Aug 072018
 
 August 7, 2018  Posted by at 1:01 pm Primers Tagged with: , , , , , , , , ,  


Vasily Polenov Christ among the teachers (doctors) 1896

 

This morning I woke up, looked around me, and saw a world sinking into a quagmire of voluntary censorship, a world willing to let someone far away choose what it can and cannot see of itself, and about itself. A world that no longer appears to recognize, or care, that this goes directly against its founding principles of liberty, freedom of speech, freedom of the press.

I can think of many reasons why someone would want to ban Infowars and Alex Jones, and I don’t even know them other than from incidental tweets and comments. But I also acknowledge that that is not the point. Just because you would like to ban a person or organization, just because you don’t agree with them, doesn’t mean you can, or should be able to.

And if Facebook, Google, Apple, Spotify and Pinterest -all within hours of each other-, think it’s a good idea to ban Jones regardless, they had better do a lot better than saying something about violating their ‘community standards’. They should identify specific instances where these alleged violations take place, and identify them publicly.

You can’t ban anyone on vague ‘standards’ from media that cover half the planet. Because that’s a danger to the entire planet, and to all of mankind. As Facebook and Google are very busy lobbying Washington, Brussels et al to drop any anti-trust charges against them, and let them continue to be private enterprises, they are shirking ever close to the various intelligence communities.

Politicians and secret agents alike have long recognized the potential Big Tech offers for controlling their populations. Long before those populations themselves have recognized the danger embedded in this potential. The treatment of Julian Assange and Infowars, 180º different as they are, puts all this in very sharp perspective.

How are you going to be informed, and stay informed, of what’s happening in the world, of what your government does and plans, if your media, both old and new, conspire to let you know only what they want you to, and to present a version of the world, of reality, that they invented in order to safeguard their future and that of their sponsors? Who’s going to tell you what happens behind the infinite layers of curtains?

What is most important here is not who Alex Jones is, or what he’s done and said. What’s most important is that he stands up for Julian Assange as the media, across the board, is either silent or actively smearing Assange with impunity. So for once, go to Infowars and sign the petition to Trump to Free Assange.. If anyone can get through to Trump, it’s Alex Jones, and they’re trying to prevent him from doing just that.

 

You’re being sold out, your rights and freedoms are being sold out, while you’re busy looking at pictures of what your friends had for dinner last night. And if that’s your thing, fine, but not before and until you’ve checked what is happening to your life and liberty, and that of your children, while you’re watching the next photo of a creme brulée or some cute kitten 1000 miles away.

We all know these things. And we’re all overloaded on info, so we’re all tired and developing headaches in echo chambers, and cute kittens are so much easier to deal with than petitions. But pretty soon, if you’re not careful, kittens will be the only thing you’re allowed to look at. Kittens and ‘news’ about evil Russians allegedly plotting to do to you exactly what your own governments already, and actually, do right now.

In one word: you’re being brainwashed. Brainwashed into handing over the liberties your ancestors fought very hard, and often lost their lives, to obtain and guarantee in your constitution. You can’t just give those things away, you have no right to. You owe it to them to protect what they fought for. If and when your government, your House and Senate, refuse to do that, then you will have to do it.

And that starts with protecting and standing up for Julian Assange. You don’t get to pick and choose which part of freedom you would like to protect, you either protect the entire concept or you do not. Freedom doesn’t mean you get to chop freedom into bits and pieces. And if you fail to stand up for the part you don’t like, you also fail to protect what you do like.

 

You don’t get to cherrypick, And neither should Google, Apple, and Facebook. Check your constitution for that one. Sure, we get it, it’s hard to stand up for Alex Jones. But if he can get chucked out for violating opaque ‘community standards’ of some private enterprise, then so can you. Well, unless you only look at kittens and desserts. But is that what you want your life to look like going forward?

This is about a principle engraved in the Constitution, and not just the American one. And of course there would always be people trying to get rid of that principle, because it got in the way of their personal power and interests. But that’s exactly why it’s in the Constitution. So it can’t just be eradicated at whim.

New media, social media, have taken the world by storm, and everyone has to scramble to keep up and think about what this means. What it should never ever mean, though, is that some parties get to use the confusion in order to trample on the Constitution. But that is what’s happening today.

We’ll resolve this eventually. You can’t let companies that have half the world as their clients continue as private enterprises; there’s far too much in the way of monopoly and anti-trust law to allow that to continue. But as long as this is not solved, Google and Facebook will be used as political tools, even while their legal status, and that of their policies, will be increasingly questionable.

So, you know, standing up for Alex Jones today equals standing up for the Constitution. That is harder for people to understand than it is that calling for Julian Assange to be protected and freed is. But it is the same thing. This is proven more than anything by the fact that Jones gets shut down at the very moment he seeks to protect Assange.

Swallow your pride and your disapproval of Alex Jones. Sign the petition to Trump to Free Assange.. It’s much bigger than your pride, or whatever you happen to like or dislike. This is about your future. And the people in the past who gave their lives to make it what it is. Don’t give it away. Prove Orwell wrong.

That we must defend Alex Jones just to stand up for Julian Assange should be all you need to know. You can’t defend Assange without also defending Infowars’ right to speak. And if they say things that go against the Constitution, a bunch of geeks in Silicon Valley should never be the judges of that.

 

 

Jul 102015
 
 July 10, 2015  Posted by at 11:04 am Finance Tagged with: , , , , , , , ,  


Wynand Stanley Ice-packed Buick motor stunt, San Francisco 1922

Stock Slide Ruins China’s Illusion of Control (Bloomberg)
Greece Seeks €53.5 Billion Bailout in Effort to Keep Euro (Bloomberg)
France Intercedes on Greece’s Behalf to Try to Hold Eurozone Together (WSJ)
The Big Achievement Of Tsipras’s Proposal Is To Sow Division (Münchau)
Galbraith: Greek Revolt Against Bad Economics Threatens EU Elites (Parramore)
The US Must Save Greece (Joe Stiglitz)
Greece Presents €2 Billion Russian Gas Deal (FT)
Germany Concedes Greece Needs Debt Relief, Greek Plan Awaited (Reuters)
Germany Failed To Learn From Its Own History-And Greece Pays The Price (WaPo)
Weidmann Warns Greek Banks Concerns Rising By Day (FT)
Greek Government Insider On 5 Months Of ‘Humiliation’ And ‘Blackmail’ (MP)
Swiss Poised To Support Greek Tax Amnesty (SI)
The Lesson for the World Coming from Greece (Martin Armstrong)
Varoufakis: Schäuble Wants Grexit, I Prefer Be an MP Known as Yanis (GF)
Max Keiser and Yanis Varoufakis Retrospective (2012 footage)
Darwin’s Casino (John Michael Greer)
Pope Calls For New Economic Order, Criticizes Capitalism (Reuters)

And that is nigh impossible to regain.

Stock Slide Ruins China’s Illusion of Control (Bloomberg)

The other, grander gamble that Xi has taken is to keep the Chinese economy growing. Of course, the Communist Party since Deng Xiaoping has staked its legitimacy on economic growth, so far to good effect. But Jiang Zemin and Hu Jintao governed through a broad-based consensus of senior party leaders, which meant that the risks of legitimacy and delegitimacy were spread across the group and the institution they represented. Xi, in contrast, has taken more power – and therefore the risks of economic growth – onto his shoulders. There are many tools central government can use to keep an economy growing, and China under Xi will use them all. State-owned enterprises may be less efficient in the long run than truly private companies, but they have the enormous political benefit of responding to centralized state directives.

With good economists advising him, Xi stands a reasonable chance of transitioning China into a more consumer-driven economy, thereby assuring a source of modest continued growth even as the export-driven economy slows down. But that task, too, depends on the individual purchasing decisions of ordinary Chinese – that is, success of China’s economy, and therefore of Xi’s presidency, ultimately depends on the domestic consumer market. This brings us back to the stock market. Sure, Xi has to worry that the correction will spook emerging consumers, encouraging them to sit on their cash rather than spending it. But the much bigger political problem is that ordinary Chinese, watching the market fall, will experience the certain knowledge that Xi can’t really do anything about it.

Short-term stopgaps like closing markets during sell-offs or ordering state-owned enterprises not to sell their shares won’t address market fundamentals – because they can’t. In confirmed capitalist societies, we long ago learned that the government can’t stop the market from going where it believes it must. The reason, of course, is that the market isn’t a single entity that can be forced to take collective action. It’s an aggregation of individual decision-makers, all of whom share a competitive interest in achieving gain and limiting loss. For that reason, governments in experienced capitalist countries know that the only meaningful, long-term way to respond to market declines is by trying to create economic conditions that will restore faith in the markets.

