1 trillion. He also jumped the gun with a speech in Jackson Hole, giving the very strong impression that the ECB was alarmed by the collapse of the so-called five-year/five-year swap rate and would therefore respond with overpowering force. He had no clearance for this. The governors of all northern and central EMU states – except Finland and Belgium – lean towards the Bundesbank view, foolishly in my view but that is irrelevant. The North-South split is out in the open, and it reflects the raw conflict of interest between the two halves.

The North is competitive. The South is 20pc overvalued, caught in a debt-deflation vice. Data from the IMF show that Germany’s net foreign credit position (NIIP) has risen from 34pc to 48pc of GDP since 2009, Holland’s from 17pc to 46pc. The net debtors are sinking into deeper trouble, France from -9pc to -17pc, Italy from -27pc to -30pc and Spain from -94pc to -98pc. Claims that Spain is safely out of the woods ignore this festering problem.

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The higher dollar is all it takes.

It’s Now Total War Against The BRICS (Pepe Escobar)

Fasten your seat belts: the information war already unleashed against Russia is bound to expand to Brazil, India and China. Brazil, Russia, India and China, as it’s widely known, are the top four members of the BRICS group of emerging powers, which also includes South Africa and will incorporate other Global South nations in the near future. The BRICS immensely annoy Washington – and its Think Tankland – as they embody the concerted Global South push towards a multipolar world. Bottles of Crimean champagne could be bet that the US response to such a process couldn’t be but a sort of total information war – not dissimilar in spirit to the NSA’s deep state Total Information Awareness (TIA), a crucial element of the Pentagon’s Full Spectrum Dominance doctrine. The BRICS are seen as a major threat – so to counteract them implies domination of the information grid.

Vladimir Davydov, director of the Russian Academy of Sciences’ Institute of Latin America, was spot on when he remarked, “The current situation shows that there are attempts to suppress not only Russia but also the BRICS given that the global role of this association has only intensified.” Russia demonization has quickly escalated in the US from sanctions related to Ukraine to Putin as the “new Hitler” and the resurrection of the time-tested Cold War scare “The Russians are coming”. In the case of Brazil the information war already started way before the reelection of President Dilma Rousseff. As much as Wall Street and its local comprador elites were doing everything to tank what they define as a “statist” economy, Dilma was also personally demonized. Not so far-fetched steps in the near future might include sanctions on China because of its “aggressive” position in the South China Sea, or Hong Kong, or Tibet; sanctions on India because of Kashmir; sanctions on Brazil because of human rights violations or excess deforestation.

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A world of hurt.

‘Devil’s Metal’ Burns Investors As Gold Melts Down (CNBC)

Gold and silver have been crushed this week, burned by the rising dollar and the outflow of money looking for a home in stocks and other investments. Some analysts said the metals look like they should be close to a floor, but they stop short of calling a bottom based on the factors that are driving prices lower, including ETF withdrawals. Even a rush of coin buying, causing the U.S. Mint to temporarily run out of silver American Eagle coins, hasn’t yet turned the tide, “I’ve been pretty morose on gold for quite some time. Maybe it’s a little bit lower than we would have thought. … We had a one-two punch and a knockout,” said Bart Melek, head of commodities strategy at TD Securities. He said the hawkish tone of the Fed last week helped send gold reeling, and any positive moves in the dollar add to its decline. “It’s not likely we’re going to see an outright rout at this point. We’re kind of holding on key support levels. I think it will very much depend on how equity markets do and how the economy looks.”

The December Gold contract fell below $1,150 an ounce, and is now off more than 6.5% in the past five days. Silver is even weaker, and Melek said it could fall into the $14.50 zone. Silver is down more than 10.5% in the same time, and the December futures contract was down 3.2% at $15.44 an ounce in afternoon trading Wednesday. “It’s even more slaughtered. Although the fundamentals of silver are much stronger than the fundamentals of gold, who cares? The only thing that matters is what the dollar is doing. Money still wants to flow to stocks and that’s what it will continue to do,” said Dennis Gartman, publisher of the Gartman Letter.

