Jan 312017

Pieter Bruegel the Elder The Fall of Icarus 1558

White House Immigration Ban Promises Constitutional Showdown (BBG)
Trump Fires Acting Attorney General Over Executive Order Defiance (AP)
Philip Roth E-Mails On Trump (NewYorker)
How a Bank Conquered Washington (Nomi Prins)
Goldman CEO Takes Lead On Wall Street In Slamming Trump Travel Ban (R.)
The Pitfalls of Replacing Obamacare (Economist)
Fed: Banks Under $250 Billion Threshold Get Break on Stress Tests (WSJ)
Is Italy’s Banking Problem Becoming Too Big to Solve? (DQ)
The Left Is Self-Destructing (Paul Craig Roberts)
A Better Solution Than Trump’s Border Wall (Ron Paul)
More Refugees Could Come To Calgary In The Wake Of Trump’s Ban (CH)
Alarm Raised Over Third Refugee Death on Lesbos In Six Days (K.)



An excellent discussion to have. However, opinions and interpretations already vary enormously, and it’s Trump who will appoint the next Supreme Court judge(s) – first one today. That could well take it from a showdown to a constitutional crisis.

White House Immigration Ban Promises Constitutional Showdown (BBG)

Did President Donald Trump’s executive order on immigration ban Muslims from the country on the basis of their religion? That will be a central question when federal judges dig more deeply into the constitutionality of the order, signed on Jan. 27. If the answer is yes, it appears vulnerable to a First Amendment challenge. So far, four U.S. district judges – in Brooklyn, New York; Boston; Alexandria, Virginia; and Seattle – have issued temporary rulings blocking aspects of the order. These provisional, hastily granted judicial rulings didn’t delve into deep constitutional issues. Instead, they sought to prevent deportations or other government actions that would harm individuals affected by it. Lawyers for those individuals will return to court in coming days to flesh out their arguments. The Trump administration presumably will send attorneys from the Justice Department to defend the executive order, and the respective judges will subsequently issue more-thorough rulings.

[..] Strange as it may seem, Trump’s utterances on Twitter or elsewhere could become evidence in court of what he intended to accomplish with the executive order. Some possible examples include his original call during the presidential campaign for a “total and complete shutdown of Muslims entering the United States” and his modified demand for a ban targeting immigrants from majority-Muslim countries. Even some conservative Republicans expressed unease about the constitutionality of the Trump order. Focusing on the First Amendment issue, Senate Majority Leader Mitch McConnell said on ABC’s “This Week” on Sunday: “It’s hopefully going to be decided in the courts as to whether or not this has gone too far.” “I think we need to be careful,” McConnell added. “We don’t have religious tests in this country.”

Roger Pilon, founding director of the Cato Institute’s Center for Constitutional Studies, predicted the debate over Trump’s immigration order would ultimately end up with the Supreme Court. “I don’t see President Trump backing down,” he said. “I do hope, however, that the stays the lower courts are issuing will allow for a measure of ‘business as usual,’ because the initial situation seems very chaotic.”

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Yates did what she had to. Question arises how much longer Mattis and Tillerson will stand for being left in the dark about measures, but subsequently having to defend them.

Trump Fires Acting Attorney General Over Executive Order Defiance (AP)

Accusing her of betrayal and insubordination, President Donald Trump on Monday fired Sally Yates, the acting attorney general of the United States and a Democratic appointee, after she publicly questioned the constitutionality of his controversial refugee and immigration ban and refused to defend it in court. The dramatic public clash between the new president and the nation’s top law enforcement officer laid bare the growing discord and dissent surrounding Trump’s executive order, which temporarily halted the entire U.S. refugee program and banned all entries from seven Muslim-majority nations for 90 days. The firing came hours after Yates directed Justice Department attorneys not to defend the executive order, saying she was not convinced it was lawful or consistent with the agency’s obligation “to stand for what is right.”

[..] Yates’s abrupt decision reflected the growing conflict over the executive order, with administration officials moving Monday to distance themselves from the policy. As protests erupted at airports over the weekend and confusion disrupted travel around the globe, even some of Trump’s top advisers and fellow Republicans made clear they were not involved in crafting the policy or consulted on its implementation. At least three top national security officials — Defense Secretary Jim Mattis, Homeland Security Secretary John Kelly and Rex Tillerson, who is awaiting confirmation to lead the State Department — have told associates they were not aware of details of the directive until around the time Trump signed it. Leading intelligence officials were also left largely in the dark, according to U.S. officials.

Tennessee Sen. Bob Corker, the top Republican on the Senate Foreign Relations committee, said that despite White House assurances that congressional leaders were consulted, he learned about the order in the media. Trump’s order pauses America’s entire refugee program for four months, indefinitely bans all those from war-ravaged Syria and temporarily freezes immigration from Iraq, Syria, Iran, Sudan, Libya, Somalia and Yemen. Federal judges in New York and several other states issued orders that temporarily block the government from deporting people with valid visas who arrived after Trump’s travel ban took effect and found themselves in limbo. Yates, who was appointed deputy attorney general in 2015 and was the No. 2 Justice Department official under Loretta Lynch, declared Monday she was instructing department lawyers not to defend the order in court.

“I am responsible for ensuring that the positions we take in court remain consistent with this institution’s solemn obligation to always seek justice and stand for what is right,” Yates wrote in a letter announcing her position. “At present, I am not convinced that the defense of the Executive Order is consistent with these responsibilities nor am I convinced that the Executive Order is lawful.” [..] Mattis, who stood next to Trump during Friday’s signing ceremony, is said to be particularly incensed. A senior U.S. official said Mattis, along with Joint Chiefs Chairman Joseph Dunford, was aware of the general concept of Trump’s order but not the details. Tillerson has told the president’s political advisers that he was baffled over not being consulted on the substance of the order.

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“..wielding a vocabulary of seventy-seven words that is better called Jerkish than English.”

Philip Roth E-Mails On Trump (NewYorker)

In 2004, Philip Roth published “The Plot Against America.” The four main characters of the novel, which takes place between June, 1940, and October, 1942, are a family of American Jews, the Roths, of Newark—Bess, Herman, and their two sons, Philip and Sandy. They are ardent supporters of Franklin Delano Roosevelt, but, in Roth’s reimagining, Roosevelt loses his bid for a third term to a surprise Republican candidate—the aviator Charles Lindbergh—whose victory upends not only politics in America but life itself. The historical Lindbergh was an isolationist who espoused a catchphrase that Donald Trump borrowed for his Presidential campaign, and for his Inaugural Address: “America First.” The fictional Lindbergh, like the actual Trump, expressed admiration for a murderous European dictator, and his election emboldened xenophobes.

In Roth’s novel, a foreign power—Nazi Germany—meddles in an American election, leading to a theory that the President is being blackmailed. In real life, U.S. intelligence agencies are investigating Trump’s ties to Vladimir Putin and the possibility that a dossier of secret information—kompromat—gives Russia leverage with his regime. Roth wrote in the Times Book Review that “The Plot Against America” was not intended as a political roman à clef. Rather, he wanted to dramatize a series of what-ifs that never came to pass in America but were “somebody else’s reality”—i.e., that of the Jews of Europe. “All I do,” he wrote, “is to defatalize the past—if such a word exists—showing how it might have been different and might have happened here.”

Last week, Roth was asked, via e-mail, if it has happened here. He responded, “It is easier to comprehend the election of an imaginary President like Charles Lindbergh than an actual President like Donald Trump. Lindbergh, despite his Nazi sympathies and racist proclivities, was a great aviation hero who had displayed tremendous physical courage and aeronautical genius in crossing the Atlantic in 1927. He had character and he had substance and, along with Henry Ford, was, worldwide, the most famous American of his day. Trump is just a con artist. The relevant book about Trump’s American forebear is Herman Melville’s ‘The Confidence-Man,’ the darkly pessimistic, daringly inventive novel—Melville’s last—that could just as well have been called ‘The Art of the Scam.’ ”

American reality, the “American berserk,” Roth has noted, makes it harder to write fiction. Does Donald Trump outstrip the novelist’s imagination? Roth replied, “It isn’t Trump as a character, a human type—the real-estate type, the callow and callous killer capitalist—that outstrips the imagination. It is Trump as President of the United States. “I was born in 1933,” he continued, “the year that F.D.R. was inaugurated. He was President until I was twelve years old. I’ve been a Roosevelt Democrat ever since. I found much that was alarming about being a citizen during the tenures of Richard Nixon and George W. Bush. But, whatever I may have seen as their limitations of character or intellect, neither was anything like as humanly impoverished as Trump is: ignorant of government, of history, of science, of philosophy, of art, incapable of expressing or recognizing subtlety or nuance, destitute of all decency, and wielding a vocabulary of seventy-seven words that is better called Jerkish than English.”

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Excellent history lesson.

How a Bank Conquered Washington (Nomi Prins)

At the dawn of the twentieth century, when President Teddy Roosevelt governed the country on a platform of trust busting aimed at reducing corporate power, even he could not bring himself to bust up the banks. That was a mistake born of his collaboration with the financier J.P. Morgan to mitigate the effects of the Bank Panic of 1907. Roosevelt feared that if he didn’t enlist the influence of the country’s major banker, the crisis would be even longer and more disastrous. It’s an error he might not have made had he foreseen the effect that one particular investment bank would have on America’s economy and political system.

There have been hundreds of articles written about the “world’s most powerful investment bank,” or as journalist Matt Taibbi famously called it back in 2010, the “great vampire squid.” That squid is now about to wrap its tentacles around our world in a way previously not imagined by Bill Clinton or George W. Bush. No less than six Trump administration appointments already hail from that single banking outfit. Of those, two will impact your life strikingly: former Goldman partner and soon-to-be Treasury Secretary Steven Mnuchin and incoming top economic adviser and National Economic Council Chair Gary Cohn, former president and “number two” at Goldman. (The Council he will head has been responsible for “policy-making for domestic and international economic issues.”)

Now, let’s take a step into history to get the full Monty on why this matters more than you might imagine. In New York, circa 1932, then-Governor Franklin Delano Roosevelt announced his bid for the presidency. At the time, our nation was in the throes of the Great Depression. Goldman Sachs had, in fact, been one of the banks at the core of the infamous crash of 1929 that crippled the financial system and nearly destroyed the economy. It was then run by a dynamic figure, Sidney Weinberg, dubbed “the Politician” by Roosevelt because of his smooth tongue and “Mr. Wall Street” by the New York Times because of his range of connections there. Weinberg quickly grasped that, to have a chance of redeeming his firm’s reputation from the ashes of public opinion, he would need to aim high indeed. So he made himself indispensable to Roosevelt’s campaign for the presidency, soon embedding himself on the Democratic National Campaign Executive Committee.

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Goldman view: Bad for business.

Goldman CEO Takes Lead On Wall Street In Slamming Trump Travel Ban (R.)

Goldman Sachs CEO Lloyd Blankfein became the first major Wall Street leader to speak out against President Donald Trump’s order to halt arrivals from several Muslim-majority countries. In a voicemail to employees on Sunday, Blankfein said diversity was a hallmark of Goldman’s success, and if the temporary freeze became permanent, it could create “disruption” for the bank and its staff. “This is not a policy we support, and I would note that it has already been challenged in federal court, and some of the order has been enjoined at least temporarily,” Blankfein said, according to a transcript seen by Reuters. In Silicon Valley, the heads of companies such as Apple and Facebook swiftly denounced Trump’s immigration ban.

But the rest of corporate America has been more circumspect in speaking out, underscoring the sensitivities around opposing policies that could provoke a backlash from the White House. Tepid responses from many of Blankfein’s peers made his comments all the more potent, especially because Goldman has gotten attention for the number of its alumni who have joined Trump’s administration. Top BlackRock executives including CEO Larry Fink, sent a memo to staff on Monday saying Trump’s order presented “challenges” to its goals of diversity and inclusion. BlackRock is examining the direct impact on its employees, as well as the broader implications of the order, they said. “We, of course, all want to promote security and combat terrorism, but we believe it needs to be done with respect for due process, individual rights and the principle of inclusion,” they wrote.’

