Jul 082018
 
 July 8, 2018  Posted by at 8:06 am Finance Tagged with: , , , , , , , , , , ,  


Utagawa Hiroshige Sudden Evening Shower on the Great Bridge near Atake 1857

 

US Debt Explosion & Weimar II (von Greyerz)
China Threatened By “Vicious Circle Of Panic Selling” (ZH)
The Demise of Toys ‘R’ Us Is a Warning (Atlantic)
Why It’s Not Too Late To Step Back From The Brexit Brink (G.)
British MPs Should Be Ashamed Of Supporting Regime Change In Tehran (Oborne)
OPEC’s Dilemma (Lacalle)
Turkey Sacks Another 18,500 State Employees In New Decree (AFP)
Trump, the Dragonbear, and the Bipolar World Order 2.0 (M.)
Trump’s Existential Threat To The Empire (Stockman)
Are All Societies Destined To Destroy Themselves? (Wef)
Inventing the Weekend (Jacobin)

 

 

“Prosperity built on debt is short lived..”

US Debt Explosion & Weimar II (von Greyerz)

[..] change starts in the periphery where very few are looking. Look at China where the Shanghai composite is down 23% since January. And look at Brazil where the Bovespa is off 17% so far this year and Turkey which has lost 20%. What is important to understand is that most major markets are now looking extremely vulnerable, be it Japan, Germany or the US. Fundamentally most markets are overvalued with the help of central bank liquidity. Also, technically we are not far from crashes in most markets. Whilst there is always a possibility of a last hurrah, it looks like all markets have topped, including the US, and that later in 2018 we will see major falls. Once the bear markets start, they are likely to turn into secular trends that last many years and result in falls of 75% to 95%.

Difficult to believe for most investors today, but nobody in 1929 believed that the Dow would fall 90% in the ensuing years and take 25 years to recover. The investment world has been lulled into a permanent state of security and euphoria. Hard to deny that central banks and governments have been extremely skilful in telling the world constant lies. And why would anyone protest, as the rich are getting incredibly rich and many normal people in the West have a higher standard of living than ever. Very few of the “normal people” understand that their prosperity is built on personal debt and their government borrowing more than ever. Nor do they understand that they are responsible for this debt that they of course can never repay.

Even less do they understand that they will be on their own when debt implodes and they lose their jobs. Because the state will at that point have run out of money and there will be no social security or unemployment benefits. Nor will there be any pension for retirees as pension funds will go from extremely underfunded to totally unfunded.

When Trump was elected in November 2016, I forecast that US debt would continue to double every 8 years on average, as it has done since Reagan become president. That would lead to $28 trillion debt by 2021 and $40 trillion by 2025. Well, it seemed quite unrealistic back in 2016 that the US would average over $2.5 trillion deficit in the ensuing 8 years to 2025. Judging by current forecasts, it looks like debt will “only” be $25 trillion in 2021. But as tax revenues decline and spending increases, I would not be surprised to see $28 trillion debt in 2021. That would put the US on course for a $40 trillion debt in 2025.That would mean a doubling of the debt from 2017 which is in line with the historical trend of a 100% increase every 8 years.

A $40 trillion debt in 2025 would be bad enough but things are likely to get worse. With debt exploding, the Fed will lose control of interest rates as foreign investors dump US bonds. A rate of 10% at that point would not be unrealistic. That would lead to an interest bill of $4 trillion per year (10% on $40T). This would mean that just interest costs are likely to be higher than total tax revenue.

Read more …

“$1 trillion worth of stocks are being pledged as collateral for loans..”

China Threatened By “Vicious Circle Of Panic Selling” (ZH)

Small caps aside, the marketwide numbers are staggering: about $1 trillion worth of stocks listed in China’s two main markets, Shanghai or Shenzhen, are being pledged as collateral for loans, according to data from the China Securities Depository and ChinaClear. More ominously, this trends has exploded in the past three years, and according to Bank of America, some 23% of all market positions were leveraged in some way by the end of last year in China, double from the start of 2015.


Source: WSJ

As a result of the recent market rout which sent the Shanghai Composite into bear market territory, in June UBS warned that it sees a growing risk in China’s stock pledges; the bank calculated that the market cap of pledged stocks that have fallen below levels triggering liquidation amounts to 440 billion yuan with some 500 billion yuan below warning line, which translates to ~1% and 1.1% of China’s entire market value of $6.8 trillion. A separate analysis by TF Securities, as of Jun 19th, stock prices of 619 companies were close to levels where margin calls will be triggered. Since then, that number has increased.

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When Toys R Us went bankrupt, they got permission to give the executives that drove the company into bankruptcy $32 million in bonuses. Store employees, regular working people, got nothing.

The Demise of Toys ‘R’ Us Is a Warning (Atlantic)

Ann marie reinhart was one of the first people to learn that Toys “R” Us was shuttering her store. She was supervising the closing shift at the Babies “R” Us in Durham, North Carolina, when her manager gave her the news. “I was almost speechless,” she told me recently. Twenty-nine years ago, Reinhart was a new mother buying diapers in a Toys “R” Us when she saw a now hiring sign. She applied and was offered a job on the spot. She eventually became a human-resources manager and then a store supervisor. She stayed because the company treated her well, accommodating her schedule. She got good benefits: health insurance, a 401(k). But she noticed a difference after the private-equity firms Bain Capital and Kohlberg Kravis Roberts, along with the real-estate firm Vornado Realty Trust, took over Toys “R” Us in 2005.

“It changed the dynamic of how the store ran,” she said. The company eliminated positions, loading responsibilities onto other workers. Schedules became unpredictable. Employees had to pay more for fewer benefits, Reinhart recalled. Reinhart’s store closed for good on April 3. She was granted no severance—like the more than 30,000 other employees who are losing their job with the company. In March, Toys “R” Us announced that it was liquidating all of its U.S. stores as part of its bankruptcy process, which began last September. Observers pointed to the company’s struggle to fight off new competition. In its court filing, the company laid the blame at the feet of Amazon, Walmart, and Target, saying it “could not compete” when they priced toys so low.

Less attention was paid to the albatross that Bain, KKR, and Vornado had placed around the company’s neck. Toys “R” Us had a debt load of $1.86 billion before it was bought out. Immediately after the deal, it shouldered more than $5 billion in debt. And though sales had slumped before the deal, they held relatively steady after it, even when the Great Recession hit. The company generated $11.2 billion in sales in the 12 months before the deal; in the 12 months before November 2017, it generated $11.1 billion.

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The legal position.

Why It’s Not Too Late To Step Back From The Brexit Brink (G.)

Last week, in response to a petition seeking a referendum on the final deal, the government not only refused to allow “the people” to decide on the terms of Brexit, it categorically stated that parliament will not be allowed to do so either. Parliament will instead be given what it calls “a meaningful vote … either [to] accept the final agreement or leave the EU with no agreement”. This is the opposite of “meaningful”; the government intends to refuse parliament the chance to reject both options – it must accept what is offered or take nothing at all. And this is the government’s position, irrespective of the dire consequences for our country or “the will of its people” to avoid them. Even though the UK could before March 2019 change its mind, the government says that it will on no account let that happen.

The reason given for this is said to be the government’s “firm policy” that “there must be no attempts to [reverse the referendum and] remain inside the European Union”; the government does not deny that reversal is legally possible. Its position accords with advice, which I am told from two good sources the prime minister has received, namely that the article 50 notification can be withdrawn by the UK at any time before 29 March 2019, resulting in the UK remaining in the EU on its current favourable terms. Such advice would also accord with the view of Lord Kerr, who was involved in drafting article 50, of Jean-Claude Piris, former director general of the Council of the EU’s legal service and of Martin Selmayr, a lawyer and head of cabinet to the president of the European commission.

As a lawyer, I agree with them. Article 50 provides for the notification – not of withdrawal but of an “intention” to withdraw. In law, an “intention” is not a binding commitment; it can be changed or withdrawn. Article 50(5) is, moreover, clear that it is only after a member state has left that it has to reapply to join. Had the drafters intended that once a notification had taken place, a member state would have to request readmission (or seek the consent of the other member states to stay), then article 50(5) would have referred not just to the position following withdrawal, but also following notification. Such an interpretation is in line with the object and purpose of article 50.

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Britain’s empire days are over. Hard to accept?!

British MPs Should Be Ashamed Of Supporting Regime Change In Tehran (Oborne)

Britain’s prime minister has been fighting a valiant, losing battle to rescue British relations with Iran in the wake of US President Donald Trump’s reckless attempts to wreck them. But last week Theresa May was dealt a devastating blow to her authority after several Tory MPs defied her by going to Paris for a meeting designed to promote regime change inside Iran. This event is the latest sign that the prime minister and her foreign secretary, Boris Johnson, are facing a mutiny over Iran. Former cabinet minister Theresa Villiers was among senior Tories who travelled to Paris last week to hear Rudy Giuliani, former mayor of New York and Trump’s highly influential lawyer, call for the downfall of the Iranian government.

This meeting was a direct defiance of British government policy, which aims to save the Iran nuclear deal intact, and is against engineering a change of government in Iran. Indeed, Johnson assured Parliament in May that “I do not believe that regime change in Tehran is the objective that we should be seeking.” The overwhelming majority of Conservative MPs favoured Trump’s policy of dismantling the JCPOA – and condemned May’s policy of keeping it Three Tory MPs – along with one Labour MP – travelled to the event, organised by the National Council of Resistance of Iran, a front organisation for Mojahedin-e-Khalq Organisation (MEK), once listed by the US as a terror organisation. There is no question that these reflect a powerful and vocal body of sentiment inside the Conservative Party.

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Sanctions on Iran conflict with lower oil prices.

OPEC’s Dilemma (Lacalle)

The fundamental problem of the last OPEC meeting is the evidence of the division between two groups. One, led by Iran, which wants higher prices and deeper cuts, and the two largest producers, Saudi Arabia and Russia, who support a more diplomatic position. Iran wants to continue increasing its own production yet wants OPEC to maintain the group cuts. Iran also faces the backlash of sanctions on exports. Today, the US exports more oil than Iran. Saudi Arabia and Russia have the lowest production costs and stand as the ones to gain more from a moderate production increase. Oil prices will not collapse and they will sell more oil.

The agreed increase in production is a good political move from Saudi Arabia because it shows that it does not aim to harm the world economy or its customers, only to return to a stabilized oil market. With this, Saudi Arabia cements its position as the Central Bank of oil. The winners from this carefully designed agreement are Saudi Arabia, Russia, and the Gulf countries. Those who enjoy lower costs and can generate higher revenues from improved exports. The agreement sets production higher but no individual quotas, so improvement in output is left to the countries with the highest excess capacity. Iran, Venezuela, Ecuador and other countries that have production and geopolitical problems suffer the most. The commitment is likely to add 600,000-650,000 barrels per day to the market.

A figure of 32 million barrels per day is agreed, but the real increase will not be the optical one million barrels per day, but rather the aforementioned 650,000 one. This figure, at a time when oil inventories are in line with the average of the past five years, relieves inflationary pressures and eliminates the risk that the US Administration will take political measures against the OPEC countries. Trump had already alerted OPEC that it could not keep inflating prices artificially. In addition to showing the tension between these two sides, the OPEC summit also reveals that the cartel has much less market control than they would like to have. The fact that the price has only reached 80 dollars a barrel (compared to 100-130 dollars a few years ago) indicates that their ability to manipulate prices to 100 dollars per barrel is very low.

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How does that country still function?

Turkey Sacks Another 18,500 State Employees In New Decree (AFP)

Turkish authorities ordered the dismissal of more than 18,500 state employees including police officers, soldiers and academics, in a decree published on Sunday. The Official Gazette said 18,632 people had been sacked including 8,998 police officers in the emergency decree over suspected links to terror organisations and groups that “act against national security”. Some 3,077 army soldiers were also dismissed as well as 1,949 air force personnel and 1,126 from the naval forces. Another 1,052 civil servants from the justice ministry and linked institutions have been fired as well as 649 from the gendarmerie and 192 from the coast guard. Authorities also sacked 199 academics, according to the new decree, while 148 state employees from the military and ministries were reinstated.

Turkey has been under a state of emergency since the July 2016 attempted overthrow of President Recep Tayyip Erdogan. Turkish media dubbed the decree as the “last” with officials indicating the state of emergency could end as early as Monday. The emergency has been renewed seven times and the latest period is officially due to end on July 19. Over 110,000 public sector employees have been removed previously from their jobs via emergency decrees since July 2016 while tens of thousands more have been suspended in a crackdown criticised by Ankara’s Western allies. [..] Sunday’s decree shut down 12 associations across the country as well as three newspapers and a television channel.

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Recommended by Jim Rickards. The changing shapes of world order.

Trump, the Dragonbear, and the Bipolar World Order 2.0 (M.)

Just a few days ago, in an unexpected move, Ray Dalio, the founder of world’s largest hedge fund -Bridgewater Associates- announced on Social Media: “Today is the first day of the war with China.” And a day earlier, Trump made a statement about the upcoming summit in Helsinki, claiming that: “Putin’s fine. He’s fine.” One might wonder what the former message has to do with the latter, and how all these contradictory statements fit together. In fact, they make sense if seen through the prism of an emerging bipolar World Order 2.0, which is about the systemic rivalry between the USA and China, and the unique position of Russia in between.

It has become apparent that most of the decision-makers, experts and scholars mistook the end of the US-led unipolarity for the beginning of multipolarity and thus overlooked the emergence of the Global System bipolarity as well as the creation of the Dragonbear (an unique systemic bond between China and Russia as opposed to the USA). Furthermore, the Global System has become too unsustainable regarding its main (man-made) socio-economic components of global finance, monetary, economy, trade, and energy networks, and, as a consequence, is now being shaped by the unprecedented systemic rivalry between the USA and China, with Russia, the EU and India being the free riders, which leads to unexpected new alliances like the Dragonbear or the one between the USA and India, and might also result in the breakup of the NATO and the EU in the long term.

Back in 1975, the West and the Soviet Union bloc met in Helsinki to negotiate and sign a final act with ten principles that have been guiding their relations until now, among which the principle of sovereign equality, the refraining from the threat or use of force, inviolability of frontiers, the territorial integrity of states, and the non-intervention in internal affairs. Indeed, these principles were constantly deteriorated by the actions of single states or organisations over the last decades but were at least recognised by all actors of the global affairs.

However, Trump and Putin might declare new rules of the game, which will reflect the growing great powers competition and the flux of the global affairs. The meeting between Trump and Putin tête-à-tête will most likely address the broader picture of the geopolitical and geoeconomic interests of the two actors in the Middle East and beyond, particularly avoiding sensitive issues such as Ukraine, Syria (except for the sake of coordination efforts) or energy sanctions, and will specifically focus on North Korea, Iran and nuclear non-proliferation.

Read more …

The old world order no longer works.

Trump’s Existential Threat To The Empire (Stockman)

[..] the NATO subservient think tanks and establishment policy apparatchiks are harrumphing up a storm, but for crying out loud most of Europe’s elected politicians are in on the joke. They are fiscally swamped paying for their Welfare States and are not about to squeeze their budgets or taxpayers to fund military muscle against a nonexistent threat. As Justin Raimondo aptly notes, “Finally an American president has woken up to the fact that World War II, not to mention the cold war, is over: there’s no need for US troops to occupy Germany. Vladimir Putin isn’t going to march into Berlin in a reenactment of the Red Army taking the Fuehrer-bunker – but even if he were so inclined, why won’t Germany defend itself?”

Exactly. If their history proves anything, Germans are not a nation of pacifists, meekly willing to bend-over in the face of real aggressors. Yet they spent the paltry sum of $43 billion on defense during 2017, or barely 1.1% of Germany’s $3.8 trillion GDP, which happens to be roughly three times bigger than Russia’s. In short, the policy action of the German government tells you they don’t think Putin is about to invade the Rhineland or retake the Brandenburg Gate. And this live action testimonial also trumps, as it were, all of the risible alarms emanating from the beltway think tanks and the 4,000 NATO bureaucrats talking book in behalf of their own plush Brussels sinecures. But now comes the piece de resistance. The Donald is going to Helsinki to make peace with Vlad Putin, and just in the nick of time.

Hopefully, in one-fell swoop they can reach an agreement to get the US military out of Syria; normalize the return of Crimea and Moscow’s historic naval base at Sevastopol to the Russian motherland; stop the civil war in Ukraine via a mutually agreed de facto partition; stand-down from the incipient military clashes from the Baltic to the Black Sea; and pave the way for lifting of the absurd sanctions on Russian businessmen and citizens. Needless to say, time is of the essence. Every hour that the Donald wastes tweeting, bloviating about his beloved Mexican wall, sabotaging American exports and jobs and watching Fox & Friends reruns is just more opportunity for the vast apparatus of the Deep State (and most of his own top officials) to deep-six the Donald’s emerging and thoroughly welcome rendition of America First.

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It’s about energy.

Are All Societies Destined To Destroy Themselves? (Wef)

In order to illustrate how civilization-planet systems co-evolve, Frank and his collaborators developed a mathematical model to show ways in which a technologically advanced population and its planet might develop together. By thinking of civilizations and planets—even alien ones—as a whole, researchers can better predict what might be required for the human project of civilization to survive. “The point is to recognize that driving climate change may be something generic,” Frank says. “The laws of physics demand that any young population, building an energy-intensive civilization like ours, is going to have feedback on its planet. Seeing climate change in this cosmic context may give us better insight into what’s happening to us now and how to deal with it.” Using their mathematical model, the researchers found four potential scenarios that might occur in a civilization-planet system:

Die-off: The population and the planet’s state (indicated by something like its average temperature) rise very quickly. Eventually, the population peaks and then declines rapidly as the rising planetary temperature makes conditions harder to survive. A steady population level is achieved, but it’s only a fraction of the peak population. “Imagine if 7 out of 10 people you knew died quickly,” Frank says. “It’s not clear a complex technological civilization could survive that kind of change.” Sustainability: The population and the temperature rise but eventually both come to steady values without any catastrophic effects. This scenario occurs in the models when the population recognizes it is having a negative effect on the planet and switches from using high-impact resources, such as oil, to low-impact resources, such as solar energy.

