Oct 222017
 
 October 22, 2017  Posted by at 2:02 pm Finance Tagged with: , , , , , , , , , ,  14 Responses »
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Alfred Wertheimer Elvis 1956

 

New Zealand’s new prime minister Jacinda Ardern calls capitalism a blatant failure. Former Greek finance minister Yanis Varoufakis says capitalism is ‘merely’ coming to an end because it is making itself obsolete. Mathematics professor Bruce Boghosian claims that without redistribution of wealth, our market economy would not be stable, because wealth always tends to concentrate. The people at Artemis Capital Management write that the stock market has begun self-cannibalizing like a snake eating its tail, and the only reason we’re not in a recession already is ‘financial alchemy’.

At the very least we can say that the system is under pressure. But what system is that? It would be nice to have a clearcut definition of capitalism, but alas, there are many, about as many as there are different forms of it. That doesn’t make this any easier. Americans call many European economies ‘socialist’, which seems to mean they are not capitalist. But Scandinavian countries don’t function like the Soviet Union either.

And if you see how much money is involved in transfer payments to citizens in the US, the supposed bastion of free market capitalism, it’s tempting to conclude the system has already failed. But even with transfer payments, inequality is at record levels. That would seem to confirm Boghosian’s statement that “even if a society does redistribute wealth, if it’s too small an amount, “a partial oligarchy will result..” So what then?

 

 

Varoufakis and others want a “universal basic dividend”, or “universal basic income”. Would that be the end of capitalism as we know it? Or is it just a -perhaps more extreme- form of ‘state capitalism’? Varoufakis deems it inevitable because technology will eradicate so many jobs from societies that people won’t be able to make money from work. Personally, I’ve long thought that the pending large-scale demise of pensions systems will lead to some form of UBI.

37-year-young Jacinda Ardern is very clear in her assessment of New Zealand’s form of capitalism. If you’ve got the worst homelessness in the developed world, you have a broken system. If the system fails the people, it’s no good. Other people might argue that capitalism never promised to take care of everyone. Or rather, not through state interference. Labour’s Ardern has her view:

 

New Zealand’s New Prime Minister Brands Capitalism A ‘Blatant Failure’

[Jacinda] Ardern, has pledged her government will increase the minimum wage, write child poverty reduction targets into law, and build thousands of affordable homes. In her first full interview since becoming prime minister-elect, she told current affairs programme The Nation that capitalism had “failed our people”. “If you have hundreds of thousands of children living in homes without enough to survive, that’s a blatant failure,” she said. [..] “When you have a market economy, it all comes down to whether or not you acknowledge where the market has failed and where intervention is required. Has it failed our people in recent times? Yes. How can you claim you’ve been successful when you have growth roughly 3%, but you’ve got the worst homelessness in the developed world?”

So to which extent should a state interfere in markets, and in society at large? There are obviously wide ideological divides when it comes to answering that one. Does that mean there is no answer possible at all? Perhaps not. Perhaps the answer lies in the fact that the system is predestined to fail, as Boghosian’s mathematical models suggest: “Our work refutes the idea that free markets, by virtually leaving people up to their own devices, will be fair..”

That doesn’t necessarily demand a lot of interference, we could ‘simply’ write the rules of the game in such a way that the ‘natural tendency’ towards wealth concentration is blocked. An example is the history of the top US income tax rate. Arguably, the nation was doing a lot better under Eisenhower and Kennedy, with a top rate of 91%, than it is today. If you put a few rules like that in play, perhaps including Varoufakis’ idea of a ‘common welfare fund’, maybe the state doesn’t have to interfere much otherwise.

 

 

One of the main underlying claims of capitalism, and of macroeconomics in general, is that markets -and societies- will sort themselves out if left alone. Bruce Boghosian says this is not true, and that he has the math to prove it. The entire notion of markets tending towards a ‘supply-demand equilibrium’ is nonsense, he says (echoing Minsky, Steve Keen et al). Trickle-down economics is a figment of the imagination, while trickle up-economics flourishes.

This refutes much of what our economic systems are based on, which would appear to indicate that we need an urgent revision of these systems. Unless we would agree that Darwin-on-Steroids is a good idea. We don’t and won’t, because it would mean Stephen Foster’s “frail forms fainting at the door” all over the place. A market ideology that causes widespread misery has no future.

 

The Mathematics of Inequality

Seven years ago, the combined wealth of 388 billionaires equaled that of the poorest half of humanity , according to Oxfam International. This past January the equation was even more unbalanced: it took only eight billionaires, marking an unmistakable march toward increased concentration of wealth. Today that number has been reduced to five billionaires.

Trying to understand such growing inequality is usually the purview of economists, but Bruce Boghosian, a professor of mathematics, thinks he has found another explanation—and a warning. Using a mathematical model devised to mimic a simplified version of the free market, he and colleagues are finding that, without redistribution, wealth becomes increasingly more concentrated, and inequality grows until almost all assets are held by an extremely small percent of people.

“Our work refutes the idea that free markets, by virtually leaving people up to their own devices, will be fair,” he said. “Our model, which is able to explain the form of the actual wealth distribution with remarkable accuracy, also shows that free markets cannot be stable without redistribution mechanisms. The reality is precisely the opposite of what so-called ‘market fundamentalists’ would have us believe.”

While economists use math for their models, they seek to show that an economy governed by supply and demand will result in a steady state or equilibrium, while Boghosian’s efforts “don’t try to engineer a supply-demand equilibrium, and we don’t find one,” he said. [..] The model tracks the data with remarkable accuracy, he said. He and his team will soon publish a paper on how it relates to U.S. wealth data from 1989 to 2013.

“We have also begun to apply it to wealth data from the ECB, and so far it seems to work very well for certain European countries as well,” he said [..] It turns out that when agents do well in early transactions, the odds are so increasingly stacked in their favor that—without redistribution from taxes or other wealth-transfer mechanisms—they will get more money, and keep accruing wealth inevitably.

“Without redistribution of wealth, our market economy would not be stable,” said Boghosian. “One person would run away with all the wealth, and it would keep going until it came to complete oligarchy.” And even if a society does redistribute wealth, if it’s too small an amount, “a partial oligarchy will result,” Boghosian said.

If markets and societies cannot survive under current rules, theories and ideologies, what do we do? The Artemis guys strongly suggest we stop the practice of excessive stock buybacks- even if they’re the only thing propping up the whole market system. Because they’re leading us straight into a recession. Because they’re making that recession a lot worse.

 

Volatility and the Alchemy of Risk

The Ouroboros, a Greek word meaning ‘tail devourer’, is the ancient symbol of a snake consuming its own body in perfect symmetry. The imagery of the Ouroboros evokes the infinite nature of creation from destruction. The sign appears across cultures and is an important icon in the esoteric tradition of Alchemy. Egyptian mystics first derived the symbol from a real phenomenon in nature. In extreme heat a snake, unable to self-regulate its body temperature,will experience an out-of-control spike in its metabolism. In a state of mania, the snake is unable to differentiate its own tail from its prey,and will attack itself, self-cannibalizing until it perishes. In nature and markets, when randomness self-organizes into too perfect symmetry, order becomes the source of chaos.

The Ouroboros is a metaphor for the financial alchemy driving the modern Bear Market in Fear. Volatility across asset classes is at multi-generational lows. A dangerous feedback loop now exists between ultra-low interest rates, debt expansion, asset volatility, and financial engineering that allocates risk based on that volatility. In this self-reflexive loop volatility can reinforce itself both lower and higher. In a market where stocks and bonds are both overvalued, financial alchemy is the only way to feed our global hunger for yield, until it kills the very system it is nourishing.

 

 

[..] At the head of the Great Snake of Risk is unprecedented monetary policy. Since 2009 Global Central Banks have pumped in $15 trillion in stimulus creating an imbalance in the investment demand for and supply of quality assets. Long term government bond yields are now the lowest levels in the history of human civilization dating back to 1285. As of this summer there was $9.5 trillion worth of negative yielding debt globally. Last month Austria issued a 100-year bond with a coupon of only 2.1%(6) that will lose close to half its value if interest rates rise 1% or more. The global demand for yield is now unmatched in human history. None of this makes sense outside a framework of financial repression.

Amid this mania for investment, the stock market has begun self-cannibalizing… literally. Since 2009, US companies have spent a record $3.8 trillion on share buy-backs financed by historic levels of debt issuance. Share buybacks are a form of financial alchemy that uses balance sheet leverage to reduce liquidity generating the illusion of growth. A shocking +40% of the earning-per-share growth and +30% of the stock market gains since 2009 are from share buy-backs. Absent this financial engineering we would already be in an earnings recession.

Any strategy that systematically buys declines in markets is mathematically shorting volatility. To this effect, the trillions of dollars spent on share buybacks are equivalent to a giant short volatility position that enhances mean reversion. Every decline in markets is aggressively bought by the market itself, further lowing volatility. Stock price valuations are now at levels which in the past have preceded depressions including 1928, 1999, and 2007. The role of active investors is to find value, but when all asset classes are overvalued, the only way to survive is by using financial engineering to short volatility in some form.

Yanis Varoufakis doesn’t so much argue that capitalism has already failed, he says it is bound to fail in the near future. Because new technology, including artificial intelligence, will destroy too many jobs for society to continue to function intact. That is already happening, in that we both produce and consume Google’s ‘products’, but we get none of the profits. An example:

 

Google’s Plan To Revolutionise Cities Is A Takeover In All But Name

Alphabet’s weapons are impressive. Cheap, modular buildings to be assembled quickly; sensors monitoring air quality and building conditions; adaptive traffic lights prioritising pedestrians and cyclists; parking systems directing cars to available slots. Not to mention delivery robots, advanced energy grids, automated waste sorting, and, of course, ubiquitous self-driving cars. Alphabet essentially wants to be the default platform for other municipal services. Cities, it says, have always been platforms; now they are simply going digital.

“The world’s great cities are all hubs of growth and innovation because they leveraged platforms put in place by visionary leaders,” states the proposal. “Rome had aqueducts, London the Underground, Manhattan the street grid.” Toronto, led by its own visionary leaders, will have Alphabet. Amid all this platformaphoria, one could easily forget that the street grid is not typically the property of a private entity, capable of excluding some and indulging others. Would we want Trump Inc to own it? Probably not. So why hurry to give its digital equivalent to Alphabet?

Google aims at taking over our entire communities, and claims this will be to our benefit. We let the new technology companies expand far and wide, to a large extent because our ‘leaders’ don’t understand what is happening any better than we do. But that is not a good thing, for many different reasons. It’ll be very hard to whistle them back later, both because of the wealth they’re building, and because of the intensifying links they have to government, including -or especially- the intelligence community.

 

Capitalism Is Ending Because It Has Made Itself Obsolete

Former Greek finance minister Yanis Varoufakis has claimed capitalism is coming to an end because it is making itself obsolete. The former economics professor told an audience at University College London that the rise of giant technology corporations and artificial intelligence will cause the current economic system to undermine itself.

Mr Varoufakis [..] said companies such as Google and Facebook, for the first time ever, are having their capital bought and produced by consumers. “Firstly the technologies were funded by some government grant; secondly every time you search for something on Google, you contribute to Google’s capital,” he said. “And who gets the returns from capital? Google, not you. “So now there is no doubt capital is being socially produced, and the returns are being privatised. This with artificial intelligence is going to be the end of capitalism.”

Warning Karl Marx “will have his revenge ”, the 56-year-old said for the first time since capitalism started, new technology “is going to destroy a lot more jobs than it creates”. He added: “Capitalism is going to undermine capitalism , because they are producing all these technologies that will make corporations and the private means of production obsolete. “And then what happens? I have no idea.”

Describing the present economic situation as “unsustainable” and fearing the rise of “toxic nationalism”, Mr Varoufakis said governments needed to prepare for post-capitalism by introducing redistributive wealth policies. He suggested one effective policy would be for 10% of all future issue of shares to be put into a “common welfare fund” owned by the people. Out of this a “universal basic dividend” could be paid to every citizen.

Has capitalism failed already, as Jacinda Ardern claims, or will that happen only in the future, as Varoufakis says? It may be a moot question once the system and the markets start collapsing. That they will, and must, is not a question but a certainty, even a mathematical one. Whatever your ideology, that is not a good thing. And the current ideology has caused this, that much is clear.

If the remaining wealth is not divided better than it is today, those who have gathered most of it will also find themselves in non-functioning societies and communities. Unless perhaps you’re George W. and have property in Paraguay.

But even then. We’re eating our tails.

 

 

Oct 222017
 
 October 22, 2017  Posted by at 9:14 am Finance Tagged with: , , , , , , , ,  1 Response »
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Edmund Melzl The Buddhas of Bamiyan in Afghanistan 1958

 

Political Economics (Snider)
Smart Money And Dumb Money Are Moving In Opposite Directions (MW)
Beijing Is The Covert Buyer Of A Quarter Of All Chinese Real Estate (ZH)
The Mathematics of Inequality (TuftsNow)
New Zealand’s New Prime Minister Brands Capitalism A ‘Blatant Failure’ (Ind.)
Euroskeptic Billionaire on Route to Czech Election Victory (BBG)
US Immigrant Population Climbed To Record 43.7 Million In 2016 (F.)
After 54 Years America Deserves To Know Everything (PP)
Into the Cold and Dark (Jim Kunstler)
Google’s Plan To Revolutionise Cities Is A Takeover In All But Name (O.)
Put Drivers In Control (NEF)
“Success, Greeks No Longer Seek Food In Garbage Bins” (KTG)
5 Year Old Syrian Girl Dies In ‘Concentration Camp’ Funded By UK Taxpayers (RT)

 

 

“How can anyone claim the Fed under Yellen or Bernanke performed even minimally well?”

Political Economics (Snider)

The political winds are changing, and the parties themselves are being realigned in different directions (which is not something new; there have been several re-alignments throughout American history even though the two major parties have been entrenched since the 1850’s when Republicans first appeared). Who the next Fed Chair is could tell us something about how far along we are in this evolution. What Krugman wants, meaning, it is safe to assume, what all those like him want, is simple: success. He believes that the central bank has given us exactly that, therefore it is stupid to upset what works.

“In particular, both Bernanke and Yellen responded effectively to a once-in-three-generations economic crisis despite constant heckling from back-seat drivers in Congress and on the political right in general. And their intellectual and moral courage has been completely vindicated by events.” This is right here is the very central point of political difference that is pulling the world slowly apart. Krugman offers no evidence for his assertion, that the Fed has performed admirably and successfully, he just states it as if it was so (a common tactic in the mainstream, the fallacy of authority). Whenever challenged on this contention, the argument will always go back to “jobs saved.”

A worse counterfactual downside is not a rational standard for evaluation in any discipline or context. The only benchmark that should matter is recovery, as any economy facing recession, even an unusually severe one, has to make it back to the prior condition. On that score the Fed has utterly and unambiguously failed. One reason for it is the one thing Economists like Krugman never bring up; the 2008 panic. How can anyone claim the Fed under Yellen or Bernanke performed even minimally well? The very fact that the panic happened at all is a direct indictment on monetary policy and the people who were there during it (you had one job to do!).

[..] The irrational, emotional defense for the ideology is what is driving political upheaval, including Donald Trump’s occupying the White House. To most people, Krugman’s ideas and assertions are nonsense. They don’t have to know anything about QE’s effect on the TBA market and dollar rolls, how exactly McDonald’s was borrowing from FRBNY, or what it was that AIG did that ultimately made the Federal Reserve profits. People know the Fed did a bunch of stuff that didn’t work because they can tell there is something very wrong with the economy.

Read more …

Short, long, smart, dumb.

Smart Money And Dumb Money Are Moving In Opposite Directions (MW)

While all seems calm in the U.S. equity markets, with stocks continuing to hit all-time highs, an interesting trend has emerged beneath the surface. Combing through the latest Commitments of Traders report from the Commodity Futures Trading Commission (CFTC), we found that commercial traders (“smart money”) have a record number of short positions in the Dow Jones Industrial Average. At the same time, noncommercial traders (“dumb money”) have a record number of long positions. You may be thinking “one group thinks stocks will go up, and the other thinks stocks will go down. What’s the big deal?” Here’s the big deal. There’s a strong negative correlation between commercial traders’ short positions and the Dow Jones Industrial Average, as the below chart shows. When short positions increase, the DJIA usually falls … perfect timing!

The opposite also is true. When noncommercial traders increase their long positions, the market usually drops shortly thereafter. It seems they have a habit of buying the market at exactly the wrong time.

Given that the “smart money” usually wins this tug of war, let’s focus on the reasons behind their negative outlook for stocks. Here’s some of the reasons professional money managers may be growing cautious about stocks today. Findings from Goldman Sachs Asset Management (GSAM) show that by just about every measure, stocks are expensive today. But it’s not only U.S. stocks that are trading at all-time highs. This chart from Deutsche Bank shows that, in their own words, “we’re in a period of very elevated global asset prices — possibly the most elevated in history.”

Lofty valuations are likely a big factor in Warren Buffett’s and Seth Klarman’s reasoning for holding record levels of cash in their portfolios. In September, Buffett’s Berkshire Hathaway had $99.7 billion in cash on the sidelines. Klarman’s Baupost Group held 42% of its portfolio in cash, the largest single position. So U.S. stocks are expensive by most measures. But they have been expensive for quite some time. High valuations don’t mean a crash is imminent. They do, however, tell us something about future returns.

Read more …

Absolutely nuts. But then, the Fed buys mortgage backed securities…

Beijing Is The Covert Buyer Of A Quarter Of All Chinese Real Estate (ZH)

According to a fascinating new WSJ report, China’s housing downturn is likely far worse than meets the eye, as under Beijing’s direction more than 200 cities across China for the last three years have been buying surplus apartments from property developers and moving in families from condemned city blocks and nearby villages. China’s Housing Ministry, which is behind the purchases, said it plans to continue the program through 2020. The strategy, supported by central-government bank lending, has rescued housing developers and lifted the property market, As the WSJ notes, this latest backdoor bailout “It is a sharp illustration of China’s economy under President Xi Jinping and the economic challenges he will face as he renews his 5-year term at a twice-a-decade Communist Party Congress that opens on Wednesday.”

Rosealea Yao from Gavekal Dragonomics, who was also quoted above, wrote that “the government’s creativity in coming up with new ways of supporting the housing market is impressive—but it’s also an indication that it still depends on housing for growth.” While traditionally, China’s government used to build homes for families who lost theirs to development or decay, last year, local governments, from the northeast rust belt to the city of Bengbu with 3.7 million amid the croplands of central Anhui province, spent more than $100 billion to buy housing from developers or subsidize purchases, according to Gavekal Dragonomics. In other words, the reason why China no longer has ghost cities is because the government is buying them in just as concerning, “ghostly” transcations.

The underlying structure is yet another typically-Chinese ponzi scheme: “Underpinning the strategy is a cycle of debt. Cities borrow from state banks for purchases and subsidies, then sell more land to developers to repay the loans. As developers build more housing, they, too, accrue more debt, setting up the state to bail them out again. The burden on the state rises, as does the risk of collapse.” [..] Beijing is now the (covert) marginal buyer of a quarter of all Chinese real estate. That, in itself, is a mindblowing statistic. What is scarier, is that despite this implicit backstop, property sales are once again declining after 30 months of increases. One can only imagine the epic crash that would ensue at this moment, if – for some reason – the government bid were to be pulled, and just how spectacular the ensuing global depression would be as the rug is pulled from below the middle class of the world’s fastest growing economy.

Read more …

“..And even if a society does redistribute wealth, if it’s too small an amount, “a partial oligarchy will result..”

The Mathematics of Inequality (TuftsNow)

Seven years ago, the combined wealth of 388 billionaires equaled that of the poorest half of humanity, according to Oxfam International. This past January the equation was even more unbalanced: it took only eight billionaires, marking an unmistakable march toward increased concentration of wealth. Today that number has been reduced to five billionaires. Trying to understand such growing inequality is usually the purview of economists, but Bruce Boghosian, a professor of mathematics, thinks he has found another explanation—and a warning. Using a mathematical model devised to mimic a simplified version of the free market, he and colleagues are finding that, without redistribution, wealth becomes increasingly more concentrated, and inequality grows until almost all assets are held by an extremely small% of people.

“Our work refutes the idea that free markets, by virtually leaving people up to their own devices, will be fair,” he said. “Our model, which is able to explain the form of the actual wealth distribution with remarkable accuracy, also shows that free markets cannot be stable without redistribution mechanisms. The reality is precisely the opposite of what so-called ‘market fundamentalists’ would have us believe.” While economists use math for their models, they seek to show that an economy governed by supply and demand will result in a steady state or equilibrium, while Boghosian’s efforts “don’t try to engineer a supply-demand equilibrium, and we don’t find one,” he said. [..] The model tracks the data with remarkable accuracy, he said. He and his team will soon publish a paper on how it relates to U.S. wealth data from 1989 to 2013.

“We have also begun to apply it to wealth data from the ECB, and so far it seems to work very well for certain European countries as well,” he said [..] It turns out that when agents do well in early transactions, the odds are so increasingly stacked in their favor that—without redistribution from taxes or other wealth-transfer mechanisms—they will get more money, and keep accruing wealth inevitably. “Without redistribution of wealth, our market economy would not be stable,” said Boghosian. “One person would run away with all the wealth, and it would keep going until it came to complete oligarchy.” And even if a society does redistribute wealth, if it’s too small an amount, “a partial oligarchy will result,” Boghosian said.

Read more …

Well that’s clear enough.

New Zealand’s New Prime Minister Brands Capitalism A ‘Blatant Failure’ (Ind.)

New Zealand’s new prime minister called capitalism a “blatant failure”, before citing levels of homelessness and low wages as evidence that “the market has failed” her country’s poor. Jacinda Ardern, who is to become the nation’s youngest leader since 1856, said measures used to gauge economic success “have to change” to take into account “people’s ability to actually have a meaningful life”. The 37-year-old will take office next month after the populist New Zealand First party agreed to form a centre-left coalition with her Labour Party. They will be supported by the liberal Greens. New Zealanders had been waiting since 23 September to find out who would govern their country after national elections ended without a clear winner. Ms Ardern has pledged her government will increase the minimum wage, write child poverty reduction targets into law, and build thousands of affordable homes.

In her first full interview since becoming prime minister-elect, she told current affairs programme The Nation that capitalism had “failed our people”. “If you have hundreds of thousands of children living in homes without enough to survive, that’s a blatant failure,” she said. “What else could you describe it as?” Incumbent prime minister Bill English, whose National Party has held power for nine years, has said his party grew the economy and produced increasing budget surpluses which benefited the nation. But Ms Ardern said: “When you have a market economy, it all comes down to whether or not you acknowledge where the market has failed and where intervention is required. Has it failed our people in recent times? Yes. “How can you claim you’ve been successful when you have growth roughly three per cent, but you’ve got the worst homelessness in the developed world?”

Read more …

He won by a landslide. An even more far-right and anti-EU party also won. More problems in the heart of the Union.

Euroskeptic Billionaire on Route to Czech Election Victory (BBG)

A Czech billionaire looks set to win parliamentary elections Saturday, overcoming traditional political parties on a pledge to run the state like a business, fight Muslim immigration and oppose deeper integration with the European Union. Andrej Babis, who has drawn comparisons to Donald Trump and Silvio Berlusconi, had a wide lead in opinion polls before two days of voting started Friday. With a chemical, food and media empire employing 34,000 in 18 countries, the Slovak-born businessman – and second-richest Czech – increased his popularity while serving as finance minister before he was fired by his coalition partner, Prime Minister Bohuslav Sobotka. Taking credit for the EU’s lowest unemployment, one of its fastest rates of economic growth, and a budget surplus, Babis has portrayed himself as a competent manager struggling against traditional parties.

That’s lifted his ANO party’s support, while his attacks against Muslim immigration and criticism of the EU have helped fuel the rise of anti-establishment political forces similar to Germany’s AfD and Austria’s Freedom Party. It’s also raised concern that a Babis victory may add another source of tension within the EU, which has clashed with Poland and Hungary over democratic values. “Babis has managed to take advantage of the crisis of traditional parties and offer something new,” Josef Mlejnek, a political scientist at Charles University in Prague, said by phone. “He has depicted his rivals as an incompetent, corrupt bunch and he is presenting himself as the only one who can get things in order.” [..] Sobotka dismissed Babis in May in a conflict over his past business dealings.

The premier’s Social Democrats later teamed up with the opposition to strip the billionaire of his parliamentary immunity from prosecution to make way for an investigation into fraud allegations. Police have since charged Babis, 63, in the case of a 50 million-koruna ($2.3 million) in EU subsidies transferred to his Stork Nest recreation complex. Babis denies wrongdoing and says the allegations are an attempt to sideline him from politics. Despite the scandal, he’s held on to support siphoned from both the Social Democrats and other traditional parties. He has boasted of streamlining government operations and, via a law requiring retailers to link their cash registers to the Finance Ministry, boosting budget revenue and cracking down on tax evasion. At the same time, he’s railed against EU “meddling,” a stance that resonates with voters in the bloc’s most euroskeptic member.

Read more …

What about the time when almost all Americans were immigrants?

US Immigrant Population Climbed To Record 43.7 Million In 2016 (F.)

According to new data released by the U.S. Census Bureau, the nation’s immigrant population, both legal and illegal, climbed to a record 43.7 million in July 2016. That’s an increase of half a million since 2015 and 12.6 million since the turn of the century. Immigrants now comprise 13.5% of the U.S. population, roughly one out of eight residents, the highest share in 106 years. The all-time highest immigrant share of the U.S. population was 14.7%, recorded in 1910 when the country had 13.5 million immigrants. According to the Census Bureau, that will be eclipsed by 2030 when the immigrant share reaches 15.8% or 56.9 million people. Up to 2050, the influx is expected to continue its upward trajectory, with the number of immigrants projected to reach 72.3 million and account for an 18.2% share of the population.

Currently, Mexico has the highest share of America’s foreign-born population by far with over 11.5 million people. Despite also being the top sending nation with a grand total of 1.1 million new arrivals between 2010 and 2016, the Mexican-born population has not grown in the past six years due to return migration and natural mortality. During the same time frame, the sending countries with the highest increases were Saudi Arabia (122%), Nepal (86%) and Afghanistan (74%). Out of all states, Texas recorded the greatest numeric increase in immigrants (587,889) between 2010 and 2016, ahead of Florida (578,468) and California (527,234).

Read more …

There won’t be much left.

After 54 Years America Deserves To Know Everything (PP)

President of the United States Dwight Eisenhower, a five-star general in the Army before his presidency, upon departing the White House in January 1961, issued a bone-chilling warning about the dangers of the Deep State to President John F. Kennedy before Kennedy took office. Eisenhower warned Kennedy that the “military industrial complex created an imperative for development… It was compelled to create a permanent armaments industry.” Kennedy stood up against the military-industrial complex. Did that lead to Kennedy’s assassination? Did Kennedy’s assassination trigger the Deep State’s birth of a baby vampire squid with tentacles spread throughout many industries? We did have the Warren Commission, but did that commission provide any reasonable explanation as to how President Kennedy was assassinated?

Given what we know today, it’s likely that the truth has been withheld from the American public and the world. For example, doubt remains widespread about the Warren Commission’s conclusions since several trajectory analyses show that one bullet could not have caused all the damage that occurred. Are the CIA and the Deep State colluding to keep this information secret? In one set of recently declassified CIA documents, the American people learned that JFK’s assassination led to the CIA creating the highly derogatory term “conspiracy theory” and “conspiracy theorists”. This was the beginning of Deep State psychological operations used to malign, slander, discredit, and undermine the credibility of anyone who dared to voice dissent towards the government. The CIA called this branch the Clandestine Services unit and its aim was to ruin anyone who wanted to take on the establishment and the military industrial complex.

The military-industrial complex has garnered far too much power in Washington since World War II, and it now presents the biggest threat to democracy and liberty in America. And it has only gotten bigger since George W. Bush entered office and declared “a war on terror”. Just take a look at the stock prices of military-industrial complex participants — they have skyrocketed over 1000% (e.g. Northrop Grumman). The presence of a Deep State became very clear and even more pronounced during the 2016 presidential election cycle, which unearthed Washington’s culture of pay-to-play and cover-ups. This led to the December 2016 proclamation to America by President-elect Trump that he was going to “drain the swamp.” In response, Senate minority leader Chuck Schumer went on The Rachel Maddow Show in January 2017 and delivered the following warning to President Trump: “Let me tell you: You take on the intelligence community—they have six ways from Sunday at getting back at you,”

Read more …

“The revolution to come out of this frozen swamp of irresponsibility will be the messiest and most incoherent in world history.”

Into the Cold and Dark (Jim Kunstler)

Many, including yours truly, have expected the distortions and perversions on the money side of life to express themselves in money itself: the dollar. So far, it has only wobbled down about ten percent. This is due perhaps to the calibrated disinformation known as “forward guidance” issued by this country’s central bank, the Federal Reserve, which has been threatening — pretty idly so far — to raise interest rates and shrink down its vault of hoarded securities — a lot of it janky paper left over from the misadventures of 2007-2009. I guess the lesson is that when you have a pervasively false and corrupt financial system, it is always subject to a little additional accounting fraud — until it’s not.

And the next thing you know, you’re sitting in the rubble of what used to be your civilization. The ever more immiserated schnooks who make up the former middle-class know that their lives are crumbling, and may feel that they’re subject to the utterly overwhelming forces of a cruel destiny generated by a leviathan state that hates and despises them. And of course that is exactly why they turned to the Golden Golem of Greatness for salvation. Alas, Mr. Trump has not constructed a coherent strategy for defeating the colossus of fakery that drives the nation ever-deeper toward the cold and dark. He has a talent for distraction and disruption, though, and so far that gave cover to a whole lot of other people in power who have been able to stand around with their hands in their pockets doing nothing about the sinking state of the nation.

Now, the vaudeville act is coming to a spectacular conclusion as the trappings of Halloween go back in the closet and the pulsating, LED-studded Santas go up on the rooftops. Every ceremony of American life seems drained of meaning now, including the machinations of government over the budget and taxes. The revolution to come out of this frozen swamp of irresponsibility will be the messiest and most incoherent in world history. Nobody will have any idea what is going on outside the geo-storm of failure. About the only thing one can say for sure is that the American life which emerges from this maelstrom will not look a whole lot like what we’re living in today. I remain serenely convinced that when it finally passes, the air will be fresh again and the sun will shine, and a lot more people will know what is real and what is not.

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Pay attention.

Google’s Plan To Revolutionise Cities Is A Takeover In All But Name (O.)

Last June Volume, a leading magazine on architecture and design, published an article on the GoogleUrbanism project. Conceived at a renowned design institute in Moscow, the project charts a plausible urban future based on cities acting as important sites for “data extractivism” – the conversion of data harvested from individuals into artificial intelligence technologies, allowing companies such as Alphabet, Google’s parent company, to act as providers of sophisticated and comprehensive services. The cities themselves, the project insisted, would get a share of revenue from the data. Cities surely wouldn’t mind but what about Alphabet? The company does take cities seriously. Its executives have floated the idea of taking some struggling city – Detroit? – and reinventing it around Alphabet services, with no annoying regulations blocking this march of progress.

All of this might have looked counter-intuitive several decades ago, but today, when institutions such as the World Bank preach the virtues of privately run cities and bigwigs in Silicon Valley aspire to build sea-based micronations liberated from conventional bureaucracy, it does not seem so far-fetched. Alphabet already operates many urban services: city maps, real-time traffic information, free wifi (in New York), self-driving cars. In 2015 it launched a dedicated city unit, Sidewalk Labs, run by Daniel Doctoroff, former deputy mayor of New York and a veteran of Wall Street. Doctoroff’s background hints at what the actual Google Urbanism – as opposed to its theoretical formulations – portends: using Alphabet’s data prowess to build profitable alliances with other powerful forces behind contemporary cities, from property developers to institutional investors.

On this view, Google Urbanism is anything but revolutionary. Yes, it thrives on data and sensors, but they only play a secondary role in determining what gets built, why, and at what cost. One might as well call it Blackstone Urbanism – in homage to one of the largest financial players in the property market. [..] Alphabet’s weapons are impressive. Cheap, modular buildings to be assembled quickly; sensors monitoring air quality and building conditions; adaptive traffic lights prioritising pedestrians and cyclists; parking systems directing cars to available slots. Not to mention delivery robots, advanced energy grids, automated waste sorting, and, of course, ubiquitous self-driving cars.

Alphabet essentially wants to be the default platform for other municipal services. Cities, it says, have always been platforms; now they are simply going digital. “The world’s great cities are all hubs of growth and innovation because they leveraged platforms put in place by visionary leaders,” states the proposal. “Rome had aqueducts, London the Underground, Manhattan the street grid.” Toronto, led by its own visionary leaders, will have Alphabet. Amid all this platformaphoria, one could easily forget that the street grid is not typically the property of a private entity, capable of excluding some and indulging others. Would we want Trump Inc to own it? Probably not. So why hurry to give its digital equivalent to Alphabet?

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Sort of the opposite of what Google wants.

Put Drivers In Control (NEF)

Last weekend, Jeremy Corbyn raised an intriguing possibility. “Imagine an Uber,” he said, “run co-operatively by their drivers, collectively controlling their futures, agreeing their own pay and conditions, with profits shared or re-invested.” Many have since dismissed this idea as wishful thinking. First, there is Uber’s undoubted popularity among its users – hundreds of thousands of people signed a petition protesting against Transport for London’s decision not to renew Uber’s licence. Then there is its market dominance, which only ever seems to intensify. How can any rival hope to compete in the increasingly monopolistic world of private hire? Finally there is the factor which underpins both its popularity and its dominance. And that’s its price point. When Uber came on the scene, it undercut other taxi services by a huge margin.