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High risk pools. Holy mother. That’s sick.

The Pitfalls of Replacing Obamacare (Economist)

As Republicans seek to carry out their promise to repeal the Affordable Care Act (ACA), they must keep an eye on their own political health. “Obamacare” may be unpopular, but its components are not. A celebrated part of the law bans insurers from turning away customers who have pre-existing medical conditions. Before the ACA, insurers would routinely deny coverage to those with even minor or old blots on their medical histories. At a recent question-and-answer session, Paul Ryan, the Speaker of the House of Representatives, was confronted by a man who, thanks to a cancer diagnosis, owed his life to this Obamacare rule. Mr Ryan promised the voter that the GOP’s desired ACA overhaul would not have left him for dead. Instead, he could have joined a “high-risk pool”. Beloved by the right, these pools feature in almost every Obamacare alternative, including the one penned by Tom Price, Donald Trump’s pick to be health secretary.

The idea is to hive unhealthy people off into their own dedicated market and then subsidise their coverage. It reverses the logic of the ACA, which lumped everyone together to spread costs around. The law sent premiums skyrocketing for healthy folk who buy their insurance themselves, rather than through an employer. Whittling out higher-risk people from the market would bring those premiums back down. Middle-income earners too well-off to qualify for Obamacare’s tax credits, who have suffered the most from higher costs, would surely cheer such a reform. 35 states ran high-risk pools before the ACA. The biggest and most successful was the Minnesota Comprehensive Health Association (MCHA, or “em-sha”). Established in 1976, MCHA covered 27,000 Minnesotans with pre-existing conditions in 2011, about 10% of the relevant market. It offered a selection of plans, from near-total coverage to catastrophe-only insurance.

All provided good, though not unlimited, care. Separating high-risk people out does not make their costs disappear. Minnesota paid for MCHA in two ways. First, premiums were up to 25% higher than elsewhere. After those were collected, a levy on other health insurance plans covered its losses. This tax inflated healthy folks’ premiums much less than Obamacare does, partly because it applied to a broad base which included employer-provided coverage. MCHA helped create a stable market, argues Peter Nelson of the Centre of the American Experiment, a conservative think-tank. The ACA, by contrast, has led to something of a mess. In 2015 insurers’ costs were 16% higher than their revenue from premiums. Blue Cross Blue Shield, an insurer which covered 103,000 people, has left Minnesota’s market, blaming massive losses. The state is likely to hand out $300m to cushion the blow from huge premium increases for 2017, which by one measure reached 59%.

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Why? They don’t have enough people to do the work: “..allowing the Fed to dedicate more of its staff to focusing on the biggest firms.”

Fed: Banks Under $250 Billion Threshold Get Break on Stress Tests (WSJ)

Twenty U.S. banks with less than $250 billion in assets will be freed from the subjective portion of the Federal Reserve’s annual stress tests under changes the central bank laid out Monday. Banks including Northern Trust and American Express will no longer have to comply with the “qualitative” half of the Fed’s stress tests, which takes a deep dive into a firm’s risk-management systems. Last year, 33 banks participated in the annual exercise. The central bank said it would release scenarios and instructions for the 2017 test by the end of this week. Stress tests have become a centerpiece of the Fed’s postcrisis regulatory framework.

The exercise examines two critical aspects of the largest firms: first, whether banks hold enough capital—money raised from investors or earned through profit—to withstand severe economic stress in the financial system, and second, whether banks have the appropriate internal processes to identify and measure risk when considering their own capital planning. The Fed can reject a bank’s plan to pay out shareholders on either basis. To gain an exemption, a firm must have assets between $50 billion and $250 billion and not be identified as a globally systemically important bank. One important change made by regulators in the final rule was excluding a requirement to have less than $10 billion in foreign exposure.

Those firms will still be required to show regulators they could survive a hypothetical recession with enough capital to continue lending. The change is designed to make the tests less onerous, while allowing the Fed to dedicate more of its staff to focusing on the biggest firms. The 2010 Dodd-Frank financial-overhaul law requires banks with more than $50 billion in assets to undergo the yearly stress tests. Fed officials have been looking for ways to ease requirements for regional banks while raising capital requirements for large, globally systemically important banks by adding a capital surcharge into the stress tests.

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Yes. Actually, has been for a long time.

Is Italy’s Banking Problem Becoming Too Big to Solve? (DQ)

Ever since the European Commission and ECB jointly decided that Italy’s government could bend EU banking rules out of all recognition in order to bail out the country’s third largest bank, Monte dei Paschi di Siena, Europe’s financial stocks have been on a tear. But the good times were brought to a grinding halt Monday after Italy’s largest bank, Unicredit, which employs 55,000 people in 17 countries, announced losses for 2016 of €11.8 billion. By the bank’s logic, it would have announced profits if it hadn’t had to write off €12.2 billion, including billions of euros of non-performing loans (NPLs) festering on its balance sheets. But it got worse. In the registration document for its pending recapitalization, published on its website today, Unicredit also announced that its capital ratios at the end of 2016 might fall short of ECB requirements.

It was enough to prompt a 5.45% slide in its shares. As detected in the ECB’s latest stress test, Unicredit already had the slimmest capital buffer of all Europe’s Global Systemically Important Banks (G-SIBs). And it just got slimmer. The reality today is not comforting: a bank that is officially too big to fail, with over €1 trillion of “assets” on its books, just admitted that things are even worse than initially feared. Somehow, Unicredit will need to raise €13 billion in new capital by the end of June. If successful, it would be the biggest capital expansion of Italian stock market history. Earlier this month, the bank has pushed through a 10:1 reverse stock split, cutting its shares outstanding by a factor of 10 and multiplying the share price by 10. So its shares today plunged 5.45% to €26.20 instead of to, say, €2.62.

It makes the shares look more palatable, but it does absolutely nothing to bank’s market capitalization, which is down to just €16.2 billion. The bank is also planning to cut 14,000 jobs by 2019, close 944 of its 3,800 branches, and offload almost €18 billion of bad loans — a gargantuan ask even at the best of times. And for Unicredit and Italy as a whole, these are most certainly not the best of times. The Italian government has so far pledged €20 billion of taxpayer funds to partially bail out the bondholders of Monte dei Paschi and of a clutch of other banks that will probably include Banca Popolare di Vicenza, Veneto Banca and Genoa-based Carige. That’s already four times the initial estimated outlay of €5 billion. Expect it to keep growing.

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“Is everyone too busy hating to do anything sensible?”

The Left Is Self-Destructing (Paul Craig Roberts)

The mindlessness is unbearable. Amnesty International tells us that we must “fight the Muslim ban” because Trump’s bigotry is wrecking lives. Anthony Dimaggio at CounterPunch says Trump should be impeached because his Islamophobia is a threat to the Constitution. This is not to single out these two as the mindlessness is everywhere among those whose worldview is defined by Identity Politics. One might think that Amnesty International should be fighting against the Bush/Cheney/Obama regime wars that have produced the refugees by killing and displacing millions of Muslims. For example, the ongoing war that Obama inflicted on Yemen results in the death of one Yemeni child every 10 minutes, according to UNICEF. Where is Amnesty International?

Clearly America’s wars on Muslims wreck far more lives than Trump’s ban on immigrants. Why the focus on an immigration ban and not on wars that produce refugees? Is it because Obama is responsible for war and Trump for the ban? Is the liberal/progressive/left projecting Obama’s monstrous crimes onto Trump? Is it that we must hate Trump and not Obama? Immigration is not a right protected by the US Constitution. Where was Dimaggio when in the name of “the war on terror” the Bush/Obama regime destroyed the civil liberties guaranteed by the US Constitution? If Dimaggio is an American citizen, he should try immigrating to the UK, Germany, or France and see how far he gets.

The easiest and surest way for the Trump administration to stop the refugee problem, not only for the US but also for Europe and the West in general, is to stop the wars against Muslim countries that his predecessors started. The enormous sums of money squandered on gratuitous wars could instead be given to the countries that the US and NATO have destroyed. The simplest way to end the refugee problem is to stop producing refugees. This should be the focus of Trump, Amnesty, and Dimaggio. Is everyone too busy hating to do anything sensible? It is very disturbing that the liberal/progressive/left prefers to oppose Trump than to oppose war. Indeed, they want a war on Trump. How does this differ from the Bush/Obama war on Muslims?

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Stop warring.

A Better Solution Than Trump’s Border Wall (Ron Paul)

Just one week in office, President Trump is already following through on his pledge to address illegal immigration. His January 25th executive order called for the construction of a wall along the entire length of the US-Mexico border. While he is right to focus on the issue, there are several reasons why his proposed solution will unfortunately not lead us anywhere closer to solving the problem. First, the wall will not work. Texas already started building a border fence about ten years ago. It divided people from their own property across the border, it deprived people of their land through the use of eminent domain, and in the end the problem of drug and human smuggling was not solved.

Second, the wall will be expensive. The wall is estimated to cost between 12 and 15 billion dollars. You can bet it will be more than that. President Trump has claimed that if the Mexican government doesn’t pay for it, he will impose a 20% duty on products imported from Mexico. Who will pay this tax? Ultimately, the American consumer, as the additional costs will be passed on. This will of course hurt the poorest Americans the most. Third, building a wall ignores the real causes of illegal border crossings into the United States. Though President Trump is right to prioritize the problem of border security, he misses the point on how it can be done effectively and at an actual financial benefit to the country rather than a huge economic drain.

The solution to really addressing the problem of illegal immigration, drug smuggling, and the threat of cross-border terrorism is clear: remove the welfare magnet that attracts so many to cross the border illegally, stop the 25 year US war in the Middle East, and end the drug war that incentivizes smugglers to cross the border. [..] the threat of terrorists crossing into the United States from Mexico must be taken seriously, however once again we must soberly consider why they may seek to do us harm. We have been dropping bombs on the Middle East since at least 1990. Last year President Obama dropped more than 26,000 bombs. Thousands of civilians have been killed in US drone attacks. The grand US plan to “remake” the Middle East has produced only misery, bloodshed, and terrorism. Ending this senseless intervention will go a long way toward removing the incentive to attack the United States.

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It’s like a different planet. Curious detail is that western Canada always felt very close to the US, something that comes up every time Québec separation is discussed. Those same people now actively sponsor refugees. Bless you.

More Refugees Could Come To Calgary In The Wake Of Trump’s Ban (CH)

After the success of last year’s resettlements in Calgary, another wave of refugees could be on its way as the federal government and immigration services monitor the impact of Donald Trump’s refugee ban. And while Prime Minister Justin Trudeau has already suggested Canada will welcome those the U.S. won’t take, immigration advocates say funding for services will have to keep up with rising demand. “There is a lot of confusion around the ban right now, it came down very fast and furious,” said Anoush Newman, community engagement coordinator for the Calgary Catholic Immigration Society. “But Canada is in a very respected position in the world. And people from a lot of countries will aspire to come here.”

Fariborz Birjandian, CEO with CCIS, added that while Calgary’s numbers will increase only if the federal government approves another wave of Syrian refugees similar to last year’s, the possibility is there amid the ban in the U.S. – a country that normally takes in 80,000 refugees a year. “There are hundreds of thousands of refugees in camps right now, dreaming of coming to Canada,” Birjandian said. “But that all depends on whether the federal government will raise its target numbers.” CCIS estimates up to 7,000 refugees arrived in Alberta over the past year, up to 3,400 of them to Calgary, after the Trudeau government announced a goal of taking at least 25,000 refugees last January.

[..] if Canadian cities will be expected to prepare for more refugees, Newman says the federal government also needs to ensure funding for new infrastructure and support services. “When they arrive here, they need schools, health services, language services. We need to make sure they get enough support,” she said. CCIS officials held a public forum Monday updating the community about its refugee resettlement program one year after the Trudeau government announced its 25,000 target. Birjandian commended local efforts, especially among private sponsors who took in up to 2,200 of Calgary’s 3,400 total refugees.

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Words fail. A fourth man dies on Samos. Where is the urgency, Europe, where is the outrage?

Alarm Raised Over Third Refugee Death on Lesbos In Six Days (K.)