Collapse without resource change: The population and temperature both rise rapidly until the population reaches a peak and drops precipitously. In these models civilization collapses, though it is not clear if the species itself completely dies outs. Collapse with resource change: The population and the temperature rise, but the population recognizes it is causing a problem and switches from high-impact resources to low-impact resources. Things appear to level off for a while, but the response turns out to have come too late, and the population collapses anyway. “The last scenario is the most frightening,” Frank says. “Even if you did the right thing, if you waited too long, you could still have your population collapse.”

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Lovely treatise on how capitalism shaped leisure time.

Inventing the Weekend (Jacobin)

Although “commemoration of the Resurrection” was the official reason early Christians began observing the day of rest on Sunday instead of Saturday, they were also eager to differentiate themselves from Jews, and by the fourth century this eagerness translated into the codification of the Sunday Sabbath in ecclesiastical and civil legislation. A millennium and a half later, the Sabbatarian movement pointed to this antisemitism, along with the undue influence of pagan sun worship among early Christians, as reason to reestablish Saturday as the Christian Sabbath day. Temporal, political concerns should not have affected the observance of the true day of rest, so their argument went.

There’s another reason Saturday was re-sanctified in the nineteenth century, which has to do with the “illegitimacy” not of Sunday but of Monday. In preindustrial England, according to a poem of George Davis’s, “people of all ranks, at times, obey[ed] / the festive orgies of this jocund day.” Not just skilled laborers but all classes of workers observed “Saint Monday” as a holiday from work, much to the chagrin of emergent entrepreneurs. While it’s true that many workers spent Saint Monday in the alehouse and at cock or dog fights, it was also a day of relaxation and sociability, a day when the public gardens would be “literally swarming with a well-dressed, happy and decorous body of the working classes.”

The fact that Monday was often taken as a day of rest was a consequence of the typical rhythm of preindustrial work, in which workers would assemble to complete a certain set of tasks, work intensely for a few days until those tasks were completed, and then be at play half the week. In E. P. Thompson’s portrayal, “the work pattern was one of alternate bouts of intense labour and of idleness, wherever men were in control of their own working lives.” The idea that work was to be done during a set amount of regularly apportioned time, time that was well demarcated from another time of “leisure,” was still rather foreign. In 1806, a committee appointed by the House of Commons to assess the state of woolen manufacture in England found an “utmost distaste on the part of the men, to any regular hours or regular habits.” Work was a set of tasks, and when those tasks were completed, play began.

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Jun 022017
 
 June 2, 2017  Posted by at 4:31 pm Finance Tagged with: , , , , , , , , , ,  


Bernard Pascucci Dancers on the Roof of the Opéra Garnier, Paris 1965

 

President Trump Announces US Withdrawal From The Paris Climate Accord (ZH)
Conservatives’ Donors Gave 10 Times As Much As Labour’s Last Week (G.)
The Myths About Money That British Voters Should Reject (Chang)
‘Ghost Collateral’ Haunts China’s Debt-Laden Banking System (R.)
BOJ’s Balance Sheet Almost As Big As Japanese Economy (Nikkei)
25-30% Of US Shopping Malls To Close In The Next Five Years (LATimes)
Westworld (Ben Hunt)
Cities, States And School Systems Lose Millions To Credit Downgrades (IBT)
S&P, Moody’s Downgrade Illinois to Near Junk, Lowest Ever for a US State (BBG)
Uber Burned Through Almost As Much Money As NASA Last Quarter (Simon Black)
The Next Recession May Be A Complete Reset Of All Asset Valuations (Mauldin)
China’s Ivory Ban Sparks Dramatic Drop In Prices Across Asia (G.)
Audi Emissions Scandal Erupts After Germany Says It Detects New Cheating (R.)
Oliver Stone Quizzes Vladimir Putin On Snowden (G.)
Schaeuble Launches A Broadside Against Tsipras (K.)
A New Antibiotic Multitool Could Beat The Toughest Bacteria (F.)

 

 

Yeah, we had a bit of a DDOS thing today. Sorry.

Haven’t seen one voice that makes sense in this Paris CON21 thing. I do remember what they said about everyone being on the same side of the boat.

President Trump Announces US Withdrawal From The Paris Climate Accord (ZH)

It’s done. Bannon 1 – 0 Kushner. President Donald Trump announced the U.S. would withdraw from the Paris climate pact and that he will seek to renegotiate the international agreement in a way that treats American workers better. “So we are getting out, but we will start to negotiate and we will see if we can make a deal, and if we can, that’s great. And if we can’t, that’s fine,” Trump said Thursday, citing terms that he says benefit China’s economy at the expense of the U.S. “In order to fulfill my solemn duty to protect America and its citizens, the United States will withdraw from the Paris climate accord, but begin negotiations to re-enter either the Paris accord or really an entirely new transaction on terms that are fair to the United States, its businesses” and its taxpayers, Trump said.

As Bloomberg reports, Trump’s announcement, delivered to cabinet members, supporters and conservative activists in the White House Rose Garden, spurns pleas from corporate executives, world leaders and even Pope Francis who warned the move imperils a global fight against climate change. As we noted earlier, we should prepare for the establishment to begin its mourning and fearmongering of the disaster about to befall the world. Pulling out means the U.S. joins Russia, Iran, North Korea and a string of Third World countries in not putting the agreement into action. Just two countries are not in the deal at all – one of them war-torn Syria, the other Nicaragua. The Hill notes that many Republicans on Capitol Hill are likely to support pulling out of the Paris deal – 20 leading Senate Republicans, including Majority Leader Mitch McConnell (R-Ky.) asked Trump to do just that last week.

Withdrawing from Paris would greatly please conservative groups, which have orchestrated an all-out push in opposition to the pact. “Without any impact on global temperatures, Paris is the open door for egregious regulation, cronyism, and government spending that would be disastrous for the American economy as it is proving to be for those in Europe,” said Nick Loris, a fellow at the Heritage Foundation. “It is time for the U.S. to say ‘au revoir’ to the Paris agreement,” he said.

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And use to NOT have their leader appear on TV. I’m thinking a decision by the new (American?!) campaign team installed after the Snap announcement. “Stay away from the camera, it can only do you harm!” Boris PM by July 1?

Conservatives’ Donors Gave 10 Times As Much As Labour’s Last Week (G.)

The Conservatives raised more than 10 times as much as Labour last week, partly thanks to a donation of over £1m from the theatre producer behind The Book of Mormon and The Phantom of the Opera. John Gore, whose company has produced a string of hit musicals, gave £1.05m as part of the £3.77m received by the Conservatives in the third week of the election campaign. In the same time, Labour received only £331,499. The Electoral Commission only publishes details of donations over £7,500, so the smaller donors who make up most of Labour’s fundraising are not identified. Almost all Labour’s larger donations came from unions, including £159,500 from Unite. The new figures show the Conservatives have received £15.2m since the start of 2017, while Labour has received £8.1m.

The large donations came as the poll lead held by the Conservatives and Theresa May appeared to fall following controversies around her social care policy. In the week starting 17 May, the Liberal Democrats received £310,500, of which £230,000 came from the Joseph Rowntree Reform Trust and £25,000 came from the former BBC director general Greg Dyke. The Women’s Equality party received £71,552, with Edwina Snow, the Duke of Westminster’s sister who is married to the historian Dan Snow, giving £50,000. Ukip’s donations fell dramatically to £16,300 from £35,000 the previous week. Political parties can spend £30,000 for every seat they contest during the regulated period. There are 650 seats around the country, meaning that parties can spend up to £19.5m during the regulated period in the run-up to the election.

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Money spent at the lower rungs of society tends to stay inside it.

The Myths About Money That British Voters Should Reject (Chang)

Befitting a surprise election, the manifestos from the main parties contained surprises. Labour is shaking off decades of shyness about nationalisation and tax increases for the rich and for the first time in decades has a policy agenda that is not Tory-lite. The Conservatives, meanwhile, say they are rejecting “the cult of selfish individualism” and “belief in untrammelled free markets”, while adopting the quasi-Marxist idea of an energy price cap. Despite these significant shifts, myths about the economy refuse to go away and hamper a more productive debate. They concern how the government manages public finances – “tax and spend”, if you will.

The first is that there is an inherent virtue in balancing the books. Conservatives still cling to the idea of eliminating the budget deficit, even if it is with a 10-year delay (2025, as opposed to George Osborne’s original goal of 2015). The budget-balancing myth is so powerful that Labour feels it has to cost its new spending pledges down to the last penny, lest it be accused of fiscal irresponsibility. However, as Keynes and his followers told us, whether a balanced budget is a good or a bad thing depends on the circumstances. In an overheating economy, deficit spending would be a serious folly. However, in today’s UK economy, whose underlying stagnation has been masked only by the release of excess liquidity on an oceanic scale, some deficit spending may be good – necessary, even.

The second myth is that the UK welfare state is especially large. Conservatives believe that it is bloated out of all proportion and needs to be drastically cut. Even the Labour party partly buys into this idea. Its extra spending pledge on this front is presented as an attempt to reverse the worst of the Tory cuts, rather than as an attempt to expand provision to rebuild the foundation for a decent society. The reality is the UK welfare state is not large at all. As of 2016, the British welfare state (measured by public social spending) was, at 21.5% of GDP, barely three-quarters of welfare spending in comparably rich countries in Europe – France’s is 31.5% and Denmark’s is 28.7%, for example. The UK welfare state is barely larger than the OECD average (21%), which includes a dozen or so countries such as Mexico, Chile, Turkey and Estonia, which are much poorer and/or have less need for public welfare provision. They have younger populations and stronger extended family networks.

The third myth is that welfare spending is consumption – that it is a drain on the nation’s productive resources and thus has to be minimised. This myth is what Conservative supporters subscribe to when they say that, despite their negative impact, we have to accept cuts in such things as disability benefit, unemployment benefit, child care and free school meals, because we “can’t afford them”. This myth even tints, although doesn’t define, Labour’s view on the welfare state. For example, Labour argues for an expansion of welfare spending, but promises to finance it with current revenue, thereby implicitly admitting that the money that goes into it is consumption that does not add to future output.

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We saw this in 2015, I think it was Qingdao port(?!). Now it turns out this is widespread. China is very corrupt.

‘Ghost Collateral’ Haunts China’s Debt-Laden Banking System (R.)

The banker at the other end of the phone line was furious, recalled Shanghai lawyer Wang Chaoyu. A pile of steel pledged as collateral for a loan of almost $3 million from his bank, China CITIC, had vanished from a warehouse on the outskirts of the city. Just several months earlier, in mid-2013, Wang and the banker had visited the warehouse and verified that the steel was there. “The first time I went, I saw the steel,” recalled Wang, an attorney at Beijing DHH Law Firm, which represents the Shanghai branch of CITIC. “Afterwards, the banker got in contact with me and said, ‘The pledged assets are no longer there.’” The trouble had begun in 2012, after CITIC loaned the money to Shanghai Hanning Iron and Steel, a privately held steel trader. Hanning failed to meet payments, according to a mediation agreement reviewed by Reuters, and CITIC took ownership of the steel.

It was when CITIC moved to retrieve the collateral that the banker visited the warehouse and discovered that the 291-tonne pile of steel was no longer there, Wang said. The bank is still in court trying to recoup its losses. The missing collateral is a setback for CITIC. But it is indicative of a much wider problem that could endanger the health of China’s financial system – fraudulent or “ghost” collateral. When bank auditors in China go looking, they too often find that collateral recorded on the books simply isn’t there. In some cases, collateral that has been pledged simply doesn’t exist. In others, it disappears as borrowers in financial distress sell the assets. There are also instances in which the same collateral has been pledged to multiple lenders. One lawyer said he discovered that the same pile of steel was used to secure loans from 10 different lenders.

With the mainland facing its slowest growth in over a quarter of a century, defaults are mounting as borrowers struggle to repay their loans. The danger of fraudulent collateral in this situation, say economists, is that it exacerbates the problem of bad debt for China’s banks, increasing the risk of financial turmoil. As growth slows, lenders can expect more nasty surprises, said Xin Qingquan at Chongqing University. More instances of fake collateral will arise, he said. [..] There are no official statistics or estimates of the problem. But fraudulent collateral is “a huge issue,” said Violet Ho, co-head of Greater China Investigations and Disputes Practice at Kroll, which conducts corporate investigations on the mainland. “Often you also see that the paperwork around collateral may be dodgy, and the bank loan officer knows, the intermediary knows, and the goods owner knows – so it’s essentially a Ponzi scheme.”

[..]Bad loans are mounting fast. Officially, just 1.74% of commercial bank loans were classified as non-performing at the end of March. But some analysts say lenders often mask the true level of bad debt and so the figure is likely much higher. Fitch Ratings said in a report last September that it had estimated non-performing loans in China’s financial system could be as high as 15% to 21%. This in a banking sector that has undergone a massive credit expansion. The value of outstanding bank loans ballooned to $17.2 trillion at the end of April from $5.8 trillion at the end of 2009, according to data from China’s central bank. In September last year, the Bank for International Settlements warned that excessive credit growth in China meant there was a growing risk of a banking crisis in the next three years.

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ECB at 28% of Eurozone GDP. Fed at 23% of US.

BOJ’s Balance Sheet Almost As Big As Japanese Economy (Nikkei)

The Bank of Japan’s assets apparently exceeded 500 trillion yen ($4.49 trillion) as of the end of May, growing to rival the country’s economy as the central bank continues its debt purchases under an ultraeasy monetary policy. The bank’s total assets stood at 498.15 trillion yen as of May 20. By the time the month ended Wednesday, its holdings of Japanese government bonds had increased by another 2.24 trillion yen. Assuming that the BOJ had not significantly reduced its non-JGB assets, its balance sheet almost certainly crossed over the 500 trillion yen mark into uncharted territory. The BOJ’s balance sheet began expanding at a rapid clip after Governor Haruhiko Kuroda launched unprecedented quantitative and qualitative easing in April 2013. At around 93%, the scale of the Japanese central bank’s assets in proportion to GDP has no close match. Latest data shows that the U.S. Fed held roughly $4.5 trillion in assets, which is equivalent to 23% of the country’s GDP.

The ECB’s balance sheet, at about €4.2 trillion ($4.71 trillion) is larger than the BOJ’s, but it still sits at around 28% of the eurozone GDP. The BOJ in September shifted its policy focus from QE to controlling the yield curve, but the bank is still snapping up JGBs to keep long-term rates at around zero. The central bank has stood firm on its pledge to continue expanding its balance sheet to boost currency supply until Japan’s consumer price inflation is steadily above 2%. This suggests that the BOJ’s balance sheet will continue expanding past the 500 trillion yen mark. This prospect makes some financial experts uneasy. Once the inflation target is finally met, and the BOJ starts raising interest rates, the bank will have to pay more in interest to financial institutions’ reserve deposits than it will earn from its low-yielding JGB holdings.

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All hail Amazon.

25-30% Of US Shopping Malls To Close In The Next Five Years (LATimes)

Between 20% and 25% of the nation’s shopping malls will close in the next five years, according to a new report from Credit Suisse that predicts e-commerce will continue to pull shoppers away from bricks-and-mortar retailers. For many, the Wall Street firm’s finding may come as no surprise. Long-standing retailers are dying off as shoppers’ habits shift online. Credit Suisse expects apparel sales to represent 35% of all e-commerce by 2030, up from 17% today. Traditional mall anchors, such as Macy’s, J.C. Penney and Sears, have announced numerous store closings in recent months. Clothiers including American Apparel and BCBG Max Azria have filed for bankruptcy. Bebe has closed all of its stores.

The report estimates that around 8,640 stores will close by the end of the year. Retail industry experts say Credit Suisse may have underestimated the scope of the upheaval. “It’s more in the 30% range,” Ron Friedman, a retail expert at accounting and advisory firm Marcum said of the share of malls that he predicts will close in the next five years. “There are a lot of malls that know they’re in big trouble.” By ignoring new shopping centers being built, the research note took an overly simplistic view of the changing landscape of shopping centers, said analyst David Marcotte, senior vice president with Kantar Retail. “There are still malls being built,” Marcotte said. “Predominantly outlet malls and lifestyle malls.”

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From May 11. h/t Tyler.

Westworld (Ben Hunt)

Now don’t get me wrong. Do I think Emmanuel Macron, a former Rothschild investment banker whose “ambition was always two steps ahead of his experience”, is the second coming of Charles de Gaulle? Do I think Donald freakin’ Trump is a modern day Andrew Jackson? Bwa-ha-ha-ha-ha-ha … good one! But here’s what I do think: • Something old and powerful is happening in the real world to crush the status quo political systems of every Western democracy. • Something predictably sad is happening in the political world to replace the old guard candidates with self-absorbed plutocrats like Trump and pretty boy bankers like Macron. • Something new and powerful is happening in the investment world to divorce political risk and volatility from market risk and volatility. The old force repeating itself in the real world is nicely summed up by these two charts, the most important charts I know. They’re specific to the U.S., but applicable everywhere in the West.

First, the Central Banker’s Bubble since March 2009 and the launch of QE1 has inflated U.S. household wealth far beyond what the nominal growth rate of the U.S. economy would otherwise support. This is a classic bubble in every sense of the word, with the primary difference from prior vast bubbles being its concentration and focus in financial assets — stocks and bonds — which are held primarily by the rich. Who wins the Academy Award for creation of wealth inequality in a supporting role? Ladies and gentlemen, I give you the U.S. Federal Reserve.

And as the second chart shows, this central bank largesse has sharply accelerated the massive shift in wealth to the Rich from the Rest, a shift which began in the 1980s with the Reagan Revolution. We are now back to where we were in the 1930s, where the household wealth of the bottom 90% of U.S. wage earners is equal to the household wealth of the top one-tenth of 1% of U.S. wage earners.