Silver is much more volatile than gold and can lead prices higher, but also lower as it is doing now. “It burns investors. That’s why they call it the devil’s metal,” said one analyst. Gold also has been selling off as the world appears to be more concerned about disinflation than inflation, with weaker economies and the drop in crude. The dollar index is up 1.7% in the past five days. “The strength in the dollar is so substantial. The crude market weakness is so substantial. Where else can it go? It will keep going until it stops. It’s a bull market for the dollar, and that trumps all other concerns,” said Gartman.

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Brilliant.

Luxembourg Rubber-Stamps Tax Avoidance On Industrial Scale (Guardian)

An unprecedented international investigation into tax deals struck with Luxembourg has uncovered the multi-billion dollar tax secrets of some of the world’s largest multinational corporations. A cache of almost 28,000 pages of leaked tax agreements, returns and other sensitive papers relating to over 1,000 businesses paints a damning picture of an EU state which is quietly rubber-stamping tax avoidance on an industrial scale. The documents show that major companies — including drugs group Shire, City trading firm Icap and vacuum cleaner firm Dyson, who are headquartered in the UK or Ireland — have used complex webs of internal loans and interest payments which have slashed the companies’ tax bills. These arrangements, signed off by the Grand Duchy, are perfectly legal.

The documents also show how some 340 companies from around the world arranged specially-designed corporate structures with the Luxembourg authorities. The businesses include corporations such as Pepsi, Ikea, Accenture, Burberry, Procter & Gamble, Heinz, JP Morgan and FedEx. Leaked papers relating to the Coach handbag firm, drugs group Abbott Laboratories, Amazon, Deutsche Bank and Australian financial group Macquarie are also included. [.] Stephen Shay, a Harvard Law School professor who has held senior tax roles in the US Treasury and who last year gave expert testimony on Apple’s tax avoidance structures in a Senate investigation, said: “Clearly the database is evidencing a pervasive enabling by Luxembourg of multinationals’ avoidance of taxes [around the world].” He described the Grand Duchy as being “like a magical fairyland.”

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We live in a distorted world.

Interest Rates Are So Low Germans Pay To Keep Money In Banks (Telegraph)

Record low interest rates around the world have been hitting savers’ holdings for years, but things have become even worse in Germany. Deutsche Skatbank, a medium-sized co-operative based in Altenburg, East Germany, has introduced an interest rate of -0.25pc for certain clients, blaming the European Central Bank’s negative rates. The ECB cut one of its three key rates to less than zero in June and has since reduced them further in a desperate attempt to ward off deflation. “We can no longer offer cover costs due to the current interest rate environment,” the bank said. “The lowering of the interest rate for certain deposits with Deutsche Skatbank [is due to] the negative results from the analogous changes in interest rates, both at the ECB and in the interbank market.” Those with deposits of more than €500,000 (£393,000), will, rather than receiving interest on their deposits, have an interest rate of -0.25pc per annum. However, the bank said it would only actually apply this if balances went above €3m.

To put it another way, certain depositors are better off putting their money under the mattress. Because of the threshold, it only applies to very rich savers and institutions, but further ECB attempts to boost growth may have see this trend continue. The ECB is under pressure to introduce quantitative easing in a last-ditch attempt to boost growth, and has already started a version dubbed “QE-lite”. In June, when the ECB introduced negative rates, it said: “There will be no direct impact on your savings. Only banks that deposit money in certain accounts at the ECB have to pay.” However, it added: “Commercial banks may of course choose to lower interest rates for savers.” Low interest rates and quantitative easing have hit savers’ returns since the financial crisis.Additionally, banks’ extremely low funding costs due to the Funding for Lending Scheme and low market rates supported by implict government subsidies, have meant they do not have to attract savers to raise funds. There is a very direct correlation between interest rates and savings rates, which have been below inflation for years.

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Wonder what their true numbers are, their derivatives portfolio’s etc.

French Banks Warn On Country’s ‘Difficult’, ‘Incoherent’ Economy (CNBC)

French lender Societe Generale posted a 56% rise in third quarter net profit on Thursday, to €836 million ($1.04 billion), in spite of what the bank’s deputy chief executive described as a “difficult environment.” This sentiment was backed by the CEO of rival Credit Agricole who criticized a “lack of coherence” in French economic policy. SocGen’s net profit figures beat estimates from analysts polled by Reuters of €794 million. However, revenues slipped in the same period, down 1.8% at €5.9 billion, slightly above analysts’ forecasts. Deputy chief executive Severin Cabannes gave three reasons why the group saw such a rise in profit. “Firstly, we had a good commercial dynamic across all our businesses, secondly we had a strict control of all our costs which decreased in absolute terms compared to last year and third, we had a sharp drop in the cost of risk as anticipated.” Loan loss provisions were down by 41% and provisions for litigation remained at €900 million.

