Feb 072017
 
 February 7, 2017  Posted by at 11:08 am Finance Tagged with: , , , , , , , , ,  1 Response »


Russell Lee Sharecropper mother teaching children in home, Transylvania, LA. 1939

Trump To Be Barred From UK Parliament Over ‘Racism and Sexism’ (BBG)
Trump’s Wall Street Deregulation ‘The Last Thing We Need’ – Draghi (Ind.)
Meet The Men Who Could Topple Donald Trump (G.)
California Is Not ‘Out Of Control,’ Leaders Tell Trump (R.)
Our Part In The Darkness (Alameddine)
The New York Times Just Doesn’t Understand This Economics Stuff (Worstall)
The Fed’s Mortage-Bond Whale (BBG)
When The Money Supply Dries Up (IM)
Army Corps Of Engineers May Decide On DAPL By Week’s End (BBG)
New Bill Would Block EPA From Regulating Greenhouse Gases
Too Late For Couples Therapy? (DiEM25)
Varoufakis: Tsipras Should Prepare To Break Deal With Greece’s Creditors (FR)
Rare Split On IMF Board Puts Greek Bailout At Risk (MW)
Greece Won’t Meet Fiscal Surplus Targets Set By Europe, IMF Says (BBG)
Third Quake Over 5-Richter Magnitude Rattles Lesbos (K.)

 

 

Really dumb stuff. If only because Trump loves it.

Trump To Be Barred From UK Parliament Over ‘Racism and Sexism’ (BBG)

U.S. President Donald Trump must not be allowed to address the U.K. Parliament during a state visit to Britain, House of Commons Speaker John Bercow said. Prime Minister Theresa May invited Trump to visit the U.K., but there have been calls by lawmakers not to give the president the honor of addressing both houses of Parliament after he introduced a ban on people from some majority-Muslim countries traveling to the U.S. “Before the imposition of the migrant ban I would myself have been strongly opposed to an address by President Trump in Westminster Hall; after the imposition of the migrant ban by President Trump I’m even more strongly opposed,” Bercow told lawmakers on Monday.

He added, “I feel very strongly our opposition to racism and to sexism and our support for equality before the law and an independent judiciary are hugely important considerations in the House of Commons.” Trump’s predecessor, Barack Obama, and world leaders including Nelson Mandela, Angela Merkel and Pope Benedict XVI have all been invited to speak to members of the House of Commons and the House of Lords. [..] The announcement was greeted with cheers and – a rare event in the House of Commons – applause from the opposition benches. A motion arguing that Trump shouldn’t be invited to speak has been signed by 163 out of Parliament’s 650 members.

Bercow said he has a veto over a speech in Westminster Hall, the oldest part of the Houses of Parliament, and would block one. It would also be a breach with tradition if Trump spoke in the Royal Gallery behind the Lords without his name on the invitation, he said. “An address by a foreign leader to both houses of Parliament is not an automatic right, it is an earned honor,” Bercow said. “There are many precedents for state visits to take place to our country that do not include an address to both houses of Parliament.”

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Meet Mario the kettle.

Trump’s Wall Street Deregulation ‘The Last Thing We Need’ – Draghi (Ind.)

Donald Trump’s roll-back of Wall Street regulation is “very worrisome” and “the last thing we need” the President of the ECB, Mario Draghi, has warned. Giving evidence to the European Parliament’s Committee on Economic and Monetary Affairs on Monday, Mr Draghi was asked about the American President’s assault on the US post-crisis Dodd-Frank legislation, which had curbed the risk-taking of US banks, raised their capital requirements and introduced more safeguards for consumers. “The last thing we need is a relaxation of regulation,” Mr Draghi said. “The fact that we are not seeing….significant financial stability risk is the reward of the action of supervisors…. Nowadays financial intermediaries are strong. The idea of repeating the conditions of before the crisis is very worrisome.”

Mr Draghi added: “If we were to look at historical experience and ask what are the main reasons for the financial crisis starting in 2007 onwards, well, one can disagree [over] whether it was too expansive monetary policy or the dismantling of financial regulation in previous years – but surely we can agree it was a combination”. Last week President Trump signed an executive order to relax Dodd-Frank, prompting warnings that he is preparing the ground for another financial crisis. Phil Angelides, who served as chair of the Financial Crisis Inquiry Commission, branded President Trump’s decision “insane”. “In the wake of the financial crisis, millions of families lost their homes. Millions of people lost their jobs. The economy was wrecked and communities across the country were devastated. Big Wall Street banks admitted wrongdoing and paid tens of billions of dollars in fines. And now, with bankers at his side, President Trump begins to rip apart protections put in place to protect America’s families and our economy,” he said.

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As I said a few dats ago: “More interesting right now is how strongly this is dividing the White House team. Kelly refused to enact some of Bannon’s demands. Tillerson and Mattis are not sitting comfortable either.”

Meet The Men Who Could Topple Donald Trump (G.)

When Trump began putting together his cabinet, liberals and some in the media expressed concern over the number of retired generals he was appointing to top positions. “Trump hires third general, raising concerns about heavy military influence,” blared a headline in the Washington Post during the presidential transition. “I am concerned that so many of the president-elect’s nominees thus far come from the ranks of recently retired military officers,” the Democratic representative Steny Hoyer told the Washington Examiner in December. The fretting over Trump’s generals was always misplaced, not least because the number of retired generals Trump has appointed to top positions in his administration is hardly unprecedented.

Trump nominated the retired Marine generals James Mattis and John Kelly to lead the Department of Defense and Homeland Security, respectively, and tapped the retired army general Mike Flynn to be his national security adviser. When entering office after winning the 2008 presidential election, Barack Obama also appointed three retired generals to top positions and few batted an eyelid. But those concerned about Trump’s presidency should be thankful that the generals are there, particularly Mattis and Kelly. By all accounts, they are men of great honor and courage with strong backbones. Kelly led men into battle and lost a son fighting in Afghanistan. Mattis may be the most distinguished and respected Marine officer of his generation, revered for his dedication to his troops and his intellect. I had the honor of spending an hour with him one-on-one last May when he was a fellow at the Hoover Institution. Our conversation was off the record, but make no mistake, this is not a man to be trifled with.

Trump may have actually boxed himself in by picking highly respected generals such as Kelly and Mattis to helm top posts in his administration. Even conservatives who publicly stand by the president latch on to the appointments of Mattis and Kelly as their best evidence that Trump’s presidency will not be as problematic as his temperament and actions sometimes suggest, or some of his more troubling White House advisers portend. But if Mattis or Kelly were to resign in protest, that might change everything. There have already been reports that Mattis and Kelly are less than happy with some of what has gone on in the White House. During the transition, Mattis reportedly clashed with the Trump transition team over key appointments to the defense department. Tensions boiled over when Mattis and Kelly weren’t given sufficient consultation over the recent immigration executive order.

The Democratic representative Seth Moulton, a retired Marine who served under Mattis during the Iraq war, says insiders have informed him that after the executive order fiasco, some top appointments like Mattis began thinking about what would make them leave the administration. “What I’ve heard from behind the scenes,’’ Moulton told the Boston Globe: “What will make you resign? What’s your red line?”

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This is the kind of confrontation the country badly needs. Where everyone has to argue and define their viewpoints.

California Is Not ‘Out Of Control,’ Leaders Tell Trump (R.)

California leaders pushed back on Monday against President Donald Trump’s claim that the state is “out of control,” pointing to its balanced budget and high jobs numbers in the latest dustup between the populist Republican and the progressive state. The state’s top Democrats called Trump cruel and his proposals unconstitutional after the businessman-turned-politician threatened to withhold federal funding from the most populous U.S. state if lawmakers passed a so-called sanctuary bill aimed at protecting undocumented immigrants. “President Trump’s threat to weaponize federal funding is not only unconstitutional but emblematic of the cruelty he seeks to impose on our most vulnerable communities,” state Senate Pro Tem Kevin de Leon, a Democrat from Los Angeles, said in a statement on Monday.

State Assembly Speaker Anthony Rendon, an L.A.-area Democrat, said the state has the most manufacturing jobs in the nation, and produces a quarter of the country’s food. “If this is what Donald Trump thinks is ‘out of control,’ I’d suggest other states should be more like us,” Rendon said. The latest war of words between Trump and Democratic leaders in California, where voters chose his opponent, Hillary Clinton, two-to-one in November’s election, began Sunday, in an interview between Trump and Fox News host Bill O’Reilly. During the interview, O’Reilly asked Trump about a bill in the state legislature, authored by de Leon, to ban law enforcement agencies in the state from cooperating with immigration officials in most circumstances. Cities who have enacted similar bans are known as sanctuary cities, and de Leon’s bill, if passed and signed into law by Democratic Governor Jerry Brown, would effectively extend such rules to the entire state.

Trump disparaged the bill as ridiculous, saying that sanctuary cities “breed crime.” “We’ll have to, well, de-fund,” Trump said. “We give tremendous amounts of money to California.” Trump went on to say he viewed funding as a weapon. “California in many ways is out of control,” Trump said to O’Reilly. “Obviously the voters agree or otherwise they wouldn’t have voted for me.” Last week, Trump threatened to withhold federal funding from the University of California at Berkeley, where violent protests led to the cancellation of a speech by an editor for the right-wing Breitbart News. But experts said it would be difficult for the President to withhold funds from either the university or the state. Court rulings have limited the power of the president to punish states by withholding funds, and most appropriations come from the Congress and not the executive branch.

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Really excellent. Don’t miss.

Our Part In The Darkness (Alameddine)

Right after the election, my Twitter feed exploded with shock and moans. It seemed that everyone’s favorite phrase was “We are better than this.” I considered the statement so obviously wrong. I understood the convoluted logic of it, the jolt and hurt that would lead someone to type this, but it was not true. We are not better than this. We are this. The man was elected President. Ipso facto, America is this, we are this. I say this not to suggest that we must be blamed, or that someone who did not vote for Donald Trump is just as culpable as one who did. What I keep trying to point out, to friends, to anyone who will listen, is that too few of us are willing to acknowledge responsibility—not necessarily to accept blame, but to stand up and say, “This thing of darkness, I acknowledge mine.”

I remember when the photographs of torture at Abu Ghraib came to light. The response was similar. This is not us. Those soldiers were rotten. It began at the top, with George W. Bush, and it filtered down. But we would never do such a thing. Of course, we did do those things, and we kept on doing them over and over, and doing worse. Some objected, but most of us simply moved on, chose to forget. “No snowflake in an avalanche ever feels responsible,” the Polish poet Stanislaw Jerzy Lec once wrote. Trump bans Muslims and we claim that this is un-American, that we are not this. I don’t have to talk up “ancient” history to show that we are. I won’t bring up settler colonialism, genocide, and land theft, or harp on slavery, or internment camps for Japanese-Americans.

I won’t refer to the Page Act banning those deemed “undesirable,” the Chinese Exclusion Act, the Asiatic Barred Zone Act, or the Emergency Quota Act. I don’t have to mention the hundreds of thousands of Mexicans deported in the nineteen-thirties, or the thousands of Jews escaping Nazi violence who were turned away. It was F.D.R., not Trump, who claimed that Jewish immigrants could threaten national security. I won’t mention any of this, because this happened so long ago. We can always delude ourselves by saying that America was this but now we are better. Let me just say that in 2010 and 2011, state legislatures passed a hundred and sixty-four anti-immigration laws.

Many were upset when Trump campaigned on a Muslim registry, but I was surprised to find out how few knew that we’d already had one: the National Security Entry-Exit Registration System, or nseers, implemented on September 11, 2002. From the Atlantic: “It consisted of two ‘special registration’ programs: one that required foreign nationals from certain countries to check in with the government before entering and leaving the country, and another that obliged some foreigners living in the United States to report regularly to immigration officials.” Obama did not suspend the program until 2011. He dismantled it right before he left office.

[..] I was in Lesbos a year ago, helping Syrian refugees. At Moria, the biggest camp on the island, thousands of refugees were being processed every day. The crisis had been ongoing for more than six months. I’d heard that every big N.G.O. had taken a turn at leading the camp, but each one failed because of mismanagement, backstabbing, interagency bickering, governmental interference, what have you. But, as horrid as the situation was in the camp, I thought that it was being well managed, as well as it could be with so many people in and out. I met this unassuming man, a retired Mormon from Utah, who had been volunteering at the camp since the first boats arrived. He spoke no Arabic or Farsi, had no medical training of any kind, none of the identifiable skills, yet both volunteers and refugees sought him out with every conceivable question about what to do. It seems that he had arrived to offer whatever help he could. He slowly began to fill in wherever he was needed. As the N.G.O.s began to wash their hands of the camp, he was needed more and more. When I was there, he was running the damn place. We are this. We can be better.

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“That is just a howling error, to talk about the number of jobs and wages as if they are different things.”