The death Monday of a third migrant within a week at the Moria camp on Lesvos has increased concerns about the living conditions of thousands of people who continue to live in tents, and cast fresh doubts over a pledge by the Migration Ministry in early January to take the necessary precautions as heavy snowfall and subzero temperatures engulfed the country. However, Migration Minister Yiannis Mouzalas said Monday that the number of United Nations refugee agency (UNHCR) employees at the camps has dropped, making a difficult situation even tougher. He also said a plan to move people to hotels while the so-called hot spots received a makeover fell through after local authorities and hoteliers disagreed. He vowed to reporters that steps will be taken “to make the situation more manageable,” while migrants, meanwhile, say they are at breaking point.

The latest incidents occurred as the UNHCR and other organizations have called on Greece to improve living conditions. The man who died Monday in his tent was a Pakistani national, aged between 18 and 20. Authorities have ruled out foul play while doctors blamed carbon monoxide poisoning. A 30-year-old Afghan man who shared the same tent was hospitalized but his condition was reportedly not life-threatening. The Pakistani man’s death follows that of an Egyptian man, 22, last Tuesday and a 46-year-old Syrian man on Saturday. A coroner has asked for more tests to ascertain the cause of death for the latter two. Initial assessments attributed their deaths to fume inhalations from stoves they had lit to keep warm. Two camps on Lesvos serve as temporary shelter for some 4,800 refugees and migrants.

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Oct 312016
 October 31, 2016  Posted by at 9:36 am Finance Tagged with: , , , , , , , , , ,  Comments Off on Debt Rattle October 31 2016

Harris&Ewing State, War & Navy Building, Washington DC 1917

Economic Stress As World Runs Out Of Dollars (AEP)
China as Factory to World Mulls the Unthinkable: Price Hikes (BBG)
European Banks Stuck With $1.3 Trillion of Bad Loans, KPMG Says (BBG)
FBI Obtains Warrant; Agents Waited Weeks To Tell Comey About Emails (WaPo) (WaPo)
Why Comey Jumped At The Chance To Reopen Hillary Investigation (DM)
FBI in Internal Feud Over Hillary Clinton Probe (WSJ)
Hillary’s Emails Matter: A Retired CIA Officer Explains Why (Hill)
Ex-FBI Official: ‘Intensive Investigation’ Ongoing Into Clinton Foundation (DC)
Clinton Supporter Doug Schoen Reconsiders, Cites Constitutional Crisis (RCP)
James Comey – As Seen Through The Persuasion Filter (Adams)
Theresa May Lied And Lied Again To Become PM (G.)
The Dirty Secret Beneath Hong Kong’s Wealth: Slavery (SCMP)
EU And Canada Sign CETA Free Trade Deal (G.)
Turkey Detains Editor Of Opposition Newspaper Cumhuriyet (AFP)
Erdogan Says Greek Islands ‘Used To Be Ours’ (Kath.)



“Our allocation model is now 100pc in cash. This is a warning signal for the market and it happens extremely rarely..”

Economic Stress As World Runs Out Of Dollars (AEP)

Surging rates on dollar Libor contracts are rapidly tightening conditions across large parts of the global economy, incubating stress in the credit markets and ultimately threatening overvalued bourses. Three-month Libor rates – the benchmark cost of short-term borrowing for the international system – have tripled this year to 0.88pc as inflation worries mount. Fear that the US Federal Reserve may have to raise rates uncomfortably fast is leading to an acute dollar shortage, draining global liquidity. “The Libor rate is one of few instruments left that still moves freely and is priced by market forces. It is effectively telling us that that the Fed is already two hikes behind the curve,” said Steen Jakobsen from Saxo Bank. “This is highly significant and is our number one concern. Our allocation model is now 100pc in cash. This is a warning signal for the market and it happens extremely rarely,” he said.

Goldman Sachs estimates that up to 30pc of all business loans in the US are priced off Libor contracts, as well as 20pc of mortgages and most student loans. It is the anchor for a host of exotic markets, used as a floor for 90pc of the $900bn pool of the leveraged loan market. It underpins the derivatives nexus. The chain reaction from the Libor spike is global. The BIS warns that the rising cost of borrowing in dollar markets is transmitted almost instantly through the global credit system. Changes in the short-term policy rate are promptly reflected in the cost of $5 trillion in US dollar bank loans,” it said. Roughly 60pc of the global economy is linked to the dollar through fixed currency pegs or “dirty floats”, but studies by the BIS suggest that borrowing costs in domestic currencies across Asia, Latin America, the Middle East, and Africa, move in sympathy with dollar costs, regardless of whether the exchange rate is fixed. Short-term “Shibor” rates in China have been ratcheting up.

The cost of one-year swaps jumped to 2.71pc last week, and the spread over one-year sovereign debt is back to levels seen during the Shanghai stock market crash last year. This is not a pure import from the US. The Chinese authorities themselves are taking action to rein in a credit bubble. It is happening in parallel with Fed tightening, each reinforcing the other, and that makes it more potent. Three-month interbank rates in Saudi Arabia have soared to 2.4pc. This is the highest since the global financial crisis in early 2009 and implies a credit crunch in the Saudi banking system. The M1 money supply has fallen 9pc over the last year. The Bank of Japan has doubled its window of dollar credit for Japanese banks to head off an incipient dollar squeeze, drawing on the country’s ample foreign reserves.

It may not be so easy for others. Credit analysts are becoming nervous about the spread between Libor and the overnight index swap, the so-called Libor-OIS spread that is used to gauge problems in the plumbing of the credit system. It has widened to 38 basis points, near levels seen in the eurozone debt crisis and past bouts of stress. The message from the ‘TED spread’ is similar, if less severe. This measures the spread between eurodollar rates in London and three-month futures contracts for US treasuries. The picture is complex. These signals have been distorted by new rules for US prime money market funds, which have shrunk by $560bn and led to a contraction of commercial paper. The deadline for this reform has come and gone, yet the spreads have not settled.

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Only thing left to do now is find buyers.

China as Factory to World Mulls the Unthinkable: Price Hikes (BBG)

China’s factories may be on the cusp of delivering a new shock to the global economy after years of undercutting rivals with cheaper costs. This time, increases in prices could reverberate around the world. To understand why, consider the dilemma facing Jiangmen Luck Tissue Mfy Ltd., now caught in a squeeze between surging wages and tepid demand. The company has already slashed staff by half, shaved prices and automated production to survive. Now, with margins razor thin, it’s weighing the first price increases since 2010. “There’s just no possibility for me to cut prices any more,” says deputy director Roger Zhao, 52, whose company is based in the city of Jiangmen in southern Guangdong province.

“Because costs are already pretty high and I don’t see any possibility they’ll go down, I’m seeking opportunities to raise prices a little bit.” That push to recover lost margins – even as demand remains muted – was shared by exporters of everything from clocks to jacuzzis interviewed in Guangzhou last week at the Canton Fair, a biannual gathering where 25,000 exhibitors and 180,000 mostly foreign buyers ink export deals in booths spanning exhibition space equivalent to about 3,400 tennis courts. For the world economy, decisions from companies like Jiangmen Tissue to stop cutting prices – and even raise them where demand allows – removes a source of disinflationary pressure.

To be decided is whether China, the factory to the world, swings from becoming a drag on consumer prices to a source of pressure nudging them higher. China’s manufacturing prices rose in September for the first time in almost five years and overall producer prices also clambered out of negative territory. Those likely to feel the biggest lift if Chinese export prices follow through with sustained increases would be the country’s top five markets: the U.S., Hong Kong, Japan, South Korea and Mexico. “China’s return to positive growth in producer prices marks a very significant turning point in deflationary pressures both in China and globally,” said Shane Oliver at AMP Capital Investors in Sydney. “This is only step one, though. We are still waiting for step two: stronger global demand and trade.”

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Draghi to the rescue. He better be fast.

European Banks Stuck With $1.3 Trillion of Bad Loans, KPMG Says (BBG)

Eight years after Lehman Brothers’ collapse sparked the financial crisis, Europe’s banks still have €1.2 trillion ($1.3 trillion) of non-performing loans and will probably be stuck with them for decades to come, according to KPMG. Anemic economic growth across the region is making it harder for lenders to off-load toxic assets, hurting profitability while banks also come under pressure from tougher capital rules and fines for misconduct, London-based KPMG said in a report published Monday. Firms could take “decades rather than years” to reduce their exposures, hampering profitability. European lenders are battling to cut soured loans as they face evaporating income from lending amid negative interest rates from the ECB.

Net interest margins, the difference between income from lending versus cost of funding, average about 1.2% in the region compared with about 3% in the U.S., according to KPMG. “Reversing the profitability of European banks is not a lost cause but it will certainly be a lot of hard work,” Marcus Evans, a partner at KPMG’s ECB office, said in a statement. “It’s clear that across Europe banks are still grappling with the new world of low, or negative, interest rates and mounting capital and regulatory costs.” The total value of toxic loans in Europe has surged since 2008 from about 1.5% of lending to more than 5% since 2013, according to the report. This has a negative impact on profitability from unpaid interest, raising provisions against impaired assets and realizing losses when disposing bad debts, according to KPMG.

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Lots of Weiner and Comey stuff today. Lots of guessing going on. Accurate picture is slow to seep through.

FBI Obtains Warrant; Agents Waited Weeks To Tell Comey About Emails (WaPo) (WaPo)

FBI agents investigating Hillary Clinton’s use of a private email server while secretary of state knew early this month that messages recovered in a separate probe might be germane to their case, but they waited weeks before briefing the FBI director, according to people familiar with the case. Director James B. Comey has written that he was informed of the development Thursday, and he sent a letter to legislators the next day letting them know that he thought the team should take “appropriate investigative steps designed to allow investigators to review these emails.” That missive ignited a political firestorm less than two weeks before the election. Almost instantly, Comey came under intense criticism for his timing and for bucking the Justice Department’s guidance not to tell Congress about the development.

And his announcement means that Clinton could have to contend with the news that the FBI has resumed its investigation of her use of a private email server — without any clarity on whether its investigators will find anything significant — up to and beyond Election Day. The FBI has obtained a warrant to search the emails found on a computer used by former congressman Anthony Weiner that may contain evidence relevant to the investigation into Clinton’s private email server, according to law enforcement officials. The warrant was obtained in New York, as FBI agents there have possession of the laptop. [..].. officials familiar with the case said the messages include a significant amount of correspondence associated with Clinton and her top aide Huma Abedin, Weiner’s estranged wife.

People familiar with the case said that agents on the Clinton email team had known about the messages since soon after New York FBI agents seized a computer related to their investigation into Weiner [..] Officials said the agents probing Clinton’s private email server didn’t tell the director immediately because they were trying to better assess what they had. “It’s a step-by-step process,” said one senior law enforcement official. “There are many steps along the way that get you to a place where the director can be appropriately briefed in order to make a decision” about whether to move forward.

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Even his wife was on to him. ‘They felt that he betrayed them and brought disgrace on the bureau by letting Hillary off with a slap on the wrist.’

Why Comey Jumped At The Chance To Reopen Hillary Investigation (DM)

James Comey’s decision to revive the investigation of Hillary Clinton’s email server and her handling of classified material came after he could no longer resist mounting pressure by mutinous agents in the FBI, including some of his top deputies, according to a source close to the embattled FBI director. ‘The atmosphere at the FBI has been toxic ever since Jim announced last July that he wouldn’t recommend an indictment against Hillary,’ said the source, a close friend who has known Comey for nearly two decades, shares family outings with him, and accompanies him to Catholic mass every week. ‘Some people, including department heads, stopped talking to Jim, and even ignored his greetings when they passed him in the hall,’ said the source.

‘They felt that he betrayed them and brought disgrace on the bureau by letting Hillary off with a slap on the wrist.’ According to the source, Comey fretted over the problem for months and discussed it at great length with his wife, Patrice. He told his wife that he was depressed by the stack of resignation letters piling up on his desk from disaffected agents. The letters reminded him every day that morale in the FBI had hit rock bottom. ‘He’s been ignoring the resignation letters in the hope that he could find a way of remedying the situation,’ said the source. ‘When new emails that appeared to be related to Hillary’s personal email server turned up in a computer used by Huma Abedin and Anthony Weiner, Comey jumped at the excuse to reopen the investigation.