The latest figures come after the lender, which is France’s second-largest by market value, reported a 7.8% rise in net profits, to €1.030 billion ($1.38 billion) in the second quarter, and increased its litigation provisions. Elsewhere Thursday, French bank Credit Agricole also reported an increase in third-quarter net profit to €758 million, up 4.1% year on year. Revenues rose 4.0% year-on-year in the same period to €4.0 billion. The bank said there was good business momentum and a continued fall in the cost of risk “despite a challenging economic, regulatory and fiscal environment,” chief executive Jean-Paul Chifflet said in an earning’s statement. However, Chifflet added that a weakness in the French economy weighed on the business and criticized a “lack of coherence” in French economic policy. Speaking to reporters in a conference call, Chifflet said “signs of recovery are proving elusive, unemployment is high, the real estate market is in correction, the public deficit continues to overshoot amid insufficient spending cuts,” Reuters reported.

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So can we shut up now about that great economy?

Pace Of UK Economic Growth Expected To Halve As Service Sector Slows (Guardian)

The pace of Britain’s recovery is expected to almost halve by the end of the year after a survey showed the service sector expanded at the slowest pace in almost 18 months in October. In the first quarter of the year, the UK registered a rise in GDP of 0.9%, but analysts said the slowdown since the summer meant the final quarter was likely to see growth fall to 0.5%, taking pressure off the Bank of England to raise interest rates. Echoing similar trends in manufacturing and construction, the Markit/CIPS services purchasing managers’ index (PMI) fell from 58.7 in September to 56.2, the lowest level of expansion since April 2013. Britain’s rate of growth still continues to outstrip that of the eurozone, with businesses reporting and businesses reported that they intend to hire more staff. Robert Wood, chief UK economist at Berenberg bank, said the latest figures revealed that growth rates had returned to “more reasonable levels” and showed that Britain would continue to grow strongly. “Keep some perspective, the PMI is still strong and the sharp slowdown may be a flash in the pan,” he said.

“New business flows remain very strong and firms are sufficiently enamoured with the UK’s prospects that they are still hiring strongly.” Markit said new business growth was the main prop to higher levels of activity. In its monthly report, the financial data provider said: “October’s data indicated the 22nd successive monthly increase in incoming new work, and respondents commented on success in securing new work via higher marketing and improved client engagement.” Reflecting the weaker outlook, sterling sank to a one-year low of $1.59. In July, the currency topped $1.70 but has fallen back as the prospect of interest rate rises began to wane. Warning signs of a sharper than expected deceleration towards the end of the year was reflected in comments about the uncertainty for exports. While the US remains a strong export market for the UK businesses, the eurozone has entered a period of contraction, with several countries falling back into a third recession since the 2008 banking crash.

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This is what I find a disgrace.

300,000 More British Live In Dire Poverty Than Already Thought (Guardian)

The number of people living in dire poverty in Britain is 300,000 more than previously thought due to poorer households facing a higher cost of living than the well off, according to a study released on Wednesday. A report produced by the Institute for Fiscal Studies found that soaring prices for food and fuel over the past decade have had a bigger impact on struggling families who spend more of their budgets on staple goods. By contrast, richer households had been the beneficiaries of the drop in mortgage rates and lower motoring costs. The study by the IFS for the Joseph Rowntree Foundation said the government method for calculating absolute poverty – the number of people living below a breadline that rises each year in line with the cost of living – assumed that all households faced the same inflation rate. But in the six years from early 2008 to early 2014, the cost of energy had risen by 67% and the cost of food by 32%. Over the same period the retail prices index – a measure of the cost of a basket of goods and services – had gone up by 22%.