The New York Times Just Doesn’t Understand This Economics Stuff (Worstall)

The Editorial Board of the New York Times tells us all that repealing parts of or all of Dodd Frank will damage the economic recovery. It’s possible to see the glimmerings of a point there, no one does think that if half the banks fall over again then all will be toodle dandy. However, they do manage to betray a terrible ignorance of the basics of economics and wages in the same editorial. Really, this is such a basic point that even Karl Marx was able to understand it: Mr. Trump may believe that ending Dodd-Frank will lead to more jobs by making it easier for businesses to get loans. But even if looser credit would help hiring — a very big if — the main problem in the job market today is not too few jobs, but wages that have been too low for too long. A rollback of Dodd Frank will not help that, and will hurt by forfeiting the stability that has helped the economy come this far.

That is just a howling error, to talk about the number of jobs and wages as if they are different things. They are the same thing–it is full employment which lifts the workers’ wages, nothing more and nothing less. As I say this is such a fundamental concept that even Karl Marx was able to get it right. If we have unemployment, that reserve army of the unemployed, then a capitalist can increase his labour force just by hiring some more of those unemployed. He doesn’t have to tempt anyone in with higher wages, he doesn’t need to pay his own workforce more as profits rise. For anyone gets bolshie he can just hire more of those unemployed people. However, the moment that reserve army is exhausted, the moment that there are no unemployed to hire it all changes. Suddenly, to gain access to more labour temptation must be employed.

It is necessary to tempt labour away from the jobs they are already doing. The capitalists, therefore, are in competition with each other for the profits that can be made by employment. At which point of course wages have to rise. To tempt labour into factory B away from factory A then B must pay more than A (in some form, could be shorter hours, better scheduling, more pay, whatever).And factory B had better raise its own wages for the extant workforce to stop A tempting it away. This is how wages rise over time. The capitalists compete for the profits that can be made by employing labour. And in the absence of unemployment they can only do this by raising wages as productivity rises. This process has been going on some 200 years by now, ever since productivity rises became a general feature of the economy.

And there’s no reason to think that it has stopped nor that it will. That is, contrary to the editorial board f the New York Times, it’s not that wages and jobs are different issues. It’s that wages haven’t risen because there haven’t been enough jobs. And seriously, if your understanding of capitalist and market economics is behind even that of Karl Marx are we sure that you should be writing newspaper articles on the subject of economics?

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If you create an artificial recovery, there will be a price to be eventually.

The Fed’s Mortage-Bond Whale (BBG)

Almost a decade after it all began, the Federal Reserve is finally talking about unwinding its grand experiment in monetary policy. And when it happens, the knock-on effects in the bond market could pose a threat to the U.S. housing recovery. Just how big is hard to quantify. But over the past month, a number of Fed officials have openly discussed the need for the central bank to reduce its bond holdings, which it amassed as part of its unprecedented quantitative easing during and after the financial crisis. The talk has prompted some on Wall Street to suggest the Fed will start its drawdown as soon as this year, which has refocused attention on its $1.75 trillion stash of mortgage-backed securities.

While the Fed also owns Treasuries as part of its $4.45 trillion of assets, its MBS holdings have long been a contentious issue, with some lawmakers criticizing the investments as beyond what’s needed to achieve the central bank’s mandate. Yet because the Fed is now the biggest source of demand for U.S. government-backed mortgage debt and owns a third of the market, any move is likely to boost costs for home buyers. In the past year alone, the Fed bought $387 billion of mortgage bonds just to maintain its holdings. Getting out of the bond-buying business as the economy strengthens could help lift 30-year mortgage rates past 6% within three years, according to Moody’s. Unwinding QE “will be a massive and long-lasting hit” for the mortgage market, said Michael Cloherty at RBC Capital Markets. He expects the Fed to start paring its investments in the fourth quarter and ultimately dispose of all its MBS holdings.

Unlike Treasuries, the Fed rarely owned mortgage-backed securities before the financial crisis. Over the years, its purchases have been key in getting the housing market back on its feet. Along with near-zero interest rates, the demand from the Fed reduced the cost of mortgage debt relative to Treasuries and encouraged banks to extend more loans to consumers. In a roughly two-year span that ended in 2014, the Fed increased its MBS holdings by about $1 trillion, which it has maintained by reinvesting its maturing debt. Since then, 30-year bonds composed of Fannie Mae-backed mortgages have only been about a percentage point higher than the average yield for five- and 10-year Treasuries, data compiled by Bloomberg show. That’s less than the spread during housing boom in 2005 and 2006.

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Don’t know if it’s money supply drying up or debts becoming overwhelming. Not the same thing. But the last paragraphs of the piece are interesting:

When The Money Supply Dries Up (IM)

Whenever the ability to enforce draconian legislation goes into decline, the people of a nation suddenly realise that they’ve been living in fear of a paper tiger. It doesn’t take long before some people choose to defy the system. When they’re seen to succeed, others follow in droves. So, what does this say of the US and its power? Well, as Doug Casey has been known to say, “Countries fall from grace with remarkable speed.” Quite so. On an international level, this means that international leaders will be watching the economic decline of the US closely. Countries such as China and Russia have been loading up on precious metals in preparation for a collapse in fiat currency. In addition, they’ve created their own version of the World Bank, the Asian Infrastructure Investment Bank, and have been hard at work inking deals with other nations for international settlement in currencies other than the dollar.

Most people in the world today cannot remember a time before Bretton Woods, yet they may soon witness the Bretton Woods agreement becoming a dead duck. But, if we extend this premise, we also should be questioning the other constructs of the postwar period that have become dinosaurs. What of the United Nations? This organisation was once meant to be a body for arbitration and world planning, but has in latter decades become a quagmire of bickering and gainsaying—with its decisions rarely being adopted by the nations in question. And yet the US alone pays some $8 billion annually to keep the UN afloat. Surely, when the world at large ceases its willingness to carry further US debt, the US government will jettison the expense for the UN before it cuts either its military spending or its entitlement programmes.

Similarly, NATO, which requires $2.8 billion annually (with only five of its 28 members currently meeting the recommended payments) would experience a similar fate. With the above entities heading south, the Wolfowitz Doctrine, which has since 1992 been the basis of US aggression policy, would become unachievable. In addition to the decline or cessation of the above international adventurism, enforcement of revenue pursuit in the guise of FATCA and OECD schemes would equally suffer from a loss of funding. It would not be a question of whether the empire still wished to squeeze the lemon more than ever before—it would. But once the funds to do so dried up, the US and EU would find themselves in the situation that we currently observe in Venezuela: The money to pay for the enforcement is simply not there anymore.

The decline would begin with bounced cheques, followed by massive layoffs in the enforcement departments, followed by a decline in receipts, necessitating further layoffs, and continuing in a downward spiral. At present, countless people live in fear of the present empires and their ever-increasing efforts at usurpation. However, as history shows, once debt has reached its nadir and begins its rapid fall, so does the empire’s ability to enforce draconian confiscations.

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Army vs veterans?!

Army Corps Of Engineers May Decide On DAPL By Week’s End (BBG)

The U.S. Army may decide by week’s end whether to approve construction of the Dakota Access Pipeline across North Dakota’s Lake Oahe and lands claimed sacred by Sioux Indian tribes. Justice Department lawyer Matthew Marinelli outlined the planned timeline for the Army’s decision to a federal judge in Washington hearing a three-way dispute over the planned path of the Energy Transfer Partners LP-led project. Marinelli didn’t say which way the decision might go. President Donald Trump last month issued a memorandum urging the Army Corps of Engineers to expedite its review of the conduit’s path after the federal agency put the brakes on ETP’s nearly complete $3.8 billion, 1,172-mile conduit for shunting crude from northwestern North Dakota to a Patoka, Illinois, distribution center last year amid protests raised by environmental groups and the Sioux.

[..] While U.S. District Judge James Boasberg, and then a federal appeals court, declined to grant the tribes’ request for an order halting the project, the corps stopped construction anyway, stating it was reconsidering whether to issue easements required for tunneling under the lake bed. Jan Hasselman, lead lawyer for the suing Sioux tribes, told the judge that because the Army Corps had already committed to an environmental impact review of the lake crossing, any easement granted before that analysis is complete “would be unlawful.” The Corps turned the decision to the U.S. Army. The tribes will likely file a second bid to halt the project, citing environmental impact concerns, if the pipeline project gets a U.S. government go-ahead, Hasselman said.

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Now use that to get a deal that actually achieves something.

New Bill Would Block EPA From Regulating Greenhouse Gases (EW)

Republican lawmakers have proposed a bill to curtail the U.S. Environmental Protection Agency’s (EPA) ability to address climate change. The “Stopping EPA Overreach Act of 2017” (HR637) would amend the Clean Air Act so that: “The term ‘air pollutant’ does not include carbon dioxide, water vapor, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons, or sulfur hexafluoride.” The bill was introduced by Rep. Gary Palmer (R-Ala.) and has already racked up 114 Republican co-sponsors. Palmer is a climate denier who once said that temperature data used to measure global climate change have been “falsified” and manipulated.

Palmer’s latest proposal would nullify the EPA’s regulation of carbon pollution, stating that “no federal agency has the authority to regulate greenhouse gases under current law” and “no attempt to regulate greenhouse gases should be undertaken without further Congressional action.” Liz Perera, climate policy director at the Sierra Club, told Huffington Post that the resolution would make it nearly impossible for the federal government to fight climate change. “This is the legislative equivalent of trying to ban fire trucks while your house is burning,” she said, adding its sponsors “should be embarrassed for so blatantly ignoring reality and ashamed of themselves for so recklessly endangering our communities.”

[..] Fortunately, the bill does not seem to have any legs. David Doniger, a senior attorney for Natural Resources Defense Council’s climate and clean air program told The Guardian that HR637 does not have much of a chance breaking through a Senate filibuster as Democrats would have near-universal opposition to it and even some moderate Republican Senators would vote against it as well.

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Yes. Annul the wedding. Before someone gets hurt.

Too Late For Couples Therapy? (DiEM25)

For the past seven years, Greece has been stuck in an abusive marriage with its European partners. Of course, she has not been the perfect partner, but who has? No one deserves violence. No one deserves abuse. Everyone deserves hope, and not the delusional “you will be done by 2060, if you can maintain the hilariously unsustainable 3.5% primary budget surplus” kind of hope offered by Mr Schäuble. The hypocrisy and pseudo-morality of European lenders and the IMF is painful. Germany’s “no debt-reduction” stance is particularly exasperating, when that very same country has experienced both the economic, social and political disaster that vindictive, self-righteous hardheadedness can lead to after the Treaty of Versailles in 1919, as well as the miraculous quality of debt-reduction when its own debt was cut by half (!) at the London Debt Agreement of 1953.

The more years pass, the closer Greece and the rest of Europe edge from a post-modern 1919 to a post-modern 1933. And now, with news of Greece’s three-week window to resolve its next instalment before economically imploding – a piece of news which some media outlets appeared surprised about, bless them – many of us cannot help but wonder: when will we get serious about resolving this? The obvious answer is: when there is political will for a resolution. The only place where this seems to be the case is the nation-patient itself. Two summers ago, under remarkable socio-economic pressure, amid capital-controls and an overwhelmingly pro-EU media landscape, 62% of Greeks came out and refused the terms of a third bailout. Anyone with half-an-understanding of economics and finance seems to agree that the current approach to Greek debt is unsustainable economically, socially and politically: all in all, a disaster.

Even the master chef of the entire travesty, the IMF, has come out and admitted that neo-liberalism and austerity simply do not work. So what are we waiting for? Why are millions of Europeans still suffering under utterly misguided political and economic dogmas? Quite simply because to admit defeat at this point would mark the end of a number of powerful careers. Having poisoned European voters against the lazy PIIGS, it would be nothing short of political suicide to turn around and give in to Greek demands. When would be the next electoral victory in Europe for austerity’s architects if it was revealed that the years of financial and social suffering was a pointless self-inflicted wound with only negative economic results?

So it is becoming increasingly obvious that Greece has to work its own way out of this mess. At this stage, that means an immediate halt of repayments to lenders; a stance that will either force its partners to a vital debt-reduction, or will lead the country to an exit from the Euro. With Germany (in clear breach of EU rules) stubbornly maintaining its 9% budget surplus and refusing to increase imports, Europe is at an impasse, and no one is hurt more by this than Greece. Although the former outcome would be preferred – avoiding to rock the European boat at a time of major global instability is a major plus – the latter is still preferable to the status quo.

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Translation of Greek article by Varoufakis I posted about earlier.

Varoufakis: Tsipras Should Prepare To Break Deal With Greece’s Creditors (FR)

Through a recent article at the Efimerida ton Syntakton (Newspaper of Editors), the former Minister of Finance of Greece, Yanis Varoufakis, referred to Tsipras retreat against Greece’s creditors and called him to prepare seriously this time, to break the destructive continuous agreements. As Varoufakis wrote among other things: The night of the Greek referendum, I tried hard to explain to the Greek PM that the submission of Greece to the third memorandum was Schäuble’s real plan (not Grexit). In reality, there was no hope that the 3rd toxic “program” for Greece would be rationalized progressively through the support of the European Commission to Athens. Meaning, there was no hope that IMF’s austerity and anti-social measures could be softened.