‘The people he trusts the most have been the angriest at him,’ the source continued. ‘And that includes his wife, Pat. She kept urging him to admit that he had been wrong when he refused to press charges against the former secretary of state. ‘He talks about the damage that he’s done to himself and the institution [of the FBI], and how he’s been shunned by the men and women who he admires and work for him. It’s taken a tremendous toll on him. ‘It shattered his ego. He looks like he’s aged 10 years in the past four months.’ But Comey’s decision to reopen the case was more than an effort to heal the wound he inflicted on the FBI. He was also worried that after the presidential election, Republicans in Congress would mount a probe of how he had granted Hillary political favoritism.

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Maybe the agents should have spoken out earlier?

FBI in Internal Feud Over Hillary Clinton Probe (WSJ)

The surprise disclosure that agents from the Federal Bureau of Investigation are taking a new look at Hillary Clinton’s email use lays bare, just days before the election, tensions inside the bureau and the Justice Department over how to investigate the Democratic presidential nominee. Investigators found 650,000 emails on a laptop that they believe was used by former Rep. Anthony Weiner and his estranged wife Huma Abedin, a close Clinton aide, and underlying metadata suggests thousands of those messages could have been sent to or from the private server that Mrs. Clinton used while she was secretary of state, according to people familiar with the matter.

It will take weeks, at a minimum, to determine whether those messages are work-related from the time Ms. Abedin served with Mrs. Clinton at the State Department; how many are duplicates of emails already reviewed by the FBI; and whether they include either classified information or important new evidence in the Clinton email probe. Officials had to await a court order to begin reviewing the emails—which they received over the weekend, according to a person familiar with the matter—because they were uncovered in an unrelated probe of Mr. Weiner.

The new investigative effort, disclosed by FBI Director James Comey on Friday, shows a bureau at times in sharp internal disagreement over matters related to the Clintons, and how to handle those matters fairly and carefully in the middle of a national election campaign. Even as the probe of Mrs. Clinton’s email use wound down in July, internal disagreements within the bureau and the Justice Department surrounding the Clintons’ family philanthropy heated up, according to people familiar with the matter.

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“Accidentally removing a single classified message from controlled spaces, without any evidence of intent or exposure to hostile forces, can get you fired and cost you your clearance. Repeated instances will land you in prison.”

Hillary’s Emails Matter: A Retired CIA Officer Explains Why (Hill)

Nobody uses a private email server for official business. Period. Full stop. The entire notion is, to borrow a phrase from a Clinton campaign official, “insane.” That anyone would presume to be allowed to do so is mind-boggling. That government officials allowed Hillary Clinton to do so is nauseating. Classified and unclassified information do not mix. They don’t travel in the same streams through the same pipes. They move in clearly well defined channels so that never the twain shall meet. Mixing them together is unheard of and a major criminal offense. If you end up with classified information in an unclassified channel, you have done something very wrong and very serious.

Accidentally removing a single classified message from controlled spaces, without any evidence of intent or exposure to hostile forces, can get you fired and cost you your clearance. Repeated instances will land you in prison. Every hostile intelligence agency on the planet targets senior American officials for collection. The Secretary of State tops the list. Almost anything the Secretary of State had to say about her official duties, her schedule, her mood, her plans for the weekend, would be prized information to adversaries. It is very difficult, in fact, to think of much of anything that the Secretary of State could be saying in email that we would want hostile forces to know. As we wait for more information on the latest revelations, let’s quickly note what we already know Hillary Clinton did.

While Secretary of State, Hillary Clinton exclusively used a private email address for official business. Instead of using a State Department account, she used a personal email account, housed on a private server located in her home in Chappaqua, New York. The Department of State exercised zero control or oversight in this process. No government security personnel were involved in protecting them. When the House Select Committee on Benghazi asked to see these emails, the Department of State said they did not have them. Clinton’s lawyers then went through all the emails on her server. They turned over 30,000 emails they decided were work related and deleted all of the rest. How they made the decision as to which emails to share and which to destroy remains unknown. Active government officials not were involved in this process.

Hillary says she did not use the account to transmit classified information. This has been proven false. The FBI found over 100 messages that contained information that was classified when sent, including numerous email chains at the level of Top Secret/Special Access Programs. They don’t get any more highly classified, it’s the virtual summit of Mt. Everest. [..] While serving in one of the most senior positions in the United States Government, Hillary Clinton was at a minimum, grossly negligent in the handling of classified information and when confronted with this practice, acted immediately to destroy information and prevent a full, fair and complete investigation of any damage to national security. Anyone else who did such things in the government would long ago have been tried, convicted and sent to jail. ou decide if you want to send her to the White House instead.

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A bit of extra juice. And for many a big surprise.

Ex-FBI Official: ‘Intensive Investigation’ Ongoing Into Clinton Foundation (DC)

Tom Fuentes, a former assistant director at the FBI and a CNN analyst, said Saturday that the bureau has an open investigation into the Clinton Foundation. The statement undermines a report from a team of CNN reporters in August that the Justice Department quashed an investigation into the Clinton family’s non-profit earlier this year. “The FBI has an intensive investigation ongoing into the Clinton Foundation,” Fuentes said Saturday, citing current and former senior FBI officials as sources. “The reports that three divisions came in with a request to Washington to open cases and that they were turned down by the Department of Justice, that’s not true,” he said, referring to the CNN report. “What was turned down was that they be the originating office. Headquarters at the FBI made the determination that the investigation would go forward as a comprehensive unified case and be coordinated,” he added.

[..] Fuentes was discussing the investigation in the context of a letter that FBI director James Comey sent to Congress on Friday stating that the bureau was reopening the investigation into Clinton’s emails. [..] Fuentes asserted that the emails could pertain to the original Clinton email investigation, which was closed in July, as well as to the Clinton Foundation probe. “In a sense, it’s almost turned into a one-stop shopping for the FBI as they could have implications affecting three separate investigations on one computer,” said Fuentes, who served as assistant director at the FBI during the George W. Bush administration.

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Precious few voices have dared speaking of a constitutional crisis, though the threat seems obvious. Whoever wins.

Clinton Supporter Doug Schoen Reconsiders, Cites Constitutional Crisis (RCP)

Hillary Clinton supporter, Fox News contributor, and former pollster Doug Schoen told FNC’s Harris Faulkner Sunday night that the newly renewed FBI investigation into Hillary Clinton is forcing him to “reassess” his support for the Democratic candidate. DOUG SCHOEN: As you know, I have been a supporter of Secretary Clinton… But given that this investigation is going to go on for many months after the election… But if the Secretary of State wins, we will have a president under criminal investigation, with Huma Abedin under criminal investigation, with the Secretary of State, the president-elect, should she win under investigation. Harris, under these circumstances, I am actively reassessing my support. I’m not a Trump —

HARRIS FAULKNER, FOX NEWS: Whoa, whoa, wait a minute. You are not going to vote for Hillary Clinton? SCHOEN: Harris, I’m deeply concerned that we’ll have a constitutional crisis if she’s elected. FAULKNER: Wow! SCHOEN: I want to learn more this week. See what we see. But as of today, I am not a supporter of the Secretary of State for the nation’s highest office.

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We don’t need to know reality to survive. So we don’t know it. “..you might believe you are reincarnated from a monk and I might believe my prophet flew to heaven on a winged horse but we can both get through the day just fine.”

James Comey – As Seen Through The Persuasion Filter (Adams)

As my regular readers know, the Persuasion Filter is related to the idea that the human brain never evolved to accurately comprehend reality. In order for us to be here today, our predecessors only needed to survive and procreate. They had no need to understand reality at any basic level. And we have no such need either. That’s why you might believe you are reincarnated from a monk and I might believe my prophet flew to heaven on a winged horse but we can both get through the day just fine. Many different interpretations of reality are good enough for survival. I like to describe reality as each person living their own movie, which works well unless our script’s conflict. When that happens, one of us goes into cognitive dissonance and rewrites our past to make the movies consistent.

That’s how I see the world. Last year in this blog I suggested that the most productive and predictive way to view reality is through what I call the Persuasion Filter. That’s what I have been using to make spooky-good predictions about the election so far. And that’s what I’ll use today to give you an alternate movie about James Comey. Compare it to the movie you are running in your head and see which one better predicts the future. The base assumption of the Persuasion Filter is that people are irrational 90% of the time and only rarely – when no emotions are involved – truly rational. This is the reverse of the common filter for reality, in which people are assumed to be rational 90% of the time and a bit crazy 10% of the time. That’s some background for context.

[..] The way you know the new emails are disqualifying for Clinton is because otherwise our hero would have privately informed Congress and honored the tradition of not influencing elections. Comey is smart enough to know his options. And unless he suddenly turned rotten at his current age, he’s got the character to jump in front of a second bullet for the Republic. According to this movie, no matter who gets elected, we’ll eventually learn of something disqualifying in the Weiner emails. And we can’t say we weren’t warned. Comey took two bullets to do it. So compare this movie to your own movie and see which one does the best job of explaining the observed facts. And when we find out what is in the Weiner laptop emails, compare that news to my prediction that the information is disqualifying.

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Hard hitting Brits.

Theresa May Lied And Lied Again To Become PM (G.)

Theresa May appeals to a stereotype that has a deep grip on the English psyche. Sober and commonsensical, she behaves with the moral seriousness we expect from a vicar’s daughter. She may be a little clunky, but what a relief it is to have a straightforward leader from the heart of the country after the flash, poll-driven phonies of the past. I am not saying her public image is all a pretence. No focus group told her to campaign against the modern slave trade when she was home secretary. There were few Tory votes in stopping the police targeting young black men, either. But the dominant side of Theresa May is more superficial than David Cameron and more dishonest than Tony Blair. It is a tribute to the power of cliches to stop us seeing what is in front of our noses, that so few have noticed that the only reason she’s prime minister is that she put ambition before principle.

Last week, Downing Street spin doctors were trying and failing to downplay the importance of a secret speech she gave to Goldman Sachs on 26 May, which was leaked to Nick Hopkins and Rowena Mason of the Guardian. In private, May was unequivocal. “The economic arguments are clear,” she told the bankers. Companies would leave the UK if the UK left the EU. In public, however, she made just one speech during the referendum campaign. You forgot it the moment you heard it. May never mentioned the danger of companies fleeing. Her economic case, such as it was, came down to a flaccid, pseudo-impartial argument that “there are risks in staying as well as leaving”. As an orator, May was hopeless. As a politician on the make, she was close to perfect.

When Craig Oliver, Cameron’s former chief of communications, wondered if she was secretly an “enemy agent” for the Leave side, he was being too Machiavellian. May was just making the smart move. She kept her views about the economic consequences of Brexit quiet, so that the Conservative right would accept her as leader if Cameron lost. Failing to state your honest opinion on the most important decision Britain has taken in decades may seem cowardly enough. But the consequences of May’s pretence do not stop with one referendum. Her manoeuvres have forced her into a position where she must make arguments she cannot possibly believe, on behalf of causes she cannot possibly believe in.

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Just lovely.

The Dirty Secret Beneath Hong Kong’s Wealth: Slavery (SCMP)

Hong Kong, a city commonly associated with finance and wealth, has one of the highest proportions of people enslaved across Asia, a new report has found. At least 29,500 people out of a population of more than seven million are trapped in modern slavery in one of the 10 richest cities in the world based on its gross domestic product, according to the Global Slavery Index 2016, which assessed the problem in 167 countries and regions. The sobering figures which specifically concern Hong Kong may come as a surprise, but the hard-hitting report stated that the city has become one of the worst places in Asia for its poor response to the problem, performing worse than mainland China.

The city urgently needs tougher laws and a “transparent plan of action” to combat the problem, human rights group Justice Centre Hong Kong said. Jade Anderson, anti-human trafficking coordinator for the campaign group, said the Global Slavery Index, produced by charitable organisation Walk Free Foundation, came as a “shock” to some Hongkongers. But her organisation’s research had found there were major human rights abuses that went unpunished in the city, and the number of slaves could be much higher than researchers have estimated, she said. The Justice Centre’s investigation involving 1,000 migrant domestic workers found 17% were carrying out “forced labor”, which she said equated to about 55,000 of the city’s 320,000 helpers.

