The Automatic Earth

Edward Meyer School victory garden on First Avenue New York 1944

“If you run out of space, prices tend to react a lot more violently to adjust that supply and demand imbalance and that’s what we expect over the next few weeks..”

• Oil Headed For $20-$30 As US Runs Out Of Storage Capacity (CNBC)

Oil supply running ahead of demand hasn’t just pressured prices, it’s also filling up storage space, potentially pushing crude toward another leg down. “We’re going to see pretty fast inventory builds over the next few weeks,” Francisco Blanch, head of commodity research at Bank of America-Merrill Lynch, told CNBC Wednesday, noting that global supply is running around 1.4 million barrels a day above demand. “If you run out of space, prices tend to react a lot more violently to adjust that supply and demand imbalance and that’s what we expect over the next few weeks,” he said, forecasting both WTI and Brent will fall toward $30 a barrel. Prices settled at $50.99 and $61.97, respectively, on Wednesday.

He cited fresh American Petroleum Institute (API) data which showed U.S. crude inventories climbed by a larger-than-expected 8.9 million barrels in the week ended Feb. 20, for a total of around 437 million barrels squirreled away. Around 50 million to 100 million barrels of crude oil may be gathering dust in floating storage by the end of the second quarter, compared with around 110 million barrels in April 2009, during the global financial crisis, he estimated. The supply build isn’t helped by an oil market that’s in contango, or when the “spot” price is lower than the price of the future contract. That makes it more profitable for traders to stick their oil in storage to sell at a higher price later. As much as 80% of the commercially available storage in the U.S. may already be utilized, Premasish Das, downstream analyst at IHS Energy Insight, told CNBC last week.

“As the oversupply increases again in the second quarter, the contango structure will widen. This will further incentivize crude storage,” Das said. Others are also concerned about how quickly space could run out. “Within around two months, [onshore storage will] be completely exhausted,” Ivan Szapakowski, a commodity strategist at Citigroup, told CNBC last week. “The only remaining storage globally will then be floating storage, tankers.” Citigroup is forecasting oil prices to fall toward $20 a barrel before recovering.

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The real problem is not the Fed’s independence from political parties, but its independence from Wall Street institutions.

• Yellen Fights Back as Lawmakers Intensify Push to Rein in Fed (Bloomberg)

Janet Yellen sparred with Republican lawmakers in the most heated exchange in her yearlong tenure as Federal Reserve chair, highlighting the central bank’s exposure to growing demands for greater oversight from Congress. In testimony on Wednesday before the House Financial Services Committee, Yellen forcefully rejected accusations from Republicans that she’s unaccountable to Capitol Hill and too closely aligned with the White House and Democrats. “The Fed already has been completely immersed and guided by partisan politics,” said Scott Garrett, a New Jersey Republican who has introduced one of the bills this year to give Congress more control over the Fed and curb its powers. Yellen called that a “complete mis-characterization.”

Republicans want to rein in the Fed’s expanded oversight of the financial industry while limiting its aggressive monetary policy. Yellen’s challenge is to push back against proposals that include Senator Rand Paul’s “Audit the Fed” bill, while trying to avoid damaging political fights. The confrontational hearing “is not business as usual,” said Allen Sinai, CEO of Decision Economics Inc. in New York. Yellen’s propensity “is to answer questions directly and clearly and not to mince words. That can get the chairperson in trouble in a hot political world.” Tension between the Fed and Congress is not new. Yellen’s predecessor, Ben S. Bernanke, a Republican appointed by President George W. Bush, endured bruising encounters with lawmakers during the financial crisis when the Fed became a lightning rod for public anger over Wall Street bailouts.

Yet Wednesday’s hearing was particularly combative. In Garrett’s exchange with Yellen, he accused the Fed of partisanship because she met with President Barack Obama at the White House a day before last November’s midterm congressional election and held a separate meeting later that month with labor and community organizers. “The more pressure there is to legislate, even if they don’t do so, the more the Fed has to open its ears and figure out how to be more responsive to these pressures,” said Sarah Binder, a senior fellow at the Brookings Institution in Washington. “This was a real partisan broadside.”

Bill Huizenga, a Michigan Republican who has proposed requiring the Fed to follow a rule in setting interest rates, questioned Yellen’s regular meetings with Treasury Secretary Jacob J. Lew. “The Federal Reserve is independent,” Yellen countered, saying she doesn’t discuss future monetary policy actions with the secretary or with the White House. Financial Services Chairman Jeb Hensarling of Texas, who last year led a series of hearings scrutinizing the Fed, set the tone for the three-hour hearing by telling Yellen he plans to “listen very carefully” to suggestions to overhaul the Fed. “Fed reforms are needed, and I, for one, believe Fed reforms are coming,” Hensarling said.

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Good comment by Clive Crook: “There was no need to let it happen. Greece could and should have been calmly granted a financial breathing space to negotiate a successor program weeks ago. It’s mismanagement on a remarkable scale. I admit I was wrong. I just hadn’t understood what Europe’s leaders were capable of.”

• Greece vs. Europe: Who Won? (Bloomberg)

Some readers have reminded me about my recent post, “Why Europe Will Cave to Greece.” Europe didn’t cave, they smile – Greece caved to Europe. Well, it’s true, things haven’t gone as I expected when I wrote that post at the end of January. You can count on dysfunction in the European Union, but rarely to this degree. Still, it’s too early to say who caved to whom. The most one can say at the moment is that this is no way to run a monetary union. The outcome of the negotiations was prefigured at the end of last week by Greek Finance Minister Yanis Varoufakis, who said he was asking Europe to meet him “not half-way but one-fifth of the way.” That’s about what happened – though in judging who gave way and how far, a lot depends on what was really at stake.