So look … I’m not saying that the current level or dynamics of wealth inequality is a good thing or a bad thing. I’m just saying that it IS. And I understand that there are insurance programs today, like social security and pension funds, which are not reflected in this chart and didn’t exist in the 1930s, the last time you saw this sort of wealth inequality. I understand that there are a lot more people in the United States today than in the 1930s. I understand that there are all sorts of important differences in the nature of wealth distribution between today and the 1930s. I get all that. What I’m saying, though, is that just like in the 1930s, there is a political price to be paid for this level of wealth inequality. That price is political polarization and electoral rejection of status quo parties.

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At the local level, the US is in for something historic.

Cities, States And School Systems Lose Millions To Credit Downgrades (IBT)

[..] downgrades of bonds issued by local governments raise the interest rates those governments must pay on holders of its debt, thereby costing those communities up to hundreds of millions of dollars annually, according to the report, which was released Wednesday by the non-profit Roosevelt Institute’s ReFund America Project and focused on recent downgrades by Moody’s in relatively impoverished, predominantly-black localities. The more recent report [..] took a granular look at a few communities whose budgets were impacted by downgrades, which drive the prices of bonds down while raising the interest rate at which the government has to pay its bondholders. New Jersey was set to lose $258 million annually as a result of a Moody’s ratings drop, the report calculated, using the spread between interest rates on bonds with different Moody’s credit ratings and the amount of debt affected by the downgrade.

Moody’s announced a downgrade of the New Jersey’s $37 billion in publicly-issued debt to A3, six levels below the agency’s top rating of Aaa, in late March. The agency attributed the downgrade to “significant pension underfunding, including growth in the state’s large long-term liabilities, a persistent structural imbalance and weak fund balances,” as well as a tax cut that would decrease revenues by $1.1 billion over the next four years. New Jersey’s city of Newark — which is 52.4% African American and 33.8% Hispanic, compared to 12.6% and 16.3%, respectively, on the national level, according to U.S. Census data — was slated to lose an estimated $10 million annually as a result of a Moody’s downgrade, the report calculated. Newark’s median household income was just over $33,000, compared to nearly $54,000 nationwide, as of 2015.

That year, Moody’s downgraded Newark’s $374 million in general obligation unlimited tax bonds to Baa3, one level above junk bond status. The rating change, Moody’s said in the press release, reflected “the city’s further weakened financial position since last year,” along with its “reliance on market access for cash flow, history of aggressively structured budgets typically adopted late in the year and uncertainty around continued financial support from the state of New Jersey.” Further west, Chicago Public Schools (CPS) also stood to suffer tremendously from a Moody’s rating drop. The report authors calculated that the school system would lose out on $290 million annually from a September 2016 Moody’s downgrade to B3, five ranks below the highest junk bond rating. Nearly 40% of students are African American, 46.5% are Hispanic and 80.2% are considered “economically disadvantaged,” according to October 2016 CPS data.

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States falling one by one.

S&P, Moody’s Downgrade Illinois to Near Junk, Lowest Ever for a US State (BBG)

Illinois had its bond rating downgraded to one step above junk by Moody’s Investors Service and S&P Global Ratings, the lowest ranking on record for a U.S. state, as the long-running political stalemate over the budget shows no signs of ending. S&P warned that Illinois will likely lose its investment-grade status, an unprecedented step for a state, around July 1 if leaders haven’t agreed on a budget that chips away at the government’s chronic deficits. Moody’s followed S&P’s downgrade Thursday, citing Illinois’s underfunded pensions and the record backlog of bills that are equivalent to about 40% of its operating budget. “Legislative gridlock has sidetracked efforts not only to address pension needs but also to achieve fiscal balance,” Ted Hampton, Moody’s analyst, said in a statement.

“During the past year of fruitless negotiations and partisan wrangling, fundamental credit challenges have intensified enough to warrant a downgrade, regardless of whether a fiscal compromise is reached.” Illinois hasn’t had a full year budget in place for the past two years amid a clash between the Democrat-run legislature and Republican Governor Bruce Rauner. That’s left the fifth most-populous state with a record $14.5 billion of unpaid bills, ravaged entities like universities and social service providers that rely on state aid and undermined Illinois’s standing in the bond market, where investors have demanded higher premiums for the risk of owning its debt. Moody’s called Illinois “an outlier among states” after suffering eight downgrades in as many years.

“The rating actions largely reflect the severe deterioration of Illinois’ fiscal condition, a byproduct of its stalemated budget negotiations,” S&P analyst Gabriel Petek said in a statement. “The unrelenting political brinkmanship now poses a threat to the timely payment of the state’s core priority payments.” Illinois’s 10-year bonds yield 4.4%, 2.5 percentage points more than those on top-rated debt. That spread – a measure of the perceived risk – is the highest since at least January 2013 and more than any of the other 19 states tracked by Bloomberg.

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The new economy.

Uber Burned Through Almost As Much Money As NASA Last Quarter (Simon Black)

Uber reported yesterday that its NET LOSS totaled more than $700 million last quarter, despite pulling in a whopping $3.4 billion in revenue. (This means they spent at least $4.1 billion!) That’s the latest in a string of massive, 9-figure quarterly losses for the company. The only question I have is– how much cocaine are these people buying? Seriously, it’s REALLY HARD to spend so many billions of dollars. You could have over 100,000 employees (‘real’ employees, not Uber drivers) and pay them $150,000 EACH and still not blow through that much money in a single quarter. Even if you think about Research & Development, Uber still managed to burn through almost as much cash as NASA’s $4.8 billion budget last quarter. The real irony is that this company is worth $70 BILLION. And Uber is far from alone. Netflix is also worth $70 billion; and like Uber, they can’t make money.

Over the last twelve months Netflix burned through over $1.7 billion in cash, and they made up for it by going deeper into debt. The list goes on and on– Snapchat debuted with a $30 billion valuation after its IPO, only to subsequently report that they had lost $2.2 billion in the previous quarter. Telecom company Sprint is still somehow worth more than $30 billion despite having over $40 billion in debt and burning through more than $6 billion over the last three years. And then there’s Twitter, a rudderless, profitless company that is still worth over $13 billion. This is pure insanity. If companies that burn through obscene piles of cash and have no clear path to profitability are worth tens of billions of dollars, it seems like any business that’s cashflow positive should be worth TRILLIONS. None of this makes any sense, and investing in this environment is nothing more than gambling. Sure, it’s always possible these companies’ stock prices increase even more. Maybe Netflix and Twitter quadruple despite continuing losses and debt accumulation. Maybe Bitcoin surges to $50,000 next month. And maybe the Dallas Cowboys finally offer me the starting quarterback position next season.

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“One of those bubbles is global debt, especially government debt. The other is the even larger bubble of government promises.”

Hmm. Private debt is the biggie.

The Next Recession May Be A Complete Reset Of All Asset Valuations (Mauldin)

Sometime this year, world public and private plus unfunded pensions will surpass $300 trillion. That is not even counting the $100 trillion in US government unfunded liabilities. Oops. These obligations cannot be paid. A time is coming when the market and voters will realize this. Will voters decide to tax “the rich” more? Will they increase their VAT rates and further slow growth? Will they reduce benefits? No matter what they decide, hard choices will bring political turmoil. And that, of course, will mean market turmoil. We are coming to a period I call “the Great Reset.” As it hits, we will have to deal, one way or another, with the largest twin bubbles in the history of the world. One of those bubbles is global debt, especially government debt. The other is the even larger bubble of government promises.

The other is the even larger bubble of government promises. History shows it is more than likely that the US will have a recession in the next few years. When it does come, it will likely blow the US government deficit up to $2 trillion a year. Obama took eight years to run up a $10 trillion debt after the 2008 recession. It might take just five years after the next recession to run up the next $10 trillion. Here is a chart my staff at Mauldin Economics created in late 2016 using Congressional Budget Office data. It shows what will happen in the next recession if revenues drop by the same percentage as they did in the last recession (without even counting likely higher expenditures this time).

And you can add the $1.3 trillion deficit in this chart to the more than $500 billion in off-budget debt—and add a higher interest rate expense as interest rates rise. The catalyst could be a European recession that spills over into the US. Or it might be one triggered by US monetary and fiscal mistakes. Or a funding crisis in China, or an emerging-market meltdown. Whatever the cause, the next recession will be just as global as the last one. And there will be more buildup of debt and more political and economic chaos.

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The trade will move elsewehere until it’s simply entirely banned.

China’s Ivory Ban Sparks Dramatic Drop In Prices Across Asia (G.)

The price of raw ivory in Asia has fallen dramatically since the Chinese government announced plans to ban its domestic legal ivory trade, according to new research seen by the Guardian. Poaching, however, is not dropping in parallel. Undercover investigators from the Wildlife Justice Commission (WJC) have been visiting traders in Hanoi over the last three years. In 2015 they were being offered raw ivory for an average of US$1322/kg in 2015, but by October 2016 that price had dropped to $750/kg, and by February this year prices were as much as 50% lower overall, at $660/kg. Traders complain that the ivory business has become very “difficult and unprofitable”, and are saying they want to get rid of their stock, according to the unpublished report seen by the Guardian. Worryingly, however, others are stockpiling waiting for prices to go up again.

Of all the ivory industries across Asia, it is Vietnam that has increased its production of illegal ivory items the fastest in the last decade, according to Save the Elephants. Vietnam now has one of the largest illegal ivory markets in the world, with the majority of tusks being brought in from Africa. Although historically ivory carving is not considered a prestigious art form in Vietnam, as it is in China, the number of carvers has increased greatly. The demand for the worked pieces comes mostly from mainland China. Until recently, the chances of being arrested at the border slim due to inefficient law enforcement. But the prices for raw ivory are now declining as the Chinese market slows; this is partly due to China’s economic slowdown, and also to the announcement that the country will close down its domestic ivory trade.

China’s ivory factories were officially shut down by 31 March 2017, and all the retail outlets will be closed by the end of the year. Other countries have been taking similarly positive action on ivory, although the UK lags behind. Theresa May quietly dropped the conservative commitment to ban ivory from her manifesto, but voters have picked it up and there has been fury across social media. “All the traders we are speaking to are talking about what’s going on in China. It’s definitely having a significant impact on the trade,” said Sarah Stoner, senior intel analyst at the WJC. “A trader in one of the neighbouring countries who talked to our undercover investigators said he didn’t want to go to China anymore – it was so difficult in China now, and friends of his were arrested and sitting in jail. He seemed quite concerned about the situation,” said Pauline Verheji, WJC’S senior legal investigator.

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Lip service.

Audi Emissions Scandal Erupts After Germany Says It Detects New Cheating (R.)

Audi’s emissions scandal flared up again on Thursday after the German government accused the carmaker of cheating emissions tests with its top-end models, the first time Audi has been accused of such wrongdoing in its home country. The German Transport Ministry said it has asked Volkswagen’s luxury division to recall around 24,000 A7 and A8 models built between 2009 and 2013, about half of which were sold in Germany. VW Chief Executive Matthias Mueller was summoned to the Berlin-based ministry on Thursday, a ministry spokesman said, without elaborating. The affected Audi models with so-called Euro-5 emission standards emit about twice the legal limit of nitrogen oxides when the steering wheel is turned more than 15 degrees, the ministry said.

It is also the first time that Audi’s top-of-the-line A8 saloon has been implicated in emissions cheating. VW has said to date that the emissions-control software found in its rigged EA 189 diesel engine does not violate European law. The 80,000 3.0-liter vehicles affected by VW’s emissions cheating scandal in the United States included Audi A6, A7 and Q7 models as well as Porsche and VW brand cars. The ministry said it has issued a June 12 deadline for Audi to come up with a comprehensive plan to refit the cars. Ingolstadt-based Audi issued a recall for the 24,000 affected models late on Thursday, some 14,000 of which are registered in Germany, and said software updates will start in July. It will continue to cooperate with Germany’s KBA motor vehicle authority, Audi said.

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This is supposed to be our biggest enemy? He makes far too much sense for that.

Oliver Stone Quizzes Vladimir Putin On Snowden (G.)

Just a few hours after Megyn Kelly announced on NBC’s Today show that she would be interviewing Vladimir Putin in St Petersburg tomorrow at the International Economic Forum, Showtime released the first trailer and extended clip for The Putin Interviews, a sit-down with the Russian president conducted by the film-maker Oliver Stone for a four-part special that premieres on 12 June. Promoted as “the most detailed portrait of Putin ever granted to a Western interviewer”, The Putin Interviews spawned from several encounters over two years between Stone, director of politically oriented films including JFK and Nixon, and Putin. The interviews are to air as four one-hour installments, landing just a week after Kelly’s discussion with Putin, the centerpiece of her news magazine show on NBC, which premieres on Sunday night.

In the extended clip released on Thursday, Stone and Putin can be seen driving in a car with an English translator in the backseat, discussing topics such as Edward Snowden’s whistleblowing and Russian intelligence. “As an ex-KGB agent, you must have hated what Snowden did with every fiber of your being,” Stone asks in the clip. “Snowden is not a traitor,” Putin replies. “He did not betray the interests of his country. Nor did he transfer any information to any other country which would have been pernicious to his own country or to his own people. The only thing Snowden does, he does publicly.”

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Oh well.

Schaeuble Launches A Broadside Against Tsipras (K.)

Two weeks before a critical Eurogroup summit, German Finance Minister Wolfgang Schaeuble launched a broadside at Prime Minister Alexis Tsipras, claiming that the leftist premier has not shifted the burden of austerity away from poorer Greeks as he had pledged. In his comments, Schaeuble also maintained that party influence on the Greek public administration has increased rather than decreased during Tsipras’s time in power, noting that ruling party officials have been appointed to the country’s privatization fund. Greek government sources responded tersely to Schaeuble’s criticism. “The responsibility of Schaeuble in managing the Greek crisis has been recorded historically,” one source said. “There is no point in his ascribing it to others.”

Meanwhike Germany’s Die Welt reported that the ECB had similar views on the need for Greek debt relief to the IMF, and indicated that Schaeuble might be facing pressure to make unpopular decisions ahead of elections scheduled to take place in Germany in September. Tsipras, for his part, apparently sought to lower expectations in comments on Thursday. During a visit to the Interior Ministry, he said the government’s goal was “fulfilling the country’s commitments” linked to Greece’s third international bailout. He dodged reporters’ questions about whether he expected to leave a European Union leaders’ summit on June 22 wearing a tie – something he has pledged to do only when Greece secures debt relief. “The important thing is that I don’t leave with further burdens,” Tsipras said.

Aides close to Tsipras will be closely following a Euro Working Group meeting scheduled for June 8 for indications about what kind of deal creditors are likely to put on the table at the Eurogroup summit planned for June 15. If the solution that is in the works is deemed to be too politically toxic, it is likely that Tsipras will undertake another round of telephone diplomacy with key EU leaders such as German Chancellor Angela Merkel and French President Emmanuel Macron. He spoke to several prominent EU leaders earlier this week to underline the Greek government’s conviction that it has honored its promises to creditors and it is their turn to reciprocate with debt relief.

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Promising. But.

A New Antibiotic Multitool Could Beat The Toughest Bacteria (F.)

Doctors may soon have a new weapon in the long-running war between antibiotics and bacteria. It’s a Swiss Army knife of a drug that’s tens of thousands of times more effective in lab tests against dangerous antibiotic-resistant bacteria. Starting with the discovery of penicillin in 1928, scientists and doctors have been finding and making molecules that weaken or kill bacteria in a range of different ways to help humans survive infections. And as soon as humans started employing these antibiotics, bacteria began evolving to beat those attacks. That has started to become a huge problem. So-called superbugs like methicillin-resistant Staphylococcus aureus (MRSA) can ward off some of our most potent antibiotics, making infections by these bacteria extremely hard to treat.

Not only that, but their existence poses a strategic challenge as well, forcing doctors to think hard about when and where they use certain antibiotics, lest bacteria develop resistance to them and render them less effective. Vancomycin is one antibiotic that has stayed effective even as others have been been brought down by resistant bacteria. That’s because of the way vancomycin works: by latching onto one of the building blocks bacteria use to build their cell walls, like the microscopic equivalent of a bully stealing your shovel in the sandbox and not giving it back. (In this analogy, we’re on the bully’s side.) By interfering with such a critical cellular process in such a fundamental way, vancomycin makes it hard for bacteria to develop a simple mutation to defeat the antibiotic. That makes vancomycin one of our last lines of defense for treating infections like MRSA that others can’t.

It’s why the World Health Organization (WHO) added the drug to its list of essential medicines. Naturally, some bacteria have found ways to fight vancomycin, the most common being to substitute a different cell wall building block that the antibiotic can’t latch onto. Taking vancomycin out of doctors’ quivers would be a big blow. Which is why the WHO also lists vancomycin-resistant bacteria at number four and five on its list of the most threatening antibiotic-resistant microbes. So. To try to make sure vancomycin can beat those resistant bacteria, and stay effective for the next few decades—a reasonable lifetime for an antibiotic—chemists Dale Boger, Nicholas Isley and Akinori Okano at the Scripps Research Institute in California opened up the hood to make a few adjustments to the molecule.

After swapping out one part and bolting on a couple others, the group’s souped-up vancomycin was about 25,000 times more potent against resistant bacteria, and it had better endurance. They describe their work in the Proceedings of the National Academy of Sciences. The major change was to the region of the molecule that grabs those cell wall building blocks, which are called D-alanyl-D-alanine. Resistant bacteria have learned to substitute the very similar D-alanyl-D-lactate, which your standard vancomycin can’t bind to very well, limiting its effectiveness. The researchers changed an oxygen atom for two atoms of hydrogen, making a new version of vancomycin that could hang onto either building block.