Read more …

A whole long weekend of this. And then votes on Mon-Tue in national parliaments.

Greece Seeks €53.5 Billion Bailout in Effort to Keep Euro (Bloomberg)

The government of Greek Prime Minister Alexis Tsipras sought a three-year bailout loan of at least €53.5 billion ($59.2 billion), in a last-ditch effort to keep the country in the euro. In exchange, it offered a package of reforms and spending cuts, including pension savings and tax increases, similar to the one presented by creditors last month. The proposal was submitted to European institutions late Thursday and will be presented to the Greek Parliament Friday. It is set to be discussed at a summit of European Union leaders Sunday to determine whether Greece gets a new bailout, or be forced to leave the single currency. Greece offered measures that almost mirrored a proposal from creditors on June 26, which was rejected by voters in a July 5 referendum.

In return, it asked for its long-term debt to be made more manageable to allow it to rebound from a crisis that has erased a quarter of its economy. It is unclear if the proposal is enough to clinch a deal with creditors amid signs of economic deterioration since banks were closed and capital controls imposed 12 days ago. “The Greeks appear to have made significant concessions, apparently accepting much of the most recent creditor proposal,” Chris Scicluna, head of economic research at Daiwa Capital Markets in London, wrote in a note. “It remains to be seen whether creditors will want even more austerity.” The Greek government said it would use the three-year loan from the European Stability Mechanism to cover debt repayments between 2015 and 2018, mostly to the International Monetary Fund and the European Central Bank.

It will then be left with debt owed only to European Union institutions. Greece’s proposal includes creditors’ longstanding demands for sales tax increases and cuts in public spending on pensions. Greece also proposes the restructuring of its debt and a package of growth measures of €35 billion. Pressure has been mounting on Greece’s creditors to make the country’s debt more manageable. “A realistic proposal from Greece will have to be matched by an equally realistic proposal on debt sustainability from the creditors,” European Union President Donald Tusk told reporters in Luxembourg Thursday. “Only then will we have a win-win situation.”

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“French leaders have waxed poetic in recent days about the special place Greece holds. Greek independence was celebrated by French writers and artists from Victor Hugo and to Eugene Delacroix..”

France Intercedes on Greece’s Behalf to Try to Hold Eurozone Together (WSJ)

The race to come up with a last-minute proposal to keep Greece in the eurozone began with a Sunday night phone call from Greek Prime Minister Alexis Tsipras to French President Francois Hollande, moments after Greece’s referendum dealt a near-fatal blow to the talks. If Greece wanted to remain in the eurozone, Athens must make ambitious proposals to its creditors quickly, Mr. Hollande told him, adding: “Help me help you.” That advice was part of an urgent French campaign to salvage months of negotiations from the wreckage of the Greek referendum. After long staying out of the fray, Mr. Hollande was scrambling to keep the discussions alive. His strategy: to press Mr. Tsipras for stronger economic overhauls while persuading Angela Merkel to give Greece more time and, ultimately, hope for debt relief.

The stance reflects a particularly French vision of the eurozone as a grand political project, with strategic benefits for Europe worth defending even at high cost. A Greek exit from the eurozone would set a dangerous precedent, French officials say, turning the currency bloc into little more than an arrangement of fixed currency exchange rates that governments could discard. French leaders have waxed poetic in recent days about the special place Greece holds. Greek independence was celebrated by French writers and artists from Victor Hugo and to Eugene Delacroix, Prime Minister Manuel Valls told lawmakers Wednesday in explaining why France refuses to accept a Greek exit from the euro. “Greece is a passion for France and Europe,” Mr. Valls said.

“The goddess that gave its name to our continent is at the heart of our mythology.” Domestic politics is also at work. Mr. Hollande, a Socialist, faces a rebellion from members of his parliamentary majority who accuse him of abandoning his 2012 election pledge to push for pro-growth policies in Europe. Standing up to Berlin on behalf of Greece is a chance to brandish his leftist credentials for party hard-liners, analysts say. It is unclear whether France’s triage will lead to a deal by Sunday, when European Union leaders are due to decide Greece’s fate. But France’s intervention has helped keep the talks on life support.

Read more …

“.. there is now the acute problem of an insolvent banking system..” A problem all of the Troika’s own design.

The Big Achievement Of Tsipras’s Proposal Is To Sow Division (Münchau)

I do not have the foggiest whether these latest Greek proposals will be enough to secure a deal. There are still very big obstacles to overcome. But Alexis Tsipras has achieved something that has eluded him in the past five months: he has managed to split the creditors. The IMF insists on debt relief. The French helped the Greek prime minister draft the proposal and were the first to support it openly. President François Hollande is siding with Mr Tsipras. And that changes the stakes for Angela Merkel. If the German chancellor says no now, she will stand accused of taking reckless risks with the eurozone and the Franco-German alliance. If she says yes, her own party might divide similarly to the way the British Conservatives divided over Europe. I have always predicted that the moment of truth for the eurozone will come eventually. It will come this weekend.

The financial markets seemed to have made up their mind that a deal will happen. But beware the many landmines on the path to a deal. Of those, only the first has been sidestepped with Mr Tsipras’ offer. What he is now proposing is, economically, not fundamentally different from what he, and the Greek electorate, rejected in Sunday’s referendum — but it works politically for him. The phase-in period of some of the harder measures is longer. And if there is a deal, there will have to be an explicit reference to debt relief this time. The IMF insists on it. And even Donald Tusk, the president of the European Council, says so. This is an important development, but it is not clear that all creditors will, or can, agree.

By tomorrow, the technical people and the finance ministers will need to discuss whether the Greek numbers add up. The answer is almost certainly no, not least because of the rapid deterioration of the country’s economy. The imposition of capital controls and bank withdrawal limits brought most economic activity to a standstill. Any macroeconomic adjustment programme will have to start with a realisation that the situation is worse today than two weeks ago. The Greek list takes account of this in terms of slower adjustment periods. This is economically sensible. But Ms Merkel has already said she wanted this problem taken care of through additional austerity. For a programme to be agreed, one side will have to back down here.

On top of this, there is now the acute problem of an insolvent banking system — one that is totally reliant on a special lifeline by ECB called emergency liquidity assistance. The ECB will find it hard to increase ELA. So apart from agreeing on a macroeconomic stabilisation programme, European leaders will this weekend need to answer the more immediate question of what to do with the Greek banks. This is possibly the single most complicated question because there are no easy and fast answers. What may have to happen is that the number of banks will have to shrink to three or two, and that depositors may have to be “bailed in”. I cannot see that the creditors would agree to a further bank restructuring programme, in addition to the €53.5bn in new loans currently under discussion.

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The superego paradox again.

Galbraith: Greek Revolt Against Bad Economics Threatens EU Elites (Parramore)

Lynn Parramore: What’s your view of the attitudes of the creditor powers?
Jamie Galbraith: What happened on the 26th of June was that Alexis (Tsipras) came to realize, at long last, that no matter how many concessions he made he wasn’t going to get the first one from the creditors. That’s something Wolfgang Schäuble had made clear to Yanis (Varoufakis) months before. But it was hard to persuade the Greek government of this because its members naturally expected, as you would when you’re in a negotiation, that if you make a concession the other side will make a concession. That isn’t the way this one worked. The Greeks kept making concessions. They’d present a program and the other side would say —as you can read in the press — oh, no, that’s not good enough. Do another one. Then they’d complain that the Greeks were not being serious. What the creditors meant by that was this: when you come around and agree to what we tell you, then you’re serious. Otherwise not. This is the way bad professors treat extremely recalcitrant students. You come in with a paper draft and they say, no, that’s not good enough. Do another one.

LP: Have the individual creditors differed on how to treat Greece?
JG: There are some divisions amongst the creditors that are well known. But they’re all variations on the theme of insular, sheltered, cloistered people who do not understand what is happening in Greece and do not know the economics. So, for example, the European Commission tends to be a little bit nicer, the IMF tends to be better on debt restructuring but worse on the structural issues, and the ECB was infuriated by the fact that its technocrats couldn’t walk into any ministry in Athens and make demands and be paid attention to. So there were different aspects of this that seemed to trouble different creditors, but it all amounted to the fact that between them there was no basis for arriving at anything other than the original Memorandum of Understanding (bailout program).

