May 252017
 
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Alfred Buckham Edinburgh c1920

 

Toronto Homeowners Are Suddenly in a Rush to Sell (BBG)
$100 Increase In Mortgage Payments Would Sink 75% Of Canadian Homeowners (CBC)
Average Asking Price for Homes in UK Hits Record High of £317,000 (G.)
The Great London Property Squeeze (Minton)
UK Police ‘Stop Passing Information To US’ Over Leaks Of Key Evidence (G.)
The Bubble That Could Break the World (Rickards)
A Bailout Is Coming In China, One Way Or Another (BBG)
China “National Team” Rescues Stocks As Downgrade Crushes Commodities (ZH)
China Says Credit Downgrade ‘Inappropriate’, ‘Exaggerates Difficulties’ (CNBC)
China’s Downgrade Could Lead To A Mountain Of Debt (BBG)
Chinese Banks Dominate Ranking Of World’s Biggest Public Companies (Ind.)
EU Declared Monsanto Weedkiller Safe After Intervention From EPA Official (G.)
Factory Farming Belongs In A Museum (G.)
Eurogroup Confronts Own Deficit: Governance (Pol.)
Podcast: Steve Keen’s Manifesto (OD)
No Greek Debt Relief Need If Primary Surplus Over 3% of GDP For 20 Years (R.)
Deadliest Month For Syria Civilians In US-Led Strikes (AFP)
30 Migrants, Most of Them Toddlers, Drown in Mediterranean (R.)

 

 

Getting out is getting harder. A crucial phase in any bubble.

Toronto Homeowners Are Suddenly in a Rush to Sell (BBG)

Toronto’s hot housing market has entered a new phase: jittery. After a double whammy of government intervention and the near-collapse of Home Capital Group Inc., sellers are rushing to list their homes to avoid missing out on the recent price gains. The new dynamic has buyers rethinking purchases and sellers asking why they aren’t attracting the bidding wars their neighbors saw just a few weeks ago in Canada’s largest city. “We are seeing people who paid those crazy prices over the last few months walking away from their deposits,” said Carissa Turnbull, a Royal LePage broker in the Toronto suburb of Oakville, who didn’t get a single visitor to an open house on the weekend. “They don’t want to close anymore.”

Home Capital may be achieving what so many policy measures failed to do: cool down a housing market that soared as much as 33% in March from a year earlier. The run on deposits at the Toronto-based mortgage lender has sparked concerns about contagion, and comes on top of a new Ontario tax on foreign buyers and federal government moves last year that make it harder to get a mortgage. “Definitely a perception change occurred from Home Capital,” said Shubha Dasgupta, owner of Toronto-based mortgage brokerage Capital Lending Centre. “It’s had a certain impact, but how to quantify that impact is yet to be determined.”

Early data from the Toronto Real Estate Board confirms the shift in sentiment. Listings soared 47% in the first two weeks of the month from the same period a year earlier, while unit sales dropped 16%. Full-month data will be released in early June. The average selling price was C$890,284 ($658,000) through May 14, up 17% from a year earlier, yet down 3.3% from the full month of April. The annual price gain is down from 25% in April and 33% in March. Toronto has seen yearly price growth every month since May 2009. The last time the city saw gains of less than 10% was in December 2015.

Brokers say some owners are taking their homes off the market because they were seeking the same high offers that were spreading across the region as recently as six weeks ago. “In less than one week we went from having 40 or 50 people coming to an open house to now, when you are lucky to get five people,” said Case Feenstra, an agent at Royal LePage Real Estate Services Loretta Phinney in Mississauga, Ontario. “Everyone went into hibernation.” Toronto real estate lawyer Mark Weisleder said some clients want out of transactions. “I’ve had situations where buyers are trying to try to find another buyer to take over their deal,” he said. “They are nervous whether they bought right at the top and prices may come down.”

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Tyler: “..given that the average house in Canada costs roughly $200,000 and carries a monthly mortgage payment of $1,000, that means that most Canadians couldn’t incur a $100 hike in their monthly mortgage payments “

$100 Increase In Mortgage Payments Would Sink 75% Of Canadian Homeowners (CBC)

Almost three quarters of Canadian homeowners would have difficulty paying their mortgage every month if their payments increased by as little as 10%, a new survey from Manulife Bank suggests. The bank polled 2,098 homeowners — between the ages of 20 to 69 with household incomes of $50,000 or higher — online in the first two weeks of February. Because they aren’t randomized samples, polling experts say online polls don’t have a margin of error, but the survey nonetheless highlights just how tight the budgets are for many Canadians. 14% of respondents to Manulife’s survey said they wouldn’t be able to withstand any increase in their monthly payments, while 38% of those polled said they could withstand a payment hike of between 1 and 5% before having difficulty.

An additional 20% said they could stomach a hike of between six and 10% before feeling the pinch. Add it all up, and that means 72% of homeowners polled couldn’t withstand a hike of just 10% from their current record lows. That’s a dangerous place to be with interest rates set to rise at some point. “What these people don’t realize is that we’re at record low interest rates today,” said Rick Lunny, president and CEO of Manulife Bank. If mortgage rates increase by as little as one percentage point, some borrowers could be facing a hike of 10% on their monthly bills. A bigger mortgage rate hike would bring more pain.

In the survey, 22% said they could handle a payment increase of between 11 to 30%, while the remaining 7% didn’t know or were unsure. Overall, nearly one quarter (24%) of Canadian homeowners polled said they haven’t been able to come up with enough money to pay a bill in the past year. And most are not in good shape to weather any sort of financial storm — just over half of those polled had $5,000 or less set aside to deal with a financial emergency, while one fifth of them have nothing saved for a rainy day. “When you put it into that context, they’re not really prepared for what is inevitable. Sooner or later, interest rates are going to rise,” Lunny said.

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You might have thought Brexit would have led to caution.

Average Asking Price for Homes in UK Hits Record High of £317,000 (G.)

Asking prices for UK homes hit a new record high over the past month as families in search of bigger properties brushed aside uncertainty caused by Brexit and June’s general election. Prices sought by sellers rose 1.2% in the four weeks to 13 May, pushing the average asking price to a fresh peak of £317,281, according to the property website Rightmove. Families with children under the age of 11 were twice as likely as the average person to be moving home, as they looked for bigger properties in school catchment areas. Asking prices for typical family homes – with three or four bedrooms but excluding detached properties – rose by 5.4% year-on-year over the last month, to £270,953.

Miles Shipside, a Rightmove director and housing market analyst, said such families were more willing to ignore any uncertainty caused by Brexit and the general election. “As well as that shrinking house feeling, parents with young children also have the pressures of travelling times to amenities as well as the weekday school commute. These have to be balanced against under-pressure finances, even more so when the sector with the property type that suits them best is seeing the biggest price jump. “What seems to be happening is that moving pressures are understandably taking priority over electioneering and Brexit worries. For many in this group, it seems that moving is definitely on their manifesto.”

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Bubble effects: the servant class the rich need can’t afford to live close enough to them.

An edited extract from Big Capital by Anna Minton, which will be published 1 June by Penguin.

The Great London Property Squeeze (Minton)

There is a direct link between the wealth of those at the top and the capital’s housing crisis – which affects not just those at the bottom but the majority of Londoners who struggle to buy properties, or pay extortionate rents. The 2008 financial crash created a new politics of space, in which people on low incomes are forced out of their homes by rising rent and the wealthy are encouraged to use property for profit. These trends are not limited to London. The same currents of global capital are also transforming San Francisco, New York and Vancouver, European cities from Berlin to Barcelona and towns and cities in the UK from Bristol and Manchester to Margate and Hastings. This isn’t gentrification, it’s another phenomenon entirely. Global capital is being allowed to reconfigure the country.

The major concern for the government and employers in London is that people who do not earn enough to meet extortionate rents will leave, hollowing out the city and threatening its labour market and culture. “We see this with employers saying they’re having a really hard time retaining professional level jobs, let alone cleaners. London is losing teachers – they’re commuting from Luton and they’re giving up – it’s having a massive knock-on effect,” Dilner said. The vacancy rate for nurses at London’s hospitals is 14-18%, according to a report from the King’s Fund thinktank, and the number of entrants to teacher training has fallen 16% since 2010, according to Ofsted. But it’s not just carers, nurses, teachers, artists and university lecturers who can’t afford to live in London. Fifty Thousand Homes is a business-led campaign group – including the RBS, the CBI and scores of London businesses – formed to push the housing crisis up the political agenda.

Its research shows that on current trends, customer services and sales staff at almost every level are being pushed out of the capital. Three-quarters of business owners believe that housing costs are a significant risk to London’s economic growth and 70% of Londoners aged 25 to 39 report that the cost of their rent or mortgage makes it difficult to work in the city. Vicky Spratt is a 28-year-old journalist who worked as a producer of political programmes at the BBC but left because she felt the issues affecting her generation, such as the housing crisis, were not being covered properly. “A lot of issues were dismissed by the older generation – it didn’t affect them. They all owned their own homes,” she told me. Spratt joined the digital lifestyle magazine The Debrief, aimed at twentysomething women, and began an online petition against lettings agents’ fees that gathered more than 250,000 signatures.

Spratt describes herself as a reluctant campaigner, but her circumstances pushed her into it. She currently pays £1,430 per month, not including bills, for a one-bedroom flat which she can afford because she shares with her boyfriend, but she used to live in a room “which was literally the size of a bed”. “The walls were very thin because it had originally been part of one room, which the landlord split into two. I noticed after about six weeks my mental health deteriorated. If I wasn’t in a relationship I would be looking at going back to that,” she said. Spratt earns enough to get a mortgage but, because rents are so high, not enough to save for the 20–30% deposit required. “The common thread for people my age is that we don’t own our own homes and potentially we never will. The housing crisis is older than me and it shocks me that nobody did anything about this, and I want it on the news agenda,” she said. “This is structural neglect. The buy-to-let boom and the unregulated market have a lot to answer for.”

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For some reason nobody blames the New York Times for publishing the info.

UK Police ‘Stop Passing Information To US’ Over Leaks Of Key Evidence (G.)

Police hunting the terror network behind the Manchester Arena bombing have stopped passing information to the US on the investigation as a major transatlantic row erupted over leaks of key evidence in the US, according to a report. Downing Street was not behind any decision by Greater Manchester police to stop sharing information with US intelligence, a Number 10 source said, stressing that it was important police operations were allowed to take independent decisions. “This is an operational matter for police,” a Number 10 spokesman said. The police and the Home Office refused to comment on the BBC report. The Guardian understands there is not a blanket ban on intelligence sharing between the US and the UK.

Relations between the US and UK security services, normally extremely close, have been put under strain by the scale of the leaks from US officials to the American media. Theresa May is expected to confront Donald Trump over the stream of leaks of crucial intelligence when she meets the US president at a Nato summit in Brussels on Thursday. British officials were infuriated on Wednesday when the New York Times published forensic photographs of sophisticated bomb parts that UK authorities fear could complicate the expanding investigation into the lethal blast in which six further arrests have been made in the UK and two more in Libya. It was the latest of a series of leaks to US journalists that appeared to come from inside the US intelligence community, passing on data that had been shared between the two countries as part of a long-standing security cooperation.

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“..today’s CAPE ratio is 182% of the median ratio of the past 137 years..”

The Bubble That Could Break the World (Rickards)

Before diving into the best way to play the current bubble dynamics to your advantage, let’s look at the evidence for whether a bubble exists in the first place… My preferred metric is the Shiller Cyclically Adjusted PE Ratio or CAPE. This particular PE ratio was invented by Nobel Prize-winning economist Robert Shiller of Yale University. CAPE has several design features that set it apart from the PE ratios touted on Wall Street. The first is that it uses a rolling ten-year earnings period. This smooths out fluctuations based on temporary psychological, geopolitical, and commodity-linked factors that should not bear on fundamental valuation. The second feature is that it is backward-looking only. This eliminates the rosy scenario forward-looking earnings projections favored by Wall Street.

The third feature is that that relevant data is available back to 1870, which allows for robust historical comparisons. The chart below shows the CAPE from 1870 to 2017. Two conclusions emerge immediately. The CAPE today is at the same level as in 1929 just before the crash that started the Great Depression. The second is that the CAPE is higher today than it was just before the Panic of 2008. Neither data point is definitive proof of a bubble. CAPE was much higher in 2000 when the dot.com bubble burst. Neither data point means that the market will crash tomorrow. But today’s CAPE ratio is 182% of the median ratio of the past 137 years. Given the mean-reverting nature of stock prices, the ratio is sending up storm warnings even if we cannot be sure exactly where and when the hurricane will come ashore.

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It’s starting to look like China cannot afford the bailout. It’s not just SOEs and LGFVs, it’s the entire banking system too, and Chinese banks are behemoths.

A Bailout Is Coming In China, One Way Or Another (BBG)

On Tuesday night, Moody’s downgraded China’s sovereign credit rating for the first time in 28 years. In doing so, the rating agency is acknowledging the dragon in the room: China will have to pay the price for its epic debt binge, whatever policymakers do from here. [..] “The downgrade,” the agency explained, “reflects Moody’s expectation that China’s financial strength will erode somewhat over the coming years, with economy-wide debt continuing to rise as potential growth slows.” The downgrade was slight, and China remains well within investment grade. Still, Moody’s concerns should wake up those investors who have decided, based on the apparent calm in Chinese stock and currency markets, that the country isn’t experiencing financial strain. What’s happening today may not look like the meltdowns suffered by South Korea or Indonesia in the 1990s.

But that might be only because the state retains so much more control in China. If officials hadn’t stepped in last year to curtail escalating outflows of capital, the picture would likely have looked much grimmer. This “crisis with Chinese characteristics” features all of the seeds of a much more serious downturn: still-rising debt, unrecognized bad loans and a government paying lip service to the severity of the problem. Brandon Emmerich of Granite Peak Advisory noted in a recent study that more and more new debt is being used to pay off old debt, and “a subset of zombie issuers borrowed to avoid default.” As he explains, “even as Chinese corporate bond yields have rebounded (in 2017) and issuance stalled, the proportion of bond volume issued to pay off old debt reached an all-time high – not the behavior of healthy firms taking advantage of a low-yield environment.”

Efforts to curtail credit will thus inflict serious pain on corporate China. And given that the economy remains largely dependent on debt for growth, deleveraging will also make it harder for such firms to expand and service their debt. The one-two punch could push more companies toward default, punishing bank balance sheets. What’s more, if Beijing policymakers respond by ramping up credit again, all they’ll do is delay the inevitable. Larger dollops of debt simply allow zombie companies to stay alive longer and add to the debt burden on the economy. Sooner or later, the government is going to have to bail out local governments and state-owned enterprises, and recapitalize the banks. The only question is how expensive repairing the financial sector will be for taxpayers once Chinese leaders realize the game is up. Looking at past banking crises, the tab could prove huge. South Korea’s cleanup after the 1997 crisis cost more than 30% of gross domestic product. Applying that to China suggests the cost would reach some $3.5 trillion.

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How much of China’s economy stands on its own feet?

China “National Team” Rescues Stocks As Downgrade Crushes Commodities (ZH)

Iron ore led a slump in industrial commodities after Moody’s Investor Service downgraded China’s credit rating and warned that the country’s debt position will worsen as its economic expansion slows. However, one glance at the divergence between industrial metals’ collapse and the sudden buying panic in Chinese stocks confirms what Asher Edelman noted yesterday about the US markets, China’s so-called “National Team” was clearly intervening… As Bloomberg reports, Iron ore futures on the Dalian Commodity Exchange fell as much as 5.6% to 452 yuan a metric ton, almost by the daily limit, before closing at 455.50 yuan, extending Tuesday’s 3% loss. Nickel led a broad slump among base metals, dropping as much as 2.4% to $9,125 a ton on the London Metal Exchange. Nickel stockpiles rose the most in more than a year.

In context, the overnight reversal in Chinese stocks is even more obvious… Moody’s move, downgrading China’s debt to A1 from Aa3, adds to concerns about the effects of a slowdown in the country’s economic growth, following on from downbeat manufacturing readings and weak commodity imports, Simona Gambarini, an analyst at Capital Economics, said. “We’re not particularly concerned about credit growth getting out of hand, but in regards to industrial metals, we have been negative on the outlook for some time on the basis that Chinese growth will slow.” Will The National Team be back tonight?

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They would, wouldn’t they? Isn’t it perhaps more accurate to say the downgrade is long overdue?

China Says Credit Downgrade ‘Inappropriate’, ‘Exaggerates Difficulties’ (CNBC)

China has rejected a move by Moody’s to lower its credit rating, saying the downgrade exaggerates the difficulties facing the economy and underestimates the government’s reform agenda. The country’s finance ministry claimed the credit rating agency used “inappropriate methodology” in its decision to lower long-term local and foreign currency issuer ratings from “Aa3” to “A1”. “Moody’s views that China’s non-financial debt will rise rapidly and the government would continue to maintain growth via stimulus measures are exaggerating difficulties facing the Chinese economy,” the finance ministry said in a statement Wednesday, translated by Reuters. It added that the moves are “underestimating the Chinese government’s ability to deepen supply-side structural reform and appropriately expand aggregate demand.”

Moody’s said that the downgrade reflects its expectation that China’s financial strength will “erode somewhat” over the coming years. The one-notch downgrade marks the first time Moody’s has lowered China’s credit rating in almost 30 years. It last downgraded the country in 1989. It comes as the government moves ahead with its ambitious reform agenda, which it hopes will move the country away from its traditional dependence on manufacturing and towards a services-led economy. Moody’s argues, however, that these aims will be hampered somewhat by the country’s “economy-wide debt”, which it says is set to rise as economic growth slows. Though the new rating will likely modestly increase the cost of borrowing for the Chinese government, it remains within the investment grade rating range.

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Not could, will. Actually the debt is already there.

China’s Downgrade Could Lead To A Mountain Of Debt (BBG)

China’s first credit rating downgrade by Moody’s since 1989 couldn’t have come at a worse time for the nation’s companies, which have never been more reliant on the overseas bond market for funding. While Chinese companies’ foreign-currency debt is only a fraction of the $9 trillion local bond market, China Inc. is on pace for record dollar bond sales this year after the authorities’ crackdown on financial leverage drove up borrowing costs at home. Overseas borrowing has also been part of the government’s strategy to encourage capital inflows in a bid to ease the depreciation pressure on the yuan. Airlines and shipping companies, which finance the costs of new aircraft and vessels with debt, are particularly vulnerable to higher borrowing costs, according to Corrine Png, CEO of Crucial Perspective in Singapore.

Khoon Goh, head of Asia research for Australia & New Zealand Bank, sees state-owned enterprises among firms feeling the biggest impact. Companies including State Grid and China Petroleum & Chemical raised $23 billion in bond sales in April, an increase of 141% from a year earlier. With additional $8.9 billion issuance so far in May, the sales this year totaled $69 billion, representing 71% of the record $98 billion in 2016. Moody’s lowered China’s rating to A1 from Aa3 on Wednesday, citing a worsening debt outlook. Moody’s also downgraded the ratings of 26 non-financial corporate and infrastructure government-related issuers by one level. China’s Finance Ministry blasted the move as “absolutely groundless,” saying the ratings company has underestimated the capability of the government to deepen reform and boost demand.

“The economy is dependent on policy stimulus and with that comes higher leverage,” Marie Diron, associate managing director, Moody’s Sovereign Risk Group, said. “Corporate debt is really the big part.” [..] For major Chinese airlines, every percentage-point increase in average borrowing costs can cut net profit by 5% to 9%, said Crucial Perspective’s Png. For shipping companies, cuts to net profit may reach 15% to 30%. Hainan Airlines, controlled by conglomerate HNA Group Co., plans to buy 19 Boeing aircraft, using the proceeds of a convertible bond sale of up to 15 billion yuan ($2.2 billion), according to a statement to the Shanghai Stock Exchange on May 19. HNA itself has been one of China’s most acquisitive companies, with more than $30 billion worth of announced and completed deals since 2016.

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After all of the above info on debt and bailouts, there’s this. What will save Chinese banks, does anyone think Beijing can afford to bail them out too?

Chinese Banks Dominate Ranking Of World’s Biggest Public Companies (Ind.)

Despite an explosive rise in the power and market capitalisation of technology firms over the last year, China’s banking giants have defended their dominance of Forbes magazine’s annual global ranking of the world’s biggest public companies. The list, released on Wednesday, places Industrial & Commercial Bank of China at the top for a fifth consecutive year, followed by compatriot China Construction Bank. Agricultural Bank of China and Bank of China – the other two that make up China’s “Big Four” of finance – slipped down the list but remained in the top 10, qualifying as public companies despite largely being owned by the state. Warren Buffett’s Berkshire Hathaway, which is the largest public company in the US, took third spot, followed by JPMorgan Chase in fifth.

Although Forbes in a separate list earlier this week named Apple the most valuable brand of 2017, the tech giant only managed to secure ninth spot in the overall list of the biggest public companies. Companies that made it into this year’s list faced a slew of pressures stemming from an unsteady geopolitical climate and slowing economies. But Forbes said that in aggregate the 2,000 companies analysed managed to come out stronger than last year, with increased sales, profits, assets and market values. “This list illustrates that in spite of headwinds, the world’s dominant companies remain a steady force in an unpredictable and challenging environment,” said Halah Touryalai of Forbes. She said that despite slowing GDP figures, companies in China and the US make up more than 40% of the 2017 and dominate the top ten.

Notable gainers this year included General Electric, at 14th from 68th place in 2016, Amazon, up to 83rd from 237th, Charter Communications, at 107th from 784th and Alibaba, at 140th from 174th in 2016. The US dominated the ranking with 565 companies, followed by China and Hong Kong with 263 companies, Japan with 229. The UK had 91 companies in the top 2,000. But one of the UK’s highest ranked companies last year, banking giant HSBC, fell to 48th spot from 14th in 2016, with Forbes citing “economic malaise, low interest rate, paying fines, ongoing regulatory expenses and your usual dose of political uncertainty”. Elsewhere Forbes said that low oil prices had continued to put pressure on companies in the energy sector, reflected in PetroChina falling 85 spots to 102nd place in this years’ ranking. Exxon Mobil slipped four spots to 13th while Chevron tumbled to just 359th from 28th.

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Think the EU is not corrupt?

EU Declared Monsanto Weedkiller Safe After Intervention From EPA Official (G.)

The European Food Safety Authority dismissed a study linking a Monsanto weedkiller to cancer after counsel from a US Environmental Protection Agency officer allegedly linked to the company. Jess Rowlands, the former head of the EPA’s cancer assessment review committee (CARC), who figures in more than 20 lawsuits and had previously told Monsanto he would try to block a US government inquiry into the issue, according to court documents. The core ingredient of Monsanto’s RoundUp brand is a chemical called glyphosate, for which the European commission last week proposed a new 10-year license. Doubts about its regulatory passage have been stirred by unsealed documents in an ongoing US lawsuit against Monsanto by sufferers of non-hodgkins lymphoma, who claim they contracted the illness from exposure to RoundUp.

“If I can kill this, I should get a medal,” Rowlands allegedly told a Monsanto official, Dan Jenkins, in an email about a US government inquiry into glyphosate in April 2015. In a separate internal email of that time, Jenkins, a regulatory affairs manager, said that Rowlands was about to retire and “could be useful as we move forward with [the] ongoing glyphosate defense”. Documents seen by the Guardian show that Rowlands took part in a teleconference with Efsa as an observer in September 2015. Six weeks later, Efsa adopted an argument Rowlands had used to reject a key 2001 study which found a causal link between exposure to glyphosate and increased tumour incidence in mice. Rowlands’ intervention was revealed in a letter sent by the head of Efsa’s pesticides unit, Jose Tarazona, to Peter Clausing, an industry toxicologist turned green campaigner.

In the missive, Tarazona said that “the observer from the US-EPA [Rowlands] informed participants during the teleconference about potential flaws in the Kumar (2001) study related to viral infections.” Efsa’s subsequent report said that the Kumar study “was reconsidered during the second experts’ teleconference as not acceptable due to viral infections”. Greenpeace said that news of an Efsa-Rowlands connection made a public inquiry vital. “Any meddling by Monsanto in regulatory safety assessments would be wholly unacceptable,” said spokeswoman Franziska Achterberg. “We urgently need a thorough investigation into the Efsa assessment before glyphosate can be considered for re-approval in Europe.”

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But the profits are huge.

Factory Farming Belongs In A Museum (G.)

We can feed an extra 4 billion people a year if we reject the bloated and wasteful factory farming systems that are endangering our planet’s biodiversity and wildlife, said farming campaigner Philip Lymbery on Monday night, launching a global campaign to Stop the Machine. At present, 35% of the world’s cereal harvest and most of its soya meal is fed to industrially reared animals rather than directly to humans. This is a “wasteful and inefficient practice” because the grain-fed animals contribute much less back in the form of milk, eggs and meat than they consume, according to Lymbery, the chief executive of Compassion in World Farming (CIWF). “The food industry seems to have been hijacked by the animal feed industry,” he said.

In recent years the developing world in particular has seen significant agricultural expansion. According to independent organisation Land Matrix, 40m hectares have been acquired globally for agricultural purposes in the last decade and a half, with nearly half of those acquisitions taking place in Africa. The impact of that expansion is still unclear, but meanwhile the world’s wildlife has halved in the past 40 years. “Ten thousand years ago humans and our livestock accounted for about 0.1% of the world’s large vertebrates,” said Tony Juniper, the former head of Friends of the Earth. “Now we make up about 96%. This is a timely and necessary debate, and an issue that is being debated more and more.” An exhibition at the Natural History Museum by the campaigners aims to draw explicit links between industrial farming and its impact on wildife.

The Sumatran elephant, for example, has been disastrously affected by the growing palm oil industry, with more than half of its habitat destroyed to create plantations, and elephant numbers falling rapidly. The old argument that we need factory farming if we are to feed the world doesn’t hold true, says Lymbery, who argues that ending the wasteful practice of feeding grain to animals would feed an extra 4 billion people. Putting cattle onto pasture and keeping poultry and pigs outside where they can forage, and supplementing that with waste food is far more efficient and healthy, he says. According to his calculations, based on figures from the UN’s Food and Agriculture Organisation (FAO), the total crop harvest for 2014 provided enough calories to feed more than 15 billion people (the world’s population is currently 7.5 billion), but waste and the animal feed industry means that much of that is going elsewhere.

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It confronts no such thing.

They actually argue that the Eurogroup can only function without transparency, checks and balances.

Eurogroup Confronts Own Deficit: Governance (Pol.)

For the past seven-plus years, as Greece’s debt crisis plays out in public in painful, blow-by-blow detail, the European body charged with its rescue has conducted its affairs away from prying eyes. Now there are growing calls to change the way the Eurogroup operates. Critics of the gathering of finance ministers from the 19 countries in the euro and officials from the ECB and European Commission accuse it of acting like a private club. They want greater transparency in keeping with the influence it wields over issues of vital importance to many of the eurozone’s 350 million citizens. “The euro crisis changed everything,” said Leo Hoffmann-Axthelm, an advocacy coordinator with the NGO Transparency International. “The Eurogroup should be institutionalized, with proper rules of procedure, document handling and a physical address with actual spokespeople. We can no longer be governed by an informal club.”

Although it can impose tough conditions for bailing out struggling member countries or rescuing banks, it publishes no official minutes, has no headquarters, and the people who function as its secretariat have other day jobs. Its public face is a eurozone finance minister, who works for no salary: The current president is Jeroen Dijsselbloem, a Dutch Socialist with conservative views on fiscal matters. Legally, it is governed by a single sentence in Article 137 of the EU treaty which says “arrangements for meetings between ministers of those Member States whose currency is the euro are laid down by the Protocol on the Euro Group.” Emily O’Reilly, the EU’s ombudsman, is among those calling for reform. While she credits Dijsselbloem for his efforts to peel back the curtain on Eurogroup proceedings, she said: “It is obviously difficult for Europeans to understand that the Eurogroup, whose decisions can have a significant impact on their lives, [isn’t] subject to the usual democratic checks and balances.”

Indeed, when a group of citizens from Cyprus who disagreed with the terms of the 2013 Cypriot bank bailout took their case to the European Court of Justice, the court’s response was that the Eurogroup is not “capable of producing legal effects with respect to third parties” because it is just a discussion forum. Last year, Dijsselbloem used the ECJ ruling to justify the Eurogroup avoiding standard EU transparency rules, though he did commit to individual transparency requests on an informal basis. But some of those who participate in Eurogroup meetings argue that its informality is precisely what makes it useful. The last thing they want is another bureaucratic EU institution, and if the Eurogroup were reformed out of existence, they say, a new version would pop up in its place, without the minimal accountability it currently offers in the form of meeting agendas and press conferences.

“It’s the informal nature of the Eurogroup that makes it possible to have an open exchange that you will not find in more formal bodies,” said Taneli Lahti, a former head of cabinet for European Commission Vice President Valdis Dombrovskis. “This is crucial for policymaking, negotiating, finding agreements and understanding each other.”

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Why government surpluses are the worst thing for an economy.

Podcast: Steve Keen’s Manifesto (OD)

The only times the US government ran a surplus, it was followed by the 1929 and 2008 crashes.

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First you make growth impossible be demanding surpluses till the cows come home, and then you demand growth.

No Greek Debt Relief Need If Primary Surplus Above 3% of GDP For 20 Years (R.)

Greece will not need any debt relief from euro zone governments if it keeps its primary surplus above 3% of GDP for 20 years, a confidential paper prepared by the euro zone bailout fund, the European Stability Mechanism (ESM), showed. The paper, obtained by Reuters, was prepared for euro zone finance ministers and IMF talks last Monday, which ended without an agreement due to diverging IMF and euro zone assumptions on future Greek growth and surpluses. A group of euro zone finance ministers led by Germany’s Wolfgang Schaeuble insists that the issue of whether Greece needs debt relief can only be decided when the latest bailout expires in mid-2018. The IMF says the need for a bailout is already clear now.

Under scenario A, the paper assumes no debt relief would be needed if Athens kept the primary surplus – the budget balance before debt servicing – at or above 3.5% of GDP until 2032 and above 3% until 2038. The ECB says such long periods of high surplus are not unprecedented: Finland, for example, had a primary surplus of 5.7% over 11 years in 1998-2008 and Denmark 5.3% over 26 years in 1983-2008. A second option under scenario A assumes Greece secures the maximum possible debt relief under a May 2016 agreement. Greece would then have to keep its primary surplus at 3.5% until 2022 but could then lower it to around 2% until mid-2030s and to 1.5% by 2048, giving an average of 2.2% in 2023-2060.

The paper says the maximum possible debt relief under consideration is an extension of average weighted loan maturities by 17.5 years from the current 32.5 years, with the last loans maturing in 2080. The ESM would also limit Greek loan repayments to 0.4% of Greek GDP until 2050 and cap the interest rate charged on the loans at 1% until 2050. Any interest payable in excess of that 1% would be deferred until 2050 and the deferred amount capitalized at the bailout fund’s cost of funding. The ESM would also buy back in 2019 the €13 billion that Greece owes the IMF as those loans are much more expensive than the euro zone’s. All this would keep Greece’s gross financing needs at 13% of GDP until 2060 and bring its debt-to-GDP ratio to 65.4% in 2060, from around 180% now.

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44 children.

Deadliest Month For Syria Civilians In US-Led Strikes (AFP)

US-led air strikes on Syria killed a total of 225 civilians over the past month, a monitor said on Tuesday, the highest 30-day toll since the campaign began in 2014. The Syrian Observatory for Human Rights said the civilian dead between April 23 and May 23 included 44 children and 36 women. The US-led air campaign against the Islamic State jihadist group in Syria began on September 23, 2014. “The past month of operations is the highest civilian toll since the coalition began bombing Syria,” Observatory head Rami Abdel Rahman told AFP. “There has been a very big escalation.” The previous deadliest 30-day period was between February 23 and March 23 this year, when 220 civilians were killed, Abdel Rahman said. The past month’s deaths brought the overall civilian toll from the coalition campaign to 1,481, among them 319 children, the Britain-based monitoring group said. Coalition bombing raids between April 23 and May 23 also killed 122 IS jihadists and eight fighters loyal to the Syrian government, the Observatory said.

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Well over 100 children.

30 Migrants, Most of Them Toddlers, Drown in Mediterranean (R.)

More than 30 migrants, mostly toddlers, drowned on Wednesday when about 200 people without life jackets fell from a boat into the sea off the Libyan coast before they could be hauled into waiting rescue boats. The boat was near a rescue vessel when it suddenly listed and many migrants tumbled into the Mediterranean, Italian Coast Guard commander Cosimo Nicastro told Reuters. “At least 20 dead bodies were spotted in the water,” he said. The rescue group MOAS, which also had a ship nearby, said it had already recovered more than 30 bodies. “Most are toddlers,” the group’s co-founder Chris Catrambone said on Twitter. The coast guard called in more ships to help with the rescue, saying about 1,700 people were packed into about 15 vessels in the area.

The transfer from these overloaded boats is risky because desperate migrants in them sometimes surge to the side nearest a rescue vessel and destabilise their flimsy craft, which then list dangerously or capsize. More than 1,300 people have died this year on the world’s most dangerous crossing for migrants fleeing poverty and war across Africa and the Middle East. Last Friday, more than 150 disappeared at sea, the International Organization for Migration (IOM) said on Tuesday, citing migrant testimony collected after they disembarked in Italy. In the past week, more than 7,000 migrants have been plucked from unsafe boats in international waters off the western coast of Libya, where people smugglers operate with impunity.

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May 242017
 
 May 24, 2017  Posted by at 9:32 am Finance Tagged with: , , , , , , , , , ,  6 Responses »
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Henri Matisse Nu Blue IV 1952

 

China Hit by First Moody’s Downgrade Since 1989 on Debt Risk (BBG)
Chinese Banks Are In Big Trouble (ZH)
American Exceptionalism – Population Growth vs Money Growth (Econimica)
Shiller: Stay In The Market, It ‘Could Go Up 50% From Here’ (CNBC)
German Police Search Daimler Facilities In Dieselgate Probe (DW)
Canada Must Deflate Its Housing Bubble (BBG Ed.)
The Violence of Austerity (OD)
IMF Wants More Realism In Eurozone Assumptions On Greece (R.)
QE Remains A Long Shot For Greece (K.)
In Germany, Syrian Man Wins Case Against Deportation To Greece (AP)
Elder Refugees Seeking Asylum in Europe Left Stranded in Greece – HRW (GR)
Tasmania Bans Super Trawlers From Its Waters (AAP)
Fossils Cast Doubt On Human Lineage Originating In Africa (R.)

 

 

Moody’s worries are the local government financing vehicles and state-owned enterprises, which are umbilically linked to the shadow banks.

You can’t run an entire economy from and in the shadows.

China Hit by First Moody’s Downgrade Since 1989 on Debt Risk (BBG)

Moody’s Investors Service cut its rating on China’s debt for the first time since 1989, challenging the view that the nation’s leadership will be able to rein in leverage while maintaining the pace of economic growth. Stocks and the yuan slipped in early trading after Moody’s reduced the rating to A1 from Aa3 on Wednesday, with markets paring losses in the afternoon. Moody’s cited the likelihood of a “material rise” in economy-wide debt and the burden that will place on the state’s finances, while also changing the outlook to stable from negative. It’s “absolutely groundless” for Moody’s to argue that local government financing vehicles and state-owned enterprise debt will swell the government’s contingent liabilities, according to a response released by the Ministry of Finance. The ratings company has underestimated the capability of the government to deepen reform and boost demand, the ministry said.