And it appeared to do so by spending vast amounts of venture capital in a bid to achieve global dominance of the market. Any co-operative, driver-owned alternative to Uber has to be competitive on price or it will never break through Uber’s grip on the market. How can they do that without spending vast amounts of capital? Where would that money come from? None of these arguments holds water. At the New Economics Foundation we recently called for ‘Khan’s Cars’, a mutually owned taxi platform for London which would give drivers real control over their working lives while still providing people with the cheap and convenient transport they need. We believe a driver-owned alternative could genuinely compete with Uber on price and convenience, especially if supported by the Mayor of London.

In fact, Uber isn’t as cheap as it seems. The company’s use of surge pricing, which inflates prices during periods of high demand, allows it to present cheaper prices at other times. Partly as a result of this, Uber makes a profit in the UK – suggesting the basic pricing model is financially viable without vast capital resources. So the gap to close isn’t as wide as it may look at first glance. Furthermore, Uber takes between 20-25% of the fares it charges. Khan’s Cars could reduce that %age since it will not have shareholders looking to extract profit.

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Delusionary.

“Success, Greeks No Longer Seek Food In Garbage Bins” (KTG)

“There are no people seeking food in the garbage bins as in 2014,” Culture Minister Elena Kountoura said adding that citizens congratulate the government for its social policies. People are congratulating the government because “in 2014 there were people struggling to have a meal on their table. It is a success that people do not eat from the garbage anymore, “Kountoura from junior coalition partner Independent Greeks claimed speaking to private Skai TV on Saturday morning. “Despite the difficulties, people manage it.” “At least, Greeks are now living in dignity,” she said further adding “we brought growth.” She claimed further that “no minister cuts pensions, no minister introduces taxes.” The Culture Minister said further that “we have ten difficult months ahead” until the Greek program ends in August 2018. She said that also this year was an unprecedented success for the tourism industry saying that “90% of the capacity” was fully booked.

PS no taxes, no pension cuts? I propose, Minister Kountoura to take a fresh look into the 2015 bailout agreement and the additional agreement the coalition government signed last May in order to enable the conclusion of the second review. As for the meals from garbage bins… well… I wonder why neighbors still leave bags with food on the street, bags that quickly disappear. Probably they didn’t hear of the growth and the government success story.

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“Their daughter had just died and they were left there. They had nothing. No visit from a psychiatrist. The mother was silent. They were in shock and the children were saying ‘my sister died – she died just here.’”

5 Year Old Syrian Girl Dies In ‘Concentration Camp’ Funded By UK Taxpayers (RT)

British aid money is propping up a European migrant camp routinely likened to a prison. In just one appalling example, a Syrian girl who survived war, smugglers and the Aegean Sea, died last week in a cold, damp tent in Moria, on the Greek island of Lesbos. She was five. The girl, her parents and her five siblings had been offered a freezing tent in the squalid camp when they arrived in search of safety a week earlier. Her body was discovered last Sunday by her father and pregnant mother, who just hours before were denied extra blankets to keep their daughter warm and given just paracetamol to treat her medical issues. “I crawled inside and the blankets on the floor were wet, it was so cold and dirty and damp,” Daliah, a volunteer and former protection team employee who visited the family, told RT UK.

Their daughter had just died and they were left there. They had nothing. No visit from a psychiatrist. The mother was silent. They were in shock and the children were saying ‘my sister died – she died just here.’ “There was a volunteer there in tears. He told me they just pulled her out like a dog and took her away. There was no dignity.” Following her “unexplained” death, her tiny body was buried without an Islamic funeral and without her mother being present. “She became nothing but a number – she didn’t even get her last respect,” Daliah said. The child, whose parents did not wish to be identified, is yet another victim of the migration crisis Europe has mishandled and misjudged. With grotesque irony, European Union ministers who advocate saving refugees from war zones enjoy worldwide praise for funding camps like these.


The grave of a five-year-old girl who died on Lesbos © Zoie O’Brien / RT

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Oct 192017
 
 October 19, 2017  Posted by at 8:55 am Finance Tagged with: , , , , , , , ,  9 Responses »
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Joan Miro The sun embracing the lover 1952

 

Don’t Rely on US Consumers to Power Global Growth (DDMB)
Who Has the World’s No. 1 Economy? Not the US (BBG)
Capitalism Is Ending Because It Has Made Itself Obsolete – Varoufakis (Ind.)
Something Wicked This Way Comes: McDonald’s Stock Buybacks (Lebowitz)
$1 Trillion In Liquidity Is Leaving: Market’s First Crash-Test In 10 Years (ZH)
Dollar Funding Shortage Never Went Away And Starts To Get Worse Again (ZH)
China’s Central Bank Warns Of Sudden Collapse In Asset Prices (R.)
Xi Jinping Gets His Own School of Thought (G.)
Spain-Catalonia Standoff Set To Intensify As Leaders Take Hard Lines (R.)
Let Catalonia Go (Exp.)
Australia’s First Home Super Scheme Passes The Lower House (D.)
Warning Of ‘Ecological Armageddon’ After 75% Plunge In Insect Numbers (G.)

 

 

“The “something-had-to-give” moment appears to be arriving.”

Don’t Rely on US Consumers to Power Global Growth (DDMB)

U.S. consumers account for 18% of global GDP, and it’s tempting to rely on them to continue carrying the aging recovery to support world growth. The data and growing lender anxiety, though, suggest investors should prepare for what is increasingly looking like an inevitable slowdown in economic growth next year. Although American households managed to maintain their spending levels in the face of dwindling prospects for future economic expansion, they have done so by taking on incremental debts, which could soon prove unsustainable. Headed into the 1960s, consumer credit as apercentage of disposable income was 14%. As baby boomers came of age and started settling down in suburbia to build families under their own roofs, this figure rose to 18% where it largely remained until the early 1990s.

The go-go run of the 1990s, though, was the first major break from history; consumer credit as apercentage of household discretionary spending rose to 24% by the turn of the century and remained there until the recession of 2007-2008. And while there was a movement toward deleveraging, it was short-lived. Today the ratio sits at a high of 26%. The upshot is that when consumer credit is combined with government transfer payments the total amounts to about 43% of all consumer spending. Put differently, almost a third of U.S. growth relies on increasing debt in one form or another.

Economists have long emphasized the historically low debt-service costs households must shoulder as proof that the rebuild in debt levels was not problematic. It was telling that fresh data revealed Americans ploughed more of their income to paying debts last year, the first increase in seven years. Moody’s warned the troubling finding would lead to further increases in default rates. JPMorgan Chase and Citigroup validated the data in their most recent earnings reports in which they boosted their reserves for losses on consumer loans by the most in more than four years. Credit card debt, which clocked a brisk 7% growth rate in August, was specifically cited. Citigroup added that the increase was coming faster than anticipated. The stresses, though, have been growing for almost two years when increases in credit card borrowing began to outpace that of incomes. The “something-had-to-give” moment appears to be arriving.

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“..a more accurate picture of how much a country really produces..” It’s almost too easy.

Who Has the World’s No. 1 Economy? Not the US (BBG)

What’s the most powerful country in the world? There’s a good case to be made that it’s China. There are many kinds of power – diplomatic, cultural, military and economic. So an easier question to ask is: What’s the world’s largest economy? That’s almost certainly China. Many might protest when hearing this. After all, the U.S. still produces the most when measured at market exchange rates:

But this comparison is misleading, because things cost different amounts in different countries. GDP is supposed to measure the amount of real stuff — cars, phones, financial services, back massages, etc. – that a country produces. If the same phone costs $400 in the U.S. but only $200 in China, China’s GDP is getting undercounted by 50% when we measure at market exchange rates. In general, less developed countries have lower prices, which means their GDP gets systematically undercounted.Economists try to correct for this with an adjustment called purchasing power parity (PPP), which controls for relative prices. It’s not perfect, since it has to account for things like product quality, which can be hard to measure. But it probably gives a more accurate picture of how much a country really produces. And here, China has already surpassed the U.S.:

If you don’t trust the murky PPP adjustments, a simple alternative is just to look at the price of a Big Mac. The same burger costs 1.8 times more in the U.S. than in China. Adjusting the market-exchange-rate GDP numbers by that ratio would put China even farther ahead. In some dimensions, China’s lead is even larger. The country’s manufacturing output overtook that of the U.S. almost a decade ago. Its exports are more than a third larger as well.

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“..capital is being socially produced, and the returns are being privatised..” The serpent and the tail.

Capitalism Is Ending Because It Has Made Itself Obsolete – Varoufakis (Ind.)

Former Greek finance minister Yanis Varoufakis has claimed capitalism is coming to an end because it is making itself obsolete. The former economics professor told an audience at University College London that the rise of giant technology corporations and artificial intelligence will cause the current economic system to undermine itself. Mr Varoufakis, who took on EU institutions over Greek debt repayments in 2015, said companies such as Google and Facebook, for the first time ever, are having their capital bought and produced by consumers. “Firstly the technologies were funded by some government grant; secondly every time you search for something on Google, you contribute to Google’s capital,” he said. “And who gets the returns from capital? Google, not you. “So now there is no doubt capital is being socially produced, and the returns are being privatised. This with artificial intelligence is going to be the end of capitalism.”

Warning Karl Marx “will have his revenge”, the 56-year-old said for the first time since capitalism started, new technology “is going to destroy a lot more jobs than it creates”. He added: “Capitalism is going to undermine capitalism, because they are producing all these technologies that will make corporations and the private means of production obsolete. “And then what happens? I have no idea.” Describing the present economic situation as “unsustainable” and fearing the rise of “toxic nationalism”, Mr Varoufakis said governments needed to prepare for post-capitalism by introducing redistributive wealth policies. He suggested one effective policy would be for 10% of all future issue of shares to be put into a “common welfare fund” owned by the people. Out of this a “universal basic dividend” could be paid to every citizen.

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The serpent and the tail. Exhibit no. 1: corporate America in the 21st century.

Something Wicked This Way Comes: McDonald’s Stock Buybacks (Lebowitz)

We have written six articles on stock buybacks to date. While each discussed different themes including valuations, executive motivations, and corporate governance, they all arrived at the same conclusion; buybacks may boost the stock price in the short run but in the majority of cases they harm shareholder value in the long run. Data on MCD provides support for our conclusion. Since 2012, MCD’s revenue has declined by nearly 12% while its earnings per share (EPS) rose 17%. This discrepancy might lead one to conclude that MCD’s management has greatly improved operating efficiency and introduced massive cost-cutting measures. Not so. Similar to revenue, GAAP net income has declined almost 8% over the same period, which rules out the possibilities mentioned above.

To understand how earnings-per-share (EPS) can increase at a double-digit rate, while revenue and net income similarly decline and profit margins remain relatively flat, one must consider the effect of share buybacks. Currently, MCD has about 20% fewer shares outstanding than they did five years ago. The reduction in shares accounts for the warped EPS. As noted earlier, EPS is up 17% since 2012. When adjusted for the decline in shares, EPS declined 7%. Given the 12% decline in revenue and 8% drop in net income, this adjusted 7% decline in EPS makes more sense. MCD currently trades at a trailing twelve-month price to earnings ratio (P/E) of 25. If we use the adjusted EPS figure instead of the stated EPS, the P/E rises to 30, which is simply breathtaking for a company that is shrinking. It must also be noted that, since 2012, shareholder equity, or the difference between assets and liabilities, has gone from positive $15.2 billion to negative $2 billion. A summary of key financial data is shown later in this article.

In addition to adjusting MCD’s earnings for buybacks, investors should also consider that to accomplish this financial wizardry, MCD relied on a 112% increase in their debt. Since 2012, MCD spent an estimated $23 billion on share buybacks. During the same period, debt increased by approximately $16 billion. Instead of repurchasing shares, MCD could have used debt and cash flow to expand into new markets, increase productivity and efficiency of its restaurants or purchase higher growth competitors. MCD executives instead manipulated EPS and ultimately the stock price. To their good fortune (quite literally), the Board of Directors and shareholders appear well-deceived by the costume of a healthy and profitable company. The following table compares MCD’s fundamental data and buyback adjusted data from 2012 to their last reported earnings statement.

The graph below compares the sharp increase in the price of MCD to the decline in revenue over the last five years.

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.. but I ain’t got wings .. coming down .. is the hardest thing ..

$1 Trillion In Liquidity Is Leaving: Market’s First Crash-Test In 10 Years (ZH)

In his latest presentation, Francesco Filia of Fasanara Capital discusses how years of monumental liquidity injections by major Central Banks ($15 trillion since 2009) successfully avoided a circuit break after the Global Financial Crisis, but failed to deliver on the core promise of economic growth through the ‘wealth effect’, which instead became an ‘inequality effect’, exacerbating populism and representing a constant threat to the status quo. Fasanara discusses how elusive, over-fitting economic narratives are used ex-post to legitimize the “fake markets” – as defined previously by the hedge fund – induced by artificial flows.

Meanwhile, as an unintended consequence, such money flows produced a dangerous market structure, dominated by both passive-aggressive investment vehicles and a high-beta long-only momentum community ($8 trn and rising rapidly), oftentimes under the commercial disguise of brands such as behavioral Alternative Risk Premia, factor investing, risk parity funds, low vol / short vol vehicles, trend-chasing algos, machine learning. However as Filia, and many others before him, writes, only when the tide goes out, will we discover who has been swimming naked, and how big of a momentum/crowding trap was built up in the process.

The undoing of loose monetary policies (NIRP, ZIRP), and the transitioning from ‘Peak Quantitative Easing’ to Quantitative Tightening, will create a liquidity withdrawal of over $1 trillion in 2018 alone. The reaction of the passive community will determine the speed of the adjustment in the pricing for both safe and risk assets. And, echoing what Deutsche Bank said last week, when it warned that central bank liquiidty injections will collapse from $2 trillion now to 0 in 12 months, a “most worrying” turn of events, Fasanara doubles down that “such liquidity withdrawal will represent the first real crash-test for markets in 10 years.”

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A global problem.

Dollar Funding Shortage Never Went Away And Starts To Get Worse Again (ZH)

Since last month, the Treasury has rebuilt the balance in its account at the Fed from $38bn on 6 September 2017 to $170bn on 11 October 2017, for a net increase of $132bn…not insignificant. Obviously, if and when the Treasury rebuilds its account at the Fed to the previous level, dollar liquidity could become extremely tight again, especially if the Fed is tapering its balance sheet at the same time. We have been wondering whether the Fed governors fully understand this, although some of the boys at 33 Liberty no doubt do. Credit guys also understand it “there’s another reason the strain is set to grow. The Fed is set to boost the pace of its balance-sheet roll-off each quarter, potentially putting upward pressure on U.S. rates relative to Europe and making it tougher for global investors to get dollar funding,” according to Mark Cabana, head of U.S. short rates strategy at Bank of America Corp.”

Clearly the issue is attracting the attention of investors as BoA analyst, Cabana writes in a recent report, and explains that “we have received a number of client questions recently about the outlook for banking reserves both in the near and medium term due to the Fed’s balance sheet unwind and potential swings in Treasury’s cash balance.” In summary, Cabana expects a large reserve drain in Q2 2018 with banking reserves dropping by more than $1 trillion by the end of 2019, which “highlights the potential for funding strains to emerge around Q2 next year and uncertainties around the Fed’s longer-run policy framework… This reserve drain and the Fed’s portfolio unwind should pressure funding conditions tighter through wider FRA-OIS and more negative XCCY (cross currency basis swaps) levels.”

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Minsky.

China’s Central Bank Warns Of Sudden Collapse In Asset Prices (R.)

China will fend off risks from excessive optimism that could lead to a “Minsky Moment,” central bank governor Zhou Xiaochuan said on Thursday, adding that corporate debt levels are relatively high and household debt is rising too quickly. A Minsky Moment is a sudden collapse of asset prices after a long period of growth, sparked by debt or currency pressures. The theory is named after economist Hyman Minsky. China will control risks from sudden adjustments to asset bubbles and will seriously deal with disguised debt of local government financing vehicles, Zhou said. The People’s Bank of China governor was speaking on the sidelines of China’s 19th Communist Party congress.

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Cult, anyone?

Xi Jinping Gets His Own School of Thought (G.)

China’s communist leader Xi Jinping looks to have further strengthened his rule over the world’s second largest economy with the confirmation that a new body of political theory bearing his name will be written into the party’s constitution. On day two of a week-long political summit in Beijing marking the end of Xi’s first term, state-media announced the creation of what it called Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era. “The Thought is … a historic contribution to the Party’s development,” Zhang Dejiang, one of the seven members of China’s top ruling council, the politburo standing committee, told delegates at the 19th party congress according to Beijing’s official news agency, Xinhua. Liu Yunshan, another standing committee member, said the elevation of Xi’s Thought into the party’s list of “guiding principles” was of “great political, theoretical and practical significance”.

“All members of the Party should study hard Xi’s ‘new era’ thought,” he was quoted as saying. Experts say the decision to grant Xi his own eponymous school of thought, while arcane-sounding, represents a momentous and highly symbolic occasion in the politics and history of the world’s most populous nation. Only two previous leaders – Chairman Mao and Deng Xiaoping – have been honoured in such a way with theories called Mao Zedong Thought and Deng Xiaoping Theory. The names of Xi’s immediate predecessors – Hu Jintao and Jiang Zemin – were not attached to the political philosophies they bequeathed to the party. The official inception of Xi Jinping Thought – which now seems certain to be formally added to the party’s charter next week – also reinforces suspicions that Xi will seek to stay in power beyond the end of his second-term, in 2022.

“It is a huge deal,” said Orville Schell, a veteran China expert who has been studying Chinese politics since the late 1950s. “It is sort of like party sky writing. If you get your big think in the constitution it becomes immortal and Xi is seeking a certain kind of immortality.” However, Schell, the head of the Asia Society’s Center on US-China Relations, said the decision to honour Xi was not only noteworthy “because it makes Xi Jinping look like a thought leader comparable to Chairman Mao.” “It also suggests that [China’s political system] Socialism with Chinese Characteristics is a viable counter-model to the presumption of western liberal democracy and capitalism. In a sense, what Xi is setting up here is not only a clash of civilisation and values, but one of political and economic systems,” he said.

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The deadline has passed. Madrid prepares to take over Catalonia on Saturday. This leaves the Catalan parliament time to vote on independence.

Spain-Catalonia Standoff Set To Intensify As Leaders Take Hard Lines (R.)

Spain’s political showdown with Catalonia is set to reach a new level on Thursday when political leaders in Madrid and Barcelona are expected to make good on pledges made to their supporters to stick to their tough positions over the region’s future. In an unprecedented move since Spain returned to democracy in the late 1970s, Prime Minister Mariano Rajoy will impose direct rule in Catalonia unless the region’s leader Carles Puigdemont retracts by 10 a.m. (0800 GMT) an ambiguous declaration of independence he made last week. Puigdemont told members of his Catalan Democratic Party on Wednesday night that not only he would not back down but that he would press ahead with a more formal declaration of independence if Rajoy suspends Catalonia’s political autonomy.

It is not yet clear how and when this declaration would take place and whether it would be endorsed by the regional assembly, though many pro-independence lawmakers have openly said they wanted to hold a vote in the Catalan parliament to make it more solemn. If Rajoy invokes Article 155 of the 1978 constitution, which allows him to take control of a region if it breaks the law, it would not be fully effective until at least early next week as it needs previous parliamentary approval, offering some last minute leeway for secessionists to split unilaterally. This prospect has raised fears of social unrest, led the euro zone’s fourth-largest economy to cut its growth forecasts and rattled the euro.

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Medieval is the right word.

Let Catalonia Go (Exp.)

Now one businessman has warned enough is enough – as he insisted the Spanish government just “let Catalonia go” or risk being dragged down and destroyed by the enveloping crisis. Xavier Adam, a London-born financial investor who was brought up in Catalonia and considers himself to be a Spaniard, told Express.co.uk he was disgusted by the actions of the Spanish government and its police and military. The Managing Director of AMC network finance firm, Mr Adam says he has decided to cut a planned $450 million investment in Spanish real estate projects in protest at what he sees as Madrid’s “medieval” response to the crisis. He explained he feels his investment would be unsafe until the crisis is solved, as he believes Spain has undone 40 years of democratic progress with the actions of the police – and he warned the instability could send the already fragile country under.

Speaking exclusively to Express.co.uk today, he said: “It never had to be this way, going to beat up people in the streets just trying to vote, its been pandemonium. But Spain can’t come to terms with losing Catalonia, and losing the GDP it provides. “Madrid is being worse hit than Catalonia, it is really struggling. Madrid and Spain is facing a crisis. “Every day they’re threatening more violence and its just grubby, people think its just grubby. “It’s so hard to work with these people in government, they have got their ideas and they are fixed on them. “And Catalonia’s independence doesn’t feature in that, so they’re trying to teach them a lesson. “But there will be more and more of these demos and more and more protests and something is going to happen.

“Spain is going down and this government has to go. It is too volatile – you don’t know when it is going to blow.” Mr Adam, 40, says he was so enraged by the response to the referendum, he even wrote to Carlos Bastarreche, Spain’s ambassador to the UK, saying: “As an international investor of some repute and an expert on the Spanish economy, I write to say how appalled I am by the way your country has behaved in Catalonia. “It appears to me, a failure to listen to the will of the Catalan people, state sponsored violence against civilians and a manipulation of the Spanish public and media are ways Spain wants to move through the 21st Century.

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From site of Domain, huge real estate firm. They’re not ready yet to let the bubble pop.

Australia’s First Home Super Scheme Passes The Lower House (D.)

The federal government insists its plan to allow first-home buyers to save for a deposit through their superannuation won’t undermine Australia’s retirement savings system. The coalition used its numbers in parliament’s lower house to pass the measure – announced in the May budget – on Wednesday. The legislation also allows older Australians to contribute the proceeds of the sale of their family home to their super. Labor and the Greens are against the proposal, with the opposition claiming it will do nothing to address housing affordability. Shadow treasurer Chris Bowen argues it will instead work to undermine the country’s superannuation system, labelling it a “sham”. Assistant minister to the treasurer, Michael Sukkar, accused Labor of deliberately peddling misconceptions about the scheme.

He told MPs it was not an attack on superannuation but simply provides people with an opportunity to save more money that wouldn’t otherwise be used for super. “It’s quite shocking and surprising to see any political party take a view that a tax cut for first home buyers is something that they cannot support,” Mr Sukkar said. Labor, however, said it won’t stand in the way of two other housing affordability bills, both of which were announced in the 2017 budget. They include limiting deductions investors can claim in relation to residential properties and imposing an annual fee on foreign owners if their property is vacant for at least six months during a one-year period. Mr Bowen said there was nothing to oppose because the measures were ineffective. “What we see here is some minor tinkering which won’t do anything for housing affordability,” he told parliament.

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This should really make us think. We don’t survive if insects don’t.

Warning Of ‘Ecological Armageddon’ After 75% Plunge In Insect Numbers (G.)

The abundance of flying insects has plunged by three-quarters over the past 25 years, according to a new study that has shocked scientists. Insects are an integral part of life on Earth as both pollinators and prey for other wildlife and it was known that some species such as butterflies were declining. But the newly revealed scale of the losses to all insects has prompted warnings that the world is “on course for ecological Armageddon”, with profound impacts on human society. The new data was gathered in nature reserves across Germany but has implications for all landscapes dominated by agriculture, the researchers said. The cause of the huge decline is as yet unclear, although the destruction of wild areas and widespread use of pesticides are the most likely factors and climate change may play a role.

The scientists were able to rule out weather and changes to landscape in the reserves as causes, but data on pesticide levels has not been collected. “The fact that the number of flying insects is decreasing at such a high rate in such a large area is an alarming discovery,” said Hans de Kroon, at Radboud University in the Netherlands and who led the new research. “Insects make up about two-thirds of all life on Earth [but] there has been some kind of horrific decline,” said Prof Dave Goulson of Sussex University, UK, and part of the team behind the new study. “We appear to be making vast tracts of land inhospitable to most forms of life, and are currently on course for ecological Armageddon. If we lose the insects then everything is going to collapse.”

The research, published in the journal Plos One, is based on the work of dozens of amateur entomologists across Germany who began using strictly standardised ways of collecting insects in 1989. Special tents called malaise traps were used to capture more than 1,500 samples of all flying insects at 63 different nature reserves. When the total weight of the insects in each sample was measured a startling decline was revealed. The annual average fell by 76% over the 27 year period, but the fall was even higher – 82% – in summer, when insect numbers reach their peak. Previous reports of insect declines have been limited to particular insects, such European grassland butterflies, which have fallen by 50% in recent decades. But the new research captured all flying insects, including wasps and flies which are rarely studied, making it a much stronger indicator of decline.

Read more …

Sep 132017
 
 September 13, 2017  Posted by at 9:18 am Finance Tagged with: , , , , , , , , , ,  8 Responses »
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Sergio Larraín Valparaiso Chile 1963

 

Greece Property Value Review A Hard Task (K.)
Creditors Set To Increase Pressure On Athens (K.)
US Threatens To Cut Off China From SWIFT If It Violates North Korea Sanctions (ZH)
Yuan Fixing Takes Center Stage, Again (BBG)
Cryptocurrency Chaos As China Cracks Down On ICOs (R.)
JPMorgan’s Dimon Says Bitcoin ‘Is A Fraud’ (R.)
America’s Fiscal Doomsday Machine (Stockman)
IMF Is Resisting A Moratorium On Barbuda’s Sovereign Debt Repayments (Ind.)
UK’s High Street Banks Are Accident Waiting To Happen (G.)
We Must Repeal The Authorization For The Use Of Military Force (Rand Paul)
Democrats Fought For 25 Years Over Single-Payer. Now Many Back Sanders (Sirota)
China Plans Nationwide Use Of Ethanol Gasoline By 2020 (R.)
Capitalism Can’t Save The Planet – It Can Only Destroy It (Monbiot)

 

 

As EU President Juncker this morning unveils his vision of more Europe all the time, here’s what Europe is really like:

42% of Greek mortgage loans are non-performing. Today’s sale prices are 70-80% lower than in 2008. And that’s before 200-300,000 homes will be forced onto the market this fall.

Greece Property Value Review A Hard Task (K.)

The government is facing a daunting task in adjusting the so-called objective values (the property rates used for tax purposes) to market levels by the end of the year, as its bailout agreement dictates. The huge slump in transactions and the forced sales of properties due to their owners’ debts do not lead to any safe conclusions for the values per area. One in four sales are conducted with prices that lag the objective value by 60-70%, and the prices of 2008 by 70-80%. The Finance Ministry must overcome all the obstacles to bring to Parliament all the necessary adjustments and regulations.

Moreover, once the objective values are brought in line with market rates, the government will have to maintain the same amount of revenues from the Single Property Tax (ENFIA) either by raising the tax’s rates or by introducing a new tax in the form of the old Large Property Tax. Furthermore, once the objective values are reduced by 40-50% to match the going prices, banks’ may see problems with their capital adequacy, as lenders will incur losses by having to revise the collateral they get. Mortgage loans in Greece amount to €59.44 billion, of which 42%, or €25.4 billion are nonperforming.

Read more …

Forget about more Europe, or you’ll wind up with a whole lot less Europe.

Creditors Set To Increase Pressure On Athens (K.)

Technical experts representing the country’s creditors started visiting the country’s ministries in Athens on Monday, paving the way for the third bailout review, which has long ceased to be viewed as a simple matter and is increasingly burdened with problems. Pressure for a satisfactory conclusion to the review will grow with the planned visit on September 25 of Eurogroup chief Jeroen Dijsselbloem, who will meet with Greek Finance Minister Euclid Tsakalotos. Responding to a question by Kathimerini, Dijsselbloem’s spokesman said that the head of the Eurogroup will discuss eurozone issues and certainly the progress of the adjustment program. Government officials estimate that the discussion on the course of the review and the Greek program may be combined with the expiry of Dijsselbloem’s mandate at the Eurogroup chair at year-end.

The Dutch minister – whose last visit in Athens and his meeting with his counterpart at the time, Yanis Varoufakis, was quite eventful – would obviously like to leave on a positive note in regards to the Greek program. It has been rumored that he may seek another office in the eurozone. Sources from Brussels also say that the top European Commission’s top representative, Declan Costello, will also be coming to Athens in the next few days. In addition to the main cluster of 113 prior actions, of which 95 should be implemented by year-end, the creditors have expressed their objections and doubts about recent legislative moves made by the government, such as the labor law passed last Thursday.

Sources say that the creditors have also expressed concerns about clauses related to the reduced value-added tax on agricultural supplies, the opening up of closed professions, as well as the civil service. A large number of the 95 prior actions the government must implement in record time have a high degree of difficulty, and government officials believe this may require revisions on family benefits, the operation of the sell-off hyperfund and its subsidiaries, the opening up of the energy market, etc.

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How would the US pay for all the shiny trinkets?

US Threatens To Cut Off China From SWIFT If It Violates North Korea Sanctions (ZH)

In an unexpectedly strong diplomatic escalation, one day after China agreed to vote alongside the US (and Russia) during Monday’s United National Security Council vote in passing the watered down North Korea sanctions, the US warned that if China were to violate or fail to comply with the newly imposed sanctions against Kim’s regime, it could cut off Beijing’s access to both the US financial system as well as the “international dollar system.” Speaking at CNBC’s Delivering Alpha conference on Tuesday, Steven Mnuchin said that China had agreed to “historic” North Korean sanctions during Monday’s United Nations vote. “We worked very closely with the U.N. I’m very pleased with the resolution that was just passed. This is some of the strongest items. We now have more tools in our toolbox, and we will continue to use them and put additional sanctions on North Korea until they stop this behavior.”

In response, Andrew Ross Sorkin countered that “we haven’t been able to move the needle on China, which seems to be the real mover on this, in terms of being able to apply the real pressure. What do you think the issue is? What is the problem?” The stunner was revealed in Mnuchin’s answer: “I think we have absolutely moved the needle on China. I think what they agreed to yesterday was historic. I’d also say I put sanctions on a major Chinese bank.That’s the first time that’s ever been done. And if China doesn’t follow these sanctions, we will put additional sanctions on them and prevent them from accessing the U.S. and international dollar system. And that’s quite meaningful.”

And to underscore his point, the Treasury Secretary also said that “in North Korea, economic warfare works. I made it clear that the President was strongly considering and we sent a message that anybody that wanted to trade with North Korea, we would consider them not trading with us. We can put on economic sanctions to stop people trading.” In other words, to force compliance with the North Korean sanctions, Mnuchin threatened Beijing with not only trade war, but also a lock out from the dollar system, i.e. SWIFT, something the US did back in 2014 and 2015 when it blocked off several Russian banks as relations between the US and Russia imploded. Of course, whether the US would be willing to go so far as to use the nuclear option, and pull the dollar plug on its biggest trade partner, in the process immediately unleashing an economic depression domestically and globally is a different matter.

So far Washington has been reluctant to impose economic sanctions on China over concerns of possible retaliatory measures from Beijing and the potentially catastrophic consequences for the global economy. Washington runs a $350 billion annual trade deficit with Beijing, while the PBOC also holds over $1 trillion in US debt. Ironically, the biggest hurdle to the implementation of the just passed sanctions may be the president himself. “We think it’s just another very small step, not a big deal,” Trump told reporters at the start of a meeting with Malaysian Prime Minister Najib Razak. “I don’t know if it has any impact, but certainly it was nice to get a 15-to-nothing vote, but those sanctions are nothing compared to what ultimately will have to happen,” said Trump who has vowed not to allow North Korea to develop a nuclear ballistic missile capable of hitting the United States.

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Xi demands peace for the Party Congress. Brokerages have been told: no holidays during Congress.

Yuan Fixing Takes Center Stage, Again (BBG)

China’s yuan fixing is back in focus, with a run of surprises moving the market in recent days. The central bank set its reference rate – which limits onshore moves to 2% on either side – at a weaker than expected level for the third day in a row Wednesday. The rates, and the removal of a reserve requirement rule on the trading of foreign-exchange forwards, are fueling bets that authorities want to limit gains after the onshore yuan surged more than 4% against the dollar in the three months through Sept. 7. The People’s Bank of China set Wednesday’s fixing at 6.5382 per dollar, compared with the average forecast of 6.5355 in a Bloomberg survey of 19 traders and analysts. The authorities have had greater opportunity to sway the fixing either way since May, with the introduction of a “counter-cyclical factor” to the rate-setting mechanism.

“The PBOC still wants a relatively stable yuan,” said Nathan Chow at DBS. “Even if it strengthens or weakens, the pace needs to be controlled, and in an orderly and gradual manner. This will be easier for exporters to manage risks. The market expectation is that there should be no big changes or surprises before the party congress next month.” The yuan’s rally began to falter on Friday as the removal of the reserve rule made it less expensive to bet on yuan declines. The monetary authority weakened Tuesday’s fixing by the most in eight months following an overnight surge in a gauge of the greenback, pushing the onshore spot rate lower.

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“There are a lot of companies raising a lot of money for not very good ideas..”

Cryptocurrency Chaos As China Cracks Down On ICOs (R.)

