Jun 152017
 
 June 15, 2017  Posted by at 9:59 am Finance Tagged with: , , , , , , , , , ,  7 Responses »
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Francisco de Goya Saturn Devouring His Son 1819–1823

 

Fed Raises Rates, Unveils Balance Sheet Cuts In Sign Of Confidence (R.)
The Fed Is Flying Blind (BBG)
Peak Economic Delusion Signals Coming Crisis (Smith)
When the Fed Tightens, It Leads to Financial “Events (Phoenix)
Senate Overwhelmingly Approves New Sanctions To “Punish” Russia (ZH)
What If The Russia Russia Russia Story Was Nothing? (HotAir)
Pentagon Agrees To Sell $12 Billion In F-15s To Qatar (ZH)
The Old Are Eating the Young (Satyajit Das)
Greek Economy Minister Calls Wolfgang Schäuble ‘Dishonest’ (R.)
Greece Is Germany’s ‘De Facto Colony’ (Pol.)
EU Officials Warn Athens Not To Take Debt Issue To Leaders’ Summit (K.)

 

 

It’s getting increasingly frustrating to try and find objective views of anything to do with Trump or Putin. And I don’t want to live in an echo chamber. So I left out Mueller’s Trump investigation.

Yellen is stuck. Next.

Fed Raises Rates, Unveils Balance Sheet Cuts In Sign Of Confidence (R.)

The Federal Reserve raised interest rates on Wednesday for the second time in three months and said it would begin cutting its holdings of bonds and other securities this year, signaling its confidence in a growing U.S. economy and strengthening job market. In lifting its benchmark lending rate by a quarter%age point to a target range of 1.00% to 1.25% and forecasting one more hike this year, the Fed seemed to largely brush off a recent run of mixed economic data. The U.S. central bank’s rate-setting committee said the economy had continued to strengthen, job gains remained solid and indicated it viewed a recent softness in inflation as largely transitory. The Fed also gave a first clear outline on its plan to reduce its $4.2 trillion portfolio of Treasury bonds and mortgage-backed securities, most of which were purchased in the wake of the 2007-2009 financial crisis and recession.

It expects to begin the normalization of its balance sheet this year, gradually ramping up the pace. The plan, which would feature halting reinvestments of ever-larger amounts of maturing securities, did not specify the overall size of the reduction. “What I can tell you is that we anticipate reducing reserve balances and our overall balance sheet to levels appreciably below those seen in recent years but larger than before the financial crisis,” Fed Chair Janet Yellen said in a press conference following the release of the Fed’s policy statement. She added that the balance sheet normalization could be put into effect “relatively soon.” The initial cap for the reduction of the Fed’s Treasuries holdings would be set at $6 billion per month, increasing by $6 billion increments every three months over a 12-month period until it reached $30 billion per month.

For agency debt and mortgage-backed securities, the cap will be $4 billion per month initially, rising by $4 billion at quarterly intervals over a year until it reached $20 billion per month. [..] The Fed has now raised rates four times as part of a normalization of monetary policy that began in December 2015. The central bank had pushed rates to near zero in response to the financial crisis. Fed policymakers also released their latest set of quarterly economic forecasts, which showed only temporary concern about inflation and continued confidence about economic growth in the coming years. They forecast U.S. economic growth of 2.2% in 2017, an increase from the previous projection in March. Inflation was expected to be at 1.7% by the end of this year, down from the 1.9% previously forecast.

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The Fed’s been flying blind for well over 10 years.

The Fed Is Flying Blind (BBG)

The architects of U.S. monetary policy at the Federal Reserve should be happy. They’ve succeeded beyond their own expectations in bringing down the unemployment rate without triggering an outburst of inflation. Stock indexes are near record highs, and interest rates remain low. But those who set interest rates are in the awkward position of not understanding how things got so good—and are therefore confused about what to do next. “The Fed isn’t run by computers, it’s run by people,” says David Rosenberg, chief strategist at Gluskin Sheff. “Like all of us they have their flaws and their blind spots. On June 14, the Federal Open Market Committee voted as expected to raise the federal funds rate a quarter point, to a range of 1% to 1.25%. It said it expects inflation to rise to its 2% target “over the medium term.”

For Fed Chair Janet Yellen and company, the central mystery continues to be why inflation remains below 2% despite unemployment having dropped to just 4.3% in May. Even ex-convicts and high school dropouts are getting job offers one reason why many economists believe it’s inevitable that wages must rise. When you have a shortage of supply of something, its price will go up, says Gad Levanon, chief U.S. economist at the Conference Board, a business-supported research group. A tight job market, however, hasn’t translated into inflation. The Fed’s preferred measure of inflation, the personal consumption expenditures price index, rose just 1.7% in April from a year earlier. On June 14, as the Fed was meeting, the Bureau of Labor Statistics announced that the Consumer Price Index excluding food and energy rose just 0.1% in May, the third surprisingly low reading in three months.

Michael Feroli, chief U.S. economist at JPMorgan Chase., sympathizes with Yellen’s predicament. He said in an interview before the FOMC meeting that Yellen is relying out of necessity on the Phillips curve, which says that lower unemployment leads to higher inflation. “It’s kind of the best we’ve got” as a descriptor of the economy, he says. Still, Feroli couldn’t resist headlining his report on the puzzlingly low CPI number, “Captain Phillips goes overboard.” Some economists worry that the Fed rate increases will abruptly cool the economy by increasing the cost of borrowing via credit cards, auto loans, and student loans, as well as business loans. Rosenberg, who’s more bearish than most economists, points out that recessions occurred 10 of the last 13 times the Fed raised interest rates. He says the U.S. is due for a recession within the next 12 months.

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“The question is not “when” we will enter collapse; we are already in the midst of an economic collapse. ”

Peak Economic Delusion Signals Coming Crisis (Smith)

According to the Atlanta Fed, US GDP in the first quarter of 2017 has declined to 0.7% , going back to lows touched on in 2014 after the Fed reduced QE.