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Again: just lovely.

EU And Canada Sign CETA Free Trade Deal (G.)

The EU and Canada signed a free trade deal on Sunday that was almost derailed last week by objections from French-speaking Belgians , exposing the difficulties of securing agreement from 28 member states as Britain prepares for Brexit talks. The European commission president, Jean-Claude Juncker, said there was no parallel between the deal struck with Canada and looming Brexit talks. “I don’t see any relation between what we are signing today and the Brexit issue,” Juncker said, before greeting Canada’s prime minister, Justin Trudeau, in Brussels Trudeau and top EU officials signed the comprehensive economic and trade agreement, known as Ceta, paving the way for most import duties to be removed early next year. However, the treaty needs the approval of at least 38 national and regional parliaments, including the UK’s, to take full force.

Trudeau was meant to fly to Brussels last Wednesday but he stayed at home when the Wallonia region raised objections that held up agreement until Thursday. Belgium’s regional parliaments endorsed a compromise deal, which addressed concerns about competition for Wallonia’s farmers from Canada, on Friday. Donald Tusk, the president of the European council, who stood beside Trudeau at a news conference, said the delay was caused by Belgium’s internal politics and that the deal would be far less contentious when it went before national parliaments. Tusk said: “Fortunately we live in a democratic system and democracy is less predictable than other political systems but I still prefer democracy. My prediction is there is no huge problem with European parliaments. After my talks with all 28 member states’ leaders, I have no doubt Ceta is the least controversial trade agreement you could imagine.”

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Amazing he was still walking free.

Turkey Detains Editor Of Opposition Newspaper Cumhuriyet (AFP)

Turkish police detained the editor-in-chief of the opposition newspaper Cumhuriyet, state media reported Monday, while CNN Turk said 13 arrest warrants were issued for journalists and executives from the daily. Murat Sabuncu was detained while authorities searched for executive board chairman Akin Atalay and writer Guray Oz, the official news agency Anadolu said. The daily said Oz had already been detained. Police were searching the homes of Atalay and Oz, Anadolu said. The latest detentions came as authorities pressed a massive crackdown over a failed July bid by a rogue faction of the military to oust President Recep Tayyip Erdogan.Tens of thousands of civil servants have since been suspended, fired or detained, with the government pointing the finger of blame for the coup bid at exiled Muslim preacher Fethullah Gulen.

The government has also shut more than 100 media outlets and detained dozens of journalists as it presses a purge that has come under fire by Western leaders and human rights organisations. Sabuncu’s arrest also came as the government fought an insurgency from the outlawed Kurdistan Workers’ Party (PKK). The government’s operation against the Cumhuriyet daily was launched over its alleged “activities on behalf of” the Gulen movement and the PKK. The PKK — proscribed as a terrorist organisation by Ankara, the EU and US — has waged an insurgency inside Turkey since 1984. Cumhuriyet’s former editor-in-chief is Can Dundar, who was sentenced in May by a Turkish court to five years and 10 months in prison for allegedly revealing state secrets. Dundar is now believed to be in Germany after he was freed earlier this year pending an appeal.

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It’s too late for an October surprise from Erdogan, but this stuff is so insane it makes you wonder.

Erdogan Says Greek Islands ‘Used To Be Ours’ (Kath.)

In what was widely seen as a fresh dig at Greece, Turkish President Recep Tayyip Erdogan on Saturday reiterated that several Greek islands in the eastern Aegean “used to be ours.” The Turkish leader made waves recently in Greece when he said that the Treaty of Lausanne, which set the borders between Greece and Turkey in 1923, was unfair on his country. He returned to the subject on Saturday, saying he didn’t understand why his remarks had raised so many objections. “I said Lausanne and they got annoyed. Why are you annoyed?” he said, adding that “these islands were ours.” “We have our monuments and our mosques there [on the islands],” he said. “Whoever signed [for their passing to Greece] bears the responsibility.”

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Dec 052015
 December 5, 2015  Posted by at 7:15 pm Finance Tagged with: , , , , , ,  3 Responses »

Yannis Bahrakis Witnessing the refugee crisis 2015

Perhaps the best way to show what a mess Europe is in is the €3 billion deal they made with Turkey head Erdogan, only to see him being unmasked by EU archenemy Vlad Putin as a major supporter, financial and who knows how else, of the very group everyone’s so eager to bomb the heebees out after Paris. It could hardly have been more fitting. That’s not egg on your face, that’s face on your egg.

But Brussels thinks it’s found a whipping boy for all its failures. Greece. It’s fast increasing its accusations against Athens’ handling of the 100s of 1000s of refugees flooding the country. Everything that goes wrong is the fault of Greece, not Brussels. The EU has so far given Greece €30 million in ‘assistance’ for the refugee crisis, while the country has spent over €1.5 billion in money it desperately needs for its own people. But somehow it’s still not done enough.

The justification given for this insane shortfall is that Greece doesn’t blindly follow all orders emanating from Europe’s ‘leaders’. Orders such as setting up a joint patrol of the Aegean seas with … yes, Erdogan’s Turkey. Where Greece gets next to nothing as the children keep drowning, Turkey gets €3 billion and a half-baked promise to join the Union sometime in the future.

Which was never going to happen, the EU would blow up before Turkey joins and certainly if it does, and most certainly now that Russia’s busy detailing the link between the Erdogan cabal and Europe’s supposed new archenemies -move over Putin?!, which, incidentally, are reason for France to ponder a kind of permanent state of emergency; ostensibly, this is Hollande’s way of exuding confidence. ‘We must protect our way of life’.

Given Schengen -while it lasts-, which effectively erases all frontiers, this de facto means permanent emergency across the entire EU. And that, to a degree, though the two may seem unrelated, plays into the EU’s insistence to station foreign border guards (military police) at Greek borders. A, we can’t put it in different words, completely insane demand to which Alexis Tsipras’ government has apparently even acceded.

Insane because once you have foreigners deciding who can enter or leave your country, you’re effectively a country under occupation. It really is that simple. This latest attempt at power grabbing on the part of Brussels could have some ‘unexpected side effects’, though. And that may be a good thing.

We are not specialists in the Greek constitution -terribly hard to read-, but we very much question whether an elected government can decide to give up its nation’s sovereignty this way. Two -related- issues here are: 1) does the EU have the legal capacity to force this (EU border guards agency Frontex) on a member state, and 2) does Tsipras have the legal capacity to sign over the sovereignty of his country to foreigners?

Brussels may claim that Athens voluntarily ‘invited’ in German and Polish ‘officers’, but that’s far short of even half the story. EU countries have been complaining about the way Greece has dealt with the refugee crisis, stating that it is not capable of protecting its borders, which it ‘should’ under Schengen.

Nonsense of course. Athens is very capable of protecting its borders, but it has stated -quite correctly, it would seem- that it protects its borders from enemies, and the refugees are not enemies. The reason the refugees keep arriving -and/or drowning-, mind you, has a lot more to do with Angela Merkel’s ‘invitation’ for them to come, and with Turkey’s eagerness to let them leave, than it does with anything Greece has done. Or not done.

But that’s not what Brussels talks about. Far from it. The EU claims it has the power to take over, even if Greece would resist. Reuters quotes a EU official as saying: “One option could be not to seek the member-state’s approval for deploying Frontex but activating it by a majority vote among all 28 members..”

In other words, if 15 countries vote to occupy Greece, it’s a done deal. Once more, we’re quite shaky on Greek constitution at the moment, but we’re thinking someone somewhere (preferably but not necessarily Greece) should take this to a constitutional court. Again, preferably in Athens, but that’s not where the buck stops.

Because if the EU can do this to Greece, it can ostensibly do it to any member state. All 28 countries in the EU could be subject to their borders being taken over. And no matter how shaky we are on any of the 28 constitutions, we are darn sure that at the very least some of them will not allow for this kind of tomfoolery. A nation is either sovereign or it’s not.

Can anyone imagine Frontex taking control of British borders, or German or French? The very notion is too silly to even bring up in serious conversation. But that is exactly what Tsipras has just accepted. It would seem wise to let that sink in.

And we, in all the innocence and ignorance we have, and we have plenty, fail to see how Alexis Tsipras can retain his position as prime minister in the face of this. No prime minister gets elected to sign over his country’s sovereignty to some group of bureaucrats the country happens to be aligned with on one way or the other.

There must be terms written into the Greek constitution, too, that prevent this from happening. Or else the nation was handed over to the dogs long ago, just waiting to be conquered once again. We don’t think Greeks are stupid, and most certainly not that stupid.

The refugee crisis is not Greece’s fault. In much the same way that the EU/ECB decision to bail out French/Dutch/German banks from their losses on Greek casino loans was not Greece’s fault. The EU is turning rapidly into a theater where the largest and most powerful countries get to play the weaker for whatever they desire. And that won’t last. Not with sovereign nations and their constitutions.

The internal problem in Greece, and we have to hand it to Tsipras that he understands this, is that when he leaves, the old guard will take over again. And that will be even worse for Greeks. Whose economy is being systematically dismantled by Brussels as we speak. Greece has zero chance of recovering from its crisis under the terms the EU has forced upon it.

But that doesn’t mean that an elected prime minister has the legal power to sign over the entire nation to a bunch of international bankers and power-thirsty politicians. There are still laws in this world. Written into constitutions.

Europe’s own Real Donald (there’s one on each side of the Atlantic), the one called Tusk, who owes his job exclusively to badmouthing Putin, on top of all sorts of suggestions to halt Schengen for 2 years or so, talked about detaining all refugees for 18 months, pending background checks and the like.

And we’re thinking, in our innocence, pray tell where, Don? In Poland, where you guys have such great experience with detention camps? But we’re drifting, straying… We’ve written too many times to count over the past while that the EU is bound to collapse because its structure selects for sociopaths. Who dream of power, night and day.

Look, Greece should leave while it can. Britain’s going to sign some convoluted deal to keep up appearances, though the ECB is not at all pleased with the idea of a multi-currency union, but deep down David Cameron is a second-hand car salesman who can’t even spell principles or morals, so it’ll get done.

The Danes voted down more EU in their country this week, in an outcome eerily familiar when it comes to actual votes on the Union. It seems every time such a vote takes place, Brussels loses.

But neither Britain nor Denmark not any other EU nation would vote to give up their sovereignty, their borders, their control over who enters and who leaves. And very rightly so. Greece shouldn’t either, it’s gone way too far already trying to please the bully.

Alexis Tsipras has made exactly that decision, however. And that makes his position untenable, even though neither he nor -allegedly- anyone else realizes it yet. He’ll be lucky not to face trial for treason. We’re not kidding.

Apr 042014
 April 4, 2014  Posted by at 3:34 pm Finance Tagged with: , , ,  7 Responses »

John Vachon Liquor store, Palacios, Texas May 1943

An amusing discussion is firing up ever more about what the ECB should do in the face of a – perceived or not – deflation threat. Many voices are clamoring for immediate action, claiming Mario Draghi et al may well already be too late, or even use words like “the spectacular idiocy of EMU policy”, as Ambrose Evans Pritchard does, who’s been on the topic for a very long time. IMF’s Christine Lagarde is a little less impolite and says: “More monetary easing, including through unconventional measures, is needed in the euro area.” Draghi yesterday showed an unexpected sense of humor when he responded to Lagarde: “The IMF has been very generous in its suggestions on what we should do.”

The vast majority of the “pro-action” favors the ECB engaging in US-style QE and seems to be predicated on the assumption the US QE has been a great success. But is it? The US jobs report that was just released proved to be another disappointment. Between population growth and the millions of people hovering in the grey area of looking but not looking, of having given up but someday might come back, any jobs growth number that comes in under 200,000 barely adds any jobs at all. And that is despite more trillions of dollars in QE stimulus than just about anyone is capable of calculating anymore.