China’s move last week to ban initial coin offerings (ICO) has caused chaos among start-ups looking to raise money through the novel fund-raising scheme, prompting halts, about-turns and re-thinks. China is cracking down on fundraising through launches of token-based digital currencies, targeting ICOs in a market that has ballooned this year in what has been a bonanza for digital currency entrepreneurs. The boom has fueled a jump in the value of cryptocurrencies, but raised fears of a potential bubble. “This is not unlike the dotcom bubble of 2000,” said a partner at a venture capital fund in Shanghai, who didn’t want to be named because of the issue’s sensitivity. “There are a lot of companies raising a lot of money for not very good ideas, and these will eventually be weeded out. But even from the big dotcom bust, you still have gems.”

“One of the reasons regulators stepped in was that the ICO fever extended beyond the traditional crypto community. The timing was an attempt to pre-empt this before it goes into a much broader mass market in China,” the partner said. Investors in China contributed up to 2.6 billion yuan ($394 million) worth of cryptocurrencies through ICOs in January-June, according to a state-run media report citing National Committee of Experts on Internet Financial Security Technology data. Pre-ICO roadshows featuring elaborate standing room-only presentations at 5-star hotels drew a diverse crowd, including grandmothers – a likely tipping point for regulators. The hype and subsequent crackdown came as China focuses on economic and social stability ahead of next month’s congress of the Communist Party, a once-in-five-years event.

Beijing is also waging a broader campaign against fraudulent fundraising and speculative investment, which analysts attribute to China’s underdeveloped financial regulation and lack of legitimate investment options. While several start-ups said the exuberance had got out of control and they had expected Beijing to act, they said last week’s move panicked investors and caused confusion.

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Worse than tulip bulbs.

JPMorgan’s Dimon Says Bitcoin ‘Is A Fraud’ (R.)

Bitcoin “is a fraud” and will blow up, Jamie Dimon, chief executive of JPMorgan Chase, said on Tuesday. Speaking at a bank investor conference in New York, Dimon said, “The currency isn’t going to work. You can’t have a business where people can invent a currency out of thin air and think that people who are buying it are really smart.” Dimon said that if any JPMorgan traders were trading the crypto-currency, “I would fire them in a second, for two reasons: It is against our rules and they are stupid, and both are dangerous.” Dimon’s comments come as the bitcoin, a virtual currency not backed by any government, has more than quadrupled in value since December to more than $4,100.

[..] “It is worse than tulips bulbs,” Dimon said, referring to a famous market bubble from the 1600s. JPMorgan and many of its competitors, however, have invested millions of dollars in blockchain, the technology that tracks bitcoin transactions. Blockchain is a shared ledger of transactions maintained by a network of computers on the internet. Dimon said such uses will roll out over coming years as it is adapted to different business lines. Financial institutions are hoping blockchain can be adapted to simplify and lower the costs of processes such as securities settlement, loan trading and international money transfers. Dimon predicted big losses for bitcoin buyers. “Don’t ask me to short it. It could be at $20,000 before this happens, but it will eventually blow up.” he said.

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From Reagan’s Budget Director.

America’s Fiscal Doomsday Machine (Stockman)

Maybe the Democrats did win the 2016 election. Or at least the the Deep State and its accomplices among the beltway political class, K-Street lobbies and the media did. That’s because the media won a giant victory against something they deplore and despise more than anything else — the public debt ceiling. They sanctimoniously admonish that it’s a relic of the nation’s fiscally benighted past. They operate on a belief that this is an episodic tendency to threaten America’s credit and to offer Capitol Hill an opening to grandstand about the fiscal verities is a blight on orderly governance. So the Donald’s latest burst of impetuosity — agreeing with Sen. Schumer to permanently abolish the public debt ceiling — has descended on the beltway like manna from heaven.

Not Barack Obama, Bill Clinton, Jimmy Carter or even the Great Texas Porker, Lyndon Johnson, dared to utter the thought of it — at least not in polite company. Suddenly, and notwithstanding all the good he has done disrupting the status quo, the Donald has become the foremost enemy of America’s very financial survival. The Federal budget is a Fiscal Doomsday Machine. The depository of American wars and entitlements have run rampant. Under the pile drivers of a global empire and the retiring baby boom, it is rapidly propelling the nation toward fiscal catastrophe. That grim outcome is virtually guaranteed if the only remaining safety brake — the debt ceiling — is summarily abolished. Due to entitlements, debt service and the slow pipeline of appropriated spending there is no such thing as an annual Federal budget or accountability for how much Uncle Sam spends and borrows.

Instead, the $4.1 trillion that Congressional Budget Office (CBO) projects the Federal government will spend in FY 2018, and the $563 billion it will borrow, reflects the dead hand of the past. Entitlements and other mandatory spending alone is projected to reach $2.566 trillion or 63% of total FY 2018 outlays. Another $307 billion will be required for interest on the nation’s $20 trillion public debt, while upwards of half the $1.22 trillion for so-called “discretionary” or appropriated programs also reflects funds appropriated years ago. Altogether, $3.5 trillion, or 85% of outlays, will be essentially baked into the cake before a single Congressional vote is taken on anything regarding the FY 2018 budget.

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They just want to lend more.

IMF Is Resisting A Moratorium On Barbuda’s Sovereign Debt Repayments (Ind.)

The IMF is resisting putting a moratorium on Barbuda’s sovereign debt repayments in the wake of the devastation left by Hurricane Irma on the tiny Caribbean island. Barbuda is said to have lost around 90% of its structures in the wake of the storm and the national repair and reconstruction bill has been estimated at $150m. The prime minister of Antigua and Barbuda, Gaston Browne, has also said that around half or the island’s population of 1,600 is now homeless. Yet Antigua and Barbuda have debt with the IMF of around $15.8m and a coalition of US faith institutions have been calling on the Fund to pause the repayments of states battered by the hurricane. However, the IMF’s special representative to the UN, Christopher Lane, reportedly suggested late last week that the Fund would rather lend more money to the island, rather than stop collecting the repayments due.

“Our general view is that we’d rather put new money in than to have moratoria,” he said, according to Court House News. Stressing that were technical and political difficulties in simply stopping the debt collection he said: “We borrow money from our members who lend. So we’d have to get agreement from the lending parties.” “We might borrow money from the United States and loan that to Antigua. If we don’t get paid back on time, we’d have to make an arrangement with the source of the funds themselves. It gets a bit arcane, but there’s a number of constraints on how we operate. We’re like a bank. We borrow and lend.”

In a letter to the IMF managing director Christine Lagarde on 7 September the Jubilee USA network wrote: “We invite the IMF to implement an immediate moratorium on debt payments for countries severely impacted by the Category 5 storm until they have rebuilt and recovered.” “For example, the nation of Antigua and Barbuda has almost $3m in debt payments due to the Fund today and a debt payment moratorium could immediately be put into rebuilding Barbuda where almost the entire population is homeless.” The group also urged that further IMF reconstruction payments to Barbuda, and other affected islands, should be in the form of grants, rather than loans.

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All major banks are.

UK’s High Street Banks Are Accident Waiting To Happen (G.)

The UK’s high street banks are an accident waiting to happen and could struggle in another financial crisis, according to a report published on Wednesday to mark the 10th anniversary of the run on Northern Rock. The report criticises the annual health checks – stress tests – that have been conducted by the Bank of England since the crisis and concludes that the methodology used by Threadneedle Street is flawed and the tests not gruelling enough. [..] Kevin Dowd, a professor of finance and economics at Durham University and a long-standing critic of the stress tests, said the Bank does not use the correct measures to assess the health of the banking system. Dowd is also a senior fellow at the Adam Smith Institute, a rightwing thinktank. His analysis – which the Bank of England has previously rejected – focuses on the health check of the major lenders published last November.

Those tests were based on a number of hypothetical scenarios including house prices falling and the global economy contracting by 1.9%. Royal Bank of Scotland failed the test and Barclays and Standard Chartered would both have struggled to cope. Dowd argued that the scenarios were “hardly doomsday” and disputes the way banks’ capital strength is measured. “The stress tests are about as useful as a cancer test that cannot detect cancer. They seek to demonstrate a financial resilience on the part of UK banks that simply isn’t there,” said Dowd in the report. “Our banking system is an accident waiting to happen.” The Bank uses the value of assets as calculated by the banks rather than their value on the markets which, he argued, would give a more accurate assessment of their financial health. “It is disturbing that 10 years on from Northern Rock, the best measures of leverage – those based on market values – indicate that UK banks are even more leveraged than they were then,” said Dowd.

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“American warfare in 7 different countries..”

We Must Repeal The Authorization For The Use Of Military Force (Rand Paul)

As Congress takes up the 2018 National Defense Authorization Act (NDAA), I will insist it vote on my amendment to sunset the 2001 and 2002 Authorizations for the Use of Military Force. Why? Because these authorizations to use military force are inappropriately being used to justify American warfare in 7 different countries. Sunsetting both AUMFs will force a debate on whether we continue the Afghanistan war, the Libya war, the Yemen war, the Syria war, and other interventions. Our military trains our soldiers to be focused and disciplined, yet the politicians who send them to fight have for years ignored those traits when developing our foreign policy. The result? Trillions spent in seemingly endless conflicts in every corner of the globe, while we find ourselves 16 years into the war in Afghanistan wondering what our purpose there even is any more, or if we’ll ever bring our troops home.

If we don’t get this rudderless foreign policy under control now, we’ll still be asking the same questions another 16 years down the road. It’s time to demand the policymakers take their own jobs as seriously as the men and women we ask to risk it all for our nation. Doing so means restoring constitutional checks and balances. Congress has no greater responsibility than defending our country, and the Founders entrusted it with the power of declaring war because they wanted such a weighty decision to be thoroughly debated by the legislature instead of unilaterally made by the Executive branch. Yet Congress has largely abdicated its role anyways, and its sidekick status was plainly evident when former President Obama proposed a new AUMF for the fight against ISIS while insisting he really had all the authority he needed – it being more of a “wouldn’t it be nice” afterthought than an acknowledgement of any required step.

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Not a lot of insight into what’s wrong with US Democrats.

Democrats Fought For 25 Years Over Single-Payer. Now Many Back Sanders (Sirota)

When U.S. Sen. Bernie Sanders’ introduces his Medicare-for-All legislation on Wednesday, advocates of a single-payer, government-sponsored health care hope it will be the end of a bitterly fought policy battle that has roiled the Democratic Party for generations. Since Democratic President Harry Truman first proposed a government-sponsored universal health care system in 1945 — and since a Democratic president and Democratic congress first enacted Medicare and Medicaid in the mid-1960s — progressives have hoped that the United States would follow other industrialized countries by guaranteeing health care to all citizens. Indeed, many of the original proponents of Medicare hoped the system would ultimately be expanded to cover the entire country — as former Social Security commissioner Robert Ball wrote, “We expected Medicare to be a first step toward universal national health insurance.”

And although the intervening years saw the rise of Republican President Ronald Reagan, who derided “socialized medicine,” some Democrats continued to champion the idea. The party’s 1992 presidential contender Jerry Brown ran for the White House promising to support single-payer. But when Bill Clinton defeated him and won the presidency, the Clinton administration opted to back health care reforms that preserved the existing private insurance system — even as Hillary Clinton made favorable comments about single-payer. A generation later, Barack Obama also retreated from single-payer, and instead pushed the Affordable Care Act, which subsidizes the private insurance system.

Now, things appear once again to be shifting. Even as Sanders has declared that his Medicare-for-All bill is not a litmus test, Democrats from across the party’s ideological spectrum are flocking to his legislation. On the progressive side, Democratic senators such as Elizabeth Warren (MA), Jeff Merkley (OR) and Al Franken (MN) have signed onto the legislation. Within the party establishment, former Vice President Al Gore has expressed support, as has conservative former Sen. Max Baucus — one of the architects of the Affordable Care Act whom single-payer advocates saw as a nemesis. With polls showing rising support for government-sponsored health care, the party’s long civil war over the issue may be over, potentially allowing a more unified party to campaign on Medicare-for-All in 2018.

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China has hardly enough land to feed its people.

China Plans Nationwide Use Of Ethanol Gasoline By 2020 (R.)

China plans to roll out the use of ethanol in gasoline nationally by 2020, state media reported on Wednesday citing a government document, as Beijing intensifies its push to boost industrial demand for corn and clean up choking smog. It’s the first time the government has set a targeted timeline for pushing the biofuel, known as E10 and containing 10% corn, across the world’s largest car market, although it has yet to announce a formal policy. Mandates requiring that a minimum amount of biofuel must be blended into fuel for the nation’s cars, similar to the United States and Brazil, are currently set at a provincial level. “This news has greatly boosted confidence inside the industry,” said Michael Mao, analyst with Sublime China Information, adding that without government support ethanol would likely be too expensive to survive in the market.

Shares in biofuel producers rallied on the news, with Shandong Longlive Bio-Technology Co surging 10%, on track for its biggest one-day gain since December 2015. Major producer COFCO Biochemical Anhui Co, a listed unit of state-owned grains trader COFCO, was up almost 6%. A renewed effort to promote the nation’s fledging biofuels industry will be a further blow to major oil producers. On Saturday, the government said it has begun studying when to ban the production and sale of cars using traditional fuels. The news comes after the government said late last year it would aim to double ethanol output by 2020 amid growing pressure to whittle down mountains of ageing corn in state warehouses.

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Some good points, but needs much more work.

Capitalism Can’t Save The Planet – It Can Only Destroy It (Monbiot)

There was “a flaw” in the theory: this is the famous admission by Alan Greenspan, the former chair of the Federal Reserve, to a congressional inquiry into the 2008 financial crisis. His belief that the self-interest of the lending institutions would lead automatically to the correction of financial markets had proved wrong. Now, in the midst of the environmental crisis, we await a similar admission. We may be waiting some time. For, as in Greenspan’s theory of the financial system, there cannot be a problem. The market is meant to be self-correcting: that’s what the theory says. As Milton Friedman, one of the architects of neoliberal ideology, put it: “Ecological values can find their natural space in the market, like any other consumer demand.” As long as environmental goods are correctly priced, neither planning nor regulation is required.

Any attempt by governments or citizens to change the likely course of events is unwarranted and misguided. But there’s a flaw. Hurricanes do not respond to market signals. The plastic fibres in our oceans, food and drinking water do not respond to market signals. Nor does the collapse of insect populations, or coral reefs, or the extirpation of orangutans from Borneo. The unregulated market is as powerless in the face of these forces as the people in Florida who resolved to fight Hurricane Irma by shooting it. It is the wrong tool, the wrong approach, the wrong system. There are two inherent problems with the pricing of the living world and its destruction. The first is that it depends on attaching a financial value to items – such as human life, species and ecosystems – that cannot be redeemed for money. The second is that it seeks to quantify events and processes that cannot be reliably predicted.

[..] A system that depends on growth can survive only if we progressively lose our ability to make reasoned decisions. After our needs, then strong desires, then faint desires have been met, we must keep buying goods and services we neither need nor want, induced by marketing to abandon our discriminating faculties, and to succumb instead to impulse. [..] Continued economic growth depends on continued disposal: unless we rapidly junk the goods we buy, it fails. The growth economy and the throwaway society cannot be separated. Environmental destruction is not a byproduct of this system: it is a necessary element.


Illustration: Sebastien Thibault

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Dec 102016
 
 December 10, 2016  Posted by at 9:57 am Finance Tagged with: , , , , , , , , , , ,  6 Responses »
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Arthur Rothstein Interior of migratory fruit worker’s tent, Yakima, Washington 1936

Donald Trump Team Takes Aim At CIA (CNN)
A Rising Stock Market Does Not Signal Economic Health (FEE)
Economist Streeck Calls Time On Capitalism (G.)
Nobel Economics Prize Winner: ‘The Euro Was A Mistake’ (EA)
Beware Of Panic Buying In Bank Stocks (MW)
Trump Has Unleashed The Stock Market’s ‘Animal Spirits’ (MW)
The Bond Market Doesn’t Believe Draghi (BBG)
Why China Can’t Stop Capital Outflows (Balding)
EU Launches New Investigation Into Chinese Steel Imports (R.)
ECB Refuses To Help Italy’s Crisis-Hit Monte dei Paschi Bank (G.)
60% Of Americans Who Usually Fly Home For The Holidays, Won’t This Year (MW)
Greece Under Fire Over Christmas Bonus For Low-Income Pensioners (G.)
Greece Seamen Strike: Angry Farmers Throw Flares, Set Offices On Fire (KTG)
Broken Men in Paradise (NYT)

 

 

Tried to find a better source for this, not as one-sided as CNN, but does it really matter anymore at this point? Anyone who wants to believe more secret and anonymous ‘news’ about Russia and the US elections, can and will. Others find it hard to believe that the WaPo comes with yet another unsubstantiated ‘story’. CNN calls this ‘revelations’, but that really is not the word. And saying things like “the comments from Trump’s camp will cause concern in the Intelligence community” can probably best be seen as an attempt at comedy.

Donald Trump Team Takes Aim At CIA (CNN)

President-elect Donald Trump’s transition team slammed the CIA Friday, following reports the agency has concluded that Russia intervened in the election to help him win. In a stunning response to widening claims of a Russian espionage operation targeting the presidential race, Trump’s camp risked an early feud with the Intelligence community on which he will rely for top secret assessments of the greatest threats facing the United States. “These are the same people that said Saddam Hussein had weapons of mass destruction,” the transition said in a terse, unsigned statement. “The election ended a long time ago in one of the biggest Electoral College victories in history. It’s now time to move on and ‘Make America Great Again.'”

The sharp pushback to revelations in The Washington Post, which followed an earlier CNN report on alleged Russian interference in the election, represented a startling rebuke from an incoming White House to the CIA. The transition team’s reference to the agency’s most humiliating recent intelligence misfire – over its conclusion that Iraq under Saddam Hussein had weapons of mass destruction — threatens to cast an early cloud over relations between the Trump White House and the CIA. The top leadership of the agency that presided over the Iraq failure during the Bush administration has long since been replaced. But the comments from Trump’s camp will cause concern in the Intelligence community about the incoming President’s attitude to America’s spy agencies.

CNN reported this week that Trump is getting intelligence briefings only once a week. Several previous presidents preparing for the inauguration had a more intense briefing schedule. Multiple sources with knowledge of the investigation into Russia’s hacking told CNN last week that the US intelligence community is increasingly confident that Russian meddling in the US election was intended to steer the election toward Trump, rather than simply to undermine or in other ways disrupt the political process. On Friday, the Post cited US officials as saying that intelligence agencies have identified individuals connected to the Russian government who gave Wikileaks thousands of hacked emails from the Democratic National Committee and Hillary Clinton’s campaign chairman John Podesta.

Trump has repeatedly said there is no evidence to suggest that President Vladimir Putin’s Russia, with which he has vowed to improve relations, played a nefarious role in the US election. “I don’t believe it. I don’t believe they interfered,” Trump said in an interview for the latest issue of Time magazine, adding that he thought intelligence community accusations about Russian interventions in the election were politically motivated.

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“The Economy Isn’t A Thing”.

A Rising Stock Market Does Not Signal Economic Health (FEE)

The headlines tell us that the Dow Jones is up around 1,000 points since Donald Trump won the election on November 8th. The conventional wisdom is that this shows how much confidence people have in Trump’s ability to generate a healthy American economy. The argument is that if people are willing to buy stock in American firms, this indicates their belief that those firms will see improving profits over the next few years. They then draw the conclusion that more profitable firms indicate a healthier American economy. Although this argument is correct about stock prices reflecting an increasing belief in the profitability of US firms, it makes a major error in assuming that profitable firms necessarily mean a better economy. First, it’s important to understand that phrases like “a healthier economy” are themselves problematic. The “economy” is not the thing we should be concerned about. In fact, in some fundamental sense there’s no such thing as “the economy.”

As Russ Roberts and John Papola memorably put it in the music video “Fight of the Century:”
The economy’s not a car.
There’s no engine to stall.
No experts can fix it.
There’s no “it” at all.
The economy is us

Things are not “good/bad for the economy.” They are good or bad for the people who comprise the market process, specifically in our capacity as consumers. All the economy amounts to is people engaging exchanges in order to better satisfy their wants. What we should care about is whether or not people are able to better satisfy those wants. And “better satisfy” here means not just more and better goods and services, but at cheaper prices too. Lower prices mean that consumers have income left over to purchase goods they otherwise couldn’t, enabling them to better satisfy their wants by satisfying more of them. In a genuinely free market, the profitability of firms is a good reflection of their ability to better satisfy the wants of consumers. Our willingness to pay for their goods and services reflects the fact that we receive value from those products, so their profits are at least a general signal of having created that value and satisfied consumer wants.

Trump’s policies may well enrich many firms, but they will impoverish the average American. In fact, consumers get much more value out of most innovations than is reflected in the profits of firms. A famous study by economist William Nordhaus estimated that profits made up only about 2.2% of the total benefits created by innovations. If you doubt this, ask yourself how much it would take for you to give up your smartphone and its connectivity. Then multiply that by all of the smartphone users in the world. Then compare that to the profits made off smartphones. The total value to consumers will dwarf the profits of smartphone producers. However, when markets aren’t free, profits do not necessarily reflect value creation. Firms who profit through privileges, protections, and subsidies from governments demonstrate that they are able to please political actors, not that they can deliver value to consumers by better satisfying their wants.

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Can’t give the article the space it deserves here.

Economist Streeck Calls Time On Capitalism (G.)

Nothing in his work prepares you for meeting Streeck (pronounced Stray-k). Professionally, he is the political economist barking last orders for our way of life, and warning of the “dark ages” ahead. His books bear bluntly fin-de-siecle titles: two years ago was Buying Time, while the latest is called How Will Capitalism End? (spoiler: not well). Even his admirers talk of his “despair”, by which they mean sentences such as this: “Before capitalism will go to hell, it will for the foreseeable future hang in limbo, dead or about to die from an overdose of itself but still very much around, as nobody will have the power to move its decaying body out of the way.”

What does such gloom look like in the flesh? Small glasses, neat side parting and moustache, a backpack, a smart anorak and at least a decade younger than his 70 years. Alluding to Trump’s victory, he cheerily declares “What a morning!” as if discussing the likelihood of rain, then strolls into the gallery. [..] At a time when macroeconomists have failed and other academics have retreated into disciplinary solipsism, Streeck is one of the few to have risen to the moment. Many of the themes that will define this year, this decade, are in his work. The breakup of Europe, the rise of plutocrat-populists such as Trump, the failures of Mark Carney and the technocratic elite: he has anatomised all of them.

This summer, Britons mutinied against their government, their experts and the EU – and consigned themselves to a poorer, angrier future. Such frenzies of collective self-harm were explained by Streeck in the 2012 lectures later collected in Buying Time: “Professionalised political science tends to underestimate the impact of moral outrage. With its penchant for studied indifference … [it] has nothing but elitist contempt for what it calls “populism”, sharing this with the power elites to which it would like to be close … [But] citizens too can “panic” and react “irrationally”, just like financial investors … even though they have no banknotes as arguments but only words and (who knows?) paving stones.”

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The structure of the EU makes it impossible for it to survive. That’s what these people miss.

Nobel Economics Prize Winner: ‘The Euro Was A Mistake’ (EA)

The European Union should embark on a process of decentralisation and return certain areas of decision making to the member states if it wants to survive and thrive, according to Nobel Memorial Prize in Economic Sciences winner Oliver Hart. Today (9 December), Hart and his colleague, Bengt Holmström, will receive the top prize for their work on contract theory, which covers everything from how CEOs are paid to privatisation. Hart told EFE that he believes the keyword in EU politics is now “decentralisation” and that Brussels has “gone too far in centralising power”. The British-born economist said that “if it abandons this trend, the EU could survive and flourish, otherwise, it could fail”.

The Harvard University professor insisted that the EU member states are not “sufficiently homogeneous” to be considered one single entity, adding that trying to make the EU-28 into one was an “error”. Hart said that the concerns felt by the member states about decision making and centralisation of power in Brussels should be addressed by returning competences to the EU capitals. The Nobel winner conceded that the EU should retain control of “some important areas”, like free trade and free movement of workers, the latter of which he admitted is “ultimately, an idea that I personally like, although I understand that there are political worries”.

His prize-winning colleague, Holmström, also told EFE that the EU needs to “redefine its priorities, limiting its activities and its regulatory arm, in order to focus on what can be done on the essential things”. The Finnish economist, who also teaches at the Massachusetts Institute of Technology (MIT), said that Brussels needs to rejig its system of governance and its basic rules in order to make them “clearer and simpler”. Hart argued that “the euro was an mistake” and said that it’s an opinion that he has maintained ever since the monetary union was first introduced. The economist added that it “wouldn’t be a sad thing at all” if in the future Europe abandoned the single currency and that the British were “very clever” to stay out of it.

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Wait till January.

Beware Of Panic Buying In Bank Stocks (MW)

Buying of banking stocks has reached panic proportions, suggesting a trend reversal over the next couple of weeks may be likely. The SPDR Financial Select Sector exchange-traded fund rose 0.2% Friday, closing at the highest level since Feb. 1, 2008. Financials have been the best performer of the S&P 500’s 11 key sectors since Donald Trump was elected president, with the sector tracking stock (XLF) soaring 18.8% since Nov. 8, compared with a 5.6% gain in the S&P 500 index. The XLF produced this week its best rolling one-month (22 sessions) %age gains since August 2009, as the financial crisis was ending. Investors appear to be banking that President-elect Donald Trump will provide a Goldilocks scenario for financials, as his promises of lower regulations, lower corporate taxes and a revived economy that results in higher longer-term interest rates are just right for the sector.

A number of technical warnings signs have flashed, however, suggesting the postelection buying frenzy is petering out. On Thursday, 73% of the S&P 500 financial sector hit 52-week highs, the most since Feb. 13, 1997, and the second highest%age since 1990, according to Jason Goepfert, president of Sundial Capital. His research suggests that the previous five-largest surges in 52-week highs in financials produced a median loss of 1.9% over the next week, and a decline of 2.5% over the next two weeks. In comparison, his data showed the average for all days was a gain of 0.2% in a week and a 0.4% rise in two weeks. “There is no doubt that momentum is impressive in the sector—the problem is that it seems to have entered panic mode and that rarely lasts,” Goepfert wrote in a note to clients.

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Question is, how long for?

Trump Has Unleashed The Stock Market’s ‘Animal Spirits’ (MW)

You don’t have to call it a Trump rally. But some market specialists appear to be struggling to pin a name to the recent moves across global markets, which has pushed the S&P 500, DJIA, the Nasdaq – and most recently the Dow Jones Transportation Average – into record territory since President-elect Donald Trump’s Nov. 8 victory over rival Hillary Clinton. The Dow scored its 14th record close on Friday. Steve Barrow at Standard Bank said in a Nov. 30 research note that “whatever fears might exist in some quarters about Trump’s win, some sort of animal spirits might have been spurred.” So-called animal spirits is an oft-used term on Wall Street coined by famed economist John Maynard Keynes to describe gut instinct.

Or as Keynes explained, “a spontaneous urge to action rather than inaction”. A certain verve to scoop up assets has certainly appeared to be at play since early November. Indeed, the Dow industrials as of Friday’s close have risen nearly 8% since the election outcome, the broad-stock benchmark S&P 500 index has climbed 5.6%, while the Nasdaq has picked up 4.8% over the same 30-day period. The Nasdaq scored its first record close since Nov. 29 on Wednesday. Meanwhile, the small-cap focused Russell 2000 which is most sensitive to economic prospects for the country, has jumped more than 15.2% since Nov. 8. To be sure, the U.S. has been a shining star compared with its weaker sisters abroad when it comes to economic growth. The ECB on Thursday said it planned on scaling back elements of its stimulus program but noted that it would extend it “if necessary.”

Barrow speculates that global growth has mostly stagnated in the aftermath of the 2008-09 financial crisis because the market didn’t put much faith in the tools, namely asset-repurchases and ultralow rates, that have been put in place by central bankers. By contrast, Trump has proposed a raft of fiscal-stimulus measures to upgrade the U.S.’s ailing infrastructure. The market now appears to be betting, in part, that the incoming leader of the free world will make good on those promises, which could inject a dose of spending that could create jobs and break a trend of economic stagnation. As a result infrastructure companies, commodities associated with construction and bank shares, among other asset classes, vaulted higher. Wall Street is euphoric over the possibilities.

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People like Draghi have come to rely on docile markets. Once that’s gone….

The Bond Market Doesn’t Believe Draghi (BBG)

The beatings will continue until morale improves, the saying goes. That’s one interpretation of the ECB’s somewhat convoluted rejig of its quantitative easing program this week. By insisting he’s not tapering bond buying while simultaneously reducing the monthly purchases and extending the time frame, President Mario Draghi is sending a mixed message that likely reflects disagreements among his Governing Council members. Cutting the program to €60 billion per month from €80 billion throws a bone to those who worry that it’s time to withdraw the monetary medicine; lengthening the timeline until the end of next year pacifies policy makers who fear the patient isn’t yet on the road to recovery.

But in financial markets, bond yields are effectively tightening monetary conditions on the central bank’s behalf, suggesting investors are beginning to anticipate an improved economic outlook. That could play out in two ways: Either bonds are correct, and the ECB will find itself tapering properly next year, or bonds are wrong, in which case Draghi will have to make good on his pledge to do more if needed. The 10-year German bond yield has climbed to about 0.4% from a low of almost -0.2% in July. That’s still a ridiculously low level; the average in the past two decades is about 3.4%, and for most of the 1990s the range was between 5% and 9%. Nevertheless, it amounts to a significant tightening in monetary conditions in just three months as the yield curve has steepened:

Also, don’t forget that the euro zone remains a fractured economic landscape. Germany, with an unemployment rate of 6%, will find it easier to withstand rising borrowing costs than Italy, where the jobless rate is almost twice as high. And the Italian yield curve has replicated the move seen in Germany, at higher levels that have doubled 10-year yields to 2% since August:

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“China is caught between trying to prop up a currency facing long-term decline and letting capital leave at will, risking a bank crisis…”

Why China Can’t Stop Capital Outflows (Balding)

How China manages its currency is likely to be the global economic story of 2017. Despite the government’s best efforts, capital continues to leave the country at a brisk pace, with a balance-of-payments deficit through the third quarter of $469 billion. Attempts to arrest this flow probably won’t work. But they may well create new risks. Capital outflows began gathering steam in 2012, when the government liberalized current-account payment transactions in goods and services. Enterprising Chinese figured out that while they couldn’t officially move money abroad to buy a house via the capital account – individuals are barred from moving more than $50,000 out of the country each year – they could create false trade invoices that would allow them to deposit money where they needed it.

The result was a huge discrepancy between payments recorded for imports and the declared value of goods passing through customs, amounting to $526 billion in hidden outflows last year. The problem has only worsened in 2016. French investment bank Natixis estimates that outflows will total more than $900 billion this year, despite new restrictions on yuan movements, including prohibitions on using credit and debit cards to pay for insurance products in Hong Kong. Last week, the government added yet another restriction. It announced that all international capital-account transactions of more than $5 million will need to be approved by the State Administration of Foreign Exchange. This has businesses deeply concerned, given that the administration likely doesn’t have the manpower for the sheer number of transactions it will need to review.

And if such restrictions can be placed on the capital account, it seems only a matter of time until they’re imposed on goods and services transactions. All of which raises a simple question: Why is Beijing working so hard to prop up the yuan and crack down on outward capital flows? The common answer is that it fears the trade consequences of a declining yuan. But that’s not it. Since the government devalued the yuan on Aug. 11, the combined value of imports and exports has fallen by only 8%, even as the value of the yuan has fallen 8% against the U.S. dollar. Any coming decline in the currency won’t make much difference, given the weak global economy and the product mix China is buying and selling.

The real reason is that the government is concerned about the implications of further liberalizing. China’s rickety banks, with delinquency rates of 30%, are receiving regular liquidity injections from the PBOC. Money market rates have been rising, from under 2% this summer to above 2.3% in Shanghai today. Allowing international capital mobility could easily trigger larger withdrawals – and hence liquidity crunches for banks already feeling the pinch of bad loans. In other words, China is caught between trying to prop up a currency facing long-term decline and letting capital leave at will, risking a bank crisis.

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This is far from over.

EU Launches New Investigation Into Chinese Steel Imports (R.)

The EU has launched an investigation into whether Chinese producers of certain corrosion-resistant steels are selling into Europe at unfairly low prices, in its latest action against cheap Chinese steel imports. The European Commission has determined that a complaint brought by EU steelmakers association Eurofer merits an investigation, the EU’s official journal said on Friday. The EU has imposed duties on a wide range of steel grades after investigations over the past few years to counter what EU steel producers say is a flood of steel sold at a loss due to Chinese overcapacity.

Some 5,000 jobs have been axed in the British steel industry in the last year, as it struggles to compete with cheap Chinese imports and high energy costs. G20 governments recorecognized in September that steel overcapacity was a serious problem. China, the source of 50% of the world’s steel and the largest steel consumer, has said the problem is a global one. In October, the European Commission set provisional import tariffs of up to 73.7% for heavy plate steel and up to 22.6% for hot-rolled steel coming from China. Those investigations are set to conclude in April.

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Feels political. They could have announced this just as easily a week ago, before the referendum. Now a crisis threatens that may help make the case for interim technocrats to step in, and keep Grillo out.

ECB Refuses To Help Italy’s Crisis-Hit Monte dei Paschi Bank (G.)

Fears that the Italian government will have to prop up Monte dei Paschi di Siena (MPS) are mounting after the European Central Bank refused to give the world’s oldest bank more time to find major investors to back a €5bn (£4.2bn) cash injection. Trading in the troubled bank’s shares was repeatedly halted on the Italian stock exchange on Friday. The MPS share price closed 10% lower as the bank’s board held a meeting that had already been scheduled before the reports that the ECB had rejected its calls for an extension to the deadline to bolster its financial position. The ECB [..] decision may have closed the door to a private sector solution, under which major investors including the sovereign wealth fund of Qatar would pump billions into the bank.