The US has lost 5 million manufacturing jobs since the year 2000, and this trend has accelerated in recent years. Manufacturing in the US only accounts for 8.48% of all jobs according to May statistics. 102 million working age Americans do not currently have a job. This includes the 95 million Americans not counted by the Bureau of Labor because they assume these people have been unemployed so long they “do not want to work”. Thousands of retail outlet stores, the primary engine of the American economy, are set to close in 2017. Sweeping bankruptcies and downsizing are ravaging the retail sector, and internet retailers are not taking up the slack despite highly publicized growth. In 2016, online retail sales only accounted for 8.1% of all retail sales.

Oil inventories continue to amass as US energy demand declines. Declining energy demand is a sure sign of overall economic decline. OPEC and other entities continue to argue that “too much supply” is the issue; an attempt to distract away from the reality of lower consumption and the falling wealth of consumers. Corporate earnings expectations continue their dismal path, suggesting that stock markets have been supported by central bank stimulus and blind investor faith in central bank intervention. The stimulus is now being cut off. How long before investor faith is finally lost?

It is unfortunate that so many people only track stocks when accounting for economic health. They have crippled themselves and their own observations, and actually condescend when confronted with counter-observations and data. They help globalists and international financiers by perpetuating false narratives; sometimes knowingly but often unconsciously. And, when the system does destabilize to the point that they actually realize it, they will blame all the wrong culprits for their pain and suffering. The question is not “when” we will enter collapse; we are already in the midst of an economic collapse. The real question is, when will the uneducated and the biased finally notice? I suspect the only thing that will shock them out of their stupor will be a swift stock market drop, since this is the only factor they seem to pay attention to. This will happen soon enough.

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That much is obvious.

When the Fed Tightens, It Leads to Financial “Events (Phoenix)

The Fed concludes its June meeting today. The Fed fund futures markets put the odds of the Fed hiking rates again at 99.6%. This would mark the third rate hike by the Fed during this cycle. Why would this matter? Because it indicates the Fed is embarked on a serious tightening cycle. One rate hike can be a fluke. Two rate hikes could even be just policy error. But three rate hikes means the Fed is determined.

As Bank of America noted in a recent research note, when the Fed becomes determined to tighten… it usually ends in an “event.” What would an “event” look like for today’s market? A Crash is coming…

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It’s a craze. It’s doing so much damage.

Senate Overwhelmingly Approves New Sanctions To “Punish” Russia (ZH)

The U.S. Senate on Wednesday approved new sanctions to punish Russia for “meddling” in the 2016 election. The bipartisan legislation, which passed with an overwhelming 97-2 vote, slaps new sanctions on Russia and restricts President Trump from easing them in the future without first receiving congressional approval. The only two senators to vote against the measure were Sens. Mike Lee (R-UT) and Rand Paul (R-KY), while Chris Van Hollen (D-Maryland) abstained. Known as the Crapo Amendment, after Mike Crapo (R-Idaho), chairman of the Senate Banking, Housing and Urban Affairs Committee, the measure was endorsed by Foreign Relations Committee Chairman Bob Corker (R-Tennessee) and ranking member Ben Cardin (D-Maryland). The deal was attached to an Iran sanctions bill that is expected to pass later this week.

While top Republican senators had initially wanted to give the White House space to try improving U.S.-Russia relations, but ultimately decided talks with Russia have been moving too slowly. The sanctions against Russia are “in response to the violation of the territorial integrity of the Ukraine and Crimea, its brazen cyber-attacks and interference in elections, and its continuing aggression in Syria,” according to the deal’s sponsors. The amendment also allows “broad new sanctions on key sectors of Russia’s economy, including mining, metals, shipping and railways” and authorizes “robust assistance to strengthen democratic institutions and counter disinformation across Central and Eastern European countries that are vulnerable to Russian aggression and interference.”

New sanctions would be imposed on “corrupt Russian actors” and those “involved in serious human rights abuses,” anyone supplying weapons to the Syrian government or working with Russian defense industry or intelligence, as well as “those conducting malicious cyber activity on behalf of the Russian government” and “those involved in corrupt privatization of state-owned assets.” The biggest neocon in Congress, John McCain, was delighted with the outcome: “We must take our own side in this fight. Not as Republicans, not as Democrats, but as Americans,” said Sen. John McCain (R-AZ) before the vote. “It’s time to respond to Russia’s attack on American democracy with strength, with resolve, with common purpose, and with action.” As AP adds, lawmakers took action against Russia in the absence of a forceful response from President Donald Trump.

While the president has sought to improve relations with Moscow and rejected the implication that Russian hacking of Democratic emails tipped the election his way, non-stop “anonymous sources” have repeatedly leaked “news” to the NYT and WaPo, suggesting Trump colluded with Russia and/or was being probed by the FBI. Following Comey’s testimony, which confirmed there is no “there” there, the media attacks against Trump have shifted, and now accuse the president of obstruction of justice and interference with the FBI’s investigation into Mike Flynn. Speaking earlier on Wednesday, Vladimir Putin’s spokesman Dmitry Peskov said told reporters the Kremlin will hold out with its reaction until the U.S. decides on new sanctions against Russia. “We wouldn’t like to enter this sanctions spiral again. But that’s not our choice.” Indeed, and with the US having made Russia’s choice for them, we now look for Moscow’s response.

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They’ll just keep digging until they find something, and then blow that up way out of proportion.

