Sep 072017
 
 September 7, 2017  Posted by at 9:14 am Finance Tagged with: , , , , , , , , , , , ,  6 Responses »
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St. Maarten seen through the eye of Irma

 

Irma Devastates The Caribbean (AlJ)
Trump Sides With Democrats On Debt Limit In Rare Bipartisan Deal (R.)
Fed’s Fischer Resigns, Leaving Trump Earlier Chance To Shape Central Bank (R.)
Deutsche Bank Boss Calls On ECB To Halt Cheap Money (R.)
New Leak Of Brexit Papers Reveals Fissures Between Britain And EU (G.)
Consumption Exhaustion (Lebowitz)
China Realizes It Needs Foreign Companies (Balding)
Apple Needs iPhone 8 To Solve A Giant Financial Headache (BI)
Catalonia Launches Its Independence Challenge Against Spain (AFP)
Emmanuel Macron To Outline Vision For Europe’s Future In Athens Speech (G.)
Crisis-Ridden Greek Households Cut Even On Milk And Bread (KTG)

 

 

Too early to say much of anything. Barbuda is gone. So is much of St. Martin. Close to uninhabitable.

If Irma hits Puerto Rico anywhere near full force, that would be exceedingly dramatic. Ditto for Haiti, Miami. This has just started.

NOAA Hurricane Hunters flight director Richard Henning on CNN: “Irma “is actually getting stronger. … You can’t overhype this storm”.

Irma Devastates The Caribbean (AlJ)

Nearly every building on the island of Barbuda has been damaged and almost 900,000 people have been left without power in Puerto Rico as the Category 5 Hurricane Irma continues its journey towards mainland US. About 60 percent of Barbuda’s roughly 1,400 people were left homeless, Gaston Browne, Antigua and Barbuda prime minister, told the Associated Press news agency, when the eye of the storm passed almost directly overhead early on Wednesday. “Either they were totally demolished or they would have lost their roof,” Browne said after returning to Antigua from a plane trip to the neighbouring island. “It is just really a horrendous situation.” Browne said roads and telecommunications systems were destroyed and recovery will take months. A two-year-old was killed as a family tried to escape a damaged home during the storm, he said.

Puerto Rico was buffeted by powerful winds and heavy rain as authorities struggled to get aid to small Caribbean islands already devastated by the storm. The US National Weather Service said Puerto Rico had not seen a hurricane of Irma’s magnitude since Hurricane San Felipe in 1928, which killed a total of 2,748 people in Guadeloupe, Puerto Rico and Florida. But as the storm moved west, it devastated the small islands in its path. Significant effects were reported on St Martin, an island split between French and Dutch control. Photos and video circulating on social media showed major damage to the airport in Philipsburg and the coastal village of Marigot heavily flooded. The US National Hurricane Center said Irma’s winds would fluctuate, but the storm would probably remain at Category 4 or 5 for the next day or two as it moves past just to the north of the Dominican Republic and Haiti on Thursday, nears the Turks & Caicos and parts of the Bahamas by Thursday night and touches Cuba on Friday night.

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“Less than an hour before the meeting, Republican House of Representatives Speaker Paul Ryan had called the Democratic proposal that Trump later embraced a “ridiculous and disgraceful” idea..”

Trump Sides With Democrats On Debt Limit In Rare Bipartisan Deal (R.)

President Donald Trump forged a surprising deal with Democrats in Congress on Wednesday to extend the U.S. debt limit and provide government funding until Dec. 15, embracing his political adversaries and blindsiding fellow Republicans in a rare bipartisan accord. Trump, living up to his reputation for unpredictability, met at the White House with congressional leaders from both parties and overruled Republicans and U.S. Treasury Secretary Steven Mnuchin, who wanted a longer-term debt-limit extension rather than the three-month Democratic proposal the president embraced. “We could have done a one-year deal today,” Mnuchin told reporters aboard Air Force One later in the day en route back to Washington from an event in North Dakota where Trump spoke about taxes.

Mnuchin said Trump chose a short-term deal to keep his options open on possibly raising military funding later this year, suggesting a longer-term government funding deal might have blocked that. Trump is very focused on military spending, “particularly with what’s going on in North Korea and other parts of the world today,” Mnuchin said. “The president wasn’t willing to give up his need for additional military spending.” If passed by the Republican-led Congress, the three-month agreement would avert an unprecedented default on U.S. government debt, keep the government funded at the outset of the fiscal year beginning Oct. 1 and provide aid to victims of Hurricane Harvey. “It was a really good moment of some bipartisanship and getting things done,” top Senate Democrat Chuck Schumer said. Less than an hour before the meeting, Republican House of Representatives Speaker Paul Ryan had called the Democratic proposal that Trump later embraced a “ridiculous and disgraceful” idea that would “play politics with the debt ceiling.”

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Curious timing. Note that Reuters has fully entered the anti-Trump echo chamber.

Fed’s Fischer Resigns, Leaving Trump Earlier Chance To Shape Central Bank (R.)

U.S. Federal Reserve Vice Chair Stanley Fischer, a veteran central banker who helped set the course for modern monetary policy, said on Wednesday he will step down from his position in mid-October, potentially accelerating President Donald Trump’s opportunity to reshape the direction of the central bank. In a letter to Trump, Fischer, 73, said he was resigning for personal reasons effective on or around Oct. 13, eight months before his term as vice chair expires in June. In the letter, Fischer said jobs growth had returned to the United States and that “steps to make the financial system stronger and more resilient” had been taken – actions that may now be weakened by the Trump administration.

His departure leaves the seven-person board of governors with as few as three sitting members, depending on whether and when the Senate confirms Trump nominee Randal Quarles to the role of vice chair for supervision, a job distinct from Fischer’s vice chairmanship. The Senate Banking Committee is scheduled to vote on the nomination on Thursday. The White House said it had no immediate comment on Fischer’s departure or on the timing for filling his spot or other positions at the Fed. Though the Fed often operates with fewer than its full complement of seven governors, it has never dipped as low as three. Fischer’s earlier-than-expected departure intensifies the urgency for Trump to decide how deeply he wants to overhaul U.S. monetary policy. Fed Chair Janet Yellen’s term expires in February. While Trump has spoken approvingly of her performance he has also kept the door open to naming his top economic adviser Gary Cohn, or someone else, to the job.

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He thinks he’s taken all he’s going to get.

Deutsche Bank Boss Calls On ECB To Halt Cheap Money (R.)

Deutsche Bank chief executive John Cryan has called on the European Central Bank to change course on providing cheap money, warning he sees price bubbles in stocks, bonds and property. “The era of cheap money in Europe should come to an end – despite the strong euro,” Cryan told a room full of bankers in Frankfurt on Wednesday, a day before the ECB’s governors meet to discuss policy. Low interest rates, money printing and a penalty charge for hoarding cash have been at the heart of attempts by the central bank to reinvigorate the 19-country euro zone economy in the wake of the 2008-09 financial crisis. But the policy, which has seen the ECB print more than €2 trillion ($2.4 trillion) so far, has been politically divisive, prompting fierce criticism from famously thrifty Germans.

It has also imposed a heavy cost on still fragile banks, turning deposits into a hot potato that many would rather avoid so as not to pay charges to their central bank for storing them. The head of Germany’s largest commercial bank warned of the fallout from cheap money, cautioning against using the strong euro as a justification for printing more. “We are now seeing signs of bubbles in more and more parts of the capital market,” he said. Cryan also said Frankfurt was the most natural location as a financial hub as banks move from London after Britain’s decision to leave the European Union – ahead of Paris, Dublin and Amsterdam. “There is only one European city which can fulfil these requirements and that city is Frankfurt,” he said, pointing to Frankfurt’s supervisory authorities, law firms, consultancies and airport.

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Multiple papers have been leaked in recent days. They won’t be the last.

New Leak Of Brexit Papers Reveals Fissures Between Britain And EU (G.)

The EU will risk heightening tensions with the UK on Brexit by publishing five combative position papers in the coming days, including one that places the onus on Britain to solve the problem of the Irish border, according to documents leaked to the Guardian. The Irish document shows that Michel Barnier, the EU’s chief negotiator, will call on the UK to work out “solutions” that avoid the creation of a hard border and guarantee peace on the island. The leaks come a day after the Guardian obtained a draft memo showing the British government’s position on post-Brexit EU migration, which has been denounced as “completely confused”, “economically illiterate” and “a blueprint on how to strangle London’s economy”. The Ireland paper is one of five due to be published by the European commission in the coming days. Each is dated 6 September and was drawn up by Barnier’s article 50 taskforce in Brussels.

Together, the papers lay bare the complexity of disentangling Britain from the European Union. Each paper is focused on withdrawal day, 29 March 2019, delving into technical minefields not dealt with during the referendum campaign. EU proposals include:
• A demand – likely to inflame Brexiters – for the UK to legislate for the “continued protection” of special foods such as Parma ham and feta cheese, as well as French burgundy and Spanish cava. Brussels wants to ensure that more than 3,300 food and drink products are protected from British copycats after Brexit.
• Ensuring that any goods in transit on Brexit day would be subject to the jurisdiction of the European court of justice. In effect, British companies and the British government would be liable to fines from Brussels for breaking EU VAT and customs rules.
• A warning to the government that it must guarantee EU data protection standards on classified EU documents. If not, the EU wants these documents erased or destroyed.
• Asking Britain not to discriminate against EU companies which are carrying out state-funded infrastructure projects that began before Brexit day.

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How to spell deflation.

Consumption Exhaustion (Lebowitz)

Debt serves as a regulator of economic growth and is the focus of ill-advised fiscal and monetary policy. It is no coincidence that no matter what economic topic we explore, debt is usually a central theme. Illustrated in the chart below is the actual trajectory of total U.S. debt outstanding (black) through March 2017 and a calculated parabolic curve (red). The parabolic curve uses 1951 as a starting point and a quarterly 1.82% compounding factor to create the best statistical fit to the actual debt curve. If we start with the $434 billion of debt outstanding on December 1951 and grow it by 1.82% each quarter thereafter, the result is the gray line. If debt outstanding continues to follow this parabolic curve, it will exceed $60 trillion by the first quarter of 2020, or nine quarters from now.

Many economists point to the stability of debt service costs as a reason to ignore the parabolic debt chart. Despite rising debt loads, falling interest rates have served as a ballast allowing more debt accumulation at little incremental cost. While that may have worked in the past, near zero interest rates makes it nearly impossible to continue enjoying the benefits of falling interest rates going forward. Importantly, social safety net obligations, demographics, and political dynamics argue that debt growth is likely to continue accelerating as implied by the chart above. Without interest rates falling in step with rising debt burdens, debt service costs will begin to rise appreciably.

The power of compounding, extolled by Albert Einstein as the eighth wonder of the universe, is as damning in its demands as it is merciful in its generosity. Barring negative interest rates, debt service costs will be an insurmountable burden by 2020. However, if the debt trajectory slows as it did in 2008 that too will bring about painful consequences. In other words, all roads lead to trouble.

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“China maintains a quasi-pegged exchange rate, which requires balancing the inflow and outflow of capital. That means attracting foreign investment is a necessary precondition for investing abroad..”

China Realizes It Needs Foreign Companies (Balding)

China is increasingly desperate for foreign investment. Yet foreign companies are less and less interested in what it has to offer. How this problem gets resolved may be one of the most important questions facing China’s economy. After China joined the World Trade Organization, in 2001, overseas investors couldn’t wait to jump in. Foreign direct investment grew at an annualized rate of 10.8% from 2000 to 2008. Enticed by China’s market size and development capacity, companies were willing tolerate almost any kind of restriction. They turned over intellectual property; entered into joint ventures as junior partners, essentially training their eventual competitors; and accepted restricted access to wide swathes of the economy. Since the financial crisis, however, things have changed.

Wages in China have risen by an average of 11% a year, making it less attractive for outsourcing. Despite years of complaints, intellectual property theft hasn’t abated (just ask Michael Jordan, who had to wage a four-year court battle to get ownership of his own name in China). Add in an increasingly hostile business environment, and it’s not surprising that overseas companies are losing enthusiasm. Since 2008, utilized foreign direct investment has increased by an average rate of only 4% a year. According to quarterly balance-of-payment data, FDI has amounted to only $55 billion this year through June. The last time China’s mid-year inflows were that low was in 2009, the year after the financial crisis. This could have serious economic consequences.

Due to shady invoicing – which many firms use to evade capital controls – the money flowing into China through its trade surplus has shrunk. From 2010 through 2014, banks reported net settlement inflows from goods trade of nearly $1.7 trillion. Since January 2015, net settlement by banks has amounted to only $278 billion, while the official trade surplus is $1.3 trillion. For a country that relies on capital accumulation to sustain growth, this is a significant problem. Making matters worse, China maintains a quasi-pegged exchange rate, which requires balancing the inflow and outflow of capital. That means attracting foreign investment is a necessary precondition for investing abroad, which is China’s main method of advancing its foreign-policy objectives.

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All on red.

Apple Needs iPhone 8 To Solve A Giant Financial Headache (BI)

Apple will launch its next-generation iPhone (expected to be called the iPhone 8 or the iPhone Edition) on September 12, and this chart from Guggenheim Securities analyst Robert Cihra gives you a good idea of the giant headache Apple needs that new phone to solve. The graph is interesting because it shows Apple’s business in a seldom-seen way: It charts only the revenue growth of the company, broken out by product. The chart does a good job of showing how Apple’s various product lines have increasingly stalled over the years. In each of the last four years, Apple had one or more major product lines with shrinking sales. In 2016, that came to a head, and Apple’s overall revenue went into decline for the first time ever.

Note that in 2016, Apple’s worst year, the only division growing revenues was Services — apps, content, and software in iTunes. The stakes for iPhone 8 and its kindred models — iPhone 7s and iPhone 7s Plus — couldn’t be higher. If they don’t grow revenues, then the company as a whole doesn’t grow. The task facing Apple is not trivial. As this chart from Deutsche Bank shows, the iPhone tends to grow more slowly than the smartphone market as a whole — and the smartphone market has flatlined.

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Spain threatens criminal charges for people seeking self-determination.

Catalonia Launches Its Independence Challenge Against Spain (AFP)

Catalonia’s regional parliament passed a law on Wednesday (Sep 6) paving the way for an independence referendum on Oct 1 which is fiercely opposed by Madrid, setting a course for Spain’s deepest political crisis in decades. The looming showdown comes three weeks after militant attacks in Barcelona, the capital of Catalonia, and a seaside resort which killed 16 people and wounded more than 120. The law was adopted with 72 votes in favour and 11 abstentions after 12 hours of often stormy debate in the regional assembly. Lawmakers who oppose independence for the wealthy northeastern region of Spain quit the chamber before the vote. After the law was passed, separatist lawmakers, who have a majority in the assembly, sang the Catalan anthem, “Els Segadors”, which recalls a 1640 revolt in the region against the Spanish monarchy.

Lawmakers approved the bill despite a February ruling by Spain’s Constitutional court declaring it would be unconstitutional. Shortly after the law was passed the president of Catalonia, Carles Puigdemont, and the rest of his cabinet signed a decree calling the referendum, presenting a show of unity in the face of threats of legal action by Madrid, which deems the plebiscite illegal. Deputy Prime Minister Soraya Saenz de Santamaria said before the law was passed that the government had asked the Constitutional Court to declare “void and without effect the agreements adopted” by the Catalan parliament. She also denounced the regional assembly’s agreement to quickly vote on the bill with little debate as an “act of force” characteristic of “dictatorial regimes”. At the same time, public prosecutors announced they would seek criminal charges for disobedience against the president of the Catalan parliament, Carme Forcadell, and other Catalan officials for allowing the vote on the referendum law.

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Macron can only do what Merkel allows him.

Emmanuel Macron To Outline Vision For Europe’s Future In Athens Speech (G.)

Emmanuel Macron will make Greece the launchpad for a major policy speech on the future of Europe as he starts his first official trip to the country on Thursday. From the dramatic setting of the ancient Pnyx in Athens, the French president is expected to outline his vision for the continent in what is being called his most important overseas address since taking office in May. Amid the rocky hills of the Pnyx beneath the Acropolis, the speech will focus on the virtues of democracy as the European Union – and Greece – finally show signs of economic revival. “It will be a message of confidence in Greece but also a European symbolic message, given that in many ways Greece has been a symbol of Europe’s crisis,” said an Élysée Palace source. “The restart of Greece is the restart of the eurozone.”

It is a measure of the significance the Greek government is attaching to the visit that Macron is making the address from such an august setting. From the earliest days of Athenian democracy, the Pnyx was a meeting place for popular assemblies. In more modern times its use has been limited to the rare photo op. The young president will be the first French leader to speak from it, in what Greeks are also calling a subliminal message of hope. Macron has been criticised at home for his carefully choreographed media appearances evoking the grandeur of eras past, and has seen his approval ratings drop dramatically. But officials say the rich symbolism of Macron’s Athens speech will underscore the argument that, despite its battle to stay in the eurozone and keep bankruptcy at bay, Greece remains at the heart of Europe’s tradition and history.