Before arriving at the recent impasse, Greece had already abandoned its demands for outright debt write-downs, deliverance from the “troika”], and a clean exit from its bailout program. That was capitulation of a sort, but not so consequential, because it was more about abandoning political postures than making real concessions. Substantively, less ground was yielded than you might think. Outright debt forgiveness? It would be better if the creditors granted this and, in the end, they probably will. But in the meantime there are other ways to provide relief (extended maturities, lower interest rates, yields linked to growth in gross domestic product, and so forth). These alternatives are still on the table. No more troika? Monday night’s proposals were indeed submitted to “the institutions,” but even here, notice that Monday’s letter from Varoufakis talks about doing things in agreement with the institutions, not about accepting their instructions. [..]

Here’s the main thing: This was a crisis, still unresolved, that was willed in the first place by the euro zone’s leaders. There was no need to let it happen. Greece could and should have been calmly granted a financial breathing space to negotiate a successor program weeks ago. It’s mismanagement on a remarkable scale. I admit I was wrong. I just hadn’t understood what Europe’s leaders were capable of.

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“Varoufakis suggested that the ECB could return profits of €1.9 billion it made from purchasing Greek bonds on the secondary market..” “The ECB recognizes that this is money we are owed. This is not borrowed money, it’s an overpayment to the ECB.”

• Varoufakis Says Funding Problem Lies Ahead (Kathimerini)

Finance Minister Yanis Varoufakis admitted on Wednesday that Greece may face difficulties in finding the money to pay its obligations to the International Monetary Fund and the European Central Bank over the next few months. Greece has to repay €1.6 billion to the IMF next month and €6.7 billion to the ECB in the summer and Varoufakis said in an interview with Alpha Radio that making these payments would be a problem. “We are starting to negotiate this issue with our partners from today,” added the Greek finance minister. In an interview with Bloomberg TV, Varoufakis suggested that the ECB could return profits of €1.9 billion it made from purchasing Greek bonds on the secondary market to help Athens pay its IMF loan next month.

“The ECB could simply hand over this money to the IMF as partial repayment,” he said. “The ECB recognizes that this is money we are owed. This is not borrowed money, it’s an overpayment to the ECB.” In another interview with CNBC, Varoufakis assured markets that Greece would overcome its short-term funding challenges. “They understand that when there is a cash flow problem, which is effectively a spike for a short space of time, but the long term seems quite good,” he said. “They can be confident that Europe is going to find a way of dealing with the cash flow problem. Can you imagine allowing the eurozone to fragment over a few billion euros?”

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“I find it very hard to imagine that Europe and the IMF will allow us to trip over what is a relatively small cash problem.” “In the elections of Jan. 25, he got more votes than any other candidate for the Greek parliament in any Greek district..”

• Varoufakis Counts On ECB to Avoid Greek Default in March (Bloomberg)

Greek Finance Minister Yanis Varoufakis said he’s counting on the ECB to help the country avert default when it runs out of money next month, while bank deposits are also starting to flow back. The ECB owes Greece almost €2 billion euros from the return of profits from its program of buying euro-region bonds to support the market, Varoufakis said in an interview with Bloomberg Television in Athens. The government must make a payment to the IMF in March. “So it could hand over this money to the IMF as partial repayment,” he said on Wednesday. “I’m giving you examples, nothing has been decided. This is money we are owed. This is our money, an overpayment to the ECB.”

Euro-region finance ministers approved a package of Greek reforms, which include improved tax collection and tackling corruption, on Tuesday following a recommendation from creditor institutions. On the same day, about 700 million euros returned to Greek bank accounts, Varoufakis said. There were more than €20 billion of withdrawals since early December, according to estimates. “Yesterday, there was a deposit flight back into the Greek banking sector,” said Varoufakis, 53. “It’s a question of direction. Once you turn the tide, you hope.” ECB President Mario Draghi told the European Parliament earlier on Wednesday it was a popular misconception that it was up to the central bank to return any profit from buying bonds through the Securities and Markets Program.

“The profits are ready to be distributed if Greece obliges with the program,” Draghi said. “It’s a commitment by the member states, not by the ECB.” Creditor institutions – the European Commission, ECB and IMF – warned that the package of reforms were just the start of Greece needs to stick with its commitments. The measures, which also include maintaining state-asset sales, are a condition for extending the availability of bailout funds for another four months based on an initial agreement on Feb. 20. The current program, which has been keeping Europe’s most indebted state afloat since 2010, was scheduled to expire at the end of this month.

The next hurdle will come in April when the institutions and finance ministers review progress. That will come after the government has to service about €2.2 billion of debt, including repaying loans to the IMF. The figure doesn’t include rolling over Treasury bills. “I’m pretty confident we won’t have a cash-flow problem, because we all struggled very hard through long hours of discussions with our partners with institutions to come to this stage,” Varoufakis said. “I find it very hard to imagine that Europe and the IMF will allow us to trip over what is a relatively small cash problem. Varoufakis, an economics professor at the University of Athens, spoke from his office on the sixth floor in the finance ministry, which lies opposite the Greek Parliament in Syntagma square, scene of demonstrations during the economic crisis. In the elections of Jan. 25, he got more votes than any other candidate for the Greek parliament in any Greek district.

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“It’s not so much Germany versus Greece, as the papers say. It’s really the war of the banks against labor.”

• European Banks vs. Greek Labour: Michael Hudson (TRNN)

Now joining us to discuss the tabled plan is Michael Hudson. He is a distinguished research professor of economics at the University of Missouri-Kansas City. So, Michael, these international banks represented by the finance ministers now in Brussels, when they were in crisis and we the public treasury bailed them out, they had no problem with that. Why are they now refusing to assist Greece at a time of need when in fact some politicians and even the troika is being more receptive to what Greece is saying?