What If The Russia Russia Russia Story Was Nothing? (HotAir)

Everyone has been busily trying to parse the Jeff Sessions testimony since the Attorney General took the stand but there doesn’t seem to be a lot to work with. Allahpundit talked about the number of times that Sessions declined to answer certain questions about private conversations he had with the president, but that’s some fairly thin gruel to build a presidency-ending scandal out of. But the one question which seems to still be off limits for most of the MSM is the really ugly one: what if this turns out to be a dry hole? Much of the speculation swirling around this entire saga has been based on anonymous sources supposedly spilling secrets about Oval Office conversations or supposed Russians hiding behind the potted plants. With all of that smoke, there certainly must be a fire, right? But that depends whether the smoke is coming from an actual blaze or some reporting blazing up some prime wacky tobacky.

Having hearings was supposed to clear up many of these questions. Take for example the widely reported and frequently repeated assertion that the Attorney General had a third, unreported meeting with the Russians at the Mayflower. That’s been stated so often that it’s basically become an article of faith on CNN and MSNBC. But yesterday Sessions was asked about it and he simply said… no. There was no third meeting. And? What happens now? Unless the New York Times can produce some video or at least a credible witness who saw Session sneaking off into the cloak room with the Russian ambassador or one of his henchmen that’s pretty much a dead end. And that’s falling into a pattern with so many other aspects of the entire tapestry of accusations against the Trump administration, a group of allegedly nefarious traitors who were colluding with the Russians to cripple the American elections.

David French at National Review tackles what may eventually become the biggest question of all. What if that never happened and it was all a fictional tale assembled by the media? “While we certainly aren’t privy to all the relevant information or all the relevant testimony, nothing that James Comey said last week or that Jeff Sessions said today (much less any of the questions directed his way) contained so much as a meaningful hint that the Committee was on the verge of uncovering the political scandal of the century. Rather, the focus keeps shifting to much narrower questions regarding Trump’s decision to fire James Comey — questions that are important but far less historically consequential than any claim that a president or his attorney general are traitors to their country…

Truth is truth, and it’s important for responsible people to not just understand and respond to actual evidence — no matter where it leads — but also acknowledge its absence. And so far the absence of evidence points to Trump’s innocence of some of the worst allegations ever leveled against an American president or his senior team.”

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Pentagon wouldn’t mind a little war.

Pentagon Agrees To Sell $12 Billion In F-15s To Qatar (ZH)

Remember when Trump called on Qatar to stop funding terrorism, claiming credit for and endorsing the decision of Gulf nations to isolate their small neighbor (where the most important US airbase in the middle east is located),even as US Cabinet officials said their blockade is hurting the campaign against ISIS. You should: it took place just 5 days ago. “We had a decision to make,” Trump said, describing conversations with Saudi Arabia and other Gulf countries. “Do we take the easy road or do we finally take a hard but necessary action? We have to stop the funding of terrorism.” Also last week, Trump triumphantly announced on twitter that “during my recent trip to the Middle East I stated that there can no longer be funding of Radical Ideology. Leaders pointed to Qatar – look!”

Well, Qatar funding terrorism apparently is not a problem when it comes to Qatar funding the US military industrial complex, because just two weeks after Trump signed a record, $110 billion weapons deal with Saudi Arabia, moments ago Bloomberg reported that Qatar will also buy up to 36 F-15 jets from the Pentagon for $12 billion …. even as a political crisis in the Gulf leaves the Middle East nation isolated by its neighbors and criticized by President Donald Trump for supporting terrorism, according to three people with knowledge of the accord. According to the Pentagon, the sale will give Qatar a “state of the art” capability, not to mention the illusion that it can defend itself in a war with Saudi Arabia. If nothing else, Uncle Sam sure is an equal-opportunity arms dealer, and best of all, with the new fighter planes,

Qatar will be able to at least put on a token fight when Saudi Arabia invades in hopes of sending the price of oil surging now that every other “strategy” has failed. To be sure, the sale comes at an opportune time: just days after Qatar put its military on the highest state of alert, and scrambled its tanks. All 16 of them. Maybe the world’s wealthiest nation realized it’s time beef up its defensive capabilities? Qatar’s defense minister will meet with Pentagon chief Jim Mattis on Wednesday to seal the agreement, Bloomberg reported citing people who spoke on condition of anonymity because the sale hasn’t been announced. Last year, congress approved the sale of up to 72 F-15s in an agreement valued at as much as $21 billion but that deal took place before the recent political crisis in the region.

It is unclear what the Saudi reaction will be to the news that Trump is arming its latest nemesis. If our thesis that Riyadh is hoping for Qatar to escalate the nest leg of the conflict is correct, then the Saudis should be delighted.

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“..society as a partnership between those who are living, those who are dead, and those who are yet to be born.”

The Old Are Eating the Young (Satyajit Das)

Edmund Burke saw society as a partnership between those who are living, those who are dead, and those who are yet to be born. A failure to understand this relationship underlies a disturbing global tendency in recent decades, in which the appropriation of future wealth and resources for current consumption is increasingly disadvantaging future generations. Without a commitment to addressing this inequity, social tensions in many societies will rise sharply. entral to the issue is that the rapid rise in living standards and prosperity of the past 50 years has been largely based on rising debt levels, ignoring the costs of environmental damage and misallocation of scarce resources. A significant proportion of recent economic growth has relied on borrowed money – today standing at a dizzying 325% of global GDP.

Debt allows society to accelerate consumption, as borrowings are used to purchase something today against the promise of future repayment. Unfunded entitlements to social services, health care and pensions increase those liabilities. The bill for these commitments will soon become unsustainable, as demographic changes make it more difficult to meet. Degradation of the environment results in future costs, too: either rehabilitation expenses or irreversible changes that affect living standards or quality of life. Profligate use of mispriced non-renewable natural resources denies these commodities to future generations or increases their cost. The prevailing approach to dealing with these problems exacerbates generational tensions. The central strategy is “kicking the can down the road” or “extend and pretend,” avoiding crucial decisions that would reduce current living standards, eschewing necessary sacrifices, and deferring problems with associated costs into the future.