The IFS report said the poorest 20% of households spent 8% of their budgets on energy and 20% on food, while the richest 20% spent 4% on energy and 11% on food. Poorer households allocated 3% of their budgets to mortgage interest payments, which have fallen by 40% since 2008 due to the cut in official interest from 5% to 0.5%. Richer households spend 8% of their budgets on servicing home loans. As a result, the IFS concluded that since 2008-09 the annual inflation rate faced by the poorest 20% had been higher than it was for the richest 20% of households. That meant the official measure of absolute poverty understated the figure by 0.5% – or 300,000. The report said, however, that poverty had not been systematically understated, and that in earlier years absolute poverty would have been lower using its new definition based on the different inflation rates facing rich and poor.

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Word.

The Trouble With Mass Delusions (Paul Singer)

The trouble with mass delusions is that they are recognized as such only when they are over – when the dazzling absurdity of certain widely held beliefs is unmasked by subsequent events. Interestingly, many delusions relate to war. At the beginning of World War I, there was a widespread misconception that the war would be over in months. In hindsight, this delusion was fueled by a deep misunderstanding, among citizens and military experts alike, of the impact that evolving technology would have on modern warfare. Parenthetically, we would argue that the current drawdown of military capability throughout the developed world is based on a delusion that ignores thousands of years of immutable, or at least always repeating, human history of almost continuous (in the grand scheme of things) warfare. Economics also provides its share of delusions, including the debt-fueled bubbles of both the 1920s stock market and the first dotcom boom.

The real estate boom of the 2000s was another one, as excess demand was fueled by the combination of near-free money, the most marginal financial products ever invented, and the frenetic selling of houses to people who could not afford them and did not actually own them in any meaningful sense of the word. These examples are easy, because they were mass beliefs that were unreasonable in the extreme at the time they were held. Of course, at the time not everyone held the same deluded views, but the disbelievers were (and always are) discredited, demoralized and ignored while the delusions were alive. The problem is that while the delusions remain intact there is no proof available to convince the believers of their folly. Simply repeating that a mass belief is crazy does not make it so (nor convince anyone else that it is nuts). Furthermore, the amount of time necessary to reveal the truth is sometimes too long for nonbelievers to bear, so they just stop trying.

There is a current set of delusions that is powerful and dangerous: that monetary debasement can be infinitely pursued without negative consequences; that the financial system is now solid and sound; that the low volatility and high prices of stocks, high-end real estate and bonds are real; that bonds are a safe haven; and that large financial institutions which get into trouble in the future can be unwound in a much safer way than they could be in 2008 We have discussed each of these elements in the pages of this report and previous ones in an attempt to reveal the fallacy and unsustainability of such beliefs. But, as stated above, they will only enter the history books as mass delusions if they are unmasked in the future as unjustifiable and erroneous beliefs at the time they were held. We think that test will be met, perhaps soon.

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Yeah, we reallly need to prepare for more transport and bigger ships and more trade and what not, in the face of peak oil. We are so smart it hurts. But the techno happy majority among us will not be stopped by anything but harsh reality.

Uncertainties Surround Nicaragua’s New Panama Canal Competitor (Spiegel)

Wearing orange overalls and sun hats, the Chinese arrived in Río Brito by helicopter before being escorted by soldiers to the river bank – right to the spot where José Enot Solís always throws out his fishing net. The Chinese drilled a hole into the ground, then another and another. “They punched holes all over the shore,” the fisherman says. He points to a grapefruit-sized opening in the mud, over one meter deep. Next to it lie bits of paper bearing Chinese writing. Aside from that, though, there isn’t much else to see of the monumental and controversial project that is to be built here: The Interoceanic Grand Canal, a second shipping channel between the Atlantic and Pacific. The waterway is to stretch from Río Brito on the Pacific coast to the mouth of the Punta Gorda river on the Caribbean coast. Beyond that, though, curiously little is known about the details of the project.

Only Nicaraguan President Daniel Ortega and his closest advisors know how much money has already been invested, what will happen with the people living along the route and when the first construction workers from China arrive. Studies regarding the environmental and social impact of the undertaking don’t exist. The timeline is tight. The first ship is scheduled to sail into Río Brito, which will become part of the canal, in just five years. When completed, the waterway will be 278 kilometers (173 miles) long, 230 meters (755 feet) wide and up to 30 meters (100 feet) deep, much larger than the Panama Canal to the south. A 500-meter wide security zone is planned for both sides of the waterway. And it will be able to handle enormous vessels belonging to the post-panamax category, some of which can carry more than 18,000 containers.

