John Vachon Rear of grocery store in Baltimore Jul 1938
“The biggest worry is a precipitous sell-off in the bond markets once the US Federal Reserve and the other major central banks begin to tighten in earnest. Mr Debelle cited the US bond crash in 1994, but warned that it could be even more violent this time with a “fair chance that volatility will feed on itself”.”
• BIS Warns On ‘Violent’ Reversal Of Global Markets (AEP)
The global financial markets are dangerously stretched and may unwind with shock force as liquidity dries up, the Bank of International Settlements has warned. Guy Debelle, head of the BIS’s market committee, said investors have become far too complacent, wrongly believing that central banks can protect them, many staking bets that are bound to “blow up” as the first sign of stress. In a speech in Sydney, Mr Debelle said: “The sell-off, particularly in fixed income, could be relatively violent when it comes. There are a number of investors buying assets on the presumption of a level of liquidity which is not there. This is not evident when positions are being put on, but will become readily apparent when investors attempt to exit their positions. “The exits tend to get jammed unexpectedly and rapidly.” Mr Debelle, who is also chief of financial markets at Australia’s Reserve Bank, said any sell-off could be amplified because nominal interest rates are already zero across most of the industrial world.
“That is a point we haven’t started from before. There are undoubtedly positions out there which are dependent on (close to) zero funding costs. When funding costs are no longer close to zero, these positions will blow up,” he said. The BIS warned earlier this summer that the world economy is in many respects more vulnerable to a financial crisis than it was in 2007. Debt ratios are now far higher, and emerging markets have also been drawn into the fire over the last five years. The world as whole has never been more leveraged. Debt ratios in the developed economies have risen by 20 percentage points to 275pc of GDP since the Lehman Brothers crash. The new twist is that emerging markets have also been on a debt spree, partly as a spill-over from quantitative easing in the West. This has caused a flood of dollar liquidity into these countries that they have struggled to control. It has pushed up their debt ratios by 20 percentage points to 175pc, and much of the borrowing has been at an average real rate of 1pc that is unlikely to last.
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It was never in the cards. Unless perhaps you’re free to come and go as you please. Most institutional investors are not. So they must get burned.
• No Happy Ending for Investors in Central Bank Fairy Tale (Bloomberg)
You know it’s a special moment in the financial markets when analysts ditch the jargon and reach for artistic references. Ed Yardeni cited “The Wizard of Oz.” IMF Managing Director Christine Lagarde went with both “Alice in Wonderland” and Harry Potter. Stephen King – the HSBC chief economist, not the author – trolled the fantasy aisle. Their message for investors: Even after the MSCI World Index’s lurch to its lowest since February, sentiment risks souring for a while longer. The reason is that just as global growth is weakening again, central bankers who sustained much of the expansion are running out of ammunition. “Investors around the world are shocked, shocked that the monetary wizards may have run out of magic tricks to revive global economic growth,” said Yardeni. “Even the wizards are admitting that their powers to do so are limited.” To King, markets spent most of this year caught up in a fairy tale that policy makers were on top of things.
In the rosy scenario, the Federal Reserve would next year cool U.S. growth with tighter monetary policy and the European Central Bank would revive expansion with quantitative easing. Everyone would win. “Like most fairy tales it can’t be true in reality,” King told a conference in Washington last week. “There’s something wrong with it.” A case in point is the reliance of the ECB on the weaker euro to deliver an economic boost. That’s not likely to work because what matters is its trade-weighted value. On that basis, he calculates sterling and the yen both fell 20% when their authorities pursued easier monetary policy in recent years.
The problem for the ECB is that countries are now more resistant to their own exchange rates strengthening. Switzerland and the Czech Republic are capping their currencies against the euro; Sweden is unhappy with gains in the krona. The Bank of Japan would likely push back against any gain in the yen. Australia and New Zealand also have signaled disquiet with strength in their dollars. To compensate for all that, the euro would have to fall to parity against the greenback. “That’s way bigger than anything that anyone is currently forecasting,” says King, whose colleagues forecast the euro to fall to $1.19 by the end of 2015 from $1.27 today, which would amount to a 3% decline on a trade-weighted basis. The upshot? Either the ECB’s stimulus efforts fall short or the dollar goes through the roof, preventing the Fed from raising interest rates and hitting dollar-reliant economies in Latin America and China.
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Throwing in a bit – or two bits – of confusion. Just like the Fed.