It wouldn’t be the first time a rating company was behind the curve, nor is such pushback unique – U.S. Treasury officials questioned the credibility of a 2011 downgrade from Standard & Poor’s. Still, the move underscores broader doubts over whether President Xi Jinping’s government can simultaneously cut excessive leverage and steady growth, all with a twice a decade reshuffle of top party posts looming later this year. “It is a psychological blow that China will not take kindly to and absolutely speaks to the rising financial pressures,” said Christopher Balding, an associate professor at the HSBC School of Business at Peking University in Shenzhen. That said, “it doesn’t matter much in the grand scheme of things because so much of Chinese debt is held by state or quasi-state actors and minimal amounts are international investors.”

Total outstanding credit climbed to about 260% of GDP by the end of 2016, up from 160% in 2008. At the same time, China’s external debt is low by international standards, at around 12% of gross domestic product, according to the IMF, meaning that a downgrade isn’t likely to be as disruptive as it would be for nations more reliant on international funding. Overseas institutions’ holdings of onshore bonds dropped to 830 billion yuan ($121 billion) as of the end of March, from 853 billion yuan three months earlier, People’s Bank of China data show. That’s less than 1.5% of 63.7 trillion yuan of outstanding notes. Moody’s last cut China’s sovereign rating in 1989, when it downgraded the sovereign to Baa2 from Baa1, according to spokesperson, Manvela Yeung. Moody’s lowered China’s credit-rating outlook to negative from stable in March 2016, citing rising debt, falling currency reserves and uncertainty over authorities’ ability to carry out reforms.

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Starting to be painful. At some point, Beijing total control will come up empty.

Chinese Banks Are In Big Trouble (ZH)

That’s not supposed to happen… With the crackdown on financial system leverage underway, Chinese banks (and securities firms) are in big trouble. As we noted previously, China’s bond curve is inverted, yields are surging, and Chinese regulatory decisions shutting down various shadow-banking pipelines has crushed securities firms’ stocks. However, as Bloomberg points out, as China’s deleveraging efforts cut into banks’ profit margins, rising base funding costs and interbank credit risk concerns have pushed banks’ cost of borrowing beyond the rate they charge customers for loans for the first time in history. As the chart shows, the one-year Shanghai Interbank Offered Rate has exceeded the Loan Prime Rate, the first time this has happened since the latter was introduced in 2013. “This is probably just the beginning” and interbank funding costs will rise further amid the drive to reduce leverage, said Xu Hanfei at China Merchants Securities in Shanghai.

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Wonderful from Chris Hamilton.

American Exceptionalism – Population Growth vs Money Growth (Econimica)

Since 1971, and the disconnection of the dollar from a finite gold backing, the value of money (the dollar) has been determined by it’s purchasing power versus the inflation of the assets to be purchased. Thus printing more money has not necessarily created “wealth” if the assets to be purchased are rising as fast or faster than the purchasing power of the “money”. The Fed touts it’s dual mandate of full employment and stable prices…but the result in prices; not so stable. The primary global asset purchasable only in US dollars, crude oil, has told a story of wildly gyrating prices. Since the end of Bretton Woods and the subsequent Congressionally dual mandated roles bestowed on the Fed…crude oil prices have gone bezerk, twice climbing nearly 10x’s within a decade. This is the opposite of stable (particularly compared to the price stability from WWII’s end until the Fed took over).

Soooo, theoretically the growth of “money” should be linked to the growth of the population, to ensure an adequate and stable money supply exists for the growing population. In a moment I’ll show you anything but a stable money supply. But first, the chart below shows the total 25-54yr/old US population, those employed among them, and the value in dollars of all publicly traded US stocks (represented by the Wilshire 5000). Something far beyond population growth or employment growth is pushing up the value of dollar based assets, gauging by US stock markets accelerating appreciation.

With that in mind, the chart below shows the growth of M3 money (the broadest measure of US “money”) and the broader 15-64yr/old US population since 1971. The money supply has grown in excess of 20x’s (2,000%) vs. the working age population (15-64yr/olds) which has grown less than 1x (nearly 70% increase).

This results in a rising ratio of “money” on a per capita of the core population basis, as the chart below details. The total amount of “money” rose from approximately $5 thousand dollars per working age adult to todays $65 thousand dollars per adult…an increase of 13x’s (1.300%).

The annual growth of the 15-64yr/old core US population peaked in 2003 and annual core population growth has decelerated by 90% since…while annual M3 growth has doubled over the same time period. [..] The chart below from 2000 into 2017 shows the change in both core population and M3 money supply, showing the year over year change on a monthly basis…and the current fall in core population growth will continue downward, likely turning negative at times over the next year (yet another first for America).

The final chart is the growth in M3 money supply per the growth in the adult, working age population. I’m not an economist or expert on much of anything…but that doesn’t look particularly good to me (something to do with “hyper-monetization” or some such thing). All I can say is the appearance of hockey sticks typically aren’t a good or stable sign but their appearance, just like those of black swans, has become the “new normal”.

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It could also fall by 50%.

Shiller: Stay In The Market, It ‘Could Go Up 50% From Here’ (CNBC)

Nobel Prize-winning economist Robert Shiller believes investors should continue to own stocks because the bull market may continue for years. CNBC’s Mike Santoli spoke with Shiller in an exclusive interview for CNBC PRO. Santoli asked Shiller about his market outlook. “I would say have some stocks in your portfolio. It could go up 50% from here. That’s what it did around 2000, after it reached this level, it went up another 50%. So I’m not against investing in the stock market when you consider the alternatives. But I think if one wants to diversify, US is high in its CAPE ratio. You can go practically anywhere else in the world and it’s lower,” Shiller said. “We could even set a new another record high in CAPE, that’s not a forecast.”

Shiller developed the “cyclically adjusted price-to-earnings ratio” (CAPE) market valuation measure, which is calculated using price divided by the index’s average historical 10-year earnings, adjusted for inflation. The economist’s research found future 10-year stock market returns were negatively correlated to high CAPE ratio readings on a relative basis. However, even though the current CAPE ratio is at 29, which is above the 17 historical average, the economist is not calling for a market decline. “I can see it as a real possibility that stocks prices and house prices would both keep going up for years, but I’m not forecasting that by any means,” he added.

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Dragging on.

German Police Search Daimler Facilities In Dieselgate Probe (DW)

German authorities have raided several locations associated with German premium carmaker Daimler. They acted on an initial suspicion of fraud involving misleading information about emission levels. Prosecutors in the southern German city of Stuttgart confirmed Tuesday they had searched about a dozen locations associated with the maker of Mercedes-Benz cars. The raids came as a result of the company being suspected of fraud and misleading advertising in relation to the selling of diesel-powered vehicles. Prosecutors have yet to provide further details on the raids. They only said the raids were carried out by well over 200 investigators across the country, with the focus of the search in progress on locations in the states of Baden-Württemberg, Lower Saxony, Saxony and the the city state of Berlin.

The carmaker said the investigations targeted “known and unknown employees of Daimler over suspicion of fraud related to the possible manipulation of exhaust gas emissions in passenger cars with diesel engines.” Daimler executives said they were not aware of any emissions scandal, adding that they were fully co-operating with investigators. The automaker had earlier agreed with Germany’s Federal Motor Transport Authority to “voluntarily” recall 247,000 vehicles to remove “potentially problematic technology,” which Daimler said had been installed to prevent engines from being damaged. Daimler has also been in the crosshairs of prosecutors in the US where it faces a number of class-action suits by car owners who have accused the company of not being accurate in stating emissions levels for a number of its diesel-powered models.

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You don’t say.

Canada Must Deflate Its Housing Bubble (BBG Ed.)

Canada’s housing market offers a case study in a contentious economic issue: If a central bank sees a bubble forming, should it act to deflate it? In this instance, the answer should be a resounding yes. A combination of foreign money, local speculation and abundant credit has driven Canadian house prices to levels that even government officials recognize cannot be sustained. In the Toronto area, for example, they were up 32% from a year earlier in April. David Rosenberg, an economist at Canadian investment firm Gluskin Sheff, notes that it would take a decline of more than 40% to restore the historical relationship between prices and household income. Granted, the bubble bears little resemblance to the U.S. subprime boom that triggered the global financial crisis.

Although one specialized lender, Home Capital, has had issues with fraudulent mortgage applications, regulation has largely kept out high-risk products. Homeowners haven’t been withdrawing a lot of equity, and can’t legally walk away from their debts like many Americans can. Banks aren’t sitting on the kinds of structured products that destroyed balance sheets in the U.S. Nearly all mortgage securities and a large portion of loans are guaranteed by the government. That said, the situation presents clear risks. As buyers stretch to afford homes, household debt has risen to 167% of disposable income – the highest among the Group of Seven industrialized nations. This is a serious vulnerability, and a big part of the rationale behind Canadian banks’ recent ratings downgrade. The more indebted people are, the more sensitive their spending becomes to changes in prices and interest rates, potentially allowing an otherwise small shock to result in a deep recession.

What to do? Administrative efforts to curb lending and tax foreign buyers have helped but haven’t solved the problem. That’s largely because extremely low interest rates are still giving people a big incentive to borrow. The Bank of Canada has held its target rate at 1% or lower since 2009, and at 0.5% since 2015, when it eased to counteract the effect of falling oil prices. That’s a very stimulative stance in a country where the neutral rate is estimated to be about 3% or higher. One can’t help but see a parallel with the low U.S. rates and the housing bubble of the early 2000s.

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The Violence of Austerity, edited by Vickie Cooper and David Whyte, is published by Pluto Press.

The Violence of Austerity (OD)

As we move towards the general election, we are paralyzed by what is probably the biggest single issue affecting ordinary people in the country: austerity. We are unable to fully understand both the economic madness of austerity and the true scale of the human cost and death toll that ‘fiscal discipline’ has unleashed. Since coming into power as Prime Minister, Theresa May has made a strategic decision not to use the word ‘austerity’. Instead she has adopted a more palatable language in a vain attempt to distance herself from the Cameron governments before her: “you call it austerity; I call it living within our means.” The experience of countless thousands of people is precisely the opposite: people are actively prevented from living within their means and are cut off from their most basic entitlement to: housing, food, health care, social care and general protection from hardship.

And people are dying as a result of these austerity effects. In February, Jeremy Corbyn made precisely this point when he observed the conclusions of one report that 30,000 people were dying unnecessarily every year because of the cuts to NHS and to local authority social care budgets. But this is really only the tip of the iceberg. The scale of disruption felt by people at the sharp end of these benefit reforms is enormous. Countless thousands of others have died prematurely following work capability assessments: approximately 10,000 according the government’s own figures. People are dying as a result of benefit sanction which has fatal impacts on existing health conditions, such as diabetes and heart disease. Austerity is about dismantling social protection. The crisis we face in social care is precipitated by cuts to local authority funding.

In the first 5 years of austerity, local authority budgets were cut by 40%, amounting to an estimated £18bn in care provision. A decade of cuts, when added up, also means that some key agencies that protect us, such as the Health and Safety Executive and the Environment Agency will have been decimated by up to 60% of funding cuts. Scaling back on an already paltry funding in these critical areas of regulation will lead to a rise in pollution related illness and disease and will fail to ensure people are safe at work. The economic folly is that austerity will cost society more in the long term. Local authorities are, for example, housing people in very expensive temporary accommodation because the government has disinvested in social housing.

The crisis in homelessness has paradoxically led to a £400 million rise in benefit payments. The future costs of disinvesting in young people will be seismic. Ending austerity would mean restoring our system of social protection and restoring the spending power of local authorities. It would mean, as all the political parties except the Conservatives recognise, taxing the rich, not punishing the poor in order to pay for a problem that has its roots in a global financial system that enriched the elite. It would also mean recognizing that the best way to prevent the worsening violence of austerity and to rebuild the economy is to re-invest in public sector jobs.

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The Greek government is being played for fools. Given how long this has been going on, one might suggest they are.

IMF Wants More Realism In Eurozone Assumptions On Greece (R.)

The IMF needs to see more realistic euro zone assumptions about Greece’s economy and more detail on planned debt relief measures to join a bailout, IMF’s European Department head Poul Thomsen said. Thomsen said the IMF and Greece’s euro zone lenders made progress in talks on Monday, but were not yet quite there. “We still think there is a need for more realism in assumptions and more specificity,” Thomsen said on Tuesday. The euro zone and the IMF agreed on Monday that Greece would have to keep a primary surplus – the budget balance before debt servicing – at 3.5% of GDP for five years after the bailout ends in 2018. But officials said the size of the surplus afterwards was still under discussion and there were also differences on economic growth assumptions, especially that forecasts used for debt relief plans spanned dozens of years. A group of euro zone countries led by Germany wants the IMF to join the Greek bailout, now handled by euro zone governments alone, to increase credibility. The IMF says that it will only join if Greece is granted debt relief.

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Greece will be declared eligible for inclusion in the ECB’s QE only AFTER the central bank says it will taper QE.

QE Remains A Long Shot For Greece (K.)

Greece is nowhere near a swift inclusion in the ECB’s QE program, according to senior officials at domestic banks. They argue that the issue of the national debt, and securing its sustainability in a way that would satisfy the IMF too, constitutes a particularly complex problem that may well be too hard to resolve by next month’s Eurogroup. They therefore consider Greece’s entry into the ECB’s bond-buying program this summer unlikely – instead expecting it to happen after the German election in the fall, either by the end of 2017 or in early 2018. Some go as far as expressing concern as to whether Greece will make it in at all before the program ends.

While there are more and more voices within the ECB speaking in favor of concluding the program earlier, Greece would like enjoy its benefits for more than two years. Greek banks are hoping a formula will be found at the next Eurogroup, on June 15, that will allow the disbursement of the next bailout tranche while putting off any decisions on the debt. The most optimistic observers note there is a chance of Greece entering QE between July and September and next month’s Eurogroup will be crucial to this end. The ECB argues that Greece’s inclusion in the bond-buying program requires the safeguarding of the debt’s sustainability.

In this context political statements or a mere reference to a series of measures will not suffice, as they will have to constitute legally binding pledges, which is highly unlikely before the German election. Goldman Sachs stated in an analysis that this country is not likely to fulfill the terms the ECB has set to join QE before the reduction of the monthly rate of bond purchases is activated. It also highlighted the high rate of bad loans as a point of concern that might also delay the decision for Greece to enjoy the benefits of QE. Similarly, Citi estimates that without an agreement on the easing of the debt, both inclusion in QE and a return to the bond markets would be quite difficult for Greece.

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In one and the same Union, laws and rights are widely divergent. That is not a union.

In Germany, Syrian Man Wins Case Against Deportation To Greece (AP)

Germany’s highest court has upheld a complaint by a Syrian whose asylum claim was rejected because he’d already been granted asylum in Greece. The man, whose name wasn’t released, arrived in Germany in 2015. He told officials he had already been granted protection in Greece but had been living on the street there and received no support from the Greek government. The man’s claim in Germany was rejected, meaning that he risked deportation to Greece. Germany’s Federal Constitutional Court said Tuesday that a lower court had wrongly failed to take account of a lack of welfare payments for refugees in Greece and to check whether there were assurances that the man would be given at least temporary housing. Judges sent the case back to the lower court to reconsider.

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Who cares about human rights declarations when elections are coming up?

Elder Refugees Seeking Asylum in Europe Left Stranded in Greece – HRW (GR)

There are many unnecessary delays and arbitrary barriers which keep older refugees and asylum seekers stranded in Greece, unable to reunite with family members who have legal status in the EU, Human Rights Watch said on Monday. According to their publication on Monday, EU: Older Refugees Stranded in Greece, one of the main issues that older refugees face is that family reunification does not focus on reuniting an entire family, but spouses and parents with minor children who are under the age of 18. Hundreds of older refugees and asylum seekers currently in Greece who have fled war zones and persecution are waiting to learn if they will be allowed to reunite with adult family members who have been granted residency in another EU country. Although EU law provides for family reunification for older people, lack of clarity or explicit provisions governing the process means that they can remain in limbo, far from their family for prolonged periods of time.

“These older people, already victims of conflict and persecution, hoped to find protection in the EU after treacherous journeys to Greece, and to be reunited with their family,” said Bethany Brown, researcher on older people’s rights at Human Rights Watch. “Now they don’t know if they will ever see their relatives again.” While several barriers are common to all asylum seekers, they can have a more significant impact on older people. Older people have been shown, in some contexts, to have significantly higher rates of psychological distress than the general refugee population, and often suffer from health issues, injuries and violence during displacement, and frailty that can be exacerbated by time and uncertainty.

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A little piece of news. But a good one.

Tasmania Bans Super Trawlers From Its Waters (AAP)

Tasmania’s parliament has passed laws banning super trawler fishing vessels from operating in the state’s waters. Legislation was given a green light on Wednesday, with Liberal government MP Mark Shelton confirming that any future attempts to allow freezer trawler vessels would require an act of parliament. “Our bill should give recreational fishers additional comfort that any future attempt to let super trawlers into the small pelagic fishery will be met with parliamentary hurdles,” he said.

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Graecopithecus freybergi.

Fossils Cast Doubt On Human Lineage Originating In Africa (R.)

Fossils from Greece and Bulgaria of an ape-like creature that lived 7.2 million years ago may fundamentally alter the understanding of human origins, casting doubt on the view that the evolutionary lineage that led to people arose in Africa. Scientists said on Monday the creature, known as Graecopithecus freybergi and known only from a lower jawbone and an isolated tooth, may be the oldest-known member of the human lineage that began after an evolutionary split from the line that led to chimpanzees, our closest cousins. The jawbone, which included teeth, was unearthed in 1944 in Athens. The premolar was found in south-central Bulgaria in 2009.

The researchers examined them using sophisticated new techniques including CT scans and established their age by dating the sedimentary rock in which they were found. They found dental root development that possessed telltale human characteristics not seen in chimps and their ancestors, placing Graecopithecus within the human lineage, known as hominins. Until now, the oldest-known hominin was Sahelanthropus, which lived 6-7 million years ago in Chad. The scientific consensus long has been that hominins originated in Africa. Considering the Graecopithecus fossils hail from the Balkans, the eastern Mediterranean may have given rise to the human lineage, the researchers said.

The findings in no way call into question that our species, Homo sapiens, first appeared in Africa about 200,000 years ago and later migrated to other parts of the world, the researchers said. “Our species evolved in Africa. Our lineage may not have,” said paleoanthropologist Madelaine Böhme of Germany’s University of Tübingen, adding that the findings “may change radically our understanding of early human/hominin origin.” Homo sapiens is only the latest in a long evolutionary hominin line that began with overwhelmingly ape-like species, followed by a succession of species acquiring more and more human traits over time.

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May 152017
 
 May 15, 2017  Posted by at 8:18 am Finance Tagged with: , , , , , , , , ,  1 Response »
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Fred Stein Ballfield NY 1946

 

Global Property Bubble Is Ready To Pop (MF)
3 Cities Push Canada To Another Record On House Prices (HPo)
Cyber Attack Aftershocks Disrupt Devices Across Asia on Monday (R.)
Lessons From Last Week’s Cyberattack (Microsoft)
The World Is Getting Hacked. Why Don’t We Do More to Stop It? (NYT)
Peak China: Chinese Data Misses Across The Board (ZH)
Why India Is Cool Towards China’s Belt And Road (SCMP)
China’s Silk Road Summit: India Skips, Warns Of “Unsustainable Debt” (ZH)
Number of Chinese Tourists Visiting Greece to Rise 10-Fold (BBG)
New Zealand Slashes Chinese Tourism Forecast, Denting Outlook (BBG)
Fed Officials Test New Argument for Tightening: Protect the Poor (BBG)
Marc Cohodes, The Scourge Of Home Capital, Reveals His Latest Short (ZH)
Eyes on Euro Fighter Macron (K.)
Germany Will Not Rush Into Euro Area Fiscal Union (CNBC)
What Germany Owes Namibia For Genocide (Econ)

 

 

Only real question: will they all fall together like dominoes?

Global Property Bubble Is Ready To Pop (MF)

Ever since interest rates were slashed to near zero in the wake of the financial crisis, the world has gone property mad. Residential house prices from Abu Dhabi to Zurich have spiralled as hot money travelled the world looking for a home. For those who got in early it has been incredibly rewarding, even if – whisper it – stock markets have actually done far better. The global property bubble cannot blow much bigger. The best we can hope is that it deflates slowly… but it could burst. Property is still going crazy in China, where prices have been pumped up by yet another bout of government stimulus. Guangzhou, close to Hong Kong on the Chinese mainland, leapt a whopping 36% in the past 12 months, according to Knight Frank. Prices rose around 20% in Beijing and Shanghai, as well as in Toronto, Canada.

Seoul in South Korea continues to boom, as does Sydney and Stockholm, both up 10.7% over the last year. Berlin (8.7%), Melbourne (8.6%) and Vancouver (7.9%) are also performing strongly. In most other global cities, property is finally starting to slow. Hong Kong rose a relatively modest 5.3% while Singapore grew 4%, and thereafter price hikes trail away. Half of the 41 countries in the report grew by less than 2%, while nearly one in three saw prices fall, by up to 8.3%. Prime central London was the world’s raciest property market but is now leading the charge in the other direction, falling 6.4%. Former hotspots Zurich, Moscow and Istanbul fell 7% or more over the last 12 months. Cheap money has driven prices ever higher for eight years but is finally losing traction, as affordability is stretched again. Interest rates cannot go any lower and could start rising if the US Federal Reserve continues to tighten. Regulatory authorities are looking to rein in overheated markets, with China only the latest to tighten borrowing requirements. The glory days are over.

Investing in property has one major benefit over stocks and shares – you can leverage up borrowing money to fund your purchase. Thereafter, the advantages are all one way. First, you can trade stocks online within seconds, whereas offloading property can take months (longer in a market crash). You can invest small amounts, rather than the hundreds of thousands of dollars, pounds, euros, yen or renminbi you need to buy a decent property these days. If you buy an investment property you have the effort of doing up and maintaining it, finding tenants, and paying a host of local taxes. You don’t have any of that nonsense with stocks. Best of all, you can invest quickly and easily in a wide spread global stocks, sectors and markets.

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Greater fools and empty bags.

3 Cities Push Canada To Another Record On House Prices (HPo)

Home prices in Canada rose for the 15th straight month in a row in April, according to the Teranet-National Bank house price index, which once again hit its highest levels ever. But virtually all the strength seen over the past year came from just three cities — Toronto, Hamilton and Victoria. The index, which tracks repeat sales of single-family homes over time, found Toronto led the way, with the price index rising 2.6% in April. The city has seen prices jump 7.3% since the start of the year, and 26.3% in the past 12 months. Nearby Hamilton, which is experiencing spillover from Toronto’s housing boom, saw its price index rise 2% in April and 23% over the past year. Vancouver, which as recently as a year ago was showing the fastest price growth in the country, is now showing signs of slowing.

The price index fell 0.1% in April, and compared to a year ago, prices are up 9.7%, slower than the national average of 13.4%. Many market experts say Vancouver’s foreign buyer tax has pushed buyers to other cities, including to Victoria, where the price index rose 1.5% in April, and 19% over the past year. “Based on the cooldown in home sales that began early last year, we expect the Vancouver growth rate to fall much lower over the next few months,” wrote David Madani, senior Canada economist at Capital Economics. But Madani expects Toronto to experience a similar cooling. He noted that the city saw a sudden, 30% spike in new home listings in April. That’s “further evidence that the surge in house price inflation is close to a peak and will drop back sharply before the end of this year,” he wrote in a client note.

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So far not so bad. But if the next generation of the attack has no killswitch that can be triggered, anything is possible.

Cyber Attack Aftershocks Disrupt Devices Across Asia (R.)

Asian governments and businesses reported some disruptions from the WannaCry ransomware worm on Monday but cybersecurity experts warned of a wider impact as more employees turned on their computers and checked e-mails. The ransomware that has locked up hundreds of thousands of computers in more than 150 countries has been mainly spread by e-mail, hitting factories, hospitals, shops and schools worldwide. While the effect on Asian entities appeared to be contained on Monday, industry professionals flagged potential risks as more systems came online across the region. Companies that were hit by the worm may be wary of making it public, they added.

“We’re looking at our victims’ profiles, we’re still seeing a lot of victims in the Asia-Pacific region. But it is a global campaign, it’s not targeted,” said Tim Wellsmore, Director of Threat Intelligence, Asia Pacific at cybersecurity firm FireEye. “But I don’t think we can say it hasn’t impacted this region to the extent it has some other regions.” Michael Gazeley, managing director of Network Box, a Hong Kong-based cybersecurity firm, said there were still “many ‘landmines’ waiting in people’s in-boxes” in the region, with most of the attacks having arrived via e-mail.

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Microsoft blames the NSA, and for good reason, but…

Lessons From Last Week’s Cyberattack (Microsoft)

[..] this attack provides yet another example of why the stockpiling of vulnerabilities by governments is such a problem. This is an emerging pattern in 2017. We have seen vulnerabilities stored by the CIA show up on WikiLeaks, and now this vulnerability stolen from the NSA has affected customers around the world. Repeatedly, exploits in the hands of governments have leaked into the public domain and caused widespread damage. An equivalent scenario with conventional weapons would be the U.S. military having some of its Tomahawk missiles stolen. And this most recent attack represents a completely unintended but disconcerting link between the two most serious forms of cybersecurity threats in the world today – nation-state action and organized criminal action.

The governments of the world should treat this attack as a wake-up call. They need to take a different approach and adhere in cyberspace to the same rules applied to weapons in the physical world. We need governments to consider the damage to civilians that comes from hoarding these vulnerabilities and the use of these exploits. This is one reason we called in February for a new “Digital Geneva Convention” to govern these issues, including a new requirement for governments to report vulnerabilities to vendors, rather than stockpile, sell, or exploit them. And it’s why we’ve pledged our support for defending every customer everywhere in the face of cyberattacks, regardless of their nationality. This weekend, whether it’s in London, New York, Moscow, Delhi, Sao Paulo, or Beijing, we’re putting this principle into action and working with customers around the world.

We should take from this recent attack a renewed determination for more urgent collective action. We need the tech sector, customers, and governments to work together to protect against cybersecurity attacks. More action is needed, and it’s needed now. In this sense, the WannaCrypt attack is a wake-up call for all of us. We recognize our responsibility to help answer this call, and Microsoft is committed to doing its part.

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…Microsoft itself carries part of the blame as well. It doesn’t support XP, but does ask for a lot of money for patches.

The World Is Getting Hacked. Why Don’t We Do More to Stop It? (NYT)

The attack was halted by a stroke of luck: the ransomware had a kill switch that a British employee in a cybersecurity firm managed to activate. Shortly after, Microsoft finally released for free the patch that they had been withholding from users that had not signed up for expensive custom support agreements. But the crisis is far from over. This particular vulnerability still lives in unpatched systems, and the next one may not have a convenient kill switch. While it is inevitable that software will have bugs, there are ways to make operating systems much more secure — but that costs real money.

While this particular bug affected both new and old versions of Microsoft’s operating systems, the older ones like XP have more critical vulnerabilities. This is partly because our understanding of how to make secure software has advanced over the years, and partly because of the incentives in the software business. Since most software is sold with an “as is” license, meaning the company is not legally liable for any issues with it even on day one, it has not made much sense to spend the extra money and time required to make software more secure quickly. Indeed, for many years, Facebook’s mantra for its programmers was “move fast and break things.”

[..] If I have painted a bleak picture, it is because things are bleak. Our software evolves by layering new systems on old, and that means we have constructed entire cities upon crumbling swamps. And we live on the fault lines where more earthquakes are inevitable. All the key actors have to work together, and fast. First, companies like Microsoft should discard the idea that they can abandon people using older software. The money they made from these customers hasn’t expired; neither has their responsibility to fix defects. Besides, Microsoft is sitting on a cash hoard estimated at more than $100 billion (the result of how little tax modern corporations pay and how profitable it is to sell a dominant operating system under monopolistic dynamics with no liability for defects).

At a minimum, Microsoft clearly should have provided the critical update in March to all its users, not just those paying extra. Indeed, “pay extra money to us or we will withhold critical security updates” can be seen as its own form of ransomware. In its defense, Microsoft probably could point out that its operating systems have come a long way in security since Windows XP, and it has spent a lot of money updating old software, even above industry norms. However, industry norms are lousy to horrible, and it is reasonable to expect a company with a dominant market position, that made so much money selling software that runs critical infrastructure, to do more.

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tick tick tick.

Peak China: Chinese Data Misses Across The Board (ZH)

Following months of warnings that China’s economy is slowing down as a result of not only a collapse in China’s credit impulse but also tighter monetary conditions, as well as rolling over loan growth which has pressured both CPI and PPI – i.e., the global “reflation trade” – as the following chart from Bloomberg’s David Ingels shows…

… and culminating over the weekend with a warning in no uncertain terms from Citi, which said that at least four key economic indicators are “starting to wave red flags” among which:
• The Markit PMI is starting to turn over
• China’s Inflation Surprise Index – a leading indicator to global inflation metric – has posted a recent sharp drop
• China’s import trade has likewise tumbled after surging recently
• Chinese Iron Ore imports into Qingado port have plunged

… moments ago China’s National Bureau of Statistics validated the mounting fears, when it reported misses across all key economic categories for the month of April, as follows:
• Retail Sales 10.7% Y/Y, Exp. 10.8%, Last 10.9%
• Fixed Asset Investment 8.9% Y/Y, Exp. 9.1%, Last 9.2%
• Industrial Output 6.5% Y/Y, Exp. 7.0%, Last 7.6%
• Industrial Production YTD 6.7% Y/Y, Exp. 6.9%, Last 6.8%

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Big meeting, Putin, Erdogan et al, but not India, US, Germany and more. Shaky.

Why India Is Cool Towards China’s Belt And Road (SCMP)

It is one of the most imaginative and ambitious programmes ever to be rolled out by a government. It represents a broad strategy for China’s economic cooperation and expanded presence in Asia, Africa and Europe, and has been presented as a win-win initiative for all participating nations. But for India, the connotations of China’s Belt and Road Initiative” are somewhat different. A flagship programme and the most advanced component of the initiative, the China-Pakistan Economic Corridor (CPEC), passes through Pakistan-occupied Kashmir, a region that belongs to India and is under the control of Pakistan. As a country acutely conscious of its own sovereignty-related claims, China should have no difficulty in appreciating India’s sensitivities in this regard.

While investment in the Gwadar port, roads and energy projects is reported to have increased from US$46 billion to US$55 billion, CPEC lacks economic justification for China and its geopolitical drivers cause legitimate anxieties in India. The Belt and Road plan is a practical economic strategy for China’s objectives to connect the region, seek new growth engines for its slowing economy, utilise its surplus capacity, and develop and stabilise its western regions. It may also bring benefits to partner countries. However, it also has a strategic and political agenda which remains opaque. Apart from the CPEC, India also has misgivings about the manner in which the Belt and Road Initiative is being pursued in its neighbourhood. For instance, the development of ports under Chinese operational control as part of the Maritime Silk Road strategy has raised concerns in India which need to be addressed.

India has repeatedly conveyed its strong objections regarding the CPEC to China. The Belt and Road plan is a Chinese initiative rather than a multilateral enterprise undertaken after prior consultation with potential partner countries, and India has not endorsed it. There is an expectation in India that China will take India’s sensitivities into account while formulating its plans. Clearly, there is room for closer consultations between China and India on the objectives, contours and future directions of the Belt and Road. However, India has considered synergy-based cooperation on a case-by-case basis, where its interests for regional development converge with that of other countries, including China.

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India’s right, the Silk road is financed with Monopoly money.

China’s Silk Road Summit: India Skips, Warns Of “Unsustainable Debt” (ZH)

Alas, the meticulously scripted plan to showcase China’s growing economic and trade dominance did not go off quite as smoothly as Xi had planned. First, just hours before the summit opened, North Korea launched its latest ballistic missile, provoking Beijing and further testing the patience of China, its chief ally. Ironically, the United States had complained to China on Friday over the inclusion of a North Korean delegation at the event. Then, in a sign that China’s rampant, credit-fuelled growth is making some just a little uncomfortable, some Western diplomats expressed unease about both the summit and the plan as a whole, seeing it as an attempt to promote Chinese influence globally according to Reuters. They are also concerned about transparency and access for foreign firms to the scheme.

Australian Trade Minister Steven Ciobo said Canberra was receptive to exploring commercial opportunities China’s new Silk Road presented, but any decisions would remain incumbent on national interest. Responding to criticism, Xi said that “China is willing to share its development experience with all countries” and added “we will not interfere in other countries’ internal affairs. We will not export our system of society and development model, and even more will not impose our views on others.” But the biggest surprise was India, the world’s fastest growing nation and the second most populous in the world, which did not even bother to send an official delegation to Beijing and instead criticised China’s global initiative, warning of an “unsustainable debt burden” for countries involved.

Indian foreign ministry spokesman Gopal Baglay, asked whether New Delhi was participating in the summit, said “India could not accept a project that compromised its sovereignty.” India is incensed that one of the key Belt and Road projects passes through Kashmir and Pakistan. The nuclear-armed rivals have fought two of their three wars over the disputed region, Reuters notes. “No country can accept a project that ignores its core concerns on sovereignty and territorial integrity,” Baglay said. Furthermore, he also warned of the danger of debt. One of the criticisms of the Silk Road plan is that host countries may struggle to pay back loans for huge infrastructure projects being carried out and funded by Chinese companies and banks. “Connectivity initiatives must follow principles of financial responsibility to avoid projects that would create unsustainable debt burden for communities,” Baglay said.

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Really, Brussels, Washington, you think it’s a good idea to let China buy up Greece? No security jiggers at all?

Number of Chinese Tourists Visiting Greece to Rise 10-Fold (BBG)

Fosun International, the Chinese conglomerate that’s part of a venture to transform the former Athens airport site into one of the biggest real-estate projects in Europe, is now turning its attention to Greek tourism. Fosun wants to use its stake in tour operator Thomas Cook to start building vacation packages specifically for the vast Chinese market, Senior Vice President Jim Jiannong Qian said in a May 4 interview in Athens. The Chinese government predicts 1.5 million of its citizens will start vacationing in Greece in the medium term. Tourism accounted for over one-quarter of Greece’s GDP in 2016, according to the Greek Tourism Confederation. Visitor numbers in 2016 reached 28.1 million, up 7.6% from 2015. Tourists generated €13.2 billion in travel receipts, according to the Bank of Greece. Of these travelers, 150,000 came from China, Beijing says.

“Greece is a very safe place for visitors,” said Qian who is also president of Fosun’s Tourism and Commercial Group. There are also good opportunities for tourism investments in Greece, he said. Fosun is in discussions to buy existing hotels and resorts, or for the construction of new ones, in Greece by its fully owned portfolio company Club Med. An increase in Chinese visitors to Greece would eventually lead to direct flights from Beijing and Shanghai to Athens, Qian said. The 54 year-old Qian said the situation in Greece has changed since the company first invested in Athens-based luxury goods retailer Folli Follie Group in 2011. “Greece’s economy is recovering now and can also deliver very good opportunities for foreign investors,” he said. “We look at the figures from retail sales and of the tourism sector,” and see the improvement.