Rather than reducing high borrowing levels, policy makers use financial engineering, such as quantitative easing and ultra-low or negative interest rates, to maintain them, hoping that a return to growth and just the right amount of inflation will lead to a recovery and allow the debt to be reduced. Rather than acknowledging that the planet simply can’t support more than 10 billion people all aspiring to American or European lifestyles, they have made only limited efforts to reduce resource intensity. Even modest attempts to deal with environmental damage are resisted, as evidenced by the recent fracas over the Paris climate agreement. Short-term gains are pursued at the expense of costs which aren’t evident immediately but will emerge later.

This growing burden on future generations can be measured. Rising dependency ratios – or the number of retirees per employed worker – provide one useful metric. In 1970, in the U.S., there were 5.3 workers for every retired person. By 2010 this had fallen to 4.5, and it’s expected to decline to 2.6 by 2050. In Germany, the number of workers per retiree will decrease to 1.6 in 2050, down from 4.1 in 1970. In Japan, the oldest society to have ever existed, the ratio will decrease to 1.2 in 2050, from 8.5 in 1970. Even as spending commitments grow, in other words, there will be fewer and fewer productive adults around to fund them.

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Schäuble couldn’t care less.

Greek Economy Minister Calls Wolfgang Schäuble ‘Dishonest’ (R.)

Greek Economics Minister Dimitri Papadimitriou has accused German Finance Minister Wolfgang Schaeuble of being “dishonest” by blocking debt relief for Greece despite his acknowledgement that Athens has implemented significant reforms. Euro zone finance ministers and the IMF are expected to strike a compromise deal on Greece on Thursday, paving the way for new loans for Athens while leaving the contentious debt relief issue for later. Papadimitriou told German newspaper Die Welt in an interview published on Thursday that Schaeuble first had acknowledged that Greece had met the requirements, but then changed his mind. “I haven’t met Schaeuble yet and I don’t want to be impolite, but his behavior seems dishonest to me,” he added.

Papadimitriou said German resistance to debt relief for Greece raised questions about the very idea and structure of the euro zone. The success of right-wing populists in Europe also showed dissatisfaction with such European structures, he said. “Greece is being made a sacrificial lamb,” he said. Papadimitriou also warned Schaeuble against making decisions based purely on domestic politics, noting that Germany had also received debt relief when it was rebuilding after World War Two. Debt relief is needed to help Greece expand its economy, he said, noting that Athens was not asking for a debt cut, but rather lower interest rates or longer repayment schedules. Greek President Prokopis Pavlopoulos also called on the euro zone finance ministers to spell out concrete measures to reduce the Greek debt burden.

“Greece has fulfilled its commitments and adopted the required reforms. Now it is time for the Europeans to comply with their commitments on debt relief,” Pavlopoulos said in an interview with German business daily Handelsblatt. German opposition politicians also criticized Schaeuble by honing in on the fact that the IMF is likely to participate in the third bailout, but will only disburse any loans when debt measures have been clearly outlined. Gerhard Schick from the Greens party accused Schaeuble of a “lousy trick” with the IMF participation. Thomas Oppermann, senior member of the co-governing Social Democrats (SPD), told Bild newspaper: “Schaeuble must put his cards on the table ahead of the election and say what German taxpayers will have to expect.”

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“Europe stopped listening to Greece a long time ago.”

Greece Is Germany’s ‘De Facto Colony’ (Pol.)

Poor Alexis Tsipras. For days, the Greek leader has been working the phones, trying to secure the best possible terms for his country as it enters the last mile of its seemingly endless cycle of bailouts. So far, his efforts have won him more mockery than respect — especially in Germany. “He keeps calling the whole time, and the chancellor says again and again, ‘Alexis, this issue is for the finance ministers,’” German Finance Minister Wolfgang Schäuble told an audience here on Tuesday, referring to the Greek prime minister’s attempts to win over Angela Merkel to his cause. Eurozone finance ministers are set to decide at a meeting in Luxembourg on Thursday whether to release a more than €7 billion tranche of aid to Greece. No one doubts Athens will get the money. Schäuble all but committed to it on Tuesday.

But Tsipras wants something even more precious: debt relief. No serious economist believes Greece will ever crawl out from under its more than €300 billion debt without significant forgiveness from its creditors. That means convincing Germany, the country to which Greece owes the most. For much of Greece’s nearly decade-long depression, the country was hostage to its domestic politics. Now, it’s hostage to Germany’s. Berlin, which has long opposed outright debt relief, refuses to budge. With a general election in Germany set for late September, Merkel and Schäuble are unlikely to soften their position anytime soon. The Greek bailouts remain politically toxic in Germany, and any agreement involving debt forgiveness would be seen domestically as an admission the rescue effort had failed — and at the German taxpayers’ expense.

Over the years, Germany has quietly accepted more subtle forms of forgiveness, like extending maturities on Greece’s loans and reducing the interest burden. But a straightforward cut, as demanded by the International Monetary Fund, remains out of the question. At least until after the election. Unfortunately for Tsipras, he has very little say in the matter. One big reason he wants debt relief now is that it would allow the European Central Bank to include Greece in its bond-buying program, known as quantitative easing. That would go a long way toward boosting investor confidence in Greece’s stability. But Greece won’t be eligible for the program as long as its debt burden isn’t deemed sustainable. And with the ECB’s program set to be wound down soon, Greece may never benefit. Tsipras may yet try to resist a deal this week and take the matter to next week’s summit of European leaders in Brussels. That’s unlikely to make much difference. Truth is, Europe stopped listening to Greece a long time ago.

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More blackmail.

EU Officials Warn Athens Not To Take Debt Issue To Leaders’ Summit (K.)