One could argue a good case that QE US-style has far more zombie qualities than anyone should feel comfortable with. And that’s just a start. QE has boosted banks’ reserves with the Fed, making them look healthier than they really are, and inflated asset markets like stocks, real estate and land to fresh record levels even as so many more millions of Americans are out of work, working low-paying jobs or simply up to and over their necks in debt. And now, after 5-odd years of such raving success for the banking system but blatant failure for the American population, Europe should imitate this?

I’m not so sure that Draghi wouldn’t have gone the QE route if he could. But perhaps he can’t. Perhaps the issue at hand is that he has to contend with 28 different constitutions in the European Union. Whereas the Fed only has to flaunt one. As per former Reagan government official and fund manager David Stockman, who concludes an article this week whose title I shortened for our Daily Links to “The Fed’s Fiscal Circle Jerk” but which was originally called Yellen’s Dog Is Eating Homework Congress Didn’t Even Assign: Reflections On The Greatest Mission Creep Ever , says:

The Fed has seized power and is not about to let go – common sense be damned, and the constitution, too.

Stockman takes zero prisoners in explaining why in his view the Fed’s policies, QE and all, are as illegal as can be. Europeans would do well to take note, lest Draghi and/or the Brussels made men find a legal loophole around existing legal constraints to stimulus and monetary easing.

America is being run by an unelected gang of essentially self-perpetuating PhDs. The notion of an economics coup d’état is not so far-fetched. After all, the Eccles Building controls the levers of the nation’s fiscal policy; is the pied piper of the entire financial system; intentionally inflates financial bubbles which powerfully impact the distribution of wealth and income; and is the master builder of the nation’s towering edifice of $59 trillion in credit market debt that flattens growth, jobs and incomes on Main Street.

… the Fed’s QE policy amounts to a giant fiscal fraud. Even if it sticks to the taper, the Fed’s balance sheet will have expanded by 5X – from $900 billion to $4.5 trillion—in 70 months. Yet it has no intention whatsoever of unwinding this stupendous emission of fiat credit. Indeed, selling-down its massive piles of treasuries and MBS would ignite the mother of all melt-downs in the fixed income markets, which have gorged on over-valued paper that was priced by the Fed’s huge, artificial bid in the debt markets.

In other words: say goodbye to your pension. The Fed has taken it by incentivizing funds to buy zombified assets that will one day, we don’t know when but we do know why, implode.

So if this $4.5 trillion balance sheet is permanent, then the Fed’s post-crisis money printing spree amounts to a massive monetization of the public debt. To be sure, all of this was done in the name of rubbery abstractions like “accommodating” recovery, supporting the “labor market” and “stimulating” consumption and investment spending, but the real world effect was quite different and far more tangible: It allowed Washington to treat the financing cost of our $17.5 trillion national debt as a free good. In a world in which even the official inflation rate (CPI) has averaged 2.4% during the last 14-years, there is no other way to describe a policy that actually drove the 5-year Treasury note yield to a low of 75 bps, and pulled the weighted average cost of the total Federal debt down to about 2.5%—which is to say, zero, nichts, nada or nothing in real terms.

The meaning of “massive monetization of the public debt” is essentially that the public debt is being transferred to the public. In what Stockman labels a “fiscal circle jerk”. As has been clear since at least the Civil War, the Treasury could have cleared its debt “directly”, without a central bank acting as a middle man. But that would not have allowed for baking secret debt, which is many times higher than federal debt (think derivatives) to be included in the laundry.

… part of this fiscal scam is even more egregious than the Fed’s own acknowledgement that it’s artificially suppressing the treasury coupons. What the Fed is also doing is issuing second-hand “greenbacks”— those notorious non-interest bearing IOU’s that financed the Civil War. Since the crisis the Fed has returned $400 billion of “profits”, including $80 billion each in the last two years, to the US treasury, thereby off-setting upwards of 25% of the interest cost on the Federal debt.

… how is it that the Fed is more profitable than the wholesale, retail, entertainment, food service and hospitality industries of America combined? Self-evidently, its the magic of printing press money: The Fed buys treasuries and MBS with a coupon; pays for them by issuing new liabilities without a coupon; collects the spread which gets recorded as a “profit”; and then returns this ‘profit” to Uncle Sam at year-end. Had the Treasury Department dusted off Lincoln’s playbook, instead, it could have simply issued “greenbacks”, and dispensed with the round trip. In less polite company it might be called a fiscal circle jerk.

A great question that desperately needs to be answered: ” … how is it that the Fed is more profitable than the wholesale, retail, entertainment, food service and hospitality industries of America combined?” Answer it and you know what QE is: a scheme to let the government get ever deeper into debt “for free”, while at the same time propping up too big to fail bankrupt Wall Street zombies. And who do you think ends up paying?

Don’t be surprised if it all turns out to be an elaborate plan to pull the plug at a handpicked moment designed to unload all losses on the greater fools (re-)entering stock markets and housing in ever greater numbers. It’s a good idea to try and stay away from conspiracy theories, but just look at what’s happening here. Huge piles of debt are added to already historically large amounts of it, and all America has to show for it are weak jobs reports like the one issues today. Shouldn’t that make you wonder?

Based on its historic rate of expansion the Fed’s balance sheet would be about $1 trillion today. So during the past 70 months, the monetary politburo has issued about $3.5 trillion worth of Abe Lincoln’s “greenbacks”. But here’s the thing: Even as Lincoln took many matters in his own hands like suspending habeas corpus, closing newspapers and imprisoning dissenters, he did bother to get an act of Congress to print his paper money. And as much as the beltway bandits of today’s Washington have enjoyed the quasi-free financing of $9 trillion in new public debt since the crisis – even they would have never passed something called the “Greenback Authorization Act of 2009″.

At some point it might be appropriate to ask what exactly Congress is doing while this plays out. Stockman claims that it would have never passed a repeat of Lincoln’s plan, but doesn’t that mean that it should act, or have acted, now the Fed does just that through other means, and at much higher cost the people?

Then consider the orgy of debt issuance in the business sector. During the last year, every single record from the 2007 blow-off top has been exceeded. This encompasses $1.1 trillion of investment grade corporate debt, including a staggering $49 billion issue by Verizon to fund what was essentially an LBO of its own subsidiary. Next in line is about $600 billion in leveraged loans – more than 60% of which have been “cov-lite” style spit and prayer loans. And then there are $400 billion of new junk bonds proper, along with the return of that bell-ringer for speculative tops called leveraged recaps, wherein the LBO barons freight down their debt mules with even more debt in order to pay themselves a dividend.

In all, business sector debt stood at about $11 trillion on the eve of the 2008 crisis, and has now vaulted upward to $13.5 trillion. Yet nearly the entire gain has gone into the preferred financial engineering games of bubble finance—namely, LBOs, cash M&A deals and stock buybacks. Indeed, in the latter case the big corporates are now borrowing hand-over-fist to fund buybacks at nearly a $1 trillion annual rate. Compare that to investment in productive plant and equipment where real outlays are still running $100 billion or 8% below its late 2007 level.

At what stage do people making out like bandits get to be recognized for what they are, which is bandits? Is that only after the regime that allowed for them to do it gets toppled?

Needless to say, this massive leveraging and stripping mining of cash from the business economy is not the unseen hand of the free market at work. It is the consequence of the Fed’s very visible pegging and rigging of the financial markets. Fast money speculators are subsidized by the Greenspan/Bernanke/Yellen put, which drastically compresses the cost of market risk insurance and artificially fattens the margins on carry trades.

Maybe the cruelest part of this is that as people are glued to their new plasma screens, their homes are robbed empty behind their backs, and they repeat after their flat 2-D gurus that their lives are getting better. It’s the ultimate con-man’s dream: not just taking your dupes for all they have, but convincing them they benefit as you do it. They’ll be happy to let you take some more.

Likewise, also come the $5k Wall Street suits – streaming into America’s busted sub-prime neighborhoods fixing to become single family landlords. Yet without the Fed’s gift of cheap financing, there is not a snowball’s chance that these clueless spread-sheet jockeys would own a single, single-family home— let alone upwards of 500,000 at last count.

In short, the Fed has interposed itself throughout the very warp and woof of the nation’s business economy. It does this in a manner that makes a mockery of our purported mechanism of economic governance—that is to say, the spontaneous actions and decisions by millions of producers, consumers, investors and savers on the free market in response to honest price signals arising from the vineyards of commerce and industry. Instead, in a manner like the “caribou” soccer of 6-years olds, today’s economic actors have no choice except to ceaselessly chase the Fed around the economic fields.

Yeah, this is how US home prices are kept from scraping the gutter and letting millions of home “owners” default. The question is how long do you think it will last? There can’t seriously be anyone who thinks “they can do this forever”. Wouldn’t it make more sense that since “their” interests are 180 degrees different from yours, at some point in time they’ll be coming to take it away from you?

So where did the Fed get this mind-boggling grant of plenary power? Fed Chair Yellen explained it succinctly in a recent speech:

The U.S. economy is still considerably short of the two goals assigned to the Federal Reserve by the Congress of low and stable inflation and maximum sustainable employment.

Yellen was obviously referring to the Humphrey-Hawkins Act of 1977 – one of the most pernicious pieces of legislation ever enacted, and one I am proud to say I voted against as a freshman Congressman. Yet even in those halcyon days of Keynesianism, few in Congress believed that they had mandated the Fed to pursue rigid quantitative targets for inflation and unemployment – let alone precisely a 2% annual gain in the PCE less food and energy or 6.5% on the U-3 measure of unemployment, which didn’t even exist then.

By contrast even the voluble Senator from Minnesota saw the law as essentially an expression of congressional sentiment that it would be swell to have more jobs and less inflation. And most certainly, the Congressional majority that passed the act did not in its wildest imagination foresee that the route to the quantitative inflation and unemployment targets it didn’t mandate would be through the canyons of Wall Street and the made-up monetary doctrine of “wealth effects” as the surest route to their achievement.

Well, that may be true, David, but the Congressional majority are still sitting on their hands as it does indeed happen, like so many of those see nothing hear nothing monkeys. You can argue that they didn’t see it coming, but they can see it now …

So the last 35 years have brought the greatest exercise in mission creep ever undertaken by an agency of the state. That explains why the monetary politburo persists in its absurd quest to force more debt into an economy which is already saturated with $59 trillion of the same. To pretend, as does Yellen and most of the monetary politburo that they must plow ahead printing money at lunatic rates because Congress so mandated it, is the height of mendacity.

The Fed has seized power and is not about to let go – common sense be damned, and the constitution, too.

I hope you’ll let Stockman’s words sink in; that would be helpful when trying to understand why things may look up while they’re sinking fast and furious. And I wonder what Mario Draghi thinks about this. What can he do if he concludes he really can’t monetize the public debt of 28 different countries with 28 different constitutions? Lower interest rates? Yeah, right. There’s only one thing he can do, and he never will: restructure the debt of banks and nations alike. The option must appear to him in sleepless nights sometimes. Maybe a lot lately.

U6 even rose. What a incredible failure US fiscal policy is.

US Jobs Report Misses Expectations (BI)

The March jobs report is out. The U.S. Bureau of Labor Statistics estimates 192,000 workers were hired to nonfarm payrolls in March, below Wall Street’s consensus forecast of 200,000. The entire gain was comprised of private-sector hires. February’s number was revised up to 197,000 from 175,000.

The unemployment rate was unchanged at 6.7%, defying the consensus estimate of a tick down to 6.6%. The labor force participation rate rose to 63.2% from 63.0%. The underemployment rate (U-6) rose to 12.7% from 12.6%. Average weekly hours worked rose to 34.5 in March from 34.3 in February. Average hourly earnings were unchanged after posting a 0.4% advance in February, missing expectations for an additional 0.2% rise. The year-over-year growth rate ticked down to 2.1% from 2.2%.

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Well, nice headline …

Draghi Talks QE, But Counts On Easter Bunny (MarketWatch)

European Central Bank President Mario Draghi did his best to talk down the euro on Thursday, touting discussions among policy makers on everything from rate cuts to negative deposit rates to, the big bazooka, quantitative easing. Indeed, Draghi offered up virtually the whole arsenal of conventional and unconventional policy measures the central bank could use if it ever becomes convinced that inflation will remain too low for too long. “There was an ample and rich discussion,” Draghi said.