But MPS said on Friday night that its board would next meet on Sunday night and that it was pressing on with its private sector solutions Even so there were concerns that the Italian government would still have to embark on a “precautionary recapitalisation” of the bank and potentially impose losses on retail investors who hold €2.1bn of the bank’s bonds. Under new EU rules, taxpayer money cannot be used unless bondholders take losses first. A precautionary recapitalisation takes place before a bank becomes insolvent. ECB officials had told Reuters they hoped the refusal to extend the deadline would pave the way for similar support for other Italian banks which are struggling with €360bn of bad loans.

It appeared to leave the Italian government with little option but to embark on a “precautionary recapitalisation” of the bank and potentially impose losses on retail investors who hold €2.1bn of the bank’s bonds. Under new EU rules, taxpayer money cannot be used unless bondholders take losses first. A precautionary recapitalisation takes place before a bank becomes insolvent. The bank has capital above regulatory minimums.

[..] The eurosceptic Five Star Movement, the second most popular party in Italy, said the government needed to step into the fray. “MPS can only be saved by state aid in order to avoid bail-in rules [that hurt] small savers, as happened a year ago,” the party’s MEPs said in a statement on founder Beppe Grillo’s blog. “This is not the time to fear the EU and a possible infraction procedure. The consequences of a disordered bail-in would be disastrous to say the least, almost apocalyptic if one considers the size of MPS.” They added that it was time to “slam our fists at the table in Brussels … while not giving a damn about the deficit”.

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Not as bad as numbers suggest perhaps, but not exactly encouraging wither.

60% Of Americans Who Usually Fly Home For The Holidays, Won’t This Year (MW)

Rising travel costs, airport delays, and other stressors mean fewer people will be flying home for the holidays this December. Almost 60% of people who normally fly home for the holidays will not this year, a survey of more than 1,000 visitors to travel deals website Airfarewatchdog found; 36% of whom say because it is too expensive and 21% would prefer to drive than deal with delays and long lines. An additional 13% said “the skies are too crowded” to fly home this year. It’s also not cheap: 70% of people who fly home for the holidays spend between $500 and $1,000 and 20% spend more than $1,000, according to a study of more than 1,000 users from travel assistant app Mezi.

Most Americans have less than $1,000 in savings, making such steep spending a major yearly commitment. Still, 18% of respondents in the Airfarewatchdog study said they fly home every year and still plan to do so. Air travel makes up a small%age of holiday travel – less than 10% in 2015, according to travel and automotive services non-profit AAA. But whether driving or flying home for the holidays, the majority of Americans are stressed out – 65% of people say they have anxiety about going home for the holidays, including 72% of women and 58% of men. The top sources of dread for these respondents include being bored and having nothing to do, conflict with family members, and questions about their relationship status.

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Makes you wonder how Schäuble spends Christmas. Scrooge comes to mind, prominently.

Greece Under Fire Over Christmas Bonus For Low-Income Pensioners (G.)

A goodwill gesture to ease the plight of those hardest hit in Greece by tax increases and budget cuts has backfired spectacularly on the prime minister, Alexis Tsipras, with the country’s international creditors making clear he has acted out of step. In the starkest case yet of how closely watched loan-reliant Athens is, lenders reacted with unusual alacrity on Friday after the leftist leader announced a one-off Christmas bonus for 1.6 million low-income pensioners. “The programme includes clear commitments to discuss all measures related to programme objectives with the institutions in advance,” an EU spokeswoman said. “The commission was not made aware of all the details of the announcements before they were made. We will now need to study them.”

Retirees have been among those most affected by the gruelling regime of austerity the debt-stricken country has been forced to enact in exchange for over €300bn in emergency rescue funding. Once unassailable, Tsipras’s own popularity has plummeted amid scenes of pensioners being teargassed and beaten as they took to the streets in protest. Under the scheme – announced in a televised address following a nationwide strike when anti-austerity demonstrations had swept the country – Tsipras said handouts of €617m would be given to those living on €800 or less a month. [..] State minister Alekos Flambouraris, the 42-year-old politician’s closest mentor, said creditors had not been forewarned as the money came out of the surplus Greece had managed to achieve through stringent belt-tightening.

[..] social tensions are also spiralling. “Tsipras is worried and that is why he made this move,” Grigoris Kalomoiris, chief policy maker at the union of public sector employees Adedy, told the Guardian. “Come January there will be more cuts to salaries and pensions in very real terms. We are all being pushed to breaking point. This, believe me, is the calm before the storm.” Ignoring creditor anger, Tsipras’s beleaguered administration dug in its heels late on Friday, saying the bonus did not threaten fiscal targets and would not be rescinded. “It is up to the Greek government to distribute expenditure in the way it sees most fit and socially correct, as long as agreed goals are reached,” the prime minister’s office said. “Greece is not a colony.”

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No ferries for 9 days?! In Greece, land of ferries?!

Greece Seamen Strike: Angry Farmers Throw Flares, Set Offices On Fire (KTG)

The port of Heraklion on the island of Crete turned into a battle field when hundreds of raging farmers attacked striking seamen and set the ticket offices of ANEK shipping company on fire on Friday evening. Angry about the ongoing strike of the seamen, the farmers threw flares at a ferry docked at the port. The sailors of Blue Horizon ferry answered with water drops. A farmer from Ierapetra had claimed that the ferry captain had put in operation the machines so that the ferry depart from the pier and that the lines were cut at risk of injuring farmers. The farmers were shouting “traitors” and some climbed on the lines. They kept demanding that the ferry opens its doors so that they can ship their products to the mainland.

Almost at the same time, a group of farmers moved to the ticket offices of shipping company ANEK and set it on fire. Hundreds of angry and determined farmers arrived at the port of Heraklion around 5pm and declared that they will not step back until 150 trucks loaded with vegetables get on board and leave for Piraeus. The harbormaster of Heraklion was injured and taken to the hospital with an ambulance. He was reportedly when he hit at a door during the incidents. In the 9th day of the seamen strike, the farmers are in rage as they cannot forward their products to the mainland and abroad, thus losing thousands of euros.

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I’m not at all a fan of these kinds of comparisons, but what exactly sets Australian ‘policy’ apart from German concentration camps?

Broken Men in Paradise (NYT)

MANUS, Papua New Guinea — The plane banks over the dense tropical forest of Manus Island, little touched, it seems, by human hand. South Pacific waters lap onto deserted beaches. The jungle glistens, impenetrable. At the unfenced airport, built by occupying Japanese forces during World War II, a sign “welcomes you to our very beautiful island paradise in the sun.” It could be that, a 60-mile-long slice of heaven. But for more than 900 asylum seekers from across the world banished by Australia to this remote corner of the Papua New Guinea archipelago, Manus has been hell; a three and a half year exercise in mental and physical cruelty conducted in near secrecy beneath the green canopy of the tropics.

A road, newly paved by Australia as part payment to its former colony for hosting this punitive experiment in refugee management, leads to Lorengau, a capital of romantic name and unromantic misery. Here I find Benham Satah, a Kurd who fled persecution in the western Iranian city of Kermanshah. Detained on Australia’s Christmas Island after crossing in a smuggler’s boat from Indonesia and later forced onto a Manus-bound plane, he has languished here since Aug. 27, 2013. Endless limbo undoes the mind. But going home could mean facing death: Refugees do not flee out of choice but because they have no choice. Satah’s light brown eyes are glassy. His legs tremble.

A young man with a college degree in English, he is now nameless, a mere registration number — FRT009 — to Australian officials. “Sometimes I cut myself,” he says, “so that I can see my blood and remember, ‘Oh, yes! I am alive.’ ” Reza Barati, his former roommate at what the men’s ID badges call the Offshore Processing Center (Orwell would be proud), is dead. A fellow Iranian Kurd, he was killed, aged 23, on Feb. 17, 2014. Satah witnessed the tall, quiet volleyball player being beaten to death after a local mob scaled the wall of the facility. Protests by asylum seekers had led to rising tensions with the Australian authorities and their Manus enforcers.

The murder obsesses Satah but constitutes a mere fraction of the human cost of a policy that, since July 19, 2013, has sent more than 2,000 asylum seekers and refugees to Manus and the tiny Pacific island nation of Nauru, far from inquiring eyes. (Unable to obtain a press visa to visit Manus, I went nonetheless.) The toll among Burmese, Sudanese, Somali, Lebanese, Pakistani, Iraqi, Afghan, Syrian, Iranian and other migrants is devastating: self-immolation, overdoses, death from septicemia as a result of medical negligence, sexual abuse and rampant despair. A recent United Nations High Commissioner for Refugees report by three medical experts found that 88% of the 181 asylum seekers and refugees examined on Manus were suffering from depressive disorders, including, in some cases, psychosis.

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On a lighter note:

Oct 112016
 
 October 11, 2016  Posted by at 8:42 am Finance Tagged with: , , , , , , , , , ,  Comments Off on Debt Rattle October 11 2016
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NPC Grand Palace shoe shining parlor, Washington DC 1921

“How Do You Have Capitalism Without Any Cost Of Capital?” (BBG)
7 in 10 Americans Have Less Than $1,000 In Savings (MF)
After Becoming Debt Slaves, Millennials Get Blamed for Lousy Economy (WS)
S&P 500 Triangle Chart Pattern ‘Warns Of A Big Selloff’ (MW)
The Bank of Mom and Dad is Australia’s Fastest-Growing Housing Lender (BBG)
Goldman Warns China’s Outflows May Be Worse Than They Look (BBG)
‘Why Do They Hate Us So?’-A Western Scholar’s Reply to a Russian Student (SC)
Remainers, Brexit, Racism and a Self-Fulfilling Prophecy (Hannan)
Greece Gets Fresh Loan Payout as Euro Area Looks to Help on Debt (BBG)
Brazil Votes To Amend Constitution, Ban Spending Increases For 20 Years (BBG)
Global Clean Energy Investment Dropped 43% in Worst Quarter Since 2013 (BBG)
Russia’s Rosneft Boss Sechin Says No To OPEC Oil Cut/Freeze (R.)
Britain’s Nuclear Cover-Up (NYT)

 

 

Titans of finance gather and sulk.

“How Do You Have Capitalism Without Any Cost Of Capital?” (BBG)

Mary Callahan Erdoes, one of JPMorgan Chase’s most senior executives, summed up her industry’s mood like this: “There is no excitement,” she told throngs of bankers gathered in Washington. “There is a lot of handwringing.” Again and again, speakers at the Institute of International Finance’s three-day meeting in Washington, which wrapped up Saturday, bemoaned the inability of central banks to rev up economic growth, as well as the drag of tougher regulations and the looming impact of Brexit. Concerns over Deutsche Bank’s mounting legal costs deepened the gloom. Slow growth is leaving companies little reason to expand, fueling the public’s frustration and giving rise to extreme political views and nationalism, said Erdoes, 49, who runs JPMorgan’s asset-management operations.

Low interest rates – instead of better fiscal stimulus – are taking a toll on the entire system, she said. “We had a very smart economist at JPMorgan ask me the following question: How do you have capitalism without any cost of capital? And therein lies the problem.” [..] Goldman Sachs President Gary Cohn called the world’s central banks an “ineffective cartel,” as actions in Europe and Japan lead to negative rates and hamstring other policy makers. The outlook for low growth is long-term, he said. “I don’t see this changing,” Cohn said Friday. “We keep saying we’re getting closer to the end, but I don’t think we’re getting closer to the end.”

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I’m not sure how one writes an article like this and completely fails to mention that for millions of Americans, it’s not a matter of bad saving habits, but of spending everything on the basics.

7 in 10 Americans Have Less Than $1,000 In Savings (MF)

The U.S. is often referred to as the land of economic opportunity. Apparently, it’s also the land of consumption and “spend everything you’ve got.” We don’t have to look far for confirmation that Americans are generally poor savers. Every month the St. Louis Federal Reserve releases data on personal household savings rates. In July 2016, the personal savings rate was just 5.7%. Comparatively, personal savings rates in the U.S. 50 years ago were double where they are today, and nearly all developed countries have a higher personal savings rate than the United States. In other words, Americans are saving less of their income than they should be — the recommendation is to save between 10% and 15% of your annual income — and they’re being forced to do more with less in terms of investing.

However, new data emerged this week from personal-finance news website GoBankingRates that shows just how dire Americans’ savings habits really are. Last year, GoBankingRates surveyed more than 5,000 Americans only to uncover that 62% of them had less than $1,000 in savings. Last month GoBankingRates again posed the question to Americans of how much they had in their savings account, only this time it asked 7,052 people. The result? Nearly seven in 10 Americans (69%) had less than $1,000 in their savings account. Breaking the survey data down a bit further, we find that 34% of Americans don’t have a dime in their savings account, while another 35% have less than $1,000. Of the remaining survey-takers, 11% have between $1,000 and $4,999, 4% have between $5,000 and $9,999, and 15% have more than $10,000.

Furthermore, even though lower-income adults struggle with saving money more than middle- and upper-income folks, no income group did particularly well. Some 29% of adults earning more than $150,000 a year, and 44% making between $100,000 and $149,999, had less than $1,000 in savings. Comparatively, 73% of the lowest income adults (those earnings $24,999 or less annually) had less than $1,000 in their savings account. There was even minimal difference between multiple generations of Americans. From seniors aged 65 and up to young millennials aged 18 to 24, between 62% and 72% of Americans had less than $1,000 in a savings account.

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Great little piece by Wolf Richter.

After Becoming Debt Slaves, Millennials Get Blamed for Lousy Economy (WS)

Over the past few days, the Diamond Producers Association launched its first new ad campaign in five years after watching retail sales of diamond jewelry slow down, as Millennials built on the habit pioneered by prior generations of delaying or not even thinking about marriage, and thus not being sufficiently enthusiastic about buying diamond engagement rings. The campaign, according to Adweek, is designed to motivate Millennials “to commemorate their ‘real,’ honest relationships with diamonds, even if marriage isn’t part of the equation.” Mother New York, the agency behind the campaign, spent months interviewing millennials, according to Quartz, and learned that they associated diamonds with a “fairytale love story that wasn’t relevant to them.”

So the premium jewelry industry, seeing future profits at risk, needs to do something about that. A year ago, it was Wall Street – specifically Goldman Sachs – that did a lot of hand-wringing about millennials. “They don’t trust the stock market,” Goldman Sachs determined in a survey. Only 18% thought that the stock market was “the best way to save for the future.” It’s a big deal for Wall Street because millennials are now the largest US generation. There are 75 million of them. They’re supposed to be the future source of big bonuses. Wall Street needs to figure out how to get to their money. The older ones have seen the market soar, collapse, re-soar, re-collapse, re-soar…. They’ve seen the Fed’s gyrations to re-inflate stocks. They grew up with scandals and manipulations, high-frequency trading, dark pools, and spoofing.

They’ve seen hard-working people get wiped out and wealthy people get bailed out. Maybe they’d rather not mess with that infernal machine. And today, the Los Angeles Times added more fuel. “They’re known for bouncing around jobs, delaying marriage, and holing up in their parents’ basements,” it mused. Everyone wants to know why millennials don’t follow the script. Brick-and-mortar retailers have been complaining about them for years, with increasing intensity, and a slew of specialty chains have gone bankrupt, a true fiasco for the industry, even as online retailers are laughing all the way to the bank. “For starters, millennials are not big spenders, at least not in the traditional sense,” the Times said. Yet most of them spend every dime they earn, those that have decent jobs. But much of that spending goes toward their student-loan burden and housing.

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Trying to fit human behavior into triangles.

S&P 500 Triangle Chart Pattern ‘Warns Of A Big Selloff’ (MW)

The S&P 500 is moving fast toward an impending breakout that could be bad news for investors. “And it’s gonna be big, by all accounts,” said Carter Braxton Worth, a technical analyst at research firm Cornerstone Macro. The S&P 500 has been trading within a “symmetrical triangle” on a number of time scales, as the index traced out a pattern of rising lows and falling highs. Since the upper and lower boundary lines are narrowing to a point, it’s just a matter of time before the S&P 500 breaks above or below one of them. “It is a circumstance where buyers and sellers are matched off so evenly that purchases being made by those who like a particular security are in the same order of magnitude as the selling being done by those who dislike the security,” Worth wrote in a note to clients.

His research suggests that the resolution of these standoffs is usually “aggressive,” with the index moving past the declining or rising trendlines “in a meaningful way.” Many technicians believe triangles represent continuation patterns, or periods of pause in a bigger trend, which means they should eventually be resolved in the direction of the preceding trend. In the S&P 500’s case, that would mean a big rally is coming. But Worth said that based on his interpretation of the charts, the S&P 500’s triangle looks more like a reversal pattern. “We believe the current formation is a setup for a move lower,” Worth said.

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Hoping that just this once it’s different.

The Bank of Mom and Dad is Australia’s Fastest-Growing Housing Lender (BBG)

Beset by lending curbs and bubble-esque prices, first-time home buyers in Australia are turning to a rapidly growing source of finance: The Bank of Mom and Dad. More parents are taking advantage of record-low interest rates to refinance their properties and help their grown-up kids onto the housing ladder amid sky-rocketing house values. Digital Finance Analytics estimates the number of Aussies getting help from their parents has soared to more than half of first-home buyers from just 3% six years ago. Australia’s housing rally has favored baby-boomers and locked out youth, compounding an inter-generational shift of wealth.

As the number of bank loans to first-time buyers dwindles, the average slice of cash handed to them by parents has almost quadrupled in the past six years, DFA says. The downside: a market that the Reserve Bank of Australia is already wary of may get further inflated. First-time buyers are “being infected by the notion that property is about wealth building, rather than somewhere to live,” said Martin North, Principal at DFA. That “may be tested if interest rates rise later, or property prices fall from their current illogical stratospheric levels.” [..] The boom is turning some homes into cash dispensers. More than two thirds of owners that refinanced houses worth more than A$750,000 did so to extract capital for reasons including helping their kids. Near the start of 2010, the average helping hand from parents was about A$23,000; today, it’s more than A$80,000.

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“..they don’t have a strong willingness to hold the yuan due to depreciation expectations..” Does that rhyme with the SDR basket thing?

Goldman Warns China’s Outflows May Be Worse Than They Look (BBG)

China’s currency outflows may be bigger than they look, with Goldman Sachs warning that a rising amount of capital is exiting the country in yuan rather than in dollars. While the nation’s foreign-exchange reserves have stabilized and lenders’ net foreign-exchange purchases for clients have fallen close to a one-year low, official data show that $27.7 billion in yuan payments left China in August. That’s compared with a monthly average of $4.4 billion in the five years through 2014. Such large cross-border moves can’t be explained by market-driven factors and need to be taken into account when measuring currency outflows, according to MK Tang, Hong Kong-based senior China economist at Goldman Sachs.

Any sign of increased capital outflows could disturb a recent calm in China’s foreign-exchange market, adding to pressure from a potential Federal Reserve interest-rate increase and denting the yuan’s image as the world’s newest global reserve currency. The yuan fell to a six-year low on Monday, adding to outflow pressures. “There is some window guidance from the central bank that limits companies’ dollar conversion onshore, so they need to move the money overseas in yuan,” said Harrison Hu, chief Greater China economist at RBS in Singapore. “But they don’t have a strong willingness to hold the yuan due to depreciation expectations, so they sell it to offshore banks. This pressures the offshore yuan’s exchange rate.”

[..] Goldman Sachs started including yuan funds in its analysis of outflows in July, after noting that cross-border movement of the currency masked actual pressures. The bank estimates that 56% and 87% of outflows took place through the offshore yuan market in July and August, respectively.

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Do read the whole thing for a good history lesson.

‘Why Do They Hate Us So?’-A Western Scholar’s Reply to a Russian Student (SC)

In 2000 when Putin was elected president, he publically promoted security and economic cooperation with Europe and the United States. After 9/11, he offered real assistance to Washington. The United States accepted the Russian help, but continued its anti-Russian policies. Putin extended his hand to the west, but on the basis of five kopeks for five kopeks. This was a Soviet policy of the interwar years. It did not work then and it does not work now. In 2007 Putin spoke frankly at the Munich conference on Security Policy about overbearing US behaviour. The “colour revolutions” in Georgia and the Ukraine, for example, and the Anglo-American war of aggression against Iraq raised Russian concerns. US government officials did not appreciate Putin’s truth-telling which went against their standard narrative about «exceptionalist» America and altruistic foreign policies to promote «democracy».

Then in 2008 came the Georgian attack on South Ossetia and the successful Russian riposte which crushed the Georgian army. It’s been all down-hill since then. Libya, Syria, Ukraine, Yemen are all victims of US aggression or that of its vassals. The United States engineered and bankrolled a fascist coup d’état in Kiev and has attempted to do the same in Syria reverting to their “Afghan policy” of bankrolling, supplying and supporting a Wahhabi proxy war of aggression against Syria. Backing fascists on the one hand and Islamist terrorists on the other, the United States has plumbed the depths of malevolence. President Putin and Russian foreign minister Sergei Lavrov have made important concessions, to persuade the US government to avert catastrophe in the Middle East and Europe.

To no avail, five kopeks for five kopeks is not an offer the United States understands. Assymetrical advantages is what Washington expects. One cannot reproach the Russian government for trying to negotiate with the United States, but this policy has not worked in the Ukraine or Syria. Russian support of the legitimate government in Damascus has exposed the US-led war of aggression and exposed its strategy of supporting Al-Qaeda, Daesh, and their various Wahhabi iterations against the Syrian government. US Russophobia is redoubled by Putin’s exposure of American support for Islamist fundamentalists and by Russia’s successful, up to now, thwarting of US aggression. Who does Putin think he is? From my observations, I would reply that President Putin is a plain-spoken Russian statesman, with the support of the Russian people behind him.

For five kopeks against five kopeks, he will work with the United States and its vassals, no matter how malevolent they have been, if they adopt less destructive policies. Unfortunately, recent events suggest that the United States has no intention of doing so. After one hundred years of almost uninterrupted western hostility, no one should be under any illusions. So then, the question is “Why do they hate us so?” Because President Putin wants to build a strong, prosperous, independent Russian state in a multi-polar world. Because the Russian people cannot be bullied and will defend their country tenaciously. “Go tell all in foreign lands that Russia lives!» Prince Aleksandr Nevskii declared in the 13th century: «Those who come to us in peace will be welcome as a guest. But those who come to us sword in hand will die by the sword! On that Russia stands and forever will we stand!”

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Yeah, Daniel Hannan has lots of stuff wrong with him. But Britain must have this conversation regardless of that. I picked this piece up on Twitter, with this accompanying comment: “No aspect of Brexit is Remain voters’ fault in any way, or to any extent at all.” I don’t know if that was meant sarcastically, but I would certainly hope so. Without that conversation things can only get worse. Remainers must try harder to understand why Brexit happened. If nothing else, I would think they’re at least ‘guilty’ of not seeing it coming. And perhaps also of seeing Brexit as the problem, not a mere symptom.

Remainers, Brexit, Racism and a Self-Fulfilling Prophecy (Hannan)

Shortly after the EU referendum, several thousand young people marched through London demanding a rerun. I happened to be sitting next to three of them on a train as I travelled into the capital that morning. They evidently recognised me right away as an Evil Tory Leaver, but we were past Clapham Junction before one of them plucked up the courage to talk to me. “Are you Daniel Hannan? I just wanted to say that what you’ve done is terrible. We’re not a racist country. You’ve taken away our future.” “Is that so? Out of interest, can you tell me who the President of the European Commission is?” “No. What’s that got to do with it?” “Can you name a single European Commissioner, come to that? Do you know what our budget contribution will be this year? Or what the difference is between a Directive and a Regulation?”

She was affronted by the questions. So were her two friends with their “I [heart] EU” placards. They weren’t interested in details. For them, it was about values. Are you a decent, internationalist, compassionate person? Or are you a selfish bigot? Let’s leave aside the fact that no one would ever vote on any ballot paper for a “selfish bigot” option. Their determination to approach the issue in terms of character, rather than cost-benefit, explains why they were so upset – and why, even now, some Remain voters struggle to accept the outcome. In my experience, the 48% who voted Remain fall into two categories. There are those who were making a judgement as to where Britain’s best options lay. They could see that the is EU flawed.

They were well aware of the corruption, the lack of democracy, the slow growth. But they took the view that, on balance, the disruption of leaving would outweigh the gains. These people, by and large, now want to make a success of things, and are keen to maximise our opportunities. Then there were those like my companions on South West Trains, for whom the issue was not financial but somehow moral. For them, the EU wasn’t the grubby and self-interested body that exists in reality; rather, it was a symbol of something better and purer, an embodiment of the dream of peace among nations. They never heard, because they never wanted to hear, the democratic or economic arguments against membership. As far as they were concerned, the only possible reason for voting Leave was chauvinism.

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“Euro Area Looks to Help on Debt” sounds like the epitomy of cynicism. The Eurogroup withheld €1.7 billion, to Greece’s surprise, because it wanted to assess A) whether a June payment was fully used to pay off third parties, and B) whether the government had squeezed its people enough (reforms). The delay is convenient for Brussels because it also delays debt restructuring talks once again, for the umpteenth time. And without those talks, the IMF won’t commit. Rinse and repeat.

Greece Gets Fresh Loan Payout as Euro Area Looks to Help on Debt (BBG)

The euro area authorized a €1.1 billion payment to Greece and signaled a further €1.7 billion would follow this month, saying the region’s most indebted nation has made progress in overhauling its economy. The green light, given by euro-area finance ministers on Monday in Luxembourg, removes a hurdle on Greece’s path to debt relief on which Prime Minister Alexis Tsipras has staked part of his political future. The country had to fulfill 15 conditions on matters such as selling state assets and improving bank governance to get the first payout.

It “was unanimously decided that Greece had completed the 15 milestones, so we can proceed to the €1.1 billion disbursement,” Greek Finance Minister Euclid Tsakalotos told reporters after the meeting, saying the talks produced a “very good” outcome for his country. The delay in getting an endorsement for the remaining sum, which is tied to the clearing of arrears, is merely “technical,” he said. Greece, in its third bailout since 2010, is struggling to right an economy that is poised to undergo its eighth annual contraction in the past nine years. A second review of the country’s rescue program will pave the way for a possible restructuring of Greece’s debt, which the IMF says is a necessary condition for its future involvement.

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This feels like a military coup, a chapter straight out of the Shock Doctrine. Stocks go up because people’s lives go down.

Glenn Greenwald on Twitter: “Brazil’s lower House- in the face of negative growth- just voted to amend the Constitution to ban spending increases for 20 years..” “This extreme austerity in Brazil – enabled by impeachment- is being imposed in world’s 7th largest economy, 5th most populous country (200m). ”

Nomi Prins on Twitter: “Brazil’s coup was about advancing western speculative market access & squashing domestic population needs – for decades…bastards.”

Brazil Votes To Amend Constitution, Ban Spending Increases For 20 Years (BBG)

The Ibovespa rose to a two-year high and the real gained as commodities advanced and as expectations mounted that lawmakers will approve a bill to cap spending, a key measure in President Michel Temer’s plan to trim a budget deficit and rebuild confidence in Brazil. The benchmark equity index rose 0.9% and the currency climbed 0.5% Monday in Sao Paulo. [..] Brazilian stocks have gained 75% in dollar terms this year and the real has strengthened 24%, the best performances in the world, on bets that a new government would be able to pull the country out of its worst recession in a century.

Temer, who formally replaced impeached former President Dilma Rousseff in August, said the administration should have enough votes to drive through a budget bill Monday that’s seen as a vital first step toward his economic reforms. The proposal to amend the Constitution to set limits on government spending for as long as 20 years must be approved by at least three-fifths of both chambers of Congress. “The market is very optimistic over this legislation,” said Paulo Figueiredo, an economist at FN Capital in Petropolis, Brazil. “New bets on local assets depend a lot on the signals that will come from this vote.”

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Bubble?!

Global Clean Energy Investment Dropped 43% in Worst Quarter Since 2013 (BBG)

Global investment in clean energy fell to the lowest in more than three years as demand for new renewable energy sources slumped in China, Japan and Europe. Third-quarter spending was $42.4 billion, down 43% from the same period last year and the lowest since the $41.8 billion reported in the first quarter of 2013, Bloomberg New Energy Finance said in a report Monday. Financing for large solar and wind energy plants sank as governments cut incentives for clean energy and costs declined, said Michael Liebreich at the London-based research company. Total investment for this year is on track to be “well below” last year’s record of $348.5 billion, according to New Energy Finance.

The third-quarter numbers “are worryingly low even compared to the subdued trend we saw” in the first two quarters, Liebreich said in a statement. “Key markets such as China and Japan are pausing for a deep breath.” Part of the reason for the steep decline in the quarter was a slowdown following strong spending in the first half of the year on offshore wind. Investors poured $20.1 billion into European offshore wind farms in the first and second quarters, “a runaway record,” according to Abraham Louw, an analyst for energy economics with New Energy Finance. That was followed by a “summer lull,” with $2.4 billion in spending in the third quarter.

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So much for that.

Russia’s Rosneft Boss Sechin Says No To OPEC Oil Cut/Freeze (R.)

Igor Sechin, Russia’s most influential oil executive and the head of Kremlin energy champion Rosneft, said his company will not cut or freeze oil production as part of a possible agreement with OPEC. His comments underline how difficult it is for Russia to get its oil companies to freeze or cut output as part of a potential deal with OPEC designed to support oil prices. President Vladimir Putin told an energy congress on Monday that Russia was ready to join the proposed OPEC cap, but did not provide any details. “Why should we do it?” Sechin, known for his anti-OPEC position, told Reuters in Istanbul on Monday evening, when asked if Rosneft, which accounts for 40% of Russia’s total crude oil output, might cap its own output.

Sechin said he doubted that some OPEC countries, such as Iran, Saudi Arabia and Venezuela would cut their output either, saying that an increase in oil prices above $50 per barrel would make shale oil projects in the United States profitable. There have been several attempts in the past for Russia and OPEC to join forces to stabilize oil markets. Those efforts have never come to pass however. Oil prices surged on Monday after Putin’s comments amid hopes that a two-year price slide could be halted.

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Uglee!!!

Britain’s Nuclear Cover-Up (NYT)

Last month, the British government signed off on what might be the most controversial and least promising plan for a nuclear power station in a generation. Why did it do this? Because the project isn’t just about energy: It’s also a stealth initiative to bolster Britain’s nuclear deterrent. For years, the British government has been promoting a plan to build two so-called European Pressurized Reactors (EPR) at Hinkley Point C, in southwest England. It estimates that the facility will produce about 7% of the nation’s total electricity from 2025, the year it is expected to be completed. The EPR’s designer, Areva, claims that the reactor is reliable, efficient and so safe that it could withstand a collision with an airliner.

But the project is staggeringly expensive: It will cost more than $22 billion to build and bring online. And it isn’t clear that the EPR technology is viable. No working version of the reactor exists. The two EPR projects that are furthest along — one in Finland, the other in France — are many years behind schedule, have hemorrhaged billions of dollars and are beset by major safety issues. The first casting of certain components for the Hinkley Point C reactors left serious metallurgical flaws in the pressure vessel that holds the reactor core. In 2014, the Cambridge University nuclear engineer Tony Roulstone declared the EPR design “unconstructable.”

The lead builder of the EPR, the French utility company Electricité de France, faced a mutiny this year: Its unions fought the Hinkley Point project, fearing it might bring down the company. E.D.F.’s chief financial officer has resigned, arguing that it would put too much strain on the company’s balance sheet. But the British government continues to act as though it wants the Hinkley project to proceed at almost any price. In return for covering about one-third of the costs, the Chinese state-run company China General Nuclear Power Corporation will take about one-third ownership in the project. (A subsidiary of E.D.F. owns the rest.) The British government has also provisionally agreed to let China build a yet-untested Chinese-designed reactor in Bradwell-on-Sea, northeast of London, later.

[..] The British government has [..] guaranteed that investors in the Hinkley project will get $115 per megawatt-hour over 35 years. This is approximately twice the price of electricity today [..]. If the market price of electricity falls below that rate, a government company is contractually bound to cover the difference — with the extra cost passed on to consumers. Price forecasts have dropped since the deal was struck: This summer the government, revising estimates, said differential payments owed under the contract could reach nearly $37 billion. If the Hinkley plan seems outrageous, that’s because it only makes sense if one considers its connection to Britain’s military projects — especially Trident, a roving fleet of armed nuclear submarines, which is outdated and needs upgrading.

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Jun 032016
 
 June 3, 2016  Posted by at 8:17 am Finance Tagged with: , , , , , , , , ,  9 Responses »
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Harris&Ewing Happy News Cafe, “restaurant for the unemployed”, Washington, DC 1937

Bill Gross: Capitalism Doesn’t Work At 0% (CNBC)
Negative-Yielding Sovereign Debt Tops $10 Trillion (WSJ)
Japan’s Sovereign Debt Burden Is Quietly Falling the Most in the World (BBG)
Explosion in Quasi-Sovereign Bond Issuance Is Making Analysts Queasy (BBG)
US-China Trade Troubles Grow (WSJ)
One Third Of Americans Are ‘Just Getting By’ (NY Times)
OECD Sees ‘Dramatic And Destabilising’ End To Australia Property Boom (AFR)
Fed Likely To Avoid Rate Hike Before Britain Votes On Leaving EU (R.)
Draghi Insists ECB Stimulus Only Half Done (BBG)
Bank of France Cuts Inflation Outlook, 2017 GDP Forecast (WSJ)
Bundesbank Cuts German GDP Forecasts On Weaker Export Demand (R.)
President Obama, Pardon Edward Snowden and Chelsea Manning (G.)
Facial Recognition Will Soon End Your Anonymity (MW)
The Fat Lady Always Sings Twice (Jim Kunstler)
Fewer Than 500 of 163,000 Migrants Find Jobs In Sweden (BB)
Corruption Gripes Help Five Star Movement Top Italy Local Election Polls (G.)
US Announces Near-Total Ban On Trade Of African Elephant Ivory (AFP)

Central bankers seem to think it does, though.