As Finance Minister Euclid Tsakalotos braces for a Eurogroup meeting in Luxembourg on Thursday which all evidence suggests will not yield a satisfactory debt solution for Greece, European officials on Wednesday warned Athens against trying to broach the issue at an EU leaders’ summit next week. “If the matter is not resolved today, then it will be discussed at the next Eurogroup, where the agreement won’t be any better,” one source in Brussels told Kathimerini. Sources in Berlin, which has taken a hard line in the face of calls by the IMF for Greek debt relief, struck a similar tone, with one official noting that the matter falls squarely within the remit of the Eurogroup, “a message that has been made absolutely clear.”

“I don’t remember any Greek problem being solved at the EU leaders’ summit level,” another source representing Greece’s international creditors told Kathimerini, referring to previous efforts by Prime Minister Alexis Tsipras to broach issues relating to the country’s international bailouts with Angela Merkel and other EU leaders. A spokesman for Germany’s Finance Ministry, however, struck a positive tone, saying he was looking forward to agreeing on a “viable comprehensive package.” A proposal by French officials, that a solution to Greek debt relief be linked to the country’s growth rate, is expected to be discussed in Luxembourg on Thursday, though it is unlikely to be embraced in its entirety.

Meanwhile, Athens sounded a defiant note on Wednesday, with a high-ranking government official warning that if German Finance Minister Wolfgang Schaeuble does not budge from his positions to make way for a final agreement, then “there are others in higher positions than him that can give a solution.” “If there is no positive move, in the next few days or during the Eurogroup, from the German minister, then it looks like Angela Merkel will be forced to hold the hot potato,” a government official told the Athens News Agency on Wednesday.

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Apr 242017
 
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Pablo Picasso Self portrait 1896

 

Euro and Shares Rally After Macron Wins First Round of French Election (Ind.)
Fight Over Obamacare Could Shut Down The Government (CNN)
Trump Push For Border Wall Threatens To Cause Government Shutdown (G.)
America is Regressing into a Developing Nation for Most People (Parramore)
London Mayor To Subsidise ‘Naked’ Homes Solution To Housing Crisis (G.)
China Stocks Head For Worst Day Of 2017 As Regulators Tighten Grip (R.)
Chinese Billionaires Amass In The Country’s Heartland (CNBC)
Jack Ma Sees Decades of Pain as Internet Upends Old Economy (BBG)
Fear City (Naomi Klein)
IMF Warns Greece That Additional Economic Overhauls Are Needed (WSJ)
Greek Banks Aspire To Begin Online Asset Auctions In June (K.)

 

 

Not sure there’s all that much to celebrate. Looks like a torn country.

Euro and Shares Rally After Macron Wins First Round of French Election (Ind.)

The euro briefly surged to a five-month high against a basket of currencies after centrist candidate Emmanuel Macron won the first round of a hotly contested French election vote, an outcome broadly considered the most market-friendly. Immediately after the vote on Sunday, the euro surged to $1.0940, its highest level against the dollar since November last year, before retreating to around $1.0869. It rose against the pound and the Swiss franc too and stocks across Europe and Asia climbed as investors pulled out of assets considered safest to hold during times of economic uncertainty or political turmoil, like gold, Japan’s yen and core government bonds. The FTSE 100 was up 1.5% in early trading while Paris’ CAC 40 added almost 4%. Germany’s DAX rose more than 2%.

Analysts and strategists were quick to point out that the outcome lessens the risk of an anti-establishment shock, like the UK’s vote last year to quit the European Union and Donald Trump’s US presidential election victory in November. “Macron will be reassuring to markets, with his pledge to lower corporate taxes and to lighten the administrative burden on firms. He basically represents continuity,” said Octavio Marenzi, CEO of Opimas, a capital markets management consultancy. “While the markets would have preferred Trump-style deregulation, no candidate, including Macron, would dare touch such an agenda in France,” he added.

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The media can’t make up their minds on what could cause a shutdown. Obamacare….

Fight Over Obamacare Could Shut Down The Government (CNN)

The fight over Obamacare’s future is now threatening to shut down the federal government. Congress must pass a spending bill by the end of this week or the federal government will run out of money. And Democrats, whose votes are needed to approve a budget, plan to use their leverage to force Republicans to stabilize Obamacare. They want the budget deal to fund a set of Obamacare subsidies that are crucial to keeping insurers in the program. Here’s how Obamacare figures into the government spending battle. Subsidies make health care affordable for those with low-incomes: The House GOP bill to repeal and replace Obamacare may be shelved for now, but Republicans still hold tremendous power over Obamacare’s future.

The most pressing issue is the funding of subsidy payments to insurers known as cost-sharing reductions, or CSRs. These make health care more affordable for lower-income Obamacare enrollees by reducing their deductibles and co-pays. Those with incomes under $29,700 for a single person are eligible. The payments can cut deductibles to as low as $227, on average, instead of nearly $3,500 for the standard silver Obamacare plan. These subsidies are important to insurers, too. A little over 7 million people, or 58%, signed up for policies with cost-sharing subsidies on the Obamacare exchanges for 2017. The payments are made directly to insurers and will cost the federal government an estimated $7 billion this year.

Republicans sued Obama to block the subsidies: The subsides have been at the center of a court battle since 2014, when House Republicans sued the Obama administration to try to stop them. GOP lawmakers have argued that Congress never appropriated funds for the payments. A district court judge agreed last year, ruling the subsidies were illegal. The Obama administration filed an appeal, and the subsidies continue to be paid while GOP lawmakers and Trump officials agree on a settlement.

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… or the border wall.

Trump Push For Border Wall Threatens To Cause Government Shutdown (G.)

Looming above Washington as Congress and the White House attempt to avert a funding shutdown in only five days’ time, Donald Trump’s central campaign promise to build a wall on the Mexican border threatens to bring the US government to a halt this week in a national display of dysfunction. On Sunday, even White House officials expressed uncertainty about whether the president would sign a funding bill that did not include money for a wall, which Trump has promised since the first day of his presidential campaign. “We don’t know yet,” said the White House budget director, Mick Mulvaney, on Fox News Sunday. “We are asking for our priorities.” The president himself waded into the negotiations on Sunday, holding out two sticks and no carrot. “ObamaCare is in serious trouble,” he tweeted. “The Dems need big money to keep it going – otherwise it dies far sooner than anyone would have thought.”