LP: What exactly triggered the breakdown that led to the referendum?
JG: What happened was that the IMF took the staff level agreement draft that the Greeks had presented, and marked it up in red ink and presented it back to the Greeks as an ultimatum— this is what we will accept. Or rather (EC president) Juncker presented it back to the Greeks as an ultimatum. And Yanis was told, take it or leave it. So they basically had no choice but to walk away from it, to leave it.

LP: How do you think the referendum has changed the situation? Has it given the Greeks leverage or not?
JG: That’s a difficult question. The recent Ambrose Evans Pritchard piece is very much on the mark. The Greek government, and particularly the circle around Alexis, were worn down by this process. They saw that the other side does, in fact, have the power to destroy the Greek economy and the Greek society — which it is doing — in a very brutal, very sadistic way, because the burden falls particularly heavily on pensions. They were in some respects expecting that the yes would prevail, and even to some degree thinking that that was the best way to get out of this. The voters would speak and they would acquiesce. They would leave office and there would be a general election. But civil society took this over in the most dramatic and heroic fashion. It was an incredible thing to see. The Greeks, amazingly, voted 61% no. That, momentarily, gave a jolt of adrenaline to everybody in the government. But the next morning, they were back where they were before. And that’s why, of course, Yanis left at that point.

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What’s the use with Spain and Italy waiting in the wings?

The US Must Save Greece (Joe Stiglitz)

As the Greek saga continues, many have marveled at Germany’s chutzpah. It received, in real terms, one of the largest bailout and debt reduction in history and unconditional aid from the U.S. in the Marshall Plan. And yet it refuses even to discuss debt relief. Many, too, have marveled at how Germany has done so well in the propaganda game, selling an image of a long-failed state that refuses to go along with the minimal conditions demanded in return for generous aid. The facts prove otherwise: From the mid-90’s to the beginning of the crisis, the Greek economy was growing at a faster rate than the EU average (3.9% vs 2.4%). The Greeks took austerity to heart, slashing expenditures and increasing taxes.

They even achieved a primary surplus (that is, tax revenues exceeded expenditures excluding interest payments), and their fiscal position would have been truly impressive had they not gone into depression. Their depression—25% decline in GDP and 25% unemployment, with youth unemployment twice that—is because they did what was demanded of them, not because of their failure to do so. It was the predictable and predicted response to the austerity. The question now is: What’s next, assuming (as seems ever more likely) they are effectively thrown out of the euro? It’s likely that the European Central Bank will refuse to do its job—as the Central Bank for Greece, it should do what every central bank is supposed to do, act as a lender of last resort.

And if it refuses to do that, Greece will have no option but to create a parallel currency. The ECB has already begun tightening the screws, making access to funds more and more difficult. This is not the end of the world: Currencies come and go. The euro is just a 16-year-old experiment, poorly designed and engineered not to work—in a crisis money flows from the weak country’s banks to the strong, leading to divergence. GDP today is more than 17% below where it would have been had the relatively modest growth trajectory of Europe before the euro just continued. I believe the euro has much to do with this disappointing performance. [..]

The U.S. was generous with Germany as we defeated it. Now, it is time for the U.S. to be generous with our friends in Greece in their time of need, as they have been crushed for the second time in a century by Germany, this time with the support of the troika. At a technical level, the Federal Reserve needs to create a swap line with Greece’s central bank, which—as a result of the default of the ECB in fulfilling its responsibilities—will have to take on once again the role of lender of last resort. Greece needs unconditional humanitarian aid; it needs Americans to buy its products, take vacations there, and show a solidarity with Greece and a humanity that its European partners were not able to display.

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“Greece is no-one’s hostage,” he said. “The Greek people’s No vote, and I am referring to all of the people, is not going to become a humiliating Yes.”

Greece Presents €2 Billion Russian Gas Deal (FT)

Greece has mapped out details of a landmark €2bn gas project with Russia, a scheme that could stir tensions with Brussels just as Athens seeks a third bail-out. Panayiotis Lafazanis, the firebrand leftist energy minister, presented the project to Greek energy executives on Thursday in a defiant speech, vowing that Athens would not be pushed around by EU institutions, writes Christian Oliver. EU policymakers are concerned that Russia could take advantage of the crisis to pull Greece deeper into its orbit and pipeline politics is critical to relations between the two nations. Athens and Moscow say their new project, the so-called South European Pipeline, will bring 47 billion cubic metres of Gazprom’s gas into Europe by 2018.

Mr Lafazanis promised that it would create 20,000 much needed jobs in Greece. This promised deal with Russia is a sharp rebuke to Brussels, which wants to reduce dependence on Gazprom and argues that southeastern Europe should diversify its supply by prioritising gas from Azerbaijan. Opening his remarks with pugnacious references to the eurozone crisis, Mr Lafazanis said that Greece was aiming to secure a deal with Brussels as quickly as possible. However, he then warned EU institutions that Athens was not about to roll over. “Greece is no-one’s hostage,” he said. “The Greek people’s No vote, and I am referring to all of the people, is not going to become a humiliating Yes.”

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Only 5 months late. Or is that 5 years?

Germany Concedes Greece Needs Debt Relief, Greek Plan Awaited (Reuters)

Germany conceded on Thursday that Greece would need some debt restructuring as part of any new loan programme to make its economy viable as the Greek cabinet raced to finalize reform proposals to avert an imminent economic meltdown. The admission by German Finance Minister Wolfgang Schaeuble came hours before a midnight deadline for Athens to submit a reform plan meant to convince European partners to give it another loan to save it from a possible exit from the euro. Greece has already had two bailouts worth €240 billion euros from the eurozone and the IMF, but its economy has shrunk by a quarter, unemployment is more than 25% and one in two young people is out of work.

Schaeuble, who has made no secret of his scepticism about Greece’s fitness to remain in the currency area, told a conference in Frankfurt: “Debt sustainability is not feasible without a haircut and I think the IMF is correct in saying that. But he added: “There cannot be a haircut because it would infringe the system of the European Union.” He offered no solution to the conundrum, which implied that Greece’s debt problem might not be soluble within the eurozone. But he did say there was limited scope for “reprofiling” Greek debt by extending loan maturities, shaving interest rates and lengthening a moratorium on debt service payments.

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Germany resists all real history. Inferiority complex?

Germany Failed To Learn From Its Own History-And Greece Pays The Price (WaPo)

One of the great paradoxes of our time is how Germany has done so exemplary a job in recent decades of understanding and accepting responsibility for the horrors of the Nazi era while continuing to entertain a willful ignorance of the economic policy errors that paved the Nazis’ path to power. The solution to this riddle is that Germans’ deep-seated debt obsession (in German, the words for “debt” and “guilt” are the same) has blinded them to the consequences of that obsession. You’d think, for instance, that Germans would have learned from John Maynard Keynes’s 1920 book “The Economic Consequences of the Peace,” which correctly predicted that the onerous reparations inflicted on Germany by the Treaty of Versailles were economically unsustainable and politically perilous to the prospects for German democracy.

You’d think they’d have learned from their own descent into Nazism that balancing budgets when unemployment is at record heights can undermine a democracy’s viability. You’d think they’d have learned from the London debt agreement of 1953 that debt forgiveness and reasonable repayment terms can foster prosperity and strengthen democracy in the debtor nation — which, in this case, happened to be Germany. That Germans have learned none of these lessons is now — tragically, for Greece — apparent. Germany’s insistence that Greece continue to slash services and social investment if it is ever to qualify for debt forgiveness remains unaltered, even though Greek unemployment stands at 25%, even though 40% of Greek children live in poverty, even though a neo-Nazi party (Golden Dawn) has come out of nowhere to win seats in Greece’s parliament.

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Weidmann is saying weird things, as always.

Weidmann Warns Greek Banks Concerns Rising By Day (FT)

Jens Weidmann, the president of Germany’s Bundesbank, has said doubts about Greek banks solvency are legitimate and rising by the day. Mr Weidmann also said the majority of Greeks who had voted ‘no’ in Sunday’s referendum had spoken out .. against contributing any further to the solvency of their country through additional consolidation measures and reforms. The Bundesbank president, a member of the governing council of the European Central Bank who has called for Greek banks ¨ 89bn liquidity lifeline to be scrapped, said in needed to be crystal clear that responsibility for Greece lay with Athens and international creditors, and not the ECB.