• Saudi Prince Alwaleed Says Falling Oil Prices ‘Catastrophic’ (Telegraph)
Saudi Arabia’s most high-profile billionaire and foreign investor, Prince Alwaleed bin Talal, has launched an extraordinary attack on the country’s oil minister for allowing prices to fall. In a letter in Arabic addressed to ministers and posted on his website, Prince Alwaleed described the idea of the kingdom tolerating lower prices below $100 per barrel as potentially “catastrophic” for the economy of the desert kingdom. The letter, first reported online by the FT, is a significant attack on Saudi’s highly respected 79-year-old oil minister Ali bin Ibrahim Al-Naimi who has the most powerful voice within the Organisation of Petroleum Exporting Countries (Opec). Prince Alwaleed – who is a member of the ruling house of Saud – is also a major international investor, who holds significant stakes in companies from News Corp through to Citigroup.
The publication of the letter comes as Brent oil prices crashed under $87 after the International Energy Agency slashed its forecast for oil demand this year amid signs of weaker global economic growth and a glut of crude. Saudi Arabia is the world’s largest exporter and has the capacity to pump 12.5m barrels per day (bpd) if needed, giving it tremendous power both within Opec but also the international market. Reuters had earlier reported that Iran had rowed back on its earlier concerns over falling prices and was more willing to leave production unchanged at the next meeting of Opec in Vienna in November. Prince Alwaleed had taken particular issue with a remark attributed to Saudi Arabia’s oil minister, in which he said that falling prices were “no cause for alarm”.
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America can no longer afford to maintain its own infrastructure. All the new debt goes towards keeping banks look presentable.
• Crumbling US Fix Seen With Global Trillions of Dollars (Bloomberg)
The concrete piers of two new bridges are rising out of the Ohio River between Louisville, Kentucky, and southern Indiana, as crews blast limestone and move earth to build the roads and tunnels that will soon connect the twin spans to nearby interstate highways. For more than two decades, the project languished. Business and political leaders on both sides of the river couldn’t agree on how to relieve snarled traffic, improve safety and spur development that was bypassing the region for Indianapolis and Nashville. The Ohio River Bridges project is an American anomaly that has the potential to become a model while lack of money and political will are allowing many of the nation’s roads and bridges to crumble. Along the shores of the Ohio, Democrat-led Kentucky and Republican-run Indiana have forged a partnership to rebuild U.S. infrastructure at a time of partisan gridlock and untapped trillions in private dollars.
“It’s an enduring irony that the U.S., allegedly the home of innovation, is absolutely block-headed and backwards in this one respect,” former Indiana Governor Mitch Daniels, now the president of Purdue University in West Lafayette, Indiana, said in an interview. “America needs the upgrade and modernization of our infrastructure, and I don’t think you’ll get there if you keep excluding, or at least discouraging, private capital.” President Barack Obama’s administration, which had resisted private financing of public works, is starting a new center to serve as a one-stop shop for bringing capital into government projects. During a Sept. 9 infrastructure conference with investors, U.S. Treasury Secretary Jacob J. Lew said while direct federal spending is indispensable in such cases, tight budgets demand creative ways for unlocking private money.
His cabinet colleague, Transportation Secretary Anthony Foxx, put it more bluntly when he announced the Build America Investment Initiative in July. “There will always be a substantial role for public investment,” Foxx said. “But the reality is we have trillions of dollars internationally on the sidelines that are not being put to work.” Fixing those roads and bridges also boosts employment. Every $1 billion in new infrastructure investment creates about 18,000 jobs, according to a 2009 report by economists at the University of Massachusetts’ Political Economy Research Institute.
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Brace yourself for the debt collectors.
• Americans Face Post-Foreclosure Hell As Wages, Assets Seized (Reuters)
Many thousands of Americans who lost their homes in the housing bust, but have since begun to rebuild their finances, are suddenly facing a new foreclosure nightmare: debt collectors are chasing them down for the money they still owe by freezing their bank accounts, garnishing their wages and seizing their assets. By now, banks have usually sold the houses. But the proceeds of those sales were often not enough to cover the amount of the loan, plus penalties, legal bills and fees. The two big government-controlled housing finance companies, Fannie Mae and Freddie Mac, as well as other mortgage players, are increasingly pressing borrowers to pay whatever they still owe on mortgages they defaulted on years ago. Using a legal tool known as a “deficiency judgment,” lenders can ensure that borrowers are haunted by these zombie-like debts for years, and sometimes decades, to come. Before the housing bubble, banks often refrained from seeking deficiency judgments, which were seen as costly and an invitation for bad publicity.
Some of the biggest banks still feel that way. But the housing crisis saddled lenders with more than $1 trillion of foreclosed loans, leading to unprecedented losses. Now, at least some large lenders want their money back, and they figure it’s the perfect time to pursue borrowers: many of those who went through foreclosure have gotten new jobs, paid off old debts and even, in some cases, bought new homes. “Just because they don’t have the money to pay the entire mortgage, doesn’t mean they don’t have enough for a deficiency judgment,” said Florida foreclosure defense attorney Michael Wayslik. Advocates for the banks say that the former homeowners ought to pay what they owe. Consumer advocates counter that deficiency judgments blast those who have just recovered from financial collapse back into debt — and that the banks bear culpability because they made the unsustainable loans in the first place.