Fosun, which manages €64.3 billion in total assets globally, has invested more than €200 million in Greece through its direct holding in Folli Follie and indirectly through Thomas Cook and Club Med, Qian said. “If you can help the economy grow, for example if we have the package product for Greece, then we create more jobs for restaurants, for retail stores, for taxi drivers.” The company, the biggest private Chinese company that invests in Europe, owns German lender Hauck & Aufhaeuser and Portuguese insurance company Fidelidade, and doesn’t rule out an investment in the Greek banking sector if an opportunity arises in the future, Qian said, refuting reports that the group has already made a bid to acquire shares in Greek banks. Fosun has already placed a bid for the acquisition of National Bank of Greece’s insurance unit National Insurance, and according to Qian, has no money ceiling when it comes to investments, as long as the opportunity is worth it.

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Rerouted trips to Greece?

New Zealand Slashes Chinese Tourism Forecast, Denting Outlook (BBG)

New Zealand has slashed its forecast for Chinese tourist spending over the next six years, denting growth expectations for its biggest foreign-exchange earner. Spending by Chinese tourists will rise to NZ$3.73 billion ($2.5 billion) by 2022 from NZ$1.65 billion last year, according to the Ministry of Business, Innovation and Employment’s latest annual forecasts. That’s 30% less than the NZ$5.32 billion expected in last year’s projections. “There is significant geopolitical risk around the China market,” the ministry said in the report, published Friday, adding that indicators like early-2017 visa approvals were “suggesting a short-term slowing in the market.” The downward revision indicates overall revenue from tourists won’t grow as quickly as previously expected, and that Australia will remain the biggest source of tourist dollars until 2021. Last year, officials forecast China would take the top ranking in 2017.

Tourism, which last year overtook dairy as New Zealand’s top export, has been growing faster than expected. Visitor numbers surged to 3.5 million in 2016, four years sooner than had been envisaged in 2014, and are projected to jump to 4.9 million by 2023. Still, the uncertainty around China “adds some risk to both China’s and the national forecast numbers,” the ministry said in its latest report. The slower forecast trajectory for Chinese spending growth reflects fewer visitors and less spending per day than projected 12 months ago. Arrivals from China are expected to reach 812,000 in 2022. That’s less than the 921,000 estimated in last year’s report. Average spending per day is forecast to be NZ$343 in 2022 rather than the NZ$394 estimated a year ago. As a result, total foreign visitor spending will rise to NZ$15.3 billion in 2023, according to the forecasts. The 2016 prediction was that spending would rise to NZ$16 billion by 2022.

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As if we needed any more evidence that credibility is the least of their worries.

Fed Officials Test New Argument for Tightening: Protect the Poor (BBG)

To protect the poorest Americans, should central bankers raise interest rates faster? At least one of them is making that argument. During a speech last month, Federal Reserve Bank of Kansas City President Esther George said she was “not as enthusiastic or encouraged as some when I see inflation moving higher” because “inflation is a tax and those least able to afford it generally suffer the most.” She was referring in particular to rental inflation, which she said could continue rising if the Fed doesn’t take steps to tighten monetary conditions. And while the idea of inflation as a tax that hits the poor the hardest is not a new one, its role in the current debate over what to do with interest rates marks a bit of a twist from recent years.

Widening disparities in income and wealth have over the past several years permeated national politics and helped fuel the rise of populist movements around the developed world. Against this backdrop, there has been a growing body of research, some of it produced by economists at central banks, backing the idea that easier monetary policy tends to be more progressive. That work, set against the notion that a stricter approach toward containing inflation has the best interests of the lowest-income members of society at heart, is thrusting Fed policy makers toward the center of a debate they usually like to leave to politicians. It’s becoming more contentious as Fed officials seek to declare victory on their goal of maximum employment even while the percentage of prime working-age Americans who currently have jobs is still nowhere close to the peaks of the previous two economic expansions.

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“The company, with the unfortunate Toronto Ticker “BAD”..”

Marc Cohodes, The Scourge Of Home Capital, Reveals His Latest Short (ZH)

Having single-handedly hounded Home Capital Group – the company which we predicted in 2015 would be “ground zero” for any potential Canadian financial crisis, and has emerged as the Canada’s equivalent to the infamous New Century which in 2007 presaged the upcoming global financial crisis – into near oblivion, noted chicken-farmer and short-seller, Marc Cohodes, over the weekend revealed the full details behind his latest short thesis: Canadian oil and gas service provider, Badger Daylighting. Badger, for those unfamiliar, is a company which uses a technique called hydrovac excavation, in which pressurized water and a powerful vacuum are used to expose buried pipes and cables. The company, with the unfortunate Toronto Ticker “BAD”, already had a bad day on Friday when it revealed earnings and revenues that badly missed consensus expectations.

Insult was added to injury after Cohodes, who most recently gained prominence for his short bet on Home Capital Group, previewed pages of a negative presentation on Badger to his Twitter feed Friday, saying that the shares are overvalued and that there are low barriers to entry. As a result, BAD shares plunged as much as 28% to C$22 in Toronto, the biggest intraday decline since November 2006, after previously dropping 4.8% YTD. To be sure, on Friday Badger CEO Paul Vanderberg, without in depth knowledge of Cohodes’ thesis, responded to Cohodes saying “my focus on that is really not to focus on it” during the earnings call and adding that “I don’t agree with the thesis.” Obviously, especially since neither he nor anyone else had seen or read it.

Chief Financial Officer Jerry Schiefelbein also responded, saying Badger is working to train new workers and managers on how to operate more efficiently, which should help reduce costs. He said the company’s first-quarter sales were “pretty good” following a couple of tough years. As for Cohodes’ criticism about low barriers to entry, Schiefelbein was quoted by Bloomberg saying tat Badger’s size gives it an advantage over mom-and-pop shops that would seek to compete with the company. Badger can tackle bigger projects for municipalities, has safety systems that larger customers require and it can move assets to markets where there is more demand, he said. “It’s not just digging holes in the ground.”

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Only interesting if his French backers want something Germany doesn’t. But then they all want the eurozone.

Eyes on Euro Fighter Macron (K.)

Macron has taken over from Francois Hollande hoping to reform not just his own country but the euro as well. “We must collectively recognize that the euro is incomplete and cannot last without major reforms,” he said during a speech at Humboldt University in Berlin this January. “It has not provided Europe with a full international sovereignty against the dollar on its rules, it has not provided Europe with a natural convergence between the different member-states.” The centrist politician warned that without reform the euro may be obsolete in 10 years. He has proposed a series of changes to improve the single currency, with the centerpiece being a budget for the eurozone that will be monitored by the European Parliament and backed by borrowing capacity so that it can finance investments, provide emergency loans via the European Stability Mechanism and help eurozone members if they suffer significant economic shocks.

Macron has also suggested the pooling of debt in the eurozone through the issuing of eurobonds, which are anathema to German conservatives. “The establishment of this budget will have to come with a convergence agenda for the eurozone, an anti-dumping agenda that will set common rules for fiscal and social matters,” added Macron in a message to his German hosts that proceeded to become clearer during his speech. “In a monetary union, a country’s success cannot be sustainably achieved to the detriment of another, which is a limit of the competitiveness approach, because competitiveness is always about comparing yourself with a neighbor,” he said. “The difficulties of one are always the problems of all.” Although Macron admits that France must carry out its own labor, market and education reforms and respect fiscal targets, his words are a direct attempt to overturn the logic and policy that has dictated the eurozone’s response to its crises since 2010 and to shape how its overall approach will evolve from this point onward.

In doing so, Macron is taking the fight to Germany, which previous French presidents failed to do. “When you look at the situation, the dysfunctioning of the euro is good news for Germany, I have to say. You benefit from this dysfunctioning,” he told his audience in Berlin. “[The] euro today is a sort of weak Deutschmark, which favors the German industry,” he added. These are views that have rarely been aired publicly by key players in the eurozone and it is little surprise that the initial response from Berlin was to suggest that Macron has enough on his plate at home to be focusing on euro reform. “German support cannot replace French policymaking,” was Merkel’s first comment on the subject after Macron comfortably won last Sunday’s vote in France.

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But Schäuble on Friday said transfers were needed. You need a fiscal union to make that work.

Germany Will Not Rush Into Euro Area Fiscal Union (CNBC)

Now what? “More Europe” say those who believe that problems were caused by an inadequate integration process that allowed policy mistakes by incompetent national governments. To avoid similar mistakes in the future, they are now urging a unified fiscal policy to complete the monetary union. That is what the French call the “fuite en avant” – a semiotic delight roughly translated as fleeing from an unsolvable problem. Here is what that problem looks like: The fiscal union implies a euro area federal state with a common management of public finances. The area’s budget, public debt financing, tax policies, transfer payments, etc. would be managed by a euro area finance ministry. That would also require harmonization of labor, health care and education policies, and a whole range of other social welfare programs. Institutionally, this integration drive cannot stop at the finance ministry. There would also have to be a euro area executive and legislative authority to exercise administrative and democratic controls over tax and spend decisions.

[..] How could Germany, with a budget surplus last year of 0.8% of GDP and the public debt of 68.3% of GDP, accept a fiscal union with Spain running the euro area’s largest budget deficit of 4.5% of GDP and a public debt of 100% of GDP? France and Italy have similar public finance profiles. Last year, France had a second-largest euro area budget deficit of 3.4% of GDP and a public debt of 96% of GDP. During the same period, Italy ran a budget deficit of 2.4% of GDP and a public debt of 133% of GDP. This means that half of the euro area economy (France, Italy and Spain), with serious structural problems of public finances, would become part of a de-facto federal state with a fiscally sound Germany. Hard to imagine, isn’t it? And yet, that’s the program that the new French President Emmanuel Macron will apparently discuss Monday when he visits German Chancellor Angela Merkel in Berlin.

France, Italy and Spain already know the answer. Chancellor Merkel is relieved and delighted that the most dangerous anti-EU parties in France and The Netherlands lost the recent elections, but her government is firmly opposed to the euro area fiscal union. German public opinion fully shares that position. And German media of all political stripes are having a field day lampooning the idea that German taxpayers should be asked to pay for countries that cannot control their debts and deficits. This is also an awkward moment to even talk about the call on the German public purse while the country is gearing up for general elections on Sept. 24, 2017. The best that Germany can offer, under these circumstances, is a strict enforcement of existing euro area fiscal rules: Budget deficits limited to 3% of GDP and the gross public debt to 60% of GDP. About half of the euro area members are now falling far short of these criteria.

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Will the rich world ever come clean? No.

What Germany Owes Namibia For Genocide (Econ)

On October 2nd 1904 General Lothar von Trotha issued what is now notorious as “the extermination order” to wipe out the Herero tribe in what was then German South West Africa, now Namibia. “Within the German borders every Herero, with or without a gun, with or without cattle, will be shot,” his edict read. During the next few months it was just about carried out. Probably four-fifths of the Herero people, women and children included, perished one way or another, though the survivors’ descendants now number 200,000-plus in a total Namibian population, scattered across a vast and mainly arid land, of 2.3m. The smaller Nama tribe, which also rose up against the Germans, was sorely afflicted too, losing perhaps a third of its people, in prison camps or in the desert into which they had been chased.

A variety of German politicians have since acknowledged their country’s burden of guilt, even uttering the dread word “genocide”, especially in the wake of the centenary in 2004. But recent negotiations between the two countries’ governments over how to settle the matter, the wording of an apology and material compensation are becoming fraught. Namibia’s 16,000 or so ethnic Germans, still prominent if not as dominant as they once were in business and farming, are twitchy. The matter is becoming even more messy because, while the German and Namibian governments set about negotiation, some prominent Herero and Nama figures say they should be directly and separately involved—and have embarked on a class-action case in New York under the Alien Tort Statute, which lets a person of any nationality sue in an American court for violations of international law, such as genocide and expropriation of property without compensation.

The main force behind the New York case, Vekuii Rukoro, a former Namibian attorney-general, demands that any compensation should go directly to the Herero and Nama peoples, whereas the Namibian government, dominated by the far more numerous Ovambo people in northern Namibia, who were barely touched by the wars of 1904-07 and lost no land, says it should be handled by the government on behalf of all Namibians. The Namibian government’s amiable chief negotiator, Zedekia Ngavirue, himself a Nama, has been castigated by some of Mr Rukoro’s team as a sell-out. “Tribalism is rearing its ugly head,” says the finance minister, who happens to be an ethnic German.

The German government says it cannot be sued in court for crimes committed more than a century ago because the UN’s genocide convention was signed only in 1948. “Bullshit,” says Jürgen Zimmerer, a Hamburg historian who backs the genocide claim and says the German government is making a mess of things. “They think only like lawyers, not about the moral and political question.” “None of the then existing laws was broken,” says a senior German official. “Maybe that’s morally unsatisfactory but it’s the legal position,” he adds.

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May 122017
 
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Robert Doisneau Le Baiser Blotto, Paris 1953

 

Human Beings Are Not Efficiency Seeking Machines (Radford)
Stockman: Trump’s Tax Plan Never Had a Chance (DR)
Is China Really Deleveraging? (Balding)
China Stocks Are Tumbling Again. Unlike 2015, World Doesn’t Care (BBG)
China Has the World’s Biggest Productivity Problem (BBG)
No Evidence of Russian Intrusion in US Political System (Ron Paul)
Canada’s Home Capital Seeks New Funding Sources, Uncertain Of Future (BBG)
Open Letter to Theresa May: Annul The Phoney Negotiations! (Varoufakis)
Pound Stumbles As Bank Of England Releases Gloomy Economic Report (Pol.)
Macron Spells the End to the Global Baby-Boomer Rule (BBG)
European Monotony (K.)
Anxiety Mounts As Italy Moves To Get More Migrants Out (AFP)
G7 Finance Chiefs Can’t Agree On Trade, So They Talk About Greece (BBG)
Greek Economy to Grow Over 2% in 2017 – Economy and Development Minister (BBG)
European Commission Slashes Greece’s Economic Forecasts (GR)
Schaeuble Says Greece Needs Reforms, Defends 2015 ‘Timeout’ Idea (K.)
One In Six Greek Businesses Are Late Payers – Central Bank Chief (Amna)
Somebody’s Going To Suffer: Greece’s New Austerity Measures (Michael Hudson)

 

 

Wonderful: “..if your goal is to understand real economies replete with real humans, modern economics is a waste of time.”

Human Beings Are Not Efficiency Seeking Machines (Radford)

I don’t understand why people get upset when I say that economics is a waste of time. I suppose it’s because I don’t make a clear enough difference between economics as a general topic and economics as a formal, mainstream, body of knowledge. It’s the latter that is a waste of time. The former is wonderfully interesting. At its heart economics is a study of human behavior, where that behavior is specific to certain activities. It is thus deeply rooted in psychology, so it is more closely associated with biology than physics. This is not a new idea: some of the greatest economists of the past have argued as much. Trying to transfer in ideas from physics, even metaphorically, therefore tends to lead to dead ends.

Like the notion of efficiency. That’s something of great interest to engineers, but has little to do with economics. You can have an efficient physical system. You cannot have an efficient social system. There’s just too much we don’t know and can never know. Still economists all over the world are obsessed with efficiency. So what do they do? They start to abstract and simplify. They model and fine tune. They test and re-test. And still their ideas run afoul of reality: human beings are not efficiency seeking machines, and so any system filled with humans is likely to be darned near impossible to steer towards efficient outcomes. Nothing daunted economists press on. If humans are unlikely to be efficient the logical next step is to construct a theory to exclude actual humans.

That’s what’s happened in economics: the faulty decision to root economics in a physics-like setting rather than in a biology like-setting forced subsequent generations of economists to “refine” their thinking and, eventually, to force real people out of their theoretical world. Voila! Modern economics ends up as a wonderful edifice with extravagant claims as to its ability to understand human behavior precisely by eliminating all contact with humanity. Weird. Ergo, if your goal is to understand real economies replete with real humans, modern economics is a waste of time.

Go study something else. You can learn a great deal about real economies by reading psychology literature. Behavioral economics — which despite all the press it gets has had only a marginal impact on the mainstream and on textbook economics — is an attempt to do that. The behavioral economics project is in its infancy. Go get involved. By the way: anything that refers to strategic behavior is also useful. Real humans are constantly trying to outwit each other. That’s when they’re not cooperating, which is another human characteristic economics determinedly overlooks. Humans are complicated. Too complicated for an economics built on an exclusive belief in relentless rationality.

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“This rosy scenario, which is the current ten-year baseline, assumes 30% more nominal GDP and wage growth per year than we’ve actually had in the past ten years.”

Stockman: Trump’s Tax Plan Never Had a Chance (DR)

David Stockman joined Fox Business and Maria Bartiromo on Mornings with Maria to discuss President Trump’s tax plan efforts and what he viewed as a massive calamity unfolding in Washington. The Fox Business host began the conversation by asking what he thought on the Trump tax plan proposal. Stockman pressed, “I think it is a one page, $7.5 trillion wish list that has no chance of being enacted and is pretty irresponsible this late in the game.” The host then fired back by asking how the former Reagan budget director placed a price tag on the plan without a score from the Congressional Budget Office. The author fired back, “The corporate is at 15%, the pass through rate on all unincorporated business is at 15% and that will cost roughly $4 trillion. Doubling the standard deduction will cost over $1 trillion. Getting rid of the alternative minimum will cost nearly $1 trillion.”

Then when referencing the Committee for a Responsible Federal Budget (which Stockman is a Board Member of) the author highlighted, “The gross cost is $7.5 trillion and that perhaps the government could earn back $2 trillion through loophole closing and base broadening. My argument is, after ruling out charitable contributions, home mortgages and a Congress that says they won’t touch a health care exclusion… when you go through the math there is no $2 trillion that this Congress and Republican party will even remotely be able to put together.” When asked about the assumption from Treasury Secretary Mnuchin and Senior Economic Advisor Cohn that new economic growth would pay for the budget Stockman pressed on the facts as he saw them:

“Growth always helps, but what they’re failing to realize, and what I learned in the 1980’s is that there is more growth built into the baseline forecast from the CBO than you’re ever going to achieve in the real world.” “This rosy scenario, which is the current ten-year baseline, assumes 30% more nominal GDP and wage growth per year than we’ve actually had in the past ten years.” When asked about the conditions in Congress and how else the government could raise revenue he directed, “We have to look at the numbers. There’s $10 trillion of new deficits built in over the next ten years, within the current policy, with rosy scenario economics. If you are going to try to push $2-$6 billion in tax cuts on top of that with $1 trillion of defense increases, $1 trillion for infrastructure in addition to Veteran spending and more – we’re headed for a fiscal calamity.

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Christopher Balding and crazy numbers.

Is China Really Deleveraging? (Balding)

There’s growing evidence that China is finally scaling back its epic borrowing binge. That’s important for a lot of reasons, not least for reducing risk and avoiding a financial crisis. The question is whether the government can sustain the pain. Regulators in Beijing are well aware of the risks that excessive leverage poses, and have tried many times over the years to crack down. Yet they routinely fail to rein in local government officials who get promoted by boosting economic growth, regardless of what systemic risks they may be incurring by binging on debt. To adapt a Chinese proverb: Growth is high and the banking regulator is far away. Evidence is mounting that this time is different. Lending to banks from the People’s Bank of China, which surged by 243% from December 2015 to January 2017, has declined by 12% in the past two months.

Loans to non-financial corporations are up a relatively moderate 7.3% from March 2016, which is a slower rate than nominal growth in gross domestic product. Although this clampdown followed an enormous surge of credit in the first half of last year, it does suggest real progress. Another good sign is that the government is starting to rein in shadow banking. Issuance of risky wealth-management products declined by 18% in April from March, as banks and insurance companies have been pressured to rely on them less. Because the sector is so enormous – with more than $4 trillion outstanding – getting it under control is a crucial prerequisite for any serious deleveraging. Predictably, though, these reforms have pushed down asset prices. Stocks, bonds, commodities and real estate have all turned strongly negative.

Interest rates have been inching up, inflicting losses on bond investors. Allocations of stocks and commodities in wealth-management products are at their lowest levels in almost a year, depressing prices further. This will probably get worse. Industrial capacity is widely up while demand growth is flat. Steel rebar prices have dropped by only 8% from their highs this year, and remain up by an amazing 91% since December 2015. Yet even this small dip has had a major effect. In March, when prices peaked, 85% of Hebei steel makers reported being profitable. Now that figure stands at 66%. If an 8% drop in prices results in a 19 percentage-point decline in the number of profitable steel mills, more serious price drops could well push the industry to the brink.

For a sector in which listed firms have suffered operational losses of 5.1 billion yuan since 2010 – during one of the largest building booms the world has ever seen – a sustained deleveraging effort may well spell disaster. The property market could also be in for a rough ride. Chinese consumers take the ability to buy an apartment as a birthright, and prices have risen in response to demand. Mortgage lending has grown by 31% since March 2016. But as cities place more restrictions on purchases and banking regulators get tougher about slowing mortgage growth, the resulting pressure on prices could be an unpleasant surprise for homeowners and indebted developers.

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Don’t worry, the world will care yet.

China Stocks Are Tumbling Again. Unlike 2015, World Doesn’t Care (BBG)

Global investors are still shaking off a rout that’s erased more than $560 billion from the value of Chinese equities, making them the world’s worst performers since mid-April. Below are four charts showing just how deep the pain has spread in China’s mainland. Outside of the nation’s borders, investors are indifferent to the weakness in the second-largest equity market after the U.S. The MSCI All-Country World Index is near a record and the VIX Index, the so-called fear gauge for U.S. stocks, is close to its lowest level since 1993. The ChiNext small-cap gauge, seen as a barometer for Chinese stock-market sentiment, has taken quite the hit this year, down 9.7% and close to its lowest level since February 2015. The selloff erased all that was left of a rebound from a low later that year, after a bubble in China’s markets burst.

A technical indicator suggests the Shanghai Composite Index has fallen too far, too fast. The gauge’s relative strength index dipped further below the 30 level that signals to some traders an asset is oversold, and is close to levels not seen since 2013. Chart watchers are still waiting for that rebound. The benchmark for yuan-denominated shares has lost 6.9% in the past month, while global stocks are up 2.8%. That divergence means the Shanghai measure is trailing the rest of the world by the most since 2014.

Chinese stocks now make up less than 9% of the world’s equity market, the smallest slice since June last year. The value of global equities is near a record $73 trillion reached earlier this month.

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Quite shocking: “..each employed worker in China generated only 19% of the amount of GDP an American worker did.” Workers in India generate just 13%.

China Has the World’s Biggest Productivity Problem (BBG)

Just about everybody assumes that China will overtake the U.S. as the world’s indispensable economy. One factor, however, could slow its seemingly relentless march and cast doubt on China’s prospects for becoming an advanced economy: faltering productivity. Sure, China is advancing daily in wealth, technology and expertise. But nothing is inevitable in economics. As costs rise and the labor force shrinks due to Beijing’s decades-long “one-child” policy, China will need to squeeze a lot more out of each remaining worker to keep incomes growing. If not, China could succumb to a sluggish trajectory that threatens both its future and that of the entire global economy. Despite China’s reputation as a paragon of authoritarian efficiency, the country isn’t immune to the global trend of dwindling productivity gains.

The Conference Board, using adjusted economic growth estimates, figures that Chinese labor productivity rose 3.7% in 2015, a precipitous plunge from an average of 8.1% annually between 2007 and 2013. (Official Chinese statistics also show productivity growth falling off, although settling at higher rates.) Of course, even that reduced clip looks drool-worthy to policymakers elsewhere. Labor productivity inched upwards by a mere 0.7% in the U.S. and 0.6% in the euro zone in 2015. But the smaller increases in China are a big problem, because it has so much catching up to do. Chinese workers are miserably unproductive compared to their U.S. counterparts. The Conference Board calculates that in 2015 each employed worker in China generated only 19% of the amount of GDP an American worker did.

That’s not a whole lot better than Indian workers, who created 13%. China, like other economies in Asia, is facing the consequences of its past success. The region’s economies achieved eye-popping growth rates by tossing their poor and primarily agrarian workers into industry and global supply chains. That unleashed a torrent of productivity gains, as peasant farmers started making everything from teddy bears to iPhones. In other words, China propelled its rapid development by shifting underutilized labor and capital into a modern capitalist economy. (That’s why Paul Krugman once argued that there was nothing particularly miraculous about the Asian “miracle.”) Inevitably, though, such low-hanging, productivity-enhancing fruit gets picked as the economy advances. Then the bang you get for every buck of new inputs starts to taper off.

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It’s time for proof on all aleegations concerning Russia. Either that or a full stop. I was just talking to someone who said he ‘believes’ the Russians downed MH17. But belief doesn’t cut it, we need facts and proof.

No Evidence of Russian Intrusion in US Political System (Ron Paul)

RT: Sergey Lavrov says President Trump wants productive relations with Moscow after the previous administration soured them. Can they be improved considering the storm over the alleged ties between the Trump team and Russia?

Ron Paul: Absolutely. And I think that has been. What is going on right now is an improvement. I think what is going on in Syria with these de-escalation zones; I think that is good. They are talking to each other. I just don’t understand why sometimes there is an impression that we shouldn’t be having diplomatic conversations … All the tough rhetoric doesn’t do any good. Trump’s statement to me sounded pretty good. I think the whole thing about the elections, putting that aside would be a wise thing because the evidence is not there for any intrusion in our election by the Russians. I think this is good progress, and there will be plenty individuals in this country who complain about it because it just seems like they are very content to keep the aggravation going. Right now, the relationship from my viewpoint has greatly improved. I think that is good.

RT: During the media conference, some journalists again raised the question of possible Russian involvement in US politics. How is it possible for such a great nation to think this way?

RP: If it is a fact, we should hear about it, but we haven’t. And those individuals who are trying to stir up trouble like that, they haven’t come up with any facts. Nobody wants anybody’s elections interfered with. But the facts aren’t there, so why dwell on that? Why use that as an excuse to prevent something that we think is positive and that is better relations with Russia. I think what is happening with this conversation is very beneficial.

RT: According to Lavrov, Trump also expressed his support for creating safe zones in Syria. Will this pave the way for co-operation between the two coalitions?

RP: With Assad and Russia working together and getting more security for the country, at the same time the US is now talking with Russia. I think this is good. But just the acceptance of the idea that we should be talking and practicing diplomacy rather than threats and intimidation. There are obviously a lot of problems that we have to work out, but I think in the last week and the last couple of days very positive things have been happening.

RT: The meeting came after the firing of the FBI director James Comey. What do you make of the timing?

RP: I don’t think that firing had anything to do with the so-called investigation. I think it has to do with the credibility of Comey as such, where he was involved too politically in the issues. First, it looked like he was supporting Hillary, then the next time he was supporting Trump, and he should not have been out in front on either one of those issues; that should have been done more privately on these charges made that were unconfirmed. I think this represents poor judgment on Comey’s part and certainly, the president had the authority to fire him. It will be politicized now, and the question will be whether there will be a special prosecutor, but if there are no problems, then a special prosecutor in my estimation is unnecessary.

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Stick a fork in it and turn it over.

Canada’s Home Capital Seeks New Funding Sources, Uncertain Of Future (BBG)

Home Capital said it’s seeking new sources of funding after a run on deposits sparked by a regulatory investigation raised concerns about the Canadian mortgage lender’s ability to stay in business. “Material uncertainty exists regarding the company’s future funding capabilities as a result of reputational concerns that may cast significant doubt” about continued operations, Home Capital said in a statement late Thursday. “Management’s focus is on finding more sources of funding in the near term so we can be more active serving our customers, and on seeking longer-term solutions that put the business back on track.” Home Capital’s troubles are being closely watched by investors concerned about possible contagion to other lenders and to the red-hot real estate markets in Toronto and Vancouver.

The Canadian dollar has slumped, and is the worst performing currency among Group of 10 nations this year. Moody’s Investors Service late Wednesday cut the credit ratings on six Canadian banks, citing rising household debt and soaring real estate prices that make the banks more vulnerable to losses. Home Capital, accused by regulators last month of misleading investors over fraudulent mortgage loan applications, has lost almost C$1.8 billion ($1.2 billion) in high-interest deposits in five weeks, draining the Toronto-based company of funds used to finance mortgages. The company said it’s facing liquidity issues because of reputational concerns raised by the Ontario Securities Commission allegations, as well as a class action lawsuit announced earlier this year. The lack of a chief executive officer and chief financial officer is also hurting, the company said.

High-interest savings plummeted to C$134 million as of May 9 from $1.9 billion at March 31, the company said. Home Capital also lost C$344 million in cashable GICs, or guaranteed investment certificates. Tightening lending criteria and broker incentive programs will lead to a decline in originations and renewals going forward, the company said. The lender’s liquid assets are about C$1.01 billion as of May 10, it said in a separate statement Thursday. It had drawn C$1.4 billion of a C$2 billion rescue loan from an Ontario pension fund that carries an effective interest rate of 22.5%, the firm disclosed. The company also sold a C$154 million portfolio of preferred shares to raise cash.

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Brussels is a cesspit obsessed with power politics, not with representing Europeans.

Open Letter to Theresa May: Annul The Phoney Negotiations! (Varoufakis)

Dear Mrs May [..] While the clock is ticking away, and your country is caught up in pre-election fever, there are two potential mistakes I wish to warn against: First, the belief that a strong mandate on June 8 will enhance your ability to negotiate. Second, that meaningful negotiations are possible within the less than two years left after the triggering of Article 50. Your mandate will, I believe, enrage Brussels in proportion to its magnitude and steel their preordained determination to frustrate the negotiations in order to procure a mutually disadvantageous outcome. Why would they pursue mutual disadvantage? Because faced with a choice between an agreement that is to the advantage of the peoples of Europe and one that bolsters their own power within the EU institutions at the expense of Europe’s social economies, the Brussels establishment, and the powerful politicians behind them, will choose the latter every time.

In 2015 the proposals I was tabling, of a moderate Greek public debt restructure, lower tax rates and deep reforms, would have allowed the EU to reclaim more of European taxpayers’ loans to Greece. Except that getting back their taxpayers’ money was lower on their list of priorities than signalling to the Spaniards, the Irish, the Italians etc. that if they dared to elect a government promising to challenge the EU’s authority, they would be crushed. Thankfully, Britain is too rich to crush. Alas, Britain is not too big to be pushed into a disadvantageous form of Brexit as a deterrent to other Europeans voting against the edicts of the Brussels apparatchiks. The political utility to the Brussels establishment of leading the UK-EU negotiations to impasse is greater than any disutility they might experience from watching European people and businesses lose out.

If I am right, negotiations will be an exercise in futility and frustration. Barnier’s two-phase negotiation announcement amounts to a rejection of the principle of … negotiation. He is, effectively, saying to you: First you give me everything I am asking for unconditionally (Phase 1) and only then will I hear what you want (Phase 2). This is nothing short of a declaration of hostilities and, moreover, of his lack of a mandate to negotiate with you in good faith. Moreover, if you try to bypass Brussels, in order to communicate directly with, say, Angela Merkel, you will be given the EU runaround (i.e. Merkel refers you to Juncker, who refers you to Barnier who suggests you go back to Merkel, and so on ad infinitum). Meanwhile, the leaks about your ministers’ “lack of preparedness” will be flooding out of the meeting rooms as part of a propaganda war of attrition.

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As long as the UK is as splintered as it is now, its economy will be in danger.

Pound Stumbles As Bank Of England Releases Gloomy Economic Report (Pol.)

Less than a month ahead of the U.K. general election, the Bank of England published a gloomy report indicating British families’ finances are being squeezed that sent sterling tumbling. The BoE’s latest quarterly inflation report, published Thursday, points to a stronger-than-expected squeeze in real incomes which would translate into decreased household spending. The report also shows inflation continuing to climb above the central bank’s 2% target, and is expected to hit close to 3% by December, as the fall in the value of sterling has raised import prices and started to feed through to the real economy. Economic growth in the first quarter of this year was also weaker than expected, the BoE said.

Sterling fell sharply against the dollar after the report was released, losing half a cent to $1.288. In a warning to the British government, the central bank said, “The outlook for U.K. growth will continue to be influenced by the response of households, companies and financial market participants to the prospect of the United Kingdom’s departure from the EU including their assumptions about the nature and timing of post-Brexit trading arrangements. The Bank of England also Thursday decided to leave interest rates and the levels of monetary stimulus untouched. Its monetary policy committee voted seven to one to maintain the BoE’s benchmark rate at 0.25%, while unanimously backing the level of U.K. government bond purchases at £435 billion, and corporate bond buying at up to £10 billion.

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Fun with numbers.

Macron Spells the End to the Global Baby-Boomer Rule (BBG)

President-elect Emmanuel Macron will still be seven months short of his 40th birthday when he takes power on Sunday, putting him within a year of France’s median age. While voters often pick experience over youth, France chose a political rookie to chart a new course after successive baby-boomers from the establishment parties oversaw a decade of stagnation. The country’s youngest head of state since Napoleon Bonaparte is also the only leader from the old Group of Eight nations who can claim to be the same age as his people – 70-year-old Donald Trump has the biggest gap at 32 years older than the median American. Macron will get to compare notes with his G-7 peers later this month in Italy.

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Yes, Le Pen was right. Merkel rules France.

European Monotony (K.)

When Alexis Tsipras became prime minister in 2015 he raised the hopes of the radical left across Europe. But after six months, the turnaround of the SYRIZA-Independent Greeks coalition government was complete, as it adapted to the European order of things. The conclusion is that guerrilla talk is good for coffee shops and that politics and policy are formed and enforced elsewhere. One might say that this sort of situation is confined to decadent and incoherent Greece, or that it occurred because of leftist adventurism. But possibly not. Because we all saw what happened in France. It was basic restraint that saved all those who were not enthralled by the rise of the extreme right.

At the end of the day, the only thing that Marine Le Pen achieved was to secure a little more than a third of the support of French voters, doubling the percentage received by her father Jean-Marie Le Pen in 2002, and to lift the National Front from the fringe and turn it into a political force. But we have better things to preoccupy ourselves with. During the election campaign, Emmanuel Macron projected himself as someone who will save France from the specter of the far right, but also as someone who aimed to change the profile of Europe. And immediately after his election, he proposed a way out of Europe’s dead end, but that was immediately rejected by Germany.

Manfred Weber from Bavaria, who pummeled Tsipras in the European Parliament, said that Macron can talk about reforming Europe only when he has proved himself capable of implementing reforms in France. More condescendingly, German Finance Minister Wolfgang Schaeuble said Macron’s proposals were impossible to implement. Given this, there is a danger that Le Pen will be vindicated in her prediction that if she was not elected president, then France would be run by another woman, Angela Merkel. The most likely outcome is that Macron will realize that talk of changing Europe is alright for the legendary La Rotonde brasserie in Paris’s 6th arrondissement, where he celebrated his victory in the first round of the elections. Something similar happened to Tsipras on the other side of the political spectrum. Because, at the moment, Europe is Germany and everyone else.

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High time for safe zones in Syria, Libya and beyond. But that would hurt arms sales.