The Eurosystem [of eurozone central banks] should not increase the liquidity provision, and capital controls need to stay in force until an appropriate support package has been agreed by all parties and the solvency of both the Greek government and the Greek banking system has been ensured. The Bundesbank president hit out at Athens for causing economic ruin. [Eurozone member states] can decide for themselves not to service their debts, to collect taxes inadequately, and this is something I particularly fear in the case of Greece to lead their country s economy into deep trouble, he said in Frankfurt on Wednesday. The Syriza-led government had not only walked out on the previous agreements, but has been widely criticised as an unreliable negotiating partner. Mr Weidmann’s comments came as France s finance minister Michel Sapin, who is pushing for a deal that would allow Greece to stay in the eurozone, emphasised the greater cost of a Grexit.

“What s costlier? That Greece exits the eurozone and defaults on all its debt? Asking the question is answering it”, Mr Sapin told Radio Classique on Thursday. “A deal is the best solution for Greece and Europe.” “Greek banks have been closed for more than a week. Greece is already in a pre-chaos stat”e, he said. “How history will judge us?” However, Mr Sapin reiterated the need for the Greek government to present credible reforms as well as difficult decisions to balance the budget. “There are taxes to raise, it’s difficult,” he said. Mr Sapin saluted the good attitude of Greek Finance Minister Euclid Tsakalotos at the latest eurogroup meeting of finance ministers. “He came with a lot of modesty”, he said.

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“How much money do you want to leave the euro?”

Greek Government Insider On 5 Months Of ‘Humiliation’ And ‘Blackmail’ (MP)

A senior member of Greece’s negotiating team with its European creditors agreed to a meeting last week in Athens with Mediapart special correspondent Christian Salmon. Speaking on condition that his name is withheld, he detailed the history of the protracted and bitter negotiations between the radical-left Syriza government, elected in January, and international lenders for the provision of a new bailout for the debt-ridden country. The almost two-hour interview in English took place just days before last Sunday’s referendum on the latest drastic austerity-driven bailout terms offered by the creditors, and opposed by Prime Minister Alexis Tsipras, and which were finally rejected by 61.3% of Greek voters.

While the ministerial advisor slams the stance of the international creditors, who he accuses of leading a strategy of deliberate suffocation of Greece’s finances and economy, he is also critical of some of the decisions taken by Athens. His account also throws light on the personal tensions surrounding the talks led by former Greek finance minister Yanis Varoufakis, who resigned from his post on Monday deploring “a certain preference by some Eurogroup participants, and assorted ‘partners’, for my ‘absence’ from its meetings”. The advisor cites threats proffered to Varoufakis by Eurogroup president Jeroen Dijsselbloem, warning he would sink Greece’s banks unless the Tsipras government bowed to the harsh deal on offer, and by German finance minister Wolfgang Schäuble, who he says demanded: “How much money do you want to leave the euro?”

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“..amnesties generally favour wealthy people who can pay accountants to exploit loopholes..”

Swiss Poised To Support Greek Tax Amnesty (SI)

Struggling to pay off more than €300 billion in debts, Greece is banking on Switzerland to help it recover a treasure trove of undeclared assets that tax cheats have stashed in alpine vaults. But anti-tax haven campaigners are sceptical about “undemocratic” tax amnesties that are prone to loopholes, allowing many tax dodgers to wriggle out of their obligations. “The devil is always in the detail with these deals. If Switzerland can claim it is helping to clear untaxed assets out of its banks, this could provide it with a public relations service,” Nicholas Shaxson of Tax Justice Network told swissinfo.ch. “But amnesties generally favour wealthy people who can pay accountants to exploit loopholes, such as insurance wrappers and discretionary trusts.”

Such “slippery structures” render assets “technically declared”, allowing them to remain offshore under the radar of amnesties, Shaxson added. “Tax amnesties only make a difference if the public believe that, once they have ended, the government will assertively go after people who did not disclose,” Heather Low of Global Financial Integrity (GFI) told swissinfo.ch. “Tax cheats in the United States would be afraid of the authorities if they did not disclose during an amnesty. I’m not so sure this would be the case in Greece.” In April, former Greek Finance Minister Yanis Varoufakis announced plans for a global tax amnesty to repatriate overseas funds to Greece. It is believed the government has settled for a one-off 21% levy on those who come clean, pending parliamentary approval of the proposal.

Negotiations between Greece and Switzerland on how best to recover black money hidden in Swiss banks have been ongoing since 2012. But the two sides are reported to be edging closer to a solution that would allow banks to cooperate. While Switzerland would not be an official partner to a Greek tax amnesty, the approval and cooperation of the Swiss authorities would be integral to the scheme working. To this end, two meetings were arranged between the countries in March and April to discuss the practical details of persuading Greek tax cheats to sign up to the amnesty. While not yet concluded, Varoufakis felt encouraged enough to announce Greece’s intended global tax amnesty following a meeting with Swiss officials in April.

Read more …

“If Russia really wants to take Europe, all they have to do is be patient.”

The Lesson for the World Coming from Greece (Martin Armstrong)

The mainstream news is painting the Greeks as the bad guys, and the Troika as the savior of Europe. Quite frankly, it is really disgusting. Pictures of an elderly Greek pensioner have gone viral, depicting what the Troika is deliberately doing to the Greek people by punishing them for their own failed design of the euro in a system that is just economically unsustainable. The heartbreaking photographs circulating are of 77-year-old retiree, Giorgos Chatzifotiadis, after he collapsed on the ground openly in tears, driven to despair, outside a Greek bank with his savings book and identity card strewn next to him on the ground. This illustrates the horror the Troika is deliberately inflicting upon the Greek population.

This image illustrates the core of the issue: ordinary Greeks tormented by EU politicians who pretend to care about people. This is not a Greek debt crisis, this is a Euro Crisis and they refuse to admit that what they designed was solely for the takeover of Europe at the cost of the future of everyone, from pensioners to the youth. Chatzifotiadis queued up at three banks in Greece’s second city of Thessaloniki on Friday in the hope of withdrawing pensions on behalf of him and his wife. When he went to a fourth bank, he was told he could not withdraw his €120; the ordeal simply became too much and he fell down in tears in total desperation. His comments were simply that he “cannot stand to see my country in this distress”. He continued to say, “That’s why I feel so beaten, more than for my own personal problems.”

This is just the tip of the iceberg. We are facing terrible times ahead because socialism is completely collapsing. Government employees have lined their pockets, which is precisely the endgame and how Rome collapsed. It was not the barbarians at the gate. It was that the Roman army was not paid and they began hailing their various generals as emperor and they attacked cities who did not support their choice. Only after weakening themselves, then the barbarians came in for easy pickings. If Russia really wants to take Europe, all they have to do is be patient. They will self-destruct for the Troika cannot see any change in thinking for that means they must admit that they were wrong from the outset.

Read more …

“Schaeuble has a plan for Greece’s exit from the Eurozone,” and added, “this is his best chance to succeed.”

Varoufakis: Schäuble Wants Grexit, I Prefer Be an MP Known as Yanis (GF)

Former Greek Finance Minister Yanis Varoufakis admitted that Germany appears to have a plan to force Greece outside the Eurozone, even though while he was in office he insisted that Grexit scenarios were a bluff to push the Greek government to accept harsh austerity measures. Talking with reporters at the Greek Parliament café, Varoufakis noted that Wolfgang Schaeuble is the only Eurozone Minister with a specific plan. He also said that the German Finance Minister completely controls the majority of the Eurogroup except for French Finance Minister Michel Sapin.

“Schaeuble has a plan for Greece’s exit from the Eurozone,” and added, “this is his best chance to succeed.” When asked if he believes the Germans are taking into account the estimated cost of a Grexit, Varoufakis argued that Schaeuble believes losses can be controlled. Furthermore, the former Greek Finance Minister stated that it is possible that his exit from the Greek government was due to Schaeuble’s pressure.

As for whether he believes that a deal will be achieved in the next 24 hours, he initially said “no comment” but later added: “I would like an agreement to be reached but only if it is also a solution. At the moment, we cannot judge the outcome.” People at the café called him “Minister” but he always answered: “I’m not a Minister. I’m a member of Parliament.” “Once a Minister, always a Minister,” he said, adding that he prefers to be an MP and be called Yanis. Asked to comment on the recent referendum results, he stated that the outcome was epic and grandiose, although he avoided to answer the question about whether the citizens voted “No” but the government is following the “Yes” direction.