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The stupidest thing I’ve seen in a while. The US consumer will save the economy … Yeah. The US consumer is broke and in debt, guys.
• The $11 Trillion Advantage That Shields U.S. From Turmoil (Bloomberg)
Call it America’s $11 trillion advantage: Consumer spending is likely to steer the U.S. economy safely through the shoals of deteriorating global growth and turbulent financial markets. The combination of more jobs, falling gasoline prices and low borrowing costs will help lift household purchases. Such tailwinds probably matter more than Europe’s struggles or the slackening in emerging markets that caused the Dow Jones Industrial Average last week to erase its gains for the year. “We’ve got a lot of things working in favor of the consumer right now,” said Nariman Behravesh, chief economist in Lexington, Massachusetts, at IHS Inc. “To have that kind of strength is the biggest asset for the U.S. It’s a pretty rock solid footing.” Household purchases make up almost 70% of the $16.8 trillion U.S. economy and have climbed an average 2% in the recovery that’s now in its sixth year. Spending growth will accelerate to 2.7% next year after 2.3% in 2014, according to the latest Bloomberg survey of economists.
The poll, taken from Oct. 3 to Oct. 8 in the midst of the meltdown in equities, showed little change in the median projections from the prior month. The economy is forecast to expand 3% in 2015 after 2.2% growth this year, according to the survey. “We’ve got the proverbial 800-pound gorilla – the consumer,” said Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities Inc. in New York. “Households are more fixated on the good news here, and a big part of that is the labor market. The U.S. is going to be pretty immune to the rest of the world.” Economic weakness in Europe, slowing growth in China and tensions in the Middle East sparked a $3.5 trillion loss in value for global equities through last week since a record in September. Brent crude oil yesterday sank to an almost four-year low and the dollar has climbed almost 5% since June.
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See my article yesterday: The Fed Must Feed The Beast.
• No Stock Salvation Seen in Bank Results as VIX Surges (Bloomberg)
Options traders are skeptical this week’s bank earnings will deliver calming news to a stock market enduring its worst losses in two years. U.S. stocks have fallen for the past three days on concerns about global growth, the future of interest rates and the spread of Ebola. With companies from JPMorgan to Goldman Sachs and Bank of America scheduled to report this week, demand for bearish options on the largest U.S. financial firms has increased to the highest since May 2013. Even though banks have escaped the worst losses in the recent selloff, the companies will struggle to boost profits if the Federal Reserve keeps interest rates near zero. Analyst projections tracked by Bloomberg show financial companies in the S&P 500 increased earnings 3.1% in the third quarter and 1.6% in the fourth. “There’s an anticipation that a significant percentage of earnings are going to lower forward guidance relatively significantly, including some of the big banks,” Jeff Sica at Sica Wealth Management said.
“That’s going to have a very negative impact on the stock market.” JPMorgan, Citigroup and Wells Fargo are scheduled to provide quarterly results this morning. Bank of America, Goldman Sachs and Morgan Stanley report later in the week. Low interest rates have crimped lending profits for banks, which benefit from higher loan yields. Net interest margins, the difference between what a firm pays in deposits and charges for loans, were a record-low 3.1% in the second quarter, according to St. Louis Fed data on U.S. banks with average assets greater than $1 billion. Fed Vice Chairman Stanley Fischer said during the weekend that U.S. rate increases could be delayed by slowing growth elsewhere. The central bank should be “exceptionally patient” in adjusting monetary policy, Chicago Fed President Charles Evans said yesterday. Federal fund futures show the likelihood of a September 2015 rate increase fell to 46%, from 56% on Oct. 10, and 67% two months ago, according to data compiled by Bloomberg.
“If you get rates rising, you can price that into loans,” Peter Sorrentino, who manages shares of Wells Fargo and JPMorgan for Huntington Asset Advisors, said. “We haven’t seen much shift in the yield curve, even though people thought this would be the year for it because of the Fed easing on QE. There’s a disappointment that we haven’t seen better margin growth this year.”
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The eurozone is a straightjacket that will crush everything inside.
• Triple-Dip Eurozone Recession Fears As Germany Cuts Growth Forecast (Guardian)
Germany has slashed its growth forecasts for this year and 2015, sparking calls for a public spending boost to prevent the eurozone falling into a triple-dip recession. Berlin now expects growth of just 1.2% this year and the same in 2015, it said on Tuesday, down from 1.8% and 2%, in the face of slowing export growth. It came as official Eurostat figures showed that industrial production across the eurozone slumped in August by an alarming 1.8% month-on-month, meaning it was 1.9% lower than a year ago. With reports mounting of slowing industrial output in Germany and declining business confidence, the eurozone’s largest economy is now expected to expand at less than half the pace of the UK and US over the next year.