“The Democrats don’t want money from budget going to border wall despite the fact that it will stop drugs and very bad MS 13 gang members,” he continued, suggesting he would accuse Democrats of being soft on international crime. But Trump also retreated from a related pledge to the American people: that he would “make Mexico pay” for the wall, which is estimated to cost billions. “Eventually, but at a later date so we can get started early, Mexico will be paying, in some form, for the badly needed border wall,” the president tweeted, without offering a plan or timeline. Without a deal, funding for the government will run out at midnight on 28 April, Trump’s 100th day in office. The secretary of homeland security, John Kelly, told CNN’s State of the Union on Sunday he suspected the president would push for the wall. “He’ll do the right thing, for sure, but I suspect he’ll be insistent about the funding,” Kelly said.

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“..the low-wage sector has little influence over public policy. Check. The high-income sector will keep wages down in the other sector to provide cheap labor for its businesses. Check. Social control is used to keep the low-wage sector from challenging the policies favored by the high-income sector. Mass incarceration – check. The primary goal of the richest members of the high-income sector is to lower taxes. Check. Social and economic mobility is low. Check.”

America is Regressing into a Developing Nation for Most People (Parramore)

You’ve probably heard the news that the celebrated post-WW II beating heart of America known as the middle class has gone from “burdened,” to “squeezed” to “dying.” But you might have heard less about what exactly is emerging in its place. In a new book, The Vanishing Middle Class: Prejudice and Power in a Dual Economy, Peter Temin, Professor Emeritus of Economics at MIT, draws a portrait of the new reality in a way that is frighteningly, indelibly clear: America is not one country anymore. It is becoming two, each with vastly different resources, expectations, and fates. In one of these countries live members of what Temin calls the “FTE sector” (named for finance, technology, and electronics, the industries which largely support its growth).

These are the 20% of Americans who enjoy college educations, have good jobs, and sleep soundly knowing that they have not only enough money to meet life’s challenges, but also social networks to bolster their success. They grow up with parents who read books to them, tutors to help with homework, and plenty of stimulating things to do and places to go. They travel in planes and drive new cars. The citizens of this country see economic growth all around them and exciting possibilities for the future. They make plans, influence policies, and count themselves as lucky to be Americans. The FTE citizens rarely visit the country where the other 80% of Americans live: the low-wage sector. Here, the world of possibility is shrinking, often dramatically. People are burdened with debt and anxious about their insecure jobs if they have a job at all. Many of them are getting sicker and dying younger than they used to.

They get around by crumbling public transport and cars they have trouble paying for. Family life is uncertain here; people often don’t partner for the long-term even when they have children. If they go to college, they finance it by going heavily into debt. They are not thinking about the future; they are focused on surviving the present. The world in which they reside is very different from the one they were taught to believe in. While members of the first country act, these people are acted upon. The two sectors, notes Temin, have entirely distinct financial systems, residential situations, and educational opportunities. Quite different things happen when they get sick, or when they interact with the law. They move independently of each other. Only one path exists by which the citizens of the low-wage country can enter the affluent one, and that path is fraught with obstacles. Most have no way out.

The richest large economy in the world, says Temin, is coming to have an economic and political structure more like a developing nation. We have entered a phase of regression, and one of the easiest ways to see it is in our infrastructure: our roads and bridges look more like those in Thailand or Venezuela than the Netherlands or Japan. But it goes far deeper than that, which is why Temin uses a famous economic model created to understand developing nations to describe how far inequality has progressed in the United States. The model is the work of West Indian economist W. Arthur Lewis, the only person of African descent to win a Nobel Prize in economics. For the first time, this model is applied with systematic precision to the U.S.

The result is profoundly disturbing. In the Lewis model of a dual economy, much of the low-wage sector has little influence over public policy. Check. The high-income sector will keep wages down in the other sector to provide cheap labor for its businesses. Check. Social control is used to keep the low-wage sector from challenging the policies favored by the high-income sector. Mass incarceration – check. The primary goal of the richest members of the high-income sector is to lower taxes. Check. Social and economic mobility is low. Check.

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Yeah, sure, when things get too expensive you just lower the quality. Could it be an idea to tackle the cause of the problem instead of mere symptoms?

London Mayor To Subsidise ‘Naked’ Homes Solution To Housing Crisis (G.)

Who needs internal walls or a fitted kitchen anyway? As house prices soar ever further out of reach, London’s mayor, Sadiq Khan, is to subsidise a new generation of ultra-basic “naked” homes wthat will sell for up to 40% less than standard new builds. The apartments will have no partition walls, no flooring and wall finishes, only basic plumbing and absolutely no decoration. The only recognisable part of a kitchen will be a sink. The upside of this spartan approach is a price tag of between £150,000 and £340,000, in reach for buyers on average incomes in a city where the average home now costs £580,000.

The no-frills concept is to be be tested with 22 apartments on three sites in Enfield, north London, where the council will allow builders to take over derelict council estate garages and car parks. Khan has awarded a £500,000 grant to what he says will be the largest custom-build development in London. If successful, a further seven sites will be built. “The idea is to strip out all of the stuff that people don’t want in the first place,” said Simon Chouffot, one of the founders of the not-for-profit developer, Naked House. “People want to do some of the custom building. We can make it affordable by people doing some of the work themselves.” The developers are a group of thirtysomethings who found themselves priced out of buying homes in London’s fast-rising property market.