“We see it is as a very important visit,” said the deputy minister of economy and development, Stergios Pitsiorlas. “We are very much hoping it will not only deepen economic cooperation but also herald a change in the political dynamic in the EU which for so long has been dominated by a single state, Germany.” France has stood by Greece, often defending it in fraught negotiations, since international creditors, led by Berlin, were forced to come to the debt-stricken country’s rescue issuing the first of three bailouts in return for tough reforms in May 2010. Macron, a former economy minister, has long advocated debt relief for Athens – echoing the view of its leftist-led government that without it the Greek economy can never fully recover.

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While politicians on all sides cheer the ‘recovery’.

Crisis-Ridden Greek Households Cut Even On Milk And Bread (KTG)

The economic crisis continues to plague Greek households struggling too make ends meet – month in, month out. A survey conducted by Nielsen shows a decline in consumption and therefore the plight of thousands of families. Greeks cut on essential goods like milk and bread. The drop in the category of milk in the organized retail market reached 8.6% in the first half of 2017. Sales of essential consumer goods continue to drop, according to a Nielsen survey of the Greek market. Sales of milk, bread and alcoholic beverages are among the goods that suffer most. In the first half of 2017 the drop in the sale of milk reached 8.6%, while sales of packaged bread shrank by 5.3%. Sales of alcoholic beverages also recorded significant losses, as whiskey sales dropped by 6.8% over the same period.

Overall, retail trade lost 1.1% in value in the first half of the year compared to the same period last year. More pronounced downward trends were recorded in personal care products at 4.4%, and household goods at 3.5%. Sales of deodorants and diapers dropped by 7.3% and 7.2% respectively. In household goods, chlorine dropped by 8.9% and kitchen paper towel by 7.7%. The only positive trend in all sectors was in fresh / bulk products where sales increased by 2.0%. An earlier Nielsen survey has shown that food sales in Greece have dropped by 18 percent since 2009, when the current economic crisis begun. In 2009, food sales reached a record high, totalling 13.15 billion euros. However, as Greece entered the first bailout program in 2010, the demand for food items started to drop. The decrease was also attributed partly to the closing down of small grocery and convenience stores..

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Sep 222015
 
 September 22, 2015  Posted by at 9:38 am Finance Tagged with: , , , , , , , , , , ,  3 Responses »
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Arthur Rothstein Accident on US 40 between Hagerstown and Cumberland, MD 1936

“We Are On The Precipice Of A Liquidation In Emerging Markets” (FT)
Currency Market Braces For Renminbi Weakness (FT)
‘Made In Germany’ Lies In The ‘Gutter’ After Volkswagen Caught Cheating (AEP)
Volkswagen Said Focus of U.S. Criminal Probe on Emissions (Bloomberg)
It Took More Than a Year of EPA Pressure to Get VW to Admit Fault (NY Times)
VW’s Worst Nightmare Is For The Scandal To Spread To Europe (Bloomberg)
VW Emissions Scandal Could Snare Other Firms, Whistleblower Claims (Guardian)
VW Faces More Legal Fallout From Cheating – This Time at Home (Bloomberg)
Volkswagen: The Curse Of The World’s Biggest Carmaker (Forbes)
Alexis Tsipras Has Been Set Up To Fail (Yanis Varoufakis)
Greece’s New Government ‘Doomed To Fail’ Over Flawed Bail-Out (Telegraph)
Greece’s Tsipras To Demand EU Action On Refugees (Reuters)
Eastern European Leaders Defy EU Effort To Set Refugee Quotas (Guardian)
EU Set To Water Down Refugee Relocation Plan (AFP)
Putin’s Plan: Moscow Handles Syria, US Looks After Iraq (AlArabiya)
Are Financial Markets Losing Faith In The Fed? (CNBC)
Fed Cred Dead (Jim Kunstler)
Catalans Threaten Not To Pay Public Debt If Spain Refuses Secession Deal (SP)
Joris Luyendijk: ‘Bankers Are The Best Paid Victims’ (Standard)
Sumatran Rhinos Likely To Become Extinct (Guardian)

“The wrong people got the capital..”

“We Are On The Precipice Of A Liquidation In Emerging Markets” (FT)

The world economy is locked on a course towards an emerging markets crisis and a renewed slowdown in the US, regardless of the Federal Reserve holding off on a rise in rates last week, according to one of 2015’s most successful hedge fund managers. John Burbank, whose Passport Capital has placed a raft of lucrative bets against commodities and emerging markets this year, forecast that the Fed would eventually be forced into a fourth round of quantitative easing to shore up the economy. In an interview with the Financial Times, Mr Burbank said years of QE had caused a misallocation of capital across the world, while the end of QE last year triggered a dollar rally with consequences that were only now beginning to be realised.

“The wrong people got the capital — emerging markets countries and corporates and a lot of cyclical companies like mining and energy, particularly shale companies — and this is now a major problem for the credit markets,” he said. Passport, based in San Francisco, manages $4.1bn in three main funds. Its $2.1bn Passport Global fund was up 14.6% at the end of August and a smaller, more concentrated “special opportunities” fund was up 30.6%. Both funds are in the top 15 best performers, year to date, according to the industry league table compiled by HSBC. Among Passport’s publicly-declared short positions is Glencore, the commodities trader that has suffered a 55% tumble in its share price this year.

The Fed last week decided against raising US interest rates from their present level of zero. Although one dissident member of its Federal Open Market Committee did vote for a quarter of a point increase, the committee took a cautious stance, warning of “global economic and financial developments” that could restrain US growth.

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“I don’t think [China] had any idea just how many people there are out there who think their economy is collapsing..”

Currency Market Braces For Renminbi Weakness (FT)

It is hard to say who was more surprised by China’s devaluation of the renminbi last month — international markets, with no inkling whatsoever it was coming, or Chinese officials, stunned by the resulting reaction overseas. This week, President Xi Jinping’s visit to Washington will at least allow officials from both sides to have it out. The common view outside of the mainland is that China bungled it, rocking asset prices from government bonds to iron ore as well as the currency world with its unexpected promise of a “market-based” regime — a pledge its subsequent heavy intervention implies is dead at least for now. The biggest casualty came last week, however, with the Federal Reserve’s decision to hold, not raise, overnight interest rates following the market turmoil triggered by China’s move to shift exchange rate policy and push the renminbi lower.

For Fed chair Janet Yellen, the move by the People’s Bank of China clearly rankled as she highlighted global concerns, pointedly questioning “the deftness with which [Chinese] policymakers were addressing those concerns”. Hence, what China does next with its currency is critical — to the dollar’s path, market sentiment, the Fed’s rate deliberations and the US economy. Stuart Oakley, managing director, global EM, Nomura, says the renminbi would remain stable for the duration of the state visit. “After that, the chance of another leg of weakness for the [renminbi] rises considerably,” he said. “The PBoC will undoubtedly be very mindful of how its own policy decisions on the [renminbi] will affect the dollar on the broader level. I think they will have no issue with seeing the dollar stronger still from here.”

To China bears, the PBoC’s dramatic 1.9% devaluation of August 11 looked like a desperate attempt to bolster flagging exports by starting a currency war under the figleaf of introducing the sort of market-friendly reform designed to impress the IMF. Another interpretation is that Beijing really was focused on the IMF and winning acceptance for the renminbi as a reserve currency, and misjudged the likely reaction. “I don’t think [China] had any idea just how many people there are out there who think their economy is collapsing,” said Chris Wood at CLSA, the pan-Asia brokerage. He thinks further big moves this year are unlikely as officials continue to focus on moving from an investment-led to a consumer-driven economy. “A big devaluation would be an admission their economic shift had failed,” he added.

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“The US press is already calling VW the “Lance Armstrong” of the car market..”

‘Made In Germany’ Lies In The ‘Gutter’ After Volkswagen Caught Cheating (AEP)

Volkswagen has suffered a shocking loss of credibility after conspiring to violate US pollution laws and dupe customers on a systemic scale. The scandal has once again exposed a culture of corrupt practices at the top of German export industry. “We are facing a blatant abuse of consumer trust and a degradation of the environment,” said Jochen Flasbarth, the German state secretary in charge of pollution enforcement. The scandal is intrinsically worse than the explosion of BP’s Deepwater Horizon drilling rig in the Gulf of Mexico in 2010. While BP and its contractors may have been negligent, VW appears to have engaged in a cynical plan to trick regulators in a wholesale breach of the US Clean Air Act.

“It is profoundly serious. The accusation is that VW deliberately set out to mislead regulators with a cleverly hidden piece of software,” said Max Warburton from AllianceBernstein. It is of an entirely different character from earlier breaches of US law by Hyundai and Ford, which stemmed mostly from errors. The US Justice Department is weighing serious criminal charges. “‘Made in Germany’ in the gutter,” said German newspaper Bundesdeutsche Zeitung. The financial daily Handelsblatt called the deception a “catastrophe for the whole of German industry”, warning that it had completely undermined a joint campaign by Audi, BMW, Mercedes, Bosch and VW to convince Americans that diesel is no longer dirty and is the best way to meet tougher US emission standards.

Germany is the world leader in clean diesel. Its car companies have bet heavily on the technology, hoping to win the strategic prize in the US as new rules come into force imposing fuel efficiency of 54.5 miles per gallon by 2025. “We are worried that the justifiably excellent reputation of the German car industry and in particular that of Volkswagen will suffer,” said Sigmar Gabriel, the country’s vice-chancellor and economy minister. Volkswagen’s own vow to become the “greenest” car producer in the world by 2018 has been exposed as a hollow publicity stunt. Theoretically, the company could face fines of $18bn in the US, based on a standard penalty of $37,500 for each of the 482,000 cars fitted with “defeat devices”, which allowed them to mask exhaust emissions of nitrogen oxide (NOx) in pollution control tests.

The actual release of these toxic particles – blamed for emphysema and respiratory diseases – is in reality 40 times above the acceptable levels imposed by the US Environmental Protection Agency. The cars will be recalled and modified, greatly reducing their fuel efficiency. The US press is already calling VW the “Lance Armstrong” of the car market, an apt allusion to drug cheating in sport, and a deadly epithet in an industry where brand image and goodwill are the lifeblood of sales. VW’s share price crashed 19pc in Frankfurt. The company’s strategic ambition to dominate clean diesel sales in the US lies in ruins. “There is no way to put an optimistic spin on this. The best case for VW is probably still a multi-billion dollar fine, pariah status in the US, and damage to its leading position in diesel,” said Mr Warburton.

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Don’t hold your breath.

Volkswagen Said Focus of U.S. Criminal Probe on Emissions (Bloomberg)

The U.S. Justice Department is investigating Volkswagen over its admission that it cheated on federal air pollution tests, according to two U.S. officials familiar with the inquiry. That adds the specter of criminal proceedings to challenges the world’s biggest automaker already faces from regulators, lawmakers and vehicle owners in the three days since it admitted that it had rigged diesel vehicles to pass emissions tests in the lab. The vehicles emitted as much as 40 times the legal limit of pollutants when they were on the road, the Environmental Protection Agency alleges.

The criminal probe, which the officials described on condition of anonymity because it is continuing, will provide an early test of the Justice Department’s newly stated commitment to holding individuals to account for corporate wrongdoing. Earlier this month, the department said companies that want credit for cooperating with investigators must name individuals they allege are responsible for misconduct. The probe is being led by the Justice Department’s Environment and Natural Resources Division, which prosecutes violations of pollution-control laws, according to the officials.

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Good account.

It Took More Than a Year of EPA Pressure to Get VW to Admit Fault (NY Times)

Two years ago, the International Council on Clean Transportation, a nonprofit environmental group staffed by a number of former E.P.A. officials, had been testing the real-world performance of so-called clean diesel cars in Europe, and were less than impressed with the emissions results. The group decided it would test diesel-powered cars in the United States, where regulations were much more strict, as a way of almost shaming the European automakers to tighten their compliance. The group fully expected the American cars to do well, and run cleaner than their counterparts across the pond. What they could not have foreseen was that they would stumble onto one of the biggest frauds in recent automotive history.

Further, on the campus of West Virginia University, a group of emissions researchers who mainly dealt with heavy trucks noticed an unusual posting by the transportation council, which was looking for a partner to test diesel-powered cars. “No one had done that before in the U.S.,” said Arvind Thiruvengadam, a professor at the university. “It sounded very interesting, to test light-duty diesel vehicles in real-world conditions. We looked around at each other said, ‘Let’s do it.’ ” The university’s team bid on the project and got the contract. Mr. Thiruvengadam and his colleagues never envisioned where it would lead. “We certainly didn’t have an aim of catching a manufacturer cheating,” he said. “It didn’t even cross our minds.” The study also did not target Volkswagen specifically.

It was something of a fluke, he said, that two out of three diesel vehicles bought for the testing were VWs. It did not take long for suspicions to set in. The West Virginia researchers were well-versed in diesel performance on real roads, and had certain expectations for how the test cars should ebb and flow in their emissions. But the two Volkswagens behaved strangely. “If you’re idling in traffic for three hours in L.A. traffic, we know a car is not in its sweet spot for good emissions results,” Mr. Thiruvengadam said. “But when you’re going at highway speed at 70 miles an hour, everything should really work properly. The emissions should come down. But the Volkswagens didn’t come down.”

Even then, however, it is difficult for most researchers to be sure exactly what is going on. There are so many factors involved in real-world driving — speed, temperature, topography, braking habits. It is not unheard-of for cars to perform much differently in on-the-road tests than one expected. But this time there was a key difference: the California Air Resources Board heard about the groups’ tests and signed on to participate. The regulators tested the same vehicles in their specially equipped lab used to judge cars’ compliance with state emissions standards. That gave the project what most studies lacked: a baseline. “That broke loose everything,” Mr. Thiruvengadam said.

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But in Europe, Merkel reigns. And she won’t want one of Germany’s largest corporations to go down.

VW’s Worst Nightmare Is For The Scandal To Spread To Europe (Bloomberg)

Just days after General Motors settled with federal prosecutors for its deadly negligence over faulty ignition switches, Volkswagen has admitted that it cheated for years on U.S. Environmental Protection Agency emissions tests. Having built its brand in the U.S. around diesel technology, VW faces severe damage to its reputation here, along with billions in EPA fines and now a federal criminal investigation. Worse for consumers, there’s no guarantee that the fallout of this scandal will be limited to VW alone. Clearly, shareholders are spooked: No amount of damage to VW’s relatively weak U.S. market position could justify the huge declines in VW’s stock price (near 23% on the day, for a market-value hit of $17.6 billion).

The fear, almost certainly, is that this scandal could end up affecting VW’s European market dominance, which is also highly dependent on diesel sales. Having to bring its entire EU fleet into compliance could cost orders of magnitude more than U.S. market repairs, as well as the firm’s widely-respected chief executive officer, Martin Winterkorn, his job. In the U.S., nearly a half-million vehicles equipped with VW’s 2.0 liter TDI engine have been deemed out of compliance with EPA regulations after the International Council on Clean Transportation, a nonprofit watchdog group, discovered they emitted far more nitrogen oxide in normal driving than in testing environments. Faced with an EPA threat to decertify new diesel models, VW admitted that it had installed a “defeat device” to give artificially low emissions results in Audi A3, VW Jetta, Beetle, Golf and Passat models.

The EPA is raining righteous fury down on Volkswagen, but its record of clamping down on automakers’ malfeasance shows it’s on thin ice here. A 2012 scandal in which Hyundai and Kia goosed the numbers on fuel-efficiency tests provided ample evidence that the agency’s protocol – which allows automakers “broad latitude” to test their own vehicles and involves spot-checks on just 10% to 15% of all models – is an invitation to corner-cutting and outright cheating. Until emissions tests are improved, or a consistent complimentary “real world” testing regime is put into place, regulators will lack the leverage to pressure automakers into admitting who is cheating and who is merely gaming the rules. Nor will the agency know if the common discrepancies between test and real-world results reflect shortcomings in the test procedure itself.

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Seems inevitable. But political pressure will be severe.

VW Emissions Scandal Could Snare Other Firms, Whistleblower Claims (Guardian)

The emissions-fixing scandal that has engulfed Volkswagen in the US could extend to other companies and countries, one of the officials involved in uncovering the alleged behaviour has told the Guardian. Billions of pounds have been wiped off the value of global carmakers amid growing concerns that emissions tests may have been rigged across the industry. “We need to ask the question, is this happening in other countries and is this happening at other manufacturers? Some part of our reaction is not even understanding what has happened exactly,” said John German, one of the two co-leads on the US team of the International Council for Clean Transportation (ICCT), the European-based NGO that raised the alarm.