The fact that Moscovici, Juncker, Sapin and others made such promises, is no excuse because the Greek government knew since May 2015 that these people know how to tell lies, or, they are unable to keep their promises when they don’t lie. Suddenly, the Schäuble-IMF-ECB attacked on Greece, demanding exhausting measures, while Merkel-Hollande-Commission didn’t do anything. Tsipras then retreated for one more time in order to “save” Greece. This was Schäuble’s plan. With his stance, Tsipras sank Podemos, made an approach with the collapsing (ethically and politically) Social Democracy, disappointed the progressive Europeans. And all these happened at the same time where nationalism triumphs everywhere.

Tsipras promises, one more time, that he will not retreat (this time!) by legislating new austerity even after 2018. If he means it, I remind him what we had agreed that is necessary and which – even today – is the only thing that may prevent the worst things to come. Prepare for unilateral restructuring of Greek bonds held by the ECB, which must be repaid in July (and after). Prepare the electronic system of transactions through Taxisnet which I had designed, I had started building it and even announced it to the new Minister of Finance, Euclid Tsakalotos, when I delivered the Ministry. Therefore, if indeed the Greek PM means it this time that he will not retreat, he should prepare for breaking the deal with the creditors, so that to prevent it. The design of a parallel system for payments is ready since 2014, as he knows.

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Make it stop!

Rare Split On IMF Board Puts Greek Bailout At Risk (MW)

Some members of the IMF are growing concerned with the terms of Greece’s bailout program, fueling fears the fund might pull out of the much-needed rescue plan for the country. The IMF’s annual review of the Greek economy published on Tuesday revealed a rare split among its board members, showing they are in disagreement over the austerity measures imposed on Athens and over the country’s huge debt burden. The report said that “most” of the 24 IMF executive directors agreed Greece is on track to reach a fiscal surplus of 1.5% of GDP. It said Athens does “not require further fiscal consolidation at this time, given the impressive adjustment to date.” However, some of the board members argued that Greece still needs to bring the surplus up to 3.5%, as agreed in the last bailout in 2015.

“Most Executive Directors agreed with the thrust of the staff appraisal, while some Directors had different views on the fiscal path and debt sustainability,” the IMF said in the assessment. The IMF usually keeps its deliberations confidential, so any differences on the board are rarely exposed to the public. The yield on 10-year Greek government debt surged 26 basis points after the report on Tuesday to 7.925%, according to electronic trading platform Tradeweb. Economists consider borrowing costs above 7% unsustainable in the long term.

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This is getting sadistic.

Greece Won’t Meet Fiscal Surplus Targets Set By Europe, IMF Says (BBG)

Greece is on track to fall short of budget-surplus targets set under a bailout by the nation’s euro-zone creditors, the IMF said. Greece’s primary budget surplus will rise to 1.5% over the long run from about 1% last year, amid a modest recovery, the IMF said Monday after executive directors met to discuss the fund’s annual assessment of the nation’s economy. Still, the projected surplus falls short of the 3.1% forecast by the country’s European creditors. The fund reiterated its view that Greece’s debt is unsustainable. Most of the executive directors don’t believe the economy needs more fiscal consolidation, the IMF said. The IMF has said it would consider giving Greece a new loan to supplement the 86 billion euros ($92 billion) it’s receiving from euro-area countries, but only if the nation’s debt-reduction plans are credible.

Greece’s European creditors also want the IMF to sign off before disbursing the next tranche of the euro-zone bailout. Greece’s government debt will reach 275% of its gross domestic product by 2060, when its financing needs will represent 62% of GDP, the IMF said in a draft staff report obtained by Bloomberg last month. Public debt will reach 181% of GDP this year, the IMF projected Monday. Greece’s economy is expected to grow 2.7% this year, up from 0.4% in 2016, the fund said. However, long-run growth is expected to slip to about 1%, the IMF predicts. The IMF’s assumptions aren’t based in reality and don’t take into account the reform of Greece’s public finances, according to a European Union official who spoke on condition of anonymity because the discussions are sensitive.

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Yeah, sure, add some more crap. For some reason this makes me think of George Clinton: “Do Fries Come With That Shake?”

Third Quake Over 5-Richter Magnitude Rattles Lesbos (K.)

Seismologists in Greece are keeping a close eye on activity in the eastern Aegean, as a third quake in 24 hours measuring above 5 Richter rattled the area in the early hours of Tuesday. The tremor hit at 4.24 a.m. and measured 5.3 on the Richter scale, according to the Geodynamic Institute in Athens, with the epicenter located 15 kilometers north of Lesvos. With a depth of just 10 kilometers, the quake was felt quite strongly on the Greek islands of Lesvos and Chios. Seismologist Efthimios Lekkas on Monday said two tremors – with a magnitude of 5.1 and 5.3 respectively – were not linked to the North Anatolian Fault Line, the source of powerful quakes in the past.

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Apr 022015
 
 April 2, 2015  Posted by at 9:39 am Finance Tagged with: , , , , , , , , , , ,  3 Responses »


Marion Post Wolcott Negro woman carrying laundry between Durham and Mebane, NC 1939

The Committee To Destroy The World (Michael Lewitt)
Our Current Illusion Of Prosperity (Mises Inst.)
Economic Inequality: It’s Far Worse Than You Think (Scientific American)
Burning Down The House: Land, Water & Food (Eastwood)
The Warren Effect: Here Is A Bluff That Needs To Be Called (Esquire)
Companies Go All-In Before Rate Hike, Issue Record Debt In Q1 (Zero Hedge)
Shanghai Traders Make Trillion-Yuan Stock Bet With Borrowed Cash (Bloomberg)
Greek Defiance Mounts As Alexis Tsipras Turns To Russia And China (AEP)
Greece Threatens Default As Fresh Reform Bid Falters (Telegraph)
China’s Fuel Demand to Peak Sooner Than Oil Giants Expect (Bloomberg)
The Saudis Are Losing Their Lock on Asian Oil Sales (Bloomberg)
Reckoning Arrives for Cash-Strapped Oil Firms Amid Bank Squeeze (Bloomberg)
Appalachia Miners Wiped Out by Coal Glut That They Can’t Reverse (Bloomberg)
World Dairy Prices Slide 10.8% On Supply Concerns (NZ Herald)
CFTC Charges Kraft, Mondelez With Manipulating Wheat Futures (MarketWatch)
Brazil’s Richest Man May Reap $5.6 Billion in Kraft-Heinz Merger
The Cuban Money Crisis (Bloomberg)
California Orders Mandatory Water Cuts Of 25% Amid Record Drought (WSJ)

Absolute must read. And then a second time.

The Committee To Destroy The World (Michael Lewitt)

Last month, the world mourned the death of beloved actor Leonard Nimoy. Mr. Nimoy, of course, was renowned for his portrayal of the iconic character Mr. Spock on the 1960s television series Star Trek. One of the most memorable Star Trek inventions was the transporter that allowed human beings to be beamed through space and time like light and energy. Investors expecting central bankers to solve the world’s economic problems might as well believe that Janet Yellen is capable of beaming them straight into the Marriner S. Eccles Building in Washington, D.C. Their failure to acknowledge that the Fed is failing to generate sustainable economic growth while contributing to income inequality and crushing debt burdens is inexplicable.

Central banks that purport to be promoting financial stability are actually undermining it – with the able assistance of regulators who have drained liquidity from the world’s most important markets. Negative interest rates on $3 trillion of European debt are an obvious sign of policy failure, yet the policy elite stands mute. Actually that’s not correct – the cognoscenti is cheering on Mario Draghi as he destroys the European bond markets just as they celebrated Janet Yellen’s demolition of the Treasury market. Negative interest rates are not some curiosity; they represent a symptom of policy failure and a violation of the very tenets of capitalist economics. The same is true of persistent near-zero interest rates in the United States and Japan.

Zero gravity renders it impossible for fiduciaries to generate positive returns for their clients, insurance companies to issue policies, and savers to entrust their money to banks. They are a byproduct of failed economic policies, not some clever device to defeat deflation and stimulate economic growth. They are mathematically doomed to fail regardless of what economists, who are merely failed monetary philosophers practicing a soft social science, purport to tell us. The fact that European and American central banks are following the path of Japan with virtually no objection represents one of the most profound intellectual failures in the history of economic policy history.[..]

Christopher Whalen, one of the best bank analysts on Wall Street, argued that global banks face trillions of bad off-balance sheet debts that must eventually be resolved (i.e. written off) and are dragging on economic growth. These debts include everything from loans by German banks to Greece to home equity loans in the U.S. for homes that are underwater on their first mortgage. Banks and governments refuse to restructure (i.e. write off) these bad debts because doing so would trigger capital losses for banks and governments. As Mr. Whalen explains, “the Fed and ECB have decided to address the issue of debt by slowly confiscating value from investors via negative rates, this because the fiscal authorities in the respective industrial nations cannot or will not address the problem directly.”

But in addition to avoiding the bad debt problem, these policies are causing further economic damage by depressing growth and starving savers. Per Mr. Whalen: “ZIRP and QE as practiced by the Fed and ECB are not boosting, but instead depressing, private sector economic activity. By using bank reserves to acquire government and agency securities, the FOMC has actually been retarding private economic growth, even while pushing up the prices of financial assets around the world.”

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“Massive layoffs in the energy sector are now a certainty. Few realize that most of the gains in employment in the US since 2008 have been in shale states. Yet the carnage is not over.”

Our Current Illusion Of Prosperity (Mises Inst.)

President Obama and Fed Chair Janet Yellen have been crowing about improving economic conditions in the US. Unemployment is down to 5.5% and growth in 2014 hit 2.2%. Journalists and economists point to this improvement as proof that quantitative easing was effective. Unfortunately, this latest boom is artificial and has been built by adding debt on top of debt. Total household debt increased 2.5% in 2014 — the highest level since 2010. Mortgage loans increased 1.5%, student loans 6.6% while auto loans increased a hefty 9.6%. The improving auto sales are built mostly on a bubble of sub-prime borrowers. Auto sales have been brisk because of a surge in loans to individuals with credit scores below 620. Since 2010, such loans have increased over 100% and have gone from 20% of originations in 2009 to 27% in 2013.

Yet, auto loans to individuals with strong credit scores, above 760, have barely budged over the last year. Subprime consumer borrowing climbed $189 billion in the first eleven months of 2014. Excluding home mortgages, this accounted for 41% of total consumer lending. This is exactly the kind of lending that got us into trouble less than a decade ago, and for many consumers, this will only end in tears. But we need to ask ourselves: is the current boom built on sound foundations? In other words, do we have sharp increases in productivity or real wage growth? Productivity increased less than 1% on average in the last three years and real wages have flat lined or declined for decades. From mid-2007 to mid-2014, real wages declined 4.9% for workers with a high school degree, dropped 2.5% for workers with a college degree and rose just 0.2% for workers with an advanced degree.

Is the boom being built on broad base investment in plant and equipment? The current average age of working plants and equipment in the US is one of the oldest on record. Meanwhile, it is now clear that the shale boom was an illusion of prosperity. Oil prices have dipped below $50 with some analysts calling for $20 oil by the end of the year. This is a drop from over $100 from last year. Many shale outfits need oil above $65 just to break even. Massive layoffs in the energy sector are now a certainty. Few realize that most of the gains in employment in the US since 2008 have been in shale states. Yet the carnage is not over. Induced by low interest, investment banks loaned over $1 trillion to the energy industry. The impact on the financial sector is still to be felt.

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Do read.

Economic Inequality: It’s Far Worse Than You Think (Scientific American)

In a candid conversation with Frank Rich last fall, Chris Rock said, “Oh, people don’t even know. If poor people knew how rich rich people are, there would be riots in the streets.” The findings of three studies, published over the last several years in Perspectives on Psychological Science, suggest that Rock is right. We have no idea how unequal our society has become. In their 2011 paper, Michael Norton and Dan Ariely analyzed beliefs about wealth inequality. They asked more than 5,000 Americans to guess the%age of wealth (i.e., savings, property, stocks, etc., minus debts) owned by each fifth of the population. Next, they asked people to construct their ideal distributions. Imagine a pizza of all the wealth in the United States. What%age of that pizza belongs to the top 20% of Americans?

How big of a slice does the bottom 40% have? In an ideal world, how much should they have? The average American believes that the richest fifth own 59% of the wealth and that the bottom 40% own 9%. The reality is strikingly different. The top 20% of US households own more than 84% of the wealth, and the bottom 40% combine for a paltry 0.3%. The Walton family, for example, has more wealth than 42% of American families combined. We don’t want to live like this. In our ideal distribution, the top quintile owns 32% and the bottom two quintiles own 25%. As the journalist Chrystia Freeland put it, “Americans actually live in Russia, although they think they live in Sweden. And they would like to live on a kibbutz.” Norton and Ariely found a surprising level of consensus: everyone — even Republicans and the wealthy—wants a more equal distribution of wealth than the status quo.