HUDSON: Because what’s at issue really is a class war. It’s not so much Germany versus Greece, as the papers say. It’s really the war of the banks against labor. And it’s a continuation of Thatcherism and neoliberalism. The problem isn’t simply that the troika wants Greece to balance the budget; it wanted Greece to balance the budget by lowering wages and by imposing austerity on the labor force. But instead, the terms in which Varoufakis has suggested balancing the budget are to impose austerity on the financial class, on the tycoons, on the tax dodgers. And he said, okay, instead of lowering pensions to the workers, instead of shrinking the domestic market, instead of pursuing a self-defeating austerity, we’re going to raise two and a half billion from the powerful Greek tycoons. We’re going to collect the back taxes that they have. We’re going to crack down on illegal smuggling of oil and the other networks and on the real estate owners that have been avoiding taxes, because the Greek upper classes have become notorious for tax dodging.

Well, this has infuriated the banks, because it turns out the finance ministers of Europe are not all in favor of balancing the budget if it has to be balanced by taxing the rich, because the banks know that whatever taxes the rich are able to avoid ends up being paid to the banks. So now the gloves are off and the class war is sort of back. Originally, Varoufakis thought he was negotiating with the troika, that is, with the IMF, the European Central Bank, and the Euro Council. But instead they said, no, no, you’re negotiating with the finance ministers. And the finance ministers in Europe are very much like Tim Geithner in the United States. They’re lobbyists for the big banks. And the finance minister said, how can we screw up this and make sure that we treat Greece as an object lesson, pretty much like America treated Cuba in 1960?

PERIES: Hold on, hold on for one second, Michael. Let’s explain that, because Yanis Varoufakis, the finance minister of Greece, is very well-briefed and very well-positioned to negotiate all of this. Now, why did he think he was negotiating with the troika when in fact he was negotiating with [crosstalk]

HUDSON: Because officially that’s who he’s negotiating with. He went and he took them at their word. And then he found out–and yesterday, Jamie Galbraith, who went with him to Europe, published in Fortune a description saying, wait a minute, the finance ministers are fighting with the troika. The troika don’t have their story straight. The troika and the finance ministers are all fighting among themselves over what exactly is to be done. And to really throw a monkey wrench in, the German finance minister, Schäuble, said, wait a minute, we’ve got to bring in the Spanish government and the Portuguese government and the Finnish government, and they’ve got to agree.

Well, all of a sudden the position of Spain, for instance, is, wait a minute, we’re in power, we’re a Thatcherite neoliberal party. If Greece ends up not going along with austerity and saving its workers, then Podemos Party in Spain, is going to win the next election and we’ll be out of power. We have to make sure that Varoufakis and the SYRIZA Party is a failure, so that we ourselves can tell the working class, you see what happened to Greece? It got smashed, and we’re going to smash you if you try to do what they do; if you try to tax the rich, if you try to take over the banks and prevent the kleptocracy, there’s going to be a disaster.

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Let them eat brioche?

• Former Greek Finance Minister In Court For Tampering With Lagarde List (Guardian)

A new front in Greece’s unfolding economic drama has opened in Athens as the former finance minister George Papaconstantinou, was brought before a special tribunal accused of tampering with a public list of tax evaders and attempted breach of faith. Facing a panel of judges convened for the hearing, the man most associated with Greece’s first international bailout cut a lonely figure as he pleaded not guilty. “I am innocent, your honour,” he said addressing the presiding court judge seated on the uppermost bench of an antechamber of court officials. “I deny all the charges.” Greece had been waiting for this moment. Papaconstantinou, 53, stands accused of removing the names of three of his relatives from a catalogue of some 2,062 suspected tax evaders handed to him by Christine Lagarde, his French counterpart at the time.

Lagarde, now head of the IMF, had passed on the list of names – all account holders at the Geneva branch of HSBC – with the express purpose that the prospective offenders be pursued. At more than €20bn a year, tax avoidance is by far the biggest single drain on the country’s debt-stricken economy with Athens’ new leftist-led government vowing to crack down on it as never before. Papaconstantinou, who was finance minister between October 2009 and June 2011 under the socialist premier, George Papandreou, faces a life sentence if convicted. The alleged offences include the aggravating factor of being seen as crimes against the state. Dressed in a dark suit and flanked by lawyers on either side, the former politician – once regarded as the face of hope and reform in Greece – sat motionless as the court proceedings got under way.

He is the first politician to be tried before a special criminal court in over two decades. It was in the same wood-pannelled room in March 1991 that the then socialist premier Andreas Papandreou was also put on trial. Papaconstantinou, an urbane economist who spent more than half of his life abroad before returning to Greece to become involved in politics, claims he has been “framed” by an establishment desperate to be seen meting out punishment to politicians perceived to have brought the nation to the brink of economic collapse. During his 20 months in office, he says, he introduced some of the country’s most draconian tax legislation. But Athens also stands alone in failing to act on the so–called Lagarde list – initially stolen by a renegade bank clerk at HSBC before being seized by French police.

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The bottom?

• Greek Revenue Shortfall Came To €1 Billion In January (Kathimerini)

The Finance Ministry is attempting to resuscitate state revenues after their major shortfall in January and the estimate by a top government official that the fiscal gap of the 2015-16 period will amount to between €5 and €7 billion. According to the definitive data on the execution of the state budget published on Wednesday, revenues both from income tax and value-added tax posted a major decline due to the political uncertainty and the inactivity of monitoring mechanisms. The revenue shortfall of more than €1 billion has taken the primary surplus to €443 million euros, against a target for €1.366 billion – i.e. €923 million below target.