“We are all from generation rent and we have been growing up with this housing crisis,” said Chouffot, 37. “I put down roots in north-east London but it was impossible to buy there. My response has been to live on a boat on the Regent’s canal. The average income in our area is about £40,000 but the average income you need to buy a property is £170,000, so there is a huge affordability gap.” He said the Enfield homes would be about 15% cheaper to build than standard new homes because of their basic design.

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A power struggle developing? Xi must tackle the debt, or risk losing.

China Stocks Head For Worst Day Of 2017 As Regulators Tighten Grip (R.)

China stocks tumbled more than 1% on Monday and looked set for their biggest loss of the year amid signs that Beijing would tolerate more market volatility as regulators clamp down on shadow banking and speculative trading. Recent signs of stability in China’s economy “have provided a good external environment and a window of opportunity to reduce leverage in the financial system, strengthen supervision and ward off risks,” the official Xinhua News Agency reported on Sunday. “Over the past week, interbank rates trended higher, bond and capital markets suffered from sustained corrections and some institutions faced liquidity pressure. But these have little impact to the stability of the broader environment.”

The Shanghai Composite Index slumped 1.6% to 3,123.80 points by the lunch break, after posting its biggest weekly loss so far this year last week. The blue-chip CSI300 index fell 1.3% to 3,423.11. Barring a rebound, the indexes looked set for their biggest one-day percentage loss since mid-December. Daily declines of more than 1% in the indexes have been rare for notoriously volatile Chinese markets this year. “Even the better-than-expected Q1 data could not boost the market, as investors are concerned about regulatory risks,” wrote Larry Hu, analyst at Macquarie Capital Ltd, referring to stronger-than-expected 6.9% economic growth early in the year.

In the latest of a flurry of regulatory measures, China’s insurance regulator said on Sunday it will ramp up its supervision of insurance companies to make sure they comply with tighter risk controls and threatened to investigate executives who flout rules aimed at rooting out risk-taking. The banking regulator said late on Friday that growth in Chinese wealth management products (WMPs) and interbank liabilities eased in the first quarter, suggesting authorities are making some headway in containing financial risks built up by years of debt-fuelled stimulus.

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The billionaire bubble. A communist party rules this country. In name.

Chinese Billionaires Amass In The Country’s Heartland (CNBC)

ZHENGZHOU, China — Here in China’s heartland, in the capital of its Henan province, some of the country’s most powerful leaders are meeting. But these are not the political elite that have run the country for decades, this is a new crop of leaders — all from the private sector. This city, near corn and wheat fields, is hosting an annual meeting from the China Entrepreneur Club. That’s an invite-only group composed of 55 Chinese billionaires, at last count. In other words, they’re the richest — and among the most influential — people in a country that’s already minting millionaires monthly. Unlike many of the moneyed elite from other developing countries, who accrued wealth from a privatization land-grab, almost all of China’s entrepreneurs started from scratch. And these entrepreneurs aren’t just titans of industry, but also technology, energy, finance and retail.

In many ways, they are China’s new economy. How they’ve succeeded, mostly despite the Communist government, is a major and under-appreciated part of the story of China’s transformation over the past 35 years. In fact, even before the Chinese government officially acknowledged the benefits of private companies, hundreds of thousands of businesses had already begun. A handful of those have become international giants. Huawei is now one of the largest telecommunications equipment makers in the world, but it started by importing used gear from the telephone exchange in Hong Kong. The company now known as Lenovo, the world’s top PC-maker by market share, started by selling televisions imported into China. Geely, now one of China’s biggest carmakers, started by selling parts for refrigerators.

The people behind those names are China’s first generation of entrepreneurs. The second generation came about in the 1990s, and the country’s third crop of entrepreneurs includes people like Alibaba’s Jack Ma, and Tencent’s Pony Ma (no relation), who are now the focus of most of the Western world’s attention. And China is already churning out a new slew of tech titans in the making. By some measures, China’s private sector now accounts for two thirds of its economy. Entrepreneurs, not politicians, are now the ones driving the long-sought economic rebalancing away from a dependence on manufacturing and exports and more toward services and consumption.

But one of the major questions about China’s future is what the dynamic will be like between entrepreneurs and state-owned enterprises. So far, Beijing has largely treated private success benignly because the biggest stars, like Alibaba, are more valuable to the national cause without official direction or interference. Those companies are flying China’s flag, in an increasingly international capacity, more effectively than any state campaign or directive could ever hope to achieve. But the state and its companies still comprise a full third of China’s economy, and when state-owned enterprises begin to get crowded out, there will likely be tension.

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Ma has wild fantasies.

Jack Ma Sees Decades of Pain as Internet Upends Old Economy (BBG)

Alibaba Chairman Jack Ma said society should prepare for decades of pain as the internet disrupts the economy. The world must change education systems and establish how to work with robots to help soften the blow caused by automation and the internet economy, Ma said in a speech to an entrepreneurship conference in Zhengzhou, China. “In the next 30 years, the world will see much more pain than happiness,” Ma said of job disruptions caused by the internet. “Social conflicts in the next three decades will have an impact on all sorts of industries and walks of life.” It was an unusual speech for the Alibaba co-founder, who tends to embrace his role as visionary and extol the promise of the future. He explained at the event that he had tried to warn people in the early days of e-commerce it would disrupt traditional retailers and the like, but few listened.

This time, he wants to warn against the impact of new technologies so no one will be surprised. “Fifteen years ago I gave speeches 200 or 300 times reminding everyone the Internet will impact all industries, but people didn’t listen because I was a nobody,” he said. Ma made the comments as Alibaba, China’s largest e-commerce operator, spends billions of dollars to move into new businesses from film production and video streaming to finance and cloud computing. The Hangzhou-based company, considered a barometer of Chinese consumer sentiment, is looking to expand abroad since buying control of Lazada to establish a foothold in Southeast Asia, potentially setting up a clash with the likes of Amazon.com. Ma, 52, was also critical of the traditional banking industry, saying that lending must be available to more members of society. The lack of a robust credit system drives up the costs for everyone, he said.