This all might ring a bell. An infographic video of the study went viral and has been watched more than 16 million times. In a study published last year, Norton and Sorapop Kiatpongsan used a similar approach to assess perceptions of income inequality. They asked about 55,000 people from 40 countries to estimate how much corporate CEOs and unskilled workers earned. Then they asked people how much CEOs and workers should earn. The median American estimated that the CEO-to-worker pay-ratio was 30-to-1, and that ideally, it’d be 7-to-1. The reality? 354-to-1. Fifty years ago, it was 20-to-1. Again, the patterns were the same for all subgroups, regardless of age, education, political affiliation, or opinion on inequality and pay. “In sum,” the researchers concluded, “respondents underestimate actual pay gaps, and their ideal pay gaps are even further from reality than those underestimates.”

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Can man stop himself?

Burning Down The House: Land, Water & Food (Eastwood)

I’m sure when Talking Heads wrote “Burning Down The House” that they didn’t exactly have financial collapse and environmental degradation in mind. Although with a verse like “Hold tight wait till the party’s over. Hold tight we’re in for nasty weather. There has got to be a way. Burning down the house” it’s hard not to see that song as strangely prophetic. What we are now doing to the planet and to human society is exactly that – burning down the house while we are still living in it. Everyone needs fuel, especially during a bitter winter, but only a mad man starts deconstructing the house in order to burn bits of it in the stove or fireplace. Almost as mad as that is stealing bits of other people’s houses to burn, but that at least is not soiling your own doorstep – well not at first.

In a world of limited resources and limited space we’ve now reached the point where raiding our neighbours’ houses is the same thing as raiding our own house, because the net effect is the same – disaster on an unprecedented level. Of course it’s easier to live in denial and keep on cannibalising the world’s vital resources at an ever-increasing rate and pretend that it’s business as usual, but in reality it is anything but that. The alarm bells from commentators from all sectors: science, economics, religion etc. are getting louder and more frequent, better argued and with the raw data to back it up, but we are still not listening. Of course, the alarm bell was being rung fifty or more years ago by people such as Admiral Hyman Rickover in 1957, the now retiring Lester Brown and the late Rachel Carson (author of Silent Spring).

Nobody really listened that well back then, although governments paid lip-service to these troublesome do-gooders. Now we know that what they said was entirely true, that we are headed for disaster and yet will still only get the tired old lip-service, as before or Koch Brother inspired denial. The evidence is clearly there that we are depleting all of our resources far too quickly, especially the land we use to produce food and draw raw materials from. In part a consequence of this, the fresh water supplies that are even more vital are also being depleted way too fast. Devastation of the land, especially deforestation exacerbates water loss and soil erosion. Couple this with increased damming of rivers, pollutant run-off into rivers, fracking and mining and you’ve a recipe for a water crisis, which will, in turn, lead to a food crisis.

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Amen.

The Warren Effect: Here Is A Bluff That Needs To Be Called (Esquire)

Let us be quite definite about this. Any Democratic politician who thinks this is a bad situation – or, worse, will not stand by a Democratic colleague in this situation – is not worth the hankie to blow Joe Lieberman’s nose.

Representatives from Citigroup, JPMorgan, Goldman Sachs and Bank of America, have met to discuss ways to urge Democrats, including Warren and Ohio Senator Sherrod Brown, to soften their party’s tone toward Wall Street, sources familiar with the discussions said this week. Bank officials said the idea of withholding donations was not discussed at a meeting of the four banks in Washington but it has been raised in one-on-one conversations between representatives of some of them. However, there was no agreement on coordinating any action, and each bank is making its own decision, they said.

My god, what a prodigious bluff. Also, my god, what towering arrogance? These guys own half the world and have enough money to buy the other half, and they’re threatening the party still most likely to control the White House because they don’t like the Senator Professor’s tone? Her tone? Sherrod Brown’s tone? These are guys who should be worried about the tone of the guard who’s calling them down to breakfast at Danbury and they’re concerned about the tenderness of their Savile Row’d fee-fees? Honkies, please.

The tensions are a sign that the aftermath of the 2008 financial crisis – the bank bailouts and the fights over financial reforms to rein in Wall Street – are still a factor in the 2016 elections. Citigroup has decided to withhold donations for now to the Democratic Senatorial Campaign Committee over concerns that Senate Democrats could give Warren and lawmakers who share her views more power, sources inside the bank told Reuters.

Tensions? These are the guys who should have spent the last six years going door to door apologizing to every American for blowing up the world economy and then buying up the splinters. That is, they should have been going door-to-door to apologize to all those Americans who still have doors they can call their own. Call this. Do it now. Tell them their money is no good here any more. Give these brigands the 86 the way any respectable saloonkeeper gives the heave to a chronic deadbeat who’s run up an unpayable tab. Show the country in simple (and not necessarily civil) words what these people really are.

Demonstrate, speech by speech, that they have no loyalty to the political entity that is the United States of America, that they are stateless gombeen bastards who would sell this country’s democracy off like a subprime mortgage to put another ten bucks into their pockets. They are threatening the people whom they still should be thanking for saving them from themselves. And Senator Professor Warren is only their most conspicuous target. Don’t kid yourselves, this is a message they’re sending to every politician, up and down the line, national and local. Don’t cross us. We own you. There is only one response for a democratic people to make to this ongoing gross obscenity. Bring it, motherfkers. Bring your lunch. And your lawyers.

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What could possibly go wrong?

Companies Go All-In Before Rate Hike, Issue Record Debt In Q1 (Zero Hedge)

It should come as no surprise that Q1 was a banner quarter for corporate debt issuance as struggling oil producers tapped HY markets to stay afloat, companies scrambled to max out the stock-buyback-via-balance-sheet re-leveraging play before a certain “diminutive” superwoman in the Eccles Building decides to do the unthinkable and actually hike rates, and there was M&A. As we discussed last week, rising stock prices have tipped investors’ asset allocation towards equities even as money continues to flow into bonds, meaning that yet more money must be funneled into fixed income for rebalancing purposes, which ironically drives demand for the very same debt that US corporates are using to fund the very same buy backs that are driving equity outperformance in the first place. Put more simply: the bubble machine is in hyperdrive. Not only did Q1 mark a record quarter for issuance, March supply also hit a record at $143 billion, tying the total put up in May of 2008. Here’s more from BofAML:

1Q set records for both supply and trading volumes in high grade, as new issue supply volumes reached $348bn, up from the previous record of $310bn in 1Q- 2014, whereas trading volumes averaged 15.6bn per day, up from the previous record of $14.3bn during the same quarter last year… Issuance in March totaled $143bn and it tied with May 2008 and September of 2013 for the highest monthly supply on record going back to at least 1998. September of 2013 was the month when the record $49bn VZ deal was priced… Supply in March was supported by low interest rates (encouraging opportunistic issuance on the supply side and supporting investor demand by diminishing interest rate risk concerns) and a busy M&A-related calendar. Some of these trends will continue in April, although investors are becoming more concerned about the Fed hiking cycle…

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The China casino.

Shanghai Traders Make Trillion-Yuan Stock Bet With Borrowed Cash (Bloomberg)

Shanghai traders now have more than 1 trillion yuan ($161 billion) of borrowed cash riding on the world’s highest-flying stock market. The outstanding balance of margin debt on the Shanghai Stock Exchange surpassed the trillion-yuan mark for the first time on Wednesday, a nearly fourfold jump from just 12 months ago. The city’s benchmark index has surged 86% during that time, more than any of the world’s major stock gauges. While the extra buying power that comes from leverage has fueled the Shanghai Composite Index’s rally, it’s also sending equity volatility to five-year highs and may accelerate losses if a market reversal forces traders to sell.

Margin debt has increased even after regulators suspended three of the nation’s biggest brokers from adding new accounts in January and said securities firms shouldn’t lend to investors with less than 500,000 yuan. “It’s like a two-edged sword,” said Wu Kan, a money manager at Dragon Life Insurance Co. in Shanghai, which oversees about $3.3 billion. “When the market starts a correction or falls, it will increase the magnitude of declines.” In a margin trade, investors use their own money for just a portion of their stock purchase, borrowing the rest from a brokerage. The loans are backed by the investors’ equity holdings, meaning that they may be compelled to sell when prices fall to repay their debt.

Chinese investors have been piling into the stock market after the central bank cut interest rates twice since November and authorities from the China Securities Regulatory Commission to central bank Governor Zhou Xiaochuan endorsed the flow of funds into equities. Traders have opened 2.8 million new stock accounts in just the past two weeks, almost on par with Chicago’s entire population. The outstanding balance of the margin debt on China’s smaller exchange in Shenzhen was 493.8 billion yuan on March 31. That puts the combined figure for China’s two main bourses at the equivalent of about $241 billion. In the U.S., which has a stock market almost four times the size of China’s, margin debt on the New York Stock Exchange was about $465 billion at the end of February.

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Strong effort by Ambrose. He manages to look behind the obvious veil: “When Warren Buffett suggests that Europe might emerge stronger after a salutary purge of its weak link in Greece, he confirms his own rule that you should never dabble in matters beyond your ken.”

Greek Defiance Mounts As Alexis Tsipras Turns To Russia And China (AEP)

Two months of EU bluster and reproof have failed to cow Greece. It is becoming clear that Europe’s creditor powers have misjudged the nature of the Greek crisis and can no longer avoid facing the Morton’s Fork in front of them. Any deal that goes far enough to assuage Greece’s justly-aggrieved people must automatically blow apart the austerity settlement already fraying in the rest of southern Europe. The necessary concessions would embolden populist defiance in Spain, Portugal and Italy, and bring German euroscepticism to the boil. Emotional consent for monetary union is ebbing dangerously in Bavaria and most of eastern Germany, even if formulaic surveys do not fully catch the strength of the undercurrents. This week’s resignation of Bavarian MP Peter Gauweiler over Greece’s bail-out extension can, of course, be over-played. He has long been a foe of EMU.

But his protest is unquestionably a warning shot for Angela Merkel’s political family. Mr Gauweiler was made vice-chairman of Bavaria’s Social Christians (CSU) in 2013 for the express purpose of shoring up the party’s eurosceptic wing and heading off threats from the anti-euro Alternative fur Deutschland (AfD). Yet if the EMU powers persist mechanically with their stale demands – even reverting to terms that the previous pro-EMU government in Athens rejected in December – they risk setting off a political chain-reaction that can only eviscerate the EU Project as a motivating ideology in Europe. Jean-Claude Juncker, the European Commission’s chief, understands the risk perfectly, warning anybody who will listen that Grexit would lead to an “irreparable loss of global prestige for the whole EU” and crystallize Europe’s final fall from grace.

When Warren Buffett suggests that Europe might emerge stronger after a salutary purge of its weak link in Greece, he confirms his own rule that you should never dabble in matters beyond your ken. Alexis Tsipras leads the first radical-Leftist government elected in Europe since the Second World War. His Syriza movement is, in a sense, totemic for the European Left, even if sympathisers despair over its chaotic twists and turns. As such, it is a litmus test of whether progressives can pursue anything resembling an autonomous economic policy within EMU. There are faint echoes of what happened to the elected government of Jacobo Arbenz in Guatemala, a litmus test for the Latin American Left in its day. His experiment in land reform was famously snuffed out by a CIA coup in 1954, with lasting consequences. It was the moment of epiphany for Che Guevara, then working as a volunteer doctor in the country.

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Believe it or not, this thing will have to reach a conclusion soon.

Greece Threatens Default As Fresh Reform Bid Falters (Telegraph)

The Greek government has threatened to default on its loans to the International Monetary Fund, as Athens continued its battle to convince creditors for a fresh injection of bail-out cash. Greece’s interior minister told Germany’s Spiegel magazine, his country would not respect a looming €450m loan repayment to the fund on April 9, without a release of much-needed bail-out funds. “If no money is flowing on April 9, we will first determine the salaries and pensions paid here in Greece and then ask our partners abroad to achieve consensus that we will not pay €450 million to the IMF on time,” said Nikos Voutzis. The cash-strapped government has struggled to keep up with its wage and pensions obligations having agreed a bail-out extension on February 20.

Athens insists it has enough money to last it until the middle of April, but a final agreement on any deal is unlikely to be secured before the end of the month. A Greek government spokesperson later denied the reports of a deliberate default, saying the country still hoped for a “positive outcome” to its debt negotiations. The comments came as the eurozone’s working group discussed a new 26-page plan of reforms from Athens on Wednesday. Aiming to generate an estimated €6bn in 2015, Athens has pledged a range of revenue-raising measures including cracking down on tax evasion, carrying out an audit on overseas bank transfers, and introducing a “luxury tax”. The document also warned brinkmanship on the part of the eurozone meant the “viability” of the currency union was now “in question.”

“It is necessary now, without further delay to turn a corner on the mistakes of the past and to forge a new relationship between member states, a relationship based on solidarity, resolve, mutual respect,” said the proposal. The Leftist government has continually fallen short of creditor demands, who hold the purse strings on €7.2bn in bail-out cash the government requires over the next three months. However, the latest blueprint is unlikely to satisfy lenders as it lacks details on labour market liberalisation or pensions reforms. Previous privatisations of the country’s assets were also described as a “spectacular” failure, generating far less in revenues for the state than first envisaged..