Read more …

Nice compilation.

Max Keiser and Yanis Varoufakis Retrospective (2012 footage)

Taken from Keiser Report episode 247 & 301 a look back at the dialogue between Max & Yanis in 2012 which should give some insight into the battle with financial terrorism unfolding in Greece.

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“There’s quite precisely no common ground between the two belief systems, and yet self-proclaimed Christians who spout Rand’s turgid drivel at every opportunity make up a significant fraction of the Republican Party just now.”

Darwin’s Casino (John Michael Greer)

Our age has no shortage of curious features, but for me, at least, one of the oddest is the way that so many people these days don’t seem to be able to think through the consequences of their own beliefs. Pick an ideology, any ideology, straight across the spectrum from the most devoutly religious to the most stridently secular, and you can count on finding a bumper crop of people who claim to hold that set of beliefs, and recite them with all the uncomprehending enthusiasm of a well-trained mynah bird, but haven’t noticed that those beliefs contradict other beliefs they claim to hold with equal devotion. I’m not talking here about ordinary hypocrisy. The hypocrites we have with us always; our species being what it is, plenty of people have always seen the advantages of saying one thing and doing another.

No, what I have in mind is saying one thing and saying another, without ever noticing that if one of those statements is true, the other by definition has to be false. My readers may recall the way that cowboy-hatted heavies in old Westerns used to say to each other, “This town ain’t big enough for the two of us;” there are plenty of ideas and beliefs that are like that, but too many modern minds resemble nothing so much as an OK Corral where the gunfight never happens. An example that I’ve satirized in an earlier post here is the bizarre way that so many people on the rightward end of the US political landscape these days claim to be, at one and the same time, devout Christians and fervid adherents of Ayn Rand’s violently atheist and anti-Christian ideology. 

The difficulty here, of course, is that Jesus tells his followers to humble themselves before God and help the poor, while Rand told hers to hate God, wallow in fantasies of their own superiority, and kick the poor into the nearest available gutter. There’s quite precisely no common ground between the two belief systems, and yet self-proclaimed Christians who spout Rand’s turgid drivel at every opportunity make up a significant fraction of the Republican Party just now. Still, it’s only fair to point out that this sort of weird disconnect is far from unique to religious people, or for that matter to Republicans. One of the places it crops up most often nowadays is the remarkable unwillingness of people who say they accept Darwin’s theory of evolution to think through what that theory implies about the limits of human intelligence.

If Darwin’s right, as I’ve had occasion to point out here several times already, human intelligence isn’t the world-shaking superpower our collective egotism likes to suppose. It’s simply a somewhat more sophisticated version of the sort of mental activity found in many other animals. The thing that supposedly sets it apart from all other forms of mentation, the use of abstract language, isn’t all that unique; several species of cetaceans and an assortment of the brainier birds communicate with their kin using vocalizations that show all the signs of being languages in the full sense of the word—that is, structured patterns of abstract vocal signs that take their meaning from convention rather than instinct.

Read more …

“Quoting a fourth century bishop, he called the unfettered pursuit of money “the dung of the devil”..”

Pope Calls For New Economic Order, Criticizes Capitalism (Reuters)

Pope Francis on Thursday urged the downtrodden to change the world economic order, denouncing a “new colonialism” by agencies that impose austerity programs and calling for the poor to have the “sacred rights” of labor, lodging and land. In one of the longest, most passionate and sweeping speeches of his pontificate, the Argentine-born pope also asked forgiveness for the sins committed by the Roman Catholic Church in its treatment of native Americans during what he called the “so-called conquest of America.” Quoting a fourth century bishop, he called the unfettered pursuit of money “the dung of the devil,” and said poor countries should not be reduced to being providers of raw material and cheap labor for developed countries.

Repeating some of the themes of his landmark encyclical “Laudato Si” on the environment last month, Francis said time was running out to save the planet from perhaps irreversible harm to the ecosystem. Francis made the address to participants of the second world meeting of popular movements, an international body that brings together organizations of people on the margins of society, including the poor, the unemployed and peasants who have lost their land. The Vatican hosted the first meeting last year. He said he supported their efforts to obtain “so elementary and undeniably necessary a right as that of the three “L’s”: land, lodging and labor.”

“Let us not be afraid to say it: we want change, real change, structural change,” the pope said, decrying a system that “has imposed the mentality of profit at any price, with no concern for social exclusion or the destruction of nature.” This system is by now intolerable: farm workers find it intolerable, laborers find it intolerable, communities find it intolerable, peoples find it intolerable … The earth itself – our sister, Mother Earth, as Saint Francis would say – also finds it intolerable,” he said in an hour-long speech that was interrupted by applause and cheering dozens of times.

The pontiff appeared to take a swipe at international monetary organizations such as the IMF and the development aid policies by some developed countries. “No actual or established power has the right to deprive peoples of the full exercise of their sovereignty. Whenever they do so, we see the rise of new forms of colonialism which seriously prejudice the possibility of peace and justice,” he said. “The new colonialism takes on different faces. At times it appears as the anonymous influence of mammon: corporations, loan agencies, certain ‘free trade’ treaties, and the imposition of measures of ‘austerity’ which always tighten the belt of workers and the poor,” he said.

Read more …

Feb 052015
 
 February 5, 2015  Posted by at 11:40 pm Finance Tagged with: , , , , , , , ,  


Harris&Ewing Washington snow scenes April 1924

With all the media focus aimed at Greece, we might be inclined to overlook – deliberately or not – that it is merely one case study, and a very small one at that, of what ails the entire world. The whole globe, and just about all of its 200+ nations, is drowning in debt, and more so every as single day passes. Not only is this process not being halted, it gets progressively, if not exponentially, worse. There are differences between countries in depth, in percentages and other details, but at this point these seem to serve mostly to draw attention away from the ghastly reality. ‘Look at so and so, he’s doing even worse than we are!’

Still, though there are plenty accounting tricks available, you’d be hard put to find even one single nation of any importance that could conceivably ever pay back the debt it’s drowning in. That’s why we’re seeing the global currency war slash race to the bottom of interest rates.

Greece is a prominent example, though, simply because it’s been set up as a test case for how far the world’s leading politicians, central bankers, bankers as well as the wizards behind the various curtains are prepared to go. And that does not bode well for you either, wherever you live. Greece is a test case: how far can we go?

And I’ve made the comparison before, this is what Naomi Klein describes happened in South America, as perpetrated by the Chicago School and the CIA, in her bestseller Shock Doctrine. We’re watching the experiment, we know the history, and we still sit our asses down on our couches? Doesn’t that simply mean that we get what we deserve?

Here’s McKinsey’s debt report today via Simon Kennedy at Bloomberg:

A World Overflowing With Debt

The world economy is still built on debt. That’s the warning today from McKinsey’s research division which estimates that since 2007, the IOUs of governments, companies, households and financial firms in 47 countries has grown by $57 trillion to $199 trillion, a rise equivalent to 17 percentage points of gross domestic product.

While not as big a gain as the 23 point surge in debt witnessed in the seven years before the financial crisis, the new data make a mockery of the hope that the turmoil and subsequent global recession would put the globe on a more sustainable path. Government debt alone has swelled by $25 trillion over the past seven years and developing economies are responsible for almost half of the overall gain. McKinsey sees little reason to think the trajectory of rising leverage will change any time soon. Here are three areas of particular concern:

1. Debt is too high for either austerity or growth to cure. Politicians will instead need to consider more unorthodox measures such as asset sales, one-off tax hikes and perhaps debt restructuring programs.

2. Households in some nations are still boosting debts. 80% of households have a higher debt than in 2007 including some in northern Europe as well as Canada and Australia.

3. China’s debt is rising rapidly. Thanks to real estate and shadow banking, debt in the world’s second-largest economy has quadrupled from $7 trillion in 2007 to $28 trillion in the middle of last year. At 282% of GDP, the debt burden is now larger than that of the U.S. or Germany. Especially worrisome to McKinsey is that half the loans are linked to the cooling property sector.

Note: Chinese total debt rose $20.8 trillion in 7 years, or 281%. And we’re talking about Greece as a problem?! You’d think – make that swear – that perhaps Merkel and her ilk have bigger fish to fry. But maybe they just don’t get it?!