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May 102017
 
 May 10, 2017  Posted by at 9:00 am Finance Tagged with: , , , , , , , , , , ,  Comments Off on Debt Rattle May 10 2017


Dresden February 1945

 

Trump Fires FBI Director Comey, Setting Off US Political Storm (R.)
Turning Gen. Flynn into Road Kill (Robert Parry)
NATO Chief Finds a New Friend in Trump (Spiegel)
Trump Approves Plan to Arm Syrian Kurds (NBC)
Turkey Hopes US Will End Support Of Syrian Kurdish YPG (R.)
Assange: ‘CIA Is Basically Useless, Incompetent’ (Exp.)
Stockman: There Is No Reason To Own Stocks At This Point In The Game (DR)
Shale Drillers Are Outspending the World With $84 Billion Spree (BBG)
UK Tory MPs Could Learn Fate Of Electoral Spending Inquiry By Wednesday (G.)
Anonymous Warns World To ‘Prepare’ For World War 3 (NYP)
French Election A Catastrophe For World Peace (Paul Craig Roberts)
Emmanuel Clinton and the Revolt of the Elites (Escobar)
Paris Afterparty (Jim Kunstler)
Germany: Greek Gold, Real Estate As Collateral If IMF Out Of Program (KTG)
Greek Court Finds New Pension Cuts Illegal Under Greek, European Law (K.)
Damning Findings From EU Audit Of Greek & Italian Refugee “Hotspots” (Oxfam)

 

 

The most striking thing about this is how utterly impossible it has become to find an objective discussion of it. I’ll go with Reuters.

Trump Fires FBI Director Comey, Setting Off US Political Storm (R.)

U.S. President Donald Trump ignited a political firestorm on Tuesday by firing FBI Director James Comey, who had been leading an investigation into the Trump 2016 presidential campaign’s possible collusion with Russia to influence the election outcome. The Republican president said he fired Comey, the top U.S. law enforcement official, over his handling of an election-year email scandal involving then-Democratic presidential nominee Hillary Clinton. The move stunned Washington and raised suspicions among Democrats and others that the White House was trying to blunt the FBI probe involving Russia. Some Democrats compared Trump’s move to the “Saturday Night Massacre” of 1973, in which President Richard Nixon fired an independent special prosecutor investigating the Watergate scandal.

White House officials denied allegations that there was any political motive in the move by Trump, who took office on Jan. 20. Senate Democratic leader Chuck Schumer said he spoke to Trump and told him he was “making a very big mistake” in firing Comey, adding the president did not “really answer” in response. An independent investigation into Moscow’s role in the election “is now the only way to go to restore the American people’s faith,” Schumer said. Though many Democrats have criticized Comey’s handling of the Clinton email probe, they said they were troubled by the timing of Trump’s firing of him.

[..] Pushing back against critics of the move, White House officials said Deputy Attorney General Rod Rosenstein, a career prosecutor who took office on April 25, assessed the situation at the FBI and concluded that Comey had lost his confidence. Rosenstein sent his recommendation to Sessions, who concurred and they forwarded their recommendation to Trump, who accepted it on Tuesday, they said. The White House released a memo in which Rosenstein wrote: “I cannot defend the Director’s handling of the conclusion of the investigation of Secretary Clinton’s emails, and I do not understand his refusal to accept the nearly universal judgment that he was mistaken.”

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The facts are classified.

Turning Gen. Flynn into Road Kill (Robert Parry)

Not to defend retired Lt. Gen. Michael Flynn for his suspect judgment, but it should be noted that his case represents a disturbing example of how electronic surveillance and politicized law enforcement can destroy an American citizen’s life in today’s New McCarthyism. The testimony on Monday by former acting Attorney General Sally Yates and former Director of National Intelligence James Clapper offered no evidence of Flynn’s wrongdoing – those facts were deemed “classified” – yet the pair thoroughly destroyed Flynn’s reputation, portraying him as both a liar and a potential traitor. That Senate Democrats, in particular, saw nothing troubling about this smearing of the former director of the Defense Intelligence Agency and, briefly, President Trump’s national security adviser was itself troubling. Republicans were a bit more skeptical but no one, it seemed, wanted to be labeled as soft on Russia.

So, there was no skepticism toward Yates’s curious assertion that Flynn’s supposed lying to Vice President Mike Pence about the details of a phone call with Russian Ambassador Sergey Kislyak somehow opened Flynn to Russian blackmail – her core explanation for why she rushed to Trump’s White House with warnings of this allegedly grave danger. Yates also talked ominously about “underlying” information that raised further questions about Flynn’s patriotism, but that evidence, too, couldn’t be shared with the American people; it was classified, leaving it to your imagination the depth of Flynn’s perfidy. Despite the thinness of Yates’s charges – and the echoes of Sen. Joe McCarthy with his secret lists of communists that he wouldn’t release – the mainstream U.S. news media has bestowed on Yates a hero status without any concern that she might be exaggerating the highly unlikely possibility that the Russians would have blackmailed Flynn.

Her supposition was that since Vice President Mike Pence’s account of the Kislyak-Flynn conversation deviated somewhat from the details of what was actually said, the Russians would seize on the discrepancy to coerce Flynn to do their bidding. But that really makes no sense, in part, because even if the Russians did pick up the discrepancy, they would assume correctly that U.S. intelligence had its own transcript of the conversation, so there would be no basis for blackmail. Yates’s supposed alarm might make for a good spy novel but it has little or no basis in the real world. But it is hard for Americans to assess her claims because all the key facts are classified.

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NATO has become an anti-ISIS vehicle. Wonder if they realize this. Turkey is a member.

NATO Chief Finds a New Friend in Trump (Spiegel)

In Donald Trump’s eyes, NATO Secretary-General Jens Stoltenberg was actually the head of an alliance that history had made superfluous. The new American president made clear during his election campaign that he considered NATO to be a Cold War relic – cumbersome, expensive and useless. But when Stoltenberg appeared at a joint press conference during a visit to the new U.S. leader in the White House, nary a word indicated any resentment over NATO. “I said it was obsolete. It is no longer obsolete,” Trump said in a spectacular turnaround. So what happened? Stoltenberg chuckles at the question before fastening his seat belt. The Belgian air force passenger jet taxis onto the runway at the airport in Rome as it prepares to take off for Brussels. “We learn something new every day,” he says.

“Donald Trump and I discussed how NATO must further develop because the world has changed.” Above all, change means that the Europeans will have to increase their defense spending in the future – both Republican Trump and Social Democrat Stoltenberg are in agreement on the issue. In recent weeks, an alliance has formed between the two, very different men. The blustering U.S. president, who has little foreign policy experience, and the measured secretary-general from Norway are now pulling together, with both desiring more money for the alliance. Stoltenberg, 58, is now paying visits to European capitals in order to drum up the necessary funds. In two weeks, Trump plans to travel to Europe for the first time as U.S. president, and it is no coincidence that one of his first stops on May 25 will be to the massive new NATO headquarters in Brussels.

In addition to his demand for more money from other alliance members, Trump is also hoping NATO will take on a greater role in the fight against Islamic State (IS). He would like to see NATO join the U.S.-led coalition against the terrorist organization. Stoltenberg has long been of the opinion that the era of peace dividends has passed, particularly given Russia’s annexation of Crimea and the IS establishment of a “caliphate” in Syria and Iraq. But it was only with Trump’s election that his demands have gained significant momentum. Ironically, the very man who until recently considered NATO to be superfluous is now one of Stoltenberg’s closest allies.

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And this flies straight in the face of Turkey’s NATO membership.

Trump Approves Plan to Arm Syrian Kurds (NBC)

Two U.S. defense officials tell NBC News that President Donald Trump has approved a plan to arm the Syrian Kurdish militia — an important U.S. ally in Syria in the fight against ISIS. One of the officials said the move is significant because it supports the notion that the Syrian Democratic Force is the fighting force that will eventually go in to Raqqa, a city in Syria’s center which has been under ISIS control since 2014. The move also reinforces the idea that the entire Syrian Democratic Force, Syrian Kurds (YPG) and the Syrian Arab Coalition, has the backing of the U.S. Trump and members of the Cabinet spoke about it during a meeting late yesterday at the White House with Secretary of Defense James Mattis joining by video teleconference.

The order has been signed and that “allows the process to begin to function,” one official said. Once the order comes to the Pentagon, the U.S. can begin providing the Syrian Kurds with arms and equipment fairly quickly since some equipment is pre-positioned. [..] The Turks will be notified about the decision soon and the officials expect a strong reaction from them. In March, Secretary of State Rex Tillerson traveled to Turkey to meet with President Recep Tayyip Erdogan, who sees the YPG as terrorists.

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Erdogan is not amused. And his recent attack on Israel won’t help.

Turkey Hopes US Will End Support Of Syrian Kurdish YPG (R.)

Turkey hopes the United States will end its policy of supporting the Syrian Kurdish YPG militia, Deputy Prime Minister Nurettin Canikli said on Wednesday, adding that Ankara could not accept its NATO ally backing the group. Canikli’s comments are among the first official responses after U.S. officials said on Tuesday that President Donald Trump has approved supplying arms to the YPG to support an operation to retake the Syrian city of Raqqa from Islamic State. Ankara views the YPG as the Syrian extension of the outlawed Kurdistan Workers Party (PKK), considered a terrorist group by the United States, Turkey and Europe. The United States sees the YPG as a valuable partner in the fight against Islamic State in northern Syria.

“We cannot accept the presence of terrorist organizations that would threaten the future of the Turkish state,” Canikli said in an interview with Turkish broadcaster A Haber. “We hope the U.S. administration will put a stop to this wrong and turn back from it. Such a policy will not be beneficial, you can’t be in the same sack as terrorist organizations.” Turkish President Tayyip Erdogan is expected to meet Trump in Washington next week. Erdogan has repeatedly castigated the United States for its support for the YPG, saying its NATO ally should support it fully in the fight against terrorism. The Pentagon has sought to stress that it saw arming the Kurdish forces as necessary to ensure a victory in Raqqa, Islamic State’s de facto capital in Syria and a hub for planning the group’s attacks against the West.

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Extremely incompetent. But the CIA doesn’t have to be competent, all it has to do is be secretive.

Assange: ‘CIA Is Basically Useless, Incompetent’ (Exp.)

Mr Assange, declared by the Donald Trump administration as US public enemy number one, was speaking ahead of a live Spanish television interview. He told current affairs show When It’s Gone: “The CIA is basically useless. They are extremely incompetent as an organisation. “It is the organisation that gave us the end of democracy in Iran, Pinochet, the destruction of Libya, the rise of ISIS within Libya, al-Qaeda, the Syrian disaster and the Iraq war. “It is one of the most useless organisations in the world.” US intelligence agencies have concluded that Russia was behind the hack, and used Wikileaks to harm the chances of Mrs Clinton and favour Mr Trump. Mr Assange said the release was not intended to affect the election.

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“This is the greatest suckers rally we’ve ever seen.”

Stockman: There Is No Reason To Own Stocks At This Point In The Game (DR)

[..] “There will be panic in the financial markets. This is not priced in. The market isn’t expecting anything. I think it will cause some very difficult times.” The interviewer then asked what his expectations on a government shutdown would look like with Trump.” [..] “I doubt he’ll go for a shutdown by choice. The leadership is not going to stand for it. They have a false idea that Republicans can govern by keeping the Washington Monument open even if we’re bankrupting the country by piling spending. I don’t think they’re going to elect to have a shutdown. What I think is going to happen instead is they’re going to run out of borrowing authority with the debt ceiling, it is now frozen on March 15. We’re locked in at $19.8 trillion so when they run out of cash in a few months, they’ll need a majority in both houses to vote through a multi-trillion bill in both houses. They won’t have the votes.”

[..] “The market is pricing itself for perfection for all of eternity. This is crazy. We’ve got headwinds everywhere. The auto industry is now starting to roll over. The red ponzi in China has only a matter of time before it explodes. We now have debt for the household sector above where it was for the 2008 crisis. I think the market could easily drop to 1,300-1,600 by 30% or more once the fantasy ends. The government will show its true colors. We are headed for a fiscal bloodbath.” Stockman voiced his concern for clarity remarking, “This crazy notion that there is going to be a Trump tax cut and fiscal stimulus must be put to rest once and for all. It’s not going to happen. They can’t pass a tax cut that big without a budget resolution that incorporates $10 or $15 trillion of debt over the next decade. Week by week, slowly the market is beginning to figure this out.

What it means is, all of the corporate insiders are selling stock like there is no tomorrow… where institutional sales of stock have been going up since the election and what we have is the usual end of the cycle. This is the greatest suckers rally we’ve ever seen.” When asked what he would recommend to protect yourself he urged, “The main thing is, get out of the markets. These markets are unstable. They’re rigged and unsustainable… there is no reason to own stocks at this point in the game. It is so overvalued that maybe you can get another two or three out but you’re facing a 30% or 40% down. The risk versus reward is horrible. The bond market is one giant bubble because the central bank’s have been buying bonds worldwide. They’re buying a trillion and still buying a trillion or so on an annual basis. All of that is coming to a halt.”

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Credit is still cheap. Even, or especially, depending on how you look at it, for zombies.

Shale Drillers Are Outspending the World With $84 Billion Spree (BBG)

U.S. shale explorers are boosting drilling budgets 10 times faster than the rest of the world to harvest fields that register fat profits even with the recent drop in oil prices. Flush with cash from a short-lived OPEC-led crude rally, North American drillers plan to lift their 2017 outlays by 32% to $84 billion, compared with just 3% for international projects, according to analysts at Barclays. Much of the increase in spending is flowing into the Permian Basin, a sprawling, mile-thick accumulation of crude beneath Texas and New Mexico, where producers have been reaping double-digit returns even with oil commanding less than half what it did in 2014. That’s bad news for OPEC and its partners in a global campaign to crimp supplies and elevate prices. Wood Mackenzie estimates that new spending will add 800,000 barrels of North American crude this year, equivalent to 44% of the reductions announced by the Saudi- and Russia-led group.

“The specter of American supply is real,” Roy Martin, a Wood Mackenzie research analyst in Houston, said in a telephone interview. “The level of capital budget increases really surprised us.” Drilling budgets around the world collapsed in 2016 as the worst crude market collapse in a generation erased cash flows, forcing explorers to cancel expansion projects, cut jobs and sell oil and natural gas fields to raise cash. The pain also swept across OPEC, which in November relented by agreeing with several non-OPEC nations to curb output by 1.8 million barrels a day. Oil prices that initially popped above $55 in the weeks after the cut was announced have since dipped to around $46, reflecting pessimism that the OPEC-led deal can withstand the onslaught of U.S. shale.

[..] EOG, the second-largest U.S. explorer that doesn’t own refineries, plans to boost spending by 44% this year to between $3.7 billion and $4.1 billion. Pioneer is eyeing a 33% increase to $2.8 billion. The sub-group that includes North American shale drillers like EOG and Pioneer is collectively targeting $53 billion in spending this year, up from $35 billion in 2016, according to the Barclays analysts. U.S. oil production is already swelling, even though output from the new wells being drilled won’t materialize above ground for months. The Energy Department’s statistics arm raised its full-year 2017 supply estimate to 9.31 million barrels a day on Tuesday, a 1% increase from the April forecast. Next year, U.S. fields will pump 9.96 million barrels a day, 0.6% more than the department estimated last month.

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What are the odds anyone will be charged that May wants to keep on?

UK Tory MPs Could Learn Fate Of Electoral Spending Inquiry By Wednesday (G.)

Dozens of Conservative MPs expect to learn shortly whether they will be charged with fraud in relation to their spending at the last election, as deadlines for the Crown Prosecution Service to make a decision approaches. MPs and their agents have been under investigation by 14 police forces for more than a year over their spending declarations at the 2015 election. They are now likely to learn their fates before the general election, possibly as soon as Wednesday as the various time limits for bringing charges are coming to an end. If it happens on Wednesday, this could be in time for Theresa May to jettison any candidates facing prosecution before the deadline for final nominations at 4pm on Thursday, but the timeline for replacements would be extremely tight.

Any decision to prosecute them would be an explosive twist in the general election with more than 20 MPs in the last parliament potentially facing charges under the Representation of the People Act. But the bar for prosecution is considered to be high, with the police having to prove intent to submit wrongful expenditure claims. Tory MPs maintain they recorded their spending as directed by the national party. The allegations centre around the declaration of spending on Conservative battle bus tour in 2015, which took activists to dozens of marginal seats before the election. This was declared as national campaign spending, with the Tories some millions below their official limit. But it emerged that the activists had been campaigning on behalf of specific Conservative MPs, rather than the party generally, leading to claims that the spending should have been record as local expenditure.

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Bit of an oddity for now. But events could change that, fast.

Anonymous Warns World To ‘Prepare’ For World War 3 (NYP)

The infamous hacktivist group Anonymous has released a chilling new video — urging people across the globe to “prepare” for World War 3 – as the US and North Korea continue to move “strategic pieces into place” for battle. “All the signs of a looming war on the Korean peninsula are surfacing,” the group says in the ominous six-minute clip, posted on YouTube over the weekend. Using their signature Guy Fawkes character, the hackers make several claims about recent military movements in the region — and alleged warnings made by Japan and South Korea about imminent nuclear attacks from the North — as they deliver their frightening prophecy. “Watching as each country moves strategic pieces into place,” the organization says, in its notorious robotic voice. “But unlike past world wars, although there will be ground troops, the battle is likely to be fierce, brutal and quick. It will also be globally devastating, both on environmental and economical levels.”

According to Anonymous, President Trump’s test of the Minuteman 3 intercontinental ballistic missile last week — coupled with a recent warning from Japanese officials to citizens, telling them to make preparations for a possible nuclear attack — are ultimately proof that all signs are pointing to a major conflict between the US and North Korea. In addition, China reportedly has urged its citizens in the Hermit Kingdom to return home as tensions continue to escalate over their nuclear weapons program. “This is a real war with real global consequences,” the group explains. “With three superpowers drawn into the mix, other nations will be coerced into choosing sides, so what do the chess pieces look like so far?”

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Macron as evil incarnate.

French Election A Catastrophe For World Peace (Paul Craig Roberts)

Marine Le Pen’s defeat, if the vote count was honest, indicates that the French are even more insouciant than Americans. The week before the election the Russian high command announced that Washington had convinced the Russian military that Washington intended a preemptive nuclear first strike against Russia. No European leader saw danger in this annoucement except Le Pen. No European leader, and no one in Washington, has stepped forward to reassure the Russians. In the US apparently only my readers even know of the Russian conclusion. Simply nothing is said in the Western media about the extraordinary risk of convincing Russia that the US is preparing a first strike against Russia. Nothing in the 20th century Cold War comes close to this. Le Pen, as Trump did prior to his castration by the military/security complex, understands that military conflict with Russia means death for humanity.