Shares in Volkswagen fell by almost a fifth after the world’s second biggest carmaker issued a public apology in response to US allegations that it used a defeat device to falsify emissions data. South Korea said on Tuesday it would investigate emissions of VW Jetta and Gold models and Audi A3 cars produced in 2014 and 2015. If problems are found, South Korea’s environment ministry said its probe could be expanded to all German diesel imports, which have surged in popularity in recent years in a market long dominated by local producers led by Hyundai. US Congress confirmed it is investigating the scandal on Monday. House energy and commerce committee chairman Fred Upton and oversight and investigations subcommittee chairman Tim Murphy announced that the Oversight and Investigations Subcommittee will hold a hearing.

The US Justice Department is conducting a criminal investigation of Volkswagen admission, according to Bloomberg, which cited two officials familiar with the inquiry. The company could face a fine of up to $18bn, criminal charges for its executives, and legal action from customers and shareholders. The US law firm Hagens Berman has already launched a class-action law suit on behalf of customers who bought the affected cars. VW shares fell by 19% in Frankfurt, wiping almost €15bn off its value. Shares in Renault, Volkswagen’s French rival, also dropped by 4%, while Peugeot was down 2.5%, Nissan 2.5% and BMW 1.5% amid concerns they could be caught up in investigations.

The US Environmental Protection Agency (EPA) said on Friday that VW had installed illegal software to cheat emission tests, allowing its diesel cars to produce up to 40 times more pollution than allowed. The US government ordered VW to recall 482,000 VW and Audi cars produced since 2009. In response, Martin Winterkorn, chief executive of VW, said on Sunday he was “deeply sorry” for breaking the trust of the public and ordered an external investigation. German tipped off regulators at the California Air Resources Board (Carb) and the EPA after conducting tests that showed major discrepancies in the amount of toxic emissions some VW cars were pumping out compared with the legal limits. Max Warburton, an analyst at the financial research group Bernstein, said: “There is no way to put an optimistic spin on this – this is really serious.”

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The biggest challenge may come from investors, car owners and environmental groups.

VW Faces More Legal Fallout From Cheating – This Time at Home (Bloomberg)

Volkswagen’s legal problems started in the U.S., but the world’s biggest carmaker is finding the fallout over its cheating on U.S. environmental tests and declining share price is extending to its home market. The German company’s shares lost nearly a quarter of their value Monday in Frankfurt, and financial regulator Bafin is looking at possible violations of German rules. VW also faces legal threats from investors and environmental groups. “Like in comparable cases, with strong share movements we look at the VW stock as to insider trading, market manipulation, and ad-hoc disclosure rules,” Bafin spokeswoman Anja Schuchhardt said in an e-mail. “But this is a matter of routine.”

The Wolfsburg, Germany-based company admitted to fitting its U.S. diesel vehicles with software that turns on full pollution controls only when the car is undergoing official emissions testing, the Environmental Protection Agency said Friday. With 482,000 autos part of the case, the U.S. fine could total more than $18 billion. During normal driving, the cars with the software – known as a “defeat device” – would pollute 10 times to 40 times the legal limits, the EPA estimated. The discrepancy emerged after the International Council on Clean Transportation commissioned real-world emissions tests of diesel vehicles including a Jetta and Passat, then compared them to lab results. VW halted sales of the models involved on Sunday and said it’s cooperating with the probe and ordered its own external investigation.

Chief Executive Officer Martin Winterkorn, who has led the company since 2007, said he was “deeply sorry” for breaking the public’s trust and that VW would do “everything necessary in order to reverse the damage this has caused.” Andreas Tilp, a lawyer representing investors in German court, says VW may have to pay damages to stockholders in Germany if the allegations of U.S. authorities are upheld. Investors may seek to recover losses incurred because of the stock’s decline. “We’re convinced that VW failed to properly inform the markets and is liable to investors who can seek billions,” Tilp said. “Concealing for years the immense risks of the pollution manipulation and the U.S. probes is a violation of capital market rules.”

Environmental group Deutsche Umwelthilfe said it will sue carmakers to have diesel vehicles removed from the streets starting 2016. It will also take legal action to have Germany’s Federal Motor Transport Authority revoke licenses for the vehicles. While rules on emissions are similar in the U.S. and Germany, the Federal Motor Transport Authority isn’t properly controlling its implementation, Juergen Resch, DUH’s director, said in an e-mailed statement. The German agency isn’t controlling pollution, and should use recalls in case of violations of environmental rules, Resch said.

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It’s lonely at the top.

Volkswagen: The Curse Of The World’s Biggest Carmaker (Forbes)

GM ruled as the No. 1 seller for decades before the problems that led to its 2009 bankruptcy and federal bailout. But those issues caused GM to lose the title in 2008 to Toyota, which spent that decade on a deliberate expansion plan. Once it got to the top, however, Toyota found itself awash in an existential safety crisis that its chief executive, Akio Toyoda, blamed in part on Toyota’s quest to build a global manufacturing empire. Now comes VW, which has been on its own worldwide march over the past five years. It was not aiming to achieve dominance of the car market before 2018, only to find itself taking the top spot this past year, due to its manufacturing growth, especially in China.

Veteran auto industry executives know not to gloat when a car company runs into difficulty. They understand that any carmaker can have “its turn in the barrel,” as the saying goes. The industry has seen what happens when a Japanese company gets in trouble with American regulators, and what transpires when an American company encounters its own scandal. Now, as with Volkswagen’s reign at the top of the industry, the automobile world will see how it handles its emissions case. The one saving grace for VW is that unlike GM or Toyota, the emissions situation did not result in fiery crashes or devastation for the families of accident victims.

It’s primarily a technology issue, on a specific type of vehicle, and in far smaller numbers than affected GM and Toyota. So, it’s possible that recalls can be handled faster, and VW can get the issue behind it more quickly. Nonetheless, it will likely be a huge challengefor Winterkorn,who could face skepticism that he should continue to lead VW, according to at least one analyst. At a time when his company otherwise could have reveled in its industry dominance, VW should expect scrutiny from Congress, legal problems, a potential multibillion-dollar fine and a batch of uncomfortable headlines. GM and Toyota know what that’s like.

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Greece as a country has been set up. As I wrote on July 19: Was Greece Set Up To Fail?

Alexis Tsipras Has Been Set Up To Fail (Yanis Varoufakis)

Alexis Tsipras has snatched resounding victory from the jaws of July’s humiliating surrender to the troika of Greece’s lenders. Defying opposition parties, opinion pollsters and critics within his ranks (including this writer), he held on to government with a reduced, albeit workable, majority. The question is whether he can combine remaining in office with being in power. The greatest losers were smaller parties occupying the extremes of the debate following the referendum. Popular Unity failed stunningly to exploit the grief felt by a majority of “No” voters following Tsipras’s U-turn in favour of a deal that curtailed national sovereignty further and boosted already vicious levels of austerity. Potami, a party positioning itself as the troika’s reformist darling, also failed to rally the smaller “Yes” vote.

With the all-conquering Tsipras now firmly on board with the troika’s programme, new-fangled, pro-troika parties had nothing to offer. The greatest winner is the troika itself. During the past five years, troika-authored bills made it through parliament on ultra-slim majorities, giving their authors sleepless nights. Now, the bills necessary to prop up the third bailout will pass with comfortable majorities, as Syriza is committed to them. Almost every opposition MP (with the exception of the communists of KKE and the Nazis of Golden Dawn) is also on board. Of course, to get to this point Greek democracy has had to be deeply wounded (1.6 million Greeks who voted in the July referendum did not bother to turn up at the polling stations on Sunday) – no great loss to bureaucrats in Brussels, Frankfurt and Washington DC for whom democracy appears, in any case, to be a nuisance.

Tsipras must now implement a fiscal consolidation and reform programme that was designed to fail. Illiquid small businesses, with no access to capital markets, have to now pre-pay next year’s tax on their projected 2016 profits. Households will need to fork out outrageous property taxes on non-performing apartments and shops, which they can’t even sell. VAT rate hikes will boost VAT evasion. Week in week out, the troika will be demanding more recessionary, antisocial policies: pension cuts, lower child benefits, more foreclosures.

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“Greece would return to economic growth if it complied with economic reforms, the European Commission said…” Only in fairy tales can economies grow in which people are forced to reduce spending.

Greece’s New Government ‘Doomed To Fail’ Over Flawed Bail-Out (Telegraph)

Investors cheered the return of Alexis Tsipras as Greece’s new prime minister despite concerns that the new government was doomed to fail in its bid to keep the country in the eurozone. Greece’s 10-year bond yields, a key indicator of default risk, dropped to a yearly low of 8.09pc, as markets bet that political continuity would ease the implementation of the country’s draconian third bail-out programme. Economists, however, warned that the left-wing Syriza party – who lost only four seats in Sunday’s general election – would struggle to jump through the hoops of an €86bn bail-out programme. Athens faces a punishing schedule over the next few months, where it will be required to pass 60 “prior action” laws through parliament by the end of the year. These include hiking taxes on food, hotels and baked goods.

Bail-out monitors will carry out their first review of the government’s progress in October. The reforms are unlikely to be blocked in the majority pro-euro parliament, but Mr Tsipras, who was sworn into office on Monday, still faces a sizeable majority of disgruntled MPs in his own party Failure to make satisfactory progress is set to hinder the prime minister’s battle for much-needed debt relief for the ravaged economy. “Mr Tsipras is unlikely to lie down and accept every new measure forced upon Greece by its creditors and the eurozone’s ‘institutions’,” said Jonathan Loynes, at Capital Economics. “The days of extended negotiations at late-night Brussels summits are not necessarily over,” he added. Despite being plunged into recession, Greece would return to economic growth if it complied with economic reforms, the European Commission said.

GDP is set to contract by more than 2pc this year.] “The underlying growth potential is still there,” said EU vice-president Valdis Dombrovskis. “If the reforms agreed in the new ESM programme are properly implemented, Greece can grow again quite quickly.” But cracks were already beginning to emerge between the new government and Brussels. European parliament president Martin Schulz welcomed Mr Tsipras’s reappointment but questioned the premier’s “bizarre” decision to continue his coalition with the anti-bail-out Independent Greeks (Anel). “I called [Tsipras] a second time to ask him why he was continuing a coalition with this strange, far-right party,” Mr Schulz told French radio on Monday. “He pretty much didn’t answer. He is very clever, especially by telephone. He told me things that seemed convincing, but which ultimately in my eyes are a little bizarre.”

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He’s had 10 months to do that. Why would it work now?

Greece’s Tsipras To Demand EU Action On Refugees (Reuters)

As an icon for many on Europe’s left, Greece’s newly elected prime minister, Alexis Tsipras, can be expected to rattle the cages of the continent’s elite whenever he can. After Sunday’s solid re-election, he may start with the migrant crisis, which he believes is emblematic of the European Union’s failure to stick with its founding principles of unity. “When the Mediterranean turns into a watery grave, and the Aegean Sea is washing dead children up on its shores, the very concept of a united Europe is in crisis, as is European culture,” he told a campaign rally last week. European unity, Tsipras reckons, was also sorely lacking when the EU began imposing harsh austerity on his country when it needed to be bailed out over debt.

But not unlike in the debt crisis, Tsipras must balance his outrage at what he sees as the European Union’s failure to respond to the migrants with a need for its help in meeting the cost to frontline Greece. And as over debt, the criticism goes both ways. Most of the refugees who make their way to Europe arrive via Greece, which transports them from its islands to the mainland, from where they trek north via the Balkans. Croatia said on Monday it would demand Greece stop moving the migrants on. Athens received €33 million in EU aid earlier this month to help cope with the migrants. But Nicos Christodoulakis, caretaker economy minister during the election campaign, said a lack of preparation meant Greece was missing out on up to €400 million in EU aid for the crisis.

Tsipras’ first international meeting after re-election will be a Wednesday discussion in Brussels with his EU counterparts about the hundreds of thousands of refugees and migrants pouring into Europe, many via Greek islands that border Turkey. Officials from his leftist Syriza party say he will ally again with other EU countries bordering the Mediterranean such as Italy and demand that the bloc shares the burden of dealing with hundreds of thousands of refugees. “Member states (must) take and share the responsibility, that’s where the rupture is,” a senior Syriza official said.

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Will this be the straw that breaks the Union’s back?

Eastern European Leaders Defy EU Effort To Set Refugee Quotas (Guardian)

Central and eastern European leaders have defied attempts by Brussels and Berlin to impose refugee quotas ahead of two days of high-stakes summits in Brussels to try to decide on what already looks like a vain attempt to limit the flow of refugees and migrants into Europe. After months of being consistently behind the curve in grappling with the EU’s huge migration crisis, interior ministers will meet on Tuesday to focus on the highly divisive issue of mandatory quotas to share refugees across the union. There will then be an emergency summit of leaders on Wednesday. Jean Asselborn, Luxembourg’s foreign minister, who is chairing Tuesday’s meeting, failed to reach a breakthrough in Prague on Monday with his counterparts from the Czech Republic, Poland, Slovakia, Hungary and Latvia.

The Czech government wrote to Brussels arguing that compulsory quotas were illegal and that it could take the issue to the European court of justice in Luxembourg, while the anti-immigration Hungarian government brought in new laws authorising the army to use non-lethal force against refugees massing on its borders. “There are still a few problems to solve,” said Asselborn. “We still have 20 hours.” “The terrain is still very uncertain,” said a senior source from Luxembourg. “We don’t yet have agreement. It’s going to be very, very difficult.” This week’s fresh attempt to agree on a quota system comes amid the deepest divisions between western and eastern Europe since the former Soviet-bloc countries joined the EU a decade ago.

At issue is the paltry figure of 66,000 refugees being shared across the EU after being moved from Italy and Greece. They have already agreed to share 40,000 and were to redistribute a further 120,000. But 54,000 of those were from Hungary, which passed a law on Monday allowing the army to use non-lethal force on migrants and whose hardline government wants no part of the scheme. Given that up to a million people are expected to enter Germany alone this year and that Frontex, the EU’s border agency, says 500,000 are currently preparing to leave Turkey for the EU, the figures being fought over in Brussels are risible.

But the numbers are not the real issue. The row is about power and sovereignty. In the end it seems that all countries will join in sharing refugees, with the exception of Britain, which has opted out of the scheme. The other two countries with opt-outs – Ireland and Denmark – have agreed to take part, leaving the UK isolated.

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Oh, wait, there’s always backpaddling…

EU Set To Water Down Refugee Relocation Plan (AFP)

EU ministers are considering a watered down plan to relocate 120,000 refugees throughout the bloc, which drops binding quotas and leaves Hungary out of the scheme, sources said Monday. The softer stance emerged on the eve of a new emergency meeting in Brussels of the 28 EU interior ministers, who last week failed to agree on a European Commission plan for compulsory quotas for refugees fleeing war in Syria, Afghanistan and elsewhere. “Whether voluntary or mandatory, that is an artificial debate,” a source from Luxembourg, which holds the rotating EU presidency, told reporters, despite Commission officials insisting that they still want compulsory quotas. Another Luxembourg source said the word “mandatory” will not appear in the draft document that will go before the ministers when they meet Tuesday afternoon to discuss how many refugees each country will take.

Hopes of a unanimous deal last week collapsed in the face of opposition from Hungary, the Czech Republic, Slovakia and Romania, officials said. With populist parties exploiting anti-immigrant sentiment, many eastern countries argued that a Europe-wide relocation plan made little sense for refugees who preferred to settle in wealthier northern European nations. The original plan envisaged quotas for the relocation to other EU states of 54,000 asylum seekers from Hungary, 50,400 from Greece and 15,600 from Italy. But Hungarian Prime Minister Viktor Orban has insisted that by being included in the plan, his country would be erroneously confirmed as a frontline state for refugee arrivals. He insists that many of the migrants are coming from Greece and should have been registered there first and kept there under EU rules.

“It is established that Hungary will not appear in the draft as a beneficiary country,” a Luxembourg source told AFP. “However, it will have to join the solidarity” by hosting refugees from Greece and Italy, the source added. The figure of 120,000 to be relocated will remain in the draft, but it is not immediately clear which countries will now benefit from the relocation of the 54,000 asylum seekers that were originally earmarked in Hungary, sources said. One proposal is for Italy and Greece to benefit, while a second is for other countries along the Western Balkans route, such as Croatia and Slovenia, to be given relief. Despite failing to reach a deal on the larger figure, the EU ministers last week formally approved a plan first aired in May to relocate 40,000 refugees from Greece and Italy.

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Obama’s new headache.

Putin’s Plan: Moscow Handles Syria, US Looks After Iraq (AlArabiya)

At the end of this month, New York will be see several initiatives, talks, understandings, and deals come together under two main themes: terrorism and immigration. Both issues in the minds of world leaders are closely linked to Syria and other crises in the Arab world. U.S. President Barack Obama called for a world summit on terrorism, with ISIS first and foremost in his mind. And Russian President Vladimir Putin tasked his foreign minister Sergei Lavrov to chair a ministerial session of the U.N. Security Council titled “Maintenance of International Peace and Security: Settlement of Conflicts in the Middle East and North Africa and Countering the Terrorist Threat in the Region.” The common denominator between the U.S. and Russian priorities today is reducing the Syrian issue to a terrorism issue.