Ambrose has this earlier today, just let the numbers sink in:

Devaluation By China Is The Next Great Risk For A Deflationary World

China is trapped. The Communist authorities have discovered, like the Japanese in the early 1990s and the US in the inter-war years, that they cannot deflate a credit bubble safely. A year of tight money from the People’s Bank and a $250bn crackdown on shadow banking have pushed the Chinese economy close to a debt-deflation crisis. Wednesday’s surprise cut in the Reserve Requirement Ratio (RRR) – the main policy tool – comes in the nick of time. Factory gate deflation has reached -3.3%.

The official gauge of manufacturing fell below the “boom-bust” line to 49.8 in January. Haibin Zhu, from JP Morgan, says the 50-point cut in the RRR from 20% to 19.5% injects roughly $100bn into the system. This will not, in itself, change anything. The average one-year borrowing cost for Chinese companies has risen from zero to 5% in real terms over the past three years as a result of falling inflation.

UBS said the debt-servicing burden for these firms has doubled from 7.5% to 15% of GDP. Yet the cut marks an inflection point. There will undoubtedly be a long series of cuts before China sweats out its hangover from a $26 trillion credit boom. Debt has risen from 100% to 250% of GDP in eight years. By comparison, Japan’s credit growth in the cycle preceding its Lost Decade was 50% of GDP.

Wednesday’s trigger was an amber warning sign in the jobs market. The employment component of the manufacturing survey contracted for the 15th month. Premier Li Keqiang targets jobs – not growth – and the labour market is looking faintly ominous for the first time. Unemployment is supposed to be 4.1%, a make-believe figure. A joint study by the IMF and the International Labour Federation said it is really 6.3% [..]

Whether or not you call it a hard-landing, China is struggling. Home prices fell 4.3% in December. New floor space started has slumped 30% on a three-month basis. This packs a macro-economic punch. A study by Jun Nie and Guangye Cao for the US Federal Reserve said that since 1998 property investment in China has risen from 4% to 15% of GDP, the same level as in Spain at the peak of the “burbuja”. The inventory overhang has risen to 18 months compared with 5.8 in the US.

The property slump is turning into a fiscal squeeze since land sales make up 25% of local government money. Zhiwei Zhang, from Deutsche Bank, says land revenues crashed 21% in the fourth quarter of last year. “The decline of fiscal revenue is the top risk in China and will lead to a sharp slowdown,” he said.

Asia is already in a currency cauldron, eerily like the onset of the 1998 crisis. The Japanese yen has fallen by half against the Chinese yuan since Abenomics burst upon the Pacific Rim. Japanese exporters pocketed the windfall gains of devaluation at first to boost margins. Now they are cutting prices to gain export share, exporting deflation.

This is eroding the wafer-thin profit margins of Chinese companies and tightening monetary conditions into the downturn. David Woo, from Bank of America, says Beijing may be forced to join the currency wars to defend itself, even though this variant of the “Prisoner’s Dilemma” leaves everybody worse off. “We view a meaningful yuan devaluation as a major tail-risk for the global economy,” he said.

If this were to happen, it would send a deflationary impulse worldwide. China spent $5 trillion on fixed investment last year, more than Europe and America combined, increasing its overcapacity in everything from shipping to steels, chemicals and solar panels , to even more unmanageable levels. A yuan devaluation would dump this on everybody else. Such a shock would be extremely hard to combat. Interest rates are already zero across the developed world. Five-year bond yields are negative in six European countries. The 10-year Bund has dropped to 0.31. These are no longer just 14th century lows. They are unprecedented.

[..] .. helicopter money, or “fiscal dominance”, may be dangerous, but not nearly as dangerous as the alternative. China faces a Morton’s Fork. Li Keqiang has been trying for two years to tame the state’s industrial behemoths, and trying to wean the economy off credit. Yet virtuous intent has run into cold reality. It cannot be done. China passed the point of no return five years ago.

That ain’t nothing to laugh at. But still, Malcolm Scott has more for Bloomberg:

Pushing on a String? Two Charts Showing China’s Dilemma

Is China’s latest monetary easing really going to help? While economists see it freeing up about 600 billion yuan ($96 billion), that assumes businesses and consumers want to borrow. This chart may put some champagne corks back in. It shows demand for credit is waning even as money supply continues its steady climb.

The reserve ratio requirement cut “helps to raise loan supply, but loan demand may remain weak,” said Zhang Zhiwei, chief China economist at Deutsche Bank. “We think the impact on the real economy is positive, but it is not enough to stabilize the economy.” This chart may also give pause. It shows the surge in debt since 2008, which has corresponded with a slowdown in economic growth.

Note: Social finance is, to an extent, just another word for shadow banking.

“Monetary stimulus of the real economy has not worked for several years,” said Derek Scissors, a scholar at the American Enterprises Institute in Washington who focuses on Asia economics. “The obsession with monetary policy is a problem around the world, but only China has a money supply of $20 trillion.”

China now carries $28 trillion in debt, or 282% of its GDP, $20 trillion of which was added in just the past 7 years. It’s also useful to note that it boosted its money supply to $20 trillion. What part of these numbers includes shadow banking, we don’t know – even if social finance can be assumed to include an X amount of shadow funding-. However, there can be no doubt that China’s real debt burden would be significantly higher if and when ‘shadow debt’ would be added.

Ergo: whether it’s tiny Greece, or behemoth China, or any given nation in between, they’re all in debt way over their heads. One might be tempted to ponder that debt restructuring would be worth considering. A first step towards that would be to look at who owes what to whom. And, of course, who profits. When it comes to Greece, that’s awfully clear, something you may want to consider next time you think about who’s squeezing who. From the Jubilee Debt Campaign through Telesur:

That doesn’t leave too many questions, does it? As in, who rules this blue planet?! That also tells you why there won’t be any debt restructuring, even though that is exactly what this conundrum calls for. Debt is a power tool. Debt is how the Roman Empire managed to stretch its existence for many years, as it increasingly squeezed the periphery. And then it died anyway. Joe Stiglitz gives it another try, and in the process takes us back to Greece:

A Greek Morality Tale: We Need A Global Debt Restructuring Framework

At the international level, we have not yet created an orderly process for giving countries a fresh start. Since even before the 2008 crisis, the UN, with the support of almost all of the developing and emerging countries, has been seeking to create such a framework. But the US is adamantly opposed; perhaps it wants to reinstitute debtor prisons for over indebted countries’ officials (if so, space may be opening up at Guantánamo Bay).

The idea of bringing back debtors’ prisons may seem far-fetched, but it resonates with current talk of moral hazard and accountability. There is a fear that if Greece is allowed to restructure its debt, it will simply get itself into trouble again, as will others. This is sheer nonsense. Does anyone in their right mind think that any country would willingly put itself through what Greece has gone through, just to get a free ride from its creditors?

If there is a moral hazard, it is on the part of the lenders – especially in the private sector – who have been bailed out repeatedly. If Europe has allowed these debts to move from the private sector to the public sector – a well-established pattern over the past half-century – it is Europe, not Greece, that should bear the consequences. Indeed, Greece’s current plight, including the massive run-up in the debt ratio, is largely the fault of the misguided troika programs foisted on it. So it is not debt restructuring, but its absence, that is “immoral”.

There is nothing particularly special about the dilemmas that Greece faces today; many countries have been in the same position. What makes Greece’s problems more difficult to address is the structure of the eurozone: monetary union implies that member states cannot devalue their way out of trouble, yet the modicum of European solidarity that must accompany this loss of policy flexibility simply is not there.

You can put it down to technical or structural issues, but down the line none of that will convince me. Who cares about talking about technical shit when people are suffering, without access to doctors, and/or dying, in a first world nation like Greece, just so Angela Merkel and Mario Draghi and Jeroen Dijsselbloem can get their way?

Oh, no, wait, that graph there says it’s not them, it’s Wall Street that gets their way. It’s the world’s TBTF banks (they gave themselves that label) that get to call the shots on who lives in Greece and who does not. And they will never ever allow for any meaningful debt restructuring to take place. Which means they also call the shots on who lives in Berlin and New York and Tokyo and who does not. Did I mention Beijing, Shanghai, LA, Paris and your town?

Greece’s problem can only be truly solved if large scale debt restructuring is accepted and executed. But that would initiate a chain of events that would bring down the bloated zombie that is Wall Street. And it just so happens that this zombie rules the planet.