Net revenues reached 3.49 billion, missing their target by 23.1% or €1.05 billion. Income tax revenues were off 49% while indirect tax revenues missed their target by 13.8%. VAT takings produced a 20.4% shortfall. Expenditure was €16 million within target, at €3.3 billion. The slump in public revenues is the reason why Alternate Finance Minister Nadia Valavani wants to see the new payment schemes for expired debts to the state implemented. The bill containing this provision will be presented to the country’s creditors next week so that it can be tabled in Parliament as soon as possible.

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But Greece doesn’t have the same situation?! No domestic banks that went nuts… So to what extent does the comparison hold?

• Noonan Says Greece Should Seek Irish-Style Solution to Debt Woe (Bloomberg)

Irish Finance Minister Michael Noonan said Greece should seek to reduce interest rates on its debts and push for later repayment dates rather than the “nuclear” options of leaving the euro area and writing off loans. “There’s a middle road and it’s along the lines of what we did in Ireland,” Noonan said in an interview with Bloomberg Television. “You negotiate to make your debt more sustainable, even without getting debt write-offs.” Noonan and other euro-region finance ministers agreed on Tuesday to extend Greece’s bailout program for another four months after signing off on a reform plan proposed by the government in Athens. The Syriza party was elected to power last month on a platform that included writing off some debts and ending austerity.

Ireland, which sought a €67.5 billion international rescue in 2010 amid the worst property crash in western Europe, has emerged from an era of austerity, Noonan wrote in a column for the Irish Independent newspaper published Wednesday. The country has cut interest repayments by more than 10 billion euros through negotiations and reduced the amount it will have to borrow over the next decade by €20 billion by extending the maturities on some loans, he wrote. “There’s a number of moving parts,” Noonan said in the interview. “It’s a question of agreeing on the parts that move to make the debt more sustainable and it’s in that space the negotiations can take place.”

Based on the provisional agreement between Greece and its official creditors on Feb. 20, the approval of the list was a condition for extending the availability of bailout funds for another four months. The current program, which has been keeping Europe’s most indebted state afloat since 2010, was scheduled to expire at the end of this month. Approval of the Greek plans offered a short reprieve for the country, which risked defaulting on some of its liabilities as early as next month without further financing from the creditor institutions. Greece has until April to refine the details. Negotiations on Tuesday weren’t “heated,” Noonan said. Ireland and other nations that took international assistance in the wake of the financial crisis, including Portugal and Spain, would prefer Greece to solve its problems using similar measures, Noonan said.

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Good for him. No country should sell off their assets to anonymous dickheads.

• Greek Energy Minister Opposes Privatization (NY Times)

Greece’s new plan to revamp its economy to satisfy eurozone creditors hit its first political snag on Wednesday, when the country’s energy minister publicly opposed efforts to sell off state assets as part of that program. “There will be no privatization in energy,” the minister, Panagiotis Lafazanis, who leads a radical-left bloc in Syriza, the party of Prime Minister Alexis Tsipras, said in comments to the center-left Greek daily newspaper Ta Nea. Although Mr. Lafazanis would presumably not have the final say, his opposition could disrupt plans to sell stakes in the public gas corporation, the state-controlled electric company and Greece’s largest oil refiner. Bids were solicited for the gas company, DEPA, under the previous government, which had also promised to partly sell off the other two.

Mr. Lafazanis also opposed plans to privatize the power grid operator, in comments to another newspaper, Ethnos, claiming that the bids made to date “are not binding.” The Greek economic plan approved by eurozone finance ministers on Tuesday promised not to roll back any privatization projects already in the works. Moreover, Greece needs the few billion euros that those sales might raise. By late Wednesday, there had been no public response to Mr. Lafazanis from the government, but Mr. Tsipras might be hesitant to confront the energy minister because of his influence in the party. In a speech to Syriza lawmakers on Wednesday, Mr. Tsipras called for support of the government’s economic program but skirted the issue of privatizations. The government must move quickly to “detail” its overhauls and “build credibility” with its creditors, he said.

In comments to reporters afterward, the economy and infrastructure minister, Giorgos Stathakis, who is closer to the prime minister than Mr. Lafazanis is, said that no completed sell-offs would be reversed but that the terms of all privatization projects currently underway would be “reviewed.” Talks between Greece and its lenders have shifted to covering Greece’s financing needs as its cash reserves dwindle. But the release of a pending loan disbursement of €7.2 billion, will depend on Greece’s keeping its promises. In an interview with Greek radio on Wednesday, the finance minister, Yanis Varoufakis, said Greece had no immediate threat to government liquidity but “will definitely have a problem” meeting its obligation to make a debt payment of about €1.5 billion next month to the IMF and around €7 billion in July and August to the ECB. Greece has proposed issuing Treasury bills to raise some of the money but would need the approval of the ECB to do so.

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Democrats.

• Tsipras In Marathon Talks With SYRIZA MPs (Kathimerini)

SYRIZA MPs spent more than 10 hours behind closed doors Wednesday discussing the government’s agreement with its creditors after Prime Minister Alexis Tsipras assured them that it was the best deal Greece could get at the moment. Tsipras briefed the party’s parliamentary group on the course of negotiations over the last few weeks as well as the implications of the agreement, which was clinched on Tuesday after Greece sent a list of reform proposals that was provisionally accepted by its creditors. Deputy Prime Minister Yiannis Dragasakis and Finance Minister Yanis Varoufakis also spoke to the leftist MPs. “We secured a bridging agreement that managed to help us spoil the plan to choke the government in fiscal, funding and financial terms,” Tsipras told SYRIZA lawmakers, according to sources.