Why were the French voters unconcerned with what may be their impending deaths? The answer is that the French have been brainwashed into believing that to stand for France, as Marine Le Pen does, is to place patriotism and nationalism above diversity and is fascist. All of Europe, except for the majority of the British, has been brainwashed into the belief that it is Hitler-like or fascist to stand up for your country. For a French man or woman to escape the fascist designation, he or she must be Europeans, not French, German, Dutch, Italian, Greek, Spanish, Portuguese. Brainwashed as the French are that it is fascist to stand up for France, the French voted for the international bankers and for the EU. The French election was a disaster for Europeans, but it was a huge victory for the American neoconservatives who will now be able to push Russia to war without European opposition.

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Macron as a hologram.

Emmanuel Clinton and the Revolt of the Elites (Escobar)

So in the end the West was saved by the election of Emmanuel Macron as President of France: relief in Brussels, a buoyant eurozone, rallies in Asian markets. That was always a no-brainer. After all, Macron was endorsed by the EU, Goddess of the Market, and Barack Obama. And he was fully backed by the French ruling class. This was a referendum on the EU – and the EU, in its current set-up, won. Cyberwar had to be part of the picture. No one knows where the MacronLeaks came from – a last minute, massive online dump of Macron campaign hacked emails. WikiLeaks certified the documents it had time to review as legitimate. That did not stop the Macron galaxy from immediately blaming it on Russia. Le Monde, a once-great paper now owned by three influential Macron backers, faithfully mirrored his campaign’s denunciation of RT and Sputnik, information technology attacks and, in general, the interference of Russia in the elections.

The Macron Russophobia in the French media-sphere also happens to include Liberation, once the paper of Jean-Paul Sartre. Edouard de Rothschild, the previous head of Rothschild & Cie Banque, bought a 37% controlling stake in the paper in 2005. Three years later, an unknown Emmanuel Macron started to rise in the mergers and acquisitions department, soon acquiring a reputation as “the Mozart of finance.” After a brief stint at the Ministry of Finance, a movement, En Marche! was set up for him by a network of powerful players and think tanks. Now, the presidency. Welcome to the revolving door, Moet & Chandon-style. In the last TV face-off with Marine Le Pen, Macron did not shy from displaying condescending/rude streaks and even raked some extra%age points by hammering “Marine” as a misinformed, corrupt, “hate-filled” nationalist liar who “feeds off France’s misery” and would precipitate “civil war.”

That may in fact come back to haunt him. Macron is bound to be a carrier of France’s internal devaluation; a champion of wage “rigor,” whose counterpoint will be a boom of under-employment; and a champion of increasing precariousness on the road to boost competitiveness. Big Business lauds his idea of cutting corporate tax from 33% to 25% (the European average). But overall, what Macron has sold is a recipe for a “see you on the barricades” scenario: severe cuts in health spending, unemployment benefits and local government budgets; at least 120,000 layoffs from the public sector; and abrogation of some key workers’ rights. He wants to advance the “reform” of the French work code – opposed by 67% of French voters – ruling by decree.

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Macron as a greater fool.

Paris Afterparty (Jim Kunstler)

First mistake: Emmanuel Macron’s handlers played Beethoven’s “Ode to Joy” instead of the French national anthem at the winner’s election rally. Well, at least they didn’t play “Deutschland Über Alles.” The tensions in the Euroland situation remain: the 20%-plus youth unemployment, the papered-over insolvency of the European banks, and the implacable contraction of economic activity, especially at the southern rim of the EU. The clash of civilizations brought on by the EU’s self-induced refugee glut still hangs over the continent like a hijab. That there was no Islamic terror violence around the election should not be reassuring. The interests of the jihadists probably lie in the continued squishiness of the status quo, with its sentimental multiculture fantasies — can’t we all just get along? — so En Marche was their best bet. LePen might have pushed back hard. Macron looks to bathe France’s Islamic antagonists in a nutrient-medium of Hollandaise lite.

The sclerosis of Europe is assured for now. But events are in charge, not elected officials so much, and Europe’s economic fate may be determined by forces far away and beyond its power to control, namely in China, where the phony-baloney banking system is likely to be the first to implode in a global daisy-chain of financial uncontrolled demolition. Much of that depends on the continuing stability of currencies. The trouble is they are all pegged to fatally unrealistic expectations of economic expansion. Without it, the repayment of interest on monumental outstanding debt becomes an impossibility. And the game of issuing more new debt to pay the interest on the old debt completely falls apart. Once again, the dynamic relationship between real capital creation and the quandaries of the oil industry lurks behind these failures of economy.

In a crisis of debt repayment, governments will not know what else to do except “print” more money, and this time they are liable to destroy faith in the value of “money” the world over. I put “money” in quotation marks because the dollars, euros, yuan, and yen are only worth what people believe them to be, subject to measurement against increasingly fictional indexes of value, such as interest rates, stock and bond markets, government-issued employment and GDP stats, and other benchmarks so egregiously gamed by the issuing authorities that Ole Karl Marx’s hoary warning finally comes to pass and everything solid melts into air.

Revolving credit seemed like a good idea through the 20th century, and it sure worked to build an economic matrix based on cheap energy, which is, alas, no more. What remains is the wishful pretense that the old familiar protocols can still work their magic. The disappointment will be epic, and the result next time may be political figures even worse than LePen and Trump. Consider, though, that what you take for the drumbeat of nationalism is actually just a stair-step down on a much-longer journey out of the globally financialized economy. Because the ultimate destination down this stairway is a form of local autarky that the current mandarins of the status quo can’t even imagine.

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They want it all, all of Greece. Beware.

Germany: Greek Gold, Real Estate As Collateral If IMF Out Of Program (KTG)

The Bavarian Minister of Finance, Markus Soeder (CSU), a fierce Grexit supporter of Merkel’s CDU sister party apparently has moved away from his demand for a Greek euro exit. During a visit to Athens, Soeder said that the problems around Britain’s exit from the EU showed how difficult a Grexit would be. In addition, the Brexit already causes enough uncertainty. and Germany wants neither problems, nor uncertainty that could harm its profits especially before the parliamentary elections in autumn 2017. As Grexit is out of question, Greece should use gold reserves and real estate as collateral if the IMF stays out of the Greek program. However, Markus Soeder brought back an older idea of his, an idea he openly formulated in February 2017: that Greece pledges Gold, cash and real estate in order to get the bailout tranches, the loans by the European creditors, who love to call them financial aid.

“Soeder did not give up serious demands on Greece wile he was in Athens,” German magazine Der Spiegel writes. If the IMF does not participate in the Greek program, “new money can only be provided against collateral such as cash or real estate,” Soeder said. Soeder referred to Finland that participated in the second aid package for Greece only in 2012 and only after then Greek finance minister Evangelos Venizelos signed a bilateral agreement on colateral. “This worked,” the CSU politician said about the deal. Soeder’s demand is, however, amply theoretical, since he continues to regard an IMF participation as indispensable. He has the same problem as Federal Minister of Finance Wolfgang Schäuble (CDU): He strongly rejects further debt relief, as the IMF makes it a condition. “I have made it quite clear that a debt cut is out of question for Germany, as it the idea about issuing Eurobonds or similar.”

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Brussels pisses on Greek courts.

Greek Court Finds New Pension Cuts Illegal Under Greek, European Law (K.)

The Plenary of the State Audit Council has ruled that the cuts to main and supplementary pensions that the government and its creditors have agreed on contravene the European Convention of Human Rights, sources said on Tuesday night. The council also decided that the fiscal bill containing the cuts, to be implemented from 2019, contravenes Greek legislation as it has been tabled to the audit council without an actuarial study. A bill, outlining the pension cuts and other measures agreed with creditors is due to go to a vote in Parliament next week.

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Nothing new here. WIll anything change now that an EU body finds the same many others have before them?

Damning Findings From EU Audit Of Greek & Italian Refugee “Hotspots” (Oxfam)

1. EU Court of Auditors found “overcrowded” camps, migrants “sleeping rough”, and “scant access to basic services” According to the Court of Auditors, hotspots are seriously overcrowded, particularly on the Greek islands of Lesvos, Chios and Samos. People are fleeing from the camps, because they don’t have sufficient access to water and there are too few doctors to provide adequate health care. People also didn’t feel safe in the hotspots since fights often break out in the camps. Many of these people ended up sleeping on the streets outside the hotspots. The appalling situation in hotspots is also documented by NGOs, who have reported that people in the hotspots have been exposed to degrading conditions and had their rights denied. More than 2,000 people were forced to sleep in barely heated tents during the freezing winter.

2. Children held for months in “inappropriate conditions” against international laws and standards, the auditors say The auditors raised serious concerns about the situation of unaccompanied children in hotspots. In most hotspots children were confined either to fenced areas, or accommodated without protection from adults, exposing them to the risk of abuse. Children were held for three months or more closed in behind fences in the Moria hotspot after it was converted to a de-facto detention centre. In some hotspots, girls and boys were held together, against standard practice. NGOs have been raising concerns about this situation for months. Now the Court of Auditors has confirmed that the welfare of the children in Moria was put at risk.

3. ‘‘No framework for remedying bottlenecks or sharing lessons learnt”, the Court found Overall, the ‘hotspot approach’ has been disorganised and inconsistent, the EU auditors found. The absence of consistent guidelines for the way hotspots should be managed means that responsibilities between the various actors are not clearly defined. Conditions and services are far worse in some hotspots than in others. The unfairness of this inconsistency has been criticised by NGOs, who have also highlighted the lack of oversight over decisions and accountability for human rights violations.

Furthermore, it is difficult to track the situation of people in the hotspots and how the management of the camps affects them – because key data is not shared between authorities. Neither the length of time migrants spend in hotspots while waiting to register and complete their asylum application in Greece, nor the total number of migrants identified, registered, or receiving return orders in Italy was shared. The Court of Auditor’s recommendations to better define the roles of the different agencies involved and to appoint a manager for each hotspot exposes that management is currently lacking.

4. The auditors highlight that the “functioning of hotspots is affected by bottle-necks in the follow-up procedures” The hotspots were meant to be just a first step in the EU’s migration response. Member states should then have stepped in to facilitate the relocation and integration of these people across Europe, or facilitate their safe and dignified return. That has not happened. The set-up of the hotspots is a completely new way for national governments to cooperate with EU institutions and agencies within a member state’s territory. If follow up continues to falter, the pressure on the hotspots will only grow. This could lead to people living in the hotspots being exposed to even more suffering, and the risk that authorities will abandon acceptable legal and living standards increases. This has been evident since December, if not earlier.

5. The EU-Turkey deal “had a major impact on the functioning of hotspots” and on detentions, the auditors say The EU-Turkey deal of March 2016 had a great impact on the functioning of the hotspots, as becomes evident when we look at the details of the auditors’ report. When the deal with Turkey was announced, hotspots turned into de-facto detention centres, provoking criticism from many NGOs. But the current European approach only attempts to increase the use of detention for asylum seekers even further. The auditors have detailed the hotspots procedures in the annex to their report, and reading this makes clear how difficult it is not to be detained in the process they record.

The findings of the European Court of Auditors suggest that hotspots are being made to work at the expense of people, for the sake of fulfilling policy objectives. It is vital that safeguards are in place to ensure that people are not forced to stay in the hotspots under the conditions the EU auditors and NGOs have found to be degrading. Very close scrutiny is needed to protect the rights of those who arrive looking for safety on Europe’s shores.

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Jul 162016
 
 July 16, 2016  Posted by at 9:18 am Finance Tagged with: , , , , , , , ,  


Jack Delano Main street intersection, Norwich, Connecticut 1940

Brexit Or Not, The Pound Will Crash (EvBB)
BOE Chief Economist Haldane Calls For Big Post-Brexit Stimulus (G.)
Philip Hammond Promises ‘Whatever Measures’ To Stabilise Economy (Ind.)
Dow Extends Record Streak as US Stocks Post Weekly Gains (WSJ)
EU Plays Catch-Up on Swaps Collateral Under US Pressure (BBG)
$35 Billion Pension Bomb Shows Who Really Has Power in Poland (BBG)
EU Commission Has Known for Years about Diesel Manipulation (Spiegel)
Economics Is For Everyone! (Chang)

 

 

“Few have lived as high on the hog as the Brits have.”

Brexit Or Not, The Pound Will Crash (EvBB)

Status quo, as our generation know it, established in 1945 has plodded along ever since. It is true that it have had near death experiences several times, especially in August 1971 when the world almost lost faith in the global reserve currency and in 2008 when the fractional reserve Ponzi nearly consumed itself. While the recent Brexit vote seem to be just another near death experience we believe it says something more fundamental about the world. When the 1945 new world order came into existence, its architects built it on a shaky foundation based on statists Keynesian principles. It was clearly unsustainable from the get-go, but as long as living standards rose, no one seemed to notice or care. The global elite managed to resurrect a dying system in the 1970s by giving its people something for nothing.

Debt accumulation collateralized by rising asset values became a substitute for productivity and wage increases. While people could no longer afford to pay for their health care, education, house or car through savings they kept on voting for the incumbents (no, there is no difference between center left and right) since friendly bankers were more than willing to make up the difference. It is clear for all to see but the Ph.Ds. that frequent elitist policy circles that the massive misallocation and consumption of capital such a perverted system enables will eventually collapse on itself. Debt used to be productive, id est. self-liquidating, but now it is used for consumption backed by future income projections based on historical experience.

However, one should not extrapolate future income streams from a historical regime when the new one is fundamentally different. The promised incomes obviously never materialized and the world reached peak debt. The credit Ponzi is dead. Consider the following chart that depicts decennial change in average real earnings for the UK worker. It shows an unprecedented development. Not since the 1860s have the UK worker experienced falling real earnings over a ten-year period. Such dramatic change obviously does something to the so-called social contract people have been tricked into. People no longer believe in a brighter future and there is nothing more detrimental to a human being than that.

No longer vested in the status quo, people opt for radical change, hence; Brexit, Trump, Le Pen, Lega Nord, M5S. Old rules does not apply anymore. Over the next couple of years, we will experience a torrent of sea change, a lot of it unpleasant, but it will come nonetheless. In the social contract, immigration is OK when jobs are plentiful and people’s houses are worth more every year. Not so much when they are unemployed and without a house or even prospects of ever owning one. Corruption in the higher echelons of society is grudgingly accepted when the elite allegedly runs a system where incomes and productivity constantly moves upwards, but will not be tolerated as blue collar jobs are moved offshore.

[..] So what does this mean for the UK specifically? Few have lived as high on the hog as the brits have. Their current account deficit at 6 per cent of GDP is reminiscent of countries heading into depressions. In the mid-1970s, the IMF had to bail them out and in the early 1990s, the infamous ERM regime collapsed as Soros made his billion. The pound got a pounding on the Brexit vote, but it was destined to fall anyways. The adjustment needed to correct this imbalance is not over and we should all expect a far weaker pound in the months and years ahead. Brexit only triggered what was already baked into the cake in the first place.

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Stuck in BAU.

BOE Chief Economist Haldane Calls For Big Post-Brexit Stimulus (G.)

The Bank of England’s chief economist has called for a big package of measures to support the UK’s post-Brexit economy, stressing the need for a prompt and robust response to the uncertainty. Andy Haldane made it clear the Bank’s monetary policy committee would do more than merely cut interest rates from their already record low of 0.5% when it meets in August. The Bank’s chief economist used a speech to warn that decisive action was required at a time when confidence had been dented by the shock referendum result. “In my personal view, this means a material easing of monetary policy is likely to be needed, as one part of a collective policy response aimed at helping protect the economy and jobs from a downturn.

“Given the scale of insurance required, a package of mutually complementary monetary policy easing measures is likely to be necessary. And this monetary response, if it is to buttress expectations and confidence, needs I think to be delivered promptly as well as muscularly. By promptly I mean next month, when the precise size and extent of the necessary stimulatory measures can be determined as part of the August inflation report round.” The Bank surprised the City when it left interest rates on hold at its July meeting held this week, but the minutes of the MPC’s discussions said most of its nine members thought an easing of policy would be required in August.

The tone and content of Haldane’s speech suggest that the MPC will use public appearances to make the case for strong action in August. Options include cutting interest rates to 0.25% or lower, restarting the Bank’s £375bn quantitative easing scheme and providing cut price loans to banks under the funding for lending scheme. [..] In a reference to the prison movie The Shawshank Redemption Haldane said: “I would rather run the risk of taking a sledgehammer to crack a nut than taking a miniature rock hammer to tunnel my way out of prison – like another Andy, the one in the Shawshank Redemption. And yes I know Andy did eventually escape. But it did take him 20 years. The MPC does not have that same ‘luxury’.”

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This headline somehow seems to perfectly capture UK politics today. Whatever.

Philip Hammond Promises ‘Whatever Measures’ To Stabilise Economy (Ind.)

Philip Hammond, the UK’s newly appointed chancellor of the exchequer, said the vote to leave the EU had “rattled confidence” and that he will take “whatever measures” needed to shore up the British economy. “The number one challenge is to stabilise the economy, send signals of confidence about the future, the plans we have for the future to the markets, to business, to international investors,” Hammond said in a Sky News interview. Hammond’s comments came ahead of a meeting later on Thursday of Bank of England policy makers who will debate whether to reduce the key interest rate for the first time since 2009.

The Bank’s governor, Mark Carney, is seeking to stave off further turmoil after the pound plunged and consumer confidence dropped to a 21-year low in the wake of last month’s decision to quit the EU. The chancellor, appointed to the role late on Wednesday by new prime minister, Theresa May, will meet Carney on Thursday morning “to make an assessment of where the economy is,” he said in a BBC TV interview. He added: “I think the governor of the Bank of England is doing an excellent job.”

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It’s embarrassing to watch.