We are all addicted to the zombie. It allows us to fool ourselves into thinking we are doing well – well, sort of -, but the longer term implications of that behavior will be devastating. We’re all going to be Greece, that’s inevitable. It’s not some maybe thing. The only thing that keeps us from realizing that is that the big media outlets have become part of the same industry that Wall Street, and the governments it controls, have full control over.

And that in turn says something about the importance of what Yanis Varoufakis and Syriza are trying to accomplish. They’re taking the battle to the finance empire. And it should not be a lonely fight. Because if the international Wall Street banks succeed in Greece, some theater eerily uncomfortably near you will be next. That is cast in stone.

As for the title, it’s obviously Marquez, and what better link is there than Wall Street and cholera?

Nov 232014
 
 November 23, 2014  Posted by at 8:42 pm Finance Tagged with: , , , , , , ,  


Arthur Siegel Bethlehem-Fairfield shipyards, Baltimore, MD May 1943

A lot of people these days vent their opinions on what’s happening with the Chinese economy, and the opinions are so all over the place they could hardly be more different. Which is interesting, to say the least. Apparently it’s still very hard to understand what does happen ‘over there’.

And I don’t at all mean to suggest that I would know better than Morgan Stanley’s former Asia go-to-man Stephen Roach, or hedge funder Hugh Hendry, or Bob Davis, who just spent 4 years in the country for the Wall Street Journal, or Gwynn Guilford at Quartz, or local Reuters correspondents. It’s just that between them, they disagree so vastly you’d think they’re playing a game with your mind.

Me, personally, I think China’s official economic data should be trusted even less – if possible – than those of most other nations, including Japan, EU+ and the US. And therefore the rate cut last week, and the ones that look to be in the offing soon, constitute neither an act of confidence nor an confident act. China may well already be doing a lot worse than we think.

So where are we right now with all this, what DO we know? The best approach seems to be, as always, to follow the money. Let’s start with Reuters today:

China Ready To Cut Rates Again On Fears Of Deflation

China’s leadership and central bank are ready to cut interest rates again and also loosen lending restrictions, concerned that falling prices could trigger a surge in debt defaults, business failures and job losses, said sources involved in policy-making. Friday’s surprise cut in rates, the first in more than two years, reflects a change of course by Beijing and the central bank, which had persisted with modest stimulus measures before finally deciding last week that a bold monetary policy step was required to stabilize the world’s second-largest economy.

Economic growth has slowed to 7.3% in the third quarter and policymakers feared it was on the verge of dipping below 7% – a rate not seen since the global financial crisis. Producer prices, charged at the factory gate, have been falling for almost three years, piling pressure on manufacturers, and consumer inflation is also weak. “Top leaders have changed their views,” said a senior economist at a government think-tank involved in internal policy discussions.

The economist, who declined to be named, said the People’s Bank of China had shifted its focus toward broad-based stimulus and were open to more rate cuts as well as a cut to the banking industry’s reserve requirement ratio (RRR), which effectively restricts the amount of capital available to fund loans. China cut the RRR for some banks this year but has not announced a banking-wide reduction in the ratio since May 2012. “Further interest rate cuts should be in the pipeline as we have entered into a rate-cut cycle and RRR cuts are also likely,” the think-tank’s economist said.

Friday’s move, which cut one-year benchmark lending rates by 40 basis points to 5.6%, also arose from concerns that local governments are struggling to manage high debt burdens amidst reforms to their funding arrangements, the sources said. Top leaders had been resisting a rate cut, fearing it could fuel debt and property bubbles and dent their reformist credentials, but were eventually swayed by signs of deteriorating growth as the property sector cooled.

This suggests a certain level of control on the part of China, but certainly not a full swagger. And yes, they’re at 5.6%, and so there seems to be a lot of leeway left if you look at the near zero rates we see all over the world.. But then again, China wants, or should we by now say pretends to want, a 7% growth level. The fact that they’re ready to cut more doesn’t bode well for that growth number, even as they pretend to boost growth with those exact same cuts.

We saw China’s largest corporate bankruptcy last week, of the Haixin Iron & Steel Group, and that is not a good sign. China has been borrowing beyond the pale, a process in which the shadow banking system has played a major role, to ‘invest’ in commodities with an eye to much more growth even than the 7% Beijing claims to aim for. The problem with that is that this overbuying has been a substantial part of that same growth number.

And we know the story, certainly after the Qingdao warehouse tale this spring, where nobody could figure out anymore who actually owned what piles of aluminum, copper and iron because they were all used as collateral for multiple loans. In that bleak light, that one of the principal iron and steel companies goes belly up can hardly be seen as a positive message. China may be buying a whole lot less metal. And a whole lot less oil too. Which may drive down global market prices a lot, because everybody’s last hope was China.

Stephen Roach of Morgan Stanley fame, however, think Beijing has it all down. Full control. If they say 7%, 7% it is. Now, I know Roach spent a lot of time over there, but perhaps that was in the days when 10% GDP growth was still a realistic number. And that may not have had much to do with Beijing control.

Now that growth is gone everywhere, other than in stock markets and private banks’ reserves at central banks, where would China get even a 7% number from? And to what extent would Beijing have any control over that at all? Roach has little doubt that whatever number Xi and Li Call will be the correct one:

China Cut Pegs Growth Floor At 7%,: Stephen Roach

After unexpectedly cutting interest rates for the first time in two years, Chinese leaders have revealed their floor for economic growth is around 7%, said Stephen Roach[..] In a surprise announcement Friday, the People’s Bank of China said it was cutting one-year benchmark lending rates by 40 basis points to 5.6%. It also lowered one-year benchmark deposit rates by 25 basis points. [..] The hyperbole about China being an ever-ticking debt bomb stacked with excesses and nonperforming loans is based on emotion rather than empirical data, he said.

Hugh Hendry arrives at a similar conclusion through different means, namely the central bank omnipotence theory. And sure enough, central banks can do a lot, spend a lot, and fake a lot. But if there’s one thing the present global deflation threat tells us they can’t do, it’s to make people spend money. Not in Japan, not in Europe, not stateside, and not in China. It would seem advisable to keep that in mind.

Hugh Hendry: “A Bet Against China Is A Bet Against Central Bank Omnipotence”

Merryn Somerset Webb: But you’re assuming that the correct policy will be followed [in China].

Hugh Hendry: Well, it has been to date. That they haven’t panicked and gone into that crazy splurge in 2009-2011, they haven’t done that. Then the other point with China it’s a bit like the US. It’s had its excess. The problem in the US was it was felt intently with the private banking system which went bankrupt. But, and this is not counter-factual, what if you owned, what if the state is the banking sector? Does it have a Minsky moment? I’d say it doesn’t. So the whole game with Fed QE was to underwrite the collateral values, to keep the credit system moving. So it aimed its fire at mortgage obligations more than Treasuries.

The whole deal with LTROs in Europe has been again when investors at volume banks at 40%-60% discounts to asset volume, the central bank’s coming in and saying, “Actually we’ll buy it from you at full value or something higher. So we are going to endorse the collateral of your assets.” In China it’s the same deal. They’re fiat currency and they can get away with this. So to bet against China or Chinese equities, or the Chinese currency is to bet against the omnipotence of central banks. One day that will be the right trade, just not ready or sure that that is the right trade today.

Gwynn Guilford at Quartz suspects that Beijing if not so much in control as it is freaking out, and that that’s why they’ve cut rates and are publicly suggesting they’ll do it again.

China’s Surprise Rate Cut Shows How Freaked Out The Government Is By The Slowdown

Earlier [this week], the People’s Bank of China slashed the benchmark lending rate by 40 basis points, to 5.6%, and pushed down the 12-month deposit rate 25 basis points, to 2.75%. Few analysts expected this. The PBoC – which, unlike many central banks, is very much controlled by the central government – generally cuts rates only as a last resort to boost growth.

The government has been rigorously using less broad-based ways of lowering borrowing costs (e.g. cutting reserve requirement ratios at small banks, and re-lending to certain sectors). The fact that the government finally cut rates suggests that these more “targeted” measures haven’t succeeded in easing funding costs for Chinese firms. The push that came to shove might have been the grim October data, which showed industrial output, investment, exports, and retail sales all slowing fast.

Those data suggest it will be much harder to get anywhere close to the government’s 2014 target of 7.5% GDP growth, given that the economy grew only 7.3% in the third quarter, its slowest pace in more than five years. But wait. Isn’t the Chinese economy supposed to be losing steam? Yes. The Chinese government has acknowledged many times that in order to introduce the market-based reforms needed to sustain long-term growth and stop piling on more corporate debt, it has to start ceding its control over China’s financial sector.