The prime minister indicated that the previous government had been hoping that the challenges facing its successor would be so great that they would lead to it not being able to last for long, the so-called “left parenthesis.” Tsipras urged his MPs to raise any questions they had but to also make it clear if they are going to vote for the four-month extension when it is submitted to Parliament. “I want to know whether you agree or disagree with the deal,” he said, according to sources. “If there is someone who will vote against it, I want them to say so now.” Production Reconstruction, Energy and Environment Minister Panayiotis Lafazanis was one of the most critical of the agreement with Greece’s lenders.

“There are parts of the letter [with reform proposals] that are reminiscent of the lenders’ language, not ours,” the leader of SYRIZA’s left-wing faction, the Left Platform, is reported to have said. In a newspaper interview earlier, Lafazanis said the government would not proceed with energy privatizations even though Greece has committed to seeing existing sell-off projects through. He said that since binding offers had not been received for the Public Power Corporation and other assets, the government could cancel the projects. However, Lafazanis also indicated that he will stick to his position to cancel the privatization of the former airport site at Elliniko, even though the deal went through last year. In contrast, Economy Minister Giorgos Stathakis said that the government would stick with the Elliniko agreement and the recent concession deal for 14 regional airports but would seek changes to the agreements.

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It does.

• Kiev Decision to Cut Gas to Donetsk ‘Bears Hallmarks of Genocide’ (Sputnik)

Russian President Vladimir Putin said Wednesday the decision of the Ukrainian authorities to halt gas supplies to Donetsk amid the ongoing humanitarian catastrophe “bear hallmarks of genocide”. “As if hunger [in Donetsk and Luhansk] was not enough – the OSCE has already stated that the region is experiencing a humanitarian catastrophe – they had their gas supplies cut off. What would you call it? I would say this bears the hallmarks of genocide,” he said during a meeting with President of Cyprus Nicos Anastasiades. “Apparently, some responsible leaders of the modern-day Ukraine are unable to understand the importance of humanitarian issues. It seems that the very notion of humanism has been forgotten,” he added.

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Ukrainian officials will have to explain to the IMF why the central bank tightened capital controls, as well as how the government plans to revive the economy in general..

• Ukraine Risks Losing IMF Support for Aid If War Escalates (Bloomberg)

Ukraine risks losing support from IMF member countries for a proposed $17.5 billion bailout if the conflict in the former Soviet republic continues to escalate, according to two people familiar with the matter. The new four-year loan program is awaiting approval by the International Monetary Fund’s executive board, which represents the lender’s 188 member nations. Getting the panel’s consent will become more challenging if pro-Russia rebels continue their advance and seize territory such as the strategic port city of Mariupol, one of the people said. A second person said that while a worsening conflict would complicate approval, IMF country representatives are likely to maintain their support unless an open conflict with Russia breaks out affecting the majority of Ukraine. Both people asked not to be identified because the matter is confidential.

Any doubts over the IMF funds would increase pressure on Ukrainian allies including the U.S. and European Union to step up their own funding to prevent the country from becoming more vulnerable to Russian economic pressure and wider incursion by pro-Russia rebels. A worsening conflict would make it tougher for Ukraine to maintain economic commitments to the IMF and repay the money while deepening the fund’s involvement in the worst standoff in Europe since the end of the Cold War. Plugging Ukraine’s financing needs and stabilizing its economy amid an armed conflict will be an “enormous challenge,” said William Taylor, the U.S. ambassador to Ukraine from 2006 to 2009 who is now acting executive vice president at the U.S. Institute of Peace. “If they’re going to exist as a nation, they’re going to have to be able to defend themselves.”

Last year’s $17 billion, two-year bailout for Ukraine by the IMF had broad support from the fund’s board, overcoming concerns at the time about the security risks in the country, one of the people said. There have been many violations of the cease-fire agreed on in the Belarusian capital of Minsk on Feb. 12, U.S. Secretary of State John Kerry said Wednesday. Ukraine and its allies in the EU and the U.S. accuse Russia of backing the militants in the conflict that has killed more than 5,600 people, according to United Nations estimates. Russia denies military involvement. Ukraine’s decision this week to tighten capital controls may also complicate the IMF plans. IMF staff members are revising their economic projections in light of the restrictions, according to one of the people familiar with the situation.

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Most expensive trade miss ever?

• China Drops Cisco, Apple And Others For State Purchases (Reuters)

China has dropped some of the world’s leading technology brands from its approved state purchase lists, while approving thousands more locally made products, in what some say is a response to revelations of widespread Western cybersurveillance. Others put the shift down to a protectionist impulse to shield China’s domestic technology industry from competition. Chief casualty is U.S. network equipment maker Cisco , which in 2012 counted 60 products on the Central Government Procurement Center’s (CGPC) list, but by late 2014 had none, a Reuters analysis of official data shows. Smartphone and PC maker Apple as also been dropped over the period, along with Intel’s security software firm McAfee and network and server software firm Citrix.

The number of products on the list, which covers regular spending by central ministries, jumped by more than 2,000 in two years to just under 5,000, but the increase is almost entirely due to local makers. The number of approved foreign tech brands fell by a third, while less than half of those with security-related products survived the cull. An official at the procurement agency said there were many reasons why local makers might be preferred, including sheer weight of numbers and the fact that domestic security technology firms offered more product guarantees than overseas rivals.

China’s change of tack coincided with leaks by former U.S. National Security Agency (NSA) contractor Edward Snowden in mid-2013 that exposed several global surveillance program, many of them run by the NSA with the cooperation of telecom companies and European governments. “The Snowden incident, it’s become a real concern, especially for top leaders,” said Tu Xinquan, Associate Director of the China Institute of WTO Studies at the University of International Business and Economics in Beijing. “In some sense the American government has some responsibility for that; (China’s) concerns have some legitimacy.”

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But they still pretend they have it under control..