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Wrong on purpose?

China’s Fuel Demand to Peak Sooner Than Oil Giants Expect (Bloomberg)

China’s biggest oil refiner is signaling the nation is headed to its peak in diesel and gasoline consumption far sooner than most Western energy companies and analysts are forecasting. If correct, the projections by China Petroleum & Chemical, or Sinopec, a state-controlled enterprise with public shareholders in Hong Kong, pose a big challenge to the world’s largest oil companies. They’re counting on demand from China and other developing countries to keep their businesses growing as energy consumption falls in more advanced economies. “Plenty of people are talking about the peak in Chinese coal, but not many are talking about the peak in Chinese diesel demand, or Chinese oil generally,” said Mark C. Lewis at Kepler Cheuvreux. “It is shocking.”

Sinopec has offered a view of the country that should serve as a reality check to any oil bull. For diesel, the fuel that most closely tracks economic growth, the peak in China’s demand is just two years away, in 2017, according to Sinopec Chairman Fu Chengyu, who gave his outlook on a little reported March 23 conference call. The high point in gasoline sales is likely to come in about a decade, he said, and the company is already preparing for the day when selling fuel is what he called a “non-core” activity. That forecast, from a company whose 30,000 gas stations and 23,000 convenience stores arguably give it a better view on the market than anyone else, runs counter to the narrative heard regularly from oil drillers from the U.S. and Europe that Chinese demand for their product will increase for decades to come.

“From 2010 to 2040, transportation energy needs in OECD32 countries are projected to fall about 10% while in the rest of the world these needs are expected to double,” Exxon Mobil said in a December report on its view of the future. “China and India will together account for about half of the global increase.” Exxon expects most of that growth to be driven by commercial transportation for heavy-duty vehicles, specifically ships, trucks, planes and trains that run on diesel and similar fuels. BP’s latest public projection for China, released in February, sounds a similar note. “Energy consumed in transport grows by 98%. Oil remains the dominant fuel but loses market share, dropping from 90% to 83% in 2035.”

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“Asian-Pacific refiners are forecast to add 5.4 million barrels a day of capacity in the next five years..”

The Saudis Are Losing Their Lock on Asian Oil Sales (Bloomberg)

Ships carrying oil from Mexico docked in South Korea this year for the first time in more than two decades as the global fight for market share intensifies. Latin American producers are providing increasing amounts of heavy crude to bargain-hungry Asian refiners in a challenge to Saudi Arabia, the world’s largest exporter and the region’s dominant supplier. “By diversifying, more Asian refiners will be able to reduce the clout that Saudi Arabia has on the market,” said Suresh Sivanandam, a refining and chemical analyst with Wood Mackenzie Ltd. in Singapore. “They will be getting more bargaining power for sure.”

The U.S., enjoying a surge of light oil from shale formations, has raised imports of heavy grades from Canada, displacing crude from nations such as Mexico and Venezuela. That’s boosting South American deliveries to Asia even after Saudi Arabia cut prices for March oil sales to the region, its largest market, to the lowest in at least 14 years. The shale boom also has transformed the flow of oil to Asia. South Korea received its first shipment of Alaskan crude in at least eight years as output from Texas and North Dakota displaces oil that fed U.S. refineries for years. The country was one of the first to receive a cargo of the ultralight U.S. crude known as condensate after export rules were eased.

Petrobras and partner operators are also shipping to Asia and were scheduled to load nine tankers bound for the region in March, according to Energy Aspects, as Latin American oil’s discount to Middle East benchmark Dubai widens to almost double the average of the past year. Asian-Pacific refiners are forecast to add 5.4 million barrels a day of capacity in the next five years, according to Gaffney, Cline & Associates, a petroleum consultant.

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“April is a crucial month for the industry because it’s when lenders are due to recalculate the value of properties that energy companies staked as loan collateral.” Calculations until now are stil based on $90 oil.

Reckoning Arrives for Cash-Strapped Oil Firms Amid Bank Squeeze (Bloomberg)

Lenders are preparing to cut the credit lines to a group of junk-rated shale oil companies by as much as 30% in the coming days, dealing another blow as they struggle with a slump in crude prices, according to people familiar with the matter.
Sabine Oil & Gas became one of the first companies to warn investors that it faces a cash shortage from a reduced credit line, saying Tuesday that it raises “substantial doubt” about the company’s ability to continue as a going concern. About 10 firms are having trouble finding backup financing, said the people familiar with the matter, who asked not to be named because the information hasn’t been announced. April is a crucial month for the industry because it’s when lenders are due to recalculate the value of properties that energy companies staked as loan collateral.

With those assets in decline along with oil prices, banks are preparing to cut the amount they’re willing to lend. And that will only squeeze companies’ ability to produce more oil. “If they can’t drill, they can’t make money,” said Kristen Campana at Bracewell & Giuliani LLP’s finance and financial restructuring groups. “It’s a downward spiral.” Sabine, the Houston-based exploration and production company that merged with Forest Oil Corp. last year, told investors Tuesday that it’s at risk of defaulting on $2 billion of loans and other debt if its banks don’t grant a waiver. Publicly traded firms are required to disclose such news to investors within four business days, under U.S. Securities and Exchange Commission rules.

Some of the companies facing liquidity shortfalls will also disclose that they have fully drawn down their revolving credit lines like Sabine, according to one of the people. The credit discussions are ongoing and a number of banks may opt to be more lenient, giving companies more time to prepare for bigger cuts later in the year, the people said. Credit lines for some of the companies may be reduced by as little as 10%, they said. The companies are among speculative-grade energy producers that were able to load up on cheap debt as crude prices climbed above $100 a barrel. The borrowing limits are tied to reserves, the amount of oil and gas a company has in the ground that can profitably be extracted based on its land holdings. With oil prices plunging below $50 from last year’s peak of $107 in June, some are now fighting to survive.

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Commodities have been overvalued for a long time, due to crazy expectations for China growth.

Appalachia Miners Wiped Out by Coal Glut That They Can’t Reverse (Bloomberg)

Douglas Blackburn has been crawling in and out of the coal mines of Central Appalachia since he was a boy accompanying his father and grandfather some 50 years ago. The only time that Blackburn, now a coal industry consultant, remembers things being this bad was in the 1990s. Back then, he estimates, almost 40% of the region’s mines went bankrupt. “It’s a similar situation,” said Blackburn, who owns Blackacre, a Richmond, Va consulting firm. Now, like then, the principal problem is sinking coal prices. They’ve dropped 33% over the past four years to levels that have made most mining companies across the Appalachia mountain region unprofitable. To make matters worse, there’s little chance of a quick rebound in prices. That’s because idling a mine to cut output and stem losses isn’t an option for many companies.

The cost of doing so – even on a temporary basis – has become so prohibitive that it can put a miner out of business fast, Blackburn and other industry analysts say. So companies keep pulling coal out of the ground, opting to take a small, steady loss rather than one big writedown, in the hope that prices will bounce back. That, of course, is only adding to the supply glut in the U.S., the world’s second-biggest producer, and driving prices down further. It’s become, in essence, a trap for miners. “You have this really perverse situation where they keep producing,” James Stevenson at IHS said in a telephone interview. “You’re just shoveling coal into this market that’s oversupplied.” Companies will dig up at least 17 million tons more coal than power plants need this year, Morgan Stanley estimates. Coal is burned at the plants to generate electricity. That’s creating the latest fossil fuel glut in the U.S., joining oil and natural gas.

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I was just sent this. Don’t know enough about it, I must admit. The article suggests that prices are still 11% higher than 3 months ago. That would seem to mean they rose 20% or so in 2015. It doesn’t make much sense to me right now.

World Dairy Prices Slide 10.8% On Supply Concerns (NZ Herald)

International dairy prices continued to reverse gains made early this year at this morning’s GlobalDairyTrade (GDT) auction, putting downward pressure on Fonterra’s $4.70 a kg farmgate milk price forecast and raising concerns about next season’s likely payout. The GDT price index fell by 10.8% compared with the last sale a fortnight ago, when prices dropped by 8.8%. Big falls were recorded for the key products of wholemilk powder – down 13.3% to US$2,538 a tonne, skim milk powder – down 9.9% to US$2,467/tonne. Wholemilk prices are now just 11% higher than than they were by the end of 2014. ANZ rural economist Con Williams said that with milk powder making up the bulk of New Zealand’s product mix, the GDT result suggested a payout of $4.50-4.70 a kg this year.

The largest price falls at the auction were generally seen in the longer-dated contracts, up to 6 months out – into the new season. “While these prices remain higher than those for the end of this season, the curve has flattened, suggesting less price recovery is now anticipated – not boding well for next year’s payout,” Williams said. The fall comes as the New Zealand season enters its final phase, with about 80% of production now out of the way. Most of the price weakness was put down to better-than-expected supply, with the effects of this year’s drought being offset by rain in many parts of the country.

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Warren!

CFTC Charges Kraft, Mondelez With Manipulating Wheat Futures (MarketWatch)

The Commodity Futures Trading Commission on Wednesday charged Kraft Foods and Mondelez Global with manipulating wheat futures and cash wheat prices. The CFTC says that, in response to high cash wheat prices in summer 2011, the two companies developed and executed in early December 2011 a strategy to buy $90 million of wheat futures they didn’t intend on receiving. The companies expected the market would react to their “enormous” long position in futures by lowering cash prices, the CFTC said. They later earned more than $5.4 million in profits, according to the CFTC’s complaint. The agency says litigation is continuing against the companies and it is seeking disgorgement and civil monetary penalties.

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“3G, co-founded by Lemann, eliminated more than 7,000 Heinz jobs in 20 months..”

Brazil’s Richest Man May Reap $5.6 Billion in Kraft-Heinz Merger

Brazil’s richest man Jorge Paulo Lemann may add more than $5 billion to his personal fortune after ketchup maker H.J. Heinz merges with Kraft Foods. Heinz, controlled by Lemann’s 3G Capital and Warren Buffett’s Berkshire Hathaway, agreed last week to buy the macaroni-and-cheese maker Kraft in a cash-and-stock deal. Heinz’s 51% of the combined company will be worth about $45 billion, valuing Lemann’s stake at about $9.6 billion, said Kevin Dreyer, a portfolio manager at Gabelli Equity. Lemann has invested about $4 billion through 3G Capital, according to data compiled by Bloomberg.

“A combination of synergies from the deal and the sprinkling of the magic 3G dust is giving Kraft a higher valuation than it would otherwise have,” Dreyer said in a phone interview from New York. “3G has a track record of drastically expanding margins. There’s an expectation they’ll achieve the number they put in and then some.” 3G, co-founded by Lemann, eliminated more than 7,000 Heinz jobs in 20 months after taking the company over with Berkshire Hathaway. Buffett defended the job reductions his partners at 3G have taken when they buy businesses during a March 31 interview on CNBC.

The share price of Kraft, which surged 36% the day of the deal, can be used to estimate the future value of closely held Heinz, Dreyer said. His calculation takes into account the ketchup maker’s special dividend payment and assumes a market capitalization of about $87 billion for the new company. 3G owns 48% of Heinz, co-founder Alex Behring told reporters March 25. The buyout firm contributed $4.25 billion to Heinz in 2013 and another $4.8 billion in the Kraft deal. Lemann hasn’t disclosed his personal stake in Heinz. His investments in publicly traded companies show he tends to have a larger stake than Brazilian 3G partners Marcel Telles and Carlos Alberto Sicupira..

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Multiple currencies. Looks inevitable for Greece too.

The Cuban Money Crisis (Bloomberg)

The currency crisis starts about 75 feet into Cuba. I land in the late afternoon and, after clearing customs, step into the busy arrivals hall of Havana’s airport looking for help. I ask a woman in a gray, military-like uniform where I can change money. Follow me, she says. But she doesn’t turn left, toward the airport’s exchange kiosk. Called cadecas, these government-run currency shops are the only legal way, along with banks, to swap your foreign money for Cuba s tourist tender, the CUC. Instead, my guide turns right and only comes clean when we reach a quiet area at the top of an escalator. The official rate is 87 for a hundred, she whispers, meaning CUCs to dollars. I’m giving you 90. So it’s a good deal for you.

I want to convert $500, and she doesn’t blink an eye. Go in the men’s room and count your money out, she instructs. I’ll do the same in the ladies room. The bathroom is crowded, with not one but two staff and the usual traffic of an airport in the evening. There s no toilet paper. In an unlit stall I try counting to 25 while laying $20 bills on my knees. There’s an urgent knock, and under the door I see high heels. I’m still counting, I say. She’s back two minutes later and pushes her way into my stall. We trade stacks, count, and the tryst is over. For my $500, I get 450 CUCs, the currency that’s been required for the purchase of almost anything important in Cuba since 1994. CUCs aren’t paid to Cubans; islanders receive their wages in a different currency, the grubby national peso that features Che Guevara’s face, among others, but is worth just 1/25th as much as a CUC.