The economy minister, Sigmar Gabriel, blamed geopolitical tensions and global economic problems overseas. He said: “The German economy is steering through rough foreign waters. Geopolitical crises have also increased uncertainty in Germany and moderate growth is weighing on the German economy.” An October survey showed a big fall in investor sentiment in Germany, mirroring reports through the summer months of stumbling business confidence following the erosion of previously buoyant demand for German goods. Across the eurozone business optimism in the last three months fell from net 35% to just 5%, according to Grant Thornton’s International Business Report, dragged down by a dramatic fall in German optimism, which plummeted from a net 79% to 36% over the period.
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Haven’t the read the great Keynes?
• Merkel Vows Austerity Even as Growth Projection Cut (Bloomberg)
Chancellor Angela Merkel told lawmakers that Germany won’t raise public spending to stimulate the economy even after her government slashed growth forecasts for this year and next, a party official said. Europe’s biggest economy will probably grow by 1.2% this year and by 1.3% in 2015, marking respective drops from 1.8% and 2.0% forecast in April, the Economy Ministry said today. Merkel, addressing a closed-door meeting of members of her Christian Democratic Union-led bloc in Berlin today, vowed that her government will pursue its balanced budget goal regardless of the outlook, according to the CDU official, who asked not to be named because the session was private.
“We’re agreed in the German federal government that we must stay the course even in difficult times,” Finance Minister Wolfgang Schaeuble told reporters in Luxembourg today after a meeting of European Union finance ministers. A separate party official who attended the Berlin meeting told reporters later that Merkel said it’s more important than ever for the EU to hold to its rules and that Germany’s stance is crucial. If Germany deviates from its fiscal position, it would give other countries a reason to do likewise, she said. “This, in a word, is silly: Germany should borrow money and invest in infrastructure to boost growth,” Fredrik Erixon, director of the European Centre for International Political Economy in Brussels, said by phone. “Merkel and others have invented a story about how Germany always had an austere budget. Yet in postwar history, Germany has repeatedly shown far more fiscal policy flexibility to lift growth.”
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But it won’t, it’ll keep going until the end.
• ‘Bank of Japan Should Quit While It’s Ahead’ (Bloomberg)
The Bank of Japan should quit while it’s ahead. That’s the advice of the central bank’s former chief economist, Hideo Hayakawa. The BOJ should start paring its unprecedented easing soon or risk hurting people, Hayakawa said in an interview. Pushing inflation to a 2% target in a short period will raise living costs without boosting employment or growth, he said. “It’s important to quit while you’re ahead,” said Hayakawa, who was an executive director at the BOJ until March 2013. “Basically, drop the two-year reference, keep the 2% target and taper slowly.” The remarks underscore the risks Governor Haruhiko Kuroda is taking to reflate the world’s third-biggest economy with a stimulus program he began in April last year. While the BOJ is still winning its “gamble” with its stimulus, it shouldn’t push its luck, Hayakawa said. “The secret to success is declare victory while you’re winning,” he said.
With prices rising by about 1% and a labor shortage intensifying, the central bank will eventually achieve the inflation goal and shouldn’t rush, according to Hayakawa. Masayoshi Amamiya, BOJ’s executive director in charge of monetary affairs, said today in a parliamentary committee that the central bank’s easing helps invigorate the economy. With the BOJ buying assets at a record pace, it could face huge losses should interest rates start to rise, according to Hayakawa. The central bank buys about 7 trillion yen of Japanese government bonds a month. Growing public criticism of the yen’s recent weakness means the BOJ can’t stick to its current plan to reach 2% inflation, he said. “The short cut to achieving the 2% target is through a weak yen but that goes against public sentiment,” Hayakawa said. “It’s not good to go too far and get wounded later.”
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US and UK are supposedly doing well. But in reality, just like in the US, there are no consumers in Britain left either.
• UK Economy Sinks at the Checkout Line (Bloomberg)
The U.K. supermarket scene is a microcosm of the British economy and holds up a mirror to the global backdrop in developed economies. Low wages and so-called flexible working contracts make it hard for workers to feel they’re sharing in the economic recovery, undermining consumer confidence; the grocery companies themselves, meantime, have no pricing power and are in a beggar-thy-neighbor race to the bottom, sacrificing margins to maintain sales. It’s a combination that should loom large in the Bank of England’s monetary policy deliberations, curtailing its instincts to raise interest rates. Similar considerations should be high on the Federal Reserve’s checklist of things to watch out for when it begins normalizing policy. And in Europe, this should be lighting a fire under the European Central Bank’s efforts to rejuvenate growth.