Anxiety Mounts As Italy Moves To Get More Migrants Out (AFP)

Behind the high fences of the repatriation centre at Ponte Galeria, just down the road from Rome’s Fiumicino airport, dozens of women sit outside, waiting for word on whether they will have to leave Italy. But as the government steps up its efforts to send more migrants home, many who pinned their hopes on asylum appeals are growing increasingly worried. This week an official decree paved the way for the creation of 11 more repatriation centres capable of housing 1,600 people pending deportation, on top of the four currently in operation. At Ponte Galeria, in courtyards easily mistaken for cages, Khadigia Shabbi, 47, can barely hold back her tears. “Here we are dying,” the former Libyan university lecturer says. Arrested in Palermo at the end of 2015 and convicted of inciting terrorism, Shabbi protests her innocence and has requested asylum.

She is not alone. Half of the 63 women at Ponte Galeria, which AFP was able to visit, have made similar requests. Several are from Nigeria, having crossed Libya to reach Italy. But there are also Ukrainians and Chinese. The country is sheltering more than 176,000 asylum-seekers, with about 45,000 migrants arriving since January 1 – a 40% rise on the same period last year – and officials are bracing for another summer of record arrivals. To cope with the influx – and to deter others from coming – Interior Minister Marco Minniti pushed through parliament last month a plan to increase migrant housing and provide new resources for expelling those who have come only to seek work. The plan includes creating fast-track asylum appeal courts for the roughly 60% of migrants who have their initial requests denied, in order to reach a binding decision that gets them out of the country sooner.

Between January and April, Italy expelled 6,242 people who did not have the right to stay, an increase of 24% on the same period last year. But the figures include more than just people rescued from the overcrowded boats coming daily from Libya who have failed in their asylum requests. Many were sent home directly because of repatriation agreements, such as those with Tunisia, Egypt or Morocco, while others were expelled after overstaying their student or tourism visas. But despite Italy’s new efforts to deter migrant arrivals, many say they won’t give up trying. “If they expel me, I’ll come back afterwards. I say this honestly — there is nothing for me back there,” said one woman at Ponte Galeria.

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US pressure may be the only way out for Greece.

G7 Finance Chiefs Can’t Agree On Trade, So They Talk About Greece (BBG)

Group of Seven finance chiefs don’t see eye-to-eye on trade, so they’re reverting to a default issue in economic diplomacy: Greece. Officials arriving on Thursday for talks in the Southern Italian port of Bari – a crossroads of commerce for more than two millenia – downplayed any focus on their festering disagreement after two abortive Group of 20 discussions this year suggested the Trump administration won’t sign up to the long-existing global consensus on free trade. That leaves sideline talks on Greece as the most fruitful arena for talks for now. On Wednesday, a senior U.S. Treasury official said they are looking for Europe to take the lead in solving the country’s debt problem. Informal talks on Greece were held on Thursday night, according to German Finance Minister Wolfgang Schaeuble.

His nation, together with Italy, France, the IMF and the ECB make up the so-called Washington Group. “Trade is explicitly off the table – they’re not going to clinch anything at all,” said Isabelle Mateos y Lago at BlackRock. But on Greece, “this is the right grouping within which to reach an agreement on some of the more political aspects.” Talks on easing Greece’s debt load have been picking up steam amid hopes of striking a deal later this month, with officials targeting the May 22 meeting in euro-area finance ministers in Brussels. Among the preferred options is the use of leftovers from the country’s latest euro-area-backed bailout to repay about €12.4 billion of IMF loans to Greece outstanding, according to EU officials. “We’ll carry on working on this debt relief package,” IMF Managing Director Christine Lagarde said on Friday. “We certainly hope that the Europeans will be far more specific in terms of debt relief which is also an imperative.”

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That so-called ‘Growth’ is achieved because Greece raises taxes and cuts pensions for its poorest, and sells its assets for pennies on the drachma. But that is not growth. That is scorched earth.

Greek Economy to Grow Over 2% in 2017 – Economy and Development Minister (BBG)

Greece is confident that the country’s economic output will exceed 2% in 2017 boosted by investments, privatizations and exports, Economy and Development Minister Dimitri Papadimitriou said. This year will be “the year of real growth in Greece,” Papadimitriou said in a May 10 interview in Nicosia, Cyprus, at the annual meeting of the European Bank for Reconstruction and Development. With the exception of 2014, Greece’s economy shrank every year since 2008. The IMF in April cut its forecast for 2017 Greek economic growth to 2.2% from 2.8%. The European Commission revised earlier today its estimate for the Greek growth rate to 2.1% from 2.7%. Papadimitriou cited committed investments for 2017 of €300 million by Philip Morris International and €500 million by Hellenic Telecommunication as well as applications to make investments worth €1.9 billion following the introduction of new legislation that provides incentives to investors. He also highlighted higher industrial production, increased exports and a rise in employment.

Greece will also complete in 2017 an “ambitious” privatization program worth over €2 billion that mainly comprises regional airports, the country’s second-largest port of Thessaloniki, the national railroad operator Trainose and units of state-controlled Public Power Corp., the largest electricity supplier, Papadimitriou said. With almost one-quarter of Greeks without work in the fourth quarter of 2016, or 23.6%, the highest in the EU, Greece is targeting a fall in the unemployment rate by 2020/21 to the euro-area average of 12% through targeted programs for job creation, Papadimitriou said. The final conclusion of the review of Greece’s bailout program with the country’s international creditors will see the nation’s sovereign bonds included in the ECB’s asset purchase program that will mean Greece will be like “a normal country and every other member of the euro zone,” Papadimitriou said.

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Growth, you said? Both sides are making up numbers that suit their book. And in the end, Greece loses.

European Commission Slashes Greece’s Economic Forecasts (GR)

The European Commission forecast for Greece’s economic figures is not as optimistic as the one presented by Athens. Specifically, the European Commission sees growth of 2.1% of GDP in 2017 and 2.5% in 2018 (compared with 2.7% and 3.1% respectively as the Greek government projected). The government deficit is projected to fall to 1.2% of GDP in 2017 and to a surplus of 0.6% in 2018. In the Commission’s winter forecast, the deficit was slightly lower for 2017 (1.1%) and the surplus slightly higher for 2018 (0.7%). Regarding the sovereign debt, the forecasts for the decline of the state debt are also more conservative than the Commission’s winter forecasts.

It is estimated to drop from 179% of GDP in 2016 to 178.8% in 2017 (177.2% in winter forecasts) and 174.6% of GDP in 2018 (170.6% in winter forecasts). At the same time, unemployment numbers differ, as it is estimated that from 23.6% in 2016 it will fall to 22.8% in 2017 (compared with 22% in the winter forecasts) and 21.6% in 2018 (compared to 20.3% in winter forecasts). Inflation is expected to be 1.2% in 2017 and 1.1% in 2018. Finally, estimates of investment growth are also mitigated by lower growth. Specifically, investment growth is projected to increase by 6.3% in 2017 (compared with 12% in the winter forecasts) and 10.8% in 2018 (compared with 14.2% in winter forecasts).

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Schaeuble blames Greece for not exiting the Eurozone in 2015. Like the EU would have let them. The world on its head.

Schaeuble Says Greece Needs Reforms, Defends 2015 ‘Timeout’ Idea (K.)

Structural reforms are key to membership of the euro area, German Finance Minister Wolfgang Schaeuble has said while defending his 2015 offer of a Greek euro “timeout.” “If a country does not want to leave [the euro], then it has to make structural reforms – like Greece has,” Schaeuble said in an interview with Italian newspaper La Repubblica published Thursday. “With the euro, the time is over when some countries could increase their competitiveness through currency devaluation. This is a political short-cut,” he said. Asked about his proposal for a temporary Greek exit from the eurozone, put forward in the dramatic summer of 2015, the German finance minister defended his idea. “You know what [Italian Economy Minister] Pier Carlo Padoan said in public: an overwhelming majority of finance ministers were convinced that it would be better if Greece were temporarily out of the euro,” Schaeuble said. “It was Greece that decided otherwise. We are now making an effort to make sure that the third aid package is a success,” he said.

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Remember 40% of Greek businesses don’t expect to survive 2017.

One In Six Greek Businesses Are Late Payers – Central Bank Chief (Amna)

About one in six businesses in Greece has the characteristics of a late payer, Bank of Greece Governor Yannis Stournaras said on Thursday, addressing an audience at the Federation of Industries of Northern Greece (FING) in Thessaloniki. Stournaras said it is urgent to address the problem of non-performing loans (NPLs), saying it should be a priority among the reforms discussed between Greece and its lenders, as it is a very significant obstacle to economic recovery. “This is the biggest challenge facing today, not just the banking system but the Greek economy,” he said, adding that according to a conservative estimate based on a sample of 13,000 businesses with loans over one million euros, an average of one in six has the characteristics of a bad payer.

He said there are indications that the analogy is significantly higher for smaller businesses and households. “But this will change in the immediate future with a series of initiatives that have already underway to address the aforementioned causes and which have hindered banks’ efforts to resolve the problem for years,” he said. Stournaras also expressed confidence that the approval of the prior actions by the parliament agreed during the second program review will open the way for the disbursement of the next loan tranche from the Eurogroup on May 22. “The financial markets are already expecting this result,” he said.

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“Somebody’s going to suffer. Should it the wealthy billionaires and the bankers, or should it be the Greek workers? Well, the Greek workers are not the IMF’s constituency.”

Somebody’s Going To Suffer: Greece’s New Austerity Measures (Michael Hudson)

Michael Hudson: I wouldn’t call it a negotiation. Greece is simply being dictated to. There is no negotiation at all. It’s been told that its economy has shrunk so far by 20%, but has to shrink another 5% making it even worse than the depression. Its wages have fallen and must be cut by another 10%. Its pensions have to be cut back. Probably 5 to 10% of its population of working age will have to immigrate. The intention is to cut the domestic tax revenues (not raise them), because labor won’t be paying taxes and businesses are going out of business. So we have to assume that the deliberate intention is to lower the government’s revenues by so much that Greece will have to sell off even more of its public domain to foreign creditors. Basically it’s a smash and grab exercise, and the role of Tsipras is not to represent the Greeks because the Troika have said, “The election doesn’t matter. It doesn’t matter what the people vote for. Either you do what we say or we will smash your banking system.” Tsipras’s job is to say, “Yes I will do whatever you want. I want to stay in power rather than falling in election.”

Sharmini Peries: Right. Michael you dedicated almost three chapters in your book “Killing the Host” to how the IMF jjunkeconeconomists actually knew that Greece will not be able to pay back its foreign debt, but yet it went ahead and made these huge loans to Greece. It’s starting to sound like the mortgage fraud scandal where banks were lending people money to buy houses when they knew they couldn’t pay it back. Is it similar?

Michael Hudson: The basic principle is indeed the same. If a creditor makes a loan to a country or a home buyer knowing that there’s no way in which the person can pay, who should bear the responsibility for this? Should the bad lender or irresponsible bondholder have to pay, or should the Greek people have to pay? IMF economists said that Greece can’t pay, and under the IMF rules it is not allowed to make loans to countries that have no chance of repaying in the foreseeable future. The then-head of the IMF, Dominique Strauss-Kahn, introduced a new rule – the “systemic problem” rule.

It said that if Greece doesn’t repay, this will cause problems for the economic system – defined as the international bankers, bondholder’s and European Union budget – then the IMF can make the loan. This poses a question on international law. If the problem is systemic, not Greek, and if it’s the system that’s being rescued, why should Greek workers have to dismantle their economy? Why should Greece, a sovereign nation, have to dismantle its economy in order to rescue a banking system that is guaranteed to continue to cause more and more austerity, guaranteed to turn the Eurozone into a dead zone? Why should Greece be blamed for the bad malstructured European rules? That’s the moral principle that’s at stake in all this.

[..] Yanis Varoufakis, the finance minister under Syriza, said that every time he talked to the IMF’s Christine Lagarde and others two years ago, they were sympathetic. They said, “I am terribly sorry we have to destroy your economy. I feel your pain, but we are indeed going to destroy your economy. There is nothing we can do about it. We are only following orders.” The orders were coming from Wall Street, from the Eurozone and from investors who bought or guaranteed Greek bonds. Being sympathetic, feeling their pain doesn’t really mean anything if the IMF says, “Oh, we know it is a disaster. We are going to screw you anyway, because that’s our job. We are the IMF, after all. Our job is to impose austerity. Our job is to shrink economies, not help them grow. Our constituency is the bondholders and banks.” Somebody’s going to suffer. Should it the wealthy billionaires and the bankers, or should it be the Greek workers? Well, the Greek workers are not the IMF’s constituency. It says: “We feel your pain, but we’d rather you suffer than our constituency.”

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May 092017
 
 May 9, 2017  Posted by at 8:13 am Finance Tagged with: , , , , , , , , , , ,  4 Responses »
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Pablo Picasso Self portrait 1938

 

Macron Is Not The Solution To Europe’s Top Existential Threat (CNBC)
“Europe’s Not Out Of The Woods With Macron Win” (ZH)
Commodities Send Ominous Signal On Global Economy (BBG)
Traders Are Fleeing the Options Market (WSJ)
The Debt-Bubble Landmine Obama Left For Trump (NYP)
Canadians Buy Record Number of New Cars With Record Amount of Financing (BD)
Majority of Consumers Now See Canadian Home Prices Rising (BBG)
Over 50% of Canadians $200 or Less Away From Not Being Able To Pay Bills (Gl.)
Quebec’s Finance Minister: Don’t Dawdle on NAFTA Overhaul (BBG)
Chinese Stocks Head For Longest Losing Streak In 3 Years (BBG)
How China Keeps Its Financial System From Collapsing (ZH)
Parts of Asia Will Grow Old Before Getting Rich, IMF Warns (BBG)
Italy Adds Bum Note To Macron’s Ode To Euro Zone Joy (R.)
The Rock-Star Appeal of Modern Monetary Theory (Nation)
To Bury Nuclear Waste, Dig Deeper Than Yucca Mountain (BBG)
Dangerous Times in the Aegean and Cyprus (K.)
New Refugee Center Planned On Chios As Tensions Simmer (K.)
Nearly 200 Missing, 11 Dead As Migrant Boats Sink Off Libya (AFP)
Hundreds Of Migrants Feared Dead In Mediterranean Over Weekend (R.)

 

 

Macron wants Eurobonds, anathema to Germany et al because they would allegedly “sharply reduce each euro zone government’s motivation to pursue sensible fiscal policies..”.

Many in Brussels want a banking union, anathema to quite a few countries. There is no democratic way that leads to such a union. It’s like handing the EU the keys to your country.

Macron Is Not The Solution To Europe’s Top Existential Threat (CNBC)

The future of the euro zone is dependent on a common commitment to solid government finances, says Commerzbank’s chief economist, and France’s new president-elect does not bring the bloc any closer to achieving this reality. The pro-EU and centrist candidate, Emmanuel Macron, stormed to victory against his far-right political rival, Marine Le Pen, on Sunday and is now poised to become France’s youngest ever premier. However, the former economy minister is in favor of joint bond issuance which, according to Jörg Krämer, would sharply reduce each euro zone government’s motivation to pursue sensible fiscal policies. “The EU can’t keep feeling its way from one election to the next. At some point an election might go the wrong way – and if that happens in a large country, the survival of the monetary union would be in jeopardy,” Krämer said in a note.

Commerzbank’s chief economist also warned the repeated near misses of anti-EU political leaders in several European elections in recent years would not last forever and suggested the monetary union’s survival now rests on the bloc’s ability to create a genuine banking union. “To lay these existential risks to rest, the euro zone at long last needs a common commitment to solid government finances. The monetary union’s long-term survival depends on it. But new French President Macron won’t bring this any closer to reality,” he added. Meanwhile, just one day after the pro-business and market-friendly candidate Macron secured his country’s presidential election, EC President Juncker publically lambasted high state spending in the euro zone’s second largest economy. “With France, we have a particular problem … The French spend too much money and they spend too much in the wrong places. This will not work over time,” Reuters reported him as saying in Berlin on Monday.

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Le Pen would have lost against anyone. But tons of Europeans still don’t like what the EU has become. All it takes is a candidate somewhere who’s not Le Pen or Wilders.

“Europe’s Not Out Of The Woods With Macron Win” (ZH)

It appears the chairmen of UBS have plenty to say on Europe.Following former UBS chairman Peter Kurer’s comments that “to the elites, the EU is a means to get rich quickly and export their problems,” UBS current chairman Axel Weber has warned bankers that Europe is not “out of the woods” from its political risks even after Emmanuel Macron’s reassuring victory in the French presidential election. Peter Kurer recently remarked on the end of the Euro…

“Following an unfortunate combination of wrong decisions at the top and the uncontrolled flourishing of a self-serving bureaucracy, the union has moved in a direction where it has become a prisoner of its own constructed reality. The EU was a great idea but it has been ridden to death. Back in 1992, almost half of Swiss voted to join the European Economic Area, including the traveller. If there was a vote today on joining the union, the latest polls say just 15% would vote yes. The EU had its chances. It squandered them, and maybe it will come to an end in the foreseeable future under the weight of its burdens: La messa e finita, andate in pace.”

And over the weekend speaking in Tokyo, as the FT reports, UBS Chairman Axel Weber said that political risk in Europe remained “actually quite high” even though “we’ve seen the centre hold in France” with Macron’s victory over far-right candidate Marine Le Pen, and even though all the signs were that the centre will also hold in the upcoming German location elections.

“That doesn’t mean Europe is out of the woods,” he told the International Institute of Finance’s spring meeting. “There is still Italy where it is very unclear that the centre will hold. And there is still Greece.” He continued: “Where you find some bright side….there are (also) some downside risks that are not really priced into the market but could derail (Europe).” “Brexit is a time bomb… and the countdown is on. It will be two years from now,” Mr Weber said. He added that “if the British really do leave the customs union and single market there could be a lot of volatility which could impact on the global economy”.

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How long can bubbles hold?

Commodities Send Ominous Signal On Global Economy (BBG)

By almost any measure last week was a bad one for commodities, as practically every part of the market lost value. West Texas Intermediate crude oil fell under $44 per barrel, Brent crude broke below $50 per barrel and copper tested $5,500 per metric ton. In China, coal and iron ore tumbled. Gold, the supposed ultimate haven, dropped to almost $1,225 per ounce. Last week’s purge capped a steady decline in prices since mid-April and, more broadly, since February based on the Bloomberg Commodities Index. Although much of the blame is being tied to rather high and growing inventory levels, a lack of real demand shouldn’t be discounted. The market is experiencing something greater than a technical correction or speculative positioning. It is signaling something ominous about the state of the global economy.

So while Friday saw a small recovery, it appears to be merely a “dead cat bounce” rather than a sign of any market bottom. Traders have reason to question global economic strength. They are concerned about fresh signs of an over-extended Chinese economy and an ongoing slowdown in developed markets faced with aging demographics. In the U.S., they question President Donald Trump’s infrastructure promises along with his administration’s relaxed standards in the mining and drilling sectors, whose commodities we already have too much of. OPEC’s output cuts have failed to do enough to stymie the global oil glut as U.S. drillers add to their rig counts. Such negative sentiment has carried through in the equity markets, particularly among commodity-producing nations such as Australia, Canada and Brazil.

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A liquidity problem. And a confidence one.

Traders Are Fleeing the Options Market (WSJ)

Falling volumes and spiraling costs are pushing trading firms out of U.S. options, raising concerns about fragility in a market that investors rely on to protect portfolios. Trading has dwindled in most areas of the market, and investors and traders are grappling with increasing fragmentation. Liquidity, the crucial ability to do trades without significantly moving prices, has deteriorated, according to interviews with market participants and data reviewed by The Wall Street Journal. Options on key indexes, exchange-traded funds and high-volume stocks dominate trading. Meanwhile, there is less activity in the rest of the listed U.S. options world. The stresses prompted at least six prominent options market makers to exit from the business since 2012. Market makers are firms willing to both buy and sell using automated programs.

Thomas Peterffy, a pioneer of electronic options trading, said in March that his firm, Interactive Brokers, would pull the plug on options market making. KCG Holdings announced its exit from retail options market making last year, while UBS and Credit Suisse have also left automated options market making. JP Morgan and Bank of America made similar decisions in 2014, according to people familiar with the matter. “Most market makers congregate in the highly traded products,” Mr. Peterffy said in an interview. “It’s difficult for a market maker to maintain hundreds of thousands of bids and offers all the time.” It is hard to pinpoint what triggered the trader exodus, but industry experts say as firms leave, liquidity gets further drained, which spurs more market makers to retrench.

The dangerous feedback loop could sap appetite for options, key derivative securities that investors use to manage risk in their portfolios. “We could ill afford to lose any more market makers at this junction,” said Alan Grigoletto, who previously worked at the Boston Options Exchange, and now runs Grigoletto Consulting while trading options in his retirement account. Data show the liquidity bifurcation. Index and ETF options volume rose in April by 28% and 4%, respectively, data from the Options Clearing Corporation show. Meanwhile, total equity options volume shrank by 10% from the prior year.

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The car loans issue keeps growing.

The Debt-Bubble Landmine Obama Left For Trump (NYP)

President Trump came in for much jeering when he told reporters he had “inherited a mess” from President Barack Obama. On the economy, though, Obama did indeed leave behind a hidden mess: a seemingly healthy jobs market dependent on cheap debt. When this debt bubble bursts, just as the last one did, the manufacturing jobs Trump wants to save will be in even greater peril. [..] who is borrowing for used cars – and at much higher interest rates – is a huge concern. People with not-great credit scores have always made up about a fifth of the auto-loan market. But the percentage of people borrowing even though they have really bad credit scores has surged, reports Bloomberg. It’s now a third of the subprime auto-bond market, up from just 5% seven years ago. A Standard & Poor’s analysis of just one big subprime auto bond tells the story.

Last week, a company called DriveTime, which sells used cars in 26 states to people with bad credit, was in the market to issue $442 million worth of bonds backed by auto loans. The average credit score of borrowers was 538 — indicating a history of serious default. And, as S&P notes, “today’s subprime customer appears to be . . . weaker . . . than that of several years ago,” because people who defaulted right after the housing crash at least had the excuse that they were caught up in a global bubble. These loans are for people who have no choice but to borrow to buy a car, and no bargaining power on the interest rate they pay: close to 20%. Even though the borrowers pay through the nose, they depend on cheap global credit. With interest rates still near record lows, lenders have to take ever more risk in a low-interest-rate environment to make a little money.

As for that risk: Delinquency rates are rising, with 4.32% of subprime borrowers in general at least 60 days late last year, up from 3.52 two years earlier, says S&P. The bigger risk here isn’t the risk to investors, though. The auto-loan market is still much smaller than the housing market, and the investment world hasn’t created trillions of dollars of derivative securities based on this market (at least not that we know of). And unlike with houses, no one ever expects the value of a car to increase with use. No, this bubble presents a much more direct risk to the economy — and manufacturing jobs. If people with terrible credit can’t borrow an average of nearly $18,000 to buy a used car (what the DriveTime customer pays), the market for used cars collapses. That, in turn, affects the market for new cars. Indeed, the US auto industry has seen sales decline this year, after clocking half a decade of record highs.

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Canadians do the subprime car thing too.

Canadians Buy Record Number of New Cars With Record Amount of Financing (BD)

Canadians aren’t just buying real estate, they’re also treating themselves to new cars. According to a new release from Statistics Canada, sales of new cars reached a record high for February. Great for automobile manufacturers, but not so great for the economy. Debt-fuelled financing makes this more of a warning sign than a boom-time trend. Sales of new motor vehicles across Canada rose to an all-time record for February. The month saw 125,284 sales – a 2.74% increase from the same time last year. The largest segment of sales were seen in Ontario, where 41% of them occurred. This is up slightly from 2016, where Ontario accounted for 39% of sales. Booming real estate prices, and massive numbers for car sales… Ontario better be facing the greatest economy its ever experienced, or it’s in trouble.

Consumers are purchasing more expensive vehicles too. Over $5 billion was spent on new vehicles for the month, bringing the average to $40,100 – up 3.4% from the same time last year. Ontario was below the average for the country, where the average price was $39,400. While prices are lower in Ontario, they’re not exactly budget vehicles either. The uptick in average sale price is due to longer financing terms for buyers. According to the Financial Consumer Agency of Canada (FCAC), Canadians are “increasingly purchasing more car than they can afford,” due to longer financing becoming fashionable. The agency notes that average leases have crept up 2 months, every year since 2010. According to the Bank of Canada (BoC), the average loan was 74 months as of 2015.

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The Canadian debt issue is turning into a total craze.

Majority of Consumers Now See Canadian Home Prices Rising (BBG)

Expectations for Canada’s housing market are heating up, with more than half of respondents in a weekly telephone survey predicting home prices will rise, the first time the measure has topped 50% in records dating back to 2008. The bullishness comes even as a run on deposits at Toronto-based mortgage lender Home Capital leads to heightened scrutiny of a market which policy makers have said is divorced from economic fundamentals. The broad Bloomberg Nanos Canadian Confidence Index fell to 59 in the week ended March 5. Some 50.1% of respondents said they expect local home prices to rise. The figure has climbed for six straight weeks and is higher than the average for the series of 37.1%. Thepercentage of people surveyed in the week ending May 5 who said local home prices will decline in the next six months slid to 10% from 10.7%.

“Consumer sentiment on real estate has gone from hot to hotter,” said Nanos Research Group Chairman Nik Nanos. Housing has led the world’s 10th largest economy over most of this decade as exporters have struggled. The latest burst of housing momentum has led policy makers to question whether it’s being led by supply and demand or by speculation. The Ontario Securities Commission opened hearings into whether Home Capital failed to properly disclose an internal probe into fraudulent mortgage applications, a shakeup in a nation lauded for having the world’s safest banks. The latest Toronto figures also showed prices up 25% in April from a year earlier, still close to the 30% March pace that Ontario Finance Minister Charles Sousa called unsustainable on April 20 when he imposed a foreign buyers tax. Those events haven’t led to more bets on a price decline either, and housing optimists now outnumber pessimists by a factor of five to one.

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So much in debt they can’t pay their bills. Maybe someone should take a look at Canadian inequality, too.

Over 50% of Canadians $200 or Less Away From Not Being Able To Pay Bills (Gl.)

More than half of Canadians are living within $200 per month of not being able to pay all their bills or meet their debt obligations, according to a recent Ipsos survey conducted on behalf of accounting firm MNP. “With such a small amount of wiggle room, any kind of unanticipated hardship, such as a job loss or even a car repair, could send an already struggling family into financial despair,” said Grant Bazian, president of MNP’s personal insolvency practice, which is one of the largest in Canada. For 10% of Canadians, the margin of error when it comes to household finances is even thinner, at $100 or less. But those with anything at all left at the end of the month were in better shape than many: A whopping 31% of respondents said they already don’t make enough to meet all their financial obligations.

Debt is causing Canadians a fair bit of stress, the polling suggests, but few appear to be on track to buff up their monthly financial cushion. Two-thirds of survey takers said they are “less than very confident” about their ability to create an emergency fund. Another hair-raising finding from the survey: Roughly 60% said they don’t have a firm grasp of how interest rates affect debt repayments. The statistic helps explain why many indebted Canadians end up taking on more debt and high-cost loans, said Bazian. “That’s how so many end up in an endless cycle of debt,” he noted. But the data also raises the question of whether Canadians understand the implications of an interest rate hike by the Bank of Canada (BoC). A decision by the BoC to start lifting its key policy rate from historic lows would raise the cost of carrying debt across the country.

The Bank uses interest rates, among other tools, to influence inflation and economic activity. Many economists believe it could start to raise rates in the first half of 2018, as economic growth picks up pace. Although the BoC will probably lift rates gradually and over time, the impact on Canadian wallets will be substantial. For example, as Global News has reported before, a onepercentage point rise in the BoC’s key interest rate would likely push up variable mortgage rates by a similar amount. A variable mortgage rate that’s currently set at 3%, for example, would go up to 4%, which represents a 33% increase in interest payments for the mortgage holder. That’s an extra $83 a month for every $100,000 in outstanding mortgage debt.

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Quebec has strong US trade ties.

Quebec’s Finance Minister: Don’t Dawdle on NAFTA Overhaul (BBG)

Quebec Finance Minister Carlos Leitao has a message for government officials considering a renegotiation of NAFTA: Time is of the essence. “If we are going to renegotiate Nafta, then let’s do it,” Leitao said in an interview Friday at Bloomberg headquarters in New York. “The worst case scenario would be if we spend years talking about renegotiating, but don’t actually do it and it just keeps hanging around and doesn’t get addressed. The longer it drags on, the bigger the real impact on investment.” Canadian Prime Minister Justin Trudeau is facing a lengthy trade battle with the U.S., which also includes calls for a new softwood lumber pact and Donald Trump’s complaints about Canada’s system of protectionist dairy quotas.

It’s all set to drag on as the president has yet to trigger a 90-day notice period to Congress to renegotiate Nafta. The last softwood lumber dispute lasted five years. “The problem with the uncertainty is we don’t know what kind of process we will have,” Leitao said. “Is this going to be along the same lines as the last Nafta negotiations? That was very systematic. There were panels on various issues. It’s that kind of certainty that we would like. The actual nuts and bolts will take time.” Leitao has good reason to be wary of protracted trade battles, with his most recent budget already predicting Quebec’s economic growth will lag behind the Canadian average. Output in Quebec will grow 1.7% this year before slowing to 1.6% in 2018, budget forecasts show. That’s less than the 2.2% and 2.3% forecast for all of Canada over the same period.

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Deleveraging.

Chinese Stocks Head For Longest Losing Streak In 3 Years (BBG)

Chinese stocks pared declines, with technical indicators signaling that a five-day slide may have been overdone. The Shanghai Composite Index was little changed at 3,077.78 as of 1:07 p.m. local time, after declining as much as 0.7% earlier in the day. Consumer shares were the worst performers on the CSI 300 gauge, while telecom companies led gains. The Hang Seng Index climbed 0.4%. An intensifying campaign to reduce leverage in the financial system pushed the Shanghai benchmark to a 2.4% loss in the five days through Monday. This drove the gauge’s relative strength index to below 30, a level that suggests to some traders that an asset is oversold.

The nation’s banking regulator said Monday that lenders should carry out collateral pressure tests at least once a year, while the Securities Times reported that some rural banks had suspended interbank businesses temporarily while officials conduct spot checks. “Some stocks appeared to be very cheap at current levels, and this triggered some bargain hunting,” said Banny Lam, head of research at CEB in Hong Kong. State-owned enterprises that dominate old growth industries, such as banks and commodity producers, have been among the hardest-hit by the deleveraging drive, while new-economy shares remain in favor among overseas investors. That’s led to a wide gap between the nation’s two main offshore gauges: the Hang Seng China Enterprises Index and the MSCI China Index.

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Much collateral doesn’t actually exist. Wealth management products, shadow banks, it’s all not much more than a mirage. It takes faith.

How China Keeps Its Financial System From Collapsing (ZH)

With “risk” in most of the developed world seemingly a long forgotten four-letter word, as seen by today’s plunge in the VIX to a level not seen in 34 years, traders hoping for some “risk event” have been confined to the recent turmoil in China, where overnight not only did trade data disappoint, with both imports and exports missing, but bond yields jumped to the highest level since 2015, dragging stocks lower even as the local commodity crash slammed iron ore and copper to new YTD lows.

While largely a “controlled” tightening, meant to contain China’s out-of-control shadow banking system, the recent gyrations in Chinese capital markets are starting to have a profound impact on local funding, resulting in a collapse in new bond issuance, and according to FT calculations, in April the number of aborted issues rose to 154, up from 94 in March, 32 in February and 31 in January.

As DB added, “local bond markets are practically shut for corporates. In fact, YTD issuance is down 40%+ yoy and net issuance has been negative in three out of the first four months this year. A number of issuers are being forced to cancel bond issuances (over RMB100 billion YTD) and there were reports (Bloomberg) of even CDB halting issuance (though subsequently denied). Some AA corporates are now issuing at north of 7%.” These signs of mounting stress in China’s $9.3 trillion bond market come less than a month after the country’s banking regulator, Guo Shuqing, was quoted as supporting a campaign to sort out chaotic practices, and threatening to resign if the banking system became “a complete mess”.

[..] whether or not China keels over and has a hard (or worse) landing, will depend on the PBOC; when (not if) the central bank gets involved, will depend on how soon China’s banks and various CD-funded financial institutions run out of collateral (whether it exists or not) to sell, such as iron ore, copper, precious metals, bonds and even stocks. This will hardly come as a surprise. As we showed last month, the only reason the Chinese banking system hasn’t imploded, is due to nearly CNY 10 trillion in central bank liquidity support for the local banks, just under 100% of China’s GDP.

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Europe too.

Parts of Asia Will Grow Old Before Getting Rich, IMF Warns (BBG)

Asia’s rapidly aging population means the region is shifting from being the biggest contributor to the global workforce to subtracting hundreds of millions of people from it, according to the International Monetary Fund. The reversal of the so-called “demographic dividend” will drag on global growth and also that in Asia, the world’s fastest growing region, the IMF warned in its annual outlook for the area. The population growth rate will fall to zero for Asia by 2050 – it’s already negative in Japan – and the share of the population who are working-age has already hit its peak, the IMF estimates. That means the ratio of the population aged 65 and older will be almost two and a half times the current level by 2050, and even higher in East Asia.

“The speed of aging is especially remarkable compared to the historical experience in Europe and the United States,” the IMF said. Per capita income in Asia relative to the U.S. remains at much lower levels than those achieved by mature advanced economies in the past. “Countries in Asia will have less time to adapt policies to a more aged society than many advanced economies had,” the fund wrote. “As such, parts of Asia risk becoming old before becoming rich.” For economic growth, the aging process could erode up to one percentage point from annual output over the next three decades in Japan, and between 0.5-0.75 percentage point in China, Hong Kong, South Korea and Thailand.

While some bright spots remain, such as India and Indonesia, demographics could subtract 0.1 of a percentage point from annual global growth over the next three decades, the IMF estimates. It also means Asia is at risk of falling into secular stagnation if an older population leads to excessive savings and low investment renders monetary policy ineffective. The demographic shift will also likely keep downward pressure on real interest rates and asset returns for most major countries in Asia, the IMF said. “Adapting to aging could be especially challenging for Asia, as populations living at relatively low per capita income levels in many parts of the region are rapidly becoming old,” the IMF said.

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It’s time to come clean on how bad Italy is really doing.

Italy Adds Bum Note To Macron’s Ode To Euro Zone Joy (R.)

Italy is adding a bum note to Emmanuel Macron’s ode to joy. While it’s encouraging that a Europhile will take the French presidency after Sunday’s vote, attention can now turn to Europe’s other crisis-in-waiting. Elections are coming in Italy, and there are more of the ingredients for a populist shock than in France. The economy has fared much worse since the creation of the euro zone, with growth averaging zero since 2001, according to the IMF. GDP per capita has fallen in that time. The IMF expects the unemployment rate to reach 11.7% this year, 2 percentage points higher than in France. Anti-EU forces are also spread widely across Italy’s messy political landscape. Stagnation has fuelled support for the 5-Star Movement, which could lead Italy out of the euro zone and currently polls just below 30%.

Mainstream parties are shaky. The left fragmented after former prime minister Matteo Renzi lost his referendum on constitutional reform in December. The right is an awkward alliance between ageing former premier Silvio Berlusconi and more radical anti-EU parties, like the Lega Nord. The risk is that 5-Star forms a coalition with the Lega after elections that must take place by May next year. The economy is picking up, but tighter monetary policy, as the European Central Bank reins in bond buying, could strangle the recovery, as could an overly stern fiscal policy. Italy needs to cut spending or increase taxes by 2percentage points to meet European targets through 2019. Job losses from the restructuring of banks and bankrupt national airline Alitalia could become a lightning rod for anti-EU sentiment.