Bill Gross: Capitalism Doesn’t Work At 0% (CNBC)

Bill Gross has some bad news for investors. In his June investment outlook released Thursday, the widely followed bond fund manager contended that bond and stock returns realized in the last 40 years are “a grey if not black swan event that cannot be repeated.” Investors should not expect 7% returns on bonds or returns in the high single digits or double digits on stocks, Gross told CNBC on Thursday. “The markets are entirely different and it would pay to travel to Mars as opposed to stay on Earth, because the returns here are very, very low,” the manager of the Janus Capital Unconstrained Bond Fund, said on CNBC’s “Power Lunch”. Gross said easy central bank policy could hold down bond returns. Central banks in Europe and Japan have adopted negative interest rates, while the Federal Reserve’s target rate is at 0.25 to 0.50%.

German and Japanese 10-year bonds currently have negative yields, while their 30-year bonds yield less than 1%. The U.S. 10-year Treasury note yield sat around 1.8% Thursday. Gross contended those rate trends can hurt not only savers but also the broader economy. He said Fed policymakers, who have signaled they could hike rates at least once this year, realize they need to normalize policy. “Ultimately, they have to move back up and I think a certain number of Fed governors realize that the normalization process is necessary in order to save business models and to save capitalism basically because capitalism doesn’t work at 0% and it doesn’t work at negative interest rates,” he said.

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Negative bonanza.

Negative-Yielding Sovereign Debt Tops $10 Trillion (WSJ)

The amount of global sovereign debt with negative yields surpassed $10 trillion for the first time in May, according to Fitch Ratings. The measure stood at $10.4 trillion on May 31, up 5% from $9.9 trillion on April 25, when the rating agency last measured the amount, according to a Thursday report. It is spread across 14 countries, with Japan by far the largest source of negative-yielding bonds. Of the total, $7.3 trillion was long-term debt and $3.1 trillion was short-term debt.

The amount of debt with yields below zero has increased sharply this year as global central banks have instituted unconventional policy measures, such as negative interest rates. The Bank of Japan in January surprised markets by driving its rates below zero, pushing Japanese government-bond yields sharply lower. Banks in the euro currency bloc have also increased demand for government debt to meet regulatory requirements, another factor weighing on yields, Fitch said. “Higher amounts of Japanese and Italian sovereign securities with sub-zero yields were the biggest contributors to the monthly changes,” said Fitch analysts, led by Robert Grossman.

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Because it’s shifting into private hands. The BOJ buys it all. Which allows the government to keep on borrowing with abandon.

Japan’s Sovereign Debt Burden Is Quietly Falling the Most in the World (BBG)

Japan for years has been renowned for having the world’s largest government debt load. No longer. That’s if you consider how the effective public borrowing burden is plunging – by one estimate as much as the equivalent of 15 percentage points of GDP a year, putting it on track toward a more manageable level. Accounting for the Bank of Japan’s unprecedented government bond buying from private investors, which some economists call “monetization” of the debt, alters the picture. Though the bond liabilities remain on the government’s balance sheet, because they aren’t held by the private sector any more they’re effectively irrelevant, according to a number of analysts looking at the shift. “Japan is the country where public debt in private hands is falling the fastest anywhere,” said Martin Schulz at Fujitsu Research Institute in Tokyo.

While Japan’s estimated gross government debt is now over twice the size of the economy, according to Schulz’s calculations using BOJ data, the shuffle of holdings from private actors like banks and households to the central bank is having a big impact. It means debt in private hands will fall to about 100% of GDP in two to three years, from 177% just before Prime Minister Shinzo Abe took power in late 2012, he estimates. It’s not like Japan is slowing down on borrowing. Abe’s administration is now laying the groundwork for another burst of fiscal stimulus, which could be funded by selling bonds. He also announced Wednesday a delay to a sales tax hike planned for April 2017, rebuffing fiscal hawks who argued it was vital to raise revenue.

Finance Minister Taro Aso explained Tuesday that “the biggest problem is that private consumption hasn’t risen,” making now not a good time to raise the levy. Helping improve household sentiment could be one reason for making it explicit that at least some of the government bonds in the BOJ’s holdings will be written off. If Japanese consumers understand they’re not on the hook for all the gross debt outstanding, their mood could potentially perk up.

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What can we say but: Anything Goes!

Explosion in Quasi-Sovereign Bond Issuance Is Making Analysts Queasy (BBG)

Which fixed-income asset class is growing fast, outperforms similar debt issues, and rarely defaults? Emerging market ‘quasi-sovereign’ bonds, of course! At some $600 billion, debt sold by state-supported companies in emerging markets ranging from China to Oman has surpassed the amount of emerging market government debt outstanding, according to a new note from Bank of America Merrill Lynch. Such quasi-sovereign debt issuance has helped propel the stunning growth of the overall bond market, with EM issuance accounting for 47% of the growth in global debt between 2007-14, compared to 22% in the previous seven years, according to S&P Global Ratings.

But the surge in ‘quasi’ bonds is making some feel, well, queasy. “Quasi-sovereigns are effectively a ‘contingent liability’ for a country,” write the BofAML analysts, led by Kay Hope. They note that quasi-sovereign issuance now makes up half of the $1.6 – 1.8 trillion euro- and dollar-denominated corporate bond market for emerging markets, which could put added pressure on strained emerging market coffers.

China, with its lumbering state-owned enterprises, accounts for a full quarter of this kind of debt — despite the Chinese sovereign itself lacking virtually any foreign-denominated bonds. Meanwhile, the amount of debt from Brazilian quasi-sovereigns has nearly quadrupled, according to BofAML, while that sold by Mexico’s state-owned companies has just about doubled. Much of the growth has been driven by companies in the energy and commodities sectors, with giants of industry including Pemex, Petrobras, China National Offshore Oil and Gazprom all tapping the market in recent years.

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There’s going to be trouble.

US-China Trade Troubles Grow (WSJ)

The U.S. and China, facing mounting political pressures at home, are seeing economic tensions flare to their worst point in years over currency and trade practices. China has pushed the yuan to a five-year low against the dollar, reviving charges from American firms of currency manipulation to gain a competitive advantage for Chinese goods. The Obama administration has fired off a series of trade complaints and levied duties on several Chinese industries, from chicken feet to cold-rolled steel used in appliances and auto parts. The friction between the world’s two largest economies could worsen as domestic politics collide with already weak growth.

The U.S., seeing heightened anti-China rhetoric in the presidential election, wants China to press ahead with promised policies to open up its markets and allow greater international investment. Chinese leaders, worried about a deeper economic slowdown, are trying to keep factories humming and prevent the kind of market unrest that gripped global investors over the past year. [..] Some analysts think President Xi Jinping, wanting to consolidate power in the Communist Party ahead of a leadership transition next year, has paused reform efforts and instead is revving up the old playbook of credit-fueled growth and infrastructure spending. His aim: Ensure economic stability and mollify rivals, they say.

An attempt last year by Beijing to allow markets to play a role in setting its exchange rate was mismanaged, adding to a summertime of woe for China’s financial markets and sparking global jitters. The reaction surprised Chinese officials and created a headache for reformers. The Chinese government is keeping steel mills, coal plants and a host of manufacturing industries afloat despite dwindling demand and a tumble in commodity prices that should have closed many. [..] By supporting excess production capacity, the Chinese government is “engaged in economic warfare against the U.S.,” said John Ferriola, chief executive of North Carolina steel giant Nucor Corp. “Thousands of hardworking Americans have lost their jobs because of these illegal, unfair trade practices.”

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“..nearly half of all respondents said they could not cover an unexpected expense of $400..”

One Third Of Americans Are ‘Just Getting By’ (NY Times)

In the United States, nearly one-third of adults, about 76 million people, are either “struggling to get by” or “just getting by,” according to the third annual survey of households by the Federal Reserve Board. That finding, dismal though it is, represents a mild improvement in general well-being last year, compared with the two years before. The improvement, however, was clearly too little to raise Americans’ spirits: The new survey, which was conducted in late 2015 and released last week, also shows that optimism about the future has tempered. The Fed policy committee should take the survey to heart when it meets this month to decide whether to raise interest rates.

Higher rates are a way to slow an economy that is at risk of overheating – a far-fetched proposition when tens of millions of Americans are barely hanging in there. Congress and other economic policy makers, as well as the presidential candidates, could also use the survey to get some insight into Americans’ real economic problems. Among them is deep insecurity. Nearly 70% of adults said they were “living comfortably” or “doing O.K.” — up a bit from previous years — but nearly half of all respondents said they could not cover an unexpected expense of $400, or could do so only by selling something or borrowing money. Americans seeking a path upward through education are staggering under a load of debt. The median debt load for someone with a bachelor’s degree was $19,162.

For a master’s, it was $36,000, and for a professional degree, $100,000. Many students with debt use deferments or other plans to delay or extend repayments, but in most cases that increases the balance they owe. For those making payments, the average monthly bill was $533. By all indications, however, they are the relatively lucky ones. Americans who had attended college accounted for most of the improvement reported in the survey. Financial stress was more prevalent among less-educated people who responded to the survey, as well as racial and ethnic minorities and adults making less than $40,000 a year.

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Please remember and compare to yesterday’s (also OECD): “We’re a little concerned about housing prices in the greater Vancouver area and Toronto..”

OECD Sees ‘Dramatic And Destabilising’ End To Australia Property Boom (AFR)

Australia may be on the cusp of a “dramatic and destabilising” end to the housing boom rather than a hoped-for soft landing because of the apartments building boom, the Organisation for Economic Co-operation and Development said. In its latest assessment of the threats to the economy, the Paris-based think tank said jitters over the federal election are adding to risks, and called for an increase in the goods and services tax. Somewhat paradoxically, the OECD appears particularly worried about how to interpret changes in the housing market – even as it notes simultaneously that risks of a boom appear to be receding which, it argues, provides leeway for even more official interest rate cuts.

“Domestically, the unwinding of housing market tensions to date may presage dramatic and destabilising developments, rather than herald a soft landing,” it said. Parts of the real estate industry have already warned about failed settlements as record numbers of new apartments come due for completion in Sydney, Melbourne and Brisbane this year and next. The warning, which is accompanied by graphs showing dwelling approvals retreating from a peak and house prices levelling out, appears to have been prepared ahead of more recent evidence of a rebound in both measures.

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First things first.

Fed Likely To Avoid Rate Hike Before Britain Votes On Leaving EU (R.)

The U.S. Federal Reserve may be forced to delay a rate hike at its June meeting because of mounting concern over the economic fallout from Britain’s vote on whether to leave the European Union. The geopolitical risk likely will push any rate increase until at least July, despite apparent consensus among Fed officials that a hike is warranted by stronger U.S. growth and tight labor markets. The Fed’s June 14-15 rate-setting meeting comes just a week before the British vote on June 23. A “leave” vote is expected to roil financial markets, cause credit spreads to widen, trigger a rush into safe assets and bolster the dollar. The dollar’s recent stability is one reason the Fed has become more comfortable with raising rates, and officials may want to let the threat of Brexit pass before moving to tighten financial conditions.

Fed Board Governor Daniel Tarullo on Thursday joined the chorus of those warning of his concerns over the British vote, telling Bloomberg that Brexit would be a “factor” he would consider at the Fed’s June policy meeting and said that the British vote’s impact on markets would be key. [..] If the Fed does indeed take a pass at its June meeting, officials have signaled they’ll be ready to move in July. Minutes of the Fed’s March policy meeting showed officials preparing the ground for higher rates sometime in the summer months. After July, the next option would be September, in the middle of a U.S. election campaign, in which the Fed and Yellen could well become targets of debate.

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The illusion gets expensive, as returns diminish.

Draghi Insists ECB Stimulus Only Half Done (BBG)

Mario Draghi’s insistence that his stimulus program is only half done brings with it a worrying thought. What if its best effects are already spent anyway? At least four times at Thursday’s press conference in Vienna, the European Central Bank president emphasized how policy makers need to see the “full impact” and must “focus on implementation” of their measures. That augurs a busy month ahead as officials keep hoovering up government debt, start buying corporate bonds and enact the first of four long-term loan offerings to banks. While Draghi’s remarks suggest the next major calendar point for the ECB’s assessment of its stimulus will be September – after the release of economic-growth data and coinciding with its fresh forecasts – the omens so far are weak.

Yet another report of negative consumer prices this week underscored the challenge of revitalizing an economy fatigued by years of debt crises and delayed reforms, and battered by global forces beyond the ECB’s control. “We’re getting to the point of radically diminishing effectiveness of these interventions,” Andrew Balls, Pimco’s global fixed income chief investment officer, said on Bloomberg Television. “If we get a recession, which is perfectly plausible over the next three to five years, there’s a real question in terms of how policy makers can respond.”

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France blames emerging economies.

Bank of France Cuts Inflation Outlook, 2017 GDP Forecast (WSJ)

The Bank of France cut its inflation forecasts and trimmed its 2017 economic growth forecast in a semi-annual economic outlook Friday. The Bank of France pared back its GDP forecast for 2017 to 1.5% from 1.6% in December as it expects weaker trade to drag on the French economy. Despite a stronger-than-expected first quarter, it kept its GDP forecast for the whole of 2016 at 1.4%. The softer forecasts indicate how weak oil prices and uncertainty over the outlook for the global economy are cooling eurozone economies just as they emerge from a long period of weak growth. “While global demand is dynamic, it will accelerate only slightly in 2016, due to a less favorable growth outlook than previously forecast in emerging economies,” the Bank of France said.

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Germany blames exports in general. Stingy Greeks?!

Bundesbank Cuts German GDP Forecasts On Weaker Export Demand (R.)

The Bundesbank cut its German inflation and growth forecasts on Friday citing weaker demand for exports, even as it predicted that robust consumer demand and a tightening labor market would keep the domestic economy buoyant. The euro zone’s biggest economy has been an outperformer in recent years, posting healthy growth and driving the currency bloc’s best run since the start of the global financial crisis almost a decade ago. Exporters have been forced to “surrender” some of their market share gained in recent years, however, and this trend may continue this year and offset strong domestic factors, the central bank said in a biannual economic outlook.

“This should probably be interpreted mainly as a correction of previous market share gains not explained by price competitiveness,” the Bundesbank said. “This process could continue further into 2016 according to Ifo and DIHK surveys, in which industrial firms reported subdued export expectations and only a comparatively moderate increase in exports this year,” it said. The bank now sees GDP growing at 1.7% this year, below a December projection for 1.8%, and 1.4% in 2017, down from 1.7% seen earlier. The growth rate would then rebound to 1.6% in 2018.

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Not going to happen.

President Obama, Pardon Edward Snowden and Chelsea Manning (G.)

As he wraps up his presidency, it’s time for Barack Obama to seriously consider pardoning whistleblowers Chelsea Manning and Edward Snowden. Last week, Manning marked her six-year anniversary of being behind bars. She’s now served more time than anyone who has leaked information to a reporter in history – and still has almost three decades to go on her sentence. It should be beyond question at this point that the archive that Manning gave to WikiLeaks – and that was later published in part by the Guardian and New York Times – is one of the richest and most comprehensive databases on world affairs that has ever existed; its contribution to the public record at this point is almost incalculable. To give you an idea: in just the past month, the New York Times has cited Manning’s state department cables in at least five different stories.

And that’s almost six years after they first started making headlines. We know now that, despite being embarrassing for the United States, the leaks caused none of the great harm that US government officials said would come to pass. Even the government admitted during Manning’s trial that no one died because of her revelations, despite the hyperbolic government comments at the time, including that WikiLeaks had “blood on its hands”. (By the way, the US officials knew they were exaggerating in the media at the time.) Even if you think that she deserves some punishment for breaking the law, six years behind bars (and being tortured during her pretrial confinement) should be more than enough.

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Creepy.

Facial Recognition Will Soon End Your Anonymity (MW)

Nearly 250 million video surveillance cameras have been installed throughout the world, and chances are you’ve been seen by several of them today. Most people barely notice their presence anymore – on the streets, inside stores, and even within our homes. We accept the fact that we are constantly being recorded because we expect this to have virtually no impact on our lives. But this balance may soon be upended by advancements in facial recognition technology. Soon anybody with a high-resolution camera and the right software will be able to determine your identity. That’s because several technologies are converging to make this accessible. Recognition algorithms have become far more accurate, the devices we carry can process huge amounts of data, and there’s massive databases of faces now available on social media that are tied to our real names.

As facial recognition enters the mainstream, it will have serious implications for your privacy. A new app called FindFace, recently released in Russia, gives us a glimpse into what this future might look like. Made by two 20-something entrepreneurs, FindFace allows anybody to snap a photo of a passerby and discover their real name — already with 70% reliability. The app allows people to upload photos and compare faces to user profiles from the popular social network Vkontakte, returning a result in a matter of seconds. According to an interview in the Guardian, the founders claim to already have 500,000 users and have processed over 3 million searches in the two months since they’ve launched.

What’s particularly unsettling are the use cases they advocate: identifying strangers to send them dating requests, helping government security agencies to determine the identities of dissenters, and allowing retailers to bombard you with advertisements based on what you look at in stores. While there are reasons to be skeptical of their claims, FindFace is already being deployed in questionable ways. Some users have tried to identify fellow riders on the subway, while others are using the app to reveal the real names of porn actresses against their will. Powerful facial recognition technology is now in the hands of consumers to use how they please.

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American history 101.

The Fat Lady Always Sings Twice (Jim Kunstler)

That was the week Hillary began to look like the candidate who fell off a truck wearing a Nixon mask. Email-gate is taking on the odor of Watergate — the main ingredient of which was not the dopey crime itself but the stonewalling around it. The State Department Inspector General’s report saying definitively, no, she was not “allowed” to use a private, unsecured email server validated Donald Trump’s juvenile name-calling of “Crooked Hillary.” We may never hear the end of that now (if Trump is actually nominated). And, of course, there lurks the Godzilla-sized skeleton in her closet of the still-unreleased Goldman Sachs speech transcripts, the clamor over which is sure to grow. Meanwhile the specter of the California primary looms, a not inconceivable loss to Bernie Sanders.

And onto the convention in Philly which I contend will be even more fractious and violent than the 1968 fiasco in Chicago. I’ll say it again: Hillary is a horse that ain’t gonna finish. The Democrats better be prepared to haul Uncle Joe out of the closet, fluff up his transplanted hair, wax his dentures, give him a few Vitamin B-12 shots, and stick a harpoon in his fist for the autumn run against the White Whale (if Trump is actually nominated). The Republican convention in Cleveland is apt to be as bloody and violent a spectacle too (if Trump is actually nominated), with Black Lives Matters cadres having already promised to put on a show for global television and their Latino counterparts marching with Mexican Flags and cute signs saying: Trump: Chingate tu madre, perhaps garnished with the sobriquet pendejo.

In such a situation, Trump has enormous potential to make things worse with his childish snap-backs. Hubert Humphrey in 1968 at least had the good sense to keep his mouth shut about the moiling multitudes out on Michigan Avenue inveighing against him. The Vietnam War was a grave debacle, and it especially pissed off the young men subject to being drafted to fight in it, but the woof and warp of American life was otherwise intact. Blue collar workers still pulled in high wages in the Big Three auto plants, and women had not yet declared war on men, and the airwaves weren’t pornified, and there were still people in government with moral authority who loudly opposed official policy. The sobering martyrdoms of Martin Luther King and Robert Kennedy sanctified the opposition to the status quo.

Even Hubert Humphrey himself, a thoughtful man underneath his Rotarian clown mask, began to turn away from Lyndon Johnson’s war hawks. Nixon won. He surely benefited most not so much from the war issue and the riots in the streets as from the mass defection of Southern states from the long-entrenched domination of the Democratic Party — directly due to Johnson’s dismantling of the old Jim Crow laws. As a personality, Nixon was as much a pendejo as Donald Trump, but no one doubted his ability to run the machinery of government, if not the way they wanted to run it.

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” The figures of migrant unemployment follow a trend in Sweden of high unemployment for foreigners.”

Fewer Than 500 of 163,000 Migrants Find Jobs In Sweden (BB)

Sweden’s state-funded broadcaster has revealed that of 163,000 migrants who came to Sweden, less than 500 have found jobs. Sweden saw a record 163,000 applications for asylum last year as a result of the migrant crisis and many Swedes were assured that the new arrivals would contribute to the economy; but new research from Sweden’s state-owned SVT reveals that fewer than 500 migrants have found work. Using data from the Swedish employment agency and the Swedish migration authority, Migrationsverket, the network claims that only 494 asylum seekers are contributing to the economy, The Local reports. While in many countries asylum seekers are banned from formally working while their application is being processed, in Sweden there are exceptions.

The “at-und” is an exemption granted by Migrationsverket which allows asylums seekers access to the labour market. In an effort to explain the incredibly low number of migrants working, Lisa Bergstrand of Migrationsverket told SVT: “There was an incredible number of people applying for asylum in Sweden and so that we should be able to register them, we had to de-prioritise certain tasks, and that was the matter of jobs”. Of the migrants who claimed asylum in 2015 approximately one third of the men and women aged 20-64 were given the exemption to allow them to work, which is around 53,790 migrants. The figures of migrant unemployment follow a trend in Sweden of high unemployment for foreigners. The unemployment for those born in Sweden is at the lowest point since the 2008 financial crisis at around 4.8%, while foreign born unemployment is at 14.9%.

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Question to Italian readers: what effect has the death of Casaleggio had on Beppe?

Corruption Gripes Help Five Star Movement Top Italy Local Election Polls (G.)

Alessandro Aquilini had her by the hand. And he wasn’t letting go. Virginia Raggi, the woman tipped to be the next mayor of Rome, was hunting for votes in the street market in Boccea, a lower middle-class district of the Italian capital. Raggi’s trademark is exquisite courtesy – she proffers a slender hand even to reporters who approach her with hostile questions. At the butcher’s stall, though, she got more of a handshake than she bargained for. “We need help,” the 50-year-old Aquilini began. “Left. Right. Centre. We can’t take any more [of party politicians]. This country needs a bit more honesty.” Still gripping Raggi’s hand as he stretched across the slabs of veal, the burly butcher added: “We’re up to here with taxes and corruption.”

His monologue captured many of the reasons why Raggi, the candidate of the Five Star Movement (M5S), is leading the polls ahead of local elections in Rome and other Italian cities on Sunday. Unlike other non-traditional movements that have prospered in Europe, such as Syriza in Greece, the M5S’s protest is not so much against austerity as the corruption and cronyism of Italy’s mainstream parties. Nowhere has this been highlighted more vividly than Rome, where establishment politicians and officials are on trial alongside alleged mobsters, charged with conspiring to pocket millions of euros from rigged public contracts. All three of the final polls released before a ban took effect on 21 May put Raggi ahead by 3-6%age points in the mayoral race.

Run-offs between the two leading candidates in each town are slated for 19 June. Only then will it be known if the 37-year-old lawyer – almost unknown to the public until a few months ago – has won. A victory for Raggi would be a stinging reverse for Italy’s prime minister, Matteo Renzi, who leads the centre-left Democratic party, and a dramatic breakthrough for the internet-based M5S. Founded less than seven years ago by the comedian Beppe Grillo and his digital guru, the late Gianroberto Casaleggio, the M5S is today Italy’s leading opposition party. Grillo has said he will set fire to himself in public if Raggi fails to win. But he may yet regret that pledge.

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Is there hope?

US Announces Near-Total Ban On Trade Of African Elephant Ivory (AFP)

US authorities announced a near-total ban on the trade of African elephant ivory Thursday, finalizing a years-long push to protect the endangered animals. “Today’s bold action underscores the United States’ leadership and commitment to ending the scourge of elephant poaching and the tragic impact it’s having on wild populations,” Secretary of the Interior Sally Jewell said. The new rule “substantially limits” imports, exports and sales of such ivory across state lines, the US Fish and Wildlife Service (FWS) said. However, it does make exceptions for some “pre-existing manufactured” items, such as musical instruments, furniture and firearms that contain less than 200 grams of ivory and meet other specific criteria, according to the FWS.

Antiques, as defined under the Endangered Species Act, are also exempt. The new measures fulfill restrictions in an executive order on combating wildlife trafficking issued by President Barack Obama in 2013, the FWS said in its statement announcing the ban. It said that once illegal ivory enters the market it becomes virtually impossible to tell apart from legal ivory, adding that demand for elephant ivory, particularly in Asia, “is so great that it grossly outstrips the legal supply and creates a void in the marketplace that ivory traffickers are eager to fill.”

“We hope other nations will act quickly and decisively to stop the flow of blood ivory by implementing similar regulations, which are crucial to ensuring our grandchildren and their children know these iconic species,” Jewell said. The Wildlife Conservation Society welcomed the ban, calling it historic and groundbreaking. “The USA is shutting down the bloody ivory market that is wiping out Africa’s elephants,” WCS president and chief executive Cristian Samper said in a statement. “The USA is boldly saying to ivory poachers: You are officially out of business.” Some 450,000 elephants can be found on the African continent and it is estimated that more than 35,000 of these animals are killed each year.

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Feb 192016
 
 February 19, 2016  Posted by at 8:36 am Finance Tagged with: , , , , , , , , ,  3 Responses »
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Richardson Hope for a New Life: Man passes baby through fence, Serbia/Hungary border 2015

Negative Interest Rates Set The Stage For The Next Crisis (Stephen Roach)
Why Negative Interest Rates Spell Doom For Capitalism (Romano)
Central Banking Is In Crisis. Can The World Economy Be Far Behind? (Economist)
Bank of Japan Baffled by Negative Reaction to Negative-Rate Policy (WSJ)
Nomura Sees Yen Falling More Than 10% on BOJ Negative Rates (BBG)
Abenomics? How About Kurodanomics? (BBG)
OECD Calls for Urgent Increase in Government Spending (WSJ)
China Bears Say the Capital Outflow Is Just Beginning (BBG)
Red Ink In China (Economist)
Overproduction Swamps Smaller Chinese Cities, Revealing Depth of Crisis (WSJ)
You Cannot Print Your Way to Prosperity (Ron Paul)
The Real Economy Is Talking, but Treasuries Aren’t Listening (BBG)
Number Of UK Homes Worth More Than £1 Million Set To ‘Triple By 2030’ (G.)
400,000 Americans In Jeopardy As Giant Pension Fund Plans 50% Benefit Cuts (ZH)
The Political War on Cash (WSJ)
Swiss MPs Want New 5,000-Franc Banknotes To ‘Save Privacy And Freedom’ (L.)
The Stressed-Out Oil Industry Faces an Existential Crisis (BBG)
Oil Gives Up Gains as Inventories Build (WSJ)
Anglo American Cut to Junk for Third Time This Week (BBG)
Wary On Turkey, EU Prepares For Refugee Crisis In Greece (Reuters)

As QE and ZIRP did before them. This started years ago.

Negative Interest Rates Set The Stage For The Next Crisis (Stephen Roach)

In what could well be a final act of desperation, central banks are abdicating effective control of the economies they have been entrusted to manage. First came zero interest rates, then quantitative easing, and now negative interest rates — one futile attempt begetting another. Just as the first two gambits failed to gain meaningful economic traction in chronically weak recoveries, the shift to negative rates will only compound the risks of financial instability and set the stage for the next crisis. The adoption of negative interest rates — initially launched in Europe in 2014 and now embraced in Japan — represents a major turning point for central banking. Previously, emphasis had been placed on boosting aggregate demand — primarily by lowering the cost of borrowing, but also by spurring wealth effects from appreciating financial assets.

But now, by imposing penalties on excess reserves left on deposit with central banks, negative interest rates drive stimulus through the supply side of the credit equation — in effect, urging banks to make new loans regardless of the demand for such funds. This misses the essence of what is ailing a post-crisis world. As Nomura economist Richard Koo has argued about Japan, the focus should be on the demand side of crisis-battered economies, where growth is impaired by a debt-rejection syndrome that invariably takes hold in the aftermath of a “balance sheet recession.” Such impairment is global in scope. It’s not just Japan, where the purportedly powerful impetus of Abenomics has failed to dislodge a struggling economy from 24 years of 0.8% inflation-adjusted growth in GDP.

It’s also the U.S., where consumer demand — the epicenter of America’s Great Recession — remains stuck in an eight-year quagmire of just 1.5% average real growth. Even worse is the eurozone, where real GDP growth has averaged just 0.1% over the 2008-2015 period. All of this speaks to the impotence of central banks to jump-start aggregate demand in balance-sheet-constrained economies that have fallen into 1930s-style “liquidity traps.” As Paul Krugman noted nearly 20 years ago, Japan exemplifies the modern-day incarnation of this dilemma. When its equity and property bubbles burst in the early 1990s, the keiretsu system — “main banks” and their tightly connected nonbank corporates — imploded under the deadweight of excess leverage.

But the same was true for over-extended, saving-short American consumers — to say nothing of a eurozone that was basically a levered play on overly inflated growth expectations in its peripheral economies — Portugal, Italy, Ireland, Greece, and Spain. In all of these cases, balance-sheet repair pre-empted a resurgence of aggregate demand, and monetary stimulus was largely ineffective in sparking classic cyclical rebounds. This could be the greatest failure of modern central banking. Yet denial runs deep. then-Federal Reserve Chair Alan Greenspan’s “mission accomplished” speech in early 2004 is an important case in point. Greenspan took credit for using super-easy monetary policy to clean up the mess after the dot-com bubble burst in 2000, while insisting that the Fed should feel vindicated for not leaning against the speculative madness of the late 1990s.

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“When, not if, central banks go completely negative, they will wind up paying banks to borrow money from them. That’s quantitative easing by another name.”

Why Negative Interest Rates Spell Doom For Capitalism (Romano)

Interest rates in Switzerland, Denmark, Sweden, the European Central Bank and now the Bank Japan have now plunged into negative territory, starting a new phase in the era of central banking that is very much uncharted. Time will tell if it leaves the global economy lost at sea. So far, banks are primarily being charged for keeping excess reserves on account at these central banks, a policy designed to jumpstart lending by making it more expensive for banks to sit on reserves. In some cases, like Sweden, the deposit rates have gone negative, too. Whether it will all work out or not remains to be seen — initiating inflation and economic growth. Maybe it will, but so far it’s not really looking good. So what if it doesn’t work? The longer term implication is that central banks will then feel compelled to move their discount rates and other rates negative, too.

Once that Pandora’s Box is open, it will mean that when financial institutions borrow money from the central bank, they will earn interest instead of owing it. You read that right. When, not if, central banks go completely negative, they will wind up paying banks to borrow money from them. That’s quantitative easing by another name. Say, the interest rate is -1%. For every $1 trillion that is lent, the central bank in theory would owe an additional $10 billion in interest to the borrowing banks. Fast forward 10 or 20 years into the future. Can you imagine a world where commercial banks pay their customers to borrow money? Sure, scoff now. But mark my words. Central banks are so desperate to kick start the economy and credit creation, they will do almost anything. So, if they have to bribe you to borrow money to start acquiring more things, then that’s exactly what they’ll do.

A few problems immediately emerge. If it ends up costing money for banks to lend money, how will they make any profits? The answer might be that the profits will be the difference between the interest earned from that bank borrowing the money from the central bank less the interest owed to the borrowing customer. So, say the bank borrowed from the central bank at -5% and then issued a loan with that money at -1%. The customer still earns 1%age point of negative interest, and the bank still gets to pocket the remaining 4%age points of negative interest from the central bank. But what about savers? Would they be charged just to put money into the bank? If so, why would they keep it there? Since banks depend on deposits to make up their capital requirements, they would have a powerful disincentive against charging customers to keep deposits, lest it provoke a run on the banks. But why invest in bonds? This is where the real rub comes.

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Chicken and the egg. Central bankers incompetence will drag us all down.

Central Banking Is In Crisis. Can The World Economy Be Far Behind? (Economist)

A world of helicopter drops is anathema to many: monetary financing is prohibited by the treaties underpinning the euro, for example. Incomes policies are even more problematic, as they reduce flexibility and are hard to reverse. But if the rich world ends up stuck in deflation, the time will come to contemplate extreme action, particularly in the most benighted economies, such as Japan’s. Elsewhere, governments can make use of a less risky tool: fiscal policy. Too many countries with room to borrow more, notably Germany, have held back. Such Swabian frugality is deeply harmful. Borrowing has never been cheaper. Yields on more than $7 trillion of government bonds worldwide are now negative.

Bond markets and ratings agencies will look more kindly on the increase in public debt if there are fresh and productive assets on the other side of the balance-sheet. Above all, such assets should involve infrastructure. The case for locking in long-term funding to finance a multi-year programme to rebuild and improve tatty public roads and buildings has never been more powerful. A fiscal boost would pack more of a punch if it was coupled with structural reforms that work with the grain of the stimulus. European banks’ balance-sheets still need strengthening and, so long as questions swirl about their health, the banks will not lend freely. Write-downs of bad debts are one option, but it might be better to overhaul the rules so that governments can insist that banks either raise capital or have equity forced on them by regulators.