The price war among U.K. supermarkets has erased more than half of the value of Tesco in a year, making Britain’s biggest retailer the highest-profile victim of the battle. Tesco’s local difficulties notwithstanding — ditching the chief executive for his disastrous attempt to emulate Jeff Bezos’s strategy, followed by accounting irregularities that may turn out to be fraudulent and have led to eight employees being suspended – the discounting by two German retailers, Aldi and Lidl, have depressed food prices for the entire U.K. industry: Aldi increased its market share to 4.8% from 3.7% in the 12 weeks to Sept. 14, according to market researcher Kantar, while Lidl expanded to 3.5% from 3.0%. In response, Wm Morrison Supermarkets said this month it’s introducing a new loyalty card. Customers will be automatically reimbursed for the difference between what they pay in a Morrison store and any cheaper price available at Aldi, Lidl, Tesco, Sainsbury or Asda. Despite their protestations, all of the U.K. supermarkets are now discount stores.
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“The words are not lies. But they’re only not-lies because if they were found to be lies that would be counterproductive to the social policy goals, not because there’s any fundamental objection to lying.”
• On The Precipice Of A Breakdown In Confidence (Ben Hunt)
Here is the most fundamental idea behind game theory, the one concept you MUST understand to be an effective game player. Ready? You are not a super genius, and we are not idiots. The people you are playing with and against are just as smart as you are. Not smarter. But just as smart. If you think that you are seeing more deeply into a repeated-play strategic interaction (a game!) than we are, you are wrong. And ultimately it will cost you dearly. But if there is a mutually acceptable decision point – one that both you and we can agree upon, full in the knowledge that you know that we know that you know what’s going on – that’s an equilibrium. And that’s a decision or outcome or policy that’s built to last. Fair warning, this is an “Angry Ben” email, brought on by the US government’s “communication policy” on Ebola, which is a mirror image of the US government’s “communication policy” on markets and monetary policy, which is a mirror image of the US government’s “communication policy” on ISIS and foreign policy.
We are being told what to think about Ebola and QE and ISIS. Not by some heavy-handed pronouncement as you might find in North Korea or some Soviet-era Ministry, but in the kinder gentler modern way, by a Wise Man or Woman of Science who delivers words carefully chosen for their effect in constructing social expectations and behaviors. The words are not lies. But they’re only not-lies because if they were found to be lies that would be counterproductive to the social policy goals, not because there’s any fundamental objection to lying. The words are chosen for their truthiness, to use Stephen Colbert’s wonderful term, not their truthfulness. The words are chosen in order to influence us as manipulable objects, not to inform us as autonomous subjects. It’s always for the best of intentions. It’s always to prevent a panic or to maintain confidence or to maintain social stability. All good and noble ends. But it’s never a stable equilibrium. It’s never a lasting legislative or regulatory peace.
The policy always crumbles in Emperor’s New Clothes fashion because we-the-people or we-the-market have not been brought along to make a self-interested, committed decision. Instead the Powers That Be – whether that’s the Fed or the CDC or the White House – take the quick and easy path of selling us a strategy as if they were selling us a bar of soap. This is what very smart people do when they are, as the Brits would say, too clever by half. This is why very smart people are, as often as not, poor game players. It’s why there aren’t many academics on the pro poker tour. It’s why there haven’t been many law professors in the Oval Office. This isn’t a Democrat vs. Republican thing. This isn’t a US vs. Europe thing. It’s a mass society + technology thing. It’s a class thing.
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Yeah, they’re doing absolutely fab.
• Average UK Worker £5,000 A Year Worse Off (Guardian)
The protracted squeeze on pay packets since the financial crisis means the average worker in Britain is £5,000 a year worse off, a leading labour market expert warns on Wednesday. In advance of official figures expected to show that pay growth has again lagged far behind inflation over the summer months, Prof Paul Gregg of Bath University says that because wages have fallen in real terms since 2008, today they are nearly 20% below where they would be had wage growth continued. His calculations are likely to be seized on by Labour as it seeks to keep the “cost-of-living crisis” centre-stage before the election.
Labour market data on Wednesday is expected to underscore the pressure on household finances, with wage growth forecast at just 0.7% on the year over the three months to August, less than half the pace of inflation in August. That would mark just a small pick-up in pay growth from 0.6% in the three months to July. Gregg’s report for the university’s Institute for Policy Research (IPR) casts doubt on predictions from other economists that wage growth will start to pick up significantly in coming months. He warns that the government cannot rely on falling unemployment alone to restart sustained wage growth. Instead, Britain must turn around its relatively poor performance on productivity. “Continued falls in unemployment will lead to modest wage recovery, but this alone will not go far enough,” says Gregg.
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I’d use a much stronger term than that.