Europe can help. Italy is likely to miss its fiscal targets anyway, but loosening bloc-wide budget rules to encourage investment and spread out cuts over a long period would cement the recovery. A strong France, aided by Macron’s victory, might persuade Germany to spend more, and give other countries freer rein. However, even if a political shock is avoided, the next election may produce a weak government with no mandate for taking tough decisions to boost growth. Italy could be bringing discord to the region for years.

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MMT must go mainstream.

The Rock-Star Appeal of Modern Monetary Theory (Nation)

To a layperson, MMT can seem dizzyingly complex, but at its core is the belief that most of us have the economy backward. Conventional wisdom holds that the government taxes individuals and companies in order to fund its own spending. But the government—which is ultimately the source of all dollars, taxed or untaxed—pays or spends first and taxes later. When it funds programs, it literally spends money into existence, injecting cash into the economy. Taxes exist in order to control inflation by reducing the money supply, and to ensure that dollars, as the only currency accepted for tax payments, remain in demand.

It follows that currency-issuing governments could (and, depending on how you lean politically, should) spend as much as they need to in order to guarantee full employment and other social goods. MMT’s adherents like to point out that the federal government never “runs out” of money to fund the military, but routinely invokes budget constraints to justify defunding social programs. Money, in other words, isn’t a scarce commodity like silver or gold. “To people who’ve worked in financial markets, who work at the Fed, this isn’t controversial at all,” says Galbraith, who, while not an adherent, can certainly be described as “MMT-friendly.”

The decisions about how to issue, lend, and spend money come down to politics, values, and convention, whether the goal is reducing inequality or boosting entrepreneurship. Inflation, MMT’s proponents contend, can be controlled through taxation, and only becomes a problem at full employment—and we’re a long way off from that, particularly if we include people who have given up looking for jobs or aren’t working as much as they’d like to among the officially “unemployed.” The point is that, once you shake off notions of artificial scarcity, MMT’s possibilities are endless. The state can guarantee a job to anyone who wants one, lowering unemployment and competing with the private sector for workers, raising standards and wages across the board.

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No matter how deep you dig, you can’t guarantee safety for a million years. That’s what’s halted Yucca Mountain. The Bloomberg editors don’t understand the issue either.

To Bury Nuclear Waste, Dig Deeper Than Yucca Mountain (BBG)

Energy Secretary Rick Perry is right to say the U.S. needs a long-term solution to its massive nuclear waste problem. It also makes sense for Perry and some members of Congress to see Yucca Mountain as part of that solution – though many Nevadans promise to make sure it won’t be. But even if Yucca can survive the political fight, it can’t be the only option for disposing of America’s spent nuclear fuel. More than 75,000 metric tons of the stuff are cooling in pools and casks at dozens of power-plant sites around the country. That’s already too much to fit in Yucca Mountain, and the total grows by more than 2,000 tons a year. Other strategies are needed, ideally ones that are less politically radioactive. Consider, for instance, the idea of sinking the waste into boreholes that reach three miles below ground – 15 times as deep as the proposed chambers inside Yucca. Such shafts could be drilled in states that, unlike Nevada, benefit from the use of clean, reliable nuclear power.

Boring into the Earth’s deep rock layers could provide the kind of bury-it-and-forget-it underground disposal necessary for material that will remain dangerous for hundreds of millennia. Local opposition can still be expected; in North and South Dakota, residents have shouted down some plans to dig test holes. That’s why a so-called consent-based strategy, identifying locations with both the appropriate geology and an agreeable population, is necessary. If hosting a waste site means more funding for local public works and services, more communities might be willing to accept one. (This proved to be the case in Carlsbad, New Mexico, home to a storage place for low-level waste from nuclear weapons.) A familiarity with nuclear power may also encourage acceptance, perhaps because there is a nuclear plant in the area employing people and providing power.

The same approach could also be used to locate six or seven centers where waste from several nuclear plants could be stored while it awaits burial. Such containment facilities could also include research centers – mini national laboratories where scientists could work out new ways of reprocessing fuel and perhaps conduct demonstration projects for reactors designed to use safer fuels. The one thing the U.S. should not do is continue to neglect the growing quantities of nuclear waste. Over the past few decades, electricity ratepayers have contributed more than $34 billion to a national fund to pay for a geologic disposal site. And because none yet exists, taxpayers are forking over billions more to enable nuclear-plant operators to manage interim storage. The political barriers to solving this problem may be high, but further delay – and an undue fixation on Yucca Mountain – won’t make them any easier to overcome.

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Turkey will provoke Greece at some point, and US and Europe had better prevent that from happening.

Dangerous Times in the Aegean and Cyprus (K.)

The concept of gray zones (the claim that the sovereignty of a number of islands and islets in the Aegean is undetermined) was a novel idea that Turkey came up with 20 years ago. At some point, Ankara reached the point of including the Greek island of Gavdos in its gray zones list. Whenever Athens made an official request regarding the islands or rocky outcrops that Turkey had on its list, the answer was always very vague: “Anything that is not clearly included the bilateral agreements that set out Greece’s borders with other countries.” At first, many people thought this was a bargaining chip that Ankara would trade as part of a grand bargain. They were wrong. The failure to settle differences between Greece and Turkey gave Ankara the opportunity to add more issues to the agenda.

Over time, these have become permanent and ever-expanding. Currently, Turkey considers significant parts of the Aegean to be gray zones. This includes islands that have been inhabited for decades. It is questioning Greek sovereignty through its actions, not just its words, by the frequent presence of naval vessels in Greek waters and overflights by fighter jets. Over the last few months, it has being doing this more systematically and openly. Greece’s approach has also changed. The doctrine that existed in the wake of the Imia crisis in 1996, when the two countries almost went to war, was based around not building up tension following various incidents and maintaining a low profile.

[..] A dangerous situation is also playing out in Cyprus. The Turks are trying to impose the concept of gray zones there as well. July (when a new round of drilling for hydrocarbons is due to begin off Cyprus) promises to be a difficult month. Ankara will attempt before then to intimidate the companies that plan to start drilling or try to obstruct them if they are not scared off by threats.

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Prison camps are no solution.

New Refugee Center Planned On Chios As Tensions Simmer (K.)

The exact site for the creation of a new so-called pre-departure camp for migrants and refugees on the island of Chios will be determined by May 20, authorities said on Monday. The new camp will come as tensions at overcrowded reception centers on the eastern Aegean island continue to simmer, with almost daily clashes between stranded migrants of different ethnicities. “The experience of Lesvos and Kos where such centers have been created is positive,” said Lieutenant General Zacharoula Tsirigoti of the Greek Police in a press briefing Monday on Chios. Pre-departure centers are deemed essential as they house refugees and migrants returning to Turkey. Tsirigoti added that building a new center on the island is a “one-way street” as locals – many of whom have campaigned for the immediate removal of all migrants and refugees from Chios – say the situation has reached breaking point and that the large police force on the island has been unable to cope.

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The season is just starting: “..the trend points to around 250,000 people arriving over the course of 2017”. There is no place for these people in Italy and Greece.

Nearly 200 Missing, 11 Dead As Migrant Boats Sink Off Libya (AFP)

Eleven migrants have died and nearly 200 are missing after two boats sank off the coast of Libya, UN agencies said Monday citing survivors, in the latest such tragedy. The first involved an inflatable craft which left Libya early Friday with 132 people on board, only to start deflating a few hours later, before overturning. Some 50 survivors were picked up by a Danish container ship, the Alexander Maersk, which was alerted to divert by Italian coastguards and dropped them off on Sunday in Pozzallo, southern Sicily. Representatives of the UN High Commissioner for Refugees (UNHCR) and the International Organization for Migration (IOM) were able to meet them on Monday to hear their accounts. Survivors told them that women and children were among those missing.

At the same time, the bodies of 10 women and one child were found Monday on a beach in Zawiya, 50 kilometres (31 miles) west of Tripoli, according to an official for the Libyan Red Crescent. Then on Sunday seven migrants – a woman and six men – were rescued by Libyan fishermen and coastguards off the coast of the Libyan capital. An IOM spokesman who met them said they had set out on a boat with at least 120 people on board, including about 30 women and nine children. In all more than 6,000 migrants were rescued Friday and Saturday in international waters off the coast of Libya and brought to Italy, while several hundred were rescued in Libyan waters and taken back to Libya.

The number of people leaving Libya in the hope of starting a new life in Europe is up nearly 50% this year compared with the opening months of 2016. With most departures coming in the warm summer months, the trend points to around 250,000 people arriving over the course of 2017. Some 500,000 migrants were registered in Italy in the three years spanning 2014-16.

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Europe’s reputation is tarnished for decades. But everyone thinks they can deflect responsibility. Time for skin in the game.

Hundreds Of Migrants Feared Dead In Mediterranean Over Weekend (R.)

More than 200 migrants are feared to have died in the Mediterranean over the weekend, according to testimony from survivors, and several bodies, including that of an infant, have washed up on a Libyan beach. About 7,500 people have been rescued off the coast of Libya since Thursday, the Italian and Libyan coastguards said. Two groups of survivors told the organizations that hundreds drowned when their rubber boats began to deflate before rescuers arrived. More than 60 are feared dead and three bodies were recovered on Saturday, survivors brought to Sicily on Sunday told Italian coastguards. The boat left Libya carrying about 120, they said. There was some discrepancy in the numbers. Based on its interviews with some of the survivors in Pozzallo, Italy, the U.N. refugee agency estimated the number of dead at more than 80.

Separately, Libya’s coastguard picked up seven survivors over the weekend who said they had been on a boat packed with 170 migrants. Aid agency International Medical Corps, which gave medical care to the survivors, also confirmed their account. “We rescued on Sunday seven illegal migrants – six men and a woman,” said Omar Koko, a coastguard commander in the western city of Zawiya. “According to these survivors, there were 170 on board the boat, which sank because of overloading.” Among those missing were more than 30 women and nine children, Koko said. Eleven bodies washed up on the shore west of Zawiya, said Mohanad Krima, a spokesman for the Red Crescent in Zawiya. “All the bodies are of female victims and there is a girl of less than one year old,” he said.

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May 062017
 
 May 6, 2017  Posted by at 9:24 am Finance Tagged with: , , , , , , , , , ,  3 Responses »
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Edouard Boubat Paris 1950

 

Think Like a Surfer in the Largest Stock Market Bubble Since 1983 (Dent)
US Student, Auto Loans Hit New All Time High Of $2.6 Trillion (ZH)
China’s War on Debt: Stocks Drop, Bond Yields Shoot Up and Defaults Rise (WSJ)
This Is Not a Bill (Jim Kunstler)
Review of Steve Keen’s Can We Avoid Another Financial Crisis? (R.)
France and Greece Heavily Disadvantaged by Euro as Germany Benefits (WE)
How the Eurozone Damaged French Politics – And The Election (Nation)
Macron Team Blasts ‘Massive Hacking Attack’ (R.)
Macron Personifies The Very Europe Whose Failure Feeds Le Pen (Zizek)
The English Language Is Losing Importance In Europe – Juncker (G.)
Germany Says No Debt Relief Being Prepared For Greece (R.)
The Forgotten History of Cinco de Mayo (IC)
Rescuers Pick Up 560 Migrants Off Libyan Coast On Thursday (R.)

 

 

Disasters as opportunities.

Think Like a Surfer in the Largest Stock Market Bubble Since 1983 (Dent)

I took up surfing in my early 30s. It didn’t last long. But I learned a tremendous amount from the experience (least of which is that I suck at surfing). Well, it’s time to think like a surfer. Your sole focus is to catch the wave. The best surfers can see the waves building, just like we can in the markets, but they only care about where the biggest, best waves will crash. That’s where you get the ride. And if you catch the biggest wave in the right place, you get the ride of a lifetime. Look at this fourth and largest wave building in the stock market. It’s the wave of a lifetime for investors, and it’s rolling onto our shores right about now… Remember, all the action comes when the wave crashes, not as it’s building. As the swell grows around you, you can go with the flow and harness the energy of the wave with little effort.

That’s when you become one with the universe, sitting there on your board, surrounded by dark water, rolling up and down as the power builds beneath you. That’s why surfers get addicted. Then, at the perfect moment, all the wave’s pent up energy releases in a roaring spray of water and power. That’s where we want YOU to be when the greatest market wave of your lifetime comes crashing to shore! That’s when the greatest profits come. That’s when the greatest innovations spring up. The smartest people (I include surfers in this group) and the greatest innovators understand this. They don’t look at a good economy as the best opportunity for success. Seeds of radical innovation only grow in the most challenging conditions.

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Private debt is far more dangerous than public debt.

US Student, Auto Loans Hit New All Time High Of $2.6 Trillion (ZH)

One month after we, and every other financial media, reported that US credit card debt had risen back over $1 trillion for the first time since January 2017, the Fed demonstrated just how meaningless such reports are when in its latest consumer credit report it revised the total stock of revolving debt back under $1 trillion for the month of March, while boosting December’s amount to $1,000.1 billion, meaning that all those “$1 trillion in credit card” debt headlines were about 4 months late. Fed screwing around with the financial reporters aside, the latest monthly report showed that total consumer credit rose by $16.4 billion, more than the $14 billion expected, an increase which was offset by a downward revision to the February consumer credit number from $15.2 billion to $13.8 billion. Revolving credit accounted for $2 billion of the increase with the rest, or $14.4 billion, in the form of auto and student loans.

And speaking of student and auto loans, the Fed also released its latest quarterly estimate for the two series as of March 31, and as one would expect, the numbers rose to new all time highs, and as of the end of the first quarter, US consumers owed $1.44 trillion in student loans, an increase of $32 billion for the quarter and $80 billion for the year, as well as $1.12 trillion in auto loans, an increase of $8 billion Q/Q and $73 billion Q/Q. This means that as of March 31, Americans owed two and a half times as much on their auto and student loans, as on their credit cards, a new all time high.

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“..since these products aren’t logged as loans or other assets on their balance sheets, banks have to set aside little or nothing for potential losses associated with them..”

China’s War on Debt: Stocks Drop, Bond Yields Shoot Up and Defaults Rise (WSJ)

A wave of regulations aimed at cutting risk in China’s financial system is rippling through the country’s markets and sending banks and companies scrambling for funds. During the past month, Chinese shares have fallen nearly 5%, draining almost half a trillion dollars out of the country’s markets. Bond yields have shot up to their highest levels in two years, and bond defaults hover at record levels. The uncertainty has also weighed on metals and commodity prices, already hurt by doubts around China’s growth momentum. The price of iron ore plunged 8% on Thursday, the daily trading limit. Investors blame the volatility on a host of measures Chinese authorities have rolled out to curb runaway debt levels, from raising the cost of short-term funds to measures that are prompting banks to unwind hidden loans and securities.

A particular target is high-risk, high-yielding investment products that banks have used to boost returns, but that regulators say may conceal dangerous amounts of risky lending. Regulators are responding to prodding from Chinese President Xi Jinping, who issued a call for financial stability ahead of a major power reshuffle later this year, and just last week warned finance officials not to miss “a single risk” or “hidden danger.” The market turbulence will test Beijing’s resolve in tackling China’s snowballing debt, especially if it looks like regulators’ crackdown is jeopardizing short-term growth. If they can withstand the short-term squeeze and continue to push it through, the effort will help put China’s economy on a sounder footing longer-term. Banks—especially small and midsize lenders—sell the risky investment products to Chinese savers, then lend the funds to outside asset managers who invest them in bonds, stocks and loans.

The lenders make money from the difference between what they pay their investment clients and what they get from the outside managers. But since these products aren’t logged as loans or other assets on their balance sheets, banks have to set aside little or nothing for potential losses associated with them. That leaves banks more exposed to risk and shows their financial position as stronger than it really is. The maneuvering also encourages leveraged purchases of securities by asset managers and enables banks to continue funding troubled customers, such as property developers with excess inventory and bloated steelmakers. Such grey-area investments reached nearly 20 trillion yuan ($2.8 trillion) at the end of last year, says Fitch Ratings, or about 26% of China’s GDP in 2016, up from less than 10% three years earlier. They now represent an average of 19% of small and midsize banks’ total assets, compared with about 1% for big state banks, according to Fitch.

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America’s unsolvable problem has been solved in dozens of countries.

This Is Not a Bill (Jim Kunstler)

The way it works now, the so-called “providers” (doctors, hospitals) refuse to post the cost of any service, and then charge whatever they feel they can extract, subject to an abstruse and dishonest ceremonial “negotiation” with the insurance company. The result: hospital and insurance executives get paid multi-million dollar salaries, doctors get to drive fine German cars, and the patient gets financially ass-raped, kicked to the curb, and eventually stuffed into the bankruptcy courts. ObamaCare did nothing to fix this. It just added more victims to the rolls and upped the price of admission for a personal financial ass-raping, so that an insured individual could go to the hospital for an emergency appendectomy and end up getting dunned for thousands of dollars — or even more if one of the hosptial’s favorite cute scams is applied, such as calling in an out-of-network anesthesiologist to knock you unconscious (in which state you are unlikely to inquire whether he/she/zhe is in-network or out).

Under the current system, a hospital can bill you $5,999 to stitch up a cut finger, mitigate a bee-sting, or wind an Ace bandage around a sprained ankle, and you’re sure not to learn the cost-of-treatment until the postman drops off the incomprehensible “explanation of benefits” from the insurance company that states in bold print on top “This Is Not a Bill,” but actually is a report of your own incipient financial ass-raping. But judging from the news reports this day, none of these issues is actually on the table in the congressional debate. I don’t believe the editors of The New York Times are necessarily “in bed” with the overpaid hospital CEOs and the insurance company fraudsters. They are simply putting up a defense of their previous psychological investment in Democratic Party ideology — in the shibboleth that ObamaCare was unquestionably a great thing because it was created under the magically empowered 44th president.

I can believe that both Democratic and Republican law-makers are not only in bed with the medical fraudsters of all categories, but are performing a particularly odious form of sadomasochistic bondage-and-discipline sex in exchange for payoffs. Note, too, that none of the aforementioned major media have reported what the medical and insurance lobbyists have paid to their rent-boys and doxies in the US capitol. Wouldn’t you like to know?

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“Money is seen as a “veil” placed over the activities of the real economy, a mere contrivance to get around the inconveniences of barter.”

Review of Steve Keen’s Can We Avoid Another Financial Crisis? (R.)

The preference for high theory and abstruse mathematical modeling meant that mainstream economics had come to rest on a number of gloriously improbable assumptions. In their models, millions of households were reduced to a single “representative agent,” a God-like being, omniscient and immortal. This unreal creature inhabited a world where peace – or equilibrium – ruled. Crises were impossible in such an Eden, unless a mischievous serpent entered from abroad. But such an outcome was naturally impossible to predict. Both Romer and Keen agree that the most serious error of modern macroeconomics is that it ignores finance. Money is seen as a “veil” placed over the activities of the real economy, a mere contrivance to get around the inconveniences of barter.

Minsky, by contrast, saw capitalism as a financial system in which millions of balance sheets and cash flows were intertwined in a highly complex fashion. Money and credit are the essence of capitalism: economic transactions can only take place after financing. The trouble is that credit is inherently unstable, prone to expand excessively and to inflate asset price bubbles, which in time collapse, causing a cascade of defaults throughout the economy. In Minsky’s world, the tail of finance wags the real economy dog. Anyone who paid serious attention to credit, as Keen did prior to 2008, could hardly have failed to notice that something was amiss. After all, credit was growing very rapidly in the United States, in Australia and across much of Europe. Keen’s own contribution at the time was to point out that it wouldn’t take a collapse of credit to cause a serious economic downturn – a mere slowdown in the rate of lending would do the job.

This prediction was vindicated in 2008, when credit growth slowed sharply but remained positive, sending the U.S. economy into a tailspin. Keen is now calling for the dominant macroeconomic models to be jettisoned and replaced by ones that take account of credit. In his book, he develops a simple credit-based macro model. The economists at the Bank for International Settlements have constructed a “financial cycle” model along similar lines. In the end, the money-free macro models appear doomed. Yet progress has been painfully slow to date. As Max Planck said, science advances one funeral at a time – failing death, retirement would do the trick.

So what of the next crisis? With his eye on credit growth, Keen sees China as a terminal case. The People’s Republic has expanded credit at an annualized rate of around 25 per cent for years on end. Private-sector debt exceeds 200 per cent of GDP, making China resemble the over-indebted economies of Ireland and Spain prior to 2008, but obviously far more significant to the global economy. “This bubble has to burst,” writes Keen unequivocally.

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Untenable, but zero movement towards addressing the issue.

France and Greece Heavily Disadvantaged by Euro as Germany Benefits (WE)

It is now incontestable that Germany benefits greatly from the Euro. The weaker members of the Euro drag down the external value of the Euro compared with the US Dollar making German exports far more competitive than they would otherwise be. Despite the relative value of the Euro being lower than would be the case if the Euro was the currency of Germany alone, the Euro’s value relative to the Dollar is still significantly higher than would be the case were the Euro the currency of an independent Greece or France.

In Purchasing Power Parity (PPP) terms the Euro in Germany is some 32% undervalued compared with the Greek Euro, greatly benefiting German exporters, but imposing a burden on Greek exporters that they must find impossible to cope with. Conversely the overvaluation facing French companies is now a clear 20% compared with German companies.

 

Brazil and Argentina suffer from overvalued currencies against the US Dollar, suggesting one reason for the serious recession suffered by South America’s biggest economies over the past year. In contrast Canada, Russia, China, Mexico, Turkey and India all have currencies between 15% and 44% undervalued against the US Dollar, suggesting that at least some of Mr Trump’s rhetoric is justified. Over time these fundamental disparities have not shrunk, they have in fact widened. The charts to the upper right show the trend of German undervaluation against the French and Greek Euro’s in Purchasing power terms.

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“Although the major Western media portrays the EU authorities’ policies as the only sensible course, in economic terms, it is anything but.”

How the Eurozone Damaged French Politics – And The Election (Nation)

[..] there is a structural problem in the eurozone, and in the EU. The ECB, the European Commission, and the IMF (which is not an independent entity but generally answers to its European directors for decisions affecting Europe), are the European authorities that have increasingly constrained the economic decision-making of European governments. We can also include the eurogroup of finance ministers, which has tormented poor Greece and helped prolong that country’s interminable economic crisis. These people have shown that they are committed to creating a different kind of Europe. This can be seen in a paper trail of thousands of pages of documents, called Article IV consultations, where the IMF and EU government finance ministries hammer out their views on economic policies. These documents represent an elite consensus which can differ greatly from public opinion within the countries.

A review of 67 of these agreements for the four years 2008 through 2011, for 27 EU countries, showed a clear pattern of policy choices: cutting government spending, including on health care and pensions; increasing labor supply; reducing public sector employment; and changes in labor law that would reduce the scope of collective bargaining. This is the economic program that any politician or political party who does not want to be labeled as “anti-Europe” must adhere to, and it can be seen in the most recent (July 2016) IMF Article IV consultation for France, as well as the Stability Program that France has agreed to with the EU. These documents see France as freezing real spending, and committing to reducing its budget deficit to zero by 2021. These commitments imply that the French government can do nothing to reduce mass unemployment, which has averaged about 10% over the past year.

Although the major Western media portrays the EU authorities’ policies as the only sensible course, in economic terms, it is anything but. With France’s real borrowing costs near zero and inflation well below target, it makes sense for France to implement an economic stimulus, for example by increasing public investment. Fears of increasing the French public debt are unfounded; annual interest payments on that debt are currently at about 1.7% of GDP, a modest burden by any historical or international comparison.

[..] Since the 2008–09 world financial crisis and recession, the project of the eurozone, and to some extent of the EU, has created a destructive feedback loop that leads directly to the kind of dysfunctional politics now unfolding in France. It is one thing to give up some national sovereignty for a common project that can raise common living standards; it is quite another to surrender a country’s most important macroeconomic decision-making (monetary, exchange rate, and increasingly fiscal policy) to unaccountable authorities who have demonstrated their commitment to a regressive agenda. The Center Left’s collaboration with this program, e.g., President Hollande’s in France, has given the Far Right opportunities not seen since the 1930s.

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Good thing everybody already knows it’s Putin again. No reasoning needed.

Macron Team Blasts ‘Massive Hacking Attack’ (R.)

French presidential candidate Emmanuel Macron’s campaign team says it has been the victim of a massive and coordinated hacking operation. A large trove of emails from the campaign of French presidential candidate Emmanuel Macron was posted online late on Friday, 1-1/2 days before voters go to the polls to choose the country’s next president in a run-off against far-right rival Marine Le Pen. Some nine gigabytes of data were posted by a user called EMLEAKS to Pastebin, a document-sharing site that allows anonymous posting. It was not immediately clear who was responsible for posting the data or whether the emails were genuine. In a statement, Macron’s political movement En Marche! (Onwards!) confirmed that it had been hacked.

“The En Marche! Movement has been the victim of a massive and co-ordinated hack this evening which has given rise to the diffusion on social media of various internal information,” the statement said. An interior ministry official declined to comment, citing French rules which forbid any commentary liable to influence an election, and which took effect at midnight French time on Friday (2200 GMT). Comments about the email dump began to appear on Friday evening just hours before the official ban on campaigning began. The ban is due to stay in place until the last polling stations close on Sunday at 8 p.m. (1800 GMT).

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Perhaps the failure of the EU is not clear enough yet everywhere.

Macron Personifies The Very Europe Whose Failure Feeds Le Pen (Zizek)

The title of a comment piece which appeared in The Guardian, the UK voice of the anti-Assange-pro-Hillary liberal left, says it all: “Le Pen is a far-right Holocaust revisionist. Macron isn’t. Hard choice?” Predictably, the text proper begins with: “Is being an investment banker analogous with being a Holocaust revisionist? Is neoliberalism on a par with neofascism?” and mockingly dismisses even the conditional leftist support for the second-round Macron vote, the stance of: “I’d now vote Macron – VERY reluctantly.” This is liberal blackmail at its worst: one should support Macron unconditionally; it doesn’t matter that he is a neoliberal centrist, just that he is against Le Pen. It’s the old story of Hillary versus Trump: in the face of the fascist threat, we should all gather around her banner (and conveniently forget how her side brutally outmanoeuvred Sanders and thus contributed to losing the election).

Are we not allowed at least to raise the question: yes, Macron is pro-European – but what kind of Europe does he personify? The very Europe whose failure feeds Le Pen populism, the anonymous Europe in the service of neoliberalism. This is the crux of the affair: yes, Le Pen is a threat, but if we throw all our support behind Macron, do we not get caught into a kind of circle and fight the effect by way of supporting its cause? This brings to mind a chocolate laxative available in the US. It is publicised with the paradoxical injunction: “Do you have constipation? Eat more of this chocolate!” – in other words, eat the very thing that causes constipation in order to be cured of it. In this sense, Macron is the chocolate-laxative candidate, offering us as a cure for the very thing that caused the illness.

[..] In the hopeless situation we are in, facing a false choice, we should gather the courage and simply abstain from voting. Abstain, and begin to think. The commonplace “enough talking, let’s act” is deeply deceiving – now, we should say precisely the opposite: enough of the pressure to do something, let’s begin to talk seriously, ie, to think! And by this I mean we should also leave behind the radical leftist self-complacency of endlessly repeating how the choices we are offered in the political space are false, and how only a renewed radical left can save us – yes, in a way, but why, then, does this left not emerge? What vision has the left to offer that would be strong enough to mobilise people? We should never forget that the ultimate cause of the act that we are caught into – the vicious cycle of Le Pen and Macron – is the disappearance of the viable leftist alternative.

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Sharp thinking. Make literally everyone incapable of understanding anything that’s said.

The English Language Is Losing Importance In Europe – Juncker (G.)

The English language is losing importance in Europe, the president of the European commission has said amid simmering tensions over the Brexit negotiations. Speaking to an audience of European diplomats and experts in Florence, Jean-Claude Juncker also described the UK’s decision to leave the EU as a tragedy. “Slowly but surely English is losing importance in Europe,” Juncker said, to applause from his audience. “The French will have elections on Sunday and I would like them to understand what I am saying.” After these opening remarks in English, he switched to French for the rest of the speech. Making a stout defence of the EU, Juncker said the UK had voted to leave the project despite historic successes and a recent uptick in economic growth. “Our British friends decided to leave the EU, which is a tragedy,” he said.

[..] It is not the first time the English language has been caught in the crossfire of the Brexit negotiations. At a recent EU summit May slapped down reports that Brexit negotiations would be conducted in French, and after the June referendum EU officials made it known they planned to downgrade the use of English in the corridors of Brussels. In reality, the Brexit talks are most likely to be conducted in French and English with simultaneous interpretation. Barnier, a former French EU commissioner who clashed with the City of London, speaks English but wants the right to negotiate in his native tongue. English is also highly unlikely to disappear as a dominant language in the EU any time soon. Not only is it an official language for the Irish and Maltese governments, but many diplomats prefer to use English as a common second language rather than French.”

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2018 at the earliest. Then again, debt relief would make Greece less of a slave, so maybe much longer or not at all.

Germany Says No Debt Relief Being Prepared For Greece (R.)

No debt relief measures are being readied for Greece, Germany’s Finance Ministry said on Thursday after the Handelsblatt business daily reported measures were under consideration. The implementation of reforms that Greece agreed to in return for aid would help ensure the sustainability of the country’s debt, the ministry said in a statement e-mailed to Reuters. “No debt relief is being prepared,” it added. Regarding possible debt measures, a clear agreement was reached in a statement by the Eurogroup of eurozone finance ministers last May. “According to that, after the full implementation of the adjustment program, there will be an assessment of whether debt measures are necessary. That still applies,” it said. Earlier, Handelsblatt reported that Greece’s international lenders were preparing possible debt relief for Athens for discussion by the finance ministers.

The European Commission, the ESM eurozone rescue fund, the ECB and the IMF had prepared various debt measures in a document to be sent to the Eurogroup for further discussion, it said, citing people familiar with the document. One option was for the ESM to take over loans paid out by the IMF. The advantage would be lower interest rates charged by the ESM. Others included extending debt maturities and having the ECB and national central banks send profits made on Greek bonds to Athens through national governments, Handelsblatt reported. An EU source told Reuters the document was originally a paper by the ESM, not all four institutions, and had been modified on the way to the version Handelsblatt saw.

“It lays down several options for the restructuring of Greek debt and specifies possibilities which were given by the Eurogroup last May. One of the options still is that ESM would take debt from IMF,” the source said. “It is not clear yet if the IMF would agree on that.” Separately, German Finance Minister Wolfgang Schaeuble said in Durban, South Africa that the EU needed to “exert pressure on national governments to implement … much-needed reforms.” “Those countries which received help under European assistance programmes, and therefore had to actually implement unpleasant reforms, and those countries which have kept to the agreed rules are among the most successful countries in the EU today,” he said. “The problem is therefore not with the rules, but with the lack of implementation of them.

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Warfare, financial or otherwise.

The Forgotten History of Cinco de Mayo (IC)

Cinco de Mayo celebrates the victory of Mexican troops over the invading French army at the Battle of Puebla southeast of Mexico City on May 5, 1862. Because the Mexican soldiers were badly outnumbered and outgunned, the unexpected triumph was a watershed in forging the country’s national identity. (Militarily it wasn’t that significant — the next year France captured the Mexican capital and installed a member of the Austrian nobility as Maximillian I, “Emperor of Mexico.”) But here’s important part for everyone else to remember today: France was invading Mexico essentially because Mexico owed France money. Mexico had borrowed enormous amounts from Europe during the Mexican-American War from 1846-8 and in a civil war from 1858-61.

By 1862 it was impossible for the government to make timely payments on the loans without starving the country, and Mexican president Benito Juárez declared that all payments on foreign debt would be suspended for two years. Getting into unsustainable debt is not something unique to Mexico; countries have done so over and over throughout history, particularly during wars. The U.S. borrowed more than we could ever repay from France and the Netherlands during the Revolutionary War, and the U.K. borrowed far beyond its means from the U.S. during World War I. When this happens, it’s far better for both the debtors and creditors to organize some kind of default rather than forcing the debtors to pay all the money back on the original terms. The advantage for debtors is obvious.

More intelligent creditors understand it’s also good for them, because they generally don’t have a choice between getting all or just some of their money back. Instead, it’s a choice between getting some of it back or much less. To understand why, imagine loaning too much money to a software engineer. If you demand that the engineer sell all their computers to make interest payments, you’re unlikely to get much more money after that. And indeed both the U.S. and U.K. defaulted to varying degrees after their wars. Likewise, in 1862 the U.K. and Spain agreed to accept less than they were formally owed by Mexico. France, however, invaded Mexico in an attempt to get all its money back, which is why French troops were there for the Battle of Puebla on May 5.

In a sense, the invasion was admirably honest. International relations are often like organized crime on a gigantic scale, but people pretend otherwise. Here there was no pretense: The loanshark’s enforcers beat the crap out of an entire country. By contrast, creditors today have institutions like the IMF, which has often functioned as a creditors’ cartel — squeezing countries until they pay back their debts. This often involves lots of people dying … but in quiet ways, without armies involved.

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The EU isn’t only giving us Le Pen, it’s presenting us with this too.

Rescuers Pick Up 560 Migrants Off Libyan Coast On Thursday (R.)

Rescuers picked up 560 migrants from unsafe boats off the coast of Libya on Thursday, Italy’s Coast Guard said, including the body of a young man who the migrants said had been shot by smugglers on the beach for his baseball cap. Italian Navy and Coast Guard boats participated in the rescues together with two humanitarian vessels, a spokesman said. The migrants were traveling on board two large rubber boats and five small wooden ones, he added. The Phoenix, a rescue ship operated by the Migrant Offshore Aid Station (MOAS), took 422 on board, plus the body of the allegedly murdered young Gambian. “According to eyewitnesses, the deceased teenager was killed by human traffickers because they wanted his baseball hat. What cruelty,” MOAS co-founder Chris Catrambone said.

“The medical team onboard the Phoenix have confirmed that the deceased teenager died from gunshot wound,” he added. MOAS doctors are also caring for another teenage boy who has a gunshot wound to the stomach, but is stable. German NGO Jugend Rettet also helped with the rescues. Separately, Doctors Without Borders said its rescue ship Prudence would arrive in the Sicilian port of Catania early on Friday with the corpses of six migrants, including five women, who it had picked up in the Mediterranean in recent days. There had been a pause of boat departures from Libya, where smugglers operate with impunity, since Easter, because of bad weather and sea conditions. But boat migrant arrivals in Italy are still up 30 percent so far this year from 2016, when a record 181,000 arrived.

Humanitarian rescue ships have come in for criticism in Italy in recent months, with Catania chief prosecutor Carmelo Zuccaro opening a fact-finding investigation into possible ties between NGOs and people-smugglers. The NGOs have strongly denied the accusations, including representatives from MOAS who testified in Italy’s parliament earlier on Thursday. They say their only mission is to save lives. Zuccaro has yet to present any evidence of illicit activities and has not opened a criminal investigation.