Dow Extends Record Streak as US Stocks Post Weekly Gains (WSJ)

The Dow Jones Industrial Average hit its fourth consecutive closing high on Friday, rising 10.14 points, or less than 0.1%, to 18516.55. For the week, it gained 2%. The S&P 500’s rally put the index above the mean average of year-end targets from 18 analysts tracked by Birinyi Associates. Collectively, those analysts predicted, as of July 6, that the S&P 500 would finish this year at 2153. The index closed above that level on Friday, at 2161.74, despite slipping 0.1% after four record closes in a row. Analysts revise their year-end targets throughout the year. In mid-January, the average year-end target was 2198, according to Birinyi Associates.

Markets elsewhere rallied for the week. Japan’s Nikkei Stock Average rose 9.2% over five sessions, its best performance in 6 1/2 years. The Stoxx Europe 600 rose 3.2% in the week. “The market is showing us, if nothing else, its resilience,” said Jason Browne, chief investment officer of FundX Investment Group in San Francisco. Investors began to put money back into riskier assets such as stocks, an encouraging sign to those who had worried about the stream of money leaving equity funds this year. In the seven days to July 13, investors poured a net $7.8 billion into U.S. equity funds, according to data provider Lipper. It was the first weekly inflow since late April.

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I could see Brexit having a role here.

EU Plays Catch-Up on Swaps Collateral Under US Pressure (BBG)

European Union regulators are considering ways to speed the implementation of collateral requirements for derivatives as the bloc’s failure to meet a global deadline threatens to fracture the $493 trillion market. The European Commission said last month it wouldn’t meet a Sept. 1 global deadline. In a draft letter addressed to the main EU regulators, the bloc’s executive arm is now proposing to adapt its plans to “align with the internationally agreed timelines as closely as possible.” Previously, the commission said it would finish EU technical rules on margins for non-centrally cleared over-the-counter derivatives by year-end and have them take effect before mid-2017. That prompted a backlash from regulators in Washington and Tokyo, who said they intended to impose the rules on schedule, while leaving the door open to a delay.

The regulations will apply billions of dollars in collateral demands to swaps traded by the world’s largest banks, including JPMorgan Chase, Barclays and Deutsche Bank. The financial industry has called for global regulators to enforce the requirements at the same time to avoid creating the potential for regulatory arbitrage between jurisdictions. The Basel Committee on Banking Supervision, which includes regulators from around the world, helped set the international deadlines that start taking effect for the biggest banks in September and ratchet up starting in March 2017. The over-the-counter swap market is estimated at $493 trillion by the Bank for International Settlements. In the undated draft letter seen by Bloomberg, the commission proposed that the requirements would take effect one month after the EU’s technical rules enter into force.

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The age of the strongman is upon us. This one takes pensions.

$35 Billion Pension Bomb Shows Who Really Has Power in Poland (BBG)

It took up less than a minute of a one-hour speech, but led to an unexpectedly busy weekend for the Polish Ministry of Development in Warsaw. At the governing Law & Justice Party’s congress on the first Saturday of this month, leader Jaroslaw Kaczynski spelled out his vision for the country. He mentioned briefly that Poland should do more with the money parked in its retirement funds. At Kaczynski’s ministry of choice for economic policy, senior officials swiftly rounded up colleagues to work through Sunday so that at 8:30 a.m. the next day – before financial markets opened – an overhaul of the $35 billion pension industry could be unveiled. Investment companies were incredulous and the stock market dropped, though it came as little surprise to the people close to the real power in Poland.

Kaczynski, 67, holds no office beyond his role as lawmaker – he’s not the prime minister, president and doesn’t even run a department. His drumbeat of mistrust for both Russia and western Europe, the them-and-us attacks on Poland’s post-communist elite and his courting of the Catholic church give him enough of a devoted following that he needs no title. “Politically, he’s a sort of commander in chief or a first secretary we knew from the times of communism,” said Marek Migalski at Silesian University in Katowice. A former Law & Justice lawmaker in the European Parliament, he was ostracized by the party for criticizing Kaczynski in 2010. “I’d say that for his supporters, he’s even more than Moses. It’s not just a notion that Kaczynski is doing only good things, it’s the conviction that things that are done by Kaczynski are good.”

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Anyone ever doubted this?

EU Commission Has Known for Years about Diesel Manipulation (Spiegel)

Since at least 2010, the European Commission has been in possession of concrete evidence that automobile manufacturers were cheating on emissions values of diesel vehicles, according to a number of internal documents that SPIEGEL ONLINE has obtained. The papers show that emissions cheating had been under discussion for years both within the Commission and the EU member state governments. The documents also show that the German government was informed of a 2012 meeting on the issue. The scandal first hit the headlines in 2015 when it became known that Volkswagen had manipulated the emissions of its diesel vehicles. The records provide a rough chronology of the scandal, which reaches back to the middle of the 2000s.

Back then, European Commission experts noticed an odd phenomenon: Air quality in European cities was improving much more slowly than was to be expected in light of stricter emissions regulations. The Commission charged the Joint Research Centre (JRC) – an organization that carries out studies on behalf of the Commission – with measuring emissions in real-life conditions. To do so, JRC used a portable device known as the Freeway Performance Measurement System (PeMS), which measures the temperature and chemical makeup of emissions in addition to vehicle data such as speed and acceleration. This technology, which was later used to reveal VW emissions manipulation in the United States, was largely developed by the JRC.

JRC launched their PeMS tests in 2007 and quickly discovered that nitrogen oxide emissions from diesel vehicles were much higher under road conditions than in the laboratory. The initial results were published in a journal in 2008 and they came to the attention of the Commission. On Oct. 8, 2010 – roughly three years after the JRC tests – an internal memo noted that it was “well known” that there was a discrepancy between diesel vehicle emissions during the type approval stage (when new vehicle models are approved for use on European roads) and real-world driving conditions. The document also makes the origin of this discrepancy clear: It is the product of “an extended use of certain abatement technologies in diesel vehicles.”

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Wow. A feast for the eye and the mind. Don’t miss it.

Economics Is For Everyone! (Chang)

‘Economics is for everyone’, argues legendary economist Ha-Joon Chang in our latest mind-blowing RSA Animate. This is the video economists don’t want you to see! Chang explains why every single person can and SHOULD get their head around basic economics. He pulls back the curtain on the often mystifying language of derivatives and quantitative easing, and explains how easily economic myths and assumptions become gospel. Arm yourself with some facts, and get involved in discussions about the fundamentals that underpin our day-to-day lives.

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Jul 022015
 
 July 2, 2015  Posted by at 9:49 am Finance Tagged with: , , , , , , , ,  


William Henry Jackson New Orleans, “Canal Street from the Clay monument” 1890

Varoufakis Says He Won’t Be Finance Minister After a ‘Yes’ Vote
Why We Recommend A NO In The Referendum – In 6 Short Bullet Points (Varoufakis)
Juncker, Draghi and Lagarde Should Hang Their Heads In Shame (Davis)
Syriza Can’t Just Cave In. Europe’s Elites Want Regime Change In Greece (Milne)
“US Should Have Stopped IMF From Sending Redlined Document To Greece” (HuffPo)
US Sen. Bernie Sanders Blasts Greece’s Creditors (HuffPo)
Europe Wants to Punish Greece With Exit (Crook)
Democracy And Monetary Union: How Not To Do It (Janssen)
Europe Has Suffered A Reputational Catastrophe In Greece (AEP)
Tsipras Refuses To Bow To Threats To Greek Banking System (Telegraph)
In Greek Crisis, Germany Should Learn From Its Fiscal Past (WaPo, Jan 28)
In Athens, Scavenging From Bins Has Become A Way To Survive (Telegraph)
The Hard Line on Greece (Sorkin)
Fear-Mongering Is The Enemy Of Democracy (Suzanne Moore)
How Varoufakis Saw The “Worst Case Scenario” Over A Year Ago (Zero Hedge)
Berlin Accuses Tsipras Of Seeking Scapegoats Outside Own Ranks (Guardian)
Greek Tourism Bookings Are Nosediving (Kathimerini)
China Eases Margin Lending Rules to Support Flagging Stock Market (FT)
China’s Fix for a Margin-Debt Boom Roiling Stocks? More Leverage (Bloomberg)
Normal Banks Are Helping Shadow Banks Grow, a Lot (Bloomberg)
Reaganomics Won’t Save Japan (Pesek)
Belgium Adopts Law Against ‘Vulture Funds’ (AFP)
China’s May Thermal Coal Imports Collapse 41% On-Year (HSN)

How and why could this surprise people? Of course he steps down. Fantastic interview on Bloomberg. Said he’d cut his arm off before signing a deal without debt restructuring.

Varoufakis Says He Won’t Be Finance Minister After a ‘Yes’ Vote

Greek Finance Minister Yanis Varoufakis said he would resign if Greece votes to accept European Union bailout proposals. In the event of a “yes” vote in Sunday’s referendum, “I will not” be finance minister on Monday evening, Varoufakis said in an interview in Athens with Bloomberg Television. “But I will help whoever is.” Varoufakis said that he expects Greeks to reject the bailout proposals.

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Straightforward. No use getting scared now.

Why We Recommend A NO In The Referendum – In 6 Short Bullet Points (Varoufakis)

1) Negotiations have stalled because Greece’s creditors (a) refused to reduce our un-payable public debt and (b) insisted that it should be repaid ‘parametrically’ by the weakest members of our society, their children and their grandchildren

2) The IMF, the United States’ government, many other governments around the globe, and most independent economists believe — along with us — that the debt must be restructured.

3) The Eurogroup had previously (November 2012) conceded that the debt ought to be restructured but is refusing to commit to a debt restructure

4) Since the announcement of the referendum, official Europe has sent signals that they are ready to discuss debt restructuring. These signals show that official Europe too would vote NO on its own ‘final’ offer.

5) Greece will stay in the euro. Deposits in Greece’s banks are safe. Creditors have chosen the strategy of blackmail based on bank closures. The current impasse is due to this choice by the creditors and not by the Greek government discontinuing the negotiations or any Greek thoughts of Grexit and devaluation. Greece’s place in the Eurozone and in the European Union is non-negotiable.

6) The future demands a proud Greece within the Eurozone and at the heart of Europe. This future demands that Greeks say a big NO on Sunday, that we stay in the Euro Area, and that, with the power vested upon us by that NO, we renegotiate Greece’s public debt as well as the distribution of burdens between the haves and the have nots.

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And this is from the Conservative side in the US..

Juncker, Draghi and Lagarde Should Hang Their Heads In Shame (Davis)

The Euro-clique that is the Troika should be ashamed of itself. This organisation, comprising the European Commission, the ECB, and the IMF run by yet another member of the cold-hearted Euro-elite, Christine Lagarde, is inflicting on the Greek people a policy that is little short of barbarism. They have only themselves to blame if the Greeks reject their latest demands in the upcoming referendum. Not only is unemployment running at 25%, and at nearly 60% amongst the under 25s, but the Greek lower middle class, the traders that make any economy run, has been decimated. Suicide is up 45%. 30% of the Greek people are living in poverty. Nearly one in five of the population does not have enough to eat, with food purchases having fallen by 28.5%.

Pensioners, now the bread-winners in many households (pensions are now the main – and often only – source of income for almost half of Greek families), have seen a 61% fall in their pension payments. Greek pensions were, pre-crisis, extremely generous, sometimes ridiculously so. In some sectors pensions could be more than 100% of final salaries, with some public sector workers taking retirement in their early 50’. Coupled with an aging population – 20% of Greeks are over age 65, one of the highest%ages in the Eurozone – this was a major factor in Greece’s problems. But Greek pensions are no longer so generous. On top of the cut to monthly payments, the standard retirement age for men is being lifted to 67, one of the highest in Europe.

Almost half of pensioners live on less than the poverty line of €665 per month. Food poverty is worsening people’s health. The stillbirth rate is up by 21% and infant mortality rose by 40% between 2008 and 2011. TB rates have doubled. HIV infection is up. Malaria has re-emerged after nearly half a century. Health care is funded by insurance, so when people lose their jobs they lose their health care. Along with cuts in state funding and the subsequent hospital closures, the economy of the health service is being destroyed. Thousands of doctors have left the country. Those that remain work for about €12,000 a year. Some clinics now depend upon volunteers and doctors who work for nothing.

This destruction is repeated throughout Greece’s public sector. There is little doubt that it needed reform. It was rotten, with overpaid jobs and excessive pensions allocated by rousfeti (political patronage) and the distribution of its services often lubricated by fakelaki (bribes). But what was needed was modernising rationalisation, not the fit of devastation that has left much of Greece dependent on soup kitchens and charity clinics.

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“This is, after all, a system where unelected institutions and other states have the power to override elected governments..”

Syriza Can’t Just Cave In. Europe’s Elites Want Regime Change In Greece (Milne)

It’s now clear that Germany and Europe’s powers that be don’t just want the Greek government to bend the knee. They want regime change. Not by military force, of course – this operation is being directed from Berlin and Brussels, rather than Washington. But that the German chancellor Angela Merkel and the troika of Greece’s European and IMF creditors are out to remove the elected government in Athens now seems beyond serious doubt. Everything they have done in recent weeks in relation to the leftist Syriza administraton, elected to turn the tide of austerity, appears designed to divide or discredit Alexis Tsipras’s government. They were at it again today, when Tsipras offered what looked like almost complete acceptance of the austerity package he had called a referendum on this Sunday.

There could be no talks, Merkel responded, until the ballot had taken place. There’s no suggestion of genuine compromise. The aim is apparently to humiliate Tsipras and his government in preparation for its early replacement with a more pliable administration. We know from the IMF documents prepared for last week’s “final proposals” and reported in the Guardian that the creditors were fully aware they meant unsustainable levels of debt and self-defeating austerity for Greece until at least 2030, even on the most fancifully optimistic scenario. That’s because, just as the earlier bailouts went to the banks not the country, and troika-imposed austerity has brought penury and a debt explosion, these demands are really about power, not money.

If they are successful in forcing Tsipras out of office, a slightly less destructive package could then be offered to a more house-trained Greek leader who replaced him. Hence the ECB’s decision to switch off emergency funding of Greece’s banks after Tsipras called the referendum on an austerity scheme he had described as blackmail. That was what triggered the bank closures and capital controls, which have taken Greece’s crisis to a new level this week as it became the first developed country to default on an IMF loan. The EU authorities have a deep aversion to referendums, and countries are routinely persuaded to hold them again if they give the wrong answer. The vote planned in Greece is no exception. A barrage of threats and scaremongering was unleashed as soon as it was called.[..]

This is, after all, a system where unelected institutions and other states have the power to override elected governments – in fact to impose not only policies but effectively governments too, as we may be about to see in Greece. Anti-democratic firewalls are built into Europe’s institutions.

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Great angle. Nobody talks about Obama’s silence.

“US Should Have Stopped IMF From Sending Redlined Document To Greece” (HuffPo)

The United States should have intervened a week ago when the latest talks between Greece and its creditors began to fall apart, a former senior IMF official told The Huffington Post on Tuesday. Appeals for compromise over the Greek debt crisis come too late now, economist Peter Doyle said. [..] To really help the situation, Doyle, the former IMF senior manager, said the U.S. needed to step into the negotiations between Greece and its creditors at a crucial moment a week ago. As the largest single contributor to the IMF, the U.S. has the greatest say over its policies. Specifically, Doyle argues that the U.S. should have stopped the creditors from sending back Greece’s latest proposal covered with redlined changes on June 24 and then leaking it to the media.

The way the counterproposal was made was widely seen as humiliating to Greece. Moreover, it did not offer any new concessions on debt relief, pension reforms or increases in the value-added tax. Greece reacted furiously to the counterproposal, beginning a downward turn that culminated Saturday in Greece’s withdrawal from the talks and announcement of the referendum. “I was truly amazed that the U.S. allowed the IMF to send back to Greece that redlined document,” Doyle said. “It must have slipped through the cracks in the White House,” he added. “That redlined document was completely humiliating, and it says nothing about debt relief.”

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If Obama won’t speak, someone else will have to do it.

Bernie Sanders Blasts Greece’s Creditors (HuffPo)

Sen. Bernie Sanders (I-Vt.) attacked the IMF and European authorities on Wednesday for imposing what he called excessive austerity measures on Greece in negotiations over the country’s debt payments. “It is unacceptable that the IMF and European policymakers have refused to work with the Greek government on a sensible plan to improve its economy and pay back its debt,” Sanders said in an exclusive statement to The Huffington Post. “At a time of grotesque wealth inequality, the pensions of the people in Greece should not be cut even further to pay back some of the largest banks and wealthiest financiers in the world.”

Sanders, a 2016 Democratic presidential candidate and veteran progressive lawmaker, called the loans-for-austerity policies that the IMF and eurozone nations have imposed on Greece an “abysmal failure,” and demanded that the United States and other world powers grant Greece new debt-repayment terms that would allow its economy to recover from the damage it has sustained since 2008. “Instead of trying to force the Greek government and its people into even more economic pain and suffering, international leaders throughout the world, including the United States, should enable Greece to enact pro-growth policies that improve the lives of all of its people, not just the wealthy few,” Sanders said.

Sanders appeared to single out the IMF, the creditor over which the United States has the most direct influence. The U.S. controls more votes in IMF decisions than any other nation. “If Greece’s economy is going to succeed, these austerity policies must end,” Sanders said. “The IMF must give the Greek government the flexibility and time that it needs to grow its economy in a fair way.”[..]

It’s not clear what impact, if any, Sanders’ statement will have on the Greek crisis, since the United States – notwithstanding its controlling votes at the IMF – has remained largely on the sidelines during the current impasse. Treasury Secretary Jack Lew has been in close consultation with his eurozone and Greek counterparts throughout negotiations, but he’s refrained from specific prescriptions, instead making broad appeals for both sides to compromise. Peter Doyle, a former senior manager at the IMF, criticized the approach in an interview with HuffPost on Wednesday, arguing that the Obama administration should have vetoed a redlined document the creditors presented to Greece on June 26 that was viewed as especially humiliating.