Deregulation is another priority—and no less potent for being familiar. The Council of Economic Advisors says that the share of America’s workforce covered by state-licensing laws has risen to 25%, from 5% in the 1950s. Much of this red tape is unnecessary. Zoning laws are a barrier to new infrastructure. Tax codes remain Byzantine and stuffed with carve-outs that shelter the income of the better-off, who tend to save more. The problem, then, is not that the world has run out of policy options. Politicians have known all along that they can make a difference, but they are weak and too quarrelsome to act. America’s political establishment is riven; Japan’s politicians are too timid to confront lobbies; and the euro area seems institutionally incapable of uniting around new policies.

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Makes sense, since they have no idea what they’re doing. Then again, since this is a double negative…

Bank of Japan Baffled by Negative Reaction to Negative-Rate Policy (WSJ)

A clash Thursday between Japan’s central-bank chief and lawmakers highlighted the downside of negative interest rates: They are making the Japanese public feel negative. Bank of Japan Gov. Haruhiko Kuroda, who announced the nation’s first move into minus rates three weeks ago, found himself dodging a concerted attack in Parliament from lawmakers who charged the policy was victimizing consumers and sending a message of despair. Even a ruling-party member, Masahiro Ishida, called the policy hard to grasp. “It could have the opposite effect of confusing the market,” he said. The criticism has come as a surprise to central-bank officials who thought their efforts to spark lending and faster economic growth would gain more public support.

“Those who understand this policy are criticizing us, and those who do not are also criticizing us,” said one official this week. It is a symptom of a global problem. The more central banks move into unconventional policies, the harder it becomes to get their message across. That is a particular problem when the policies are supposed to work in part by inspiring confidence. It also highlights an open question about negative rates: Commercial banks, for the most part, haven’t started charging depositors to hold their cash, despite increasing pressure on margins. But what happens if they do? Under new rules that took effect Tuesday, the Bank of Japan started imposing an interest rate of minus -0.1% on some deposits it holds for commercial banks, meaning the banks have to pay to store their money.

The goal was to bring down interest rates generally, including long-term rates charged for home loans. The move followed years of attempts to defeat deflation and stimulate moribund spending, including by pumping ¥80 trillion ($701 billion) of cash annually into the economy with purchases of government bonds. The immediate impact was muted as global markets swooned and the yen, seen as a haven in times of trouble, rose against the dollar, threatening the profits of Japanese exporters. This week, markets have stabilized, but the central bank is struggling with a different and equally hard-to-control force: public opinion.

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But if that’s true for all negative rates, who would the yen fall against?

Nomura Sees Yen Falling More Than 10% on BOJ Negative Rates (BBG)

Nomura is sticking to its forecast for the yen to weaken to 130 per dollar by year-end on the view Japan’s negative interest-rate policy will prompt investors to buy more overseas assets and U.S. borrowing costs will rise. Japan’s biggest brokerage has maintained the projection since December 2014, when the yen completed a six-month slide to 119.78 after the central bank boosted its debt purchases to a record. The yen has rallied 5.5% this year against the dollar, about 14% stronger than Nomura’s target, as a flight to haven assets from tumbling global stocks burnished the currency’s allure. “There is nothing convincing yet to alter the outlook,” said Yunosuke Ikeda at Nomura Securities in Tokyo. “The most important check points for now are a set of U.S. data in early March. If we can confirm recession risks are low, the 130-yen forecast can be maintained.”

The yen’s recent strength was partly driven by the dollar’s weakness as concerns over a slowdown in China and the health of banks in Europe caused traders to pare bets that the Federal Reserve will raise rates again this year after moving in December. There’s a 41% probability the Fed will boost rates by the end of December, according to futures data compiled by Bloomberg. The odds were more than 90% at the end of last year. The yen’s advance is being driven by “low conviction” risk aversion, according to Nomura’s Ikeda, a trend that may lose momentum should the U.S. show signs of strength when economic figures are released next month. “The worst case scenario is the low-conviction risk off will become high-conviction should the U.S. economy become decisively bad,” he said. “ For this, ISM manufacturing and non-manufacturing as well as jobs data due in early March are very significant.”

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I’ve suggested seppuku before.

Abenomics? How About Kurodanomics? (BBG)

Despite all Prime Minister Shinzo Abe has done, Japan’s economy contracted an annualized 1.4% in the final three months of 2015, the government announced on Feb. 15. Consumer prices rose just 0.2% year to year, perilously close to deflation. Japanese consumers, hurt by tepid growth in wages and bonuses and a 3%age point rise in the consumption tax in 2014, are holding on to their wallets, with private consumption dropping 0.8% in the quarter. The yen has gained 5.6% against the dollar since the start of the year, eroding profits for exporters such as Toyota Motor and Panasonic. These companies have benefited from the yen’s weakness since the prime minister came to office in late 2012 and began the policy changes known as Abenomics.

“There’s no clear driver to support Japan’s economy,” says Yuichi Kodama at Meiji Yasuda Life Insurance in Tokyo. Yet on the same day the government announced the economy’s contraction, the benchmark Nikkei stock index rose more than 7%. Investors hope that the weak data could spur Bank of Japan Governor Haruhiko Kuroda, who pushed through a negative interest rate last month, to move even deeper into negative territory, or purchase even more bonds. They also hope Abe will postpone another hike in the consumption tax. Handpicked by Abe in 2013, Kuroda has aggressively implemented the monetary policy envisioned by Abenomics. He has championed a quantitative easing program of bond and other asset purchases by the central bank that has left the BOJ with a balance sheet about three-quarters the size of Japan’s $4.6 trillion economy.

Kuroda’s bold and unconventional moves helped drive down the yen, contributing to an increase in corporate earnings and stock prices. In January, the Bank of Japan started charging 0.1% on part of the cash deposited at the central bank by big financial institutions. The idea is to encourage banks to lend instead of watching their cash lose value. “Kuroda is doing everything he can,” says Marcel Thieliant, Japan economist for Capital Economics. Abe’s program has what he calls three “arrows”: an easy-money policy, fiscal stimulus, and structural reforms. Although the BOJ has done its part in terms of interest rates and bond purchases, Abenomics has been a disappointment in the other two areas. The government has moved slowly on reforms of labor laws and other regulations.

As for fiscal stimulus, Abe has increased spending, but also raised the consumption tax to 8%. He wants to raise it to 10%. “Abe and the government have no choice but to depend on Bank of Japan policy,” says Kazuhiko Ogata at Crédit Agricole. But with the BOJ rate negative, Kuroda has little room to maneuver. GDP growth for the fiscal year ending in March will be just 0.8%, according to Bloomberg Intelligence, lower than the central bank’s target of 1.1%. Confidence in Abenomics is falling. In a Yomiuri poll published on Feb. 16, approval of Abe’s economic policies fell to a record low of 39%.

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Can we talk about timing here, OECD?

OECD Calls for Urgent Increase in Government Spending (WSJ)

Governments in the U.S., Europe and elsewhere should take “urgent” and “collective” steps to raise their investment spending and deliver a fresh boost to flagging economic growth, the Organization for Economic Growth and Development said on Thursday. In its most forceful call to action since the financial crisis, the OECD said the global economy is suffering from a weakness of demand that can’t be remedied through stimulus from central banks alone. Releasing its first economic forecasts of 2016, it urged governments that can borrow at very low interest rates to boost their spending on infrastructure. The OECD said that if governments work together, fresh borrowing could have such a positive impact on growth that it would reduce rather than increase their debts relative to economic output.

Speaking to The Wall Street Journal, OECD Chief Economist Catherine Mann said that without such action, governments will be unable to honor their pledges to deliver a “better life” for young people, adequate pensions and health care for old people, and the returns anticipated by investors. “The economic performance generated by today’s set of policies is insufficient to make good on these commitments,” said Ms. Mann, who has worked at the U.S. Federal Reserve and the Council of Economic Advisers. “Those commitments will not be met unless there is a change in policy stance.” The Paris-based think tank lowered its forecasts for global growth this year and next. It now expects the U.S. economy to grow by 2.0% in 2016 and 2.2% in 2017, having in November projected expansions of 2.5% and 2.4%, respectively.

The OECD lowered its eurozone growth forecasts to 1.4% and 1.7% from 1.8% and 1.9%, and nudged down its Japanese growth forecast for this year to 0.8% from 1.0%. It left its growth forecasts for China unchanged. Overall, it expects the global economy to grow by 3% this year, the same rate of expansion as in 2015 but slower than the 3.3% it anticipated in November. “The downgrade in forecasts is broadly based, reflecting a wide range of disappointing incoming data for the fourth quarter of 2015 and the recent weakness and volatility in global financial markets,” the OECD said. “These trends have been apparent in both advanced and emerging economies.” Last month, the IMF cut its global growth forecast for this year, but still expected a pickup from 2015.

Ms. Mann said the sharp and varying falls in prices of assets and commodities since the start of the year largely reflect a delayed response to weaker growth prospects around the world, and not just in China. “We should have had a decline starting a year ago,” she said. “We can see in those different rates of decline both investor views of prospects, but some over shooting.” The OECD said that budget policy in a number of major economies -including Japan, the U.K. and the U.S.- is “contractionary,” while some developing economies had also made recent budget decisions that will slow growth. It urged governments to reverse course.

“Governments in many countries are currently able to borrow for long periods at very low interest rates, increasing fiscal space,” the OECD said. “Many countries have room for fiscal expansion to strengthen demand. This should focus on policies with strong short-run benefits and that also contribute to long-term growth. A commitment to raising public investment collectively would boost demand while remaining on a fiscally sustainable path.”

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Seems obvious.

China Bears Say the Capital Outflow Is Just Beginning (BBG)

Yuan bears say this month’s rally shouldn’t be taken as a sign China’s great reversal in capital flows has finished. Goldman Sachs warns that any further shock depreciation will only accelerate the exit. Daiwa Capital Markets, which predicted the outflow risks back in 2014, says less than half of the $3 trillion of dollar debt that ended up in China has been repaid. Commerzbank said record new yuan loans in January showed companies are raising money to repay more debt abroad. Corporate bond sales onshore have more than doubled this year, as offshore issuance in the greenback dropped about 30%. Goldman Sachs says there have been $550 billion of outflows in the second half of 2015, and that every 1% yuan weakening risks $100 billion more.

The yuan’s appreciation in the four years through 2013 prompted companies to borrow dollars offshore and use the money to profit from a strong currency and higher interest rates in China. The one-way bets began to fade in 2014 as the exchange rate to the dollar plunged the most since 1994. This month’s 0.9% rally hasn’t dissuaded analysts from forecasting a further 3.4% drop by year-end. “We’re less than halfway done” in terms of carry trade unwinding, said Kevin Lai at Daiwa. “My main focus is not about unwinding, but the reverse carry trade. People are taking fresh positions to sell the yuan. We’re talking about a massive deflationary scenario now, which is very bad for the market, economy, for everything.” Daiwa’s estimate for the carry trade is on the high side because it includes borrowing by companies outside China, such as Hong Kong and Taiwan.

Oversea-Chinese Banking economist Tommy Xie estimates the positions at around $1 trillion, based on data from the Bank of International Settlements and the Hong Kong Monetary Authority. Chinese companies’ total foreign-currency debt dropped by about $140 billion in the second half of 2015 to $1.69 trillion, including corporate borrowing from onshore banks, Goldman estimates. That was dwarfed by the $370 billion outflows by Chinese residents buying foreign currencies, it said. “A risk is that any further shocks to renminbi confidence and the perception of policy uncertainty could sharply compound the outflow pressure and render any subsequent stabilization attempts much less effective,” Goldman wrote in a note released to media on Jan. 26.

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Much worse now: “As of 2014, according to an estimate by the McKinsey Global Institute, total debt in China stood at 282% of GDP.”

Red Ink In China (Economist)

This week began with the release of a staggering number. In January, new debt issued in China rose to just over $500 billion, an all-time high. Not all of the “new” debt was actually new; some represented a move out of foreign-currency loans and into local-currency borrowing (in order to reduce foreign-currency risk). But the flow of red ink is not a mirage. China’s government opened the credit taps early in 2016 in order to reduce the odds of a sharp economic slowdown. Private borrowing in China has grown rapidly and steadily since 2008, even as nominal output growth has slowed. As of 2014, according to an estimate by the McKinsey Global Institute, total debt in China stood at 282% of GDP. China is rapidly becoming one of the most indebted countries in the world.

So what? There is a cottage industry of analysts out there gaming out the ways in which a crisis of some sort might unfold within China. But with debts of this magnitude accumulating, you don’t need to posit a looming crisis to draw some reasonably strong, and reasonably gloomy conclusions about the near-term future of the Chinese economy—and the world as a whole. At some point, Chinese corporates will need to deleverage. It is hard to say precisely when or why, but a deleveraging at some point is inevitable. The result of that deleveraging, when it occurs, will be a big drag on demand growth within China. That, in turn, will translate into much slower GDP growth, unless some other source of demand can be found. China could try to boost demand by encouraging more spending and investment by non-corporates.

This probably wouldn’t work especially well, if the history of other economies in such circumstances is any guide. Households have also been adding debt at a good clip. To get them to borrow at an even faster pace, especially at a time when (presumably, given the corporate deleveraging) animal spirits are not at their most spirited, the Chinese government would basically have to force new loans down households’ throats. Certainly, we could expect China to hit the zero lower bound on interest rates and to begin QE. Zero rates and QE would place significant downward pressure on the value of the yuan. That’s just as well, since another thing history tells us is that demand-deficient, deleveraging economies depreciate their currencies and rely on exernal demand to support growth.

Of course, most countries in the situation we’re imagining here aren’t already running big trade surpluses. It is possible, given the importance to China of supply-chain trade, that even a big depreciation wouldn’t boost demand in the economy very much, since it would make imported components more expensive even as it made exports cheaper. If those arguments are right, they suggest that a Chinese adjustment would require either a really big depreciation, or would be slower and more painful, or a bit of both. Conventional wisdom has it, however, that China does not want to depreciate the currency. Depreciation might not boost net exports by much, but it would make dollar-denominated loans more expensive (increasing the pressure on some of those deleveraging corporates), it would squeeze Chinese consumers, and it would represent a big loss of face for the government.

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Delusional: “The government aims to urbanize 100 million lower-income people within five years to expand a middle class that can afford movies and medicine, and sustain China’s upward trajectory.”

Overproduction Swamps Smaller Chinese Cities, Revealing Depth of Crisis (WSJ)

Even in China’s remotest places, relentless overproduction—here it is mushrooms and cement trucks—is clouding the country’s path to prosperity and jolting the global economy. When 48-year-old farmer Yang Qun began trading at Suizhou’s bustling morning mushroom market a half decade ago, the fungus industry was expanding, even attracting a rural lending arm of British financial giant HSBC. Ms. Yang saved enough to buy a minivan. When wet snow fell last month, she was settling for closeout prices to unload six bags of dried mushrooms that took a half year to cultivate. For Xu Song, a clanging sound was once a welcome reminder that his 200 colleagues were busy pounding steel into the giant barrels used on cement trucks.

On a recent day, he sat alone watching videos in an unheated office, the only worker left on an abandoned factory floor where dozens of rusting barrels were stacked like multi-ton footballs. “The decline was steep,” says Mr. Xu, standing inside the all-but-defunct Hubei Aoma Special Automobile Co. factory, where he was hired to do quality control. “I don’t know what had really happened to us.” Beyond the glut of steel and apartments that weighed down growth in recent years, China’s economy is also saturated with surplus goods from farms and factories. Numerous small and midsize cities such as Suizhou, which boomed on easy credit and government support for agribusiness and construction, were supposed to provide the second wave in China’s growth story. Instead they are now sputtering, wearing down prices, profits and job opportunities.

The struggles in Suizhou show how China’s slowdown is broad and deep and hard to fix. It has fueled volatile market trading around the world and has contributed to anxiety about potentially stalled U.S. growth. Domestic overproduction means China is now spending less overseas, while businesses that sell to China are bracing for possible protectionist moves aimed at propping up local companies. And with Chinese demand at risk, its industrial giants with idle capacity are looking to capture market share abroad, including construction and railway equipment makers. The government has made a priority of eliminating “zombie companies,” kept alive with loans to produce unneeded goods, to clear the path for more vibrant parts of the economy. The squeeze won’t be easy because in small, remote places such as Suizhou, overbuilt industries are often the economic backbone.

[..] China’s future is dependent on spreading opportunity more widely. While Shanghai and other gleaming metropolises on the coast powered the first decades of market liberalization, Beijing is now counting on smaller cities for the next phase. The government aims to urbanize 100 million lower-income people within five years to expand a middle class that can afford movies and medicine, and sustain China’s upward trajectory.

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How many times have we said this?!

You Cannot Print Your Way to Prosperity (Ron Paul)

Last week US stock markets tumbled yet again, leaving the Dow Jones index down almost 1500 points for the year. In fact, most major world markets are in negative territory this year. There are many Wall Street cheerleaders who are trying to say that this is just a technical correction, that the bottom is near, and that everything will be getting better soon. They are ignoring the real message the markets are trying to send: you cannot print your way to prosperity. People throughout history have always sought to acquire wealth. Most of them understand that it takes hard work, sacrifice, savings, and investment. But many are always looking for that “get rich quick” scheme. Monetary cranks throughout history have thought that just printing more money would result in greater wealth and prosperity. Every time this was tried it resulted in failure.

Huge economic booms would be followed by even larger busts. But no matter how many times the cranks were debunked both in theory and practice, the same failed ideas kept coming back. The intellectual descendants of those monetary cranks are now leading the world’s central banks, which is why the last decade has seen an explosion of money creation. And what do the central bankers have to show for it? Lackluster employment numbers that have not kept up with population growth, increasing economic inequality, a rising cost of living, and constant fear and uncertainty about what the future holds. The past decade has been a lot like the 1920s, when prices wanted to drop but the Federal Reserve kept the price level steady through injections of easy money into the economy. The result in the 1920s was the Great Depression.

But in the 1920s prices were dropping because of increased production. More goods being produced meant lower prices, which the Fed then tried to prop up by printing money. Unlike the “Roaring 20s” however, the economy isn’t quite as strong today. It’s more of a gasp than a roar. Production today is barely above 2007 levels, while heavily-indebted households already hurt during the financial crisis don’t want to keep spending. The bad debts and mal-investments from the last Federal Reserve-induced boom were never liquidated, they were merely papered over with more easy money. The underlying economic fundamentals remain weak but the monetary cranks who run the Fed keep trying to pump more and more money into the system. They fail to realize that easy money is the cause, not the cure, of recessions and depressions. [..] The more money the Federal Reserve creates, the more ordinary Americans will end up suffering.

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What happens when you make it all up.

The Real Economy Is Talking, but Treasuries Aren’t Listening (BBG)

There’s a massive divergence between recent economic data and U.S. Treasury yields. Amid widespread risk aversion, the yield on 10-year debt fell below 1.60% this month before recovering to back over 1.75% on Thursday. According to Deutsche Bank Chief International Economist Torsten Sløk, that’s still far too low. The Atlanta Fed’s GDPNow indicator provides an estimate for quarterly economic growth based on recently released economic data, which currently stands at 2.6% for the first quarter: “Using the historical relationship between the Atlanta Fed GDP Now estimate and 10y rates shows that 10y rates today should not be 1.82% but instead 2.3%,” he wrote. “Put differently, markets are currently pricing a deep recession, but that is simply not what the data is showing.”

Some caveats apply: The sample size depicted here is quite small, so there’s no guarantee the Atlanta Fed’s GDPNow will prove accurate, and the composition of growth, not merely the headline rate, is important in assessing economic health. Additionally, while it makes intuitive sense for there to be a relationship between yields on sovereign debt, it’s worth remembering what goes into a bond yield: expectations regarding short-term interest rates, market-based measures of inflation compensation, and the term premium (what investors demand for taking on more duration). At present, market-implied expectations for the federal funds rate and inflation are quite low. Term premiums are also suppressed, due in part to strong demand for U.S. assets that are perceived as a safe haven, particularly in times of market turmoil. Those assets also provide a yield that’s more attractive than most other advanced economies.

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How the Anglo model of ownership obsession ritually murders itself.

Number Of UK Homes Worth More Than £1 Million Set To ‘Triple By 2030’ (G.)

The number of properties in Britain worth £1m or more is set to more than triple by 2030, widening the gap between the housing haves and have-nots, according to a report. Less than half a million homes in the UK are currently valued at £1m-plus, but a study by high street lender Santander claims this number will rise to more than 1.6m in the next 15 years. The report also warns that affordability will worsen considerably by the end of the next decade as house price rises far outstrip growth in household incomes. The average property price amounts to 7.9 times the average income at present, but by 2030 this is expected to hit a multiple of 9.7. Santander said: “By 2030 the UK will be even more starkly divided into the housing wealthy and the housing poor than it is now.”

There is a stark geographical divide among the projected members of the £1m club, according to Santander. One in four homes in London will cost £1m-plus by 2030, rising to 70% in two boroughs in the capital – Kensington and Chelsea and the City of Westminster. More than half of homes in three more London boroughs – Camden, the City of London and Hammersmith and Fulham – will also be worth more than £1m. Across the south-east, 7% of homes are expected to be valued at that level. However, many areas of the UK – the north-east, north-west, Yorkshire and Humber, Scotland and the East Midlands – are expected to host a negligible number of such expensive houses (less than 1%). One area, Torfaen in Wales, home to more than 90,000 people, will have none.

The report, carried out in partnership with Paul Cheshire, professor of economic geography at the London School of Economics, predicts that prices in London, which are currently 11.5 times average incomes, will soar to a multiple of 16.5 by 2030. Cheshire said: “By 2030, the divide between housing haves at the top and the have-nots at the bottom will be even wider than it is now. More owners will enjoy millionaire status, as homes that many would consider modest fetch seven figure prices in sought-after areas. “It will make entering the market more difficult still for new buyers, further highlighting the importance of the right timing, advice, support and financial planning; and not just having a mum and dad who bought a house, but a grandparent, too.”

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Make that the entire western world; pensions are Ponzi’s: “What’s happening to us is a microcosm of what’s going to happen to the rest of the pensions in the United States..”

400,000 Americans In Jeopardy As Giant Pension Fund Plans 50% Benefit Cuts (ZH)

Dale Dorsey isn’t happy. After working 33 years, he’s facing a 55% cut to his pension benefits, a blow which he says will “cripple” his family and imperil the livelihood of his two children, one of whom is in the fourth grade and one of whom is just entering high school. Dorsey attended a town hall meeting in Kansas City on Tuesday where retirees turned out for a discussion on “massive” pension cuts proposed by the Central States Pension Fund, which covers 400,000 participants, and which will almost certainly go broke within the next decade. “A controversial 2014 law allowed the pension to propose [deep] cuts, many of them by half or more, as a way to perhaps save the fund,” The Kansas City Star wrote earlier this week adding that “two much smaller pensions also have sought similar relief under the law, and still more pensions are significantly underfunded.”

“What’s happening to us is a microcosm of what’s going to happen to the rest of the pensions in the United States,” said Jay Perry, a longtime Teamsters member. Jay is probably correct. Public sector pension funds are grossly underfunded in places like Chicago and Houston, while private sector funds are struggling to deal with rock bottom interest rates, which put pressure on expected returns and thus drive the present value of funds’ liabilities higher. Illinois’ pension burden has brought the state to its knees financially speaking and in November, Springfield was forced to miss a $560 million payment to its retirement fund. In the private sector, GM said on Thursday that it will sell 20- and 30-year bonds in order to meet its pension obligations.

“At the end of last year GM’s U.S. hourly pension plan was underfunded by $10.4 billion,” The New York Times writes. “About $61 billion of the obligations were funded for the plan’s roughly 360,000 pensioners.” Maybe it’s time for tax payers to bail themselves out. Speaking of GM, Kenneth Feinberg – the man who oversaw the distribution of cash compensation to victims who were involved in accidents tied to faulty ignition switches – is now tasked with deciding whether the Central States Pension Fund’s proposal to cut benefits passes legal muster. “Central States’ proposal would allow the retirees to work and still collect their reduced benefits. But some are no longer able to work, and the idea didn’t seem plausible to others,” the Star goes on to note.

“You know anybody hiring a 73-year-old mechanic?” Rod Heelan asked Feinberg. “I’m available.” “I’ll have to go find a job. I don’t know. I’m 68,” Gary Meyer of Concordia, Mo said. “It would probably be a minimum-wage job.” To be sure, retirees’ frustrations are justified. That said, the fund is simply running out of money. “We simply can’t stay afloat if we continue to pay out $3.46 in pension benefits for every $1 paid in from contributing employers,” a letter to retirees reads. The fund is projected to go broke by 2026. Without the proposed cuts, no benefits at all will be paid from that point forward.

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Not even the WSJ is fooled.

The Political War on Cash (WSJ)

These are strange monetary times, with negative interest rates and central bankers deemed to be masters of the universe. So maybe we shouldn’t be surprised that politicians and central bankers are now waging a war on cash. That’s right, policy makers in Europe and the U.S. want to make it harder for the hoi polloi to hold actual currency. Mario Draghi fired the latest salvo on Monday when he said the ECB would like to ban €500 notes. A day later Harvard economist and Democratic Party favorite Larry Summers declared that it’s time to kill the $100 bill, which would mean goodbye to Ben Franklin. Alexander Hamilton may soon—and shamefully—be replaced on the $10 bill, but at least the 10-spots would exist for a while longer. Ol’ Ben would be banished from the currency the way dead white males like him are banned from the history books.

Limits on cash transactions have been spreading in Europe since the 2008 financial panic, ostensibly to crack down on crime and tax avoidance. Italy has made it illegal to pay cash for anything worth more than €1,000, while France cut its limit to €1,000 from €3,000 last year. British merchants accepting more than €15,000 in cash per transaction must first register with the tax authorities. Fines for violators can run into the thousands of euros. Germany’s Deputy Finance Minister Michael Meister recently proposed a €5,000 cap on cash transactions. Deutsche Bank CEO John Cryan predicted last month that cash won’t survive another decade. The enemies of cash claim that only crooks and cranks need large-denomination bills. They want large transactions to be made electronically so government can follow them.

Yet these are some of the same European politicians who blew a gasket when they learned that U.S. counterterrorist officials were monitoring money through the Swift global system. Criminals will find a way, large bills or not. The real reason the war on cash is gearing up now is political: Politicians and central bankers fear that holders of currency could undermine their brave new monetary world of negative interest rates. Japan and Europe are already deep into negative territory, and U.S. Federal Reserve Chair Janet Yellen said last week the U.S. should be prepared for the possibility. Translation: That’s where the Fed is going in the next recession. Negative rates are a tax on deposits with banks, with the goal of prodding depositors to remove their cash and spend it to increase economic demand. But that goal will be undermined if citizens hoard cash. And hoarding cash is easier if you can take your deposits out in large-denomination bills you can stick in a safe. It’s harder to keep cash if you can only hold small bills.

So, presto, ban cash.

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First Austria, now Switzerland. 5000 francs is well over $5000.

Swiss MPs Want New 5,000-Franc Banknotes To ‘Save Privacy And Freedom’ (L.)

Two MPs from the canton of Zug’s parliament are calling on the Swiss federal government to create 5,000-franc banknotes to “save the privacy and freedom” of citizens. Philip Brunner and Manuel Brandberg, members of the right-wing Swiss People’s Party, have proposed a motion that they hope Zug will support for a cantonal initiative seeking changes to the federal currency law. They argue that the creation of 5,000-franc notes will ensure that the Swiss franc maintains its status as a safe haven currency. The move goes in the opposite direction of in the European Union, where finance ministers have talked about withdrawing 500-euro bills from circulation to deter their use for financing terrorism, money laundering and other illegal activities.

But Brunner and Brandberg maintain that the tendency in the EU and in OECD member countries is to “weaken individual liberties” and to exercise greater control over citizens. In this context “cash is comparable to the service firearm kept by Swiss citizen soldiers,” the pair argued in their motion, saying they both “guarantee freedom”. “In France and Italy already cash payments of only up to 1,000 euros are allowed and the question of the abolition of cash is being seriously discussed and considered in Europe, “ Brunner said on his Facebook page. The move toward electronic payments allows governments “total surveillance” over individuals, the pair claim. Switzerland already has a 1,000-franc note (worth around $1,008), which is the most valuable banknote in Europe and second in the world only to the Singapore $10,000 note among currencies in general circulation.

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“You can’t have these conversations when oil is $125 because then you can’t get it out of the ground quickly enough. And you can’t have it at $27 because you’re just trying to survive.”

Hmmm. Looks to me like it’s at $27 that you can’t get it out of the ground quickly enough.

The Stressed-Out Oil Industry Faces an Existential Crisis (BBG)

The Saudis may go public, OPEC’s in disarray, the U.S. is suddenly a global exporter, and shale drillers are seeking lifelines from investors as banks abandon them. Welcome to oil’s new world order, full of stresses, strains and fractures. For leaders gathering in Houston next week at the IHS CERAWeek conference – often dubbed the Davos of the energy industry – a key question is: what will break first? Will it be the balance sheets of big U.S. shale companies? The treasuries of Venezuela and Nigeria? The resolve of Saudi Arabia, whose recent deal with Russia to freeze output levels offered the first hint of a rethink? After watching prices crash through floor after floor in the worst slump for a generation, the industry is eager for answers.

Insiders say it’s not too hard to visualize what markets might look like after the storm – say five years down the line, when today’s cost-cutting creates a supply vacuum that will push up prices. But it’s what happens in the meantime that’s got them scratching their heads. “This is a weird thing for a market analyst to say because it’s usually the opposite case, but I have more conviction in my five-year outlook than my one-year outlook,” said Mike Wittner at Societe Generale. “Maybe I’m letting my head get turned upside down by the last couple months.” Seeking clarity at closed-door sessions, cocktail hours and water-coolers in Houston will be some of the industry’s biggest players, from Saudi Petroleum Minister Ali al-Naimi to Shell CEO Ben Van Beurden.

In a less volatile year, the long-term viability of fossil fuels might have been high on their agenda after December’s breakthrough climate deal in Paris. But within the industry, that debate has “fallen into the abyss of $27 oil,” said Deborah Gordon, director of the Carnegie Endowment for International Peace’s energy and climate program. “It seems like it’s never a good time,” she said. “You can’t have these conversations when oil is $125 because then you can’t get it out of the ground quickly enough. And you can’t have it at $27 because you’re just trying to survive.”

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Keep watching below.

Oil Gives Up Gains as Inventories Build (WSJ)

U.S. oil prices eked out a gain Thursday as the U.S. government’s weekly oil-inventory report showed another increase in stockpiles of crude oil. U.S. crude inventories rose by 2.1 million barrels last week to 504.1 million barrels, a new weekly record high, the Energy Information Administration said. In monthly data, which don’t line up exactly with weekly data, inventories last exceeded 500 million barrels in 1930. Light, sweet crude for March delivery settled 0.4%, at $30.77 a barrel on the New York Mercantile Exchange. Brent, the global benchmark, slipped 0.6% to $34.28 a barrel on ICE Futures Europe. Both benchmarks had been up about 3% ahead of the government data, which was delayed one day due to the Presidents Day holiday. Oil prices are down more than 70% since a peak in June 2014, driven lower by a mismatch between ample supplies and tepid demand for crude around the globe.

“U.S. and global inventories are nearing maximums, and global production is showing little sign of slowing,” said Rob Haworth at U.S. Bank Wealth Management in a note. Price moves have been especially volatile in recent weeks amid uncertainty about the pace of global demand growth. The U.S. oil benchmark settled up or down by 1% or more for 23 straight sessions until Thursday, the longest such streak since 2009. U.S. crude stockpiles have climbed since the start of the year as production continued to outpace demand. Inventories fell in the week ended Feb. 5 as imports declined, but imports rose again last week, the EIA data show. ”It’s back to business as usual,” said Bob Yawger at Mizuho. He predicted that prices “will eventually cave under the weight of these storage numbers.”

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Better come clean before you’re forced to?!

Anglo American Cut to Junk for Third Time This Week (BBG)

Anglo American’s credit rating was cut to junk by Standard & Poor’s, following similar downgrades by Moody’s Investors Service and Fitch Ratings this week, amid questions about the miner’s ability to sell assets. The company’s rating was reduced to BB from BBB- with a stable outlook, S&P said in a statement Thursday. Moody’s cut Anglo to Ba3, and Fitch lowered the rating to BB+ earlier in the week. The shares slid 4.6% as of 2:25 p.m. in London. Anglo, which became the first major London-based miner to be rated junk, has said it’s looking to speed up sales of coal and iron ore assets after losses bled into a fourth year. It’s trying to engineer a turnaround by focusing on its best mines that produce diamonds, platinum and copper. The company wants to raise $4 billion from mine sales and cut net debt to less than $10 billion this year.

Anglo said on Thursday it will start a tender for a maximum of $1.3 billion of bonds to reduce debt and interest costs. It may purchase $1 billion of notes maturing in 2016, 2017 and 2018 in euros and pounds as well as a maximum of $300 million in dollar-denominated securities, according to company statements.= On Tuesday, Anglo added mines including coal in Australia and nickel in Brazil to an already long list of assets for sale as it seeks to scale back its $12.9 billion debt. CEO Mark Cutifani expects to sell 10 assets by the first half of 2016 and because there are so many up for sale, Anglo wouldn’t be forced to accept any offer, he said.