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May 042017
 
 May 4, 2017  Posted by at 9:32 am Finance Tagged with: , , , , , , , , , , ,  7 Responses »
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Fred Stein Americans All 1943

 

“We Have Enough Votes”: House To Vote Thursday To Repeal Obamacare (ZH)
Democrats, Not Trump, Are Driving Policy (BBG)
Corporate Insiders Are Unloading Their Stocks Like There’s No Tomorrow (Lang)
The Coming Collapse In US Auto Sales (F.)
Fed to Markets: June Rate Hike Coming Your Way (CNBC)
Rickards Says Fed Raising Into Weakness, Recession Due By Summer (BBG)
57% Of Australians Couldn’t Handle $100 A Month Rise In Mortgage Payments (G.)
Kyle Bass Warns “All Hell Is About To Break Loose” In China (ZH)
PIMCO Warns “Brace For Lower Growth” From A Less ‘Impulsive’ China (ZH)
Do Tax Cuts Pay For Themselves? (MW)
The Economics of the Future (Michael Hudson)
UK PM May Accuses EU of Brexit Threats and Election Interference (CNBC)
Le Pen Tirade Meets Logic of Macron in Brutal French TV Duel
Universal Basic Income is Not “Free Money” (Santens)
The Brothers Fighting For Indebted Greek Homeowners (AP)

 

 

The whole thing oozes cynicism.

“We Have Enough Votes”: House To Vote Thursday To Repeal Obamacare (ZH)

The Republicans are giving Obamacare repeal another try, and this time they may succeed. Just a few hours after we reported that “Obamacare repeal suddenly looks possible” when two key Republicans – Fred Upton and Billy Long – flipped and decided to support the GOP healthcare bill, leading to immediate speculation the bill has enough support, the WSJ reported that House Majority Leader Kevin McCarthy told reporters Wednesday evening the House will vote on Thursday on the Republican bill to replace most of Obamacare: “we will be voting on the health-care bill tomorrow because we have enough votes.” When asked by a reporter about whether the bill would have to be pulled from the floor again for lack of support, McCarthy replied: “Would you have confidence? We’re going to pass it. We’re going to pass it. Let’s be optimistic about life.”

McCarthy also cited an insurer pulling out of the ObamaCare exchanges in Iowa Wednesday as a reason the law needs to be quickly repealed. “That’s why we have to make sure this passes. To save these people from ObamaCare, which continues to collapse.” And so just like at the end of March, when the GOP was confident it had whipped enough names, only to pull the vote in the last moment, the announcement once again sets up a high-stakes vote that is expected to come down to the wire. The House GOP bill, if passed, would roll back much of the 2010 health-care law, replacing its subsidies with a system of tax credits largely tied to age. Until Wednesday, Republican leaders had struggled to secure the 216 votes they need to pass the bill, which is expected to receive no Democratic support.

They pulled the bill from the floor in late March, when conservatives and centrists defected and it became clear the legislation didn’t have the support to pass. Last week, GOP leaders also opted not to vote on the bill ahead of Trump’s first 100 days in office. [..] in pulling yet another page from the Democrats’ playbook, the House will pass the vote first before finding out what’s in it: the vote will take place without waiting for a new Congressional Budget Office analysis of Upton’s changes or the amendment from Rep. Tom MacArthur that won over the House Freedom Caucus. That analysis will eventually provide the details of the bill’s effects on coverage and its cost. For now however, Republicans are just scrambling to take advantage of this rare moment of agreement and get something finally done.

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What’s so cynical: trying to break Democrats’ power by pushing through a half-baked bill.

Democrats, Not Trump, Are Driving Policy (BBG)

Enough about Donald Trump’s first 100 days. On the 101st day, Congress came to a rare bipartisan agreement funding the federal government through September. This showed who really holds power in the Trump era: Democrats. After last November’s election, when Republicans had consolidated power and held both chambers of Congress as well as the White House, the question was who would be driving policy. Would it be the Trump administration, perhaps led by populist mastermind Steve Bannon? Would it be House Speaker Paul Ryan, a man with a reputation as a policy wonk with a vision for government? Would it be the ideological House Freedom Caucus, demanding that the new Republican-led government live up to the promises the party made to its base during the Obama years? All have tried to lead at some point this year, but the recently agreed-upon budget deal shows that instead, it’s Democrats who appear to be in charge.

Democrats have the leverage in Washington now because Republicans haven’t figured out how to govern on their own. The first Republican attempt at legislation was Paul Ryan’s American Health Care Act. That failed in part because it didn’t repeal Obamacare as the House Freedom Caucus insisted. The Trump administration tried to influence the legislative agenda by putting forth its budget blueprint in mid-March, which included draconian cuts to various departments. Yet the only parts of that budget that made it into the final agreement were modest spending increases for defense spending and border security, without any of the corresponding cuts. This happened because Republicans couldn’t come to an agreement on the budget on their own, meaning Democratic votes were needed for passage, and Democrats wouldn’t sign on to anything with big spending cuts.

[..]The emerging view may be that Trump just wants to sign legislation that he can take credit for, regardless of the substance of the bills. After all, he’s on the verge of signing a government funding bill that’s more in line with Democratic priorities than his own. Since he hasn’t been willing to stand up for any of his or his party’s policy priorities so far, should Democrats retake the House in 2018, there’s no reason to think he wouldn’t sign legislation passed by Democrats in the House if it makes it to his desk. On policy, the author of “The Art of the Deal” doesn’t seem to have any policy deal-breakers. A president without any fixed policy vision or breaking points is no authoritarian. He makes the legislature more powerful than it’s been in decades. If Republicans can’t come to internal agreement on major legislation, and Democrats are the ones with leverage, then complete inaction might become a best-case scenario for the GOP.

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“The people who would stand to lose the most if the markets crashed [..] are all jumping ship and selling their stocks.”

Corporate Insiders Are Unloading Their Stocks Like There’s No Tomorrow (Lang)

There aren’t any surefire ways to tell if the stock market, and perhaps the rest of the economy, is about to take a nosedive. That’s because millions of people with millions of ideas are involved, so it’s an inherently unpredictable system. However, there are certain players in our economy that have a lot more influence and insider knowledge than the rest of us. So when they make a move in unison, you know there’s a good chance that something is about to go down. And that’s exactly what’s going on with the stock market right now. The people who would stand to lose the most if the markets crashed; the corporate executives and insiders, are all jumping ship and selling their stocks.

“As the investing public has continued to devour stocks, sending all three major indexes to record highs in the last few months, corporate insiders have been offloading shares to an extent not seen in seven years.”Selling totaled $10 billion in March, according to data compiled by Trim Tabs. It’s a troubling trend facing an equity market that’s already grappling with its loftiest valuations since the 2000 tech bubble. If the people with the deepest knowledge of a company are cashing out, why should investors keep buying at current prices? The groundswell of insider selling has the attention of Brad Lamensdorf, portfolio manager at Ranger Alternative Management, and he doesn’t like what he sees. “This is definitely a negative sign,” Lamensdorf wrote in his April newsletter. “They do not see value in their own companies!”

And this isn’t a recent trend. While ordinary investors were optimistically diving into the stock market after Trump was elected, these people were dumping their stocks as far back as February. “Chief executives and other corporate insiders are selling stock hand over fist now that the quarterly earnings season is over, a report from Vickers Weekly Insider shows. Transactions by insiders are restricted around a company’s report. “Insider selling has jumped again, and this time to levels rarely seen,” analyst David Coleman wrote in Monday’s note.”

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A useful term: “Pent Down Demand”

The Coming Collapse In US Auto Sales (F.)

Automobiles are not moving off the parking lot. That’s according to an industry report that showed a sharp decline in auto sales across all auto makers—see table. Meanwhile industry inventories have been climbing up from an average of 55 days back in April of 2015 to 70 days last month. Coming after months of sluggish sales and generous incentives, the big drop in April sales could be a sign of an impending collapse which could parallel that of 2008-9. There’s a compelling reason for that: pent down demand, which for years has been “stealing” sales from the future. Now the future has arrived and pent down demand is bad for auto makers, their investors and the economy as a whole.

To get an idea how “pent down demand” (my own term) works, a good place to begin with is the more familiar concept of pent up demand, the lack of current demand for discretionary items like automobiles, home appliances, etc., which depresses sales of these items in the short run. Pent up demand usually appears before a period of consumer euphoria, when consumers choose to push spending on discretionary items to a future date, due to lower price expectations, depressed consumer confidence, or a credit crunch. And it disappears together with these conditions when that future day comes, and consumers rush to buy the items they put off in the past.

In contrast, pent down demand appears after a period of consumer euphoria when consumers choose to move spending on discretionary items from a future date into the present day, due to low cost of financing — which blurs the distinction between present and future. Why wait to buy a new car or a new home appliance next year when you can have it this year, paying a small penalty for this privilege? Simply put, ultra-low interest rates help “steal” sales from the future, creating market saturation, and eventually depress spending on “high ticket” items when the future becomes present. That’s what happened in the six years that preceded the 2008-9 collapse in US auto sales. Consumers rushed to take advantage of “zero percent” financing to purchase cars they would normally buy years later.

That’s how automobile sales grew from an average of 15 million in the 1980s and the 1990s to 17 million in the first six years of 2000s, before they tumbled during the Great Recession. Nonetheless, the Federal Reserve and other central bankers around the world didn’t take notice of the impact of pent down demand on future growth. They upped their ultra-low interest rate policies, refueling pent down demand again (automobile sales are above the pre-Great Recession levels). Compounding the problem, pent down demand is exacerbated by debt – a lot of debt – amassed on top of the old debt, which fueled the bubble that preceded the Great Recession. This was documented by a McKinsey report—US auto loans have crossed $1 trillion lately.

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Locked in to their own fantasies.

Fed to Markets: June Rate Hike Coming Your Way (CNBC)

As expected, the Fed gave a nod to a temporary weakness in the economy and signaled it is still moving ahead with policy tightening. “They’re looking past the first-quarter weakness. They are laying the groundwork for a June rate hike, in my opinion,” said Peter Boockvar, chief market analyst at Lindsey Group. Fed funds futures indicated just about a 75% chance of a June interest-rate hike, up about 5 percentage points after the announcement, according to Michael Schumacher, head of rates strategy at Wells Fargo Securities. “It seems pretty optimistic. … There’s no big difference between this statement and the last one. The comment that they are ignoring weak first-quarter growth is the big thing. There’s nothing really changed in their path,” Schumacher said.

First-quarter growth grew at a weak 0.7%, but economists expect a bounce back and some see growth over 3%. The Fed acknowledged the softness in its statement. “The Committee views the slowing in growth during the first quarter as likely to be transitory and continues to expect that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace, labor market conditions will strengthen somewhat further, and inflation will stabilize around 2% over the medium term,” they wrote. [..] The statement did not mention changes to the Fed’s balance sheet, which officials were expected to have discussed at length during the two-day meeting. That discussion should be revealed in the minutes of the meeting, expected to be released May 24.

Instead, the Fed noted in its statement that it was maintaining its strategy of balance sheet reinvestment, meaning it replaces securities as they roll down. The Fed has forecast two more rate hikes this year, and many strategists expect it to tackle its balance sheet after those moves. The Fed has said it would like to begin shrinking its balance sheet as early as this year. Many market pros expect some action on the balance sheet around the December meeting or in early 2018, after it raises interest rates in June and September.

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Rickards’ been saying for a while that the Fed wouldn’t be able to help itself.

Rickards Says Fed Raising Into Weakness, Recession Due By Summer (BBG)

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A quarter are in mortgage stress already.

57% Of Australians Couldn’t Handle $100 A Month Rise In Mortgage Payments (G.)

The burden of housing costs is biting even in Australia’s wealthiest suburbs as an unprecedented one in four households nationally face mortgage stress, according to the latest in a 15-year series of analyses. Households in Toorak and Bondi, prestigious pockets of affluence in Australia’s biggest cities, have made the list of those struggling to meet repayments amid rising costs and stagnating wages, research firm Digital Finance Analytics has found. The firm’s principal, Martin North, said it was surprising new evidence showed that financial distress from property price surges reached beyond “the battlers and the mortgage belt” and was a “much broader and much more significant problem”. The survey, which analyses real cash flows against mortgage repayments, finds more than 767,000 households or 23.4% are now in mortgage stress, which means they have little or no spare cash after covering costs.

This includes 32,000 that are in severe stress, meaning they cannot cover repayments from current income. The firm predicts that almost 52,000 households will probably default on mortgages over the next year. Risk hotspots include Meadow Springs and Canning Vale in Western Australia, Derrimut and Cranbourne in Victoria, and Mackay and Pacific Pines in Queensland. Overall, New South Wales and Victoria, whose capital cities have seen a recent surge in home prices, accounted for more than half the probable defaults (270,000) and households in mortgage distress (420,000). North said the numbers were “an early indicator of risk in the system”. The underlying drivers were “flat or falling wage growth”, much faster rising living costs and the likelihood mortgage interest payments would only go up.

Widespread mortgage burdens were limiting spending elsewhere and “sucking the life out of the economy”, and the problem should be addressed to head off a housing crash and its repercussions, North said. North is not alone in highlighting household vulnerability. The Reserve Bank of Australia’s financial stability review last month observed one-third of Australian borrowers had little or no mortgage “buffer”, which North said was “the first time they’ve ever admitted it”. Finder.com last week found 57% of mortgagees could not handle a rise of $100 or more in monthly repayments. “The surprising thing is that people in Bondi in NSW, for example, or even young affluents who have bought down in Toorak in Victoria are actually on the list [of mortgage stressed],” North said.

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“As soon as liabilities have problems – meaning the depositors decide to not roll their holdings – all hell breaks loose..”

Kyle Bass Warns “All Hell Is About To Break Loose” In China (ZH)

China's credit system expanded "too recklessly and too quickly," and "it's beginning to unravel," warns Hayman Capital's Kyle Bass. Crucially, Bass notes that ballooning assets in Chinese wealth management products are another sign of a looming credit crisis in the nation.

"Some of the longer-term assets aren't doing very well," Bass said on Bloomberg TV from the annual Milken Institute Global Conference in Beverly Hills, California. "As soon as liabilities have problems – meaning the depositors decide to not roll their holdings – all hell breaks loose."

The wealth management products, or WMPs, have swelled to $4 trillion in assets in the last few years, he said., on a $34 trillion banking system…

"think about this – in the US, our asset-liability mismatch at the peak of our subprime greatness was around 2%! … China's mismatch is more than 10% of the system."

Must Watch simplification of the next stage of the credit cycle in China…

Timing the drop is hard, Bass notes, reminding Bloomberg's Erik Schatzker that "in the US, the first bumps in the road hit in early 2007, and we didn't start to really accelerate until mid 2008… even a large unraveling takes a while."Bass has been sounding the alarm for some time that debt-burdened Chinese banks need to be restructured…

"What you see when the liquidity dries up is people start going down… and this is the beginning of the Chinese credit crisis."

And judging by the collapse in both Chinese stocks and bonds, the deleveraging is accelerating…

 

And liquidity is getting desperate again…

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China=Debt.

PIMCO Warns “Brace For Lower Growth” From A Less ‘Impulsive’ China (ZH)

In the company’s blog, PIMCO’s Gene Fried echoes everything we have said and write that following the defeat of the new U.S. healthcare bill, investors have begun to rethink the likely time frame and extent of the Trump administration’s other top priorities, such as fiscal stimulus. Equity markets stalled and bonds rallied as investors toned down their expectations for global reflation recently. None of this is horribly surprising, but by focusing so intensely on U.S. political developments, investors risk missing a silent shift in what has arguably been the strongest driver of global reflation in the last five years: Chinese credit. This driver is now moving sharply in reverse. China’s “credit impulse,” the change in the growth rate of aggregate credit to GDP, bears close watching: It has tended to lead the Chinese manufacturing Purchasing Managers’ Index (PMI) by a year (see Figure 1) and the U.S. Institute for Supply Management’s (ISM) manufacturing index by 14 months.

The relevance of the Chinese credit impulse to global reflation cannot be overstated (see Figure 2). China’s massive credit stimulus starting in 2014 initially put a floor under commodity prices and emerging market (EM) growth. Then, the unexpected acceleration in Chinese real estate investment drove both commodity prices and volume demand higher. EM growth subsequently bounced, and with it, global trade volumes. The key driver of realized global reflation, then, has been China – not the promise of fiscal stimulus and deregulation that has helped boost confidence and other soft data in the U.S.

When will China’s credit drop affect growth? The sharp downturn in the Chinese credit impulse starting in 2016 portends a material drag on Chinese growth in the year ahead. Looking back on the past three years, the Chinese credit impulse turned positive sometime between late 2014 and mid-2015. Given China’s exchange rate volatility in August 2015, it took longer than normal for credit to gain traction. The Chinese credit impulse peaked in March 2016 and slowed sharply after the second quarter. It is only now that the impact of that reduced stimulus should be felt. PIMCO has already factored credit-related drag into its Chinese growth outlook, but the decline in the credit impulse has been sharper and more extreme than many expected.

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Unanswerable question.

Do Tax Cuts Pay For Themselves? (MW)

Forty-three years after economist Arthur Laffer sketched a pictorial representation of individuals’ response to changes in income tax rates, economists still can’t agree if tax cuts pay for themselves: entirely, in part, or not at all. In a capitalist system, a tax rate of 0% or a tax rate of 100% will yield no revenue for the government: in the first instance, because there is no tax levied on labor income; in the second, because there is no labor income to tax because most of us would refuse to work without compensation. The Laffer Curve is an attempt to describe the optimal tax rate, or the rate that maximizes revenue. As with most economic theories nowadays, the idea that tax cuts pay for themselves has been politicized. Many conservatives take an oath of fealty to supply-side economics, an offshoot of the Laffer Curve: the idea that lower tax rates act as an incentive to work and produce, lifting economic growth and tax revenue.

Supply-siders don’t differentiate between the potential effect of large reductions in the top marginal tax rate — from 91% (1950s) to 70% (1960s) to 28% (1980s) — and that of President Donald Trump’s proposed modest cut from 39.6% to 35% for top earners. Liberals, on the other hand, love to quote George H.W. Bush’s assessment of supply-side theory — at least until he became Ronald Reagan’s running mate — as “voodoo economics.” “Tax cuts for the rich” is another favorite derogatory moniker, which is an accurate description but one that is taboo for believers. The basic premise underlying supply-side economics is sound: Tax something less, and you will get more of it. Tax something more, and you will get less of it. Think hefty cigarette taxes, designed to deter cancer-causing tobacco use. It’s the application that goes astray.

The income tax is a tax on labor. According to supply-siders, if you raise marginal tax rates, individuals will work less. And if you cut rates, they will work more. Who except the rich is in a position to forgo take-home pay, even if it is taxed at a higher rate? Households with both parents working, struggling to make ends meet, can’t sacrifice one salary. That’s the dirty little secret of supply-side economics that its advocates never mention. It’s the rich who are able respond to changes in marginal tax rates. And yes, they are the ones likely to start a new business and create jobs. Theory aside, why don’t we know what the effect of tax cuts is on economic output and federal revenue? Economists of both political persuasions are eager to tout their findings, both in support of and as a challenge to supply-side economics.

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Hopefully I should be getting Steve’s book today. Everyone should read it.

The Economics of the Future (Michael Hudson)

At first glance Steve Keen’s new book Can We Avoid Another Financial Crisis? seems too small-sized at 147 pages. But like a well-made atom-bomb, it is compactly designed for maximum reverberation to blow up its intended target. Explaining why today’s debt residue has turned the United States, Britain and southern Europe into zombie economies, Steve Keen shows how ignoring debt is the blind spot of neoliberal economics – basically the old neoclassical just-pretend view of the world. Its glib mathiness is a gloss for its unscientific “don’t worry about debt” message. Blame for today’s U.S., British and southern European inability to achieve economic recovery thus rests on the economic mainstream and its refusal to recognize that debt matters.

Mainstream models are unable to forecast or explain a depression. That is because depressions are essentially financial in character. The business cycle itself is a financial cycle – that is, a cycle of the buildup and collapse of debt. Keen’s “Minsky” model traces this to what he has called “endogenous money creation,” that is, bank credit mainly to buyers of real estate, companies and other assets. He recently suggested a more catchy moniker: “Bank Originated Money and Debt” (BOMD). That seems easier to remember. The concept is more accessible than the dry academic terminology usually coined. It is simple enough to show that the mathematics of compound interest lead the volume of debt to exceed the rate of GDP growth, thereby diverting more and more income to the financial sector as debt service.

Keen traces this view back to Irving Fisher’s famous 1933 article on debt deflation – the residue from unpaid debt. Such payments to creditors leave less available to spend on goods and services. In explaining the mathematical dynamics underlying his “Minsky” model, Keen links financial dynamics to employment. If private debt grows faster than GDP, the debt/GDP ratio will rise. This stifles markets, and hence employment. Wages fall as a share of GDP. This is precisely what is happening. But mainstream models ignore the overgrowth of debt, as if the economy operates on a barter basis. Keen calls this “the barter illusion,” and reviews his wonderful exchange with Paul Krugman (who plays the role of an intellectual Bambi to Keen’s Godzilla), who insists that banks do not create credit but merely recycle savings – as if they are savings banks, not commercial banks. It is the old logic that debt doesn’t matter because “we” owe the debt to “ourselves.”

[..] By being so compact, this book is able to concentrate attention on the easy-to-understand mathematical principles that underlie the “junk economics” mainstream. Keen explains why, mathematically, the Great Moderation leading up to the 2008 crash was not an anomaly, but is inherent in a basic principle: Economies can prolong the debt-financed boom and delay a crash simply by providing more and more credit, Australia-style. The effect is to make the ensuing crash worse, more long-lasting and more difficult to extricate. For this, he blames mainly Margaret Thatcher and Alan Greenspan as, in effect, bank lobbyists. But behind them is the whole edifice of neoliberal economic brainwashing.

Keen attacks this “neoclassical” methodology by pointing at the logical fallacy of trying to explain society by looking only at “the individual.” That approach and its related “series of plausible but false propositions” blinds economics graduates from seeing the obvious. Their discipline is the product of ideological desire not to blame banks or creditors, wrapped in a libertarian antagonism toward government’s role as economic regulator, money creator, and financer of basic infrastructure.

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The EU really cares.

UK PM May Accuses EU of Brexit Threats and Election Interference (CNBC)

U.K. Prime Minister Theresa May has accused the EU of not wanting Brexit negotiations to be a success, as tensions between both sides escalate ahead of official talks. “The events of the last few days have shown that – whatever our wishes, and however reasonable the positions of Europe’s other leaders – there are some in Brussels who do not want these talks to succeed,” May said Wednesday afternoon outside Downing Street. Her comments follow media reports that the EU’s Commission President Jean-Claude Juncker left London “10 times more skeptical” than he was before after a dinner with Prime Minister May last week. Their meeting has been described in the press as a disaster with both leaders clashing over key negotiating issues.

Earlier on Wednesday, Juncker described May as a “tough woman”. May has said that she will be a “bloody difficult woman” during Brexit talks. Speaking outside Downing Street, the head of the Conservative party went further and accused the European Union of wanting to interfere in the upcoming general election. “Britain’s negotiating position in Europe has been misrepresented in the continental press. The European Commission’s negotiating stance has hardened.Threats against Britain have been issued by European politicians and officials. All of these acts have been deliberately timed to affect the result of the general election that will take place on 8 June,” the prime minister said.

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I watched parts of the debate, nothing brutal about it, just politics. Le Pen’s logic seems pretty solid: “France will be run by a woman whatever happens,” Le Pen said. “Either by me or by Mrs. Merkel.”

Le Pen Tirade Meets Logic of Macron in Brutal French TV Duel

Marine Le Pen unleashed a barrage of attacks on her presidential rival Emmanuel Macron as she tried to close a gap of some 20 percentage points in the only head-to-head debate of the French election campaign. Le Pen, 48, said her centrist opponent was the candidate of the capitalist elite, and a friend to terrorists, who planned to shut down factories, schools and hospitals. Macron said Le Pen’s broadsides against state bodies meant she was unfit to lead the country as she struggled to defend her plans to leave the euro. “You have threatened public employees,” Macron, 39, said as his opponent chuckled on the other side of the table during the almost three-hour debate Wednesday night. “Your words show that you are not worthy to be the defender of our institutions.”

A snap survey of 1,314 likely voters by polling firm Elabe showed that 63 percent of respondents rated Macron as the winner and 34 percent picked Le Pen. With just three days to go before French voters settle the most turbulent election in the country’s modern history, Le Pen argued for new border restrictions to protect the French people from foreign competition and terrorism, and an exit from euro, reversing 60 years of European integration. The clash was brutal from the get-go, and the general consensus from commentators was that it wasn’t a particularly dignified debate. “It was like a schoolyard brawl,” said Emmanuel Riviere, managing director of pollster Kantar Public France. “The candidates went straight for the jugular. Le Pen started it. But Macron also played his part.”

Both candidates justified the nasty tone on Thursday. “It was severe, but that’s because for the first time ever the French have a real choice,” Le Pen said on RMC Radio. “Before, the candidates agreed on everything. I want to wake up the French people.” [..] She told him he’d traveled to Berlin to get the blessing of German Chancellor Angela Merkel for his policy plans, playing on French concerns that their country plays second fiddle within the European Union. “France will be run by a woman whatever happens,” Le Pen said. “Either by me or by Mrs. Merkel.”

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“..your just and due compensation as part of this interdependent system we call society. We are all stakeholders in it.”

Universal Basic Income is Not “Free Money” (Santens)

Let’s say the cost to produce a widget is $1. What’s the cost to produce 1 million widgets? This may sound like an extremely simple word problem that even some preschoolers could solve. However, if you think the answer is $1 million, you would be entirely wrong. The cost to produce 1 million widgets is far below $1 million thanks to the savings inherent in mass production. It’s a lot cheaper per something to make a lot of something, than it is to create one of it, or even a few. A couple secondary understandings extend themselves as a result of this primary understanding. First, it’s wrong to assume that providing people with more money will necessitate rising prices. Increased demand can lead to greatly increased production, which then leads to lower prices. Just how much production can be ramped up in response to increased demand is a key factor in price determination.

Where supply cannot be increased, and therefore more money is chasing the same amount of goods, price increases can be expected. Where supply can be greatly or even infinitely increased, lower prices can be expected, especially where true competition exists. Second, and I find this point extremely compelling and the real point of this post, is a recognition of our interdependence, and the collective debt we owe each other. Take whatever device you’re reading these words on as a prime example. Whatever its cost to you, it only cost that because millions of others like you expressed their demand for the same device. Without everyone else, that device would have cost you ten times, a hundred times, or even a thousand times more than it would have to create just one, just for you. In other words, we all subsidize each other.

[..] In Alaska, Alaskans are paid on average about $1000 per year for being an Alaskan. Why? Because the oil companies didn’t make the oil in Alaska. They’re merely bringing it up out of the ground and processing it. The oil is considered owned by all Alaskans, and so they should as owners see some of the revenue generated by its sale. Now apply this logic to the rest of what was not created by humankind. Apply it to what is not created by any one human individually, but everyone together, like for example land value. Take a million dollar mansion and swap it with an empty lot in the middle of the desert. The mansion becomes worth only the sum total of what its parts can sell for. The empty lot shoots up in value. Why? Because the unimproved value of land is socially created. That value exists because YOU exist.

Do you see now that basic income is not “free money” or “money for nothing?” You are owed it. It is your just and due compensation as part of this interdependent system we call society. We are all stakeholders in it. We are all owed a dividend as investors. No investor in Apple would ever be okay with being told that in return for their investment in Apple, they merely get the privilege of purchasing Apple products. Their reward is a return on their investment in the form of cash dividends. That’s fair and just. What is true for corporate stockholders should also be true for you. Don’t accept anything less than a cash dividend for your investments in this grand organization called human civilization. Claim what you are owed and demand unconditional basic income.

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Key: “There is an effort by a coalition of interests: banks, financial funds, pro-bailout governments, and the international creditors. They want to grab people’s property by using the public debt as a lever..”

The Brothers Fighting For Indebted Greek Homeowners (AP)

Leonidas Papadopoulos is a doctor, his brother Ilias an economist, and once a week they take a break from ordinary life to fight the government. They go to court every Wednesday, the day homeowners in default on mortgages lose their properties at auctions – the final step of foreclosure in a country where the government and its citizens are overwhelmed by debt. Auctions are supervised by a notary public, who faces a weekly hour of crowd harassment. At a lower court in Athens one Wednesday, the Papadopoulos brothers and about 30 protesters gather menacingly around the notary’s desk, shouting insults and chanting “Vultures out!” When the atmosphere gets heated, protesters clamber onto the empty judges’ benches. In the court halls outside the chamber, demonstrators unfurl large banners and set up loudspeakers to blast music normally associated with protest movements from the 1970s.

Police look on without intervening, and another auction is cancelled. The crowd celebrates with chants of “No Homes in Bankers’ Hands!” – and goes home. “We create a list of all the auctions that are due to take place and decide which cases require our intervention. When the notary enters the chamber, we eject them with our presence, and by shouting,” the 35-year-old Leonidas Papadopoulos says. Each postponement typically delays an auction by about two months. The bearded brothers have created a nationwide protest network of several hundred volunteers to disrupt the auctions across Greece and to help illegally reconnect homes of unemployed people who have had their electricity cut off. In its fourth year, the campaign is intensifying as the country faces pressure from its international bailout creditors to deal with a mountain of bad bank loans.

Greece owes a staggering 325 billion euros ($354 billion), most of it to bailout lenders, while annual economic output – hammered by austerity, political upheaval and years of recession – has withered to below 180 billion euros ($196 billion). The country’s key assets are locked up for 99 years under the control of a fund created by the creditors. The picture for the country’s 10 million citizens is equally grim: Some 4 million are in arrears on tax payments, while 2 million households and businesses are behind on their electricity bills. Nearly half of loans given by banks for businesses and property purchases are now officially listed as soured. Ilias Papadopoulos, 33, sees the problem differently, arguing that people’s property are being seized at fire-sale prices after tax collection has been exhausted, in a desperate effort to maintain bailout debt commitments.

“There is an effort by a coalition of interests: banks, financial funds, pro-bailout governments, and the international creditors. They want to grab people’s property by using the public debt as a lever,” he said. “That includes homes, small businesses, farm land, and industry. It’s wealth that was acquired with such great effort by the Greek people. It cannot be surrendered without a fight.” Ilias says he’s never been arrested or detained by police due to his activism, and predicts the fight against foreclosures will intensify after Greece and it’s bailout creditors reached a new austerity deal this week. “This will only make things worse for poor people. So we’ll have to step things up.”

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Apr 232017
 
 April 23, 2017  Posted by at 8:30 am Finance Tagged with: , , , , , , , , , ,  1 Response »
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How we got here

 

Disintegrating Left-Right Divide Sets Stage For French Political Upheaval (G.)
The Main Issue in the French Presidential Election: National Sovereignty (CP)
ECB Stands Ready to Support Banks If Needed After France Vote (BBG)
It Is Time To Break Up The Fed (IFT)
China’s Credit Excess Is Unlike Anything The World Has Ever Seen (Brown)
The US Retail Bubble Has Now Burst (ZH)
UK Retail Sales Volumes Fall At Fastest Rate In Seven Years (Ind.)
BHS Crash Sets Trend For A Chain Of Store Closures On UK High Streets (G.)
German Intelligence Spied On Interpol In Dozens Of Countries (R.)
Pope Likens Refugee Holding Centers To ‘Concentration Camps’ (G.)

 

 

This is a global issue, the left has moved so far right it has no identity left. Nice detail: The Parti Socialiste of the current president could be bankrupted by its dismal campaign.

Disintegrating Left-Right Divide Sets Stage For French Political Upheaval (G.)

Do they vote for or against? Do they choose a candidate who represents their politics or one who, opinion polls suggest, is most likely to defeat the woman whose presence as one of two candidates in the second-round runoff in a fortnight seems a given, but whose name still provokes a frisson of fear for many: the far-right Front National leader Marine Le Pen, with her anti-Europe, anti-immigration, “French-first” programme? As election day has approached, and with the added complication of the terrorist threat following the shooting of a police officer on the Champs-Elysées in Paris, the dilemma has caused particular anguish for France’s mainstream leftwing voters, whose candidate is trailing in fifth place.

There are no certainties, but barring all other candidates “dropping from a nasty virus”, as one political analyst put it, Benoît Hamon is facing a crushing defeat in the first round, ending his leadership dreams and putting the future of the country’s Socialist party (PS) in question. In a decline that mirrors that of Britain’s Labour party, the PS is facing years in a political desert, if it survives. If Hamon finishes last among the leading candidates, as polls predict, the party’s only hope of salvaging a thread of power will lie in winning enough parliamentary seats in the legislative elections that follow to form an influential group in the national assembly. Even then it will most likely be part of a coalition rather than a fully functioning opposition.

Even worse, and even more unthinkable, if leftwing voters turn en masse to Jean-Luc Mélenchon as their best hope of a place in the second round against the frontrunners – independent centrist Emmanuel Macron, Le Pen or the conservative François Fillon – and Hamon polls less than 5%, none of Hamon’s campaign expenses will be reimbursed, bankrupting the PS. “Under 5% and the situation is really catastrophic,” Marc-Olivier Padis, of the Paris-based thinktank Terra Nova, told the Observer. “And it’s possible. We are hearing many socialists wondering if they should vote Mélenchon or Macron. The only thing that can save the party in this election is if enough socialists vote for Hamon out of loyalty.”

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It’s about the economy, guys. Too many people are left with too little. That’s when they choose to be their own boss -again-.

The Main Issue in the French Presidential Election: National Sovereignty (CP)

The 2017 French Presidential election marks a profound change in European political alignments. There is an ongoing shift from the traditional left-right rivalry to opposition between globalization, in the form of the European Union (EU), and national sovereignty. Standard media treatment sticks to a simple left-right dualism: “racist” rejection of immigrants is the main issue and that what matters most is to “stop Marine Le Pen!” Going from there to here is like walking through Alice’s looking glass. Almost everything is turned around. On this side of the glass, the left has turned into the right and part of the right is turning into the left. Fifty years ago, it was “the left” whose most ardent cause was passionate support for Third World national liberation struggles.

The left’s heroes were Ahmed Ben Bella, Sukarno, Amilcar Cabral, Patrice Lumumba, and above all Ho Chi Minh. What were these leaders fighting for? They were fighting to liberate their countries from Western imperialism. They were fighting for independence, for the right to determine their own way of life, preserve their own customs, decide their own future. They were fighting for national sovereignty, and the left supported that struggle. Today, it is all turned around. “Sovereignty” has become a bad word in the mainstream left. National sovereignty is an essentially defensive concept. It is about staying home and minding one’s own business. It is the opposite of the aggressive nationalism that inspired fascist Italy and Nazi Germany to conquer other countries, depriving them of their national sovereignty.

The confusion is due to the fact that most of what calls itself “the left” in the West has been totally won over to the current form of imperialism – aka “globalization”. It is an imperialism of a new type, centered on the use of military force and “soft” power to enable transnational finance to penetrate every corner of the earth and thus to reshape all societies in the endless quest for profitable return on capital investment. The left has been won over to this new imperialism because it advances under the banner of “human rights” and “antiracism” – abstractions which a whole generation has been indoctrinated to consider the central, if not the only, political issues of our times.