The euro, which, to the ECB’s apparent chagrin, had traded near a 30-month high in the wake of Draghi’s news conference a month ago, duly fell, though it wasn’t a complete rout. Stocks perked up on the prospect of the ECB finally joining the asset-purchase party as the Fed grabs its coat and prepares to leave. Still, it’s hard not to sense reluctance below the surface. After all, while Draghi elaborated on the measures the ECB could deploy, an “ample and rich” discussion doesn’t really seem to imply there was a broad agreement on the merits of undertaking radical action.

And while Draghi emphasizes that policy makers are on high alert over the perils of prolonged low inflation, his opening statement offered no change in language describing how policy makers view the price outlook, saying that inflation expectations “over the medium to long term continue to be firmly anchored.” An unexpected March drop in the annual euro-zone inflation rate to 0.5% — well below the ECB’s target of near but just below 2% — was a jolt. Draghi didn’t put the entire blame for the drop from 0.7% in February on special factors, but he did argue that low energy prices and the timing of Easter needed to be take into account.

Draghi said inflation is expected to pick up in April partly due to volatility around service prices in the months of around Easter. He said inflation is expected to remain low through 2015 before pushing back toward levels closer to 2% toward the end of 2016. Draghi is the undisputed world champion of jawboning, as attested by the lasting drop in borrowing costs for Spain and Italy after his mid-2011 pledge to do “whatever it takes” to preserve the euro. (While that was followed by the creation of the ECB’s Outright Monetary Transactions program, the OMT has yet to be used.)

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Bini Smaghi is old school ECB. Wonder what he did to get thrown out. Hardly anybody does down there.

ECB Action ‘Couple Of Months’ Away (CNBC)

European Central Bank (ECB) President Mario Draghi is preparing the way for monetary easing, a former member of the central bank told CNBC on Friday, despite some dismay after the ECB’s failure to act this week. The ECB opted to hold its key interest rate at 0.25% on Thursday, as well as keep the rate on its deposit facility at zero. This was despite calls from the likes of the International Monetary Fund’s Christine Lagarde for action to combat disinflation, after euro zone inflation slipped to a 52-month low of 0.5% in March.

Lorenzo Bini Smaghi, an ex-member of the ECB executive board, forecast easing was coming, and said the delay was due to attempts by Draghi to build unanimity for action among the Governing Council’s 24 members. “I think he is gaining time for the argument to be won within the council,” Bini Smaghi told CNBC on Friday, from the Ambrosetti Forum in Italy. “The ECB is a bit different as a central bank; it needs to create a consensus, because a move by the ECB with a consensus is more credible than a move with a divided council. I think he needs the decision to mature within the Governing Council.”

Despite the inaction, Draghi emphasized in his news conference on Thursday that the ECB could act swiftly to instigate “unconventional” policy measures if necessary. He also flagged that both quantitative easing and negative deposit rates had been discussed at this week’s meeting. Bini Smaghi predicted that easing would materialize in “a couple of months”. “I think he is preparing the markets to understand that action will take place,” Bini Smaghi said. “Inflation is low; the exchange rate is high. So the time for action should be coming soon… Especially for debt reduction, for the deleveraging process, low inflation is really bad.”

Despite Smaghi’s confidence, economists were divided as to whether Draghi’s comments on Thursday signaled raised intent of instigating easing measures. Lee Hardman of Bank of Tokyo-Mitsubishi was in the yes camp. “The ECB clearly signaled that it is prepared to utilize unconventional monetary policy easing,” Hardman said in a research note on Friday. He added: “The increased likelihood of the ECB adopting more effective monetary easing measures ahead, which could lift inflation expectations and lower real yields, have increased downside risks for the euro.” However, Daiwa Capital Markets forecast policy would remain unaltered, based on Draghi’s Thursday comments. “While the ECB arguably remains excessively timid, we continue to expect policy to remain unchanged over coming quarters,” said Grant Lewis, Daiwa Capital Market’s head of research, in a note.

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More insights from Stockman.

Christine Lagarde Is Clueless: 70 Words Of Pure Keynesian Claptrap (David Stockman)

The world’s official economic institutions are run by people who believe in monetary fairy tales. The 70 words of wisdom below from IMF head Christine Lagarde are par for the course. She asserts that a new jabberwocky expression called “low-flation” is the main obstacle to higher economic growth in Europe and the DM areas generally and that it can be cured by more central bank money printing.

“The first obstacle is… the emerging risk of what I call “low-flation,” particularly in the Euro Area. A potentially prolonged period of low inflation can suppress demand and output—and suppress growth and jobs. More monetary easing, including through unconventional measures, is needed in the Euro Area to raise the prospects of achieving the ECB’s price stability objective. The Bank of Japan also should persist with its quantitative easing policy.”

Now there is not a shred of credible evidence that prolonged low CPI inflation causes workers to produce less, businesses to invest less or entrepreneurs to invent less. Since these are the fundamental ingredients of economic growth on the free market, the question recurs as to why Keynesian Kool-Aid drinkers like Lagarde (and the huge staff of IMF economists she lip-syncs) apparently believe that eroding the value of savings by say only 1% per year vs. 2% will “suppress demand and output”.

Obviously, even they can’t believe that falling prices alone cause “demand” to falter. After all, the price of flat-screen TVs, iPads and iPhones have plunged during the past several years, but demand has soared. During the past 27 months, for example, Apple’s revenues have surged from $29 billion to $58 billion per quarter.

And its not just tech gadgetry, either. Wal-Mart has been driving down the price of furniture, toasters and house-paint for years now, but it has never once complained that its revenue growth–which has been relentless for decades—-has been impaired because its customers are holding-off for even lower everyday prices next period. Indeed, at the product and commodity level the “low-flation” notion is positively ridiculous. US auto sales of 17 million annually in 2005 plummeted to about 11 million by 2009, but that was due to falling incomes and impaired credit status among marginal car buyers. During that period auto prices were not falling but steadily rising.

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Ambrose is certain that Draghi is stupid. But while deflation is a serious threat, full-throttle QE is too.

Immobile ECB ‘Playing With Fire’ As Deflation Draws Closer (AEP)

The European Central Bank has finally opened the door to quantitative easing after years of resistance, but brushed aside calls for immediate action to shore up southern Europe and avert a Japanese-style deflation trap. Mario Draghi, the ECB’s president, said the governing council had agreed unanimously to take emergency measures if inflation falls too low, a crucial signal that Germany’s two members will back the plans under certain conditions. “There was a discussion of QE: it was not neglected,” he said. Yet the bank left interest rates on hold at 0.25% and once again delayed cutting the deposit rate below zero, a step already taken by Denmark to boost lending and deter capital inflows.

Inflation fell to 0.5% in March, the lowest since the financial crisis in 2009. It is below the 1% level deemed to be the “danger zone” by Mr Draghi himself, yet the ECB has held five consecutive meetings without taking any further measures. This has allowed “passive tightening” to run its course as the euro rises. “The ECB is playing with fire by failing to act,” said Ashoka Mody, former head of the International Monetary Fund’s rescue mission in Ireland. “Europe faces an extremely serious problem and the window is basically closing for the peripheral economies. The inflation rate in Italy and Spain is now so low that it calls into question their ability to service their sovereign debts. They need 2% inflation to make it,” he said.

The IMF’s Christine Lagarde said this week that the world in in danger of a “low-growth trap” and called on the ECB to step up to its responsibilities. “More monetary easing, including through unconventional measures, is needed in the euro area,” she said. Repeated criticism from the IMF is ruffling feathers in Frankfurt, where the ECB’s hardliners view bond purchases as a covert rescue for countries that live beyond their means. “The IMF has been very generous in its suggestions on what we should do,” said Mr Draghi in a sarcastic tone.

Mr Draghi admitted that the ECB was caught off-guard by the sudden dip in inflation last month but insisted that the figures had been distorted by the timing of Easter. Inflation is expected to rebound in April and climb back slowly towards the bank’s target of 2% by late 2016. Lars Christensen, from Danske Bank, said Mr Draghi is trying to soothe markets and talk down the euro without doing anything. “The discussion over QE is meaningless when they haven’t even cut interest rates to zero or exhausted their normal tools,” he said. “Unless there is a real change in monetary policy, the eurozone will head into deflation and a Japanese scenario. The longer they keep saying that a revival of inflation is just around the corner, the harder it will be in the end,” he said.

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More Ambrose. He loves QE.

ECBs Deflation Paralysis Drives Italy, France And Spain Into Debt Traps

The European Central Bank has let it happen. Deflation has been running at an annual rate of -1.5% in the eurozone over the past five months, when adjusted for austerity taxes. Prices have been falling at a pace of 6.5% in Greece, 5.6% in Italy, 4.7% in Spain, 4% in Portugal, 3% in Slovenia and nearly 2% in Holland since September, based on my rough calculations (annualised) of Eurostat monthly data. The rise of the euro against the dollar, yen, yuan and the currencies of Brazil, Turkey and developing Asia, account for some of this imported deflation. Euroland’s trade-weighted index has risen 6% in a year.

But that is no excuse. It is the direct consequence of the ECB’s own monetary policy. Frankfurt could force down the euro at any time by signalling a determination to do something about its predicament. It has chosen not to do so, hoping that a few dovish words spoken without conviction will somehow turn the global tide. It is hard to judge at what point deflation becomes embedded in the system. Factory gate prices have been slipping since mid-2012. The pace quickened to -1.7% in February, the steepest decline since the Lehman crisis. But this time it is not the one-off effect of a financial crash. It is chronic, and more insidious.

Professor Luis Garicano, from the London School of Economics, said the economic models used to predict inflation seem to be breaking down, leading to serial misjudgments. “They need to take very serious action,” he told the Financial Times. Laurence Boone and Ruben Segura-Cayuela, from Bank of America, say their “inflation surprise” index keeps ratcheting lower as one shock after another hits the eurozone, while their gauge of “deflation vulnerability” has been flashing red for most EMU countries.
The effect is deeply corrosive even if the region never crosses the line into technical deflation. “Lowflation” near 0.5% can play havoc with debt trajectories if it goes on for long, ultimately throwing Europe back into a debt crisis.

“The biggest threat to public debt dynamics is weaker-than-expected inflation. Merely lower than expected inflation, not even deflation, would lead to a significant deterioration in countries’ public finances,” they said. The bank said lingering “lowflation” would cause debt ratios to surge by 2018, rising 10%age points in France to 105% of GDP, 15 points in Italy to 148% and 24 points to 118% in Spain.

These countries face a Sisyphean Task. Whatever they achieve through austerity is overwhelmed by the greater power of debt-deflation. The same “denominator effect” – a debt burden rising faster than nominal GDP – would engulf the private sector as well, still the Achilles Heel for Spain, Portugal and Ireland. Moody’s says “lowflation” (0.5% to 1% until 2018) would “reignite concerns about debt sustainability”, tightening the vice on households and companies with fixed-rate debts. It would erode bank assets, risk fresh bank failures and hit life insurers through a mismatch in maturities. “Avoiding outright deflation does not fully shield the euro area from the shock: the combination of low growth and low inflation has significant implications for all sectors of the economy,” it said.

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It’s good to note that the fall doesn’t go down in equal parts everywhere.

About 20% of China’s Economy Is Shrinking: Xie (CNBC)

About 20% of China’s economy is shrinking and 80% is growing moderately, according to independent economist Andy Xie. Xie told CNBC Asia’s “Squawk Box” on Friday that a credit bubble in China’s economy is deflating, slowing, leading to weaker growth momentum.

China, the world’s number two economy, has not had a great start to the year. Economic data paints a picture of a slowing economy, with this week’s HSBC purchasing managers’ index showing manufacturing activity continuing to contract. Adding to concerns about the economic outlook was the first corporate bond default by a Chinese firm, Shanghai Chaori Solar Energy Science and Technology, last month. That default led to some talk about whether China is facing a ‘credit event’ or a ‘Lehman’ moment, a reference to the collapse of the U.S. investment bank in 2008 that contributed to the global financial crisis. “China’s credit event is not like the one we saw in the U.S.,” said Xie.