• Youth Unemployment In Rich Middle East A ‘Liability’ (CNBC)
Youth unemployment across the wealthy Middle East is one of the region’s greatest challenges and liabilities, according to a report by the World Economic Forum (WEF). The Middle East and North Africa (MENA) might have abundant wealth as a result of natural resources such as oil and gas but the region has the highest regional youth unemployment rate in the world with 27.2% of under-25s unemployed in the Middle East. More than 29% are out of work in North Africa — more than double the global average, according to WEF’s report. With more than half of its population under 25 years old the MENA region now “stands at a critical juncture,” according to the report. It warns the youthful populace could turn into a “liability” rather than a “youth dividend” if an environment in which youth aspirations can be fulfilled is not created soon. “The demographic ‘youth bulge’ represents one of the greatest opportunities, as well as one of the greatest challenges, faced by the Arab World, ” the report, released in October, warns.
“Solutions to date show little progress in confronting the challenge of youth unemployment in a structural manner, in spite of existing financial means, ” the report which was compiled from a range of consultations with business, government and civil society leaders and academics in the region said. Countries belonging to the Gulf Cooperation Council (GCC), including Kuwait, Qatar, Saudi Arabia and the United Arab Emirates have persistently high youth unemployment rates, with the highest found in oil-rich Saudi Arabia where the rate hovers around 30%, data from the G20 organization showed this year. Despite the economic support of a spectacular rise in oil prices (the WEF estimates that today oil revenues account for at least 80% of total government revenues in all GCC countries), the fast economic expansion of the GCC during the past decades has not translated into jobs for the under-25s “suggesting that economic expansion is not enough to solve the youth unemployment challenge in the region,” WEF said.
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On Obama’s UN speech: “It’s sad, it’s like some kind of mental aberration.”
• Russia-US Relations Reset ‘Impossible’: PM Medvedev (CNBC)
Russia’s Prime Minister has said a “reset” of relations with the United States is “impossible” and that ties between the two powers had been damaged by “destructive” and “stupid” sanctions imposed on the country in response for its role in the conflict in neighboring Ukraine. In an exclusive interview with CNBC, Dmitry Medvedev said any suggestion of a “reset”, as mooted by Russia’s foreign minister, Sergei Lavrov, in September, was out of the question.”No, of course not. It’s absolutely impossible. Let’s be clear: we did not come up with these sanctions. Our international partners did,” Medvedev said. Western countries have imposed wide-ranging sanctions on Russia since its annexation of the Crimean peninsula in March, targeting banks, oil producers and defense companies. In response, Russia has imposed retaliatory measures such as banning imports of European and U.S. fruit and vegetables.
Medvedev said the country would overcome the sanctions and believed they would be lifted in the near future. But they had “no doubt” damaged relations. He said he understood former Soviet countries’ concerns over Ukraine. But he felt that the “foundations international relations” were being undermined by the punishing sanctions. The position was “destructive” and “stupid”, he said. Medvedev expressed dismay at U.S. President Barack Obama’s speech before the UN General Assembly in which he labeled Russia a key threat, second only to the deadly Ebola virus and ahead of the terrorist threat posed by Islamic State. “I don’t want to dignify it with a response. It’s sad, it’s like some kind of mental aberration. We need to come back to a normal position, and only after that we can elaborate on how we are going to elaborate our positions in the future,” he said. He said the country hadn’t closed its doors to anyone however.
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Make that a month.
• New US Price Tag for War Against ISIS: $40 Billion a Year (Fiscal Times)
With the war against ISIS off to a rocky start, there are signs that the Obama administration is getting ready to up the ante substantially on weaponry, manpower and aid to allies – at a cost of an additional $30 billion to $40 billion a year. Earlier, Gordon Adams, a military analyst at American University, told The Fiscal Times that the mission to stop ISIS will cost $15 billion to $20 billion annually, based on his “back of the envelope” calculations. Other analysts have made similar forecasts. But based on soundings of the defense establishment, Adams said Thursday that the Defense Department would almost certainly request funding of twice that level later this year.
The estimated $30 billion to $40 billion of new spending would come on top of the Pentagon’s $496 billion fiscal 2015 operating budget for personnel and contractors and the roughly $58.6 billion in an “Overseas Contingency Operation” fund that is used to finance U.S. war operations in the Middle East. The OCO, as it is known, has paid for the protracted U.S. military engagement in the Middle East with borrowing that adds to the long-term U.S. debt. If Adams’ projections are correct, then the OCO would total as much as $80 billion to $90 billion in the coming year.
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“Welcome to the diminishing returns of the global economy. They’ve been there all along, but none previously were sufficiently vivid or horrifying as ebola.”