The fact that “sovereignism” is growing in Europe is interpreted by mainstream globalist media as proof that “Europe is moving to the right”– no doubt because Europeans are “racist”. This interpretation is biased and dangerous. People in more and more European nations are calling for national sovereignty precisely because they have lost it. They lost it to the European Union, and they want it back. That is why the British voted to leave the European Union. Not because they are “racist”, but primarily because they cherish their historic tradition of self-rule.

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French government debt could become ineligible as collateral if Le Pen and/or Melenchon do too well.

ECB Stands Ready to Support Banks If Needed After France Vote (BBG)

ECB officials signaled that their liquidity facilities remain available to counter any market tension that may arise in the aftermath of France’s presidential election, the first round of which takes place Sunday. “The central bank should be ready for any shocks that should materialize,” Governing Council member Ignazio Visco said at a press conference during the IMF spring meetings in Washington on Saturday. “And if there were to be such a shock, the instruments are the instruments that a central bank should use, which are liquidity provision, refinancing when needed. And intervening very quickly is really very easy now given the instruments we have.” Like the U.K.’s vote on whether to continue its membership of the EU in June, central bank readiness to support the banking system has been sought given the potential for such political events to create market turmoil.

In this case, a strong showing in the first round by anti-euro candidate Marine Le Pen could cast doubt over the future of the single currency. Visco argued that the presence of central bank facilities makes it less likely they’ll actually be needed. [..] The euro area has years of experience with banking freeze-ups and has multiple instruments to address liquidity shortages that strike otherwise solvent banks. In particular, in the event a sudden credit-rating downgrade made French government debt ineligible as collateral for normal ECB refinancing operations, so-called Emergency Liquidity Assistance may be available from the Bank of France. “If there should be problems for specific French banks, liquidity-wise, then the ECB has instruments to help solvent banks with liquidity problems,” Governing Council member Ewald Nowotny said on Saturday. “This is ELA, emergency liquidity assistance. That could be given of course. But we don’t expect any special movements.”

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“Donald Trump and the GOP need an easy, highly visible legislative victory. Breaking up the Fed meets this criteria.”

It Is Time To Break Up The Fed (IFT)

Donald Trump and the GOP need an easy, highly visible legislative victory. Breaking up the Fed meets this criteria. In the aftermath of the Great Financial Crisis, policymakers rushed out the Dodd-Frank Act. This Act increased the Fed’s responsibilities. However, policymakers did this without examining the Fed’s performance in the run-up to the financial crisis. Had they done so, they would have seen the Fed failed as a bank supervisor and regulator. This failure alone mandates breaking up the Fed. After all, why should the Fed be given a second chance given how much its failure hurt the global real economy and taxpayers? Furthermore, this failure strongly suggests policymakers shouldn’t have rewarded the Fed with additional responsibilities. After all, there is no reason to believe the Fed’s failure as a bank supervisor and regulator won’t be repeated with any new responsibilities.

To the extent these new responsibilities exist in the Dodd-Frank Act, they too should be stripped away. What the Fed should be left with is responsibility for monetary policy and the payment system. All of the Fed’s bank supervision and regulatory responsibility should be transferred to the FDIC. There are many significant benefits from doing this including it reinforces market discipline on the banks. Unlike the Fed, the FDIC is responsible for protecting the taxpayers and has the authority to close a bank. The FDIC’s primary responsibility is minimizing the risk of loss by the taxpayer backed deposit insurance fund. It achieves this initially through regulation and supervision, but more importantly by a willingness to step in and close a bank that threatens to cause a loss to the fund.

Shareholders and unsecured bank creditors are keenly aware they are likely to lose their entire investment should the FDIC step up and close the bank they are invested in. As a result, they have an incentive to exert discipline on bank management to limit its risk taking so the bank is never taken over by the FDIC. For those who would argue that it is important to keep bank supervision and regulation together with monetary policy, I would point out there is no evidence showing this produces a better outcome. In the run-up to the Great Financial Crisis, the Bank of England and the ECB did not have supervision and regulation responsibility. The Fed did. Talk about a perfect controlled experiment.

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China needs more than $13 to create $1 of growth.

China’s Credit Excess Is Unlike Anything The World Has Ever Seen (Brown)

From a global macroeconomic perspective, we encourage readers to consider that the world is experiencing an extended, rolling process of deflating its credit excesses. It is now simply China’s turn. For context, Japan started deflating their credit bubble in the early 1990s, and has now experienced more than 20 years of deflation and very little growth since. The US began its process in 2008, and after eight years has only recently been showing signs of sustainable recovery. The euro zone entered this process in 2011 and is still struggling six years onward. We believe China is now entering the early stages of this process. Having said that, we believe that Chinese authorities have a viable plan for deflating their credit excess in an orderly fashion.

Please stay posted as we will review this multi-pronged, market-based approach in our next column. For now, let’s turn our attention to the size of the credit excess that China created and why we estimate it to be the largest in the world. A credit excess is created by the speed and magnitude of credit that is created – if too much is created in too short a time period, excesses inevitably occur and non-performing loans (NPLs) emerge. To illustrate the credit excess that has been created in China, let’s review several key indicators, including the: 1) flow of new credit; 2) stock of outstanding credit; 3) credit deviation ratio (i.e., excess credit); 4) incremental capital output ratio (efficiency of credit allocation).

The US created 58% of GDP between 2002-07, and the global financial crisis followed. Japan created credit equivalent to the entire size of its economy between 1985-90 and subsequently experienced more than 20 years of deflation (admittedly reflecting the lack of restructuring). Thailand created a significant real estate bubble between 1992-97 and ended up with about 45% NPL ratios. Spain created credit equivalent to 116% of GDP between 2002-07 and still is trying to address a 20% unemployment rate. China created 139% of GDP in new credit between the first quarter of 2009 and the third quarter of 2014 (when GDP growth peaked), far greater than what was created in other major credit bubbles globally.

[..] Another important measure to assess the amount of credit in the economy which is “excessive” is the credit-to-GDP gap, as reported by the Bank of International Settlements. This ratio measures the difference between the current credit-to-GDP ratio in an economy against its long-term trend of what is necessary to optimally support long-term GDP growth. It is akin to measuring the amount of credit that is productively deployed into an economy. This metric is used by the Basel III framework in determining countercyclical capital buffers for a country’s banking system when credit creation becomes too fast (i.e., high credit growth requires higher capital ratios for banks).

Finally, to show that the pace of credit creation will necessarily slow, thereby exposing misallocated credit and driving the emergence of new NPL formation, we turn to the deterioration in China’s incremental capital output ratio. This ratio is the measure of the number of units of input required to produce one unit of GDP. For the 15 years prior to the credit impulse in 2009-14, China’s incremental capital output ratio has been consistently between two and four. Meaning that two to four yuan in fixed asset investment created one yuan in GDP. But as a result of the credit-driven economic growth model, and the excessive credit that has been created (and the subsequent excess capacity in the industrial economy), China’s investment efficiency has deteriorated to the point that its incremental capital output ratio is now over 13. Said another way, every 1 yuan in new fixed asset investment is now creating only 7 fen in GDP.

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Full employment, anyone?

The US Retail Bubble Has Now Burst (ZH)

The devastation in the US retail sector is accelerating in 2017, and in addition to the surging number of brick and mortar retail bankruptcies, it is perhaps nowhere more obvious than in the soaring number of store closures. While the shuttering of retail stores has been a frequent topic on this website, most recently in the context of the next “big short”, namely the ongoing deterioration in the mall REITs and associated Commercial Mortgage-Backed Securities and CDS, here is a stunning fact from Credit Suisse:”Barely a quarter into 2017, year-to-date retail store closings have already surpassed those of 2008.”

According to the Swiss bank’s calculations, on a unit basis, approximately 2,880 store closings were announced YTD, more than twice as many closings as the 1,153 announced during the same period last year. Historically, roughly 60% of store closure announcements occur in the first five months of the year. By extrapolating the year-to-date announcements, CS estimates that there could be more than 8,640 store closings this year, which will be higher than the historical 2008 peak of approximately 6,200 store closings, which suggests that for brick-and-mortar stores stores the current transition period is far worse than the depth of the credit crisis depression.

As the WSJ calculates, at least 10 retailers, including Limited Stores, electronics chain hhgregg and sporting-goods chain Gander Mountain have filed for bankruptcy protection so far this year. That compares with nine retailers that declared bankruptcy, with at least $50 million liabilities, for all of 2016. On Friday, women’s apparel chain Bebe Stores said it would close its remaining 170 shops and sell only online, while teen retailer Rue21 Inc. announced plans to close about 400 of its 1,100 locations. Another striking fact: on a square footage basis, approximately 49 million square feet of retail space has closed YTD. Should this pace persist by the end of the year, total square footage reductions could reach 147M square feet, another all time high, and surpassing the historical peak of 115M in 2001.

There are several key drivers behind the avalanche of “liquidation” signs on store fronts. The first is the glut of residual excess retail space. As the WSJ writes, the seeds of the industry’s current turmoil date back nearly three decades, when retailers, in the throes of a consumer-buying spree and flush with easy money, rushed to open new stores. The land grab wasn’t unlike the housing boom that was also under way at that time. “Thousands of new doors opened and rents soared,” Richard Hayne, chief executive of Urban Outfitters Inc., told analysts last month. “This created a bubble, and like housing, that bubble has now burst.”

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No matter how you try to explain it away, in the end it’s just people having less to spend.

UK Retail Sales Volumes Fall At Fastest Rate In Seven Years (Ind.)

Retail sale volumes slumped in March, seeming to confirm doubts about the robustness of the consumer-led economy in the wake of last summer’s Brexit vote. According to the Office for National Statistics, sales were down 1.8% in the month, against City expectations of a 0.2% decline. The monthly data can be volatile and March’s decline follows a 1.7% spike in February, but the ONS itself highlighted the weakening trend this year and noted that over the three months to March there was the first quarterly decline in volumes since 2013. In the first quarter of 2017 sales were down 1.4%, the biggest decline since the first three months of 2010 when they fell 2%.

Retail sales performed much better than expected in the immediate wake of last June’s Brexit vote, helping to boost overall GDP growth and confounding widespread expectations that the economy would fall into recession. But economists said the latest data suggested gravity was now asserting itself as inflation, stemming from the sharp depreciation of the pound since last June, eats into incomes and wage growth remains chronically weak. “We should see these retail sales figures as the start of a period of much weaker consumer spending growth – which will act as a drag on the overall progress of the UK economy over this year and next,” said Andrew Sentance, senior economic adviser at PwC.

“This is the clearest indication yet that the expected slowdown in the UK economy has begun, and we should expect to see this confirmed in other economic data over the next few months.” James Knightley, an economist at ING described the figures as “dreadful”. “The story for the household sector isn’t great right now. Inflation is eating into household spending power with wages once again failing to keep pace with the rising cost of living. There is also a growing sense of job insecurity highlighted in some surveys, which may also be making households a little nervous,” he said. The household saving ratio, the gap between the sector’s aggregate income and spending, fell to just 3.3% in the final quarter of 2016, the weakest on record, prompting questions about the sustainability of the rate of consumer spending. Retail sales account for around 30% of household consumption, which in turn accounts for 60% of UK GDP.

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“..1.5 million people work in low-paid UK retail jobs..” They can’t afford the products they sell. Henry Ford had a solution to that.

BHS Crash Sets Trend For A Chain Of Store Closures On UK High Streets (G.)

The fact that Britain’s unemployment rate has fallen to its joint lowest level since 1975 belies the experience of thousands of BHS staff, who have struggled to find an equivalent job with a contract and regular hours. The jobless rate may be just 4.7% but official records show the number of people on zero-hours contracts hit a record high of 905,000 in the final three months of 2016. That was an increase of 101,000, or 13%, compared with the same period a year earlier. Last year, research by industry trade body the British Retail Consortium (BRC) identified a “lost generation” of predominantly female shop workers who – as thousands of BHS staff would find out – risk losing their jobs as structural change chews up the high street. It estimated there were nearly 500,000 retail workers, aged between 26 and 45, many of whom have children and need to work close to their family home, who would find it hard to find alternative jobs.

Using the benchmark of those earning less than £8.05 an hour, the BRC says 1.5 million people work in low-paid UK retail jobs. About 70% are female and one in five receive means-tested working age tax credits. Norman Pickavance, chair of the Fabian Society taskforce on the future of retail, says the majority of companies in the sector are trying to save money by moving towards less secure employment models. “There are more and more zero-hours-type contracts and self employment,” he says. “A year on from the demise of BHS, most retailers are continuing down that route of flexibility but there is a risk to them from Brexit. They have only been able to use these methods because of the abundance of labour and might have to rethink.”

[..] This trend is writ larger in the US, where analysts are talking about a “retail apocalypse”, as main street veterans like Macy’s and Sears line up to announce major store closure programmes. With American Apparel, Abercrombie & Fitch and JCPenney also axing stores, hundreds of American shopping mall outlets are closing for good. The cost in job terms has been stark, with more than 89,000 retail positions eliminated over the last six months. New York-based Global Data analyst Neil Saunders says the US and UK retail markets are not mirror images, with the American woes resulting from the fallout from a belated move by store chiefs to address the threat posed by the internet.

With more than five times more retail square footage per person than the UK, American store chiefs have also got a bigger problem on their hands than their British counterparts. “In terms of online penetration, the US is where the UK was five or so years ago,” continues Saunders. “What we are seeing is large US retailers scrabbling to adjust.” He adds: “Generally, UK retail is at a much later evolutionary stage than the US. There has already been quite a lot of adjustment in terms of the closure and adaptation of physical space.

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Everyone spies on everyone. Growth industry.

German Intelligence Spied On Interpol In Dozens Of Countries (R.)

Germany’s BND foreign intelligence agency spied on the Interpol international police agency for years and on the group’s country liaison offices in dozens of countries such as Austria, Greece and the United States, a German magazine said. Der Spiegel magazine, citing documents it had seen, said the BND had added the email addresses, phone numbers and fax numbers of the police investigators to its sector surveillance list. In addition, the German spy agency also monitored the Europol police agency Europol which is based in The Hague, the magazine said. Der Spiegel reported in February that the BND also spied on the phones, faxes and emails of several news organizations, including the New York Times and Reuters.

The BND’s activities have come under intense scrutiny during a German parliamentary investigation into allegations that the US National Security Agency conducted mass surveillance outside of the United States, including a cellphone used by Chancellor Angela Merkel. Konstantin von Notz, a Greens party member who serves on the investigative committee, described the latest report about the BND’s spying activities as “scandalous and unfathomable.” “We now know that parliaments, various companies and even journalists and publishers have been targeted, as well as allied countries,” von Notz said in a statement. He said the latest reports showed how ineffective parliamentary controls had been thus far, despite new legislation aimed at reforming the BND. “It represents a danger to our rule of law,” he said.

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So what as the Pope done to alleviate the issue? How has he used the Vatican’s opulent riches to make life better for refugees?

Pope Likens Refugee Holding Centers To ‘Concentration Camps’ (G.)

Pope Francis urged governments on Saturday to get migrants and refugees out of holding centers, saying many had become “concentration camps”. During a visit to a Rome basilica, where he met migrants, Francis told of his visit to a camp on the Greek island of Lesbos last year. There he met a Muslim refugee from the Middle East who told him how “terrorists came to our country”. Islamists had slit the throat of the man’s Christian wife because she refused to throw her crucifix the ground. “I don’t know if he managed to leave that concentration camp, because refugee camps, many of them, are of concentration (type) because of the great number of people left there inside them,” the pope said.

Francis praised countries helping refugees and thanked them for “bearing this extra burden, because it seems that international accords are more important than human rights”. He did not elaborate but appeared to be referring to agreements that keep migrants from crossing borders. In February, the European Union pledged to finance migrant camps in Libya as part of a wider European Union drive to stem immigration from Africa. Humanitarian groups have criticized efforts to stop migrants in Libya, where – according to a U.N. report last December – they suffer arbitrary detention, forced labor, rape and torture.

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Mar 062017
 
 March 6, 2017  Posted by at 10:03 am Finance Tagged with: , , , , , , , , , ,  8 Responses »
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Dorothea Lange Negro woman who has never been out of Mississippi July 1936

 

The Government Doesn’t Actually Want Housing To Be More Affordable (SMH)
In Praise Of Cash (Aeon)
Basic Income Isn’t Just A Nice Idea. It’s A Birthright (G.)
Oil Falls On Lower China Growth Targets, Doubts On Russian Output Curbs (R.)
China’s Credit Target Implies Adding Entire German GDP This Year (BBG)
Record-Breaking Stocks A Bad Reason For The Fed To Raise Interest Rates (BI)
Leaving The EU Is The Start Of A Liberal Insurgency (Carswell)
Deutsche Bank CEO Cryan Has A New Strategy: Reverse His Old Strategy (BBG)
Renzi’s Return Clouded By Probe Into Father, Government Minister (BBG)
The Iraq War Stench Lingers Behind Today’s Preoccupation With Fake News (G.)
Saudi Arabia Stealing 65% of Yemen’s Oil in Collaboration with US, Total (AHT)
Turkey’s Erdogan Compares German Behavior With Nazi Period (R.)
US Asks Ankara For Steps To Ease Aegean Tension (K.)
Greece Desperate For Growth Strategy As Public Mood Darkens (G.)
Polluted Environments Kill 1.7 Million Children A Year (R.)

 

 

From Australia, but applicable worldwide. Mortgages in housing bubbles are the main engine of money (credit) creation in our economies. Boith governments and banks depend on them for profit, taxes and ultimately survival. Imagine if housing prices halved, the entire construct would collapse. They’ll do anything to keep the game going. And then they will fail.

The Government Doesn’t Actually Want Housing To Be More Affordable (SMH)

The federal government’s problem with making housing more affordable is that it becomes, by definition, cheaper. And that’s not something that the federal government wants to see happen for some very understandable reasons. Back in the Howard era Australians were encouraged to invest in housing as a form of wealth creation, partially as a way of addressing rental strain and mainly as a way to ensure people had assets and therefore didn’t go selfishly claiming pensions later on. That’s when the negative gearing and capital gains exemptions were introduced that made buying property such a sweet deal. So now there are a lot of Australians who have put their retirement eggs in the basket marked “leveraging the hell out of my mortgage to buy more investment properties” for the last couple of decades and who will be therefore disadvantaged if the value of housing drops.

And then there’s pure self interest at work too, since between a third and half of all our representatives have investment properties – the PM himself owns seven properties, for example. How keen would you say that our parliamentary representatives are to make their portfolios drop in value, especially for something as stupid as the greater good? Also, as well we know thanks to the efforts of the NSW Independent Commission Against Corruption, the NSW Liberals are so beloved by property developers that the party went to some effort to find a way of accepting donations from them despite those donations being completely illegal. If they suddenly become the party that makes property less lucrative, there’d be no donations to justify the creation of opaque entities like the Free Enterprise Foundation.

[..] Will housing become more affordable in Australia? Absolutely! And it could happen one of two ways. This complex web of legislation can be gently and strategically unpicked via careful bipartisan cooperation across our different spheres of government in concert with the private sector in an effort to create a sane, universally beneficial housing system at all levels. Alternatively, we can choose to leave things be until the housing bubble bursts and plunges Australia into a crippling recession. And since this is politics in 2017, we can assume that Plan A is already off the table.

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Using cash is fast becoming a revilutionary act.

In Praise Of Cash (Aeon)

The cashless society – which more accurately should be called the bank-payments society – is often presented as an inevitability, an outcome of ‘natural progress’. This claim is either naïve or disingenuous. Any future cashless bank-payments society will be the outcome of a deliberate war on cash waged by an alliance of three elite groups with deep interests in seeing it emerge. The first is the banking industry, which controls the core digital fiat money system that our public system of cash currently competes with. It irritates banks that people do indeed act upon their right to convert their bank deposits into state money. It forces them to keep the ATM network running. The cashless society, in their eyes, is a utopia where money cannot leave – or even exist – outside the banking system, but can only be transferred from bank to bank.

The second is the private payments industry – the likes of Mastercard – that profits from running the infrastructure that services that bank system, streamlining the process via which we transfer digital money between bank accounts. They have self-serving reasons to push for the removal of the cash option. Cash transactions are peer-to-peer, requiring no intermediary, and are thus transactions that Visa cannot skim a cut off. The third – perhaps ironically – is the state, and quasi-state entities such as central banks. They are united with the financial industry in forcing everyone to buy into this privatised bank-payments society for reasons of monitoring and control. The bank-money system forms a panopticon that enables – in theory – all transactions to be recorded, watched and analysed, good or bad. Furthermore, cash’s ‘offline’ nature means it cannot be remotely altered or frozen.

This hampers central banks in implementing ‘innovative’ monetary policies, such as setting negative interest rates that slowly edit away bank deposits in order to coerce people into spending. Governments don’t really mention that monetary policy agenda. It isn’t catchy enough. Rather, the key weapons used by the alliance are more classic shock-and-awe scare tactics. Cash is used by criminals! People buy drugs with cash! It’s the black economy! It supports tax evasion! The ability to present control as protection relies on constant calls to imagine an external enemy, the terrorist or Mafiosi. These cries of moral panic are set in contrast to the glossy smiling adverts about digital payment. The emerging cashless society looms like a futuristic sunrise, cleansing us of these dangerous filthy notes with rays of hygienic, convenient, digital salvation.

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From Thomas Paine to Henry George, the reason for UBI has long been known. Call it ‘ground rent’ or ‘land value tax’. Tax the ownership class, not the workers. ‘Birthright’ may sound strange today, but is it really?

Basic Income Isn’t Just A Nice Idea. It’s A Birthright (G.)

Every student learns about Magna Carta, the ancient scroll that enshrined the rights of barons against the arbitrary authority of England’s monarchs. But most have never heard of its arguably more important twin, the Charter of the Forest, issued two years later in 1217. This short but powerful document guaranteed the rights of commoners to common lands, which they could use for farming, grazing, water and wood. It gave official recognition to a right that humans nearly everywhere had long just presupposed: that no one should be debarred from the resources necessary for livelihood. But this right – the right of habitation – came under brutal attack beginning in the 15th century, when wealthy nobles began fencing off common lands for their own profit.

[..] the success of basic income – in both the north and south – all depends on how we frame it. Will it be cast as a form of charity by the rich? Or will it be cast as a right for all? Thomas Paine was among the first to argue that a basic income should be introduced as a kind of compensation for dispossession. In his brilliant 1797 pamphlet Agrarian Justice, he pointed out that “the earth, in its natural, uncultivated state was, and ever would have continued to be, the common property of the human race”. It was unfair that a few should enclose it for their own benefit, leaving the vast majority without their rightful inheritance. As far as Paine was concerned, this violated the most basic principles of justice.

Knowing that land reform would be politically impossible (for it would “derange any present possessors”), Paine proposed that those with property should pay a “ground rent” – a small tax on the yields of their land – into a fund that would then be distributed to everyone as an unconditional basic income. For Paine, this would be a right: “justice, not charity”. It was a powerful idea, and it gained traction in the 19th century when American philosopher Henry George proposed a “land value tax” that would fund an annual dividend for every citizen. The beauty of this approach is that it functions as a kind of de-enclosure. It’s like bringing back the ancient Charter of the Forest and the right of access to the commons. It restores the right to livelihood – the right of habitation.

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Yeah, output cuts. Sure.

Oil Falls On Lower China Growth Targets, Doubts On Russian Output Curbs (R.)

Oil prices fell in Asian trade on Monday, wiping out some of the gains of the previous session amid worries lower growth targets in China could cut oil demand and ongoing concern over Russia’s compliance with a global deal to cut oil output. But worries over escalating violence in the Middle East put a floor under prices. Brent crude futures dropped 29 cents, or 0.5%, to $55.61 a barrel as of 0638 GMT after settling 1.5% higher in the previous session. U.S. West Texas Intermediate (WTI) crude futures fell 30 cents, or 0.6%, to $53.03 a barrel after closing the previous session up 1.4%. “The main drag affecting markets today is the lowering of growth targets by China and tighter regulatory controls which implies less demand for oil and commodities in general,” said Jeffrey Halley at Oanda brokerage in Singapore.

China aims to expand its economy by around 6.5% this year, Premier Li Keqiang said in his work report at the opening of the annual meeting of parliament on Sunday. That is lower than the 6.7% growth achieved last year. China also plans to cut steel and coal output this year in an effort to tackle pollution, its top economic planner said on Sunday, while China’s newly appointed banking regulator vowed on to strengthen supervision of the lending sector. Meanwhile, figures by Russia’s energy ministry released last week showed February oil output was unchanged from January at 11.11 million barrels per day (bpd), casting doubt on Russia’s moves to rein in output as part of a pact with oil producers last year. That came as oil prices rose on Friday as the dollar weakened modestly after a speech by Fed Chair Janet Yellen, which suggested a rate increase would come at the end of its two-day meeting on March 15.

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“China’s great ball of money.”

China’s Credit Target Implies Adding Entire German GDP This Year (BBG)

China’s credit engine will keep humming this year, adding the rough equivalent of Germany’s annual economic output to its already massive stock of total social financing (TSF), according to estimates derived from the nation’s 2017 targets. Adding higher equity market financing and about 5 trillion yuan ($725 billion) worth of local government bond swaps to the official credit growth target of 12%, analysts at UBS see TSF expansion of 14.8% this year. They calculate that’s equal to a whopping 23 trillion yuan, or $3.3 trillion, addition to the amount of total credit already swishing around the world’s second-largest economy. “China’s pace of leverage increase will be slowing, albeit not by that much,” economists led by Hong Kong-based Wang Tao wrote in a report.

“The government’s intention for a still strong pace of credit growth and recent notable tightening in China’s money market and bond market attest to the difficulties facing the PBC in balancing monetary policy.” China’s great ball of money creates a constant headache for policy makers as money flows from asset class to asset class, creating bubbles along the way. It’s a particular dilemma for the People’s Bank of China because it needs new credit to generate the kind of growth its leaders desire – around 6.5% or higher if possible this year. The M2 money supply target was cut to 12% this year from 13% in 2016, while still higher than the 11.3% actual expansion last year.

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So wrong so many times, and still taken serious. You’d almost admire them for it.

Record-Breaking Stocks A Bad Reason For The Fed To Raise Interest Rates (BI)

Federal Reserve officials say their decisions on interest rate policy hinge on the ebb and flow of economic data, not the whims of financial markets. They have repeatedly downplayed the effect of short-term market fluctuations in their policy moves, aimed at maintaining a strong labor market and 2% inflation over the medium term. But the thing about markets is, they don’t really matter until they suddenly do. That may be the case at the moment, with Fed officials suddenly signaling in unison, without major changes in the economic data, that an increase in interest rates is coming this month. Investors accordingly shifted from considering a March hike as rather a long shot to seeing it as a near sure possibility in just two weeks. What changed? The stock market continued to set new records without much underlying economic impetus.

When the Fed released minutes from its end of January meeting, they showed members “expressed concern that the low level of implied volatility in equity markets appeared inconsistent with the considerable uncertainty attending the outlook.” The Fed comments on the broad health of the financial markets all the time, but that kind of focus on stock volatility is less common. Fed Chair Janet Yellen and her Vice Chair Stanley Fischer, both speaking on March 3, appeared to seal the deal for a rate increase at the Fed’s upcoming March 14-15 meeting — with Yellen indicating that a hike is coming barring a drastic disappointment in next week’s February jobs report. Fischer was also was fairly unequivocal. “If there has been a conscious effort to move up our hike expectations I am going to join it,” he told a monetary policy conference in New York, sponsored by the University of Chicago’s Booth School of Business.

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Carswell is the only MP for Ukip. Farage hates him now. But he has some points: “Trump – or Geert Wilders in the Netherlands – is where you end up when you ignore legitimate public concerns and there isn’t a safety valve. “

Leaving The EU Is The Start Of A Liberal Insurgency (Carswell)

What is Nigel Farage so cross about? We won the EU referendum, for goodness sake. Since 23 June, I’ve been walking on sunshine. My mood has been a state of Zen-like bliss. Alongside Boris Johnson, David Owen, Gisela Stuart and all of those involved in the official Vote Leave campaign, I spent the referendum arguing that leaving the EU would be an opportunity to make Britain more open, outward-looking and globally competitive. It is becoming increasingly clear to me that this is where Brexit is going to take us. [..] Brexit is often bracketed alongside the election of Donald Trump and the rise of the new radical populist movements in many western countries. But to me the EU referendum result was a safety valve. Trump – or Geert Wilders in the Netherlands – is where you end up when you ignore legitimate public concerns and there isn’t a safety valve.

Throughout history oligarchy has emerged in societies in which power was previously dispersed: in the late Roman republic, and in early modern times in the Venetian and then the Dutch republics. Each time, the emergence of oligarchy was always accompanied by an anti-oligarch insurgent reaction.Many of today’s new radical movements aren’t oligarchs, but an anti-oligarchy insurgency. Trump is no American Caesar about to cross some constitutional Rubicon. Yet such insurgents often ended up unwittingly assisting the oligarchs. In Rome the Gracchi brothers, with their Trump-like concern about cheap migrant labour, caused so much civil strife that an all-powerful emperor seemed a better bet. In Venice, the anti-oligarch rebel Bajamonte launched an unsuccessful coup – and in doing so gave the elite a pretext to create a new, superpowerful executive arm of government, the Council of Ten.

Created to respond to the crisis for six weeks, it ran the republic for the next 600 years. The Dutch anti-oligarch De Witt was so inept, he paved the way for the return of a strong stadtholder, or king. So, too, today. If chaotic, angry insurgents such as France’s Marine Le Pen and the rightwing populist Alternative for Germany party are the alternative, then being governed by remote, unaccountable elites sitting in central banks and Brussels doesn’t seem so unattractive after all. But Brexit isn’t anything like that. It is the beginning of a liberal insurgency. Brexit means that we take back control from the supranational elite. Power can be dispersed outward and downwards. Those who make public policy might once more answer to the public. Cheer up – it might even mean that there is less space for anger in our politics too.

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“Even after a recent rally, the stock is 29% lower than when Cryan took the helm in 2015…”

Deutsche Bank CEO Cryan Has A New Strategy: Reverse His Old Strategy (BBG)

Deutsche Bank CEO John Cryan tore up his own turnaround plan in an admission that the 17-month-old effort flopped. Germany’s largest bank late Sunday approved measures – most crucially, plans to raise about $8.5 billion in a share sale – that effectively restart what has already been the most turbulent transformation in its recent history. Among the moves: naming two deputy CEOs who may now be positioned to succeed Cryan; selling a piece of the asset-management business and abandoning the sale of the consumer-banking unit, which was the linchpin of the blueprint he scrapped. Speaking on Monday, Cryan said the deputies were installed at his request as the company will focus more on the German market with the reintegration of Postbank, which he said reflects a strong performance by the unit and a changed environment for banks.

Yet the developments underscore how, almost two years after he took over, Deutsche Bank has been unable to plot a course to a more profitable future while seeking to eliminate 9,000 jobs. “We want to move back into modest growth mode, controlled growth,” Cryan said in the interview. “The operating environment in the U.S. but also increasingly in the euro zone and especially in Germany looks strong. And so I’m reasonably confident about the future.” Deutsche Bank fell 5.4% at 9:16 a.m. in Frankfurt trading, the biggest drop more than four weeks. Before today, the shares had rallied 44% in the past six months. Even though they’re being tapped for a capital infusion for the fourth time since 2010, some investors welcomed the developments as a way to end questions about the firm’s financial strength. S

elling a minority stake in the asset-management unit within the next two years and unloading some assets at the investment bank will help raise another 2 billion euros ($2.1 billion) of capital. Deutsche Bank’s last three capital increases raised about €21.7 billion – compared to the current market value of €26.4 billion. Even after a recent rally, the stock is 29% lower than when Cryan took the helm in 2015. “The shareholder dilution is enormous,” said Michael Huenseler, an investor at Assenagon Asset Management, which holds a stake in Deutsche Bank. “But at the same time, this package should end what has been hurting Deutsche Bank for so long: the discussion about the capital situation. Now the bank has to prove that it can be profitable.”

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A boiling cauldron that will keep festering a for a while longer. Italy has a long-standing ownership class that won’t give up easily. Corruption, the mob, the church, secret lodges.

Renzi’s Return Clouded By Probe Into Father, Government Minister (BBG)

Matteo Renzi’s comeback risks being undermined by a judicial investigation into the father of the Italian former prime minister and a government minister. Rome prosecutors on Friday were due to question Tiziano Renzi, 65, over an accusation of influence-peddling, his lawyer said. The elder Renzi is alleged to have obtained promises of monthly sums of money from Alfredo Romeo, a Naples entrepreneur, in return for mediating on his behalf for public works contracts, Italian news agency Ansa reported. The ex-premier’s father has denied any wrongdoing. [..] “If the investigation goes ahead, it will surely hurt Matteo Renzi’s prospects even if he has nothing to do with it,” said Sergio Fabbrini, director of the school of government at Luiss University in Rome. “This is the most critical moment of his political career, he has to find a new strategy.”

Tiziano Renzi’s lawyer Federico Bagattini said in a telephone interview that his client had done nothing illicit. “We deny that he ever asked for anything, that he ever promised he would intervene, and that he ever received any money or any other benefit,” Bagattini said. Tiziano Renzi said Thursday he had nothing to hide. “I have never asked for money. I never took any. Never,” he said in a statement reported by Ansa. [..] The anti-establishment Five Star Movement, which has made denunciations of political corruption one of its main platforms, has seized on the case. It submitted on Thursday a parliamentary vote of no confidence against Sports Minister Luca Lotti, a close ally of Matteo Renzi, which will test the government’s majority.

Lotti is also under investigation in the case for allegedly revealing confidential information, according to Italian news media, a charge he denied in a post on Facebook on Thursday. Five Star “talks of kick-backs, arrests, contracts – all things which I have nothing to do with,” Lotti wrote. The office of Franco Coppi, Lotti’s lawyer, did not respond to an emailed request for comment on Friday. The case is “an atomic bomb on Italian politics,” Five Star co-founder Beppe Grillo, who wants a referendum on Italy’s membership of the euro, wrote on his blog. “When it explodes, no one will be able to find shelter. Today more than ever we need honesty in institutions.”

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It didn’t start yesterday. Western media have been killing off their own credibility for propaganda reasons, for many years.

The Iraq War Stench Lingers Behind Today’s Preoccupation With Fake News (G.)

[..] with trust in the establishment at an all time low, the institutional heft of traditional media companies becomes a liability rather than an asset, enabling Trump to successfully turn the “fake news” label onto his opponents. Much of that goes back to Iraq. “The period of time between 9/11 and the invasion of Iraq represents one of the greatest collapses in the history of the American media,” says Gary Kamiya. “Every branch of the media failed, from daily newspapers, magazines and websites to television networks, cable channels and radio. “Bush administration lies and distortions went unchallenged, or were actively promoted. Fundamental and problematic assumptions about terrorism and the ‘war on terror’ were rarely debated or even discussed. Vital historical context was almost never provided. And it wasn’t just a failure of analysis. With some honourable exceptions, good old-fashioned reporting was also absent.”