President Putin has effectively declared to the world that Russia intends to fight a war directly against ISIS and similar groups in Syria, while keeping the Syrian regime as a key ally in this war. Russia wants the United States to be a military partner – including of the Syrian regime – in this bid. Putin wants to meet with Obama on the sidelines of the 70th session of the General Assembly of the United Nations. Obama is now considering whether the meeting will serve one of the key goals behind the Russian leader’s movements in Syria, namely, diverting attention away from Ukraine. The U.S. president is also considering whether he really wants to be drawn into the Syrian crisis, which he has avoided for years. He might therefore bless Russia’s involvement in the Syrian war against ISIS, as long as Putin does not ask the US to officially bless the alliance with the Assad regime.

It is worth quickly examining what Vitaly Churkin, Russia’s shrewd envoy to the U.N., told the U.S. network CBS about the Russian strategy. He said: “I think this is one thing we share now with the United States, with the U.S. government: They don’t want the Assad government to fall. They don’t want it to fall. They want to fight (ISIS) in a way which is not going to harm the Syrian government.” He added: “On the other hand, they don’t want the Syrian government to take advantage of their campaign against [ISIS]. But they don’t want to harm the Syrian government by their action. This is very complex.” It is not clear whether what Churkin is saying is based on assumptions or whether it is a fact that the U.S. government does not acknowledge publicly. If this is just a Russian interpretation of U.S. policy, then it is part of its strategy to sell its pitch because it assumes that Washington will not demur.

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Long lost.

Are Financial Markets Losing Faith In The Fed? (CNBC)

When the U.S. Federal Reserve kept rates on hold on Thursday, the central bank explained it made the decision because of the unstable global outlook. However, some investors have criticized the move, warning that the world could soon lose faith in the Fed. “They (Fed) should not base a rate decision on market volatility, because if you do that, then nobody is going to predict what you’re going to do,” David Kelly, chief global strategist at JPMorgan Funds, told CNBC Monday. “Not only does this now put into doubt when the first rate hike will be, but it means when they begin to raise rates, we don’t know if something could happen in overseas markets and suddenly they stop raising rates.”

In last Thursday’s statement, the central bank pointed to concerns over “global economic and financial developments” as reasons to delay a rate hike, but now investors worry whether this is the right decision and whether this would greatly influence the U.S. economy. St. Louis Fed president, James Bullard, echoed this Monday, telling CNBC it is “inappropriate” for the U.S. central bank to react to financial market turmoil, and focus more on growth and labor markets. Bullard added that to avoid a “1994 scenario”, the Fed should “go early, go gradually”, giving them flexibility to react to future problems that occur. If the U.S. central bank publicizes its concerns over financial markets, markets will in turn become more uncertain over when the Fed will hike, Kelly added.

“Markets hate uncertainty and what the Federal Reserve managed to do is add a huge serving of uncertainty to markets,” Kelly argues, adding that before the Fed had a clear criteria as to what should trigger a first hike and how to maintain, but now talk about China, volatility and commodities adds a whole host of uncertainty for markets. By keeping rates so low, the Federal Reserve is actually helping subdue the U.S. economy, Kelly adds, saying that instead of speeding up economic growth, the central bank is afraid over fears that the economy could be too weak. “If they are going to get derailed by any move in market volatility, then it just makes it more and more cloudy. That is not good for financial markets.”

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“The Federal Reserve itself is the victim du jour of its own grandiose fatuous fecklessness, in particular the idea that it could play a national economy like a three-button flugelhorn.”

Fed Cred Dead (Jim Kunstler)

Last week was the watershed for central banking and for the illusion that the current disposition of things has a future. The Federal Reserve blinked on its long-touted Fed funds interest rate hike and chairperson Janet Yellen was left standing naked in the hot glare of her own carbonizing credibility, a pitiful larval creature, still maundering about “the data,” and “the median growth projection,” and other previously-owned figments spun out of the great PhD wonk machine in the Eccles Building. The Federal Reserve itself is the victim du jour of its own grandiose fatuous fecklessness, in particular the idea that it could play a national economy like a three-button flugelhorn.

What seemed like a good idea at the time when Alan Greenspan and then Ben Bernanke stepped into the pilot house now just looks like the fraud of frauds: enabling corporations to borrow ever more money from the future to pretend that their balance sheets are sound. That scam has nowhere left to go, except into the black hole that has been waiting for it. All the Fed really has left is to destroy the value of the dollar (to save it! Just like Vietnam!). This ought to be an interesting week in the financial markets as the players have had a long, anxious weekend to absorb the death of Fed cred. And October, too. Expect dramatic re-pricing. Sometime a few months down the line, financial markets will present a “relief rally.” Don’t get suckered on that one.

Meanwhile, what remains on the other head of this two-headed economy besides driving to-and-from the Walmart? Pornography? The tattoo industry? Meth and narcotics? Prostitution? Professional sports on the flat screen? Kim and Kanye? Grand theft auto? Do you really think Donald Trump can fix this?

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This may be quite the event this weekend. More Merkel headaches.

Catalans Threaten Not To Pay Public Debt If Spain Refuses Secession Deal (SP)

The First Minister of Catalonia, Artur Mas, decried the comments made by the Governor of the Bank of Spain, Luis María Linde, earlier in the day as “immoral, irresponsible and indecent” and warned an independent Catalonia might not pay its share of the public debt if Spain refused to do a deal. Mr. Mas, echoing what other Junts Pel Sí candidates had said over the weekend, said the central government was promoting a pre-electoral climate of fear to pressure Catalans before the vote on Sunday: “It won’t work, we won’t swallow it”. “The stakes are high for Spain”, he said, according to a report in El País: “Imagine there is no agreement on Spanish public debt. How would the state face its debt if there is no agreement for Catalonia to assume its part?”

On Monday morning, the governor of the Bank of Spain, Luis María Linde, had said during a breakfast meeting in Madrid that capital controls in a newly independent Catalonia were a possibility, although he said his remarks were made in reference to a “highly unlikely future scenario”, according to a report in Europa Press. He also confirmed what others had said before him—including Angela Merkel, David Cameron and European Commission chief spokesman Margaritis Schinas—about a newly independent Catalonia immediately being left out of the European Union. “There are people who have power and don’t want to lose out”, said Mr. Mas in reference to Mr. Linde: “Today we have another example, the governor of the Bank of Spain. People at the service of the state who don’t want to lose power”.

“It is irresponsible and indecent”, said the First Minister: “to threaten things that no democratic country would dare to insinuate”. On Friday evening, after the close of business, Spain’s leading banks issued a statement via the Spanish Banking Association (AEB) warning of the risks of secession to financial security and the banks’ own continued presence in Catalonia should an attempt at secession be made. The governor of the Bank of Spain said on Monday that the banks’ statement “said very obvious things” and that the secession of Catalonia would create “insecurity, uncertainty and tension”.

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” If interest rates return to a historical average of 6%, [London] is finished. It will just go boom.”

Joris Luyendijk: ‘Bankers Are The Best Paid Victims’ (Standard)

When Joris Luyendijk was interviewing bankers, many clearly felt his deepest desire was to be them. “It’s cult-like,” he says of the City. “The macho, master of the universe type has bought into this idea so deeply: ‘I may be working 80 hours a week, I don’t see my family, and my body looks 10 years older than it is, but I am living the life. Everybody wants to be me.’” And as in a cult, insiders were afraid to speak out, fearing expulsion. Whenever he was talking to a financier in a coffee shop and a colleague walked in, they would morph into a “shivering wreck”: “How much of a master of the universe are you if you’re afraid to give your views to a fellow citizen?” Yet many still spoke to him. “I wondered why they would risk their jobs. Some said: ‘I am terrified about what my bank can do to society, and how it is being run’.”

Luyendijk, a 43-year-old investigative journalist, used to cover the Middle East — “interviewing real terrorists not financial terrorists”. But then he started talking to banking employees about the 2008 financial meltdown. The conversations became a Guardian blog and now a book, Swimming With Sharks. It has been so successful in his native Netherlands that he jokingly calls it “Fifty Shades of Joris”. He wants the book to help others see past the obfuscation of the City: “It’s a fundamental misunderstanding that we’re too stupid to understand the problems of finance. A seven-year-old understands perverse incentives. Tell them: ‘Half the class doesn’t do their homework, half does and they all get the same grade; what will happen?’ That’s the bank.”

His view of the future is frightening. “We’ll continue to have ever bigger crashes, until we can no longer save the system. And then we will do what we could do now: rebuild it.” He feels little has changed in banking in the seven years since the crash. “The old mindset is intact: ‘If it’s legal, we’ll do it, and our well-paid lobbyists will ensure it’s legal’. You have these financial empires: too vast, too complex, too toxic to manage. Something happens and they blow up like nuclear reactors.” He has two major predictions. The first is that the next crisis could be caused by terrorists hijacking banking IT systems. “They’re so vulnerable. Because banks were merging and acquiring like crazy, they glued systems together. Imagine if a bank says we can no longer access our data and companies can no longer get their money.”

The second is that the London housing bubble will burst. “It’s a when and not an if. If interest rates return to a historical average of 6%, this city is finished. It will just go boom. Everybody knows this, just as all the [analysts] knew the subprime market in America would explode. It’s just really attractive for George Osborne to reinflate the bubble, so all the home-owning voters are happy.” On the 2008 crisis, Luyendijk argues it wasn’t a failure of capitalism: it showed finance wasn’t really capitalist at all. “I go to the heart of capitalism and I find…” he pauses for effect. “Socialism. Because in most niches, four or five banks control the market, divide it up among themselves and they can’t go bust. Rather than going on about greed, we should make sure there are free market forces in finance again.”

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Another notch in our belts.

Sumatran Rhinos Likely To Become Extinct (Guardian)

Earth’s last remaining Sumatran rhinos are edging perilously close to extinction, according to one of the world’s top conservation bodies. There are fewer than 100 of the animals left in the rainforests of the Indonesian island of Sumatra and the Kalimantan province of Borneo. The last Sumatran rhino (Dicerorhinus sumatrensis) in Malaysia was spotted two years ago in the Sabah region of Borneo but experts last month declared the species extinct in that country. That has prompted the International Union for the Conservation of Nature to sound the alarm over the species’ fate, which it said is headed for extinction if urgent action is not taken.

“It takes the rhino down to a single country,” said Simon Stuart, chair of the IUCN’s species survival commission. “With the ongoing poaching crisis, escalating population decline and destruction of suitable habitat, extinction of the Sumatran rhino in the near future is becoming increasingly likely.” The rhino is the smallest of the three Asian rhino species – there are also just 57 Javan rhinos (Rhinoceros sondaicus) and more than 3,000 Indian rhinos (Rhinoceros unicornis). The population of the Sumatran species is believed to have halved in the last decade. The last official assessment in 2008 put their number at about 250 but Stuart said, with hindsight, the true number then had probably been about 200.

Poachers kill the rhinos for their horn, which is even more valuable than that of African rhinos. “For hundreds of years, we’ve been unable to stem the decline of this species. That’s due to poaching. It’s due to the fact they get to such a low density the animals don’t find each other and they don’t breed. It’s due to the fact that if the females don’t breed regularly, they develop these tumours in their reproductive tract that render them infertile,” he said. A large number of females in the wild were likely infertile because they do not breed often enough, he said. The only Sumatran rhino in the western hemisphere, a male called Harapan, is due to be flown from Cincinnati Zoo in the US to a rhino sanctuary in Sumatra this autumn to help the species breed. There are only nine of the animals in captivity worldwide.

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Sep 062015
 
 September 6, 2015  Posted by at 9:05 am Finance Tagged with: , , , , , , , , ,  9 Responses »
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NPC Grief monument, Rock Creek cemetery, Washington, DC 1915

Central Banks Can Do Nothing More To Insulate Us From An Asian Winter (Guardian)
Europe’s Biggest Bank: Is The Fed Preparing For A ‘Controlled Demolition’? (ZH)
China FinMin: Growth Of About 7% Is The New Normal
Don’t Forget China’s “Other” Spinning Plate: Trillions In Hidden Bad Debt (ZH)
China Stock-Market Correction Almost Done, Says PBOC Governor (Bloomberg)
Barclays Warns On Massive Cost Of China’s FX Intervention (Zero Hedge)
Hundreds Of 3-Year-Old Toddlers Have Died As A Result Of The Syrian War (WaPo)
Hungary PM Orban: Tens Of Millions Of Refugees Coming To Europe (Reuters)
The Huge Wave Of Syrian Refugees To Europe Has Only Just Begun (Haaretz)
First Trainloads Of Syrian Refugees Reach Germany (WaPo)
Elation As Migrants Received With Open Arms In Austria And Germany (Reuters)
We Are People – The Façade Of European Values (MSF-Doctors Without Borders)
Refugees Who Could Be Us (Nicholas Kristof)
Germany At Fault In Europe’s Tragic Refugee Crisis (MarketWatch)
Migration Crisis Tears At EU’s Cohesion And Tarnishes Its Image (Reuters)
East And West Europe Split As Leaders Resent Germany For Waiving Rules (Guardian)
Greece Still Needs To Build Trust: Eurogroup Head Dijsselbloem (CNBC)
Varoufakis Might Come Back To Greek Politics To Give ‘Bitter Medicine’ (BBG)
Spain Set For Secessionist Clash As Catalonia’s Election Looms (Guardian)

So much for that game indeed. But they’re not done yet.

Central Banks Can Do Nothing More To Insulate Us From An Asian Winter (Guardian)

The ECB proudly announced on Friday that it is erecting a 17-metre-high bronze and granite tree outside its Frankfurt headquarters – an artwork intended to “convey a sense of stability and growth” – and, with its gilded leaves and massive trunk, presumably also wealth and power. But when Mario Draghi, the ECB’s president, appeared before the world’s media on Thursday at his regular press conference, it was the limit to central bankers’ power that was on display. Draghi was forced to admit that the outlook for eurozone growth and inflation had darkened considerably as a result of the slowdown in emerging economies and the market turmoil in China – the latter an issue he said he would take up with officials at the People’s Bank of China at this weekend’s G20 meeting in Ankara.

Meanwhile, Federal Reserve policymakers will have to decide in the coming days whether to stick to their carefully signalled plan to push up America’s interest rates at their next policy meeting on 17 September, in the face of growing fears about a Chinese slowdown. Certainly, the IMF made it clear last week that it believed policymakers should be cautious about pushing up rates in the current fragile environment. Central bankers slashed rates to their current emergency levels in the depths of the crisis. They also unleashed quantitative easing on a massive scale, as a short-term measure meant to prevent an outright economic slump and buy time for other engines of growth – trade, investment, consumer demand – to be restarted.

Yet even with rock-bottom borrowing costs, the recovery in many countries has been tepid, leaving central bankers little choice but to keep the cash taps on. The ECB and the Japanese central bank are still quantitatively easing; and the Bank of England and the Fed are yet to raise rates, seven years on from the collapse of Lehman Brothers. Whatever the diagnosis for the less-than-impressive post-crisis recovery – the debt overhang from the boom years, chronic underinvestment, weak consumer demand as a result of deep-seated inequality, or some other as yet undiagnosed economic disease – the cure is unlikely to lie with the central banks.

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“..equity price appreciation could decelerate easily to 20 or even 40% based on near zero central bank liquidity..”

Europe’s Biggest Bank: Is The Fed Preparing For A ‘Controlled Demolition’? (ZH)

Before we continue, we present a brief detour from Deutsche Bank’s Dominic Konstam on precisely how it is that in the current fiat system, global central bank liquidity is fungible and until a few months ago, had led to record equity asset prices in most places around the globe. To wit: [..]

Liquidity in the broadest sense tends to support growth momentum, particularly when it is in excess of current nominal growth. Positive changes in liquidity should therefore be equity bullish and bond price negative. Central bank liquidity is a large part of broad liquidity and, subject to bank multipliers, the same holds true. Both Fed tightening and China’s FX adjustment imply a tightening of liquidity conditions that, all else equal, implies a loss in output momentum.

But while the impact on global economic growth is tangible, there is also a substantial delay before its full impact is observed. When it comes to asset prices, however, the market is far faster at discounting the disappearance of the “invisible hand”:

Ultimately in a fiat money system asset prices reflect “outside” i.e. central bank money and the extent to which it multiplied through the banking system. The loss of reserves represents not just a direct loss of outside money but also a reduction in the multiplier. There should be no expectation that the multiplier is quickly restored through offsetting central bank operations.

Here Deutsche Bank suggests you panic, because according to its estimates, while the US equity market may have corrected, it has a long ways to go just to catch up to the dramatic slowdown in global plus Fed reserves (that does not even take in account the reality that soon both the BOJ and the ECB will be forced by the market to taper and slow down their own liquidity injections):

Let’s start with risk assets, proxied by global equity prices. It would appear at first glance that the correlation is negative in that when central bank liquidity is expanding, equities are falling and vice versa. Of course this likely suggests a policy response in that central banks are typically “late” so that they react once equities are falling and then equities tend to recover. If we shift liquidity forward 6 quarters we can see that the market “leads” anticipated” additional liquidity by something similar. This is very worrying now in that it suggests that equity price appreciation could decelerate easily to 20 or even 40% based on near zero central bank liquidity, assuming similar multipliers to the post crisis period.