“When a credit bubble deflates, an economy is going to be in difficult shape for a long time. China is in better shape than most because China still has an export machine that depends on global demand. Household consumption is small part of GDP (gross domestic product) but it is stable,” he added. Xie said China’s economy was probably not growing at the 7.5% rate the government targets this year, but would not be drawn on an estimate. China’s economy grew 7.7% in the final quarter of last year from a year earlier, compared with a 7.8% expansion in the third quarter. Xie added that stimulus measures to bolster the economy were probably aimed at boosting sentiment.

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Growth Of China’s Shadow Banking Casts Light On Fault In System (Das)

Chinese debt concerns are complicated by two structural issues – the rise in borrowing by local governments and the increase in the role of the shadow banking system. Both sectors are testament to Chinese entrepreneurial spirit, but also point to deep problems in the financial system. Outside of security matters or foreign affairs, China’s provinces, regions and centrally controlled municipalities enjoy a degree of autonomy. After the global financial crisis in 2007/2008, the aggressive stimulus measures to boost economic activity required the central government to relax controls on local government spending programmes.

According to the World Bank, China’s local governments have responsibility for 80% of total spending but receive only about 40% of tax revenue. As local governments are not legally allowed to borrow, they created LGFV (local government financing vehicles), also known as UDICs (urban development and investment companies). These special purpose arm’s-length vehicles, which are separate from but owned or controlled by the local government, can borrow. The LGFVs generally borrow funds predominantly from banks (as much as 80% or more), with the remainder raised by issuing bonds or other equity-like instruments.

In recent times, with pressure on banks to curtail loans, LGFVs have borrowed from the shadow banking system. There are now more than 10,000 LGFVs in China, whose exact level of borrowings remains in dispute. There is concern about the quality of the underlying projects financed, which are sometimes expensive, politically motivated trophy ones. Many of the LGFVs do not have sufficient cash flow to service debt, being reliant on land sales and high property prices to meet obligations. Probably more than 50% of LGFVs have unsustainable debt levels.

In recent years, China has evolved its own substantial shadow banking system. There is the informal sector that encompasses direct lending between individuals and underground lending, often by illegal loan sharks that provide high interest loans to small businesses. The larger sector consists of a range on non-banking institutions, which are subject to various degrees of oversight. It involves direct loans of surplus funds by companies to other borrowers or trade credit (often for extended terms). It involves non-bank institutions such as finance companies, leasing companies or financial guarantors.

There are also more than 3,000 private equity funds, funded in part by foreign investors. An unknown number of micro-credit providers, consumer credit institutions and pawn shops provide personal credit. The largest portion of the non-banking institution sector is trust companies and wealth management products (WMPs). Trust companies that control more than $1.8 trillion (£1 trn) – 20% of GDP – finance riskier borrowers and transactions that banks cannot undertake due to regulations. Trust companies raise money from large investors and companies. The major attraction for investors is the high returns: about 9 to 12% a year compared with bank deposits rates in low single digits. After adjusting for the trust company’s fee of 1 to 2% of loan value, the ultimate borrower must pay about 10 to 15% a year for the funds, well above the 7 to 8% charged by banks.

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Use Chinese zombie capital to prop US home prices up. What’s not to like?

Zillow to Give Chinese Homebuyers Access to U.S. Listings (BusinessWeek)

Zillow Inc. agreed to make its U.S. property listings available to Chinese consumers through a partnership with a Beijing-based website. E-House Holdings Ltd.’s Leju real estate site will carry Zillow listings that include homes for sale by agent and owner, units in projects under construction and foreclosures and short-sale properties, Seattle-based Zillow said today in a statement. Chinese buyers spent more than $11 billion on U.S. real estate last year, with an average $425,000 purchase, Zillow said. The Leju-Zillow site, to be operated by the U.S. company, will be ready around midyear, according to the statement.

“Brokers and agents with listings on Zillow are now able to reach Chinese home shoppers who are ready to invest in the U.S. market, with no additional cost or effort,” Errol Samuelson, Zillow’s chief industry development officer, said in the statement. Zillow is seeking to expand usage on mobile devices for StreetEasy.com, its New York City listings site, as more apartment hunters and homebuyers shop while on the go, Chief Executive Officer Spencer Rascoff said in an interview last week. The company plans to reintroduce StreetEasy for the iPhone and add mobile applications for Android and iPads, he said.

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Ha ha ha!

Americans Only Take Half Of Their Paid Vacation (MarketWatch)

Americans are so busy looking over their shoulders at work, they only take half of their paid time off, according to a study released Thursday. Employees only use 51% of their eligible paid vacation time and paid time off, according to a survey of 2,300 workers who receive paid vacation. The survey was carried out by research firm Harris Interactive for the careers website Glassdoor. What’s more, 61% of Americans work while they’re on vacation, despite complaints from family members; one-in-four report being contacted by a colleague about a work-related matter while taking time off, while one-in-five have been contacted by their boss.

Workers appear to be getting more skittish when it comes to asking for time off. Although this is the first time Glassdoor asked questions about paid vacation and time off, a separate survey, “Vacation Deprivation,” carried out by Harris Interactive for travel site Expedia, shows that Americans left four days on the table within the past year, twice as many as in the previous year. That’s the equivalent of over 500 million lost vacation days per year.

Most American workers receive around 10 paid work days a year and six federal holidays, according to the Center for Economic and Policy Research, a nonprofit left-of-center think-tank in Washington, D.C. So based on Bureau of Labor Statistics’ current average weekly earnings, they’re leaving more than $1,300 on the table by only taking half their paid time off. Workers in the European Union are legally guaranteed at least 20 paid vacation days a year — and 25 or even 30 days a year in some European countries.

People not used to taking time off may not understand that paid vacation is actually built into their compensation package. Under the The Fair Labor Standards Act , the U.S. is also one of the few developed countries that doesn’t require employers to provide paid time off (see chart). Still, 91% of full-time U.S. workers receive paid vacation, according to the Center for Economic and Policy Research, but only 49% of low-wage workers – those in the bottom fourth of earners – get paid vacation.

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Money line: “Mikhail Gorbachev, the Soviet president at the time, confirmed that there was a promise not to enlarge NATO” …

The Expandables: How NATO ‘Conquered’ Europe (RT)

On the 65th anniversary of NATO, the debate over the organization’s expansion remains highly contentious, with some viewing it as a broken promise to Russia after the fall of the Iron Curtain. NATO, an intergovernmental military alliance based on the North Atlantic Treaty, was signed on April 4, 1949 when the US, Canada, Portugal, Italy, Norway, Denmark, and Iceland joined the members of the Treaty of Brussels to form the North Atlantic Treaty Organization.

The idea of the alliance was to provide defense against a prospective Soviet invasion. In the early 1950s, the focus of the communism vs. capitalism fight shifted to Asia, where a series of bloody proxy wars played a major role in convincing Europeans that the Soviet Union and its allies were extremely dangerous and had to be contained at all costs. Since the reunification of Germany, NATO has almost doubled in size – from 16 member states in 1990 to 28 currently. Most senior Russian officials feel tricked by NATO and accuse the West of not following through with its commitments made during German reunification negotiations, when NATO agreed not to expand to the East.

Mikhail Gorbachev, the Soviet president at the time, confirmed that there was a promise not to enlarge NATO, not even “as much as a thumb’s width further to the East.” But this commitment was never formally documented, and since then the alliance has grown drastically. The US ambassador to Moscow at the time, Jack Matlock, told RT he personally objected to NATO expansion as it was done. “We had no reason to expand the NATO military organization to the East until we had an agreement that would put Russia in a European defense structure,” he told RT’s Sophie Shevardnadze.

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Still the only sane voice in America when it comes to Ukraine.

Ron Paul: US Imposes Sanctions ‘Too Casually’ (RT)

Introducing sanctions against Russia is a faulty idea by the United States because it will encourage further backbiting between the two nations, former US congressman Ron Paul told RT. “If two countries get in war, one of the most important things they do is put on blockades, they prevent trade so the various countries can’t get their raw products,” he said. “What I keep thinking is why don’t we try to see it from the other perspective: How would we react if we couldn’t import something? What if China or Russia or somebody came in and said you cannot import certain things or we’re going to prohibit you from trading? And yet we too casually do that with others.”

Paul, the face of modern libertarianism and a former Republican presidential candidate, spoke to RT weeks after Crimeans voted to secede from Ukraine and join Russia. American lawmakers have decried the vote as invalid, calling it an annexation and violation of international law, and have introduced sanctions against the Russian economy. “Any type of sanctions or retaliation is detrimental to both sides. I’ve often thought that if people understood what was going on they’d express objections to these kinds of bickering back and forth,” the former congressman continued.

Paul said the geopolitical drama does not account for individual Ukrainians. “Governments get involved and they do dumb things and the people in the middle are always suffering so if they suspend anything it’s the little guy who usually gets punished,” he said. “If we’re talking about the average person, people who have jobs, they suffer the consequences and that’s very bad.”

Meanwhile NATO announced it would suspend cooperation with Russia over the ongoing crisis. The decision could affect cooperation on Afghanistan in areas such as training counter-narcotics personnel, maintaining Afghan air force helicopters, and a transit route out of the war-torn country. Other projects around fighting terrorism, drug trafficking, and dealing with the disarmament and non-proliferation of weapons of mass destruction could also be impacted.

Paul, a longtime critic of NATO, said that de-escalation should be the current priority for all parties involved. “I advocate not picking sides, so I see two sides going back and forth and my political position as an American is for our American government [to stop] picking sides and picking governments and interfering with elections,” he said. “De-escalation in my view would involve us minding our own business…in particular the Ukrainian people should be the ones who decide which way they want to go rather than the governments of Europe or even the Russian government for that matter.”

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Game on?!

Russia’s Biggest Bank Halts Foreign Currency Personal Loans (RT)

Sberbank has temporarily suspended giving foreign currency loans to individuals. Experts say other Russian banks are not likely to follow. Russian banks aren’t going to suspend foreign currency loans to individual Russians as they have just simplified credit product operations. Experts suggest Sberbank’s ruble-only loans have a more political character. The bank said its April 1 decision was intended “to optimize the structure of the current portfolio and its stable behavior in the future, in case of any foreign currencies exchange rate fluctuations “.

“The bank preliminarily analyzed the needs of the clients and revealed that the current demand for loans can be completely satisfied with rubles without losing any advantages for the Sberbank products, including stocks offers,” the Prime news quotes Sberbank officials. In 2013 Sberbank issued $50 million of foreign currency loans, which account for 0.07% of the $68 billion loaned. 90% of the foreign currency loans were consumer, 9% mortgage, and 1% was for vehicles.

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Not sure we need the World Bank to tell us this, but it’s certainly true.

Climate Change Will ‘Lead To Battles For Food’, Says Head Of World Bank (Guardian)

Battles over water and food will erupt within the next five to 10 years as a result of climate change, the president of the World Bank said as he urged those campaigning against global warming to learn the lessons of how protesters and scientists joined forces in the battle against HIV. Jim Yong Kim said it was possible to cap the rise in global temperatures at 2C but that so far there had been a failure to replicate the “unbelievable” success of the 15-year-long coalition of activists and scientists to develop a treatment for HIV.

The bank’s president – a doctor active in the campaign to develop drugs to treat HIV – said he had asked the climate change community: “Do we have a plan that’s as good as the plan we had for HIV?” The answer, unfortunately, was no. “Is there enough basic science research going into renewable energy? Not even close. Are there ways of taking discoveries made in universities and quickly moving them into industry? No. Are there ways of testing those innovations? Are there people thinking about scaling [up] those innovations?”

Interviewed ahead of next week’s biannual World Bank meeting, Kim added: “They [the climate change community] kept saying, ‘What do you mean a plan?’ I said a plan that’s equal to the challenge. A plan that will convince anyone who asks us that we’re really serious about climate change, and that we have a plan that can actually keep us at less than 2C warming. We still don’t have one. “We’re trying to help and we find ourselves being more involved then I think anyone at the bank had predicted even a couple of years ago. We’ve got to put the plan together.”

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