Let’s look at the most famous example of how the media was used to make the Iraq war happen. On September 8 2002, the New York Times published a major story by Michael R Gordon and Judith Miller asserting that Iraq had “stepped up its quest for nuclear weapons and … embarked on a worldwide hunt for materials to make an atomic bomb”. The piece cited no named sources whatsoever. Rather, it attributed all its significant claims simply to anonymous US officials – and, by so doing, it helped launder the Bush administration’s talking points, lending a liberal imprimatur to unverified (and totally untrue) claims. When the key members of the Bush administration launched a publicity blitz to make the war happen, they were able to quote the New York Times as evidence: in effect, reacting to newspaper revelations for which they themselves were responsible.

For instance, during a CNN appearance, Condoleeza Rice urged the public to support an invasion on the basis that “we don’t want the smoking gun to be a mushroom cloud”. She’d lifted the phrase directly from Gordon and Miller – who’d taken it from the administration. Elsewhere, Gordon and Miller referred to Iraq’s supposed interest in acquiring high-strength aluminium tubes as an illustration of its nuclear ambitions. Again, the claims came from Bush officials. But when, at the UN General Assembly, Bush told the story, he sounded as if he were repeating a New York Times scoop. A similar circularity defined the propaganda campaign conducted in other countries.

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In case you were still wondering why an entire country and its people are being obliterated.

Saudi Arabia Stealing 65% of Yemen’s Oil in Collaboration with US, Total (AHT)

“63% of Yemen’s crude production is being stolen by Saudi Arabia in cooperation with Mansour Hadi, the fugitive Yemeni president, and his mercenaries,” Mohammad Abdolrahman Sharafeddin told FNA on Tuesday. “Saudi Arabia has set up an oil base in collaboration with the French Total company in the Southern parts of Kharkhir region near the Saudi border province of Najran and is exploiting oil from the wells in the region,” he added. Sharafeddin said that Riyadh is purchasing arms and weapons with the petro dollars stolen from the Yemeni people and supplies them to its mercenaries to kill the Yemenis. Late in last year, another economic expert said Washington and Riyadh had bribed the former Yemeni government to refrain from oil drilling and exploration activities, adding that Yemen has more oil reserves than the entire Persian Gulf region.

“Saudi Arabia has signed a secret agreement with the US to prevent Yemen from utilizing its oil reserves over the past 30 years,” Hassan Ali al-Sanaeri told FNA. “The scientific research and assessments conducted by international drilling companies show that Yemen’s oil reserves are more than the combined reserves of all the Persian Gulf states,” he added. Al-Sanaeri added that Yemen has abundant oil reserves in Ma’rib, al-Jawf, Shabwah and Hadhramaut regions. He noted that a series of secret documents by Wikileaks disclosed that the Riyadh government had set up a committee presided by former Saudi Defense Minister Crown Prince Sultan bin Abdel Aziz. “Former Saudi Foreign Minister Saud al-Faisal and the kingdom’s intelligence chief were also the committee’s members.”

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“If I want to come to Germany, I will, and if you don’t let me in through your doors, if you don’t let me speak, then I will make the world rise to its feet..”

Turkey’s Erdogan Compares German Behavior With Nazi Period (R.)

Turkish President Tayyip Erdogan accused Germany on Sunday of “fascist actions” reminiscent of Nazi times in a growing row over the cancellation of political rallies aimed at drumming up support for him among 1.5 million Turkish citizens in Germany. German politicians reacted with shock and anger. German Justice Minister Heiko Maas told broadcaster ARD that Erdogan’s comments were “absurd, disgraceful and outlandish” and designed to provoke a reaction from Berlin. But he cautioned against banning Erdogan from visiting Germany or breaking off diplomatic ties, saying that such moves would push Ankara “straight into the arms of (Russian President Vladmir) Putin, which no one wants”.

The deputy leader of Chancellor Angela Merkel’s Christian Democratic Union (CDU) party said the Turkish president was “reacting like a wilful child that cannot have his way”, while a top leader of the CDU’s Bavarian sister party described Erdogan as the “despot of the Bosphorus” and demanded an apology. German authorities withdrew permission last week for two rallies by Turkish citizens in German cities at which Turkish ministers were to urge a “Yes” vote in a referendum next month on granting Erdogan sweeping new presidential powers. Berlin says the rallies were canceled on security grounds. However, Turkish Economy Minister Nihat Zeybekci spoke at large events in Leverkusen and Cologne on Sunday while protesters stood outside.

The row has further soured relations between the two NATO members amid mounting public outrage in Germany over the arrest in Turkey of a Turkish-German journalist. It has also spurred growing demands for Merkel to produce a more forceful response to Erdogan’s words and actions. A poll conducted for the Bild am Sonntag newspaper showed that 81% of Germans believe that Merkel’s government has been too accommodating with Ankara. Germany, under an agreement signed last year, relies on Turkey to prevent a further flood of migrants from pouring into Europe. The lead article in German news magazine Der Spiegel on Sunday urged Merkel to free herself from the “handcuffs of the migrant deal”.

[..] A defiant Erdogan said he could travel to Germany himself to rally support for the constitutional changes to grant him greater power. “Germany, you have no relation whatsoever to democracy and you should know that your current actions are no different to those of the Nazi period,” Erdogan said at a rally in Istanbul. “If I want to come to Germany, I will, and if you don’t let me in through your doors, if you don’t let me speak, then I will make the world rise to its feet,” he told a separate event.

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And Erdogan will want something in return.

US Asks Ankara For Steps To Ease Aegean Tension (K.)

American officials have urged Ankara to refrain from action that would further escalate tension with fellow NATO member Greece in the Aegean Sea, Kathimerini understands, adding that the issue was raised during the Munich Security Conference last month, as well as during private contacts in Ankara. Sources told Kathimerini that US Secretary of State Rex Tillerson raised the topic with Turkish Foreign Minister Mevlut Cavusoglu on the sidelines of the Munich gathering last month. Assistant Secretary of State John Heffern reportedly asked Turkish officials for steps that will help reduce the recent spike in tensions with Greece.

A few days later, the same sources said, US Ambassador to Ankara John Bass met with Turkey’s Foreign Ministry Undersecretary Umit Yalcin to put pressure in the same direction. Yalcin is said to have attributed the standoffish behavior of the Turkish military to the army’s damaged morale by developments following July’s failed coup attempt. Analysts however say that any autonomy of the Turkish armed forces has been heavily compromised in the wake of the coup. Greek Foreign Minister Nikos Kotzias is expected to travel to Washington for a meeting with Tillerson in the coming days. Talks are to be followed by a telephone conversation between Prime Minister Alexis Tsipras and US President Donald Trump.

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Growth is not possible in Greece today. The entire austerity edifice would have to be reversed.

Greece Desperate For Growth Strategy As Public Mood Darkens (G.)

In navigating the country’s economic collapse, every one of Athens’ post-crisis governments has at some point attempted to change the narrative by diverting attention to development and growth. But the latest shift comes amid evidence that prime minister Alexis Tsipras’s two-party administration has gone a step further, approaching the World Bank for a €3bn loan to finance employment policies and programmes.

The move would highlight the desperation of a government tackling ever-growing poverty rates. Last week, the Cologne Institute for Economic Research said poverty in thrice-bailed out Greece had jumped 40% between 2008 and 2015, by far the biggest leap of any European country. Tsipras has been told he will have to enforce labour market reforms and further pension and income tax cuts if Greece is to realistically achieve a primary surplus of 3.5% – before interest payments are taken into account – once its current rescue programme expires in August 2018. The country faces debt repayments of over €7bn in July and with its coffers near empty would be unable to avert default – and inevitable euro exit – if additional loans weren’t forthcoming.

The prospect of more cuts, when pensions have already been slashed 12 times and some retirees are surviving on little more than €300 a month, has exacerbated the sense of gloom in the eurozone’s weakest member state. “We will have to compromise,” Dragasakis admitted. “Even if such demands are totally irrational,” he said, adding that Greece’s real problem was that it was primarily caught up in an ugly dispute between its lenders over what to do with a debt load close to 180% of GDP. The IMF has projected the pile will reach an “explosive” 275% of output if not relieved – a move that Germany, the biggest provider of bailout funds, refuses steadfastly to agree to. “It is why we have not completed the review,” said Dragasakis of the progress report Athens must conclude to secure further assistance.

The Greek government has been accused of deliberately delaying implementation of reforms. “This government won’t deliver reforms because it doesn’t believe in them,” said the centre-right main opposition leader Kyriakos Mitsotakis at the Delphi forum. As in antiquity, when kings, warriors and philosophers descended on Delphi at times of uncertainty to consult the Pythia, or prophetess, about their future, politicians, policy gurus, economists and academics gather annually at the place once regarded as the centre of the world to debate Greece’s plight. “What we need is a masterplan and a vision to get out of this crisis,” said Nikos Xydakis, the former European affairs minister who is now parliamentary spokesman for the ruling Syriza party. “A masterplan in financial terms but also a vision for a new identity of Greeks once this crisis ends.”

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How mankind gets rid of itself, and can’t help doing it.

Polluted Environments Kill 1.7 Million Children A Year (R.)

A quarter of all global deaths of children under five are due to unhealthy or polluted environments including dirty water and air, second-hand smoke and a lack or adequate hygiene, the World Health Organization (WHO) said on Monday. Such unsanitary and polluted environments can lead to fatal cases of diarrhea, malaria and pneumonia, the WHO said in a report, and kill 1.7 million children a year. “A polluted environment is a deadly one – particularly for young children,” WHO Director-General Margaret Chan said in a statement. “Their developing organs and immune systems, and smaller bodies and airways, make them especially vulnerable to dirty air and water.” In the report – “Inheriting a sustainable world: Atlas on children’s health and the environment” – the WHO said harmful exposure can start in the womb, and then continue if infants and toddlers are exposed to indoor and outdoor air pollution and second-hand smoke.

This increases their childhood risk of pneumonia as well as their lifelong risk of chronic respiratory diseases such as asthma. Air pollution also increases the lifelong risk of heart disease, stroke and cancer, the report said. The report also noted that in households without access to safe water and sanitation, or that are polluted with smoke from unclean fuels such as coal or dung for cooking and heating, children are at higher risk of diarrhea and pneumonia. Children are also exposed to harmful chemicals through food, water, air and products around them, it said. Maria Neira, a WHO expert on public health, said this was a heavy toll, both in terms of deaths and long-term illness and disease rates. She urged governments to do more to make all places safe for children. “Investing in the removal of environmental risks to health, such as improving water quality or using cleaner fuels, will result in massive health benefits,” she said.

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Mar 052017
 
 March 5, 2017  Posted by at 10:40 am Finance Tagged with: , , , , , , , , ,  8 Responses »
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Near The Hermitage, SaintPetersburg, Russia 1930

 

The Rich Already Have a UBI (Jacobin)
The Next Market To Break *Should* Be Stocks (MA)
America’s Miserable 21st Century (CM)
China Cuts GDP Growth Target to 6.5%, Targets Reforms, De-Leveraging (CNBC)
China Signals Slower Increase In Defense Spending (BBG)
The Priced-In Risk of Marine Le Pen’s Victory (BBG)
Self-Fulfilling Pessimism (Vox)
Only The Rich Are Poisoned (Taleb)
Austrian Chancellor Calls For EU-Wide Ban On Turkish Campaigning (R.)
Greece, Getting Smaller (Maria Katsounaki)
Canada: No Plans To Clamp Down At Border To Deter Migrants (R.)
America’s Millions Of Undocumented Mexicans Live In Fear Of Deportation (G.)
Mexico Opens Legal Aid Centers At US Consulates To Defend Migrants (R.)
Stranded Refugees Denied UK Asylum Face ‘Life In Limbo (O.)

 

 

Time to overhaul taxation. Away from income tax. Inevitable.

The Rich Already Have a UBI (Jacobin)

The universal basic income -a cash payment made to every individual in the country- has been critiqued recently by some commentators. Among other things, these writers dislike the fact that a UBI would deliver individuals income in a way that is divorced from working. Such an income arrangement would, it is argued, lead to meaninglessness, social dysfunction, and resentment. One obvious problem with this analysis is that passive income -income divorced from work- already exists. It is called capital income. It flows out to various individuals in society in the form of interest, rents, and dividends. According to Piketty, Saez, and Zucman (PSZ), around 30% of all the income produced in the nation is paid out as capital income. If passive income is so destructive, then you would think that centuries of dedicating one-third of national income to it would have burned society to the ground by now.

In 2015, according to PSZ, the richest 1% of people in America received 20.2% of all the income in the nation. Ten points of that 20.2% came from equity income, net interest, housing rents, and the capital component of mixed income. Which is to say, 10% of all national income is paid out to the 1% as capital income. Let me reiterate: one in ten dollars of income produced in this country is paid out to the richest 1% without them having to work for it. Even if you exclude the capital component of mixed income (since it is connected to work even if the income is not from labor) and housing rents (since these are imputed to homeowners rather than paid to them as cash), that still means that, from equity income and interest alone, the top 1% receives 7.5% of the national income without having to work for it. Put another way: the average person in the top 1% receives a UBI equal to 7.5 times the average income in the country.

If passive income is so destructive, then the income situation of the 1% surely is a national emergency! Where does the 1% get its meaning with all of that free cash flowing in? The fact is that capitalist societies already dedicate a large portion of their economic outputs to paying out money to people who have not worked for it. The UBI does not invent passive income. It merely doles it out evenly to everyone in society, rather than in very concentrated amounts to the richest people in society. The idea of capturing the 30% of national income that flows passively to capital every year and handing it out to everyone in society in equal chunks has been around since at least Oskar Lange wrote about it in the early parts of the last century. This is, to me, the best way to do a UBI, both practically and ideologically. Don’t tax labor to give money out to UBI “loafers.” Instead, snag society’s capital income, which is already paid out to people without regard to whether they work, and pay it out to everyone.

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Looks scary.

The Next Market To Break *Should* Be Stocks (MA)

From an intermarket perspective – and in the wake of the major breakdown in Treasuries that manifested last summer akin to 87′, we would argue that the move in equities is likely much more mature than the echo of the record January 1987 sounding that some have recently pointed to for more bullish intermediate bearings. Their reasonings being, that although the markets may be near-term extended, like in January 1987, they still gained another 30% over the following 8 months. The old market adage applied – overbought can still become more overbought. That said, what the data mining ignores here is similar to the benevolent rotation out of bonds and into equities that supported the reflationary blowoff that began after Treasuries broke down in the Spring of 1987, stocks have been under this same strong reflationary momentum since last summer.

What’s happened this week of note, and which has helped firm our own near-term expectations, is that several Fed presidents have more than candidly implied that the March meeting is very much in play for another rate hike. And although we had recently suspected that more hawkish posturing would adversely impact precious metals over the short-term, long-term Treasuries now again look vulnerable as well, which would closer resemble the final leg lower in Treasuries in 1987 and the curtain call for equities that fall.

In 1987, the initial breakdown leg in the 30-year Treasury bond registered a decline of ~14%. After remaining in a trading range for another 3 months, bond prices fell roughly another 10%, before finding a low as the equity markets broke down. Through the end of last year, the 30-year Treasury bond had fallen ~16% from its highs last summer. Although we still believe long-term Treasuries offer good relative value to investors as the limits of the US’s mature economic expansion become increasingly visible this year, the more than 2 month trading range now appears susceptible to further near-term weakness, akin to the final leg lower in 1987.

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Nice find from Tyler.

America’s Miserable 21st Century (CM)

Yes, things are very different indeed these days in the “real America” outside the bubble. In fact, things have been going badly wrong in America since the beginning of the 21st century. It turns out that the year 2000 marks a grim historical milestone of sorts for our nation. For whatever reasons, the Great American Escalator, which had lifted successive generations of Americans to ever higher standards of living and levels of social well-being, broke down around then—and broke down very badly. The warning lights have been flashing, and the klaxons sounding, for more than a decade and a half. But our pundits and prognosticators and professors and policymakers, ensconced as they generally are deep within the bubble, were for the most part too distant from the distress of the general population to see or hear it.

[..] In some circles people still widely believe, as one recent New York Times business-section article cluelessly insisted before the inauguration, that “Mr. Trump will inherit an economy that is fundamentally solid.” But this is patent nonsense. By now it should be painfully obvious that the U.S. economy has been in the grip of deep dysfunction since the dawn of the new century. And in retrospect, it should also be apparent that America’s strange new economic maladies were almost perfectly designed to set the stage for a populist storm. Ever since 2000, basic indicators have offered oddly inconsistent readings on America’s economic performance and prospects. It is curious and highly uncharacteristic to find such measures so very far out of alignment with one another.

We are witnessing an ominous and growing divergence between three trends that should ordinarily move in tandem: wealth, output, and employment. Depending upon which of these three indicators you choose, America looks to be heading up, down, or more or less nowhere. From the standpoint of wealth creation, the 21st century is off to a roaring start. By this yardstick, it looks as if Americans have never had it so good and as if the future is full of promise. Between early 2000 and late 2016, the estimated net worth of American households and nonprofit institutions more than doubled, from $44 trillion to $90 trillion. (SEE FIGURE 1.)

Although that wealth is not evenly distributed, it is still a fantastic sum of money—an average of over a million dollars for every notional family of four. This upsurge of wealth took place despite the crash of 2008—indeed, private wealth holdings are over $20 trillion higher now than they were at their pre-crash apogee. The value of American real-estate assets is near or at all-time highs, and America’s businesses appear to be thriving. Even before the “Trump rally” of late 2016 and early 2017, U.S. equities markets were hitting new highs—and since stock prices are strongly shaped by expectations of future profits, investors evidently are counting on the continuation of the current happy days for U.S. asset holders for some time to come.

A rather less cheering picture, though, emerges if we look instead at real trends for the macro-economy. Here, performance since the start of the century might charitably be described as mediocre, and prospects today are no better than guarded. The recovery from the crash of 2008—which unleashed the worst recession since the Great Depression—has been singularly slow and weak. According to the Bureau of Economic Analysis (BEA), it took nearly four years for America’s GDP to re-attain its late 2007 level. As of late 2016, total value added to the U.S. economy was just 12% higher than in 2007. (SEE FIGURE 2.) The situation is even more sobering if we consider per capita growth. It took America six and a half years—until mid-2014—to get back to its late 2007 per capita production levels. And in late 2016, per capita output was just 4% higher than in late 2007—nine years earlier. By this reckoning, the American economy looks to have suffered something close to a lost decade.

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It all means very little without new debt data. Are they still trying to borrow growth? You bet.

China Cuts GDP Growth Target to 6.5%, Targets Reforms, De-Leveraging (CNBC)

China is aiming to expand its economy by around 6.5% in 2017 as it continues to implement a proactive fiscal policy and maintain a prudent monetary policy, Premier Li Keqiang said on Sunday. Top leaders at the National People’s Congress are tolerating slightly slower economic growth this year to give them more room to push through reforms to deal with a build-up in debt. A lending binge and increased government spending last year have fueled worries about high debt levels and an overheating housing market. GDP officially grew 6.7% in 2016, the slowest in 26 years, but within the government’s target range of 6.5 to 7%. That 6.5% growth target is “needed to achieve the employment objective,” Li said in his prepared remarks.

The government announced ambitious jobs plans, including to ensure that every family has at least one breadwinner, which is key as jobs are cut in major state-owned enterprises. As the government moves away from manufacturing-led growth, Beijing is tasked with quickly finding new employment for millions of workers, or risk the possibility of social unrest as unemployment looms China says it expects 11 million new urban jobs will be created this year, but that still wont keep pace with the 15 million new workers the government estimates will enter the market, according to prepared remarks. The government will continue to focus on the coal and steel sectors, with plans in place to cut steel production capacity. But experts were skeptical of the idea that certain economic growth levels would be “needed” for employment reasons.

“There is not now nor has there ever been any magical connection between GDP and jobs. You can have capital-intensive 6.5% GDP growth and not create enough jobs and you can have 3.5% labor-intensive GDP growth and create more than enough jobs,” said Derek Scissors, a resident scholar at the American Enterprise Institute and chief economist of the China Beige Book. “The Chinese government’s position for the past 20 years has been that the nutrition content of food doesn’t matter at all, only the number of calories.” This doesn’t make any sense economically, but it’s perfectly clearly politically,” he said, noting that China had said it needed greater GDP growth when its labor force was actually expanding, as opposed to its current contraction.

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Becoming unaffordable?

China Signals Slower Increase In Defense Spending (BBG)

China indicated a continued slowdown in defense spending growth this year, as President Xi Jinping presses ahead with a sweeping military overhaul. The defense budget will rise “about 7%,” National People’s Congress spokeswoman Fu Ying told a briefing ahead of China’s annual legislative session in Beijing. An actual spending target wasn’t expected until Sunday, when the Ministry of Finance releases its 2017 budget at the start of the 11-day legislative gathering. Last year, the country budgeted a 7.6% uptick in military spending to 954.4 billion yuan (equal to $147 billion at the time), the slowest increase since a 7.3% rise in 2010. Seven% would be the slowest expansion in more than a decade, tracking the broader trend in the country’s economy.

The increase consolidates China’s lead as the world’s second-largest military spender, accounting for more than 10% of the global arms total, said Siemon Wezeman, a senior researcher with the Stockholm International Peace Research Institute. More than two decades of expansion have helped China build a modern military capable of projecting force further from its coasts, while spurring anxious neighbors to upgrade their own defenses. Fu said China was committed to peace and described tensions in the South China Sea, where the country’s land reclamation campaign has been criticized by the U.S. and rival claimants, as “easing.” “We advocate dialogue and peaceful solutions to disputes of sovereignty and maritime rights,” said Fu, a former vice foreign minister and ex-ambassador to the U.K. “Meanwhile, we should possess the capacity to protect our sovereignty and interests.”

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Don’t count her out.

The Priced-In Risk of Marine Le Pen’s Victory (BBG)

Markets trade in the probability of certain events happening. In case an event has high risk, a “tail” is priced in. Those tail risks typically show up in certain corners of the markets. Today, tail risks are priced in for a potential unexpected outcome in the French elections. That tail risk is on the rise now that polls of the second round of voting indicate a tight race between center candidate Emmanuel Macron and the far-right candidate Marine Le Pen. Tail risks can be viewed in a linear way. For example, the German 2-year bond (“Schatze”) reached an all-time negative yield of -92 basis points when Le Pen recently gained in the polls.

As a result, the German 2-year yield became negatively correlated with the price of French bonds and stocks. A generic view is that German bonds are a reflection of the “tail risk” that Le Pen is victorious. However, there are technical reasons to explain the fall of German 2-year bonds. Those technicalities are a scarcity of German bond collateral in the repurchase market and the ECB’s purchase of German bonds yielding less than the deposit rate. This is what makes the 2-year German bond “overvalued” and therefore not as accurate a reflection of the true tail risk in France. There are other areas in markets that provide a better idea of how much of a Le Pen win is priced in.

Tail risks can be seen in currency options. The options market use a measure called “skew.” This is the difference between the implied volatility of puts and calls. A negative skew means currency markets price euro puts with higher implied volatility than the currency’s calls. In the case of negative skew, the currency market thinks the risk for depreciation of a currency is large. The skew of the euro currency has been on a steady decline since President Donald Trump was elected in November, as seen in Fig. 1. On the other hand, the French bond market has seen a surge in yields discounted to the second round of the presidential election, on May 7. Rising yields are a sign of uncertainty about the outcome of the election. Fig. 1 shows how markets are pricing a “tail risk” of an adverse election outcome. And this tail risk seems to be increasing by the day.

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I like Blanchard’s notion that “the reason unemployment is decreasing is productivity growth is so low.” But I don’t get that he overlooks, when saying “why is demand growth not stronger?”, that so many people have simply lost the means to spend. That seems to be a curious blind spot for an IMF economist. it’s not about pessimism, it’s about not having any money.

Self-Fulfilling Pessimism (Vox)

Why is it that demand growth is not stronger? In this video, Olivier Blanchard discusses his research on long-run forecasts and unexpected decreases in consumption. This video was recorded at the American Economic Association in Chicago in January 2017.

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“..one is more likely to be drinking poison in a golden cup than an ordinary one.”

Only The Rich Are Poisoned (Taleb)

When people get rich, they shed their skin-in-the game driven experiential mechanism. They lose control of their preferences, substituting constructed preferences to their own, complicating their lives unnecessarily, triggering their own misery. And these are of course the preferences of those who want to sell them something. This is a skin-in-the-game problem as the choices of the rich are dictated by others who have something to gain, and no side effects, from the sale. And given that they are rich, and their exploiters not often so, nobody would shout victim. I once had dinner in a Michelin-starred restaurant with a fellow who insisted on eating there instead of my selection of a casual Greek taverna with a friendly owner operator, his second cousin as a manager and his third cousin once removed as a receptionist.

The other customers seemed, as we say in Mediterranean languages, to have a cork plugged in their behind obstructing proper ventilation, causing the vapors to build on the inside of the gastrointestinal walls, leading to the irritable type of decorum you only notice in the educated upper classes. I note that, in addition to the plugged corks, all men wore ties. Dinner consisted in a succession of complicated small things, with microscopic ingredients and contrasting tastes that forced you to concentrate as if you were taking some type of exam. You were not eating, rather visiting some type of museum with an affected English major lecturing you on some artistic dimension you would have never considered on your own. There was so little that was familiar and so little that fit my taste buds: once something on the occasion tasted like something real, there was no chance to have more as we moved on to the next dish.

Trudging through the dishes and listening to some b***t by the sommelier about the paired wine, I was afraid of losing concentration. I costs a lot of energy to fake that I was not bored. In fact I discovered an optimization in the wrong place: the only thing I cared about, bread, was not warm. It appears that this is not a Michelin requirement. I left the place starving. Now if I had a choice I would have had some time-tested recipe (say a pizza with very fresh ingredients, or a juicy hamburger) in a lively place –for a twentieth of the price. But because the fellow dinner partner could afford the expensive restaurant, we ended up the victims of some complicated experiments by a chef judged by some Michelin bureaucrat. It would fail the Lindy effect: food does better through minute variations from Sicilian grandmother to Sicilian grandmother. It hit me that the rich people were natural targets; as the eponymous Thyestes shouts in Seneca’s tragedy, thieves do not enter impecunious homes, and one is more likely to be drinking poison in a golden cup than an ordinary one.

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The Turkish foreign minister claims the right to campaign among Turkish residents in Germany and Holland. Nobody wants that. Imagine if Mexico would take its political campaigns to US streets.

Austrian Chancellor Calls For EU-Wide Ban On Turkish Campaigning (R.)

Austrian Chancellor Christian Kern on Sunday called for a European Union-wide ban on campaign appearances by Turkish politicians to avoid having individual member countries like Germany come under pressure from Ankara. Turkey said on Saturday it would defy opposition from authorities in Germany and the Netherlands and continue holding rallies in both countries to urge Turks living there to back an April 16 referendum to boost President Tayyip Erdogan’s powers. Turkish Foreign Minister Mevlut Cavusoglu criticized German and Dutch restrictions on such gatherings as undemocratic, and said Turkey would press on with them in the run-up to the vote. Kern, in an interview published in the Welt am Sonntag newspaper, said the measure would weaken the rule of law in Turkey, limit the separation of powers, and violate the values of the EU.

He also called for the EU to end discussions with Turkey about membership in the bloc and scrap or restrict €4.5 billion in aid planned for Turkey through 2020. “We should reorient relations with Turkey without the illusion of EU membership,” Kern told the newspaper. “Turkey has moved further and further away from Europe in the past few years. Human rights and democratic values are being trampled. Press freedom is a foreign word,” he said. Kern criticized Ankara’s arrest of German-Turkish journalist Deniz Yucel, a correspondent for Die Welt newspaper, and many other journalists, academics and civil servants, and called for Yucel’s immediate release. At the same time, he said, Turkey remained an important partner in issues of security, migration and economic cooperation, and said Ankara had lived up to its obligations under the migrant deal struck with the EU.

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The demise of a nation.

Greece, Getting Smaller (Maria Katsounaki)

“Instead of ‘Little Greece’ we need a serious Greece,” former Prime Minister Costas Simitis told the Delphi Economic Forum on Friday. As he spoke, Athens was suffocating again because of a mass transit strike, “unknown persons” were destroying ticket validating machines on buses, Eurostat’s figures showed that Greece is the consistent champion in unemployment, at 23% (with the next country, Spain, at 18.2% and the eurozone average at 9.6%), while a report from the Cologne Institute for Economic Research (IW) named Greece the leader in the percentage rise of poverty. The talks between the Greek government and its creditors show more differences than convergence, while Politico reported that the government has asked the World Bank for technical and financial assistance…

Each of the issues we mentioned has a past, present and future. They are not the same – some are tied to the economic crisis, other are not. One could argue that putting them together is aimed at making an impression. But let’s ask ourselves how the destruction of ticket validating machines was allowed to become a hobby. How have illegality and criminality become normal? How will unemployment and poverty be reduced when every investment crashes against denial, suspicion and compulsive behavior? When the only thing that grows is the amount of taxes and social security fees that we must pay? Let us ask ourselves this: When did the discussion that for a strike to be held “50% plus 1” of employees must agree, so as to put an end to the impunity of minorities?

Why has union leadership that is allied to political parties become “the right to strike” whereas any effort at reform serves the interests of the “economic oligarchy”? How can anyone trust a government that, while “negotiating hard” at the same time declares “the crisis is over,” while behaving as if this were a Third World country? Every day we are further gone in our illness and further from recovery. Little Greece is neither honest nor serious. It is not size that makes her lack credibility, but the ever-deeper national autism, the constant repetition of the performance “we are fighting for solutions” while caring nothing for solutions.

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Got to keep that border open.

Canada: No Plans To Clamp Down At Border To Deter Migrants (R.)

Canada will not tighten its border to deter migrants crossing illegally from the United States in the wake of a U.S. immigration crackdown because the numbers are not big enough to cause alarm, a government minister said on Saturday. Public Safety Minister Ralph Goodale said the issue had not risen to a scale that required hindering the flow of goods and people moving across the world’s longest undefended border. Hundreds of people, mainly from Africa and the Middle East, have defied winter conditions and walked across the border, seeking asylum. They are fleeing President Donald Trump’s immigration crackdown, migrants and refugee agencies say.

It is not common to have so many asylum seekers in the United States looking for refuge in Canada over such a short period. The influx poses a political risk for Prime Minister Justin Trudeau, who faces pressure from the left, which wants more let in, and from the right, which fears an increased security risk. “We are concerned and we will deal properly with the extra hundreds (crossing illegally),” Goodale told reporters at a televised news conference in Emerson, Manitoba. “But the full border deals with 400,000 people moving in both directions every day. It also handles C$2.5 billion in trade every day. “It is critically important for us to make sure that it is strong and secure. At the same time, it needs to be efficient and expeditious.”

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Since it’s impossible to deport millions of people, clearer heads are called for.

America’s Millions Of Undocumented Mexicans Live In Fear Of Deportation (G.)

The queue starts outside the consulate gate soon after dawn and stretches up Park View street. The visitors speak in low murmurs, exchanging the latest rumours. A dragnet in Glendale. Checkpoints in Highland Park. People deported for jaywalking. For speaking Spanish. Some visitors say they have sold their furniture to create an emergency fund. Others wonder if they should stop going to work and pull their kids from school. Overreactions? Wise precautions? No one knows. They’ve come here for answers. Inside the gate hulks a nondescript, cream-coloured office block. Lights flicker into life on a pale winter day and by 7am all is aglow: the consulate general of Mexico in Los Angeles is open for business. It is a lighthouse, of sorts, for undocumented Mexicans caught in the political maelstrom that is Hurricane Trump.

“I’m here to make a plan,” said Juana Sanchez, 53, a seamstress who has stitched and sewed in LA’s fashion district for 29 years. A plan for what? She managed a tight smile. “Deportation.” The immigration policies gusting out of the White House have chilled the US’s estimated 11 million undocumented people, half of whom are Mexican. The new president has vastly widened the numbers deemed priorities for expulsion. “As we speak tonight we are removing gang members, drug dealers that threaten our communities and prey on our very innocent citizens,” he told a joint session of Congress last week. “Bad ones are going out as I speak and as I promised throughout the campaign.”

The Mexicans who flock to the LA consulate say that in reality Immigration and Customs Enforcement (ICE) is sweeping up caretakers, students, mothers – anyone who entered the US illegally, and is thus a law-breaker. “Trump is the world’s worst terrorist. He has the Latino community terrorised,” said Rosa Palacios, a careworker with a nine-year-old granddaughter who weeps in fear at losing relatives. The hostility outdid previous anti-immigrant crackdowns, she said. “It is worse than when they thought we were infected.”

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Mexico may well come out of this a stronger country.

Mexico Opens Legal Aid Centers At US Consulates To Defend Migrants (R.)

Mexico opened legal aid centers at its 50 consulates across the United States on Saturday to defend its citizens, the Mexican government said, amid worries of a crackdown on illegal immigration under U.S. President Donald Trump. Foreign Minister Luis Videgaray exhorted the U.S. government to respect the rights of Mexicans and called for the United States to allow a path to legality for undocumented migrants. “We are not promoting illegality,” Videgaray said, according to a video of an event at the Mexican consulate in New York provided by the foreign ministry, saying that Mexico supported following the law, but that means respecting human rights. Trump has issued orders to initiate tougher deportation procedures during his first month in office, following up on campaign vows to fight illegal immigration and to build a wall on the U.S.-Mexico border.

“Today we are facing a situation that can paradoxically represent an opportunity, when suddenly a government wants to apply the law more severely,” Videgaray said. “It is becoming more than evident that to apply the law, which is the obligation of any state, would also imply a real economic damage to this country which highlights the need for immigration reform, an immigration reform that resolves once and for all the legal status of the people,” Videgaray said. The Pew Research Center estimates there are nearly 6 million undocumented Mexicans living in the United States. Late last month, Videgaray expressed “worry and irritation” about Trump’s new policies to U.S. Secretary of State Rex Tillerson and Homeland Security chief John Kelly when they visited Mexico for talks on immigration and security.

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There is so much international law concerning the rights of refugees, written especially after wars, but none of it seems to matter much.

Stranded Refugees Denied UK Asylum Face ‘Life In Limbo (O.)

Almost half of the refused asylum seekers who are unable to leave the UK have considered committing suicide, according to new research that criticises government rules for forcing individuals into destitution and a life in limbo. Interviews with asylum seekers refused permission to remain, in the UK but who cannot go home because they lack a passport, their nationality is disputed or there is no viable route back to their country, also found that half have considered or are applying for statelessness. The British Red Cross charity said such individuals should be allowed temporary leave to remain and work if they meet Home Office requirements, sparing people from years living in penury.

The charity said it knew of cases where women trapped in this situation had resorted to paying for a place to sleep with sex. It cited one Algerian who has been in the UK for 17 years who wassleeping on the streets and warned that those stuck in such limbo frequently suffer periods of homelessness alongside debilitating mental health issues, and that survival depended on the goodwill of friends and charities. Analysis by the Guardian last week revealed that Britain is one of the worst destinations in western Europe for people seeking asylum. Based on in-depth interviews with 15 people, the British Red Cross report found chronic stress, insomnia, anxiety and depression, with one refused asylum seeker from Sudan, a victim of torture, describing that he self-harms by banging his head against the wall.

No conclusive figures exist on the numbers of people who cannot leave the UK, although a freedom of information response from the Home Office reveals that 1,096 people lodged an application for statelessness in the UK after being refused asylum, following the introduction of new guidance in April 2013.

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