Issued in shades of citrus and berry, the CUC dollarized, tourist-friendly money has for 21 years been the key to a better life in Cuba, as well as a stinging reminder of the difference between the haves and the have-nots. But that’s about to change: Cuba is going to kill the CUC. Described as a matter of fairness by President Raul Castro, the end of the two-currency system is also the key to overhauling the uniquely incompetent and centrally planned chaos machine that is the Cuban economy.

Even in Cuba there are markets, and the effects of Castro’s October announcement of a five-step plan for phasing out the CUC are already rippling out to every wallet in the country. The government has issued notifications and price conversion charts, and introduced new, larger bills to supplement the low-value national peso. Over the next year, the CUC will be invalidated what Cuban economists call Day Zero and then, in steps four and five, the regular Cuban peso will become exchangeable and be floated against a basket of five currencies: the yuan, the euro, the U.S. dollar, and two others to be named later.

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But still in complete denial: “..the governor’s action won’t mean mandatory rationing for households.”

California Orders Mandatory Water Cuts Of 25% Amid Record Drought (WSJ)

California Gov. Jerry Brown ordered unprecedented mandatory water cuts across the Golden State after the latest measurements show the state’s mountain snowpack – which accounts for roughly a third of California’s water supply – has shrunk to a record low of 5% of normal for this time of year. The Democratic governor took the action on Wednesday after accompanying state surveyors into the Sierra Nevada mountains to manually verify electronic readings that show an average snow water equivalent of 1.4 inches, the lowest ever recorded on April 1. “Today we are standing on dry grass where there should be five feet of snow,” the governor said. “This historic drought demands unprecedented action.”

Gov. Brown directed the State Water Resources Control Board to implement mandatory water reductions of 25%. Details on how the cuts would be implemented weren’t immediately released, although the governor said in his order that reductions would fall hardest in water districts that haven’t adequately followed his voluntary calls for conservation last year. According to monthly surveys of water use, conservation levels have varied widely around the state. In general, reductions have been lower in Southern California than the rest of the state, in part because of the region’s concentration of estate-sized lots homes and golf courses. A spokesman for the state water control board, which has already ordered limits in outdoor lawn watering, said the governor’s action won’t mean mandatory rationing for households.

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Mar 142015
 
 March 14, 2015  Posted by at 7:50 am Finance Tagged with: , , , , , , , ,  1 Response »


Wyland Stanley General Motors exhibit, San Francisco 1939

Why The Dollar Is Rising As The Global Monetary Bubble Craters (David Stockman)
American Mystery Story: Consumers Don’t Spend Even In Booming Job Market (BBG)
Surprise: US Economic Data Have Been the World’s Most Disappointing (Bloomberg)
Why We’re At Risk Of A QE Trap: Richard Koo (CNBC)
Roubini Greek Doom Scenario Is So Bad It May Keep the Euro Intact (Bloomberg)
Merkel’s Office Denies ‘Private Feud’ Between Greece And Germany (Guardian)
Power Struggle in Brussels and Berlin over Fate of Greece (Spiegel)
Tsipras Reaches Out to Euro Region Amid Spat With Germany (Bloomberg)
Schism Between Germany And Greece Grows Wider By The Day (Guardian)
US Seeks Billions From Global Banks For Currency Manipulation (Bloomberg)
The Fed Gives A Giant F##k You to Working Class Americans (Beversdorf)
Oil Plunges On Bloated US Supply (CNBC)
Shale Producer Whiting Draws Exxon, Others as Suitors (Bloomberg)
The Coming Chinese Crackup (WSJ)
Japan’s Orwellian Politics About Ukraine (Eric Zuesse)
Hillary’s Email Mess Gets Messier (Pam Martens)
For David Brooks, The Rich Are People, the Poor Are Numbers (Matt Taibbi)
California Has About One Year Of Water Left. Will You Ration Now? (NASA)

“Won’t you make money shorting the doomed dollar? Heavens no! At least not any time soon.”

Why The Dollar Is Rising As The Global Monetary Bubble Craters (David Stockman)

Contra Corner is not about investment advice, but its unstinting critique of the current malignant monetary regime does not merely imply that the Wall Street casino is a dangerous place for your money. No, it screams get out of harms’ way. Now! Yet I am constantly braced with questions about the US dollar and its impending demise. The reasoning seems to be that if America is a debt addicted dystopia—-and it surely is—- won’t the US dollar sooner or later go down in flames as the day of reckoning materializes? Won’t you make money shorting the doomed dollar? Heavens no! At least not any time soon. The reason is simply that the other three big economies of the world—Japan, China and Europe—are in even more disastrous condition.

Worse still, their governments and central banks are actually more clueless than Washington, and are conducting policies that are flat out lunatic—–meaning that their faltering economies will be facing even more destructive punishment from policies makers in the days ahead. Indeed, Draghi, Kuroda and the commissars of red capitalism in Beijing make Janet Yellen and Stanley Fischer (Fed Vice-Chairman) appear to be slightly sober. So as trite as it sounds, the US dollar is the cleanest dirty shirt in the laundry. And on a relative basis, its is going to look even cleaner as two decades of monetary madness around the world finally hit the shoals. You have to start with a stark assessment of the other three major economies.

To hear the Wall Street analysts and economists tell it, Japan, China and Europe are just variants of the US economy with different mixes of pluses and minuses, experiencing somewhat different stages of the economic cycle and obviously shaped by their own diverse brands of domestic politics and economic governance. Yet despite these surface difference, the non-US big three economies are held to be just part of a global economic convoy heading for continued economic growth, rising living standards and higher stock market prices. Actually, not so. Japan is a bankrupt old age colony. China is the most monumental credit and construction Ponzi in human history. Europe is a terminal victim of socialist welfare and statist dirigisme. All three are attempting to defer the day of reckoning via a resort to a final spasm of money printing and central bank manipulation that is so desperate and crazy that it can only end in disaster.

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See: The American Story Is A Mystery Only to Economists

American Mystery Story: Consumers Don’t Spend Even In Booming Job Market (BBG)

It’s an American mystery story: More people have jobs and extra pocket money from lower gas prices, but they aren’t buying as much as economists expected. The government’s count of how much people shelled out at retailers fell in February for a third consecutive month. Payrolls are up 863,000 over the same period. The chart below shows retail sales and payrolls generally move in the same direction, until now. The divergence could portend lower levels of economic growth if Americans’ usually reliable penchant to spend is less than what it once was.


YoY growth in U.S. retail and food services sales (red) against YoY change in non-farm payrolls (blue).
Sources: Bureau of Economic Analysis, Bureau of Labor Statistics

“The expenditures that add up to gross domestic product are coming in a lot softer than employment,” said Neil Dutta, head of U.S. economics at Renaissance Macro Research LLC. “Why would retailers be hiring if sales are falling? Why would they be boosting hours if sales are falling and why would they be paying more?” Also, take a look at the household saving rate. It’s gone up as gas prices fell:

Ben Herzon, a senior economist at Macroeconomic Advisers, isn’t that worried yet. As usual, the data is quirky. First, he notes, “it was crazy cold in February.” Aside from stocking up on milk in the snowstorm, staying indoors was probably a more attractive option for most shoppers. Purchases at online retailers in February showed a 2.2% increase, the largest since March 2014. In the region from the Mississippi River to the East Coast, Americans in 23 states lived through a “top-10-coldest February” in National Oceanic and Atmospheric Administration data back to the start of 1895. Herzon notes that lower gas prices also depressed the count in prior months. The government is adding up dollars spent, so fewer dollars to fill a gas tank results in lower sales.

That even bleeds into narrower measures of retail sales because grocery stores such as Safeway, Wal-Mart and Sam’s Club also sell gasoline. Herzon is counting on a March rebound. There won’t be the weather to blame anymore, and gas prices have rebounded off their lows of late January and early February. The average price of a gallon of unleaded gas $2.45 Wednesday compared with $2.06 Feb. 1, according to AAA. “Payroll employment has been great, and it is generating a lot of labor income that you think would be spent,” Herzon said. “March should be a rebound. Our story would be wrong if it doesn’t happen.”

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How wrong Bloomberg usually is.

Surprise: US Economic Data Have Been the World’s Most Disappointing (Bloomberg)

It’s not only the just-released University of Michigan consumer confidence report and February retail sales on Thursday that surprised economists and investors with another dose of underwhelming news. Overall, U.S. economic data have been falling short of prognosticators’ expectations by the most in six years. The Bloomberg ECO U.S. Surprise Index, which measures whether data beat or miss forecasts, fell to the lowest since 2009, when the nation was in the deepest recession since the Great Depression. There’s been one notable exception to the gloom, and it’s a big one: payrolls. The economy added 295,000 jobs in February and 1.3 million over four months, a reflection of a healthier labor market in which the unemployment rate has fallen to the lowest in almost seven years.

Most everything else? Blah. This month alone, personal income and spending, manufacturing as measured by the Institute for Supply Management, auto sales, factory orders, and retail sales have all come in a bit weak. Citigroup keeps economic surprise indexes for the world, and its scoreboard shows the U.S. is most disappointing relative to consensus forecasts, with Latin America and Canada next, as of March 12. Emerging markets were supposed to be hurt by falling oil prices but are now delivering positive surprises. U.S. policymakers frequently talk about weakness in Europe and China, though both are exceeding expectations. And there’s one rub. The surprise shortfall in the U.S. doesn’t necessarily mean the world’s largest economy is in dire straights. It’s just falling short of some perhaps overly elevated expectations.

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“When no one is borrowing money, monetary policy is largely useless..”

Why We’re At Risk Of A QE Trap: Richard Koo (CNBC)

The problem with central banks’ massive bond-buying programs is that if consumers and businesses fail to borrow money to stimulate economic growth, the policy is rendered mostly “useless,” one Nomura economist said Friday. The U.S. and U.K. embarked on asset-purchase, or QE programs, following the 2007-2008 global financial crisis. Japan joined the QE club in 2013 and the ECB began its 1 trillion euro ($1.06 trillion) bond-buying stimulus this week. “Both the U.S. and Europe are facing the same problem– which is that we are in a situation where the private sector in any of these economies is not borrowing money at zero interest rates or repairing balance sheets following what happened in the crisis,” Richard Koo, Chief Economist at Nomura, told CNBC on the side lines of the Ambrosetti Spring Workshop in Italy.

“When no one is borrowing money, monetary policy is largely useless,” he added. In the run-up to the launch of QE in the euro zone, loans to the private sector, which are a gauge of economic health, contracted. Data published late last month showed that the volume of loans to private firms and households fell by 0.1% on year in January, compared with a 0.5% drop in December. According to Koo, major central banks are holding reserves far in excess of levels they need because of the monetary stimulus. This has not led to a rise in private sector spending because big economies are struggling with a balance sheet recession – a situation where companies are focused on paying down debt rather than spending or investing – increasing the risk of QE trap.

“In a national economy if someone is saving money, you need someone to borrow money and this is the part that is missing. They [central banks] are pumping money but no one is borrowing, so you get negative interest rates and all sorts of distortions,” Koo said. He added that instead of looking to raise interest rates, the U.S. Federal Reserve should first focus on reducing its balance sheet which stands at over $4 trillion. The Fed, which meets next week, is widely expected to raise rates this year against a backdrop of improving economic data. “They [Fed policy makers] should not rush into a rate rise; they should reduce the balance sheet when people are not worried about inflation,” Koo said.

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Roubini’s scenario? Anyone could have told you this.

Roubini Greek Doom Scenario Is So Bad It May Keep the Euro Intact (Bloomberg)

Nouriel Roubini isn’t called “Dr. Doom” for nothing. He tends to be a glass half-empty kind of guy who worries a lot about looming crises. But in an interesting twist, when it comes to Greece, the economic professor’s not that concerned. Here’s why: the doomsday scenario he envisions if the country exited the euro zone is so bleak for the whole region that policy makers both in Athens and across Europe will never let it happen. It’s true other analysts are speculating that officials in Germany and other EU countries are more willing now to entertain the idea of a Greek exit, but that’s not how Roubini sees it.

Borrowing costs would soar for nations such as Italy and Spain and Europeans would race to withdraw cash from their bank accounts, according to Roubini, a professor at NYU’s Stern School of Business. Even Germany – Greece’s main nemesis as it negotiates a new financial aid package from European leaders — recognizes this risk, he said in a Bloomberg Television interview Friday. “It doesn’t make sense to have a Greek exit,” he said. “There would be massive contagion.” While bond buyers are selling Greek bonds, they seem complacent about the risk to the rest of the euro region and have been pouring money into debt of Italy, Spain and Portugal, sending yields on those nations’ debt to record lows.

Spanish and Italian 10-year bonds are yielding just 1.2%. Greek debt, meanwhile, has been falling. Yields on Greece’s 10-year bonds rose to 10.7% Friday from 8.6% on Feb. 24. Rates on its 3-year notes have climbed to 19% from 12.4%. So, maybe investors are right to dismiss concerns that a Greek exit would infect all of Europe, even as the nation with one-quarter of its working-age population unemployed faces very real deadlines for making debt payments. While Greece made a €350 million loan repayment to the International Monetary Fund Friday, it faces another financial hurdle on March 20, when the government has to pay the IMF another €346 million and refinance €1.6 billion of treasury bills.