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The G-20 hires comedy acts these days.

China FinMin: Growth Of About 7% Is The New Normal

China’s financial markets are expected to remain stable and the renminbi is not on course for a long-term devaluation, while fiscal spending will grow faster than expected this year, the country’s top financial officials told the G20. Finance Minister Lou Jiwei said that central government spending will rise 10% this year, more than the 7% growth budgeted at the start of the year, according to a statement late Saturday on the People’s Bank of China website. China will raise dividend payments from designated state-owned enterprises to make up for any shortfalls. China is headed for its slowest economic expansion in 25 years in 2015 and mainland markets have slumped 40% since mid-June, sending global financial markets skittering.

Ailing Chinese shares dragged down Hong Kong stocks to their lowest close in two years on Wednesday. China’s financial markets were closed on Thursday and Friday to commemorate the 70th anniversary of the end of World War Two. China’s overall GDP growth will remain around 7%, as predicted earlier in the year, and the new economic normal may last for four to five years, Lou said. The government will not particularly care about quarterly economic fluctuations and maintain steady macro-economic policy, he added.

China can no longer rely on policy supports to achieve 9-10% growth, as it may already take several years to digest excess industrial capacity and inventories, he said. It will go through “labour pains” in the next five years as it aims to complete main structural reforms by 2020, Lou added. The quality of growth, however, is already improving with 7 million jobs created in the first half of the year, consumption overtaking investment in contributing to economic growth and the balance of payments becoming more even, he said.

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The shadow banks need far more scrutiny.

Don’t Forget China’s “Other” Spinning Plate: Trillions In Hidden Bad Debt (ZH)

To be sure, there’s every reason to devote nearly incessant media coverage to China’s bursting stock market bubble and currency devaluation. The collapse of the margin fueled equity mania is truly a sight to behold and it’s made all the more entertaining (and tragic) by the fact that it represents the inevitable consequence of allowing millions of poorly educated Chinese to deploy massive amounts of leverage on the way to driving a world-beating rally that, at its height, saw day traders doing things like bidding a recently-public umbrella manufacturer up 2,700%.

Meanwhile, the world has recoiled in horror at China’s crackdown on the media and anyone accused of “maliciously” attempting to exacerbate the sell-off by engaging in what Beijing claims are all manner of “subversive” activities such as using the “wrong” words to describe the debacle and, well, selling stocks. Finally, China’s plunge protection has been widely criticized for, as we put it, “straying outside the bounds of manipulated market decorum.” And then there’s the yuan devaluation that, as recent commentary out of the G20 makes abundantly clear, is another example of a situation where China will inexplicably be held to a higher standard than everyone else. That is, when China moves to support its export-driven economy it’s “competitive devaluation”, but when the ECB prints €1.1 trillion, it’s “stimulus.”

Given the global implications of what’s going on in China’s stock market and the fact that the devaluation is set to accelerate the great EM FX reserve unwind while simultaneously driving a stake through the heart of beleaguered emerging economies from LatAm to AsiaPac on the way to triggering a repeat of the Asian Financial Crisis complete with the implementation of pro-cyclical policy maneuvers from a raft of hamstrung central banks, it’s wholly understandable that everyone should focus on equities and FX. That said, understanding the scope of the risk posed by China’s many spinning plates means not forgetting about the other problems Beijing faces, not the least of which is a massive collection of debt that, thanks to the complexity of local government financing and the (related) fact that as much as 40% of credit risk is carried off balance sheet via an eye-watering array of maturity mismatched wealth management products, is nearly impossible to quantify or even to get a grip on.

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Just 50% or so to go?

China Stock-Market Correction Almost Done, Says PBOC Governor (Bloomberg)

China’s stock-market rout that erased $5 trillion in value is close to ending, according to the nation’s central bank governor. With the yuan’s exchange rate versus the dollar close to stabilizing and a stock-market correction almost done, China’s financial markets are expected to be more stable, governor Zhou Xiaochuan said. His comments were made in a statement on the bank’s website Saturday after a meeting by finance ministers and central bankers from the Group of 20 nations in Ankara. The Shanghai Composite Index has tumbled 39% since June 12, when the gauge reached its highest level in more than seven years as mainland investors borrowed record amounts of funds to buy equities. China’s shock devaluation of the yuan in August rattled world markets and sparked exchange-rate declines in emerging economies.

Volatility in China’s stock markets is nearing its end, Zhu Jun, director-general in the People’s Bank of China’s international department, said in an interview on Saturday in Ankara, after G20 finance chiefs flagged concerns about potential global spillovers. The Chinese government’s intervention has prevented a free-fall in the market and systemic risk, Zhou said in the statement. The leverage ratio has clearly dropped and the impact on the real economy is limited, Zhou said. Zhou reiterated that China’s economic fundamentals are substantially unchanged, and that there is no basis for long-term yuan depreciation. The country’s determination to deepen market reforms has not changed, he said.

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“..when China liquidates its reserves, it sucks liquidity out of the system. That works at cross purposes with the four RRR cuts the PBoC has implemented so far this year.”

Barclays Warns On Massive Cost Of China’s FX Intervention (Zero Hedge)

One of the most important things to understand about China’s doomed attempt to simultaneously manage the stock market, the economy, a deleveraging in some sectors, a re-leveraging in others, and the yuan is that it’s bound to produce all manner of conflicting directives and policies that trip over each other at nearly every turn. One rather poignant example of this is the attempt to rein in shadow lending without choking off credit growth. Another – and the one that will invariably receive the most attention going forward – is the push and pull on money markets by the PBoC’s FX intervention and offsetting liquidity injections. Recall that Beijing’s open FX ops in support of the yuan necessitate the drawdown of the country’s vast store of USD reserves. In other words, they’re selling USTs.

The effect this historic liquidation of US paper will have on global liquidity, core yields, and Fed policy has become the subject of fierce debate lately although, as we’ve been at pains to make clear, this is really just a continuation of the USD asset dumping that was foretold nearly a year ago when Saudi Arabia killed the petrodollar. In any event, when China liquidates its reserves, it sucks liquidity out of the system. That works at cross purposes with the four RRR cuts the PBoC has implemented so far this year. In short, Beijing, in a desperate attempt to boost lending and invigorate the decelerating economy, has resorted to multiple policy rate cuts, but to whatever degree those cuts freed up banks to lend, the near daily FX interventions undertaken after the August 11 deval effectively offset the unlocked liquidity.

What this means is that each successive round of FX intervention must be accompanied by an offsetting RRR cut lest managing the yuan should end up completely negating the PBoC’s attempts to use policy rates to boost the economy – or worse, producing a net tightening. What should be obvious here is that this is a race to the bottom on two fronts. That is, the more you intervene in the FX market the more depleted your reserves and the more you must cut RRR until eventually, both your USD assets and your capacity to deploy policy rate cuts are exhausted.

There are only two ways to head off this eventuality i) move to a true free float, or ii) implement a variety of short- and medium-term lending ops to offset the tightening effect of FX interventions in the hope of forestalling further RRR cuts. Clearly, this is a spinning plate if there ever was one, as attempting to figure out exactly what the right mix of RRR cuts and band-aid reverse repos is to offset FX interventions is well nigh impossible. It’s against this backdrop that Barclays is out with what looks like one of the more cogent attempts yet to outline and illustrate the above and explain why it simply isn’t sustainable.

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Make that thousands.

Hundreds Of 3-Year-Old Toddlers Have Died As A Result Of The Syrian War (WaPo)

A photograph of Aylan Kurdi, a 3-year-old Syrian child, lying face down and lifeless in the sand on a Turkish beach, has sparked anger and anguish worldwide. It’s raised a difficult question: Why did Aylan’s family leave Syria and decide to take the journey that led to his death? The answer to that question is equally uncomfortable: By staying in Syria, Kurdi would have risked becoming one of the hundreds of other 3-year-olds killed by the civil war there. These children’s deaths are little acknowledged by the international community, but a variety of activist groups have recorded their deaths in the hope that they won’t be totally in vain.

One group which tracks the deaths in the war, the Syrian Revolution Martyr Database, has detailed records for the deaths of at least 232 children aged 3. The real number may be far higher: The organization, which is run by opponents to the Syrian regime, notes that in many cases the age of the child is not known and thus cannot be recorded. In other cases, the death itself is never even recorded. A closer look at the database’s details reveals more horror. Of the 232 known deaths, almost half were killed by artillery fire. Most of the rest were killed either by aerial bombing or gunfire, with a smaller amount reported to have died from a variety of other causes – including, in one case, a slit throat.

Children of other ages suffered as well. In total, the Syrian Revolution Martyr Database found evidence of almost 2,000 children under the age of 10 who had been killed since the fighting began. Estimates from other groups may skew far higher – the Syrian Observatory for Human Rights, a group based in Britain, has said that at least 11,493 children have died since the war began. These estimates do not include children like Kurdi who died after fleeing the chaos.

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“..the supply of immigrants is endless.”

Hungary PM Orban: Tens Of Millions Of Refugees Coming To Europe (Reuters)

Hungary could deploy its military along its southern border to stem the influx of refugees, Viktor Orban, the country’s prime minister, has said. Mr Orban said that police would be deployed after the 15 September and that military units could follow if parliament approves the proposal. “We’ll bring the border under control step by step,” he said. “We’ll send in the police, then, if we get approval from parliament, we’ll deploy the military.” He said the proposed move was because there was a potentially “endless” number of migrants and refugees heading for Europe. He was quoted by Reuters as saying: “It’s not 150,000 [migrants and refugees] that some want to divide according to quotas, it’s not 500,000, a figure that I heard in Brussels, it’s millions, then tens of millions, because the supply of immigrants is endless.”

Hungary has faced days of tension with thousands of refugees attempting to cross the country to reach other parts of Europe. The authorities eventually opted to bus the refugees to the Western border with Austria, after Austria and Germany said that they would accept them. Amid the refugee crisis, the Hungarian prime minister has previously indicated he plans to send military to his country’s border with Serbia, where a 100-mile long fence is already under construction. He has also several times antagonised his European colleagues over the crisis, claiming that it should be seen as a “German problem” since the majority of migrants want to settle in Germany, due at least in part to Germany’s willingness to accept them.

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“Turkey has taken in two million Syrian refugees over the past four years..”

The Huge Wave Of Syrian Refugees To Europe Has Only Just Begun (Haaretz)

“I am not willing to register for anyone until I get to Germany” says Alaa, who refused to give his last name. Until last week, he had been working as a chef in a Damascus hotel until he decided to leave because “I’m simply too afraid to walk down the street for fear Assad’s men will arrest me and make me disappear.” Alaa traveled with his wife Maryam and their 8-month-old son Tayim, to Lebanon and from there to Turkey. Like almost all the Syrian migrants reaching Europe, he paid Turkish smugglers $3,000 for himself and his wife – he did not have to pay for Tayim. The boat capsized and the family floated for five hours, until they were rescued by the Greek Coast Guard, Alaa said. The family lost almost everything except the clothes on their back when the boat overturned.

Tayim has only his shorts, a shirt and one pair of socks to face the cold Hungarian autumn. Tayim and his parents are now sitting by the roadside, a few hundred meters from the Hungarian-Serbian border, on the Hungarian side. Alaa is trying to hide from the Hungarian police patrols who are trying to pick up the thousands of refugees who every day try to walk across the old Belgrade-Budapest train tracks. The thousand Euros he managed to save from the sea he gave to a man who said he would drive them to Budapest. “He took us to the end of the road, threw us out and disappeared with the money,” Alaa said. Refugees are easy prey. The fact that tens of thousands of them can find a smuggler so easily in the streets of Turkish cities to take them to Greece shows that the authorities are turning a blind eye to the operations.

One refugee said: “If I, who have never been to Turkey, can find a smuggler so quickly in the street in Izmir, I imagine that they are bribing the police to continue their operations.” Turkey has taken in two million Syrian refugees over the past four years. Smugglers have already been responsible for thousands of deaths. Meanwhile, the Hungarian government seems unable to formulate a policy regarding the refugees.  At one point, police look the other way, in another, they are welcoming and give out food collected by volunteers. But in many cases, they beat the refugees with their batons and use pepper spray to force them into registration camps. When the refugees who agree to go to the camps arrive there, they find installations too small to accommodate them and the police give no information as to what to expect.
read more: http://www.haaretz.com/news/world/.premium-1.674670

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The WaPo doesn’t understand what happened at all. It’s not a defeat for Orban, but a victory. He got Merkel to give in.

First Trainloads Of Syrian Refugees Reach Germany (WaPo)

A column of thousands of people fleeing war and poverty made it to Western Europe on Saturday, after forcing Hungary’s anti-immigrant leaders to yield in a days-long campaign to turn them back. But with a fresh rush of migrants at Europe’s borders, the broader refugee crisis only looked to be worsening. The Hungarian reversal was a defeat for the country’s nationalist prime minister, Viktor Orban, who had declared himself a defender of Europe’s Christian heritage against the mostly Muslim families seeking entrance. He has vowed to seal the country’s southern border by Sept. 15. But with passage to Europe soon to grow more difficult, the number of newcomers has only expanded in the continent’s worst refugee crisis since the Balkan wars of the 1990s.

New asylum-seekers were arriving in Hungary as quickly as they were draining out Saturday, highlighting the absence of a unified European plan for their accommodation. Germany and Sweden have thrown open their doors to people fleeing Syria’s war. Other nations have barred themselves shut. The turnabout began in the early hours of Saturday, when Hungary’s leaders dispatched blue city buses to pick up migrants who had paralyzed traffic when they set off on the hundred-mile trek to Austria after spending days in squalid conditions in Budapest. By midday, the asylum-seekers were limping across the border into the arms of Austrian volunteers.

As the day ended, thousands were pulling up on trains in Germany, where they were receiving sustenance, shelter and welcome in a nation that has declared no limit to the numbers it will aid. As many as 7,000 were expected Saturday. “I had a smile to both my ears. I was finished with Hungary,” said Omar Mansour, a 24-year-old Syrian physical education teacher, who sat Saturday on a large stone in the border-station parking lot in the pastoral Austrian town of Nickelsdorf, warming himself against the September chill with a green sleeping bag before he continued on to Germany. He said he had spent the past week at Budapest’s main train station, where a makeshift refugee camp accumulated after authorities blocked migrants’ paths to Western Europe on Tuesday.

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Back to ‘migrants’. No more refugees, Reuters?

Elation As Migrants Received With Open Arms In Austria And Germany (Reuters)

Austria and Germany threw open their borders to thousands of exhausted migrants on Saturday, bussed to the Hungarian border by a rightwing government that had tried to stop them but was overwhelmed by the sheer numbers reaching Europe’s frontiers. Left to walk the last yards into Austria, rain-soaked migrants, many of them refugees from Syria’s civil war, were whisked by train and shuttle bus to Vienna, where authorities promptly arranged for thousands to head straight on to Germany. German police said the first 1,000 of up to 10,000 migrants expected on Saturday had arrived on special trains in Munich. Austrian police said more than 6,000 people had entered the country by Saturday afternoon.

Munich police said Arabic-speaking interpreters helped refugees with procedures at emergency registration centres. The seemingly efficient Austrian and German reception contrasted with the disorder prevalent in Hungary. “It was just such a horrible situation in Hungary,” said Omar, arriving in Vienna with his family. In Budapest, almost emptied of migrants the night before, the main railway station was again filling up with new arrivals, but trains to western Europe remained cancelled. So hundreds set off by foot, saying they would walk to the Austrian border, 110 miles away, like others had tried on Friday. After days of confrontation and chaos, Hungary’s government deployed over 100 buses overnight to take thousands of migrants to the Austrian frontier.

Austria said it had agreed with Germany to allow the migrants access, waiving asylum rules that require them to register in the first EU state they reach. Wrapped in blankets and sleeping bags against the rain, long lines of weary migrants, many carrying small, sleeping children, got off buses on the Hungarian side of the boundary and walked into Austria, receiving fruit and water from aid workers. Waiting Austrians held signs that read “Refugees welcome”. “We’re happy. We’ll go to Germany,” said a Syrian man who gave his name as Mohammed, naming Europe’s famously biggest and most affluent economy that is the favoured destination of many refugees. Another, who declined to be named, said: “Hungary should be fired from the European Union. Such bad treatment.”

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“The majority of MSF’s 36,000 employees are not European. We are not Europe, we are people and many of us have no illusions about European double standards..”