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There’s more to this.

Europe Wants to Punish Greece With Exit (Crook)

In my more than 30 years writing about politics and economics, I have never before witnessed such an episode of sustained, self-righteous, ruinous and dissembling incompetence –and I’m not talking about Alexis Tsipras and Syriza. As the damage mounts, the effort to rewrite the history of the European Union’s abject failure over Greece is already underway. Pending a fuller postmortem, a little clarity on the immediate issues is in order. On Monday, European Commission President Jean-Claude Juncker said at a news conference that he’d been betrayed by the Greek government. The creditor institutions, he said, had shown flexibility and sought compromise. Their most recent offer involved no wage cuts, he emphasized, and no pension cuts; it was a package that created “more social fairness.”

Tsipras had misled Greeks about what the creditors were asking. The talks were getting somewhere. Agreement on this package could have been reached “easily” if Tsipras hadn’t collapsed the process early Saturday by calling a referendum. What an outrageous passel of distortion. Since these talks began five months ago, both sides have budged, but Tsipras has given vastly more ground than the creditors. In particular, he was ready to accede to more fiscal austerity — a huge climbdown on his part. True, the last offer requires a slightly milder profile of primary budget surpluses than the creditors initially demanded; nonetheless, it still calls for severely (and irrationally) tight fiscal policy. In contrast, the creditors have refused to climb down on the question of including debt relief in the current talks, absurdly insisting that this is an issue for later.

On Tuesday, Tsipras made his most desperate attempt yet to bring the issue forward. Far from expressing any desire to compromise, dominant voices among the creditors – notably German Finance Minister Wolfgang Schaeuble, who often seemed to be calling the shots – have maintained throughout that there is nothing to discuss. The program already in place had to be completed, and that was that. Yes, the program had failed. No, it wouldn’t achieve debt sustainability. Absolutely, it was pointlessly grinding down Greek living standards even further. What did that have to do with it? Juncker says the last offer made no demand for wage cuts. Really? The offer says the “wage grid” should be modernized, including “decompressing the [public sector] wage distribution.”

On the face of it, decompressing involves cuts. If the creditors were calling for public-sector wages to be decompressed upward perhaps they should have made this clear. Regardless, the increases in value-added taxes demanded by the creditors mean lower real wages, public and private alike. As for no pension cuts, the creditors called for phasing out new early-retirement penalties and the so-called social solidarity payment for the poorest pensioners. Those are cuts. The creditors called for a lot else, too. Remember that the Greek economy is on its knees. Living standards have collapsed and the unemployment rate is 25%. Now read the offer document, and see if you think the advance in “social fairness” that Juncker stressed at his news conference shines through.

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“..democracies are already well under way to be made “market conforming..”

Democracy And Monetary Union: How Not To Do It (Janssen)

There is not a shadow of a doubt that EMU is incomplete. The key problem is that sovereign debt of individual euro area member states is no longer backed by a central bank of their own. Indeed, when adopting the single currency, member states not only become members of EMU, they are also divorcing in some way from their national central bank. The Banca d’ Espana (just to name one) continues to exist but with its competence on monetary policy transferred to Frankfurt, the government in Madrid can no longer call upon the assistance of a money-creating institution in case of emergency. This peculiar combination of one supranational central bank together with 19 different sovereign debt stocks has made euro area member states extremely vulnerable in the event of a run on the bond market for their sovereign debt.

No longer able to resort to their own national central bank as a lender of last resort, governments inside EMU have no other choice but to adopt brutal austerity – or else default – in dealing with any liquidity crisis. In a sense, Eurozone member states can be compared to emerging economies that are issuing debt in a (foreign) currency they have no control over and get into serious trouble when market momentum changes and access to finance is completely cut off. Until 2010, this gap in the construction of monetary union in Europe went completely unnoticed. However, when the crisis in Greek public finances erupted back in 2009 and with central bankers openly declaring their increasing unwillingness to accept Greek debt as collateral, the fault-line in monetary union became painfully clear.

Financial markets reacted in a predictable way, by panicking and staging a self-fulfilling prophecy. Realising that, in the absence of the ECB backing up Spanish, Italian, French, or Belgium sovereign debt, a run on these bonds could trigger default, markets started running for the exit by massively dumping them. The rest of the story is well-known. Euro Area Member states, trying to calm down markets, embarked on the experiment of highly pro-cyclical austerity and topped this up with wage devaluation. Their hopes soon turned out to be vain as austerity and internal devaluation triggered a double dip recession, thus even stoking markets’ worst fears of default and/or the break-up of monetary union.

This vicious circle was only broken some years later (2012) when the ECB’s president, Mario Draghi, finally addressed market concerns about the absence of a lender of last resort by orally promising to do “anything it takes” to save the single currency. Europe has paid a high price for this. The price does not simply come in the form of economic stagnation, record high unemployment and rising inequalities. An even more worrying issue is that the principle of democracy is being hollowed out. Elected governments have repeatedly found themselves confronted with little choice but to abide by what the markets seem to be demanding or, alternatively, to obey the detailed “diktats” prescribed by the ECB in – not so – secret letters. [..]

A couple of years ago, at the height of the euro crisis, Chancellor Angela Merkel publicly stated that democracies in Europe needed to “conform to the markets”. With monetary policy in the hands of a supranational central bank, with fiscal policy enchained by the Stability Pact and the Fiscal Compact with its Fiscal Councils, democracies are already well under way to be made “market conforming” under the tutelage of these gatherings of independent professionals. The next step seems to be to also bring wages and wage bargaining under the discipline of experts’ councils and to do this on the basis of rules forcing workers across the Euro Area to compete with each other in poaching each other’s jobs. It is not a prospect that augurs well for a democratic Europe.

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“If you were of a suspicious mind, you might wonder whether Mr Tsipras has not in fact lured European leaders and officials into a legal trap..”

Europe Has Suffered A Reputational Catastrophe In Greece (AEP)

Oxi Day has totemic significance in Greece. It commemorates the defiant Greek “No” to Mussolini’s ultimatum in October 1940, and the heroic acceptance of war against a vastly bigger military machine. It is the same word that will top the ballot sheet when Greeks vote in a snap referendum this Sunday on creditor demands, and prime minister Alexis Tsipras is not shy in evoking the same spirit of wartime resistance. His speech to the nation on Wednesday night was peppered with talk of ultimata. He accused “extreme Right-wing circles” of forcing the closure of the Greek banks and the imposition of capital controls through liquidity asphyxiation. He lashed out at “authoritarians” in charge of the IMF and EU institutions. He spoke of attempts to blackmail the Greek people.

And he vowed to campaign against the creditor package – which, strictly speaking, is no longer on offer – deeming it the “destruction of Europe”. Where this will take him, and take Greece, is anybody’s guess. The latest Efimerida ton Syntakton poll shows the “No” side leading by 54pc against 33pc for “yes”. But that lead – if it really exists – may evaporate as the ghastly consequences of financial collapse become clearer by the day. Distraught pensioners have been gathering in small, tense crowds outside banks trying to withdraw their weekly allowance of €120 (£85). Many have not been paid. A throng of veterans protested outside the finance ministry on Wednesday morning, denouncing EU “dictatorship” and Mr Tsipras with equal fury.

Ambulances in parts of northern Greece have run out of fuel. The Greek Chamber of Commerce warns of “serious shortages” of basic goods and pharmaceutical supplies within days. The radical-Left Syriza government is skating on very thin ice. If Europe’s creditor powers have succeeded in bringing Greece to its knees, they have paid a fearful price themselves. As Pyrrhus said after the battle of Asculum: “Another such victory, and we will be utterly ruined.” We can already see that the EU itself has suffered a reputational catastrophe on several fronts. This is of far greater importance in the sweep of events than daily twists and turns in Athens. It has brought about a state of affairs where a member of its own eurozone family has become the first developed country in history to default to the IMF.

Let us be clear what this means. The currency union itself is delinquent. The rich countries of northern Europe are refusing to pay African, Asian and Latin American states. Blaming it on Greece alone does not wash. The eurozone has shown itself unable to manage its basic moral responsibilities. Russian president Vladimir Putin could hardly resist his own wicked dig, professing “great concern” over the EU’s vanishing credibility. This default is doubly shameful given that the original IMF-Troika loan in 2010 was not intended to save Greece. The extra debt was imposed on an already bankrupt Greek state to buy time for the euro, against Greek interests.

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And all the other stuff yesterday was just gossip.

Tsipras Refuses To Bow To Threats To Greek Banking System (Telegraph)

Greece’s embattled prime minister has refused to back down over a referendum on the country’s bail-out future, despite being threatened with imminent financial ruin and a banking collapse as early as Monday if he chooses to press ahead with the vote. In his third address on national television in the past five days, a defiant Alexis Tsipras vowed to let the Greek people have their say on the austerity terms they will need to sign up to in order to retain their 14-year membership of the single currency. Mr Tsipras is backing a “No” vote, a move that has drawn opprobrium from across the continent and been described as “dumb” by a senior ally of Germany’s Angela Merkel. “Come Monday, the Greek government will be at the negotiating table after the referendum, with better terms for the Greek people,” said Mr Tsipras.

Wednesday was the first day in five years that Greece has not been subject to a bail-out programme, freezing the bankrupt country out of €15bn in rescue funds. The government has been forced to impose draconian controls on cash withdrawals and shut down the banks for more than a week to prevent a devastating bank run. Branches are due to open again on July 7 after the referendum vote is held. But creditor powers are now threatening the country with the threat of an imminent financial collapse unless Mr Tsipras calls off the plebiscite. Slovakia’s finance minister, Peter Kazimir, made clear the ultimatum that was now facing Athens: “I’m afraid that Greece’s banks might not reopen with the euro as the currency in case the referendum on Sunday ends with a No,” he said.

The ECB decided to maintain the current €89bn cap on emergency funding that it is providing to keep the banking system afloat. The show of bullish resistance from Mr Tsipras is likely to further anger European leaders, who spent their third consecutive day refusing any dialogue with his government, pushing the country to the brink of a disorderly ejection from the eurozone. “We see no grounds for further talks at this point,” said Jeroen Dijsselbloem, the president of the Eurogroup of finance ministers. Greece became the first country since Robert Mugabe’s Zimbabwe to default to the International Monetary Fund on Tuesday night. The non-payment now places the country’s future in the hands of its creditors.

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Stunning how little intellectual progress has been made in 5 months. We leave it all up to the nutcases in charge: “The world will be a better place when Germans know their history – all of it.”

In Greek Crisis, Germany Should Learn From Its Fiscal Past (WaPo, Jan 28)

If you made a list of countries you hope have learned from their past hundred years of mistakes, Germany would have to be at the top. Happily, the staunch opposition to a nativist fringe that the nation’s government and citizenry have shown in recent weeks makes it clear, again, that Germany understands the costs of bigotry and the virtues of tolerance. Unhappily, it has not learned the costs of a mad adherence to fiscal orthodoxy, despite the fact that its prosperity is rooted in the decision of its World War II adversaries to allow West Germany’s postwar government to write off half of its debts. Indeed, the policies that Angela Merkel’s government have inflicted on the nations of Southern Europe could not be more different from those that European leaders and the United States devised in the early 1950s to enable West Germany to rebuild its damaged economy.

Since the crash of 2008, Germany, as Europe’s dominant economy and leading creditor, has compelled Mediterranean Europe, and Greece in particular, to sack their own economies to repay their debts. Germany’s insistence has reduced Greece to a condition like that of the United States at the bottom of the Great Depression. Unemployment has soared to 25%, and youth unemployment to more than 50% ; the economy has shrunk by 26% and consumption by 40%. Debt has risen to 175% of the nation’s gross domestic product. And the funds from the loans that Germany and other nations have extended to Greece have gone almost entirely either to cover interest payments or repay past loans; only 11% has actually gone to Greece’s government.

Stuck on a treadmill of debt repayment and anemic economic activity, Greece, as the Financial Times noted, has been reduced to a “quasi-slave economy” run “purely for the benefit of foreign creditors.”Not surprisingly, when Greek voters went to the polls Sunday, they elected a new government that is demanding a renegotiation of its debt. German and European Union officials have responded with adamant opposition to any such changes.

Fortunately for Germany, its own creditors took quite a different stance after World War II. In the London Debt Agreement of 1953, the 20 nations — including Greece — that had loaned money to Germany during the pre-Nazi Weimar Republic and in the years since 1945 agreed to reduce West Germany’s debts by half. Moreover, they agreed that its repayments could not come out of the government’s spending but only and explicitly from export income. They further agreed to undervalue the German mark, so that German export income could grow. By the consent of all parties, the London Agreement, and subsequent modifications, were crafted in proceedings that made West Germany an equal party to its creditors: It could, and sometimes did, reject the creditors’ terms and insist on new negotiations.

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The morally bankrput union.

In Athens, Scavenging From Bins Has Become A Way To Survive (Telegraph)

Piled high with rubbish congealing in the summer heat, municipal dustbin R21 on Athens’ Sofokleous Street does not look or smell like a treasure trove. But for Greece’s growing army of dustbin scavengers, its deposits of rubbish from nearby stores and grocery shops make it a regular point of call. “Sometimes I’ll find scrap metal that I can sell, although if I see something that looks reasonably safe to eat, I’ll take it,” said Nikos Polonos, 55, as he sifted through R21’s contents on Tuesday morning. “Other times you might find paper, cans, and bottles that you can get money for if you take them back to the shops for recycling.” One reason for R21’s popularity is because it is just down the road from a church soup kitchen, where the drug-addicted, the poor and homeless queue up for meals three times daily.

But many of those who now forage in such dustbins each day are simply ordinary working people – or were, at least, until Greece’s economic meltdown shot unemployment up to 25%. Mr Polonos, a quietly spoken man of 55, is typical of the new class of respectably destitute. He lost his job as a construction worker three years ago, when Greece’s building boom dried up, and in the current climate, cannot see himself finding paid work in the foreseeable future. Yet he dresses as smartly as he can in second-hand trousers and shirt, and does not see himself as any kind of vagrant. “I don’t want to ever look like him,” he said, gesturing to a tousle-haired drug addict slumped in a doorway near the soup kitchen.

“I never believed I would end up like this, but as long as Greece is in this terrible situation, my construction skills are not in demand. A lot of my friends are doing what I do now, and some people I know are even worse off. They have turned to drugs and have no hope at all.” The exact numbers of people who now scrape a living by rummaging through Athens’ bins is hard to estimate, since many only operate at night when their friends and neighbours will not see them. But according to Panos Karamanlikis, a volunteer at the soup kitchen, the numbers have increased by two or three times since 2011 alone. “A lot of them are normal people from normal homes,” said Mr Karamanlikis, who lost his job himself back in 2006 when the insurance company he worked for shed 60% of its work force. “They will go out and look for cigarette stubs on the streets, tin cans to recycle, anything.”

Stephen Graham, an anti-austerity campaigner from England who has spent the last three months travelling through Greece to study its economic problems, said that well-to-do scavengers were a common sight in the Athens suburb where he lived. “These are people who still have trappings of their old way of life, who still have clothes for work and smartphone contracts they can’t get out of,” he said. “They go to different neighbourhoods to scavenge so that people they know don’t see them. Seeing them is something I’ll never forget.”

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Schäuble’s been preparing this for years.

The Hard Line on Greece (Sorkin)

In July 2012, Timothy F. Geithner, the United States Treasury secretary at the time, traveled to Sylt, an island off Germany in the North Sea. Mr. Geithner was there for a meeting with Wolfgang Schäuble, Germany’s finance minister, who would spend his summers at his vacation home on the tiny island. The topic was Greece. In the home’s library, the two men spoke about Greece’s prospects and begun discussing ways for the European Union to keep the country in the eurozone. To Mr. Geithner’s dismay, however, Mr. Schäuble took the conversation in a different direction. “He told me there were many in Europe who still thought kicking the Greeks out of the eurozone was a plausible — even desirable — strategy,” Mr. Geithner later recounted in his memoir, “Stress Test: Reflections on Financial Crises.”

“The idea was that with Greece out, Germany would be more likely to provide the financial support the eurozone needed because the German people would no longer perceive aid to Europe as a bailout for the Greeks,” he says in the memoir. “At the same time, a Grexit would be traumatic enough that it would help scare the rest of Europe into giving up more sovereignty to a stronger banking and fiscal union,” Mr. Geithner wrote. “The argument was that letting Greece burn would make it easier to build a stronger Europe with a more credible firewall.” Fast-forward three years. What Mr. Schäuble articulated that summer afternoon to Mr. Geithner is finally taking shape.

Greece is in a harrowing last-minute standoff with the European Union over whether it will remain part of the eurozone, and Greek citizens are set to make the decision in a referendum vote on Sunday. That vote is happening against a backdrop of bank runs; citizens are camped outside of banks, where capital controls now restrict the amount of money that can be removed. Politicians and investors have been trying to “war game” the outcome. Who is bluffing? The Greeks or the European Union. The conversation between Mr. Geithner and Mr. Schäuble gives a strong indication. As Mr. Geithner said of another conversation he had with Mr. Schäuble: “He has a clear view: Greece had binged, so it needed to go on a strict diet.” [..]

It may seem counterintuitive, but rather than make a Greece exit easy and seamless to avoid dislocations in financial markets, the E.C.B. has the perverse incentive to make it messy and difficult to deter others.

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“Though Germany was allowed to grow its way out of recession in 1953, it will not let Greece do this, because it would set “a bad example””

Fear-Mongering Is The Enemy Of Democracy (Suzanne Moore)

Project Fear stalks Europe. In suits and ties and chaffeur-driven cars, in hurried meetings, in corridors blaring with strip lights, around the cabinet tables, in meetings where strategy is scrawled on whiteboards, in advertising agencies where earnest young people compete to unsettle us in the most effective ways. Perhaps I am too old and dreamy to think that politics was ever about anything other than fear; that hope is a necessity not a luxury. Surely I know, really, that when you want someone to vote a certain way you have to frighten them into thinking that any alternative is worse. We may not know what we like, but we sure as hell as know what we don’t like. Project Fear is not a paranoid delusion of mine. This phrase was used by the Conservatives in the last election and the pro-UK Better Together campaign. [..]