Tensions have risen between Greece and Germany since the election of Prime Minister Alexis Tsipras on Jan. 25. Tsipras won on a platform of ending the austerity his Syriza party blames Chancellor Angela Merkel for pushing. Roubini says that, even though Germany has been vocal about its displeasure with Greece’s antics, everyone understands the potential consequences of failing to keep the region intact – which is why it won’t unravel. Dr. Doom almost sounds a little optimistic.

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“If one country leaves this union, the markets will immediately ask which country is next. And that could be the beginning of the end.”

Merkel’s Office Denies ‘Private Feud’ Between Greece And Germany (Guardian)

The spokesman of the German chancellor, Angela Merkel, has denied a “private feud” has broken out between Berlin and Athens, as the radical Syriza government battles to avoid leaving the single currency – a risk euro-watchers have dubbed “Grexident”. As Athens rushes to implement economic reforms and convince its creditors to extend emergency funding, Steffen Seibert, Merkel’s official spokesman, insisted Greece’s economic future should not be reduced to a face off between the two nations. “I neither see a private feud nor do I view the whole issue of Greece and how it solves its problems as a bilateral German-Greek topic”, he said, reiterating that Merkel wants Greece to stay inside the single currency.

Tensions between Greece and Germany have been running high, after Syriza rekindled a row over war reparations to the Greek people earlier this week. On Friday, France’s economics minister, Pierre Moscovici, said in a German magazine interview that a Greek exit from the euro would be a “catastrophe”, despite some analysts having sought to play down the consequences. “All of us in Europe probably agree that a Grexit would be a catastrophe – for the Greek economy, but also for the euro zone as a whole,” he told Der Spiegel. “If one country leaves this union, the markets will immediately ask which country is next. And that could be the beginning of the end.”

Greece has been granted a four-month window to implement economic reforms after striking a last-minute deal with its creditors to extend its €240bn bailout. Yanis Varoufakis, Syriza’s controversial finance minister, insisted his party would be able to satisfy the 20 February agreement – even if that means delaying some of its election promises. “We have a commitment, all of us, to reach an agreement by 20 April,” he told reporters on the sidelines of a conference in Italy. “If this means that, for the next few months that we have negotiations, we suspend or we delay the implementation of our [election] promises, we should do precisely that in the context to build trust with our partners,” he said. However, he is likely to face pressure from within his own party to live up to the anti-austerity rhetoric of the election campaign.

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Must read from Der Spiegel. Watch Juncker. I’ve said it before, he will play a role.

Power Struggle in Brussels and Berlin over Fate of Greece (Spiegel)

Many in the ECB are aware that they are operating at the very fringes of legality. French Executive Board member Benoît Coeuré issued a public warning a few days ago that the ECB is not allowed to finance the Greek government. Doing so, he said, is illegal. Draghi, said an official in Berlin, “could cut Greece off at any moment.” But, the official added, he doesn’t dare. Which means it is up to the politicians to find the way forward. And finding that path has become dependent on the ongoing conflict between Juncker and the EU member states, led by the chancellor. It has long been apparent that the Commission president wants to prevent a Grexit at all costs, at least since he received the Greek prime minister in Brussels five weeks ago as though welcoming a long lost friend.

Two weeks after that, Economic and Financial Affairs Commissioner Pierre Moscovici presented a plan that looked more like a package for growth than like strict requirements for Greece. Greek Finance Minister Yanis Varoufakis had nothing but praise for the paper. The other Euro Group finance ministers weren’t nearly as enthusiastic. In the end, the Moscovici paper proved largely irrelevant, but it had, from Juncker’s perspective, had its effect. It was a demonstration of power; he had simply wanted to send a message to Merkel. The conflict between Brussels and Berlin is a fundamental one. Juncker is taking the position that Christian Democrats have supported for decades.

The European Union, in his view, is the answer to the horrors of the wars that destroyed Europe in the first half of the 20th century – and the Continent’s salvation, he believes, lies in further deepening the ties that bind the European Union together. It is no accident that he presented former German Chancellor Helmut Kohl’s book last fall. The book is called “Out of Concern for Europe,” and many have interpreted it as indirect criticism of Merkel’s approach to the EU. Though Merkel is a Christian Democrat herself, she has broken with the Kohl line. For her, Europe is not a matter of war and peace, but of euros and cents. Merkel has used the euro crisis to reduce the European Commission’s power and to return some of it to member-state capitals. From this perspective, she could be seen as a 21st century de Gaulle.

Juncker would like to get in her way and the Greece crisis is the instrument that has presented itself. “We have to keep the shop together,” Juncker has said repeatedly in background sessions with journalists in recent weeks. This Friday, Juncker received Tsipras in Brussels yet again, with the Greek prime minister also holding talks with European Parliament President Martin Schulz. Juncker entered office wanting to make the Commission, the European Union’s executive body, more powerful and more political — and thus far, he has been successful. He defanged the European Stability Pact, that German invention that was to prevent euro-zone member states from taking on too much debt. And he has ensured that France’s Socialist government receive an additional two years to reduce its budget deficit.

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Syriza is becoming a comedy act. Hard to predict.

Tsipras Reaches Out to Euro Region Amid Spat With Germany (Bloomberg)

Prime Minister Alexis Tsipras reached out to Greece’s creditors, saying he’ll iron out the kinks in relations with the rest of the euro area days after his government lodged a complaint about the German finance minister. Tsipras, speaking as his country met a loan repayment to the International Monetary Fund of about €350 million, said that Greece has already starting delivering the action required to release more bailout funding and that he expects the euro region to do its part. “We will solve all these misunderstandings,” Tsipras told reporters in Brussels on Friday before meeting with European Commission President Jean-Claude Juncker. The Greek people need to hear a “hope message,” he said.

Tsipras and his finance minister, Yanis Varoufakis, are negotiating with the euro region to release more funds from the country’s €240 billion bailout amid concern that his government could run out of cash at any moment. The Greece Public Debt Management Agency issued a payment order to be transferred to the IMF and the money will be deposited today, government spokesman Gabriel Sakellaridis said by telephone. Greek bonds fell, with the 10-year government bond yield gaining 29 basis points to 10.71% at 1:17 p.m in Athens. The Athens Stock Exchange dropped 1.1% to 785.53. The next financial hurdle comes on March 20, when the government has to pay the IMF another €346 millions and refinance €1.6 billion of treasury bills. That’s at the same time as EU leaders including Tsipras and German Chancellor Angela Merkel will be meeting for a two-day summit in Brussels.

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“Ya boo to that, says Jens Weidmann [..] See if I care, says Varoufakis.”

Schism Between Germany And Greece Grows Wider By The Day (Guardian)

It is the politics of the playground. The German finance minister, Wolfgang Schäuble, is accused of calling his Greek counterpart Yanis Varoufakis “foolishly naive” in his dealings with the media. Athens lodges a formal complaint with Berlin, saying a minister of a country that is a “friend and ally” cannot go around insulting a colleague. Ya boo to that, says Jens Weidmann, the president of Germany’s Bundesbank. Greece is losing the trust of its partners and it is only right that the ECB should think very hard about whether it wants to extend its exposure to the crisis-ridden country. See if I care, says Varoufakis. I have never had the trust of the German government. What matters is that I have the trust of the Greek people at a time when the ECB is “asphyxiating” the country.

This outbreak of undiplomatic language might sound funny, but it isn’t. The schism between Germany and Greece is growing wider by the day. Unless Berlin and Athens can come to an amicable agreement, something that looks increasingly less likely, there are only two possible outcomes: Greece capitulates or Greece leaves the euro. Schäuble clearly believes that Greece has no intention of going back to the drachma. Varoufakis has said as much, as has the new Greek prime minister, Alexis Tsipras. However, if Greece wants to remain inside the single currency, it is going to need the cooperation and financial support of the other members of the club, including Germany. Greece is going to have to do what it is told by the troika of the ECB, the EU and the IMF at some point, so it makes no sense for Athens to start dredging up memories of German occupation in the second world war.

Varoufakis is making it even more likely that the rest of the eurozone will play hardball with Greece. It is not clear if Schäuble really said the words “foolishly naive” – but that would be a fair judgment if the end result is abject capitulation to whatever the troika demands. But as the Labour peer Meghnad Desai points out in an OMFIF blog, there is a way out for the Syriza-led coalition. That is to call a referendum on the basis of who governs Greece. As Desai notes, Tsipras and Varoufakis could say they had underestimated how difficult it would be to end austerity and it was up to the Greek people whether they wanted year after year of externally-imposed pain or exit from the eurozone.

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Peanuts.

US Seeks Billions From Global Banks For Currency Manipulation (Bloomberg)

The U.S. Justice Department is seeking about $1 billion each from global banks being investigated for manipulation of currency markets, according to two people familiar with the talks. The figure is a starting point in settlement discussions, with some banks being asked for more and some less than $1 billion. One bank that has cooperated from the beginning is expected to pay far less, one of the people said. Penalties of about $4 billion are on the table, according to one of the people, though the number could change markedly. Banks are pushing back harder than in some previous negotiations, including those for mortgage-backed securities, and the final penalties could be lower, people close to the talks said.

The discussions, which have begun in earnest in recent weeks, could lead to settlements that would resolve U.S. accusations of criminal activity in the currency markets against Barclays, Citigroup, JPMorgan, RBS and UBS. The government has also said it is preparing cases against individuals. Prosecutors are also pressing Barclays, Citigroup, JPMorgan and the Royal Bank of Scotland to plead guilty, people familiar with the matter have said. In the worldwide investigation into currency-rigging, six banks have already agreed to pay regulators about $4.3 billion. The Justice Department’s move signals that investigations are giving way to wrangling over issues such as whether the banks plead guilty to antitrust or fraud charges, what behaviors the banks will admit to in settlement documents and how much they will pay.

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Hats off to Beversdorf.

The Fed Gives A Giant F##k You to Working Class Americans (Beversdorf)

I was shocked today by the absolute gaul of the Fed releasing a statement about Net Worth in America reaching record levels. Now I get that they are under extreme pressure to sell the story that everything is rainbows and butterflies. But surely they understand that working class Americans are going along with the story because they really don’t have any say in our nation’s policies anymore. That doesn’t mean they want it thrown in their faces that the Fed has spent 6 years now inflating the wealth of the top 10% so much that it actually lifts the total wealth of the nation’s citizens to record highs. The ugly reality is that the bottom 80% of Americans experienced none of that gain. That’s right a big ole goose egg.

And so when the Fed via its ass pamper boy, Steve Liesman, start banging on about the fact that some sliver of society is being handed extraordinary wealth while the working class has lost 40% of their net worth since 2007, well a big fuck you right back at ya bub! The Fed is very aware that the bottom 80% of Americans own less than 5% of US equity markets. And so the Fed is very aware that its manipulation of stock prices such that it creates immense unearned wealth to those in the markets doesn’t reach the bottom 80%. So why celebrate the results of the stock market price manipulation?? It is embarrassing that our policymakers are either that inconsiderate or that stupid to celebrate such a brutal dislocation between the haves and have nots.

I don’t know what one can even say about the Fed making a celebratory statement like that today. It is somewhat beyond words. And really paints the picture as to how little thought goes into the lives and well being of the bottom 80%. Just to give you something to compare and contrast the situation of the bottom 80% here in the US to counter the Fed’s celebration today. I want you to think about how lucky we are not being in one of the PIIGS nations of Europe. These are the nations that are essentially bankrupt and just hanging on by the kindness of the Troika.

So there it is. While the average net worth of Americans is 4th in the world pulled up by the top 10%, the median net worth of Americans comes in the 19th spot. Yep, behind Spain, Italy and Ireland so 3 of the 5 PIIGS nations. Meaning the bottom 80% in these broke ass barely hanging on nations have more wealth than the bottom 80% of us here in America. So I’d like to ask the Fed, is it that you just hate the working class here in America and thus like to torment them or are you truly that stuck up your own asses that you just cannot see the light? Celebrating the fact you did today is downright nasty you lowlife scoundrel pieces of shit. It’s akin to a family showing off and celebrating a new born baby at the funeral of another family’s child. It is just a very ugly thing to do. Even if it wasn’t meant to be malicious it looks very much like a giant FU.

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“The industry has been watching oil supplies surge to 80-year highs..”

Oil Plunges On Bloated US Supply (CNBC)

Oil prices plunged on the double whammy of a surging dollar and a new report that raised worries about a U.S. oil glut that could send crude dramatically lower. The drop in oil also slammed the stock market, reeling too from the stronger dollar. The Dow tumbled more than 145 points to 17,749, while the S&P 500 lost 12 points to 2053. West Texas Intermediate futures for April fell 4.7% to settle at $44.84 per barrel, and Brent, the international benchmark, was trading below $55 per barrel. For WTI, the closing low of the year was $44.45 per barrel on Jan. 28, though it touched an intraday low of $43.58 per barrel on Jan. 29.