[..] Ma was at times brutal in his criticism of companies that won’t adapt. At one point, he said cloud computing and artificial intelligence are essential for business – and if leaders don’t get that, they should find young people in their companies to explain it to them. Another time, he called for traditional industries to stop complaining about the internet’s effects on the economy. He said Alibaba critics ignore that Taobao, its main online marketplace, has created millions of jobs. [..] He also warned that longer lifespans and better artificial intelligence were likely to lead to both aging labor forces and fewer jobs. “Machines should only do what humans cannot,” he said. “Only in this way can we have the opportunities to keep machines as working partners with humans, rather than as replacements.”

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Klein interviews Kim Philipps-Fein, author of Fear City, which describes New York in the 1970s, and Trump’s role in it.

Fear City (Naomi Klein)

When i published “The Shock Doctrine” a decade ago, a few people told me that it was missing a key chapter in the evolution of the tactic I was reporting on. That tactic involved using periods of crisis to impose a radical pro-corporate agenda. They said that in the United States that story doesn’t start with Reagan in the 1980s, as I had told it, but rather in New York City in the mid-1970s. That’s when the city’s very near brush with all-out bankruptcy was used to dramatically remake the metropolis. Massive and brutal austerity, sweetheart deals for the rich, privatizations. In classic Shock Doctrine style, under cover of crisis, New York changed from being a place with some of the most generous public services in the country, engaged in some cutting-edge attempts at racial and economic integration, to the temple of nonstop commerce and gentrification that we all know and still love today.

New York’s debt crisis is an incredibly important and little understood chapter in the evolution of what Nobel Prize-winning economist Joseph Stiglitz calls market fundamentalism, a process the Trump administration is in the process of rapidly accelerating, which is why I was so happy to receive Kim Phillips-Fein’s remarkable new book, “Fear City.” In it, she meticulously documents how the remaking of New York City in the ’70s was a prelude to what would become a global ideological tidal wave, one that has left the world brutally divided between the 1% and the rest. She helps us to understand many of the forces that Trump exploited to win the White House, from economic insecurity to crumbling public infrastructure to fearmongering about black crime, all amid previously unimaginable private wealth.

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Thomsen continues to play an ugly part.

IMF Warns Greece That Additional Economic Overhauls Are Needed (WSJ)

The IMF had a sobering message for Greece this weekend: Even if the country secures debt relief from its European creditors—a question that is by no means assured with bailout talks still deadlocked—the nation still needs even more painful economic overhauls than currently planned. Seven years into an economic crisis and another near-term financial emergency looming, that is a message no Greek wants to hear and a key reason why the IMF is also urging Germany and Athens’ other European creditors to give the country hope in the form of real debt relief. The country’s “fiscal and structural reforms…pension reforms, tax reforms, are only a down payment,” said Poul Thomsen, IMF’s European department chief and Greece’s original bailout architect, on the sidelines of the fund’s semiannual meeting of finance ministers and central bankers.

To bring the country’s unemployment and income levels back to precrisis rates will take “deep structural reforms, many of which are not yet on the books,” he said. The jobless rate is currently at 22% and half of all the youth labor force are without work. “This is a long-term project,” he said. Mr. Thomsen, along with IMF Managing Director Christine Lagarde, met with Finance Minister Euclid Tsakalotos over the weekend ahead of a return of the fund to Athens next week. Although bailout talks continue, the fund hasn’t been involved in emergency financing for the country in three years, and future funding from the IMF is an open question. Fund officials worry the Greece’s existing efforts are stretching the nation’s political and social limits to their breaking point.

The country has already endured a series of political crises and government changeovers over the bailout years. Another could be coming, analysts say, as the government faces debt due in the coming months that it can’t cover without additional help from outside creditors. Earlier this year, the fund said the deadlock over new bailout terms, financing and debt relief risked pushing the country out of the eurozone. Analysts say Greece’s crisis could be the thread that unravels the currency union, especially amid Britain’s rejection of the European Union and rising anti-euro parties in key upcoming elections.

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The blessings of foreclosures. The entire country is for sale. It’s a colony.

Greek Banks Aspire To Begin Online Asset Auctions In June (K.)

The country’s four systemic banks have evolved into some of the biggest property owners in Greece, obtaining ownership of assets worth over €40 billion in the past few years. The majority are properties that came under the banks’ full ownership mainly from being the collateral used by borrowers – households and enterprises – who failed to repay their debts. There also are properties used to house bank branches that were shut down, assets belonging to banks’ subsidiaries of banks, etc. According to bank officials, the acquisition of these properties has met all the legal requirements and they do not include assets stemming from nonperforming loans created during the years of crisis, originating, instead, from previous years.

Banks are examining various ways to sell them off – including the use of an online platform for investors – so as to be rid of the heavy maintenance costs, to capitalize on the assets and to obtain liquidity that can then be channeled into the economy through loans. Certain lenders are at an advanced stage in the creation of such a platform, aiming to launch the first auctions some time in June. It is estimated that if banks manage to attract foreign investors this could revitalize the Greek property market, which has contracted dramatically in recent years due to the prolonged recession. From 250,000 transactions in 2007, the market dropped to just 20,000 in 2014. Banks have already engaged in certain transactions, selling some small or large properties (such as hotels) to foreign investors.

However, more extensive activity,requires other procedures, which would also be simple and transparent. Electronic auctions appear as the best way forward, as they are open, do not require the seller’s physical presence and have low costs, while also keeping out the “vultures” that take advantage of the lack of transparency in conventional auctions. The online platforms will include all the main details of each asset, while potential buyers will be allowed to visit the properties on offer and submit their offers online on certain dates. Bank officials tell Kathimerini that one such platform in the US has sold over 200,000 properties worth $34 million to investors from more than 100 countries in the last decade.

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