“Although the program should enable Anglo to lower its debt levels, the depressed market means that we view the proceeds and timeline as very uncertain,” S&P said in the statement. “Because other companies are also seeking to divest assets at this time, we remain very cautious about the timing of any sales and the level of proceeds they will generate.” Goldman Sachs said Tuesday that the miner’s plan to sell off assets was “ambitious” in such a tough environment. Bank of America questioned whether the market trusted the management team to execute sales, while Citigroup said the process was coming too late.

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Translation: Dump ’em all in Greece. And then dump Greece itself.

Wary On Turkey, EU Prepares For Refugee Crisis In Greece (Reuters)

The European Union hopes Turkey will prevent as many migrants reaching Greece as last year but is readying “contingency” plans to shelter large numbers who may arrive but can no longer trek north toward Germany. Migration Commissioner Dimitris Avramopoulos told Reuters on Thursday that it was unclear how far Turkey could reduce numbers once the weather improves and, with efforts under way to prevent a repeat of last summer’s chaotic treks through the Balkans, the EU was working with Athens to shelter refugees in Greece. “As long as our cooperation agreement we made with Turkey doesn’t start giving results, the situation will not be easy at all. The flows will continue,” said Avramopoulos. “That is why we have already started working on contingency planning.”

“If this happens, we are going to be confronted with a huge humanitarian crisis and this has to be avoided.” When more than 800,000 people, many Syrian refugees, arrived in Greece last year, most moved north through the Balkans to Germany. Berlin does not want a repeat, leaving states to the south along the route tightening borders and raising a prospect that a large proportion of new arrivals may be halted in Greece. Assessing how far Turkey will help reduce the flow in return for cash and closer ties with the EU is difficult. Avramopoulos noted that arrivals had dropped sharply in the past week or so, despite good sailing weather, but spiked again on Wednesday.

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Aug 302015
 
 August 30, 2015  Posted by at 10:41 am Finance Tagged with: , , , , , , , , ,  Comments Off on Debt Rattle August 30 2015
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Russell Lee Hammond Ranch general store, Chicot, Arkansas Jan 1939

Why We Need To Lie To Ourselves About The State Of The Economy (Satyajit Das)
Fed, ECB, BOE Officials All Say They See Inflation Rising (Bloomberg)
Central Banks Can’t Save Markets From A Crash, And Shouldn’t Try (Guardian)
On Second Thought, China Slowdown Will Hit Global-Growth Outlook (Bloomberg)
How To Make Sense Of China (Elizabeth C. Economy)
China Falters, And The Global Economy Is Forced To Adapt (NY Times)
China Premier Li Says No Basis for Yuan’s Continued Depreciation (Bloomberg)
For China, a Plunge and a Reckoning (WSJ)
How Western Capitalism Laid China Low (Pettifor)
Market Turmoil Means Capitalism Faces Systematic Crisis (Sputnik)
We Are All Preppers Now (Mises Inst.)
IMF’s Lagarde Says Restructuring Should Suffice For Greek Debt (Reuters)
How 340.75 Drachmas Became 1 Euro (Yannis Palaiologos)
UK Property Sales Down 15%, But Prices Are Up (BBC)
The Evolution of America’s Energy Supply -1776 – 2014 (VC)
As Tragedies Shock Europe, A Bigger Refugee Crisis Looms In Middle East (WaPo)

“For most people, the effect of these problems is unemployment, reduced job security, the deskilling of many professions and stagnant incomes. Home ownership is increasingly out of reach for many. Retirement may become a luxury for all but a few..”

Why We Need To Lie To Ourselves About The State Of The Economy (Satyajit Das)

Like the characters in Samuel Beckett’s Waiting for Godot, the world awaits the return of wealth and prosperity. But the global economy may be entering a period of stagnation. Over the last 35 years, the economic growth necessary to increase living standards, increase wealth and manage growing inequality has been based increasingly on rising borrowings and financial rather than real engineering. There was reliance on debt-driven consumption. It resulted in global trade and investment imbalances, such as that between China and the US or Germany and the rest of Europe. Everybody conspires to ignore the underlying problem, cover it up, or devise deferral strategies to kick the can down the road.

Citizens demanded and governments allowed the build-up of retirement and healthcare entitlements as well as public services to win or maintain office. The commitments were rarely fully funded by taxes or other provisions. The 2008 global financial crisis was a warning of the unstable nature of these arrangements. But there has been no meaningful change. Since 2007, global debt has grown by US$57 trillion, or 17% of the world’s GDP. In many countries, debt has reached unsustainable levels, and it is unclear how or when it is to be reduced without defaults that would wipe out large amounts of savings. Imbalances remain. Entitlement reform has proved politically difficult. Financial institutions and activity dominate many economies. The official policy is “extend and pretend”, whereby everybody conspires to ignore the underlying problem, cover it up, or devise deferral strategies to kick the can down the road.

The assumption was that government spending, lower interest rates and supplying abundant cash to the money markets would create growth. While the measures did stabilise the economy, they did not lead to a full recovery. Instead, they set off dangerous asset price bubbles in shares, bonds, real estate and even fine arts and collectibles. Economic problems are now compounded by lower population growth and ageing populations; slower increases in productivity and innovation; looming shortages of critical resources, such as water, food and energy; and man-made climate change and extreme weather conditions.

Slower growth in international trade and capital flows is another retardant. Emerging markets, such as China, that have benefited from and recently supported growth are slowing. Rising inequality affects economic activity. For most people, the effect of these problems is unemployment, reduced job security, the deskilling of many professions and stagnant incomes. Home ownership is increasingly out of reach for many. Retirement may become a luxury for all but a few, reflecting increasing difficulty in building sufficient savings. In effect, living standards will decline. Future generations will bear the bulk of the cost as they are left to tackle the unresolved problems of their forebears.

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Empty rethorical lies.

Fed, ECB, BOE Officials All Say They See Inflation Rising (Bloomberg)

Stronger growth will pull inflation higher in the U.S. and Europe, according to three top central bankers who voiced confidence that their regions will escape from headwinds that are keeping inflation too low. Fed Vice Chairman Stanley Fischer joined ECB Vice President Vitor Constancio and BoE Governor Mark Carney Saturday on a panel at the Kansas City Fed’s annual retreat in Jackson Hole, Wyoming, dedicated to discussing inflation dynamics. Their optimism has not been shared up until now by investors, trading in inflation-protected bonds shows. “Given the apparent stability of inflation expectations, there is good reason to believe that inflation will move higher as the forces holding down inflation dissipate further,” Fischer said in his prepared remarks.

“With inflation low, we can probably remove accommodation at a gradual pace,” Fischer said. “Yet, because monetary policy influences real activity with a substantial lag, we should not wait until inflation is back to 2 percent to begin tightening.” While Fischer has left open the option of an interest-rate increase when policy makers meet next month, he didn’t express a preference for acting that soon. “I do not plan to upset your rational expectation that I cannot tell you what decision the Fed will reach by Sept. 17,” he told the symposium Saturday. Price increases in the U.S. and Europe have been running well below levels targeted by the central banks, where officials are debating what slower Chinese growth and weaker commodity prices could mean for future inflation.

While U.S. officials are weighing the timing of their first interest-rate increase since 2006, and the Bank of England may tighten in early 2016, the ECB has heard calls to extend its quantitative easing program to provide more protection against potential deflation. “The link between inflation and real activity appears to have strengthened in the euro area recently,” the ECB’s Constancio said in a paper delivered at Jackson Hole. “Provided our policies are able to significantly reduce the output gap, we can rely on a material effect to help bring the inflation rate closer to target.” Investors may not share this optimism. 5-year, 5-year inflation swaps in the euro area – which reflect expectations for the five-year path of inflation five years from now – show that market-based inflation expectations slid to about 1.65%in August from about 1.85% at the beginning of the month. That’s almost as low as when the ECB started its quantitative easing program in March.

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But who says they’re trying? I often think they’re trying to cause crashes instead.

Central Banks Can’t Save Markets From A Crash, And Shouldn’t Try (Guardian)

The meeting of the world’s most important central bankers in Jackson Hole, Wyoming, this weekend only confirmed the need for Britain, Japan, the eurozone and the US to keep monetary policy loose. Yet the palliative offered by the Fed is akin to a parent soothing fears with another round of ice-creams despite expanding waistlines and warnings from the dentist and the doctor. According to some City analysts, the stock markets are pumped with so much cheap credit that a crash is just around the corner. And they worry that when that crash comes, the central banks are all out of moves to prevent the aftershocks from causing a broader collapse.

Since 2008 the Fed has pumped around $4.5 trillion into the financial system. The Bank of England stopped at £375bn. The Bank of Japan is still adding to its post-crash stimulus with around $700bn a year and the ECB will have matched its cousin in Tokyo by the end of the year. In each case, the central bank has adopted quantitative easing, which involves buying government debt to drive up its price. A higher price lowers the returns and encourages investors to go elsewhere in search of gains. It has meant a big shift in the portfolios of fund managers in favour of shares. Apart from a few blips due to the Greek crisis, stock markets have boomed. This summer, the FTSE 100 soared past 2008 levels to top its 1999 peak.

But China, which has borrowed heavily to keep its economy moving, is running out of steam. Beijing has said it does not want to encourage another borrowing boom. But to prevent a crash, it is doing just that. In the last two weeks it has cut interest rates and loosened borrowing limits. It has even invested directly in the market, buying the shares of smaller companies. So we face the shocking prospect of central bankers, in thrall to stock market gyrations, making the world a more unstable place with promises of yet more cheap credit.

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Disregard everything Bloomberg has published on the issue over the past two weeks?!

On Second Thought, China Slowdown Will Hit Global-Growth Outlook (Bloomberg)

China’s deepening struggles are starting to make a bigger dent in the global economic outlook. Moody’s Investors Service on Friday cut its 2016 growth forecast in Group of 20 economies to 2.8%, down 0.3 percentage point from the company’s call less than two weeks ago. China is projected to grow 6.3% in 2016, down from 6.5% previously, the credit-rating company said in a report. Citigroup Inc. last week pared its projection for world growth in 2016 to 3.1% from 3.3%, the third straight time the bank has cut the forecast. Recent Chinese data including numbers on credit expansion and fixed-asset investment suggest a sharper slowdown this quarter than Moody’s previously judged, while Citigroup said the worsening outlook was driven by “significant” downgrades for China, the euro area, Japan and several other major countries.

“We’re seeing evidence that the slowdown is broader than expected” in China, said Marie Diron, a London-based senior vice president at Moody’s and one of the report’s authors. “It’s long been clear that there’s a slowdown in the manufacturing and construction sector, but the service sector was more resilient. That’s still the case, but we’re seeing some signs of weakness in the labor market.” Efforts to boost growth by the People’s Bank of China, which eased its main policy rate this week, will only partly offset the slowdown, Moody’s said in the research report. Moody’s said it cut its global projection because of “information that has become available” since the Aug. 18 publication of its previous forecast. In addition to China, Moody’s lowered outlooks for nations including Brazil and Russia.

The depreciation of the yuan will probably be “fairly modest” in coming months, meaning the world’s second-largest economy won’t get much of a boost from a cheaper currency, Mark Schofield at Citigroup Global Markets, wrote in an Aug. 21 report. China shocked markets on Aug. 11 by devaluing the yuan and aligning its exchange-rate policy more with market forces. The currency is down 2.8% against the dollar this month, while the Shanghai Composite Index of stocks has plunged 12%. “We continue to believe that the greatest risks to our growth forecasts remain to the downside,” Schofield wrote. Actual growth is “probably even lower” because of “likely mis-measurement in China’s official data,” he wrote. Even with the weaker outlook, Moody’s dismissed the impact of China’s stock-market rout, saying it happened after a “long period of price increases” and will have limited effects on consumer spending and financial-industry profit.

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Newsweek finds this fit to print.

How To Make Sense Of China (Elizabeth C. Economy)

Over the past month, there has been a lot of “China drama.” The volatility in the Chinese stock market, the yuan devaluation and now the Tianjin warehouse explosion have all raised China chatter to a new level of anxiety. Some of the anxiety is understandable. These events have real consequences—above all for the Chinese people. At the urging of the Chinese government, tens of millions of Chinese moved to stake their fortunes not on real estate but on the stock market—the most unfortunate used their real estate as leverage to invest in the market and are now desperate for some good news. The Tianjin warehouse explosion has thus far left 121 Chinese dead, more than seven hundred injured and over fifty still missing.

Globally, the yuan devaluation has triggered a rate rethink by central bankers in Europe and the United States and the stock market slide has contributed to steep drops in Asian and U.S. markets. Events such as these in any country would garner international attention. In the case of China, however, the noise around such events is amplified by the absence of three mitigating factors:

Transparency. A lack of transparency in China compounds the challenge of understanding what is going on. What, for example, is behind China’s devaluation of the yuan? Is it part of Beijing’s bid to push forward on its economic reforms by making the currency more responsive to the market? Is it an effort to persuade the International Monetary Fund that the yuan should become part of its basket of currencies before Beijing has to wait another five years for its currency to be considered? Is it an effort to prop up China’s ever-declining export numbers? Or is it a confluence of all three?

Context. While the human toll inflicted by the Tianjin warehouse explosion was devastating, no one should be surprised by the disaster itself or the political aftermath. The pattern of Chinese behavior—including the corrupt environmental impact assessment system that allowed for the placement of the factory so close to people’s residences, the lack of knowledge of what precisely the warehouse stored, the generosity of the Chinese people trying to help those affected and the attention paid by the Chinese government to assigning blame and shutting down information transmission and popular commentary via the Internet—is one that repeats itself frequently.

Perspective. Drama surrounding China is also heightened by the tendency of outside observers to lose a bit of perspective. The media, as well as China analysts—and those who play them on TV— are rewarded for bold statements and predictions. I looked back at what people were saying about the Chinese stock market at the end of 2014 and early 2015 when the market was surging. At that time, unsurprisingly, there was a lot of triumphalism punctuated by a few dark warnings. The Economist, for example, produced a piece, “Super-bull on the rampage,” that focused 95% of its attention on all the excitement the stock market was generating, with only 5% at the end mentioning some of the potential weaknesses underpinning the rise in the market.

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Everyone was part of the Ponzi.

China Falters, And The Global Economy Is Forced To Adapt (NY Times)

The commodities giant BHP Billiton spent heavily for years, mining iron ore across Australia, digging for copper in Chile, and pumping oil off the coast of Trinidad. The company could be confident in its direction as commodities orders surged from its biggest and best customer, China. Now, BHP is pulling back, faced with a slowing Chinese economy that will no longer be the same dominant force in commodities. Profit is falling and the company is cutting its investment spending budget by more than two-thirds. China’s rapid growth over the last decade reshaped the world economy, creating a powerful driver of corporate strategies, financial markets and geopolitical decisions. China seemed to have a one-way trajectory, momentum that would provide a steady source of profit and capital.

But deepening economic fears about China, which culminated this week in a global market rout, are now forcing a broad rethinking of the conventional wisdom. Even as markets show signs of stabilizing, the resulting shock waves could be lasting, by exposing a new reality that China is no longer a sure bet. China, while still a large and pervasive presence in the global economy, is now exporting uncertainty around the world with the potential for choppier growth and volatile swings. The tectonic shift is forcing a gut check in industries that have built their strategies and plotted their profits around China’s rise. Industrial and commodity multinationals face the most pressing concerns, as they scramble to stem the profit slide from weaker consumption.

Caterpillar cut back factory production, with industry sales of construction equipment in China dropping by half in the first six months of the year. Smartphone makers, automobile manufacturers and retailers wonder about the staying power of Chinese buyers, even if it is not shaking their bottom line at this point. General Motors and Ford factories have been shipping fewer cars to Chinese dealerships this summer. It is not just companies reassessing their assumptions. Russia had been turning to China to fill the financial gap left by low oil prices and Western sanctions. Venezuela, Nigeria and Ukraine have been heavily dependent on investments and low-cost loans from China.

The pain has been particularly acute for Brazil. The country is already faltering, as weaker Chinese imports of minerals and soybeans have jolted all of Latin America. The uncertainty over China could limit the maneuvering room for officials to address the sluggish Brazilian economy at a time when resentment is festering over proposed austerity measures.

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After next Thursday’s military parade things may change.

China Premier Li Says No Basis for Yuan’s Continued Depreciation (Bloomberg)

Chinese Premier Li Keqiang said there was no basis for a continued depreciation of the yuan after the central bank allowed the currency to devalue 2.8% this month. The yuan can remain “basically” stable on a “reasonable and equilibrium level,” said Li, according to a statement posted on the State Council’s website Saturday. Li made the comments at a state council meeting on Friday. The assurances came after the central bank on Aug. 25 cut interest rates for the fifth time since November and lowered the amount of cash banks must set aside to stem the biggest stock-market rout since 1996. Deflation risks, over-capacity and a debt overhang remain a cloud over the Chinese economy, which is forecast for its slowest expansion since 1990.

China will continue to carry out proactive fiscal policy and prudent monetary policy and will use “more precise” measures to cope with downward pressure on the economy, said Li in the statement. The government will prevent regional and systematic risks, according to the statement. Policy makers want to stabilize Chinese shares before a Sept. 3 military parade celebrating the 70th anniversary of the World War II victory over Japan, two people familiar with the matter, who asked not to be identified because the intervention wasn’t publicly announced, said Thursday.

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Long good read. Still too soft though.

For China, a Plunge and a Reckoning (WSJ)

As China’s stock markets started nose-diving, the government almost immediately intervened, forbidding state-owned enterprises to sell shares, buying hundreds of billions of dollars worth of stocks and lowering interest rates to stimulate buying. It was a fatal decision: Their interventions immediately turned the markets into an institution they owned. Henceforth, the party’s reputation would rise or fall with those markets. And as the markets roil, as they undoubtedly will, the way that ordinary Chinese citizens see their leaders is likely to change significantly. The plunge was all the more unnerving because it belied the party leadership’s conceit that their superior formula of governance could safely guide the economy through just such cyclical shocks.

This pretension had not only helped create a mythology of can-do omnipotence and invincibility around party leaders but also helped silence foreign critics of the slow pace of economic reform and the complete absence of political reform. Worse, the market crash came alongside a rash of other unsettling news. Earlier this month, a key gauge of China’s nationwide manufacturing activity showed the lowest level in 77 months. Steel production and consumption are both notably off. Exports slid sharply in July. The renminbi has been devalued.

And on Aug. 12, a chemical warehouse serving the port city of Tianjin blew up in a devastating explosion that incinerated whole lots full of export vehicles, demolished thousands of apartments, killed some 140 people and spewed untold quantities of toxic chemicals into densely populated neighborhoods. The party suddenly no longer seemed infallible. For China’s leaders, the most profound problem with this string of events isn’t simply the monetary loss or the body count but the overall psychological effect. Because Mr. Xi’s China is such a brittle, tightly wound society, it is especially vulnerable to such shocks. Moreover, because the party leadership and central government purport to control so many aspects of Chinese life—from economics and financial markets to culture and politics—they get blamed first whenever anything goes awry.

Since China today already has a serious trust deficit, blame can be instant and uncompromising. And China’s leaders have been laid low by their own venture, not Western gunboats. The debacle was nothing that could be convincingly blamed on the outside world; it was made in China. The party would have been better off to have just left the stock markets alone. Party leaders could not have tangled with a more free-willed and insubordinate jousting partner. Markets answer to their own value-driven drummers. Unlike dissident Nobel Peace Prize laureates, who can always be silenced or jailed, there is no obvious way to bring a market to heel—something the party evidently remains ill-equipped to understand.

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Debt done it.

How Western Capitalism Laid China Low (Pettifor)

After two days of trouble and strife in global stock markets, the Federal Reserve’s New York President William Dudley said in remarks to reporters that a September interest rate hike seemed “less compelling” now than in recent weeks. These two words alone calmed global financial markets, and pushed up the price of oil. So everything’s going to be all right then? That is what some would have you believe. “Relax. Its just a correction” say the analysts. “The stock market always goes up and up and up. Hang on in there.” However, I do worry. Where there’s volatility and instability, the causes are ultimately fundamental. Given this week’s events what can they be? Is it all to do with China?

I doubt it. When the governors of the People’s Bank of China announced a cut in interest rates – stock markets continued to fall. When a Fed governor uttered two words off the cuff – markets rallied. So when looking for a cause we need to look west, not east. Most agree that the panic was sparked by a slowdown in China. The question then becomes: why is China slowing down? Some put it down to China’s credit binge, and the rise in debt hobbling local governments and property developers. Demographic change is another. Others believe that China’s extraordinary investment levels will now dive lower.

I don’t buy these analyses as causal. Instead I see them as consequential, and would point the finger at the following: first an overhang of global debt, largely in Anglo-American economies ($57trillion has been added since 2009). Second, the deficiency in global demand for goods and services caused by austerity, low levels of investment and wage repression. Third, the glut of unsold Chinese goods (e.g. cars and rubber tyres) caused by falling demand for these goods, and resulting in falls in prices (disinflation or deflation). The deficiency of demand and resulting disinflation or deflation originates, I would argue, in the United States, the world’s biggest consumer but also one in which private debt levels remain high, and wages remain repressed.

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“Capitalism is dead. The markets have become too big to fail..”

Market Turmoil Means Capitalism Faces Systematic Crisis (Sputnik)

The volatility sweeping world markets over the past week is a sign an impending global economic crisis and the imperfections of capitalism run amok, Trends Research Institute head Gerald Celente told Sputnik. “Capitalism is dead. The markets have become too big to fail,” Celente said on Friday. “It’s a rigged game.” Celente, who is also the publisher of Trends Journal, noted that markets behave more like a casino than a free market system. “It is like a casino that plays with two different sets of cards and in one of them it keeps putting its own new wild cards and jokers in the deck,” Celente, who is also the head of Trends Research Institute, continued. Stock market managers and major financial interests were rigging the market to protect their institutions and profits, Celente argued.

The expert said it was false to blame China for setting off the chain reaction through the volatility on the Shanghai stock exchange. He argued instead this was a symptom of the underlying problems, not their cause. “The US and Europeans are buying less products, so China has to export less and therefore its demand for raw materials from developing countries around the world falls,” he pointed out. “This is a response to global stagnation,” he argued. The US, China, Japan and other countries have tried to stave off multiple crises by printing vast sums of money through QE and other monetary policies, but they have been unable to jump-start growth, Celente observed. “This is a global crisis. It is a Ponzi scheme,” he said. He argued the global financial system and central banks tried to resolve the crash of 2008 by printing cheap money and the cracks in that policy are now revealing themselves.

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“We were close enough in 2008 and what’s coming is on 20 times that scale.”

We Are All Preppers Now (Mises Inst.)

Damian McBride is the former head of communications at the British treasury and former special adviser to Gordon Brown, erstwhile Prime Minister of the U.K. Yesterday he tweeted some surprising advice in response to the plunge in global equities markets:

Advice on the looming crash, No. 1: get hard cash in a safe place now; don’t assume banks & cashpoints will be open, or bank cards will work.

Crash advice No. 2: do you have enough bottled water, tinned goods & other essentials at home to live a month indoors? If not, get shopping.

Crash advice No. 3: agree a rally point with your loved ones in case transport and communication gets cut off; somewhere you can all head to.

Evidently, McBride interprets the wipe-out of over $3 trillion in total global market cap during the three-day rout as a prelude to a much broader and deeper financial crash that will precipitate civil unrest. According to McBride,

“We were close enough in 2008 and what’s coming is on 20 times that scale.”

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Lagarde drops the ball several times in just a few sentences. Let’s hope her minions call her on it.

IMF’s Lagarde Says Restructuring Should Suffice For Greek Debt (Reuters)

A form of debt restructuring rather than outright forgiveness should enable Greece to handle its “unviable” debt burden, the head of the IMF was quoted as telling a Swiss newspaper. The IMF has yet to make clear if it will participate in the third €86 billion international bailout that Greece signed up to in early August, having argued in favor of a partial writedown of a debt burden it considers unsustainable in its current form. Greece’s euro zone creditors, notably Germany, have ruled out a writedown but are willing to consider other forms of restructuring such as a lengthening maturities. Asked about those differences, IMF Managing Director Christine Lagarde told Le Temps: “The debate on cancelling the debt has never been open I don’t think it is necessary to open it if things go well…

“We are talking about extending maturities, reducing rates, (making) exemptions for a certain period of time. We are not speaking about cancelling debt.” The interview made no mention of whether the IMF will take part in the new bailout, which Lagarde has previously said it will make a decision on by October. Turning to China, Lagarde said she expected the country’s economic growth rate to remain close to previous estimates even if some sort of slowdown was inevitable after its rapid expansion. China devalued its yuan currency this month after exports tumbled in July, spooking global markets worried that a main driver of growth was running out of steam. “The slowdown was predictable, predicted, unavoidable,” Lagarde was quoted as saying. “We expect that China will have a growth rate of 6.8%. It may be a little less.” The IMF did not believe growth would fall to 4 or 4.5%, as some foresaw.

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Nice little history lesson.

How 340.75 Drachmas Became 1 Euro (Yannis Palaiologos)

It was Saturday, March 14, 1998, when Theodoros Pangalos traveled to Edinburgh for an informal council of European Union foreign ministers. The top item on the agenda was negotiations for the accession into the bloc of 11 new candidate states, including Cyprus. Before he entered the meeting, Greek correspondents asked Pangalos whether Athens would resist pressure to link Cyprus’s EU accession to the progress of reunification talks. Once the meeting ended and that issue was resolved, to the benefit of both Greek and Cypriot interests, Pangalos was blindsided by a barrage of questions on an issue he knew nothing about: News has leaked from Brussels of the devaluation of the drachma and its entry into the Exchange Rate Mechanism (ERM).

The fact that the Greek foreign minister had not been briefed on this development is indicative of the government’s secrecy, aimed at thwarting speculation. Five years earlier, when Greece had been on the brink of a major exchange rate crisis, the ERM accession would have seemed impossible to achieve. Greece, however, had managed to overshoot the targets of the revised Convergence Program over four consecutive years from 1994 to 1997 both in the area of growth and in its fiscal deficit, which was reduced from 13.6% of gross domestic product in 1993 to 4% of GDP in 1997. Inflation dropped from 14.1% in 1993 to 9% in 1995, down to single digits for the first time since 1972, and then to 5.6% in 1997.

Prime Minister Costas Simitis had set a goal for himself to get Greece into the Economic and Monetary Union by 2001 at the latest – two years after the other states but before the euro was introduced in physical form. The former premier tells Kathimerini he expressed “our determination for accession to the euro” in all of his first meetings with the European Union heavyweights – Germany’s Helmut Kohl, France’s Jacques Chirac, Italy’s Romano Prodi and the UK’s John Major. While they all appeared positively inclined initially, they stressed that the Greek economy needed to be adequately prepared for such an important step.

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The new logic of the marketplace.

UK Property Sales Down 15%, But Prices Are Up (BBC)

The number of homes being sold in England and Wales has fallen significantly, according to figures from the Land Registry. In May this year, there were 65,619 transactions in total, a 15% fall on the same month in 2014. However, prices in some property hotspots are still rising by up to 13% a year, due to lack of supply. The number of homes being sold for more than a million pounds dropped dramatically – down by 21%. The Land Registry figures include cash sales, as well as properties bought with mortgages. Some experts have welcomed what they see as a cooling of the market.

“Normality has returned to the market, with the panic that has driven it in the past no longer present,” said Guy Meacock, head of the London office of buying agency Prime Purchase. “It is more level and sensible, which is good news for buyers.” However, the fall in transactions appears to be putting further pressure on house prices. Earlier this month, the Royal Institution of Chartered Surveyors (Rics) reported that the number of homes for sale was at a record low. As a result it said demand was outstripping supply, and prices were likely to rise as a result. The Land Registry has already reported that house prices in England and Wales rose by 4.6% in the year to July 2015.

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Not terribly innovative, but nice graphics.

The Evolution of America’s Energy Supply -1776 – 2014 (VC)

The Energy Information Administration (EIA) recently released data on the history of America’s energy supply, sorted by the share of each energy source. We’ve taken that data to create the chart associated with today’s post. The early settlers to North America relied on organic materials on the surface of land for the vast majority of their energy needs. Wood, brush, and other biomass fuels were burned to warm homes, and eventually to power steam engines. Small amounts of coal were found in riverbeds and other such outcrops, but only local homes in the vicinity of these deposits were able to take advantage of it for household warmth. During the Industrial Revolution, it was the invention of the first coal-powered, commercially practical locomotives that turned the tide.

Although wood would still be used in the majority of locomotives until 1870, the transition to fossil fuels had begun. Coke, a product of heating certain types of coal, replaced wood charcoal as the fuel for iron blast furnaces in 1875. Thomas Edison built the first practical coal-fired electric generating station in 1882, which supplied electricity to some residents in New York City. It was just after this time in the 1910s that the United States would be the largest coal producer in the world with 750,000 miners and blasting 550 million tons of coal a year. The invention of the internal combustion engine and the development of new electrical technologies, including those developed by people like Thomas Edison and Nikola Tesla, were the first steps towards today’s modern power landscape.

Fuels such as petroleum and natural gas became very useful, and the first mass-scale hydroelectric stations were built such as Hoover Dam, which opened in 1936. The discovery and advancement of nuclear technology led to the first nuclear submarine in 1954, and the first commercial nuclear power plant in the United States in Pennsylvania in 1957. In a relatively short period of time, nuclear would have a profound effect on energy supply, and it today 99 nuclear reactors account for 20% of all electricity generated in the United States. In more recent decades, scientists found that the current energy mix is not ideal from an environmental perspective. Advancements in renewable energy solutions such as solar, wind, and geothermal were made, helping set up a potential energy revolution.

Battery technology, a key challenge for many years, has began to catch up to allow us to store larger amounts of energy when the sun isn’t shining or the wind isn’t blowing. Companies like Tesla are spending billions of dollars on battery megafactories that will have a great impact on our energy use. Today, the United States gets the majority of its energy from fossil fuels, though that percentage is slowly decreasing. While oil is still the primary fuel of choice for transportation, it now only generates 1% of the country’s electricity through power plants. Natural gas has also taken on a bigger role over time, because it is perceived as being cleaner than oil and coal. Today, in 2015, wind and solar power have generated 5% and 1% of total electricity respectively. Hydro generates 7%.

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“We are only alive because we are not dead.”

As Tragedies Shock Europe, A Bigger Refugee Crisis Looms In Middle East (WaPo)

While the world’s attention is fixed on the tens of thousands of Syrian refugees swarming into Europe, a potentially far more profound crisis is unfolding in the countries of the Middle East that have borne the brunt of the world’s failure to resolve the Syrian war. Those reaching Europe represent a small percentage of the 4 million Syrians who have fled into Lebanon, Jordan, Turkey and Iraq, making Syria the biggest single source of refugees in the world and the worst humanitarian emergency in more than four decades. As the fighting grinds into a fifth year, the realization is dawning on aid agencies, the countries hosting the refugees and the Syrians themselves that most won’t be going home anytime soon, presenting the international community with a long-term crisis that it is ill-equipped to address and that could prove deeply destabilizing, for the region and the wider world.

The failure is first and foremost one of diplomacy, said António Guterres, the U.N. High Commissioner for Refugees. The conflict has left at least 250,000 people dead in the strategic heart of the Middle East and displaced more than 11 million overall, yet there is still no peace process, no discernible solution and no end in sight. Now, the humanitarian effort is failing, too, ground down by dwindling interest, falling donations and spiraling needs. The United Nations has received less than half the amount it said was needed to care for the refugees over the past four years. Aid is being cut and programs are being suspended at the very moment when those who left Syria in haste, expecting they soon would go home, are running out of savings and wearing out the welcome they initially received.

“It is a tragedy without parallel in the recent past,” Guterres said in an interview, warning that millions could eventually end up without the help they need to stay alive. “There are many battles being won,” he added. “Unfortunately, the number of battles being lost is more.” It is a crisis whose true cost has yet to be realized. Helpless, destitute refugees are strewn around the cities, towns and farms of the Middle East, a highly visible reminder of the world’s neglect. They throng the streets of Beirut, Istanbul, Amman and towns and villages in between, selling Kleenex or roses or simply begging for change. Mothers clutching children sleep on traffic circles, under bridges, in parks and in the doorways of shops.

Families camp out on farmland in shacks made of plastic sheeting, planks of wood and salvaged billboards advertising restaurants, movies, apartments and other trappings of lives they may never lead again. “This is not a life,” said Jalimah Mahmoud, 53, who lives on handouts with her 7-year-old granddaughter in Al-Minya, a settlement of crudely constructed tents alongside the coastal highway in northern Lebanon. “We are only alive because we are not dead.”

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May 242015
 
 May 24, 2015  Posted by at 9:27 am Finance Tagged with: , , , , , , , ,  1 Response »
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Harris&Ewing Underwood Typewriter Co., Washington, DC 1919

Borders Closing And Banks In Retreat; Is Globalisation Dead? (Guardian)
Capitalism Is Killing America’s Morals, Our Future (Paul B. Farrell)
America Has Become a “Banana Republic Run by Wall Street Criminals” (MM)
Tsipras Reiterates Red Lines But Faces Revolt Within Syriza (Kathimerini)
Europe Said to Weigh Contingency Plans in Greece Impasse (Bloomberg)
Neither Grexit Nor A Dual Currency Will Solve Greece’s Problems (Matthes)
Hotel Contracts With A ‘Greek Default Clause’ (Kathimerini)
The Migrant Crisis on Greece’s Islands (New Yorker)
Spain’s New Political Forces Seek To Make History (DW)
Podemos Changing Spain’s Political Map (Telesur)
Eurozone Countries Should Unite For Economic Reforms: Mario Draghi (Reuters)
Structural Reforms, Inflation And Monetary Policy (Mario Draghi)
Draghi and Fischer Reject Claim Central Banks Are Too Politicised (FT)
The Other One Per Cent (Economist)
Secret Pentagon Report Reveals West Saw ISIS As Strategic Asset (Nafeez Ahmed)
Germany Won’t Comment on Reported ‘Deep Freeze’ With US Intelligence (Reuters)
Leaked Report Profiles Military, Police Members Of US Biker Gangs (Intercept)

Globalization is a times of plenty phenomenon.