We Are People – The Façade Of European Values (MSF-Doctors Without Borders)

In a recent opinion piece, the Director of MSF UK states that “we are Europe – we should do better”. The logic of the argument is that because Europe promotes human rights abroad, it should uphold the values of human rights at home in its response to the refugees risking their lives in crossing the Mediterranean into Europe. But what is implied in this logic is that Europe should do better because Europe is better. This is not the case. Almost all states preach and promote the respect of human rights, and very few respect and act according to such rights at home or abroad. For example, Saudi Arabia is currently the chair of the Human Rights Commission and yet can hardly be considered to practice the values it is tasked to uphold both abroad and in its approach to its own population.

“Europe [is] – a continent that respects and protects human life and dignity”, asserts this opinion piece – the problem with this assertion is that it ignores the fact that Europe has rarely upheld its virtuous rhetoric in its foreign policy practice. The inadequate response to the Syrian refugee crisis, the war in Iraq and the failure to condemn the Israeli occupation of Palestine, all issues set within a history of European colonisation of the Middle East, are just a few examples that illustrate Europe’s complicity in the crises that animate the region today. Here are some important questions and real reasons why Europe “should do better” in its response to the current refugee crisis:

What role has Europe played in contributing to the conditions from which people flee? Whether through the history of colonialism and the arbitrary drawing of borders, the propping up for decades of dictators, or in the case of Libya and Iraq, direct involvement in a military offensive. Historical amnesia is used to turn the act of welcoming refugees and migrants from a responsibility to an act of charity that has its limits. Contrary to international conventions and legislation signed by European governments, the European Union decided to have an active policy of restricting and denying refugees safe and legal routes to Europe, and this is why people are drowning at sea.

[..] The majority of MSF’s 36,000 employees are not European. We are not Europe, we are people and many of us have no illusions about European double standards – especially for those of us whose families, friends, and communities have been affected by these double standards. Europe should do more because it has a responsibility that comes with power that has been built on the backs of the mothers and fathers of those now seeking refuge on European shores and it has duties that come with international laws and conventions. Most of all Europe should do more for the same reason everyone else should do more: not because ‘we’ are Europe, but because ‘we’ are people.

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Even Kristof is right sometimes.

Refugees Who Could Be Us (Nicholas Kristof)

Watching the horrific images of Syrian refugees struggling toward safety or in the case of Aylan Kurdi, 3, drowning on that journey I think of other refugees. Albert Einstein. Madeleine Albright. The Dalai Lama. And my dad. In the aftermath of World War II, my father swam the Danube River to flee Romania and become part of a tide of refugees that nobody much cared about. Fortunately, a family in Portland, Ore., sponsored his way to the United States, making this column possible. If you don’t see yourself or your family members in those images of today s refugees, you need an empathy transplant. Aylan’s death reflected a systematic failure of world leadership, from Arab capitals to European ones, from Moscow to Washington. This failure occurred at three levels:

• The Syrian civil war has dragged on for four years now, taking almost 200,000 lives, without serious efforts to stop the bombings. Creating a safe zone would at least allow Syrians to remain in the country.

• As millions of Syrian refugees swamped surrounding countries, the world shrugged. United Nations aid requests for Syrian refugees are only 41% funded, and the World Food Program was recently forced to slash its food allocation for refugees in Lebanon to just $13.50 per person a month. Half of Syrian refugee children are unable to go to school. So of course loving parents strike out for Europe.

• Driven by xenophobia and demagogy, some Europeans have done their best to stigmatize refugees and hamper their journeys.

Bob Kitchen of the International Rescue Committee told me he saw refugee families arriving on the beaches of Greece, hugging one another and celebrating, thinking that finally they had made it unaware of what they still faced in southern Europe. This crisis is on the group of world leaders who have prioritized other things, rather than Syria, Kitchen said. This is the result of that inaction. Antonio Guterres, the head of the U.N. refugee agency, said the crisis was in part a failure of leadership worldwide. This is not a massive invasion, he said, noting that about 4,000 people are arriving daily in a continent with more than half a billion inhabitants. This is manageable, if there is political commitment and will.

We all know that the world failed refugees in the run-up to World War II. The U.S. refused to allow Jewish refugees to disembark from a ship, the St. Louis, that had reached Miami. The ship returned to Europe, and some passengers died in the Holocaust. Aylan, who had relatives in Canada who wanted to give him a home, found no port. He died on our watch. Guterres believes that images of children like Aylan are changing attitudes. Compassion is winning over fear, he said. I hope he’s right. Bravo in particular to Icelanders, who on Facebook have been volunteering to pay for the flights of Syrian refugees and then put them up in their homes. Thousands of Icelanders have backed this effort, under the slogan Just because it isn t happening here doesn t mean it isn t happening.

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Germany wants to lead. And then doesn’t. Yeah, after 20,000 deaths, and photos in the media. Sure.

Germany At Fault In Europe’s Tragic Refugee Crisis (MarketWatch)

German Chancellor Angela Merkel is belatedly taking a leadership role in pushing the European Union to solve its refugee crisis, but the EU’s difficulty in acting together is largely a result of policies championed by Germany. It is Germany that has blocked every effort to name an EU leader of any stature to a top post for the union, because it prefers for national leaders to call the shots. So Poland’s Donald Tusk, who has little international experience but was Merkel’s choice, is president of the European Council, while Jean-Claude Juncker from tiny Luxembourg, also Merkel’s choice, is the hapless president of the European Commission.

It is Germany, and Merkel specifically, that has systematically turned France into an unequal partner, paying French Presidents Nicolas Sarkozy and François Hollande little heed except when they were needed as a fig leaf to make Merkel’s chosen policies more palatable. And of course it was Germany that inflexibly led EU negotiators to impose a new load of unsustainable debt and more economic austerity on Greece in July’s bailout accord. Germany is indeed opening its doors to a much larger share of the refugees from the Middle East and Africa than other EU countries and is offering more generous settlement conditions. It is the only EU country that has provided financial aid to Greece to help it bear the brunt of the flow of refugees.

There is no doubt that the vast majority of Germans are genuinely motivated by altruism to aid these displaced persons. But German political leaders can hardly complain of the lack of solidarity and compassion in the EU after railroading through the exceedingly harsh treatment of Greece. They can scarcely make an appeal to EU humanitarian values after ruthlessly fomenting a humanitarian crisis in a member state. While some commentators see the German response to the refugee crisis making up in part for its brutal treatment of Greece, it is rather the case that Berlin’s loss of moral authority from that crisis prevents it from forging any sort of unity on refugees. And Europe, with its postwar history of stinginess and not-in-my-backyard myopia, would require strong moral leadership to come together on an issue like this.

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It exposes EU for what it is.

Migration Crisis Tears At EU’s Cohesion And Tarnishes Its Image (Reuters)

Deep divisions over how to cope with a flood of migrants from the Middle East, Africa and Asia pose a threat to the European Union’s values and global standing and may diminish its ability to act jointly to reform the euro zone and ease Greece’s debt. With harrowing images of drowning children, refugees being herded on and off trains and beaten by police, and barbed-wire fences slicing across Europe, the migration crisis is the moral equivalent of the euro zone crisis. In both cases, the principle of solidarity is being sorely tested. By making the EU look ineffective, disunited and heartless, pitting member states against each other and fuelling political populism and anti-Muslim sentiment, the latest crisis is undermining the ideals of European integration.

However, it often takes a bout of disarray and recrimination before the EU finds a joint response to a new challenge. Policy may be shifting in reaction to unbearable pictures of suffering, and to fears that the Schengen zone of open-border travel among 26 continental European countries may otherwise fall apart. “The world is watching us,” German Chancellor Angela Merkel said last week as she tried to persuade European peers to share the burden of taking in people fleeing war and misery in Syria, Iraq, Afghanistan, Libya and beyond. “If Europe fails on the refugee question, its tight bond with universal human rights will be destroyed, and it will no longer be the Europe we dreamed of,” she said.

Merkel’s bold attempt to exercise leadership, in contrast to her deep caution in the euro crisis, has won only cautious support from close allies like France, where domestic opposition to more immigration is strong, and been rejected outright by countries such as Hungary and Britain. For many European politicians trying to keep in tune with voters, preventing unwanted immigration is a greater priority than welcoming hundreds of thousands of haggard, uprooted foreigners, especially if they are Muslims.

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It’s all turning into one giant blame game.

East And West Europe Split As Leaders Resent Germany For Waiving Rules (Guardian)

Hungary’s prime minister, Viktor Orbán, is the cheerleader of the “Europe is useless” chorus, but Robert Fico, the Slovakian premier, and President Milos Zeman in Prague are not far behind. Ewa Kopacz, the prime minister of Poland, sounds more moderate, but she looks likely to lose an election next month to the nationalist right. Her hands are tied. When Europe’s leaders last met to grapple with the crisis, in June, they argued until 3.30am and dispersed without agreement, bringing Matteo Renzi, the Italian prime minister, to lament: “If this is Europe, you can keep it.” Entirely predictably, things have worsened considerably since then.

Governments are floundering, pirouetting on policy in response to front-page pictures of tragedy on a Turkish beach, engaging in a blame game which, coming on top of five years of division over Greece and the euro, is exposing major divisions. If the euro proved to be a fair-weather currency whose structures and rules buckled and nearly collapsed in a storm, the same is now evident on immigration. The system is flimsy, not fit for purpose in an emergency. There is no “European” immigration policy or regime. There is a mish-mash of national policies, a patchwork of systems and criteria which are contradictory, incoherent, fragmented. Italy is very far way from Finland, not only geographically, but when it comes to immigration and asylum.

France and Germany have quite different historical approaches to integrating newcomers. Sweden and Denmark are neighbours with a close shared history, but their immigration policies are chalk and cheese. National governments guard these prerogatives jealously. “Europe” in the form of the EU authorities in Brussels has minimal say over policymaking. Almost all power here lies with heads of national governments and interior ministries. Yet, in this crisis, Brussels-bashing has become routine, the cheap and easy option for shameless national leaders acting unilaterally, blocking every suggestion that comes out of Brussels and then blaming it for the ensuing chaos.

Orbán proved the point in Brussels last week. “Europe” had failed, its leaders had irresponsibly created this mess, their response was “madness”. He has put up a razor-wire fence on the border with Serbia and announced he was fasttracking legislation to establish a zero-immigration regime within 10 days, with the army deployed on the border. Brussels cannot stop him because these powers are national. If need be, he said, he would put up another fence on the border with Croatia, a barrier between two EU countries. On Friday Brussels shrugged and said it did not like this, but couldn’t do anything about it.

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This will be used against all Greeks all the time for a long time to come. And therefore also against refugees, by default: no budgets to help them.

Greece Still Needs To Build Trust: Eurogroup Head Dijsselbloem (CNBC)

Trust in the Greek government has yet to return after months of wrangling to secure a third bailout deal for the debt-struck country, the head of the Eurogroup of finance ministers said Saturday. “In the last half year with the Syriza government, trust has gone away completely…So what we need now is a serious government which is implementing (reforms) seriously and that will bring back trust and I think that’s the key issue…trust, consumers, producers, investors trust that’s key,” Eurogroup president Jeroen Dijsselbloem,told CNBC on the sidelines of the G20 meeting in Ankara, Turkey. Dijsselbloem, was a key figure in negotiating Greece’s bailout in return for the country implementing reforms.

The Dutch politician also had a number of clashes with Greece’s leftist Syriza government and in particular, the firebrand ex-finance minister Yanis Varoufakis. The debt saga saw a breakdown in relations between Greece and many of the negotiators, including Dijsselbloem, who said that trust has still not returned. The Eurogroup president said that the Syriza government wanted to reject “the whole fundamentals of the euro zone” which was not acceptable. “In the end, the Tsipras government decided we want to stay in the euro zone, we will accept the basic arrangements of that, and commit to a basic program which they need. So if you ask me has trust returned, that will be a bit quick to say that, it’s going to take time,” Dijsselbloem said.

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“..if we don’t try to implement it, they will chuck us out of the euro zone. What? Is this what Europe has come to?” “It’s the height of irrationality..”

Varoufakis Might Come Back To Greek Politics To Give ‘Bitter Medicine’ (BBG)

Former Greek Finance Minister Yanis Varoufakis has flagged his interest in a political comeback after the Greek election – but only if the new rulers ask him to administer “bitter medicine” rather than “poison.” The parties fighting the election are backing the reform package because they’ve been blackmailed, Varoufakis told Bloomberg TV, in an interview at the Ambrosetti Forum in Cernobbio, Italy. “If ever there is a government interested in bitter medicine and it is not simply committing to administering poison, then I am on board,” he said. Asked if he might play an active role in the new government, Varoufakis replied he would insist that the reform program “be very harsh.”

The former finance minister has since his resignation in July sought to justify his controversial sparring with European Union counterparts including Germany’s Wolfgang Schaeuble through interviews and public speeches. Varoufakis said political parties are hiding their opposition to the reform package. “You only have to listen to the parties themselves. All of them disagree with the program, but they vote on it on the basis of blackmail. The argument is: this is a terrible program, it will not work but if we don’t try to implement it, they will chuck us out of the euro zone. What? Is this what Europe has come to?” “It’s the height of irrationality,” Varoufakis said.

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“Its reaction to Junts pel Sí has been to rush through an amendment to the constitution so that any politician who declares independence can be imprisoned.”

Spain Set For Secessionist Clash As Catalonia’s Election Looms (Guardian)

Catalans go to the polls at the end of this month to choose a new regional government in what is shaping up to be a showdown between the secessionists and central government in Madrid and between Catalans themselves, who are split on independence. The majority of pro-independence groupings have come together as Junts pel Sí (United for a Yes Vote), a single-issue coalition that includes Artur Mas, the incumbent Catalan president. The poll has been billed as a plebiscite, and Mas has said he will declare unilateral independence if the group wins a majority of seats, even if it has not obtained a majority of the popular vote.

The first test will be the turnout on Friday, in what has become an annual show of force by the secessionists on Catalan National Day, as tens of thousands will converge on the capital to demand independence. This year the demonstration has been billed as “The Open Road to the Catalan Republic”. In spite of polls showing waning support for independence, Raül Romeva i Rueda, the ex-communist who leads Junts pel Sí, says a unilateral declaration of independence is justified because “they [Spain] have beaten us with unjust laws and huge fines”.

The Madrid government has refused to enter into a dialogue on independence and has adopted a hardline stance throughout. Its reaction to Junts pel Sí has been to rush through an amendment to the constitution so that any politician who declares independence can be imprisoned. Mas says there is no option but to treat the election as a plebiscite, as central government has refused to allow a referendum. He says that if Junts pel Sí wins the Catalan elections on 27 September and goes on to win in Catalonia at the general election expected on 20 December, “that will serve as a second plebiscite that will send an extraordinary message to Europe and the rest of the world”.

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Sep 102014
 
 September 10, 2014  Posted by at 9:06 pm Finance Tagged with: , , , , , , ,  3 Responses »
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Harris & Ewing Texaco, Washington, DC 1920

What do you think the situation in Scotland would be like if an army acting on behalf of the London government had just killed thousands of Scots in Glasgow and Edinburgh over the past 6 months and destroyed their streets and homes and water and electricity grids, and if moreover that government had seized power after a violent coup and essentially been handpicked by Washington?

If you’re awake a little, one of the first things you would think is wow, those Scots must really have something those guys in London and Washington want, and badly too. And you would be right. Scotland has quite a bit of oil, for one thing. You would obviously also think: this doesn’t feel right.

In the same exact way Ukraine has a lot going for it economically. But it also has the added quality of bordering on Russia, which really has a lot of resources. And ‘our side’ wants them, and has figured that occupying Ukraine would be a great way to get closer to them.

So ‘we’ did when we saw our chance in the Maidan protests. But then there were a few million who won’t co-operate, so we started bombing and shelling them. Not out in the open, we had someone else do it for us. So they would get the blame, or, even better, the other side would. And we threw Russia into the blame game as the main perpetrator. It’s all just about media control, and our own media only. Who reads Russian media? That’s all just propaganda anyway, right?

We can start here: what the US and EU did in Kiev during Maidan (and well before) violates the principle of self-determination, as agreed in the Atlantic Charter, signed by FDR and Churchill in 1941 and subsequently adopted after WWII by the UN. The fact that this kind of meddling is as widespread and common as measles doesn’t change that. Wikipedia:

The right of nations to self-determination, or in short form, the right to self-determination, is a cardinal principle in modern international law (jus cogens), binding, as such, on the United Nations as authoritative interpretation of the Charter’s norms. It states that nations based on respect for the principle of equal rights and fair equality of opportunity have the right to freely choose their sovereignty and international political status with no external compulsion or interference [..]

Especially that last bit seems clear enough. How we define ‘nations’ is less obvious. 1941 being the age of the last great colonial powers, it should be no wonder that the terminology was kept opaque to an extent. Like so:

The principle does not state how the decision is to be made, or what the outcome should be, whether it be independence, federation, protection, some form of autonomy or even full assimilation. Neither does it state what the delimitation between nations should be — or even what constitutes a nation. In fact, there are conflicting definitions and legal criteria for determining which groups may legitimately claim the right to self-determination.