Thus far, only a few dozen Chinese experts are in Nicaragua and have been carrying out test drilling at the mouth of the river since the end of last year. They are measuring the speed at which the river flows, groundwater levels and soil properties. Not long ago, police established a checkpoint at the site and it is possible that the entire area will ultimately be closed off. For now, though, the region remains a paradise for natural scientists and surfers. Sea turtles lay their eggs on the beach and a tropical dry forest stretches out behind it to the south, reaching far beyond the border into Costa Rica. But if the river here is dredged and straightened out as planned, the village on Río Brito will cease to exist.

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” .. only 11 countries in the world are not involved in any conflict – despite this being “the most peaceful century in human history.”

What’s The Environmental Impact Of Modern Warfare? (Guardian)

UN secretary general Ban Ki-moon has called on nations to do more to protect the environment from the devastation wrought by warfare. “The environment has long been a silent casualty of war and armed conflict. From the contamination of land and the destruction of forests to the plunder of natural resources and the collapse of management systems, the environmental consequences of war are often widespread and devastating,” said Ban in a statement for the UN’s International Day for Preventing the Exploitation of the Environment in War and Armed Conflict on Thursday. “Let us reaffirm our commitment to protect the environment from the impacts of war, and to prevent future conflicts over natural resources.” War changes our parameters. In the face of actual or perceived threat, acts that would normally be abhorrent become acceptable and even routine. One of the first of our sensibilities to be discarded is the protection of the environment, says Catherine Lutz, a professor on war and its impacts at the Watson Institute for International Studies.

“There is this notion that it is life or death for a nation so you don’t worry about niceties. We have this idea that human beings are separate from their environment and that you could save a human life through military means and military preparation and then worry about these secondary things later,” she says. According to the Institute for Economics and Peace, only 11 countries in the world are not involved in any conflict – despite this being “the most peaceful century in human history”. In war, the environment suffers from neglect, exploitation, human desperation and deliberate abuse. But even in relatively peaceful countries the forces assembled to maintain security consume vast resources with relative impunity. During the first Gulf War, the US bombed Iraq with 340 tonnes of missiles containing depleted uranium. Mac Skelton, a researcher at Johns Hopkins University, has conducted extensive field work in Iraq on the increased rate of radiation-related cancers, which has been linked to the shells used by the US and UK militaries.

Skelton and others suggest the radiation from these weapons has poisoned the soil and water of Iraq, making the environment carcinogenic. The UK government says these accusations are false. No comprehensive study has been done to establish or disprove the link between cancer and depleted uranium weapons.

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“The town is probably the most heavily fracked in the country.”

Texas Oil Town Makes History As Residents Say No To Fracking (Guardian)

The Texas town where America’s oil and natural gas boom began has voted to ban fracking, in a stunning rebuke to the industry. Denton, a college town on the edge of the Barnett Shale, voted by 59% to ban fracking inside the city limits, a first for any locality in Texas. Organisers said they hoped it would give a boost to anti-fracking activists in other states. More than 15 million Americans now live within a mile of an oil or gas well. “It should send a signal to industry that if the people in Texas – where fracking was invented – can’t live with it, nobody can,” said Sharon Wilson, the Texas organiser for EarthWorks, who lives in Denton. An energy group on Wednesday asked for an immediate injunction to keep the ban from being enforced. Tom Phillips, an attorney for the Texas Oil and Gas association, told the Associated Press the courts must “give a prompt and authoritative answer” on whether the ban violates the Texas state constitution.

Athens in Ohio and San Benito and Mendocino counties in California also voted to ban fracking on Tuesday. Similar measures were defeated in Gates Mills, Kent and Youngstown, Ohio, as well as Santa Barbara, California. Denton remains a solidly Republican town, and oil companies reportedly spent $700,000 to defeat the ban, according to the Denton Record-Chronicle – nearly $6 for every resident. “It was more like David and Godzilla then David and Goliath,” Wilson said. But she said residents were fed up with the noise and disruption of fracking, and the constant traffic and fumes from wells and trucks operating in residential neighbourhoods. The town is probably the most heavily fracked in the country.

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