• Real Life is Not Spin Art (Jim Kunstler)
The authorities keep emphasizing that the nurse who caught ebola from Thomas Eric Duncan was sealed in her haz-mat suit the whole time she cared for the poor fellow and blah blah nobody knows how she could possibly catch the darn thing…. But the newspapers and cable news networks are not asking: What about all the people, ordinary civilians, that this nurse was consorting with off-work, after she took off her haz-mat suit and, let’s say, at some point stopped by the Kroger Store’s fabulous steam table display of take-out goodies behind the helpful and reassuring sneeze-guard on her way back home? It sounds like a new Netflix drama – The Fatal Mac and Cheese.
If one more person in that chain of circumstance falls ill, Rick Perry will have to ring-fence Dallas faster than you can say Guadalupe Hidalgo and then we’ll be off to the quarantine races in America. It will be interesting to see who’s shorting the airline stocks a few hours from now. I’ve got to pass through Dulles airport tomorrow myself, and then two more foreign hubs after that, and return to freakin’ Newark International at the end of the week when a fullblown ebola panic may be underway. For the moment, I’m in Washington for a conference on population and immigration. Believe it or not there are some people who want to have an honest national conversation about these issues amid all the disingenuous chatter about “dreamers” emanating from the Oval Office in this miserable era of politics-as-spin-art. And along comes the galvanizing event of a really serious disease to finally force the issue. Nothing concentrates a nation’s attention like the specter of the people next door bleeding out through their ears and noses.
Welcome to the diminishing returns of the global economy. They’ve been there all along, but none previously were sufficiently vivid or horrifying as ebola. The Chinese FoxConn workers throwing themselves out the factory windows in despair just seemed like some kind of fraternity prank in comparison. Now something has got loose from the Heart of Darkness like the hissing beastie that burst out of John Hurt’s ribcage in Alien and water-skied out of the sick bay into the bowels of the cargo ship Nostromo. Sometimes a metaphor is just a figure of speech and sometimes it’s liable to set your hair on fire.
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Farrell’s still on his climate and population quest.
• ‘Star Trek’ Time Capsule 2047 Launches As Earth Burns (Paul B. Farrell)
One very special “Star Trek: The Next Generation” episode haunts me. From stardate 45944.1: “The Inner Light” gives us a brief glance at the star-crossed future of two civilizations. One boldly exploring new worlds. The other leaving behind a brief snapshot of its mysterious death. A bold metaphor for our own planet, in the near future, perhaps 2047? The facts: The U.S.S. Enterprise is on a research mission, completing a magnetic survey of the Parvenium system when it encounters a probe floating in space. Suddenly a telepathic energy bolt drops Capt. Jean-Luc Picard on the deck, unconscious. He wakes up on a strange planet. Dazed, recovering from a fever as “Kamin.” He cannot recognize his wife. Friends think he’s delusional, mumbling about being a starship captain. Time passes. He gradually adapts to this new reality on this far-off world. Memories of his prior life slowly fade. He falls in love with his wife again, raises a family, his children give him grandchildren. He lives the quiet, peaceful life he never imagined in his space travels.
The planet’s natural resources gradually disappear as temperatures rise. Water gets scarce. Desert lands replace forests and rich farmlands. Food supplies depleted. The planet is dying. Near the end, he stands alone, a wide brimmed hat shielding his eyes from the blinding sun, watching the launch of a rocket, soaring into the clouds, contrails disappearing into the heavens, carrying the final record of a great civilization on a once-rich planet. Suddenly the probe powers off. Picard wakes up on the floor of the Enterprise bridge. Only a few minutes had passed. Back in command. Engines power up. They accelerate to warp, continuing on their mission, boldly going where no one has gone before. Picard is left with long memories of a simpler life on a planet that vanished thousands of years earlier. Alone in his quarters, Picard begins playing the flute retrieved from within the drifting space probe. A haunting melody fills his ship … time and space fade to black.
A metaphor for Earth? Perhaps, but which one? We live with 7.3 billion people today. By 2047 the United Nations estimates the population will rocket to 10 billion, with everyone competing with America’s 400 million capitalists for ever-scarcer resources. Yes, huge odds against us, with the rest of the world outnumbering us 22 to 1. Every nation, every society, everyone fighting for their own version of the American Dream, in an unsustainable lifestyle war that will require the resources of not one but six planets. An impossible quandary in a world where population demographics – the bubble of all bubbles – becomes the force driving all other bubbles, economic, political, cultural. The ultimate force driving us in an accelerating trajectory into an unsustainable reality on a planet that can never feed 10 billion people.
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No native species left soon.