• China Central Bank Newspaper Warns Of Rising Deflation Risk (Reuters)

China is dangerously close to slipping into deflation, the central bank’s newspaper warned on Wednesday, highlighting increasing nervousness in policymaking circles as a sputtering economy struggles to pick up speed despite a raft of stimulus steps. The article, published in Finance News, quoted the secretary general of the China Urban Finance Society Chan Xiangyang as saying that risk of deflation is greater than many appreciate. The Society is a national academic group not directly affiliated with the People’s Bank of China (PBOC), but in many cases the publication of such pieces in the central bank’s newspaper indicates tacit approval of the message. As a slowdown in China’s economy over the past year was accompanied by a chill in global demand, Beijing has stepped up measures to prevent the Asian economic powerhouse from stumbling.

In November last year, the PBOC startled markets with an unexpected interest rate cut – the first since 2012 – and then followed up with a cut to banks’ required reserve ratio in early February. Analysts have speculated that the central bank will be forced to take more aggressive easing measures in the coming months if price and credit data continues to drift lower. Chan said the deteriorating macroeconomic environment, combined with enduring industrial overcapacity, widespread speculative and inefficient investment, and slowing foreign capital inflows are all weighing heavily on prices. That risks setting off a debilitating deflationary cycle in the world’s second-largest economy, similar to the “lost decades” experienced by Japan under similar – but not identical – circumstances that began in the 1990s, in which inexorable price declines discouraged investment.

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“We have systematically given away the tools. Regulations of any kind are now scorned. Governments no longer create tough rules that limit oil companies and other corporations. This crisis fell into our laps in a disastrous way at the worst possible moment.”

• Naomi Klein: ‘The Economic System We Have Created Global Warming’ (Spiegel)

SPIEGEL: Ms. Klein, why aren’t people able to stop climate change?
Klein: Bad luck. Bad timing. Many unfortunate coincidences.

SPIEGEL: The wrong catastrophe at the wrong moment?
Klein: The worst possible moment. The connection between greenhouse gases and global warming has been a mainstream political issue for humanity since 1988. It was precisely the time that the Berlin Wall fell and Francis Fukuyama declared the “End of History,” the victory of Western capitalism. Canada and the US signed the first free-trade agreement, which became the prototype for the rest of the world.

SPIEGEL: So you’re saying that a new era of consumption and energy use began precisely at the moment when sustainability and restraint would have been more appropriate?
Klein: Exactly. And it was at precisely this moment that we were also being told that there was no longer any such thing as social responsibility and collective action, that we should leave everything to the market. We privatized our railways and the energy grid, the WTO and the IMF locked in an unregulated capitalism. Unfortunately, this led to an explosion in emissions.

SPIEGEL: You’re an activist, and you’ve blamed capitalism for all kinds of things over the years. Now you’re blaming it for climate change too?
Klein: That’s no reason for irony. The numbers tell the story. During the 1990s, emissions went up by 1 percent per year. Starting in 2000, they started to go up by an average of 3.4 percent. The American Dream was exported globally and consumer goods that we thought of as essential to meet our needs expanded rapidly. We started seeing ourselves exclusively as consumers. When shopping as a way of life is exported to every corner of the globe, that requires energy. A lot of energy.

SPIEGEL: Let’s go back to our first question: Why have people been unable to stop this development?
Klein: We have systematically given away the tools. Regulations of any kind are now scorned. Governments no longer create tough rules that limit oil companies and other corporations. This crisis fell into our laps in a disastrous way at the worst possible moment. Now we’re out of time. Where we are right now is a do-or-die moment. If we don’t act as a species, our future is in peril. We need to cut emissions radically.

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In what way is that a question? How is it possible it is still asked?

• Is Capitalism Destroying Our Planet? (Spiegel)

Humans are full of contradictions, including the urge to destroy things they love. Like our planet. Take Australian Prime Minister Tony Abbott. Like everyone living Down Under, he’s extremely proud of his country’s wonder of the world, the Great Barrier Reef. At the same time, though, Abbott believes that burning coal is “good for humanity,” even though it produces greenhouse gases that ultimately make our world’s oceans warmer, stormier and more acidic. In recent years, Australia has exported more coal than any other country in the world. And the reef, the largest living organism on the planet, is dying. Half of the corals that make up the reef are, in fact, already dead.

Indian Prime Minister Narendra Modi also wants the best for his country and is loathe to see it damaged by droughts, cyclones and storm surges. Nevertheless, he is planning on doubling India’s coal production by 2019 in addition to importing more coal from Australia. It is necessary to do so, he says, to help his country’s poor. India is already the third largest producer of greenhouse gases, behind China and the United States. But climate change is altering the monsoon season, with both flooding and drought becoming more common.
And who would accuse the majority of US Senators of being insensitive to the extreme shortage of water afflicting California? Yet the law-making body recently brushed aside everything science has learned about global warming and voted down two measures that attributed the phenomenon to human activity.

For Americans and foreign tourists alike, California is a magical place, famous for Yosemite National Park, its Pacific coastline, its golden light. The state also grows around a third of all US produce. For now. An historic drought that has been ongoing for over three years has forced farmers to abandon their fields and to slaughter their animals. Since 1880, when global temperatures began to be systematically collected, no year has been warmer than 2014. The 15 warmest years, with one single exception, have come during the first 15 years of the new millennium. Indeed, it has become an open question as to whether global warming can be stopped anymore – or at least limited as policymakers have called for. Is capitalism ultimately responsible for the problem, or could it actually help to solve it?

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Crazy tale.