There were two intentions in the day: phrase a principle, a charter, a law that many voices clamored for, but at the same time insert enough loopholes for ‘our’ boys to jump through with impunity.

The Atlantic Charter wasn’t the first attempt. As early as 1918, Woodrow Wilson said:

“National aspirations must be respected; people may now be dominated and governed only by their own consent. Self determination is not a mere phrase; it is an imperative principle of action. . . . “

But that still leaves the term ‘nation’ as part of the definition, without defining the term itself.

In 1960, the UN went further in its Declaration on the Granting of Independence to Colonial Countries and Peoples.

All peoples have the right to self-determination; by virtue of that right they freely determine their political status and freely pursue their economic, social and cultural development.

Now we have ‘peoples’, not just ‘nations’

But you just go ask entire scores of indigenous peoples how over the past 54 years UN member nations have ‘interpreted’ the principles they have signed up to. Not a great story. The reason why lies always in what resources are present on, and underneath, the land these peoples inhabit.

After the right to self-determination had been defined and chartered by the UN, it has been violated and ignored more often than it has been honored. But it’s still there. All we need to do is make sure it’s respected, always.

That means the Scots can have a referendum about independence from the UK. Though the feeling is there that they were granted it only because London thought it would fail, it is there. No such luck for the Catalans, who are simply refused the right to a vote by Madrid. The Basque have that right too, says the UN: ‘All peoples have the right to self-determination’. The Venetians. And countless others. The Cree and so many other First Nations in Canada. The list goes on.

Ukraine separated from the Soviet Union 25-odd years ago, as did many other parts of the failed empire. And now, if they want to, East Ukrainians should have the right to do the same. And present day Russia, i.e. what’s left of the Soviet Union, should have the right to be left alone by the US, EU and NATO, and not have missiles installed right outside its borders, the same way America wouldn’t accept those in Canada or Mexico.

The world needs a bigger and better and meaner definition of the right to self-determination, or just for all nations to adhere to the present one. It needs that because there are a lot of self-determination cases coming up as energy and credit crises will make the world a smaller and poorer place. With much less need or desire for centralized power.

While at the same time the centralized powers will scramble for more resources, not less. Just like once the Romans did.

As ultra cheap energy and ultra cheap credit run out, and they inevitably will, more people(s) will want to become master of their own domain. The UN says they have that right. But if we don’t make sure that right is generally accepted, that’s going to lead to 1001 ugly war theaters.

The world will decentralize. Sure, oil prices are low right now, but we all know oil is not in endless supply, and we also know it’s indispensable to our present economic models. So we’ll have to scale down. But that doesn’t have to be so bad if we prepare for it, starting with defining easy and non-violent ways for people to choose their own government on their own land. It’ll still take plenty adapting, but it doesn’t have to involve shelling and bloodshed.

The same goes for debt and credit. We’re way overstretched, and we’re never going to go back to the growth we once had. But so what, we’re over bloated as we are. The thing is to prevent people from fighting over it.

I know, it’s a tall order. But if saner minds take over than the ones we have in charge today, it can be done for most cases, most countries, most peoples. It’s where we can show we’re not just another spineless species.

British PM Cameron Begs Scots: Don’t Rip Our ‘UK Family’ Apart (Reuters)

British Prime Minister David Cameron implored Scots on Wednesday to shun independence to keep the United Kingdom “family” intact as he scrambled to stem a steep rise in secessionist support ahead of the Sept. 18 vote. In a sign of panic within the British ruling elite, Cameron and opposition leader Ed Miliband scrapped their weekly question-and-answer session to visit Scotland on Wednesday to ask Scots not to ditch their 307-year union with England. “We do not want this family of nations to be ripped apart,” Cameron, 47, said in an opinion piece published in the Daily Mail newspaper. “The United Kingdom is a precious and special country.” But Cameron tempered the emotion with a clear warning: “If the UK breaks apart, it breaks apart forever.” Cameron has until now been largely absent from the debate after conceding that his privileged background and center-right politics mean he is not the best person to win over Scots, who are usually more left-wing than the English.

But if Scotland votes for independence, Cameron’s job will be on the line ahead of a national election planned for May 2015. Several opinion poll surveys have shown a surge in support for independence over recent weeks, spooking financial markets and raising the biggest internal challenge to the United Kingdom since Irish independence almost a century ago. Cameron, Miliband and Liberal Democrat Leader Nick Clegg will all visit Scotland on Wednesday in what nationalist leader Alex Salmond said was a sign of panic that could backfire. “If I thought they were coming by bus I’d send the bus fare,” Salmond said. The Scottish leader said Cameron was the most unpopular Conservative leader ever among Scots, and Miliband the most distrusted Labour leader.

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That’s what I’m hoping for.

Scots Independence Genie Fires Separatist Dreams of EU Statehood (Bloomberg)

A short walk from Edinburgh Castle, past tourist stores hawking kilts and tartan scarves, a church hall is about to become a patch of Barcelona for the day. As Scotland votes next week on whether to break up the U.K. after more than three centuries, a group of about 100 Catalans will gather to watch the outcome unfold and ponder the implications for their own bid for freedom from Spain. “I get goose bumps just thinking about it,” said Raquel Gella, 25, a Catalan marketing manager who has lived in Scotland for five years after arriving as a student. “Who has the chance to see history made in two countries?” The Catalan interest is just the tip of the iceberg. Whether Scots choose to remain in the U.K. or call time on the 307-year-old union with England and Wales, the vote has already proved to separatists from Flanders to Venice that the dream of taking control of their own futures has a chance of becoming reality.

If the political spirits of the 18th and 19th centuries were dedicated to forging larger sovereign states, the referendum has opened up an alternative vision for the 21st century in which smaller national groups dismantle them. That reshaping of the map has ramifications for governments, finances, international relations, companies and investors. The pound dropped to the weakest since November against the dollar yesterday after polls showed the pro-independence campaign in Scotland had wiped out the No camp’s long-standing advantage, leaving the result too close to call. In Spain, bonds fell, with 10-year yields rising the most since May.

“The symbolic value of what is going to happen in Scotland is very important,” said Gerolf Annemans, president of Vlaams Belang, a Flemish party calling for Flanders to secede from Belgium. “Marching toward independence and the reshuffling of the older nation states is a logical evolution, and Scotland, Catalonia and Flanders are pieces of that new Europe.” The Scottish vote has sharpened the divide in Europe between competing schools of thought. One says that globalization and a hyper-connected world mean the continent should consign cultural and ethnic tensions to history. The other says the European Union is exactly the framework in which regions and provinces can assert their identities and thrive. That would mean “a Europe of peoples and regions where the Bavarians can be Bavarians instead of Germans,” Ibon Areso, the mayor of Bilbao, the economic capital of Spain’s Basque region, said in an interview. “A Europe that is more a Europe within which different identities can live together more easily.”

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Shut your face.

Mark Carney Warns Scotland Over Pound (BBC)

Bank of England governor Mark Carney has told trade unions that currency union in the event of Scottish independence would be “incompatible with sovereignty”. Mr Carney told the TUC conference that a currency required a centralised bank and shared banking regulations. Common taxation and spending were also needed, he said. The SNP said currency union was “in the best interests of both an independent Scotland and the rest of the UK”. It added that currency union plans had been considered in detail. For their part, pro-union campaigners said a shared currency would be “bad for Scotland”. The Scottish National Party (SNP), which wants to keep the pound in the event of independence, said that its plans had been “considered in detail” by the Fiscal Commission, a working group of the Scottish government.

An SNP spokesperson for Scottish finance minister John Swinney said: “Successful independent countries such as France, Germany, Finland and Austria all share a currency – and they are in charge of 100% of their tax revenues, as an independent Scotland would be. At present under devolution, Scotland controls only 7% of our revenues.” The Conservatives, Labour, and the Liberal Democrats have all come out against a currency union with an independent Scotland. The SNP spokesperson said that “the political position of the three Westminster parties… will of course change after a Yes vote.” “And as the momentum builds behind the Yes campaign, their currency bluff has well and truly been called,” the spokesperson added.

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Scarecrow.

Rogoff Fears ‘Horrible Disaster’ For Scotland (CNBC)

The economist who predicted the U.S. housing crisis has told CNBC that Scotland now faces a difficult period for investment regardless of the result of an upcoming independence referendum. “It’s certainly a disaster for Scotland, first and foremost, it’s going to be a horrible adjustment,” the Harvard economist Kenneth Rogoff, who has also served as chief economist and director of research at the International Monetary Fund, said. “Even if it doesn’t pass people are not going to want to invest there because they might do it again. People will migrate out of there.”

The uncertainty is also not good for the rest of the United Kingdom, he added, which has seen stellar economic data and has been applauded for being one of the fastest growing G-7 countries since the global financial crash. It’s also not good for the European Union, according to Rogoff, with the possibility of Scotland now joining the bloc meaning that other autonomous communities – like Catalonia in Spain – might also look for their own referendums on independence. “Other places in Europe (will) say, ‘Hey, we can do that too’,” Rogoff said. “So it’s certainly quite a wild card there.”

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Cameron Rips Up Diary to Fight for Scotland in Knife-Edge Vote (Bloomberg)

Their schedules in shreds, their futures on a knife edge, Britain’s three most senior politicians arrive in Scotland today to beg voters to come back from the brink and reject independence. With polls saying the race to the Sept. 18 ballot is too close to call, and many Scots apparently undeterred by the threats about the future of their economy, London’s political establishment has decided to try showing a little love instead. Yesterday, the Scottish flag, the Saltire, was raised over government buildings in London. Today, Conservative Prime Minister David Cameron, his Liberal Democrat deputy, Nick Clegg, and Ed Miliband, leader of the opposition Labour Party, have canceled their planned appearances in Parliament, and will instead spread out to woo undecided voters.

“The right place for us to be today is in Scotland,” Cameron wrote in an article for today’s Scottish Daily Mail. “The United Kingdom is a precious and special country. That is what is at stake. Let no-one in Scotland be in any doubt: we desperately want you to stay; we do not want this family of nations to be ripped apart.” Since a Sept. 7 poll by YouGov put the nationalists just ahead, the world beyond Scotland has woken up to the possibility that the 307-year-old U.K. could break up. A second poll yesterday again put the two sides neck-and-neck. The pound has fallen, as have shares in businesses with large Scottish markets. A Yes vote would be the biggest crisis of Cameron’s premiership. He has already had to deny he would resign if it happened.

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Word.

Scotland Is Now Separate, Even If Scots Vote No (Bloomberg)

In late summer 2011, three months after Alex Salmond secured an unprecedented majority in elections to the Scottish Parliament, officials from his party flew to Montreal to learn how to organize a referendum. There, the Scottish National Party delegation met with separatists from Parti Quebecois waging their own four-decade battle to split from Canada, fighting on after calling — and losing — two plebiscites in 1980 and 1995. Conscious of that failure, the Scots had one request: no media. “They didn’t want to be very close or be seen with people of the PQ and other sovereigntists of Quebec,” said Daniel Turp, a former legislator for the party who helped organize the visit. “They want to win and obviously the PQ did not win the two referendums they initiated.”

As the Sept. 18 Scottish referendum goes down to the wire, Quebec’s experience holds a lesson for campaigners and voters on either side of the debate: even if the bid for independence from the U.K. is lost, life will never be the same. Polls show the two sides are neck and neck. One by YouGov for the Sunday Times put the Scottish nationalists ahead on 51%, excluding undecided voters. Another, by Panelbase for the Yes campaign, put the anti-independence Better Together group four%age points ahead. “If the vote is close, the independence question may not disappear for long,” said Simon Wells, chief U.K. economist at HSBC Securities Inc. in London.

While Scotland’s nationalists first gained political traction in the 1970s, it took until 2011 and an unprecedented majority for the Scottish National Party in the semi-autonomous Edinburgh legislature for a referendum to become a reality. Even then, the prospects of a Yes vote looked slim. The gap closed over the past month as SNP leader Salmond portrayed independence as the only way to protect Scotland’s health service and free university education from a U.K. government led by the Conservatives, a party still blamed in Scotland for decimating heavy industry in the 1980s and with only a single lawmaker of the 59 Scottish electoral districts at the Westminster Parliament in London.

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The Fed Gets Serious About The End To QE And ZIRP (WolfStreet)

There have been prior indications – though Wall Street brushed them off. During Fed Chair Janet Yellen’s testimony to the Senate Banking Committee in mid-July and in the Fed’s Monetary Policy Report, some of the most glaring bubbles that the Fed has so strenuously inflated since the Financial Crisis suddenly appeared on the Fed’s official worry radar. Yellen lamented “valuation metrics” of stocks that appeared “substantially stretched.” She pointed at biotech and social media. PE ratios were “high relative to historical norms.” She even acknowledged the greatest credit bubble in history by fretting about the “‘the reach for yield’ behavior by some investors” and how “risk spreads for corporate bonds have narrowed and yields have reached all-time lows.” And she bared the disconnect between the markets and the Fed: increases in the federal funds rate “likely would occur sooner and be more rapid than currently envisioned.”

Other Fed heads have chimed in with warnings of their own, telling the markets that rates could rise sooner and more rapidly than the markets were pricing in. But it all fell on deaf ears. Stocks have risen since, including the very sectors that Yellen tried to prick, and yields have dropped. But now the San Francisco Fed got down and dirty, using actual evidence of sorts to make the point that this isn’t just idle banter. It seems these folks are getting serious about manipulating the markets into acknowledging that QE Infinity was just temporary and that ZIRP – the foundation of the economy for so long that no one can even envision life without it – would fade away. And they chastised the markets that so eagerly believed all the promises of QE Infinity and eternal ZIRP for not believing the end of ZIRP. They’re worried about the market’s reaction if there is a sudden recognition, rather than a gradual one, that the endless manna would end. They’re worried about financial instability.

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Better run for the hills.

The Buyback Party Is Over: Stock Repurchases Plunge in Q2 (Zero Hedge)

A few days ago, we reported that based on data by SocGen’s Albert Edwards, the “buyback party was over” in which Edwards said:

“Much has happened over the summer, but two landmark firsts have occurred only recently, with the S&P500 breaking above 2,000 and the 10y bund yield breaking below 1%. Our Ice Age thesis has long called for sub-1% bond yields and I see this extending to the US and UK in due course. It is the equity markets where I have been consistently surprised. QE has been an essential driver for the equity market, providing the fuel for the heavy corporate bond issuance being used for share buybacks. Companies themselves have been the only substantive buyers of equity, but the most recent data suggests that this party is over and as profits also stall out, the equity market is now running on fumes.”

We have now done the math and compiled the Q2 earnings for the S&P 500 and we can indeed confirm that (at least in the second quarter) the buyback part is not only over but has ended with a thud, with the total notional amount of buybacks completed in Q2 plunging by 27% in Q2 to “only” $117 billion – the lowest since Q1 of 2013!

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Carney Can’t Escape Housing as Debt Colors Policy (Bloomberg)

Bank of England Governor Mark Carney can’t get away from the housing market. As he argues there is no immediate need to increase interest rates, central to his case is the mountain of debt financing property. Home loans account for almost 90% of the £1.45 trillion ($2.4 trillion) owed by U.K. households. In London, where the average home costs £500,000, first-time buyers are paying almost nine times their annual income to get onto the housing ladder. Such figures explain why Carney says that rate increases when they come will be “gradual and limited.” In comments to union leaders yesterday, he argued higher borrowing costs could pressure households with too much debt and prompt them to curtail spending. With inflation continuing to outstrip pay, Britons may find it hard to reduce the burden anytime soon. “A small increase in interest rates will cause serious debt-servicing problems in the U.K., including London,” said Ismail Erturk, a senior lecturer on banking at Manchester Business School.

“The current economic recovery in the U.K. is based on shifting sands, because it doesn’t improve wages.” While U.K. debt as a%age of gross disposable income has fallen from around 170% in 2007, it’s still at about 140%, the highest in the Group of Seven after Canada. Mortgage debt has risen by about £90 billion since then. Halifax, the mortgage unit of Lloyds Banking Group, estimates a £100 jump in monthly home-loan payments could force almost 40% of London mortgagees to pare spending on essentials including food and clothing. Values in the capital are more than a third above their previous peak in 2008 and double the national average. They surged 19% in the year through June, twice as fast as the U.K. as a whole, Office for National Statistics data show. “These extraordinary rates of house-price growth cannot continue in the current, more regulated mortgage environment, particularly in the face of likely interest-rate rises,” said Lucian Cook, head of residential research at broker Savills Plc.

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The high estimate.

Italy Set For Zero Growth In 2014: PM Renzi (AFP)

Italy’s economy will register “around zero” growth over the course of 2014, Prime Minister Matteo Renzi admitted on Tuesday. It was the first time that Italy’s centre-left leader had put a figure on the likely impact of the economy slipping back into recession for the third time in less than a decade during the first two quarters of this year. “I am not optimistic,” Renzi said in a pre-recorded interview due to be broadcast on Tuesday evening. “We are expecting (a figure) more or less around zero. “It is not enough to restart. It is the end of the fall but it is not a recovery.”