Oil analysts have expected the market to challenge those lows on strong U.S. supply, and a report Friday from the International Energy Agency fed those fears. The IEA said U.S. production increased by 115,000 barrels a day in February and the growing inventories threaten to drive prices lower. Oil was also hurt by gains in the dollar. The dollar index rose to a 52-week high, crossing above 100. “This has been a building situation—the massive inventory increases of the past several weeks and the production level showing no sign of relenting despite the decline in the rig count,” said John Kilduff analyst and founder at Again Capital. “What’s setting us up for another selloff is that we’re hitting a slack demand period in between the winter heating fuel season and the summer driving season.”

The industry has been watching oil supplies surge to 80-year highs, and inventories at the Cushing, Oklahoma, delivery hub for WTI futures contracts continue to balloon. “There’s speculation the tanks in Cushing could get full or reach capacity,” said Kilduff. “If no further oil could get into that delivery point, it would send a ripple effect into the futures market and beyond. It could create a break.” He also said it could send cash prices lower across the U.S. and possibly globally. While some analysts expect to see $40 as a floor, other say it could be much lower if buyers don’t step up and the spiral is rapid. “If we test that low, going back to the $30s could be in the cards,” said Kilduff.

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Can’t be a good isgn that the largest Bakken producer must sell itself.

Shale Producer Whiting Draws Exxon, Others as Suitors (Bloomberg)

Whiting Petroleum, the North Dakota oil explorer, has attracted interest from Exxon Mobil and Continental Resources Inc. as it explores a sale of the entire company, people with knowledge of the situation said. Hess and Statoil are also looking at Denver-based Whiting. Whiting has set up a data room for potential buyers to evaluate the company’s financial information and asked them to submit bids next week, the people said. The discussions are ongoing and there’s no guarantee a deal will be reached. A potential deal for Whiting, the largest producer in North Dakota’s Bakken shale formation, may be the first in an anticipated pickup of merger activity for U.S. energy producers as they grapple with heavy debt and an oil selloff.

Continental, Exxon, Hess and Statoil are already among the 10 largest holders of acreage in the Bakken, a giant slab of oil-soaked rock that lies beneath Montana, North Dakota and parts of Canada, according to data compiled by Bloomberg. Consolidation is likely to pick up in the oil patch this year as larger U.S. and international buyers seek to “snatch up” valuable shale producers, according to a statement from Paulson & Co., which owns 8.1% of Whiting. Whiting is probably exploring a sale along with other strategic alternatives, including selling assets, raising debt and selling shares in order to address “investor liquidity concerns,” Phillip Jungwirth, an analyst with Bank of Montreal, wrote in a research note last week.

Bloomberg News reported in February that Whiting was exploring selling up to $700 million of oil and natural gas processing assets. “While some reports implied Whiting was a distressed seller, we don’t view this as the case,” Jungwirth wrote. “We’d expect interest in Whiting to come from larger Bakken peers that are looking to expand their footprint.” Buying a shale producer such as Whiting is cheaper than it has been at any time in recent years as companies used new technology to unlock a boom in North American supplies, flooding world markets and depressing prices. The value of reserves held by about 75 drillers based on their reserves fell by a median of 25% by the end of 2014 compared to the previous year, according to data compiled by Bloomberg.

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Tyler Durden ran this week-old piece, which I had also missed. Don’t miss.

The Coming Chinese Crackup (WSJ)

Predicting the demise of authoritarian regimes is a risky business. Few Western experts forecast the collapse of the Soviet Union before it occurred in 1991; the CIA missed it entirely. The downfall of Eastern Europe’s communist states two years earlier was similarly scorned as the wishful thinking of anticommunists—until it happened. The post-Soviet “color revolutions” in Georgia, Ukraine and Kyrgyzstan from 2003 to 2005, as well as the 2011 Arab Spring uprisings, all burst forth unanticipated, China-watchers have been on high alert for telltale signs of regime decay and decline ever since the regime’s near-death experience in Tiananmen Square in 1989.

Since then, several seasoned Sinologists have risked their professional reputations by asserting that the collapse of CCP rule was inevitable. Others were more cautious—myself included. But times change in China, and so must our analyses. The endgame of Chinese communist rule has now begun, I believe, and it has progressed further than many think. We don’t know what the pathway from now until the end will look like, of course. It will probably be highly unstable and unsettled. But until the system begins to unravel in some obvious way, those inside of it will play along—thus contributing to the facade of stability.

Communist rule in China is unlikely to end quietly. A single event is unlikely to trigger a peaceful implosion of the regime. Its demise is likely to be protracted, messy and violent. I wouldn’t rule out the possibility that Mr. Xi will be deposed in a power struggle or coup d’état. With his aggressive anticorruption campaign—a focus of this week’s National People’s Congress—he is overplaying a weak hand and deeply aggravating key party, state, military and commercial constituencies. The Chinese have a proverb, waiying, neiruan—hard on the outside, soft on the inside. Mr. Xi is a genuinely tough ruler. He exudes conviction and personal confidence. But this hard personality belies a party and political system that is extremely fragile on the inside.

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How much longer for Abe?

Japan’s Orwellian Politics About Ukraine (Eric Zuesse)

Yukio Hatayama, who during 2009 and 2010 had been the first and only non-LDP, or non-one-party-state, Prime Minister of Japan (and he was then quickly ousted by the LDP), said in Crimea on Tuesday, March 10th, that Japan should not be so totally controlled by the U.S. Government, and that, “It’s shameful that information from Japanese and Western media is one-sided.” Hatayama also praised “the happy, peaceful life in Crimea,” as opposed to the war-torn and economically collapsing Ukraine, which the IMF, EU and especially the U.S., keep lending money to pay Ukraine to bomb the residents in Ukraine’s strongly anti-fascist eastern area. Japan’s LDP Foreign Minister, Fumio Kishida, promptly dismissed the Hatayama statement by saying that it came from a “gaffe-prone” man. Telling the truth is a ‘gaffe.’

Mitsuhiro Kimura, leader of another small anti-U.S.-control-of-Japan party, travelled with Hatayama, and supported this initiative for increasing trade and cultural exchanges with Crimea and with Russia generally. He said that this visit was “historic,” and that “Maybe it will give us a chance to influence Japan’s foreign policies and change them.” The Agence France Presse report on this event referred to Kimura’s party as “the right-wing political group Issuikai,” implicitly suggesting thereby that opposition to U.S. control of Japan is “right-wing.” This propaganda effort aimed to insinuate that since the U.S. had defeated the fascist Government of Japan in 1945, the LDP, which the U.S. installed in Japan post-War, can only be the opposite of fascist.

On 17 May 2007, Britain’s conservative Economist had headlined “Japan’s Ultra-Nationalists: Old Habits Die Hard,” and it reported that Kimura was rabble-rousing, and that Japan’s Prime Minister Shinzo Abe said that Kimura and other “ultra-nationalist” politicians in Japan constituted a “threat to democracy.” The Economist also noted, however, ironically, that: “It was Mr Abe’s own grandfather, Nobusuke Kishi, who as prime minister cemented ties between the government, the uyoku dantai and the mob back in 1960, when he enlisted yakuza help against left-wing opponents of Japan’s alliance with America.“ Abe is considered, by the U.S. and its allies, to be “conservative,” instead of “far-right.”

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“The Department of State acknowledged receipt of the request but the AP has received nothing under that request after more than five years.”

Hillary’s Email Mess Gets Messier (Pam Martens)

There’s an old adage that goes: “never pick a fight with anyone who buys ink by the barrel.” It’s generally interpreted to mean don’t go to war with the press. That would surely include syndicated reporters working for the Associated Press, which says in a lawsuit filed yesterday that it has “one billion readers, listeners and viewers.” Despite the sage advice, Hillary Clinton is now in a full blown war with the press over how she became the Decider in Chief over which government emails would be preserved from her time as Secretary of State versus the tens of thousands that she elected to erase, ruling them to be about personal matters.

AP has filed its lawsuit against the U.S. Department of State because the Federal agency has defied the Freedom of Information Act and stonewalled AP reporters for as long as five years over requests for records pertaining to Hillary Clinton’s term as Secretary of State. The lawsuit suggests a Department of State flagrantly ignoring Federal FOIA laws. One section reads: “In early March 2015, Secretary Clinton confirmed reports that she used a personal email account, rather than a government account, for government business during her tenure at State. Although AP’s FOIA requests have been pending for years, State first asked Secretary Clinton to turn over emails from that personal account only last summer.

Secretary Clinton reportedly provided about 50,000 pages of printed emails to State late last year, and has said she wants those emails to be released to the public. State’s failure to ensure that Secretary Clinton’s governmental emails were retained and preserved by the agency, and its failure timely to seek out and search those emails in response to AP’s requests, indicate at the very least that State has not engaged in the diligent, good-faith search that FOIA requires.” Not only have Clinton’s emails been denied to AP reporters, but her daily calendar of appointments, record of phone calls and meetings have also been withheld for the past five years. All of this opacity is raising curiosity in the press as to just what might be hiding in these troves of unreleased documents.

The earliest request filed by the AP was by reporter Robert Burns on March 9, 2010, according to the lawsuit. Burns requested “a copy of Secretary of State Hillary Rodham Clinton’s daily calendar of appointments, phone calls, and meetings, from the first day of the Obama Administration to the present,” i.e., “from 1/20/2009 to [March 9, 2010].” The Department of State acknowledged receipt of the request but the AP has received nothing under that request after more than five years.

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Vintage Taibbi.

For David Brooks, The Rich Are People, the Poor Are Numbers (Matt Taibbi)

Everybody gets on famed New York Times columnist Thomas Friedman’s case for quoting cab drivers, but say this about Friedman: At least he talks to somebody outside his own house. The same can’t be said for his colleague on the Times editorial page, David Brooks, who with this week’s “The Cost of Relativism” column has written roughly his 10 thousandth odious article about how rich people are better parents than the poor, each one apparently written without the benefit of actually talking to any poor people. The column is a review of a new book by the academic Robert Putnam called Our Kids, about a widening gap in the way the children of different classes are raised in America.

Putnam begins his book by telling a story about his childhood in the Fifties in Port Clinton, Ohio, when both rich and poor children grew up in two-parent households where the fathers had steady jobs. Since, then, Putnam argues, deindustrialization has led to increasingly segregated communities for the wealthy on the one hand, and a sharp decline in stability for poor children on the other. Here’s Brooks describing the findings: Roughly 10% of the children born to college grads grow up in single-parent households. Nearly 70% of children born to high school grads do… High-school-educated parents dine with their children less than college-educated parents, read to them less, talk to them less, take them to church less, encourage them less and spend less time engaging in developmental activity.

Brooks then goes on to relate some of the horrific case studies from the book – more on those in a moment – before coming to his inevitable conclusion, which is that poor people need to get off the couch, stop giving in to every self-indulgent whim, and discipline their wild offspring before they end up leaving their own illegitimate babies on our lawns: Next it will require holding people responsible. People born into the most chaotic situations can still be asked the same questions: Are you living for short-term pleasure or long-term good? Are you living for yourself or for your children? Do you have the freedom of self-control or are you in bondage to your desires?

Brooks has devoted an extraordinary amount of his literary efforts over the years to this subject, focusing particularly on declining marriage rates among the poor. He wrote a piece last winter that ludicrously pooh-poohed the issue of income inequality, citing certain “behaviors” among the poor that “damage their long-term income prospects” and cause a “fraying” of the social fabric, single motherhood being an example.

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Dry.

California Has About One Year Of Water Left. Will You Ration Now? (NASA)

Given the historic low temperatures and snowfalls that pummeled the eastern U.S. this winter, it might be easy to overlook how devastating California’s winter was as well. As our “wet” season draws to a close, it is clear that the paltry rain and snowfall have done almost nothing to alleviate epic drought conditions. January was the driest in California since record-keeping began in 1895. Groundwater and snowpack levels are at all-time lows. We’re not just up a creek without a paddle in California, we’re losing the creek too. Data from NASA satellites show that the total amount of water stored in the Sacramento and San Joaquin river basins – that is, all of the snow, river and reservoir water, water in soils and groundwater combined – was 34 million acre-feet below normal in 2014.

That loss is nearly 1.5 times the capacity of Lake Mead, America’s largest reservoir. Statewide, we’ve been dropping more than 12 million acre-feet of total water yearly since 2011. Roughly two-thirds of these losses are attributable to groundwater pumping for agricultural irrigation in the Central Valley. Farmers have little choice but to pump more groundwater during droughts, especially when their surface water allocations have been slashed 80% to 100%. But these pumping rates are excessive and unsustainable. Wells are running dry. In some areas of the Central Valley, the land is sinking by one foot or more per year.

As difficult as it may be to face, the simple fact is that California is running out of water — and the problem started before our current drought. NASA data reveal that total water storage in California has been in steady decline since at least 2002, when satellite-based monitoring began, although groundwater depletion has been going on since the early 20th century. Right now the state has only about one year of water supply left in its reservoirs, and our strategic backup supply, groundwater, is rapidly disappearing. California has no contingency plan for a persistent drought like this one (let alone a 20-plus-year mega-drought), except, apparently, staying in emergency mode and praying for rain.

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