• Nestle Pays $2.25 to Bottle and Sell a Million Litres of BC Water (Tyee)

Have you ever paid $2.25 for a bottle of water? Of course, and you can pay a lot more than that if you go to a Vancouver Canucks game, a concert, movie theatre or restaurant. So what if you could pay $2.25 not for a 500-millilitre bottle, not for a big office cooler full, but for 1 million litres of water? Sounds ridiculous given the retail price, but that’s the unbelievably low rate the BC Liberal government has given to giant multinational firm Nestle and others to extract fresh, clean groundwater to bottle and sell for exorbitant profits. The price is so outrageous I have to repeat it. Nestle Waters Canada pays the province just $2.25 for every million litres of water. The total estimated price of all the water Nestle will bottle in B.C. over an entire year is – wait for it – $562 a year!

That’s an improvement, if you can believe it, because until recently they got it all for free. It must be nice to have an endless supply of potable water, where you can take as much as you like, sell it for an enormous profit, and pay a pittance for its use. Unfortunately, I must confess a terrible sin: I drink bottled water regularly, and mostly Nestle products. I pay about 50 cents a bottle. I know I should be drinking tap water in the metal refillable container that is currently gathering dust on a shelf in my house, but it’s so darn convenient to throw multiple bottles of Nestle water in my office and home fridges and pop them in my car when I head out.

Don’t bother lecturing me – at least I’m drinking healthy water and hydrating myself – but this farce makes me rethink my willingness to line their pockets. I feel apologetic, but Nestle doesn’t. “We’re investing millions of dollars in that plant. We employ 75 people [and] we pay millions of dollars in taxes,” said Nestle spokesman John Challinor in 2013. Cry me a river. And at $2.25 per million litres, they can bloody well afford it.

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Farrell’s in a league of his own. I’m pretty sure he’s also the guy in UP.

• Stock-Market Crash Of 2016: The Countdown Begins (Paul B. Farrell)

It’s time to start the countdown to the crash of 2016. No, this is not a prediction of a minor correction. Plan on a 50% crash. Most investors don’t want to hear the countdown, will tune out. Basic psychology. They’ll keep charging ahead with a bullish battle cry, about how the Nasdaq will keep climbing relentlessly to a new record above 5,048 … smiling as they remember reading that a whopping 73 companies are now in the Wall Street Journal’s Billion Dollar Start-up Club, with Uber ($41 billion), SpaceX ($12 billion) and Snapchat ($10 billion). Hearts race even faster reading in Bloomberg BusinessWeek that “China’s IPO Boom Mints Billionaires” and Jack Ma’s Alibaba fortune is now valued at $35.1 billion. Yes, technology IPOs are in the lead, and with all that good news, it’s easy to understand why investors tune out, don’t want to hear the warnings, no countdown to the 2016 crash.

But the crash of 2016 really is coming. Dead ahead. Maybe not till we get a bit closer to the presidential election cycle of 2016. But a crash is a sure bet, it’s guaranteed certain: Complete with echoes of the 2008 crash, which impacted on the GOP election results, triggering a $10 trillion loss of market cap … like the 1999 dot-com collapse, it’s post-millennium loss of $8 trillion market cap, plus a 30-month recession … moreover a lot like the 1929 crash and the long depression that followed. Plus cycles theorists warn that we dodged a crash in 2012-2013, thanks to the Fed’s stimulus and cheap-money polities. Or rather delayed it, which adds more power to the next one. Why not sooner, you ask? Why not in 2015? Yes, Mark Hulbert’s already warned that the “stock market risk is higher today than it was in the dot-com era.” Yes, a dip is possible. MarketWatch’s Sue Chang writes of a 10%-20% stock-market correction by July.

But we also know markets are typically up the third year of a presidency. So if no crash is in the cards this year, then why bother with warnings and a countdown? Why bother building up the 2016 elections with lots of dark early warning signs, and doom-and-gloom warnings for the next 18 months? Why? Simple, behavioral economists have long been telling us that investors will either choose to stay in denial till it’s too late, never having learned the lessons of history when the market collapsed in 2008, 2000 or 1929, when they collectively lost trillions. Or we know some investors really do want to heed the warnings, so they can plan ahead, avoid big losses, and take advantage of opportunities later, at the bottom.

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Falciani deserves far more attention than he gets. Far more.

• Together We Can Stop The Big Tax Evaders (Hervè Falciani via Beppe Grillo.it)

Blog: What are the Falciani lists?”
Hervè Falciani: Above all they are clues gathered over many years that enable us to check up on the HSBC Bank: a prime example of an International offshore bank, one of the largest in the world, and that explains the workings of this network of banks that currently operate in the shadows and are hiding half of the world’s debt. That’s a fact. Half of the interest we are paying goes into the coffers of these banks.

Blog: After the scandal you have raised, what’s next?
Hervè Falciani: There are many little things to be done that will have a huge effect. For example, how the banks are controlled. The current controls are ineffective because the very people who are paid to do the controlling are controlling those that pay them. To avoid this we have to add something more to the control systems of the firms that do the controlling, namely members of the public. This will change everything! We will be able to put the fear of God into those that organise these tax evasion schemes within the banks and furthermore we will also be able to get our hands on information that is hidden.

The biggest problem we have is with politics that are unhelpful and often there are major conflicts of interest. The Directors are the very same businessmen that don’t pay their taxes. We have seen many examples of this. These days, when we talk about an archive dedicated to politicians, journalists, magistrates and even members of the public, it means that this archive will store traces of who does something and who doesn’t. That’s exactly what we are doing with this HSBC case and all the other cases too. The history of these traces will enable the public to use it whenever in order to change things since it is based on fact in a scientific manner.