Of course, Project Fear reaches its apotheosis in Greece. If there is a referendum, the Greek people will be asked to vote for a hell they already know or one they can only imagine. They will continue to be lectured on profligacy and infantilised as lazy children, while their hospitals are running out of supplies, people are sleeping on the streets and unemployment soars. Those who stand in ATM queues are fearful, and who wouldn’t be? But from my last couple of visits to Greece, I would say that when a crisis is everyday, when you live on the brink, a strange calm sets in, a resilience that I can only compare to what I have seen in war zones, in that the need to get on with living overrides fear. No one can panic 24/7. “We will grow potatoes,” one man said to me. “We all watch out for each other,” said a woman.

For the thing about Project Fear is that when it becomes the weather, one learns to ignore it. As the Eurocrats huddle and speak of Greece, and then Spain and Italy, as some kind of totemic ethnic “other”, we should be disturbed. Does this huge south need to be dealt with differently? Is this all a place of unpaid tax and bribery and siestas? Be fearful of this. “They will take what is ours” is the subtext here. There is no respect for seasonal economies like Greece’s, but the fear is myopic. How can we not see that all of Europe will lose, too, if it continues to impoverish these places?

With migrants arriving in Kos and hordes of the dispossessed massing in Libya, why would we want to alienate a nation just one country away from Isis? Greece spends a lot on defence, this is true. Can we not see why? But the troika are the agents of Project Fear. Though Germany was allowed to grow its way out of recession in 1953, it will not let Greece do this, because it would set “a bad example”. The aim of all these dealings becomes clearer. It is to remove the democratic challenge of Syriza to these huge, undemocratic institutions of the EU and IMF. Even many rightwing economists argue that the conditional loans given to Greece have only enriched the financial intuitions. The aim is not growth but punishment.

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Berlin turns out to be even crazier than he thought.

How Varoufakis Saw The “Worst Case Scenario” Over A Year Ago (Zero Hedge)

Over a year ago, and long before he became the mascot for fraught negotiations between Greece and its creditors, Yanis Varoufakis penned a lengthy essay on what might happen should the Greek government decide to stand firm in the face of pressure from Brussels, Frankfurt, and Berlin. Earlier today we learned that in fact, Greece will stick to its negotiating position even in default and will remain defiant to the end, or at least until the voters who swept PM Tsipras and Varoufakis into office indicate at the ballot box that concedeing the Syriza campaign mandate is an acceptable outcome. With the government urging Greeks to vote “no”, the Tsipras and Varoufakis’ gambit will be put to the test next week, or perhaps even as early as this afternoon when the ECB could decide to effectively bring the Greek banking sector to its knees.

In this context, we bring you Yanis Varoufakis’ vision of the endgame, straight from the embattled FinMin himself:

That Greece has the right and the opportunity to deploy these bargaining cards there is no doubt. The important question is this: What if Berlin and Frankfurt do not budge? What if they tell Athens to ‘go jump of the tallest cliff’? The Greek government currently claims that it has a budget surplus. While I strongly doubt this claim, I suspect that a small primary surplus can be concocted through some additional cost cutting and a leximin squeeze of top public sector incomes downwards (without affecting the lowest incomes, pensions and benefits). That should suffice to allow the Athens government to meet its needs during any medium term standoff with Berlin and Frankfurt, as the Greek state will need no financing either from the official sector or from the money markets. In short, the answer to a German “Go jump” can be: “We shall not jump but we shall stay rock solid within the Eurozone and behind our demand for a debt conference. Just watch us.”

Berlin and Frankfurt will, undoubtedly, be furious. They will issue a variety of threats, including the suspension of structural fund flows from Brussels. But the real battleground will be the banks. As they did with Cyprus, where they threatened the government with an immediate suspension of the island nation’s ELA, so too in the case of Greece they will threaten to pull the plug on the Greek banks. Two points need to be made here. First, the Greek banks no longer hold any Greek government debt, which means that their collateral with the European System of Central Banks cannot be downgraded legally. Secondly, Frankfurt will have to think twice before it issues the threat of bending its own rules to close down Greek banks – since doing this would threaten to engulf the whole of the Periphery’s banking system into another cascading panic.

Confronted with such a reality, I have good cause to hope that Berlin will prefer to accommodate the Greek government and to look with a great deal more ‘kindness’ the ‘request’ for a debt relief conference. And if it does not, and wishes to bring the Eurozone down with it, let it do its worst, I say.

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What’s creeping into the discussion is a sense that it’s normal and legit for Berlin to move for regime change in a sovereign nation. That’s scary.

Berlin Accuses Tsipras Of Seeking Scapegoats Outside Own Ranks (Guardian)

Berlin has delivered a blistering attack on Greece’s beleaguered radical prime minister, Alexis Tsipras, accusing him of lying to his own people and seeking scapegoats for the country’s misery everywhere but in his own ranks. The German government dismissed desperate attempts by Athens to salvage some form of bailout, prompting Tsipras to hit back, accusing the country’s creditors of trying to “blackmail” Greek voters with dire warnings that a vote against austerity in this weekend’s referendum would be a vote to leave the euro. Tsipras referred to leaders of other eurozone nations as “extremist conservative forces” and blamed them for the capital controls that have forced the banks to shut down and ration cash.

With relations between Greece and Germany now at their lowest point in the crisis, divisions have also opened up among the main EU powers over what to do about Greece after five years of bailout closed down on Tuesday and the country became the EU’s first to default on loans to the IMF. The trenchant criticism of Tsipras from Berlin reinforced the view that the German government might refuse to negotiate with the leftwing Syriza administration on any new rescue package after Sunday’s referendum in Greece – which Berlin insists is a vote on whether to stay in the euro. The validity of the vote is now also being questioned. The Council of Europe said one week’s notice fell short of international standards and the wording was unclear, while Greece’s highest court has been asked to cancel the plebiscite on constitutional grounds.

A judgement will not be made until Friday. Syriza’s allies in the German parliament – die Linke, or the Left – accused the chancellor, Angela Merkel, of seeking to topple the Greek prime minister. It is an open secret in Berlin that Merkel, and especially her hawkish finance minister, Wolfgang Schäuble, would be happy to see Tsipras fall as a consequence of Sunday’s vote. At the very least, German government sources say privately, Berlin wants Greece’s flamboyant finance minister, Yanis Varoufakis, replaced. The rising tension over the Greek debacle surfaced at the very top of the EU on Wednesday when Schäuble rejected the latest Tsipras letter to his creditors accepting most of the austerity terms that last Saturday he had described as “humiliation” and “extortion”, while arguing for much more generous rescue funding over two years and including debt relief.

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Insult and injury.

Greek Tourism Bookings Are Nosediving (Kathimerini)

The government’s decision to call a referendum, shut banks and default on its payment to the International Monetary Fund are taking a toll on Greek tourism, professionals warned on Wednesday. Andreas Andreadis, the head of the Association of Hellenic Tourism Enterprises (SETE), said that hotel bookings are down 50,000 a day due to the recent developments in the country. Given that last-minute bookings account for 20% of the year’s tourism traffic, the blow is expected to be severe for Greek tourism, with knock-on effects on employment if those bookings are lost for good. Furthermore, there is a growing wave of cancellations at Athens hotels, while bookings from Greeks have dropped to almost zero.

Andreadis said the activation of Target 2 – an interbank payment system for the real-time processing of cross-border transfers throughout the EU – would be vital as it would facilitate transactions with other countries and allow for essential imports, meaning that catering facilities at accommodation units would be able to operate. He went on to warn that food and drink stocks will only suffice to cover hotels’ needs for one more week. Data released on Wednesday by the Travelplanet 24 and Airtickets websites showed that air ticket bookings by Greek travelers for the July-September period showed a decline of up to 50%. Air ticket cancellations rose from an average rate of 1.05% to 7.2% in the period from June 27 to yesterday. This peaked on Monday, when the cancellation rate amounted to 22%.

Similarly, ferry ticket bookings had posted an annual increase of 10% up until June 25, but since Prime Minister Alexis Tsipras called a referendum there has been a dip of 60%. Meanwhile, SETE informed the US Embassy in Athens that a major US-based tour operator had told the association that it had received orders to withhold money owed to Greek hoteliers from bookings last month. The embassy is investigating the claims, while the IMF yesterday issued a statement denying that it had given any such order.

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Use your home as collateral to buy hugely leveraged stocks. Yeah, that sounds good…

China Eases Margin Lending Rules to Support Flagging Stock Market (FT)

China’s securities regulator has moved to curb downward pressure on the country’s tumbling stock market by relaxing collateral rules on margin loans, in a bid to prevent a vicious cycle of price falls and forced selling. Margin finance has been a major driver of the rally that propelled China’s main stock index to a seven-year high on June 12, but the market has since tumbled more than 20% due in part to worries about a clampdown on leveraged bets. The China Securities Regulatory Commission said late on Wednesday that brokerages are free to set their own rules for demanding more collateral from clients when stocks bought with borrowed money fall in value. Previous rules required clients to add assets to their accounts when their collateral ratio dropped below 130%, or else liquidate their positions.

“The new CSRC rules to stop forced liquidation have hit the nail on the head and will calm the market for now,” Hao Hong, research director at Bocom International, wrote in a note. Nevertheless, the Shanghai Composite Index was down 0.9% in early trading on Thursday, deepening Wednesday’s 5.3% decline. Shenzhen was down 1.5%. Stock exchange data show that after surging to a high of Rmb2.27tn ($366bn) on June 18 — from Rmb401bn a year earlier — outstanding margin loans have fallen Rmb236bn. But Mr Hao also warned that the relaxation may sow the seeds for a future crisis.

“Beyond the short term, we believe margin call is a necessary risk management mechanism for brokers. The premise of margin trades is that asset prices will rise perpetually. It simply cannot be true,” he said. In addition to loosening collateral requirements, the new rules allow margin loans to be extended for longer than the previous six-month limit, and eliminate the requirement that margin clients must have assets in their securities account worth at least Rmb500,000. The CSRC first proposed the changes on June 12 in the form of draft rules open for a month-long public comment period. But in its statement on Wednesday the regulator said that “because the situation is special” the rules would now take effect immediately.

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Please borrow more!

China’s Fix for a Margin-Debt Boom Roiling Stocks? More Leverage (Bloomberg)

As China’s stock-market slump spurs margin traders to unwind record bullish bets, authorities have responded with a policy that analysts say could exacerbate the problem: make it easier to take on even more leverage. Hours after a one-day tumble of 5.2% in the Shanghai Composite Index, China’s securities regulator eased collateral requirements for leveraged investors and allowed brokerages to securitize margin loans – a move that frees up room to extend credit after a nine-fold surge in outstanding margin debt in two years. Brokerages have leeway to boost lending by about $300 billion, based on regulatory caps announced Wednesday.

While a surge in leverage helped fuel the longest-ever bull market in Chinese stocks, traders have been closing out those positions for a record eight straight days as the Shanghai Composite tumbled more than 20% from this year’s high. Even if relaxed rules help prevent a free-fall in share prices, the risk is that more leverage will expose amateur investors to even greater losses later and spur bigger price swings in the world’s most-volatile market. “Beyond the short term, risk taking with leverage underwritten by the state plants seeds for even greater market peril in the future,” Hao Hong, a China strategist at Bocom International, wrote in an e-mailed note.

The China Securities Regulatory Commission will allow brokerages to accept new forms of collateral, including real estate, from clients with insufficient value in their stock accounts. The regulator, which cut short a public consultation on the rules due to “market conditions,” said investors no longer need to supply extra collateral within two days when it falls below 1.3 times the amount of borrowed money. The new guidelines let brokerages give six-month extensions to clients’ margin trading and short selling contracts, instead of liquidating the positions.

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At home as in China.

Normal Banks Are Helping Shadow Banks Grow, a Lot (Bloomberg)

It’s no secret that financial companies without government-backed deposits—often dubbed shadow banks—have been growing as a result of post-financial crisis regulations imposed on actual banks. But what’s often overlooked is just how much the “normal” kind of banks are helping to power that growth. U.S. banks’ loans to nondepository financial companies, or shadow banks, have jumped more than 230% over the past three years, according to the semiannual risk perspective report released by the Office of the Comptroller of the Currency on Tuesday. They were the fifth-largest category of commercial-loan holdings at banks at the end of last year, up from the 11th spot at the end of 2011.

To be sure, banks being involved with shadow banks isn’t new. During the crisis, loans to subprime mortgage lenders, managers of collateralized debt obligations, and hedge funds created all sorts of trouble for banks, along with the sort of softer relationships they had with such things as the mortgage-backed securities they issued and SIVs. Yet banks never really backed away from being a key cog in the shadow-banking system, as Bloomberg News reporter Donal Griffin laid out in an article in 2012 about how Citigroup was involved with collateralized loan obligations, money-market funds, and mortgage real estate investment trusts, even as the bank’s then-chief executive officer, Vikram Pandit, was vocally criticizing how regulations were shifting risk toward exactly such things.

It’s not just banks that are offering nonbanks a helping hand. Another report released Tuesday, from the overseer of Fannie Mae and Freddie Mac, shows that those companies may also be playing a role, as they increase the fees they charge lenders to guarantee mortgages. Over the past two years, the mortgage giants have been charging small lenders less (on a risk-adjusted basis) to guarantee loans than they charge large ones, in a switch from the past, according to the report. And many of those small lenders are nonbanks.

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Abe should go.

Reaganomics Won’t Save Japan (Pesek)

Can Ronald Reagan save Japan from a debt crisis? We’re about to find out as Prime Minister Shinzo Abe bets the remaining years of his mandate on the former U.S. president’s economic philosophy. Abe’s new plan to curb Japan’s debt burden, the world’s heaviest at almost 250% of GDP, doesn’t mention Reagan. But it’s impossible not to notice the influence of his widely-touted theory that healthy government finances require, above all, a thriving corporate sector. That should worry investors, credit rating companies and the Japanese people alike. Abe did announce some vague intentions to cap spending and reach a budget surplus in fiscal 2020. But the heart of his strategy for dealing with government debt is stoking broader economic growth.

It’s a questionable strategy, one that’s even more dubious because of where Abe expects this debt-erasing output to come from: giant companies profiting from a weaker yen and a “productivity revolution.” Unfortunately, Abe’s plan is based on the discredited notion that more money for companies and the wealthy will mean more money for government coffers. Japanese companies have been earning more money since at least 2012, when the yen began dropping to the benefit of exports. But instead of sharing the wealth by fattening paychecks, executives hoarded it. The amount of cash and deposits corporate Japan has on hand jumped 3.6% in March to a record $1.96 trillion. In 26 of the 30 months Abe has been in office, CEOs have chosen to save extra cash rather than deploy it.

Abe shouldn’t expect much growth to trickle down from productivity gains either. Japan’s insular and outdated business practices have long made it a laggard among developed nations. That was less problematic before China’s ascendance in the region. Japan is now an aging, inefficient and wildly expensive property in a cheap neighborhood. In order to sustain its living standards, Japan needs to innovate and develop new job-creating industries (think renewable energy, not cars and televisions). But as Georges Desvaux of McKinsey argues in a recent report, Abe has done very little since taking office to invest in Japan’s vast human capital. [..] The bottom line is that there’s little “new” about a plan that relies on growth to pay down debt. Reagan never managed to pull it off in the 1980s – U.S. debt actually rose, belying the theory that tax cuts pay for themselves.

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All of Europe should.

Belgium Adopts Law Against ‘Vulture Funds’ (AFP)

Belgium has passed a law to cap how much so-called “vulture funds” can recoup from government debt bought at rock-bottom prices from countries teetering on the brink of default. Under the new law, approved overwhelmingly by the country’s main political parties, if a Belgian judge determines a fund is acting as a “vulture,” then it cannot claim more than the discounted price paid for the bonds, rather than their face value. The move comes after Belgium was dragged into a more than decade-long battle between a group of US hedge funds led by NML Capital Management and Argentina over some $1.3 billion of defaulted debt. In May, NML demanded Argentinian accounts be frozen in Brussels – a move no longer allowed under the new law, which means a Belgian judge can refuse legal decisions made in other countries.

The decision is particularly important as Belgium is home to giant clearing house Euroclear, which processes vast numbers of global financial transactions. In March, a US judge ordered Euroclear to block any payments concerning Argentine bonds and notify the hedge funds that are claiming the debt. Ahmed Laaouej, the Socialist MP who first put forward the law, hailed its passing as a “victory over the vultures of finance” that came about “despite strong pressure from several national and international lobby groups”. “These pressures came from representatives of American finance and law firms operating in Europe and defending the interests of some clients, in this case vulture funds,” he said to AFP. “This law is a strong signal to unscrupulous investment funds which speculate in a shameful manner on the back of people in difficulty,” he added.

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Not for environmental reasons.

China’s May Thermal Coal Imports Collapse 41% On-Year (HSN)

China’s thermal coal imports, including bituminous and sub-bituminous coal, dropped 41% on the year and were down 26% on the month in May at 6.48 million mt, according to the latest data from Beijing’s General Administration of Customs (GAC). Australia exported 3.8 million mt of bituminous and sub-bituminous coal to China in May, down 18% on month, and down 21% on the year. China’s imports of Indonesian thermal coal fell 40% from April and were down also 40% from a year ago at 1.84 million mt in May. Thermal coal imports from Russia slumped 52% on year and down 16% on month at 0.78 million mt last month.

Over January-May, China imported a total of 36.14 million mt of bituminous and sub-bituminous coal and down 44% from the corresponding five-month period last year, data showed. Top supplier Australia exported a total 18.61 million mt of thermal coal to China during January-May this year, down 22% from the year before. Meanwhile, total imports of lignite dropped 32% from the previous year to 20.85 million mt during the same period, with May imports decreasing 29% on month to 3.54 million mt. Imports from China’s top lignite coal supplier — Indonesia — stood at 19.48 million mt between January and May, down 32% on year.

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