The unexpected slowdown of Italy’s economy over the first half of this year has cast doubt on whether Renzi can deliver on his promise to comply with the budget rules that apply to members of the eurozone while also boosting growth and reversing the upward trend in unemployment. Renzi also used Tuesday’s interview to welcome the recent downward trend of the euro, arguing that a fall to around $1.20 (from a 14-month low of around $1.29 in trading Tuesday) would make European exports more competitive. “For our companies, for our world, this would be a very, very important factor,” Renzi added.

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France Admits It Will Miss 2015 Deficit Target (Reuters)

French Finance Minister Michel Sapin announced on Wednesday that France will need until 2017 to bring its public deficit down to three% of output, breaking its promise to EU partners to reach that goal by 2015. It was the latest in a succession of missed deficit targets by Paris. Sapin told a news conference that France was not asking for any change in the European Union’s rules on budget limits, but that it wanted Brussels to take into account the continuing weakness of the euro zone’s second largest economy. “With growth and inflation weak, the deficit reduction we are planning for 2015 will be limited with a deficit around 4.3% of Gross Domestic Product in 2015 and coming under the 3% threshold in 2017,” Sapin said.

Sapin said the deficit would actually rise slightly to 4.4% this year and that the government would maintain the current plan for €21 billion of public spending savings in 2015 while not raising taxes during that year. He forecast that the French economy would grow 0.4% this year and 1.0% next. The announcement had been widely expected after a number of recent suggestions by the government that it was struggling to maintain its deficit commitments and calls for the European Union to use flexibility in applying its Stability and Growth Pact mechanism designed to keep a cap on national deficits. The yield on the benchmark French 10-year bond was largely unchanged at 1.37% after the announcement.

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Sure, let’s make it 2114.

US Regulator ‘Would Welcome’ Delay Of EU Derivatives Clearing Rules (Reuters)

A top U.S. regulator said on Wednesday he would welcome a delay by the European Union that gave more time to resolve a conflict with Washington over making derivatives markets safer. Reuters reported last week that the EU is discussing whether to move a deadline by which U.S. clearing houses, which act as go-betweens for buyers and sellers, must meet EU rules when doing business there. “I am encouraged by that flexibility … it’s very important as we deal with this not to disrupt the market,” Tim Massad, the head of the Commodity Futures Trading Commission derivatives regulator, told Reuters in an interview.

At the moment, Europe is sticking to its own rules for U.S. clearing houses rather than exempting them as it plans to do with Japan, Hong Kong and Australia, for example. Brussels has refused to grant similar treatment to the United States as long as the CFTC does not exempt European clearing houses. The current deadline is December 15, after which new capital requirements kick in, making it prohibitively expensive for European banks to do business with U.S. clearing houses. “I expected it would be maybe easier to get this done,” Massad said. “(It’s) an exercise we’re going through now. And I’m willing to explore (whether the U.S. can rely on EU rules to a greater extent).”

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Restructuring Debt Restructuring (Barry Eichengreen)

Sometimes the worst intentions yield the best results. So it is, unexpectedly, with Argentine debt. The story begins with Argentina’s financial crisis in 2001-2002. There is no question that the crisis left the country unable to service its debts. But Argentina made no friends by waiting four years to negotiate with its creditors and then offering settlement terms that were stingy by the standards of previous debt restructurings. Still, the terms were acceptable to the vast majority of the country’s creditors, who exchanged their old claims for new ones worth 30 cents on the dollar. All, that is, except for a few holdouts who bought up the remaining bonds on the cheap and went to court, specifically to the US district court of the southern district of New York, asking to be paid in full.

This quixotic strategy met with unexpected success when Federal Judge Thomas Griesa ruled in the holdouts’ favour. Griesa idiosyncratically reinterpreted the pari passu, or equal treatment, clause in the debt contracts to mean that “vulture” funds refusing to participate in the earlier debt exchange should receive not 30 but 100 cents on the dollar. Griesa’s ruling threatened to hold the Bank of New York Mellon, the Argentine government’s agent, in contempt if it paid other bondholders without also paying the vultures. Effectively barred from servicing its debt on the renegotiated terms, Argentina had little choice but to default again.

This was not an episode from which anyone emerged smelling like a rose. Argentina’s hardball tactics and erratic policies did not endear it to investors. The vultures showed no scruples in profiting at the expense of Argentine taxpayers. They are now deploying the same strategy against the Democratic Republic of the Congo, one of the world’s poorest countries. Griesa, for his part, showed no compunction about upending a financial order in which market-based exchanges of old bonds for new ones are used to restructure the debts of countries unable to pay. By making it impossible for sovereigns to restructure, he effectively rendered them unable to borrow in the US. Ignoring precedent and all economic common sense, he threw international financial markets into turmoil.

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Russia, China Agree To Settle More Trade In Yuan And Rouble (Reuters)

Russia and China pledged on Tuesday to settle more bilateral trade in rouble and yuan and to enhance cooperation between banks, Russia’s First Deputy Prime Minister Igor Shuvalov said, as Moscow seeks to cushion the effects of Western economic sanctions. Shuvalov told reporters in Beijing that he had agreed an economic cooperation pact with China’s Vice Premier Zhang Gaoli that included boosting use of the rouble and yuan for trade transactions. The pact also lets Russian banks set up accounts with Chinese banks, and makes provisions for Russian companies to seek loans from Chinese firms. “We are not going to break old contracts, most of which were denominated in dollars,” Shuvalov said through an interpreter. “But, we’re going to encourage companies from the two countries to settle more in local currencies, to avoid using a currency from a third country.”

Spurred on by their often fraught relations with the United States, Russia and China have long advocated reducing the role of the dollar in international trade. The quest to limit the dollar’s dominance became more urgent for Moscow this year when U.S. and European governments slapped sanctions on Russia to penalize the country for supporting separatist rebels in Ukraine. Washington and Brussels have excluded Russia’s state banks and top energy firms from capital markets, applying measures that mean even companies not blacklisted will struggle to raise large loans outside their domestic market. For China, curtailing dollar’s influence fits well with its ambitions to increase the clout of the yuan and turn it into a global reserve currency one day. With 32 percent of its $4 trillion foreign exchange reserves invested in U.S. government debt, Beijing wants to curb investment risks in dollar.

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Nah, print more!

China Central Bank Adrift Without Policy Anchor Amid Credit Slump (Bloomberg)

China’s central bank chief is learning you can’t control what you can’t cut. The People’s Bank of China’s removal of state controls on borrowing costs last year has left Governor Zhou Xiaochuan struggling to influence rates with tools such as adjusting some banks’ reserve requirements and targeted liquidity injections. Those steps haven’t stopped new credit and money-supply growth from slowing. Economists forecast aggregate financing of 1.135 trillion yuan ($185 billion) for August, according to the median estimate in a Bloomberg survey ahead of data due by Sept. 15. Combined with July’s slump, that would be the weakest two months for China’s broadest measure of new lending since 2011.

“The central bank can lift the controls, but that doesn’t mean a market-based rate system will be in place,” said Chen Bingcai, a former China foreign-exchange official who’s now a researcher with the Chinese Academy of Governance, a Beijing-based training school for government officials. The PBOC may be “relatively powerless” until its new benchmark rates can take effect in the market, Chen said. The risk is that the PBOC will be hampered by ineffective tools just as dangers to growth multiply from a property slump, with figures this week showing the first back-to-back monthly drop in imports in a year. Options in the pared-back toolkit include reducing reserve requirements nationwide, lowering mortgage rates and lending for specific industries or projects.

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And that is all pure and simple Monopoly money. Which nobody should accept as payment for their assets. This distortion can only break economies.

China’s Outbound Investment Reaches ‘Record High’ (BBC)

China was the world’s third largest investor in 2013 for the second year running, according to state news agency Xinhua. Outbound direct investment (ODI) from China reached a record high of $108bn (£66.98bn) last year, a 22.8% rise on ODI made in 2012, the agency said. Meanwhile, on Sunday the government said it would relax rules for Chinese companies making overseas investments. The new rules will take effect on October 6. Published by the Ministry of Commerce on Sunday, Xinhua said the new procedures for domestic companies were “aimed at allowing more freedom for outbound investment”. At the moment, any overseas investment project worth more than $100m needs to be approved by the ministry.

However, any investments made into projects overseas “in sensitive countries or regions, as well as in sensitive industries” would still require approval by the government, the agency said. China may have been the world’s third-largest investor in 2013, according its own data, but this year the numbers may change. According to figures collected by The Heritage Foundation, an American think tank, China’s investment around the world contracted in the first half of 2014. The foundation’s data covers large Chinese investments and contracts worldwide. Australia, the US, and Canada remain the most popular destinations for investment out of China, followed by Brazil and Indonesia. About half of all the money invested overseas by China and Chinese companies since 2005 has gone into the energy and power sector.

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Well, then we’re all saved, right?

Bank of Japan Buys Government Debt at Negative Yield (WSJ)

Tuesday marked another milestone in the topsy-turvy world of monetary easing in Japan: The Bank of Japan bought short-term Japanese government debt at a negative yield for the first time, according to market participants. The BOJ scooped up some of the three-month No. 477 Treasury bill, which has traded at a negative yield for the past two trading days amid strong demand, the market participants said. Normally, people who buy debt expect to get their money back plus some interest. Negative yield means the buyer gets back less than he or she puts in. Why would the Bank of Japan buy under such conditions? Traders said the bank wanted to show the market that it would meet its asset purchase goals–literally at whatever the cost.

The BOJ buys Treasury discount bills as part of its asset purchase program aimed at reaching 2% inflation. The bank has a ¥270 trillion monetary base target it wants to reach by the end of the year. By purchasing the Treasury bills, it increases the amount of cash in the financial system, getting closer to the target. Market participants say the bank probably didn’t foresee buying Japanese debt at negative yields. But the European Central Bank’s easing has created demand for short-term Japanese debt from European investors, to the extent that interest rates have turned negative. “The BOJ probably didn’t expect this would happen, and T-bill rates staying negative should be a cause of concern for them,” said Shogo Fujita, chief Japan bond strategist at Merrill Lynch Japan Securities Co.

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Yeah, yeah.

Japan Keeps Faith in Weaker Yen as Economy Struggles (Bloomberg)

Facing the prospect of the first growth-free fiscal year since the 2009 global recession, Japan’s policy makers are keeping faith that a weaker exchange rate will help the world’s third-largest economy. While the yen’s 26% slide against the dollar in the past two years has yet to stoke the nation’s exports and production, Japan’s central bank and economy chiefs in the past week both signaled a green light to a further decline. Koichi Hamada, an adviser to Prime Minister Shinzo Abe, said in an interview that a weak yen “is a positive for Japan’s economy.” The remarks underscore the chance of deeper depreciation as the U.S. Federal Reserve withdraws stimulus and Japan maintains it.

The dynamic means the Bank of Japan will get additional help in maintaining inflation, at the cost of a deeper erosion in purchasing power for consumers hit by a higher sales tax. “They’re definitely welcoming further weakness in the yen,” said Hideo Kumano, chief economist at Dai-ichi Life Research Institute in Tokyo and a former BOJ official. “Conditions aren’t as solid as they were. That’s why officials might be more strident in comments on exchange rates.” The yen, which traded at 106.14 per dollar at 9:07 a.m. in Tokyo, has fallen 3.4% in the past three weeks as the European Central Bank moved to add stimulus and Fed officials indicated they’re closer to tightening policy. The Japanese currency’s weakening to a six-year low offers fresh impetus to price pressures in Japan, which had waned in recent months.

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As long as you support banks instead of people, there is no other outcome possible.

‘Large And Persistent’ Jobs Shortfall Threatens The Global Recovery (CNBC)

The “large and persistent” shortfall in the number and quality of jobs in some of the world’s largest advanced and emerging economies is threatening economic recovery, a new report shows. Substantial job “gaps” and overall weakness in the labor market is stunting economic growth, a joint report prepared by the International Labour Organization (ILO), OECD and the World Bank Group found. The labor markets of the G20 countries are still struggling some six years after the financial crisis and the job shortage is set to continue until 2018 if growth continues at its current rate. As it stands, more than 100 million people are unemployed in the G20 economies and 447 million employees are “working poor” or living on less than $2 a day in emerging G20 economies, according to the report.

Echoing comments from Bank of England Governor Mark Carney, the report also said wage growth has significantly lagged behind productivity and real wages have stagnated or even fallen in most G20 countries. “We are seeing wage and income inequality widening in many G20 countries, and if the goal is stronger, sustained and balanced growth then inequality cannot be ignored,” Nigel Twose, senior director for jobs at the World Bank Group said. “Equally, the situation of young people who are out of work is acute, and countries that ignore their plight do so at their own peril. There is no magic formula to solve this jobs crisis but we do know that it requires a ‘whole of government’ approach, involving the active collaboration of many ministries,” he said. The members of the G20 comprise of a mix of the world’s largest developed and developing economies, making up 66% of the world’s population and over 75% of global trade.

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A problem waiting to explode.

Couples Retiring Now Have ‘More Income And Wealth Than Necessary’ (Guardian)

Britain’s retiring workers have never had it so good, according to an analysis by the Institute of Fiscal Studies which shows that the vast majority of couples born in the 1940s are maintaining their former living standards into retirement – and nearly a half enjoy a greater income in retirement than average real earnings. The IFS research looked at the income and wealth of couples at retirement compared with their average earnings when they were 20- to 50-years-old. It found that 80% of couples born in the 1940s had an income at age 65 from both state and private pensions that was equal to two-thirds of their average working-life earnings, and that 40% enjoyed incomes higher than their average real working-life earnings. Economists used two-thirds of former earnings as the benchmark for living standards in retirement as pensioners typically no longer have to support children, have generally paid off mortgages, and do not have to put aside any of their income to pay into a pension.

Once housing wealth is added to the equation – which reflects the huge gains made by people who bought their first home in the 1970s and 1980s – the IFS found that pensioners are awash with cash, suggesting that the “median surplus” wealth held by pensioners in excess of their needs is £220,000. The IFS said: “92% of couples born in the 1940s have accumulated more wealth than the model suggests they need to maintain their standards of living into and through retirement. The surpluses are substantial on average – the median surplus being over £220,000, which would be enough to produce around £7,000 a year of income if used to buy an index-linked annuity. Even excluding housing wealth, 75% of couples have more wealth than the model suggests they need to maintain their standards of living. The median surplus is over £120,000.”

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… why not let the US state department force the decision upon Russia?

Ukraine’s Choreographed Civil War, As Revealed By Wikileaks (Zero Hedge)

Think the deadly events in a civil-war ridden Ukraine are proceeding unscripted, and without US supervision and/or direction? Think again. Below is an excerpt from a formerly confidential memo, leaked by Wikileaks, and authored by former US ambassador to Russia, William J. Burns, to the Joint Chiefs of Staff. The punchline: the memo is dated February 1, 2008.

Ukraine and Georgia’s NATO aspirations not only touch a raw nerve in Russia, they engender serious concerns about the consequences for stability in the region. Not only does Russia perceive encirclement, and efforts to undermine Russia’s influence in the region, but it also fears unpredictable and uncontrolled consequences which would seriously affect Russian security interests. Experts tell us that Russia is particularly worried that the strong divisions in Ukraine over NATO membership, with much of the ethnic-Russian community against membership, could lead to a major split, involving violence or at worst, civil war. In that eventuality, Russia would have to decide whether to intervene; a decision Russia does not want to have to face.

So, if Russia does “not want to face” said decision which could and has led to the violence and civil war that is now a daily staple of market-moving newsflow out of Eastern Europe, why not let the US state department force the decision upon Russia?

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Does Tokyo have a choice energy wise? Then again, do the people have a choice?

Japan Nuclear Watchdog Confirms Clearance to Restart Reactors (WSJ)

Japan’s nuclear watchdog gave official confirmation Wednesday that two reactors on the southern island of Kyushu meet stricter regulations created after the Fukushima nuclear accident. The decision follows preliminary clearance for the units given in July. The move puts the two reactors at the Sendai nuclear power plant first in line for restarting though it still remains unclear when they might go back online. The two units at plant operated by Kyushu Electric Power are among Japan’s 48 reactors that have been kept idle after the disaster in March 2011.

Now that the two units have gained safety clearance, the biggest obstacle they face before they can be restarted is lingering antinuclear sentiment among the general public. It also remains unclear who will make the final decision to restart the reactors and how long it will take to reach that decision, as Kyushu Electric and pronuclear policy makers are reluctant to take final responsibility for restarting the reactors. Yuko Obuchi, the newly appointed trade and industry minister, issued a short statement saying she has “no objection” to the decision by the Nuclear Regulation Authority and that her ministry would make efforts to “obtain understanding and cooperation from local communities and other stakeholders for restarting.”

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