Blog: Is there someone who has helped you in the past and is still helping you at the moment?
Hervè Falciani: There are various fields. For a number of years we have been working with the 5-Star Movement to explain things and point out where action must be taken. The 5-Star Movement’s programme is going in the very direction that is needed, in other words, how to implement these basic principles. That’s why I have always insisted, and continue to insist on the little things that will have a major effect. For example, the banks’ hearings on the control of citizens is something that is already included in the 5SM’s programme. As a matter of fact, we have already had the pleasure of starting to work with a number of 5-Star Movement’s deputies to do just that! To ensure implementation with little effort and thereby achieve huge results.

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The confusion inherent in both use of terminology and in pre-conceived notions is deafening. You reach the point where nothing means anything anymore.

• Keynes And The Puzzle Of Falling Prices (Skidelsky)

In 1923, John Maynard Keynes addressed a fundamental economic question that remains valid today. “[I]nflation is unjust and deflation is inexpedient,” he wrote. “Of the two perhaps deflation is … the worse; because it is worse…to provoke unemployment than to disappoint the rentier. But it is not necessary that we should weigh one evil against the other.” The logic of the argument seems irrefutable. Because many contracts are “sticky” (that is, not easily revised) in monetary terms, inflation and deflation would both inflict damage on the economy. Rising prices reduce the value of savings and pensions, while falling prices reduce profit expectations, encourage hoarding, and increase the real burden of debt.

Keynes’s dictum has become the ruling wisdom of monetary policy (one of his few to survive). Governments, according to the conventional wisdom, should aim for stable prices, with a slight bias toward inflation to stimulate the “animal spirits” of businessmen and shoppers. In the 10 years prior to the 2008 financial crisis, independent central banks set an inflation target of about 2%, in order to provide economies with a price-stability “anchor”. There should be no expectation that prices would be allowed to deviate, except temporarily, from the target. Uncertainty relating to the future course of prices would be eliminated from business calculations.

Since 2008, the Federal Reserve Board and the European Central Bank have failed to meet the 2% inflation target in any year; the Bank of England (BoE) has been on target in only one year out of seven. Moreover, in 2015, prices in the United States, the eurozone, and the United Kingdom are set to fall. So what is left of the inflation anchor? And what do falling prices mean for economic recovery? The first thing to bear in mind is that the “anchor” was always as flimsy as the monetary theory on which it was based. The price level at any time is the result of many factors, of which monetary policy is perhaps the least important. Today, the collapse in the price of crude oil is probably the most significant factor driving inflation below target, just as in 2011 it was the rise in oil prices that drove it above target.

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Beacuse our societies have long preferred quantity over quality in a trillion ways (pun intended).

• We’re Living Longer, Yes, But Why Not Healthier? (MarketWatch)

I often say that Americans are getting healthier and living longer. The living-longer part I am sure about. Life expectancy for men at 65 increased from 15.9 years to 18.3 years between the 2000 and 2014 reports issued by the Social Security Trustees. It’s true that virtually all the gains in life expectancy accrued to the better-educated, better-paid portion of the population, but the bottom line is that—on average—we are living longer. All the demographers agree this trend will continue; the only question is how fast life expectancy will continue to increase.

Given the improvement in life expectancy, I thought that people would report that they felt healthier. That does not appear to be the case. Since the early 1970s, the National Health Interview Survey has asked the question: “Would you say your health in general is excellent, very good, good, fair, or poor?” A response of fair or poor is an indication of serious problems and is correlated with subsequent mortality. Pooling data for four time periods (1974-76, 1994-96, 2004-06, and 2011-13) shows a big decline in the percentage of respondents with fair or poor health between 1974-76 and 1994-96, then very little improvement thereafter (as the graph at the top of the column shows). Data from the Current Population Survey (CPS), which includes an identical question, shows a clustering of responses from the mid-1990s through today.

Moreover, the Health and Retirement Study (HRS), the gold standard for anyone examining the behavior of older Americans, presents a similar picture. The HRS follows people 50 and older, interviewing them every two years. The first group was interviewed in 1992, and additional cohorts have been added over time. Participants in the HRS are also asked to classify their health as excellent, very good, good, fair or poor. As the graph below indicates, the percentage of men between the ages of 55 and 65 classifying their health as fair or poor has remained virtually unchanged between 1994-1996 and 2010-12. Several other indicators, such as incidence of various diseases, also suggest little improvement in health. Interestingly, in contrast to the NHIS and the CPS, the percentage of HRS respondents reporting fair or poor health does not increase with age.

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Wow: “..when a group of atoms is exposed for a long time to a source of energy, it will restructure itself to dissipate more energy.”

• New Theory Could Prove How Life Began – And Has God ‘On The Ropes’ (Ind.)

A new theory could answer the question of how life began – and throw out the need for God. A writer on the website of Richard Dawkins’ foundation says that the theory has put God “on the ropes” and has “terrified” Christians. It proposes that life did not emerge by accident or luck from a primordial soup and a bolt of lightning. Instead, life itself came about by necessity – it follows from the laws of nature and is as inevitable as rocks rolling downhill. The problem for scientists attempting to understand how life began is understanding how living beings – which tend to be far better at taking energy from the environment and dissipating it as heat – could come about from non-living ones. But a new theory, proposed by a researcher at MIT and first reported in Quanta Magazine, proposes that when a group of atoms is exposed for a long time to a source of energy, it will restructure itself to dissipate more energy.

The emergence of life might not be the luck of atoms arranging themselves in the right way, it says, but an inevitable event if the conditions are correct. “You start with a random clump of atoms, and if you shine light on it for long enough, it should not be so surprising that you get a plant,” England said. Paul Rosenberg, writing this week on Richard Dawkins’ site, said that the theory could make things “a whole lot worse for creationists”. As Rosenberg notes, the idea that life could have evolved from non-living things is one that has been held for some time, and was described by the pre-Socratic philosophers. But England’s theory marks the first time that has been convincingly proposed since Darwin, and is backed by mathematical research and a proposal that can be put to the test.

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