Borders Closing And Banks In Retreat; Is Globalisation Dead? (Guardian)

Globalisation is under attack. It was meant to be the unstoppable economic force bringing prosperity to rich and poor alike, but that was before the financial crisis ripped up the rulebook. For the past four years, international trade flows have increased more slowly than global GDP – “an outcome unprecedented in postwar history”, as analyst Michael Pearce of Capital Economics put it in a recent note. Crisis-scarred global banks are retreating from risky cross-border lending, and multinationals are casting a sceptical eye over foreign opportunities as geopolitical tensions simmer. Populist politicians in a string of countries, not least the UK, are playing on public fears about migrant workers undermining their pay.

Global trade flows are still expanding: but they have never regained the breakneck pace of the 1990s and early 2000s. In the innocent days before the Great Recession, the dismantling of trade barriers between nation states often seemed inevitable. Yet more than 13 years after the Doha round of multilateral trade talks kicked off, with the aim of binding developing countries more closely into the international system, the idea of a global trade deal remains locked in the deep freeze. Some analysts are starting to ask: has globalisation come to a halt? The lesson many governments and companies learned from the turmoil that followed the collapse of Lehman Brothers was that there are risks to being too unthinkingly exposed to the ebbs and flows of the international system.

“There’s quite a fundamental shift going on here,” says Professor Simon Evenett, an expert on trade at the University of St Gallen in Switzerland. “You can’t say it’s across the board, but there are some sectors where globalisation is in substantial retreat.” He points to steel, for example, where his recent research shows that trade flows have never returned to pre-2007 levels. “I think the direction of travel is depressing,” he says.

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“..the logic of buying and selling no longer applies to material goods alone. It increasingly governs the whole of life.”

Capitalism Is Killing America’s Morals, Our Future (Paul B. Farrell)

Yes, capitalism is working … for the Forbes Global Billionaires whose ranks swelled from 322 in 2000 to 1,826 in 2015. Billionaires control the vast majority of the world’s wealth, 67 billionaires already own half the world’s assets; by 2100 we’ll have 11 trillionaires, while American worker income has stagnated for a generation. But for the vast majority of the world, capitalism is a failure. Over a billion live on less than two dollars a day. In his “Capital in the Twenty-First Century,” economist Thomas Piketty warns the inequality gap is toxic, dangerous. As global population explodes from 7 billion to 10 billion by 2050, food production will deteriorate. Pope Francis adds, “Inequality is the root of social ills,” fueling more hunger, revolutions, wars.

For years we’ve been asking: Why does the capitalist brain blindly drive down this irrational path of self-destruction? We found someone who brilliantly explains why free market capitalism is hell-bent on destroying itself and the world along with it: Harvard philosopher Michael Sandel, author of the new best seller, “What Money Can’t Buy: The Moral Limits of Markets,” and his earlier classic, “Justice: What’s the Right Thing to Do?” For more than three decades Sandel’s been teaching us why capitalism is undermining human morality … and why we keep denying this insanity. Why do we bargain away our moral soul? His classes number over a thousand. You can even take his course online free. He even summarized capitalism’s takeover of America’s conscience in “What Isn’t for Sale?” in the Atlantic. Listen:

“Without being fully aware of the shift, Americans have drifted from having a market economy to becoming a market society … where almost everything is up for sale … a way of life where market values seep into almost every sphere of life and sometimes crowd out or corrode important values, nonmarket values.” His course should be required for Wall Street insiders, corporate CEOs and all 95 million Main Street investors. Here’s a short synopsis:

“The years leading up to the financial crisis of 2008 were a heady time of market faith and deregulation — an era of market triumphalism,” says Sandel. “The era began in the early 1980s, when Ronald Reagan and Margaret Thatcher proclaimed their conviction that markets, not government, held the key to prosperity and freedom.” And in the 1990s with the “market-friendly liberalism of Bill Clinton and Tony Blair, who moderated but consolidated the faith that markets are the primary means for achieving the public good.”

So today, “almost everything can be bought and sold.” Today “markets, and market values, have come to govern our lives as never before. We did not arrive at this condition through any deliberate choice. It is almost as if it came upon us,” says Sandel. Over the years, “market values were coming to play a greater and greater role in social life. Economics was becoming an imperial domain. Today, the logic of buying and selling no longer applies to material goods alone. It increasingly governs the whole of life.”

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“..big banks have now paid more than $60 billion in fines over the past two years.”

America Has Become a “Banana Republic Run by Wall Street Criminals” (MM)

Wall Street criminals just won’t stop misbehaving. The latest crime was exposed Wednesday. Five of the biggest names in global finance agreed to pay billions to settle lawsuits alleging they illegally gamed the $5 trillion-a-day foreign exchange market. JPMorgan Chase, Citigroup, Barclays, UBS, and RBSpleaded guilty and settled for fines totaling roughly $5.7 billion. A sixth bank, Bank of America, will pay $210 million after being fined by the Fed. With this week’s settlements, big banks have now paid more than $60 billion in fines over the past two years.

“America has become a banana republic run by Wall Street criminals,” Money Morning Capital Wave Strategist Shah Gilani said on Wednesday. Of course, history dictates the fines will have no actual effect on business practices. “We all know the big banks are above the law,” Gilani said. “They are convicted, they admit their guilt (sometimes), and no one goes to jail – they just pay more fines.” Not including this week’s, just look at a few of the settlements too-big-to-fail banks have shelled out in the last five years alone:

In 2015, Deutsche Bank paid a $2.5 billion fine for manipulating benchmark interest rates.
In 2014, Credit Suisse paid $2.6 billion to the U.S. Justice Department for conspiring to aid tax evasion. It was the first financial institution in more than a decade to plead guilty to a crime.
In 2013, Bank of America, JPMorgan, Wells Fargo, and ten other banks paid $9.3 billion to the Office of the Comptroller of the Currency and the Federal Reserve for foreclosure abuses.
In 2013, JPMorgan paid $13 billion to the U.S. Justice Department for mortgage security fraud.
In 2012, JPMorgan, Wells Fargo & Co., Bank of America, Citigroup, and Ally Financial paid $25 billion in penalties for foreclosure abuses.
In 2012, HSBC paid $1.9 billion to U.S. authorities for shoddy money laundering regulations. It was the third time since 2003 HSBC assured the government it would correct its policies.
In 2012, UBS paid $1.5 billion and admitted it manipulated interbank lending rates.
In 2011, Bank of America paid $8.5 billion to mortgage bond holders related to Countrywide.

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Resistance will grow.

Tsipras Reiterates Red Lines But Faces Revolt Within Syriza (Kathimerini)

After a busy week of talks with European leaders aimed at securing support for a deal for Greece, Prime Minister Alexis Tsipras faces challenges on the home front amid tensions with SYRIZA over the terms such an agreement would entail. In a speech to his party’s central committee on Saturday, Tsipras said Greece is “in the final stretch of negotiations” and is ready to accept a “viable agreement” with its creditors but not on “humiliating terms.” He ruled out submitting to irrational demands on value-added tax rates and further labor reform, and called on lenders to make “necessary concessions.” “We have made concessions but we also have red lines,” he said, claiming that some foreign officials were counting on the talks failing.

Although Tsipras reiterated his commitment to the party’s so-called red lines in negotiations, pressure from within SYRIZA not to capitulate to creditors has grown amid rumors that a deal is in the works. In particular, members of the radical Left Platform led by Energy Minister Panayiotis Lafazanis have refused to approve any deal that departs from the party’s pre-election promises. The faction has been working on a counter-proposal for alternative sources of funding. Tsipras and other front-line cabinet members, meanwhile, remain focused on a deal by early June when the country’s next debt repayment to its creditors is due.

But as negotiations continue to drag, sources suggest that the likeliest scenario is a two-stage deal despite Tsipras’s recent insistence on the need for a “comprehensive agreement.” The two-stage deal would comprise an initial agreement that would unlock a portion of rescue loans in exchange for some reforms, most likely tax increases, to keep the country solvent; the second part of the deal would tackle the thorny issues of pension and labor sector reform.

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“The problem is that Alexis Tsipras is riding a scooter and Wolfgang Schaeuble is driving an armored BMW.”

Europe Said to Weigh Contingency Plans in Greece Impasse (Bloomberg)

German Finance Minister Wolfgang Schaeuble raised the possibility that Greece may need a parallel currency and European officials are making contingency plans for the Greek banking system as talks on unlocking aid remain stuck. Schaeuble mentioned the idea of parallel currencies at a recent meeting without endorsing it, according to two people who attended. The European Commission is looking at how to manage the possible failure of Greek financial firms and other events that may cause investor losses, two other people said. With Greece’s final €7.2 billion bailout installment on hold, Prime Minister Alexis Tsipras’s latest attempt to bypass finance ministers and secure a political deal failed on Friday.

As Greece faces payment deadlines in the next two weeks, some European policy makers are preparing for the worst while upholding the goal of keeping Greece in the euro. “We need to have the strongest and most complete agreement possible now to secure and facilitate talks for the next deadlines,” French President Francois Hollande said Friday in Riga, Latvia, after he and German Chancellor Angela Merkel met Tsipras. Merkel said there’s “a whole lot to do.” Merkel and Hollande this week gave Tsipras until the end of May to reach a deal to free up aid in return for policy changes demanded by Greece’s creditor. As time runs short, his government has to pay monthly salaries and pensions by next Friday and repay about €300 million to the IMF a week later.

Negotiators from Greece and its creditors are continuing technical talks in the so-called Brussels Group “over the coming days in order to accelerate progress,” European Commission spokeswoman Mina Andreeva said in Brussels on Friday. While Merkel and Schaeuble say they want to keep Greece in the 19-nation currency union, the finance minister has also said he wouldn’t rule out a Greek exit. Germany is “ready to take this brinkmanship very far,” with Schaeuble in the role of “attack dog,” Jacob Funk Kirkegaard, senior fellow at the Peterson Institute for International Economics in Washington, said by phone. “We’re in this game of chicken. The problem is that Alexis Tsipras is riding a scooter and Wolfgang Schaeuble is driving an armored BMW.”

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No matter what happens, it won’t be easy. Not for Greece and not for Eruope.

Neither Grexit Nor A Dual Currency Will Solve Greece’s Problems (Matthes)

A Grexit or the introduction of a dual currency is not a solution to Greece’s problems. On the contrary, it would be a worst-case scenario for Greece in the short term. Only in the medium to longer term, the resulting devaluation and improvement of price competitiveness would help businesses active in the export and import substitution sectors. For the euro area, a Grexit or dual currency would be a signal that the currency union is not made forever, even if the situation is much different from 2010-2012 as contagion effects to other euro periphery countries hardly exist today. The negative short-term impact from a Grexit or from a dual currency would push the Greek economy into a very deep crisis and lead to further impoverishment.

The Greek financial sector, which is already rather weak, would be severely affected, particularly by further withdrawals of euros from bank accounts in the course of bank runs (among other aspects). Capital controls can only partly stop this from happening. The problems of the financial sector would lead to a further drying up of credit supply and the danger of bank insolvencies. The risk of insolvency would go much beyond the banking sector and also include businesses and particularly the state. All private and public economic actors with sizeable debts in euros and under foreign law (debt which could not be converted to the new or dual currency) would suffer from higher debt counted in the dual or new currency. This is so because the dual or new currency would devaluate to a large degree versus the euro.

Imagine the balance sheet of a bank or of a company with significant euro debts under foreign law: These liabilities would remain in euro but significant parts of the assets would be converted to the dual or new currency, which then devaluates. This would cut a deep hole in the balance sheet and could well lead to insolvency. A government default is most likely, because foreign debts would remain to a large extent in euros but tax revenues would increasingly come from the new or dual currency. Insolvencies and the drying up of credit supply would lead to a significant rise in unemployment, costing even more people their job. A government default could mean that public wages and pensions cannot be paid for a certain period of time or only in the new weak currency. Moreover, the fiscal problems would further aggravate the state of the economy and of banks that hold government bonds.

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Thank the troika.

Hotel Contracts With A ‘Greek Default Clause’ (Kathimerini)

After the drachma clauses seen in tourism contracts, foreign tour operators are now forcing hoteliers in Greece to sign contracts with a Greek default clause. Foreign organizers of international conferences have been introducing default clauses to contracts forcing the non-payment of compensation in case the country defaults and they decide to cancel their events. That clause is reminiscent of insurance contracts which stop short of providing for compensation in case of natural disasters, acts of terrorism etc. Kathimerini understands that already one conference organizer, who is to hold an event in this country with the participation of foreign delegates next month, has imposed a “default clause” on the hotel enterprise in order to sign a contract, sparing him from having to pay compensation for canceling the event if Greece defaults.

In the next couple of months hoteliers will, as usual, also have to sign the bulk of their 2016 contracts with representatives of foreign tour operators. Some operators have already told Greek hoteliers that they require extra safety clauses in case the country drops out of the eurozone. Furthermore, the financial terms of contracts will depend on the planned value-added tax hikes on tourism. Hoteliers wonder on what terms they will be asked to sign the contracts, to what extent they can impose price hikes on tour operators and how they will retain their rates competitive in comparison with the hotel rates of other countries such as Turkey, Spain etc.

Representatives of tourism associations estimate that in the event more taxes are introduced, small and medium-sized hotel enterprises – which account for the majority of the country’s accommodation capacity – will see their negotiating position weakened against their foreign clients. The possibility of a VAT hike in Greece has also generated interest in the country’s rivals. A Lesvos hotelier reported that Turkish peers keep asking about any news on a VAT increase on Greek tourism for 2016, saying that a significant price increase on the Greek tourism package would signify a direct advantage for the neighboring country’s tourism market.

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A comprehensive EU approach? Not going to happen.

The Migrant Crisis on Greece’s Islands (New Yorker)

Greece, like Italy and Malta, has long been an entry point into the European Union for refugees and economic migrants making the journey by sea. This year, the Greek government expects a massive wave of migrants on the Aegean islands and Crete, fuelled by the protracted war in Syria. The Eastern Mediterranean route is not as deadly for migrants: thirty-one people are known to have drowned in the Aegean Sea this year, compared with an estimated eighteen hundred in the Central Mediterranean, according to figures from the International Organization for Migration. But the number of people arriving in Greece this year rivals the number of those coming to Italy: The I.O.M. says that at least 30,400 migrants have arrived in Greece as of May 12th, compared with thirty-four hundred in all of 2014.

At least 35,100 have arrived this year in Italy. Southern European countries have often felt poorly served by the Dublin Regulation, which dictates that the E.U. nations where migrants first arrive are ultimately responsible for them. Camino Mortera-Martinez and Rem Korteweg of the Centre for European Reform say that a deep divide between Northern and Southern E.U. states has resulted. “Northern member states want an asylum policy that keeps migrants in the South but treats them humanely,” they wrote recently, “while Southern member-states want the North to share the burden by accepting more migrants. The Mediterranean refugee crisis shows that this system is unsustainable.”

What’s also unsustainable, according to Eugenio Ambrosi, who directs the I.O.M.’s regional office for the European Union, Norway, and Switzerland, is the fact that migration has become an electoral issue “easily manipulated by populists who know that fear wins votes.” E.U. politicians have dithered on drafting a common migration and asylum policy because they’re worried about how voters will react. “There’s this attitude of: if your neighbor’s house is on fire, you watch and hope somebody else takes care of them so you don’t have to feed them and give them a blanket,” he said.

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Ciudadanos is taking votes away from Podemos.

Spain’s New Political Forces Seek To Make History (DW)

Outside a municipal sports building in Alcala de Henares, a small city east of Madrid, crowds are gathering and clusters of balloons are bobbing in the breeze. Just ahead of local elections across Spain, supporters of the new party, Ciudadanos, or “Citizens,” are in high spirits, believing that its phenomenal rise in recent months will soon make it one of the country’s most prominent political forces. Inside, a few minutes later, the party’s 35-year-old leader, Albert Rivera, bounds onto the stage to deliver a powerful message to his electoral rivals. “Some don’t understand what is happening in Spain – we’re not just facing an election day, we’re facing a new era,” he says.

“Whoever can’t understand that isn’t capable of leading the change. Spain is not doing well, it’s only doing well for a few.” This promise by a generation of young Spanish politicians to deliver a “new era” has already altered the country’s political landscape. But on Sunday, when elections are held for control of town and city halls across Spain and for 13 of its 17 regional parliaments, the political map is expected to be drastically redrawn. For the last three-and-a-half decades, the conservative Popular Party (PP) and the Socialists have dominated Spanish politics in a rigid two-party system. But the recent economic crisis and a torrent of corruption scandals have threatened to break that duopoly for the first time in Spain’s democratic period.

Ciudadanos and another new party with a young leadership, Podemos, or “We Can” in Spanish, are the beneficiaries of Spaniards’ disenchantment with the status quo and national polls show them in a four-way virtual tie with the PP and the Socialists. “This election represents a revolution because we’re going to go from having just two parties which are capable of governing, to having a political map on which there are four parties, all of which are capable of governing,” says Jose Ignacio Torreblanca, a political scientist who recently published a book about Podemos.

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Elections today.

Podemos Changing Spain’s Political Map (Telesur)

Pablo Iglesias, leader of the new left-wing party Podemos, says his movement has already “contributed to changing the Spanish political map. We can say that we have made irreversible changes. Nothing will ever be the same again.” Iglesias describes Podemos as a response to a “regime crisis,” in Spain in the aftermath of the global economic crisis and deep austerity politics and that Podemos was born out of “enormous frustration with the economic and political elites, He explained that the rise of Latin American left governments over the past decade represented a “fundamental reference” to the party, but one that cannot be easily reproduced.

While in the beginning, Podemos leaders believed that “a ‘Latin-Americanization’ of Southern Europe” was occurring, reality soon showed that European states were “very strong” meaning “the possibility of transformation |was| very limited.” In Iglesias’ opinion, this difficulty in creating such change explains why the party’s number two, Juan Carlos Monedero, recently resigned from the leadership. But he stressed the important role that social movement have in creating change, explaining that “these social movements allow |the party leaders| to go further, politically, in |their| demands,” referring to the movements against evictions in Spain, for example, or the movements defending education and public health. He added that criticism was a positive pattern inside the party, yet stressing that his leadership was backed by a great consensus.

Regarding differences with the situation in Greece, where the leftist Syriza now forms the government, Iglesias highlighted that because the economic crisis hit Greece much harder than in Spain, “the weakness of the state and the forces in power in Greece were greater,” making it easier for Syriza to make gains. He believes that the political and media establishment feared even more the rise of Podemos than Syriza because of Spain’s greater economic weight.

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See below for link to the text of Draghi’s address.

Eurozone Countries Should Unite For Economic Reforms: Mario Draghi (Reuters)

ECB President Mario Draghi has urged euro zone countries to unite in the task of reforming the bloc’s economies, saying sharing sovereignty was an opportunity and not a threat. Draghi is pushing governments not to waste the time ECB money printing has bought them. Saturday’s appeal to indebted countries to clean up their finances came the day after he warned growth would remain low in the face of unemployment and low investment. In a message read to attendees at a conference in Rome, he said countries should act quickly on recommendations the central bank has made to complete economic and monetary union, many of which have not been carried out.

“The current situation in the euro area demonstrates that this delay could be dangerous,” Draghi said, according to a text of the address released by the ECB, while acknowledging progress had been made, for example with banking union. But private risks need to be shared within the euro zone, with financial integration improving access to credit for companies and leading to a complete capital markets union, Draghi said. Draghi called for stricter and more transparent adherence to existing budgetary rules to help close the gaps among member states in employment, growth and productivity, but said this alone would not be enough.

Countries should observe common standards when implementing structural reforms but also take a country-specific approach, as part of a process of “convergence in the capacity of our economies to resist shocks and grow together”. Thirdly, Draghi said the euro zone should ask whether it had done enough to safeguard the possibility of using budgetary policy to counter the economic cycle, concluding: “I think not.” Many European countries realised only after the debt crisis exploded that their sovereign right to choose their own economic policy would be limited in the monetary union, Draghi said. But working to ensure long-term stability meant sharing control, Draghi said. “What can appear to be a threat is actually an opportunity,” he said.

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Full speech with graphs etc.

Structural Reforms, Inflation And Monetary Policy (Mario Draghi)

Structural and cyclical policies – including monetary policy – are heavily interdependent. Structural reforms increase both potential output and the resilience of the economy to shocks. This makes structural reforms relevant for any central bank, but especially in a monetary union. For members of monetary union resilience is crucial to avoid that shocks lead to consistently higher unemployment, and over time, permanent economic divergence. It therefore has direct implications for price stability, and is no less relevant for the integrity of the euro area. This is why the ECB has frequently called for stronger common governance of structural reforms that would make resilience part of our common DNA.

Structural reforms are equally important for their effect on growth. Potential growth is today estimated to be below 1% in the euro area and is projected to remain well below pre-crisis growth rates. This would mean that a significant share of the economic losses in the crisis would become permanent, with structural unemployment staying above 10% and youth unemployment elevated. It would also make it harder to work through the debt overhang still present in some countries. Finally, low potential growth can have a direct impact on the tools available to monetary policy, as it increases the likelihood that the central bank runs into the lower bound and has to resort recurrently to unconventional policies to meet its mandate.

But the euro area’s weak long-term performance also provides an opportunity. Since many economies are distant from the frontier of best practice, the gains from structural reforms are easier to achieve and the potential magnitude of those gains is greater. There is a large untapped potential in the euro area for substantially higher output, employment and welfare. And the fact that monetary policy is today at the lower bound, and the recovery still fragile, is not, as some argue, a reason for reforms to be delayed.

This is because the short-term costs and benefits of reforms depend critically on how they are implemented. If structural reforms are credible, their positive effects can be felt quickly even in a weak demand environment. The same is true if the type of reforms is carefully chosen. And our accommodative monetary policy means that the benefits of reforms will materialise faster, creating the ideal conditions for them to succeed. It is the combination of these demand and supply policies that will deliver lasting stability and prosperity.

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Independence is not a matter of interpretation, gentlemen.

Draghi and Fischer Reject Claim Central Banks Are Too Politicised (FT)

Two of the world’s most senior central bankers have hit back at charges that they have become too politicised, saying their calls for governments to take more aggressive steps to steer their economies towards a full recovery were necessary. Mario Draghi, the president of the ECB, and Stanley Fischer, the US Federal Reserve’s vice-chair, also disputed the idea that unelected technocrats should refrain from commenting on governments’ economic policies. The remarks, at the ECB’s annual conference in Sintra, came after Mr Draghi on Thursday called on lawmakers in the eurozone to implement politically unpopular structural reforms, or face years of weak economic growth. The ECB president on Saturday said his calls were appropriate in a monetary union where growth prospects had been badly damaged by governments’ resistance to economic reforms.

Mr Draghi said it was the central bank’s responsibility to comment if governments’ inaction on structural reforms was creating divergence in growth and unemployment within the eurozone, which undermined the existence of the currency area. “In a monetary union you can’t afford to have large and increasing structural divergences,” the ECB president said. “They tend to become explosive.” Mr Draghi’s defence of the central bank came after Paul De Grauwe, an academic at the London School of Economics, challenged his calls for structural reforms earlier in the week. Mr De Grauwe said central banks’ push for governments to take steps that removed people’s job protection would expose monetary policy makers to criticism over their independence to set interest rates.

The ECB president said central banks had a long tradition of commenting on governments’ economic policies, and that they had been right to speak out against wage indexation in the 1970s and fiscal excesses in earlier decades. He said central banks had been wrong to keep quiet on the deregulation of the financial sector. “We all wish central bankers had spoken out more when regulation was dismantled before the crisis,” Mr Draghi said. A lack of structural reform was having much more of an impact on poor European growth than in the US, he added. Mr Fischer said central bankers should think about structural reforms “in the context of what’s the expected growth rate in the economy”. The Fed vice-chair said it was appropriate for monetary policy makers to comment on spending in infrastructure and education because of the impact it had on US growth.

“There is general agreement that US infrastructure could do with a lot of investment. You just have to go on trains in the US or Europe to figure that out,” Mr Fischer told the audience of top academics and policy makers in Sintra on Saturday. He acknowledged there were limits on what was appropriate, saying he would “never talk about whether the defence budget was appropriate”. The passing of the Dodd-Frank Act was a “very massive change in the structure of the financial sector” and was “very important for financial stability going ahead”. Haruhiko Kuroda, the governor of the Bank of Japan who joined Mr Draghi and Mr Fischer on the panel, said he expected inflation to reach 2% around the first half of the 2016 fiscal year.

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Waht makes India’s expats so successful? Provided, of course, that you see income levels as the measure of success.

The Other One Per Cent (Economist)

Part of the secret of China’s success in the past four decades or so has been the clever use of its diaspora. Chinese manufacturers in Hong Kong who had long supplied American partners moved to the mainland and set up factories. Chinese nationals who succeeded abroad brought home trusted contacts, networks, experience, standards, technology and capital. India could do with more of that. Over 27m people of Indian origin, including some temporary migrants, live overseas, many of them in the Gulf. They remit $70 billion a year to their home country, more than any other group of expats. That adds up to 3.5% of India’s GDP, outstripping foreign direct investment. The biggest potential lies with the diaspora in the West. Mr Modi seems to be aware of that.

He has been courting it on visits to America, Australia, Germany and Canada, holding big rallies. Indians abroad heavily backed him in last year’s election, sending millions of dollars as well as people to help. Even in remote corners of Uttar Pradesh, your correspondent bumped into jovial volunteers with American accents. Indians in America are the most promising. They are increasingly prominent in tech companies, on Wall Street and in government, especially in the state department. Around 1% of America’s population, over 3.3m people, are “Asian Indians”. Perhaps 150,000 more arrive each year, and 90% of them stay permanently. Devesh Kapur, who has studied them, talks of a “flood”. He says over half of all Indian-born people in America arrived there after 2000. On the usual measures of success they outstrip all other minorities, including Jewish-Americans.

They are educated and rich. In 2012 some 42% held first or higher degrees; average family income was over $100,000, roughly double that of white Americans (see chart). Over two-thirds of them hold high-status jobs. They have done so well that many migrants from Pakistan or Bangladesh like to call themselves Indian, hoping that some of the stardust will rub off on them. The stereotype of Indians as keeping shops or running motels in their adopted country is thus outdated. An IT professional from Andhra Pradesh would be far more typical. Since the turn of the century America has slurped in highly skilled graduates as fast as India can produce them. America’s H-1B employment visa for skilled professionals tells the story. In a book under review by a publisher, provisionally entitled “The Other One Per Cent”, Mr Kapur and his co-authors note that between 1997 and 2013 half of those visas went to Indians. Since 2009 the share has been more than two-thirds.

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And now there’s proof. What will happen with it?

Secret Pentagon Report Reveals West Saw ISIS As Strategic Asset (Nafeez Ahmed)

A declassified secret US government document obtained by the conservative public interest law firm, Judicial Watch, shows that Western governments deliberately allied with al-Qaeda and other Islamist extremist groups to topple Syrian dictator Bashir al-Assad. The document reveals that in coordination with the Gulf states and Turkey, the West intentionally sponsored violent Islamist groups to destabilize Assad, despite anticipating that doing so could lead to the emergence of an ‘Islamic State’ in Iraq and Syria (ISIS). According to the newly declassified US document, the Pentagon foresaw the likely rise of the ‘Islamic State’ as a direct consequence of the strategy, but described this outcome as a strategic opportunity to “isolate the Syrian regime.”

The revelations contradict the official line of Western government on their policies in Syria, and raise disturbing questions about secret Western support for violent extremists abroad, while using the burgeoning threat of terror to justify excessive mass surveillance and crackdowns on civil liberties at home. Among the batch of documents obtained by Judicial Watch through a federal lawsuit, released earlier this week, is a US Defense Intelligence Agency (DIA) document then classified as “secret,” dated 12th August 2012. The DIA provides military intelligence in support of planners, policymakers and operations for the US Department of Defense and intelligence community. So far, media reporting has focused on the evidence that the Obama administration knew of arms supplies from a Libyan terrorist stronghold to rebels in Syria.

Some outlets have reported the US intelligence community’s internal prediction of the rise of ISIS. Yet none have accurately acknowledged the disturbing details exposing how the West knowingly fostered a sectarian, al-Qaeda-driven rebellion in Syria. Charles Shoebridge, a former British Army and Metropolitan Police counter-terrorism intelligence officer, said: “Given the political leanings of the organisation that obtained these documents, it’s unsurprising that the main emphasis given to them thus far has been an attempt to embarrass Hilary Clinton regarding what was known about the attack on the US consulate in Benghazi in 2012. However, the documents also contain far less publicized revelations that raise vitally important questions of the West’s governments and media in their support of Syria’s rebellion.”

The newly declassified DIA document from 2012 confirms that the main component of the anti-Assad rebel forces by this time comprised Islamist insurgents affiliated to groups that would lead to the emergence of ISIS. Despite this, these groups were to continue receiving support from Western militaries and their regional allies. Noting that “the Salafist [sic], the Muslim Brotherhood, and AQI [al-Qaeda in Iraq] are the major forces driving the insurgency in Syria,” the document states that “the West, Gulf countries, and Turkey support the opposition,” while Russia, China and Iran “support the [Assad] regime.” The 7-page DIA document states that al-Qaeda in Iraq (AQI), the precursor to the ‘Islamic State in Iraq,’ (ISI) which became the ‘Islamic State in Iraq and Syria,’ “supported the Syrian opposition from the beginning, both ideologically and through the media.”

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Digging a deeper hole. Germans want to know.

Germany Won’t Comment on Reported ‘Deep Freeze’ With US Intelligence (Reuters)

The German government declined to comment on a report that U.S. intelligence agencies were reviewing their cooperation with German counterparts and had dropped joint projects due to concerns secret information was being leaked by lawmakers. Bild newspaper reported on Saturday that U.S. spy chief James Clapper had ordered the review because secret documents related to the BND’s cooperation with the United States were being leaked to media from a German parliamentary committee. A spokesman for the U.S. embassy in Berlin said it does not comment on intelligence matters.

Allegations the BND intelligence agency helped the National Security Agency (NSA) spy on European companies and officials has been major news in Germany for weeks. It has strained Chancellor Angela Merkel’s coalition and damaged her popularity. “The German government puts great faith in the intelligence cooperation with the United States to protect our citizens,” a government spokesman said when asked about the Bild report. “The government doesn’t comment on the details of that cooperation in public but rather in parliament committees.” The newspaper said it had seen documents in which Clapper, director of national intelligence, expressed concern that information on the cooperation from Merkel’s chancellery to the parliamentary committee was leaked and harmed U.S. interests.

Clapper said Germany could no longer be trusted with secret documents, according to Bild, and as long as that is the case U.S. intelligence agencies should examine where to limit or cancel cooperation with Germany. Bild quoted a U.S. official saying the leaks were worse than those attributed to former NSA contractor Edward Snowden. “What the German government is now doing is more dangerous than what Snowden did,” the U.S. official was quoted saying.

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Lovely.

Leaked Report Profiles Military, Police Members Of US Biker Gangs (Intercept)

Nuclear power plant technicians, senior military officers, FBI contractors and an employee of “a highly-secretive Department of Defense agency” with a Top Secret clearance. Those are just a few of the more than 100 people with sensitive military and government connections that law enforcement is tracking because they are linked to “outlaw motorcycle gangs.” A year before the deadly Texas shootout that killed nine people on May 17, a lengthy report by the Bureau of Alcohol, Tobacco, Firearms and Explosives detailed the involvement of U.S. military personnel and government employees in outlaw motorcycle gangs, or OMGs.

The report lays out, in almost obsessive detail, the extent to which OMG members are represented in nearly every part of the military, and in federal and local government, from police and fire departments to state utility agencies. Specific examples from the report include dozens of Defense Department contractors with Secret or Top Secret clearances; multiple FBI contractors; radiological technicians with security clearances; U.S. Department of Homeland Security employees; Army, Navy and Air Force active-duty personnel, including from the special operations force community; and police officers. “The OMG community continues to spread its tentacles throughout all facets of government,” the report says.

The relationship between OMGs and law enforcement has come under scrutiny after it became known that law enforcement were on site in Waco bracing for conflict. The 40-page report, “OMGs and the Military 2014,” issued by ATF’s Office of Strategic Intelligence and Information in July of last year, warned of the escalating violence of these gangs. “Their insatiable appetite for dominance has led to shootings, assaults and malicious attacks across the globe. OMGs continue to maim and murder over territory,” the report said. “As tensions escalate, brazen shootings are occurring in broad daylight.”

The ATF report is based on intelligence gathered by dozens of law enforcement and military intelligence agencies, and identifies about 100 alleged associates of the country’s most violent outlaw motorcycle gangs and support clubs who have worked in sensitive government or military positions. Those gangs “continue to court active-duty military personnel and government workers, both civilians and contractors, for their knowledge, reliable income, tactical skills and dedication to a cause,” according to the report. “Through our extensive analysis, it has been revealed that a large number of support clubs are utilizing active-duty military personnel and U.S. Department of Defense (DOD) contractors and employees to spread their tentacles across the United States.”

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