• UK Waterways Face ‘Invasional Meltdown’ From European Organisms (BBC)
Scientists are warning that an army of species from Turkey and Ukraine is poised to invade Britain’s waterways. One organism, the quagga mussel, was discovered in a river near London just weeks ago. At least 10 others are established in the Netherlands and there is a “critical risk” of them coming here. Researchers are also concerned that invaders, including the killer shrimp, will rapidly spread and devastate native species. The research has been published in the Journal of Applied Ecology. In the study, the team from the University of Cambridge looked at 23 invasive species that originate from the waters of the Black, Azov and Caspian seas. They believe these creatures have spread across Europe in recent years because of canal construction that has helped them move outside their native range.
At least 14 of the species are now well established in the Rhine estuary and in Dutch ports. Four, including the bloody red shrimp, have recently crossed the Channel and established themselves here. Others are likely to follow. According to the authors, Britain faces an “invasional meltdown”. “I think we are at a tipping point,” said Dr David Aldridge, the report’s co-author. “We’ve been watching species heading our way from the Ponto-Caspian region for the past 20 years or so. They are all building up in the Rhine system just over the ocean. “We think that particularly now that the quagga mussel has just arrived, we are about to have a big meltdown.”
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Well, obviously. The more hosts a virus has to replicate in, the more mutations.
• Ebola Outbreak Boosts Odds of Mutation Helping It Spread (Bloomberg)
The Ebola virus circulating in West Africa is already different from previous strains. While scientists don’t fully understand what the changes mean, some are concerned that alterations in the virus that occur as that pathogen continues to evolve could pose new dangers. Researchers have identified more than 300 new viral mutations in the latest strain of Ebola, according to research published in the journal Science last month. They are rushing to investigate if this strain of the disease produces higher virus levels — which could increase its infectiousness. So far, there is no scientific data to indicate that. The risk, though, is that the longer the epidemic continues, the greater the chance that the virus could change in a way that makes it more transmissible between humans, making it harder to stop, said Charles Chiu, an infectious disease physician who studies Ebola at the University of California at San Francisco.
“If the outbreak continues for a prolonged period of time or it becomes endemic, it may mutate into a form that is more virulent,” said Chiu. “It is really hard to predict.” Viruses such as Ebola, whose genomes are made from ribonucleic acid, are constantly mutating. Some mutations are good for the virus and some are bad for the virus, said Ian Mackay, a virologist at the University of Queensland. It’s the ones that are good for the virus that tend to stick around. “Viruses don’t think. They make mutations that are good for them,” he said. “If it helps the virus spread or replicate faster it will be around more.” “It is a numbers game, the more cases you have the more likely there are going to be mutations that could change the virus” in a significant way, said David Sanders, a professor of biological sciences at Purdue University who studies Ebola. “The more it persists, the more likely we are going to be thrown a curve.”
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Scared yet? What’s with the protocol?
• Second Health Care Worker Tests Positive For Ebola In Texas (CNBC)
A second health care worker has tested positive for Ebola in the U.S., the Texas Department of Health said on Wednesday. The person, who was employed at Texas Health Presbyterian Hospital, was among those who took care of Thomas Eric Duncan after he was diagnosed with Ebola. “Health officials have interviewed the latest patient to quickly identify any contacts or potential exposures, and those people will be monitored,” the Texas Department of Health said in a statement. “The type of monitoring depends on the nature of their interactions and the potential they were exposed to the virus.”
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And counting.
• WHO Sees 10,000 Ebola Cases a Week in West Africa by Dec. 1 (Bloomberg)
The number of new Ebola cases in three West African nations may jump to between 5,000 and 10,000 a week by Dec. 1 as the deadly viral infection spreads, the World Health Organization said. The outbreak is still expanding geographically in Guinea, Sierra Leone and Liberia and accelerating in capital cities, Bruce Aylward, the WHO’s assistant director-general in charge of the Ebola response, said in a briefing with reporters in Geneva. There have been about 1,000 new cases a week for the past three to four weeks and the virus is killing at least 70% of those it infects, he said. “Any sense that the great effort that’s been kicked off over the last couple of months is already starting to see an impact, that would be really, really premature,” Aylward said. “The virus is still moving geographically and still escalating in capitals, and that’s what concerns me.”
The WHO’s forecast shows the magnitude of the task facing governments and aid groups as they try to bring the worst-ever Ebola outbreak under control. More than 8,900 people have been infected with Ebola in the three countries, with more than 4,400 deaths, the WHO said. The effects of the epidemic have rippled outward in recent weeks, adding to concern that Ebola may spread in the U.S. and Europe. The first two cases of Ebola being contracted outside Africa occurred, with health workers in Madrid and Dallas falling ill after caring for infected patients. The U.S. and the U.K. began screening some airline passengers on arrival in the past few days. [..] To bring the outbreak under control, there needs to be a common operational plan among all aid groups and governments, Aylward said. That means having people in every county or district responsible for burials, finding infected people and tracing who they’ve been in contact with, and isolating those who are ill and managing their care, he said. “Those pieces are not systematically in place,” he said.
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