[..] But clearly, the economy’s not supposed to be decelerating as fast as it is. Tellingly, it’s been more than two years since the central bank last cut rates, when the economic picture darkened abruptly in mid-2012, the critical year that the Hu Jintao administration was to hand over power to Xi Jinping. The all-out push to boost growth that followed made the 2013 boom, but also freighted corporate balance sheets with dangerous levels of debt. But this could only last so long; things started looking ugly again in 2014.[..]

What hasn’t been mentioned yet, and that’s undoubtedly a huge oversight, whether you’re talking about the theoretical Beijing political control over growth numbers, or the nitty gritty of actual numbers in the real economy, is the power, both political and financial, of the Chinese shadow banking industry.

The guys who’ve been making a killing off loans to local officials who couldn’t get state bank loans but were still rewarded for achievements in their constituencies that would have been impossible without loans. Where would China be without shadow banking? What is it today, a third of the economy, half?

And the Xi-Li gang seeks to break its power, for a multitude of reasons. The shadow set-up only works as long as things are great, and the sky’s the limit. When that diminishes, not so much. You can borrow all the way to nowhere when you’re doing great, but when you go broke, all you’re left with is the debt.

That’s the reality a lot of Chinese officials and entrepreneurs find themselves in today. Which is why the next article below says ” .. city officials reminded residents that it is illegal to jump off the tops of buildings ..” They don’t just own money, they own it to the wrong people too. Not that I presume there’s right people to be indebted to in China, but those who volunteer to re-arrange your physical appearance must be last on the list.

Bob Davis spent a few recent years in China for the Wall Street Journal, and he has this to say:

The End of China’s Economic Miracle?

When I arrived, China’s GDP was growing at nearly 10% a year, as it had been for almost 30 years – a feat unmatched in modern economic history. But growth is now decelerating toward 7%. Western business people and international economists in China warn that the government’s GDP statistics are accurate only as an indication of direction, and the direction of the Chinese economy is plainly downward. The big questions are how far and how fast. My own reporting suggests that we are witnessing the end of the Chinese economic miracle.

We are seeing just how much of China’s success depended on a debt-powered housing bubble and corruption-laced spending. The construction crane isn’t necessarily a symbol of economic vitality; it can also be a symbol of an economy run amok. Most of the Chinese cities I visited are ringed by vast, empty apartment complexes whose outlines are visible at night only by the blinking lights on their top floors.

I was particularly aware of this on trips to the so-called third- and fourth-tier cities—the 200 or so cities with populations ranging from 500,000 to several million, which Westerners rarely visit but which account for 70% of China’s residential property sales. From my hotel window in the northeastern Chinese city of Yingkou, for example, I could see empty apartment buildings stretching for miles, with just a handful of cars driving by. It made me think of the aftermath of a neutron-bomb detonation—the structures left standing but no people in sight.

The situation has become so bad in Handan, a steel center about 300 miles south of Beijing, that a middle-aged investor, fearing that a local developer wouldn’t be able to make his promised interest payments, threatened to commit suicide in dramatic fashion last summer. After hearing similar stories of desperation, city officials reminded residents that it is illegal to jump off the tops of buildings, local investors said.

[..] In the late 1990s, the party finally allowed urban Chinese to own their own homes, and the economy soared. People poured their life savings into real estate. Related industries like steel, glass and home electronics grew until real estate accounted for one-fourth of China’s GDP, maybe more.

Debt paid for the boom, including borrowing by governments, developers and all manner of industries. This summer, the IMF noted that over the past 50 years, only four countries have experienced as rapid a buildup of debt as China during the past five years. All four – Brazil, Ireland, Spain and Sweden – faced banking crises within three years of their supercharged credit growth.

[..] China’s immense scale has now become a limitation. As the world’s largest exporter, how much more growth can it count on from trade with the U.S. and especially Europe? [..] Will Mr. Xi’s campaign reverse China’s slowdown or at least limit it? Perhaps. It follows the standard recipe of Chinese reformers: remake the financial system so that it encourages risk-taking, break up monopolies to create a bigger role for private enterprise, rely more on domestic consumption.

But even powerful Chinese leaders have trouble enforcing their will. I reported earlier this year on the government’s plan to handle one straightforward problem: reducing excess steel production in Hebei, the province that surrounds Beijing. Hebei alone produces twice as much crude steel as the U.S., but China no longer needs so much steel, to say nothing of the emissions that darken the skies over Beijing.

It’s hard to say anything definitive about the Chinese economy and the official government numbers, for anyone but the rulers, because those numbers are clad in a murky veil. But what we do know from our experience here in the west is that the murkiness of numbers is invariably used by our ‘leaders’ to make things look better than they are. If anything, it seems reasonable to presume Beijing exaggerates its ‘achievements’ even more than our own clowns.

And in that light, I don’t see how or why the $30 oil I talked about yesterday would be all that far-fetched, given that China has driven most of the world’s growth expectations over the past decade or so, and that it seems to have very little chance of living up to those expectations. Even if for no other reason than because the rest of the world stopped growing.

And that seems to me to be where China’s growth fairy tale has stopped, and must have: ‘consumer spending’ (ugly term) across the world is falling. After all, that’s were all the lowflation and deflation comes from. And central banks can’t force their people to spend. Not in China and not in the west. They only need to look at Japan to see why that is true and how it plays out.

Growth in Japan is gone, and no QE can revive it. In Europe, it’s beyond life support. In the US, things look a little different on the surface, but the US can’t withdraw and do well in the present economic system if Japan and Europe don’t.

And that’s China’s story too. No growth anywhere to be seen, and they’re supposed to have 7%? It’s simply not possible. At least that we know.

May 042014
 
 May 4, 2014  Posted by at 1:52 pm Finance Tagged with: , , ,  


Ben Shahn Ads for popular malaria cure. Natchez, Mississippi October 1935

I’m going to take a number of different sources to paint a portrait of China. I’ll take a great series of numbers from Ambrose Evans-Pritchard, whose analysis we can all do without, and leave the analysis up to David Stockman, who goes a long way but, in my proverbial humble view, seems to be stumbling a bit towards the end. That is to say, as I’ve written before, when I look at China these days, I see a bare and basic battle for raw power, economic as well as political power, between the Chinese government and the shadow banking system it has allowed, if not encouraged, to establish and flourish, and which now has grown into a threat to the central state control that is the only model Beijing has ever either understood or been willing to apply.

The Chinese shadow banking system, which you need to understand is exceedingly fluid and has more arms and branches than a cross between an octopus and a centipede, has become a state within the state. That this should happen, in my view, was baked into the cake from the start. Either the Communists could have maintained their strict hold on all facets of power and allow economic growth only in small increments, or it could, as it has chosen to do, push full steam ahead with dazzling growth numbers, but that would always have meant not just the risk, but the certainty, of relinquishing parts of their power and control.

As someone mentioned a while back, if you want to have an economic system based on what we call capitalist free market ideas (leaving aside all questions that surround them for a moment), the players in that system need to have a range of – individual – freedom that will of necessity be in a direct head-on collision with – full – central control. We bear witness to that very battle for power between Beijing and the ”shadows”, right now, as we see the most often highly leveraged shadow capital change shape and identity whenever the political leadership tries to get a handle on it through banning particular forms of borrowing, lending and financing.

There can’t be much doubt that the cheap credit tsunami unleashed in the Middle Kingdom has turned into an extremely damaging phenomenon, as characterized by massive overbuilding, pollution, but the government and central bank have far less power to rein it in than people seem to assume. The shadow system has made so much money financing empty highrises and bridges to nowhere that it will try to continue as long as there’s a last yuan that can be squeezed from doing just that. And when that aspect stops, it will retreat back to where it came from, the shadows, leaving the Xi’s and Li’s presently in charge with the people’s anger to deal with.

Increasingly over the past two decades, China has had two economies. That’s not an accident, it’s what has allowed it to expand at the rate it has. But that expansion is as doomed to failure as any credit boom, and given its sheer size, it’s bound to come crashing down much harder than anything we’ve seen so far in the “once rich” part of the world we ourselves live in. The odds of a soft landing are very slim, and one, but certainly not the only, reason for that is that Beijing has traded in control for faster growth. And that now the negative aspects of the growth process become obvious, it no longer has sufficient control to foster a soft landing.

On the way up, the interests of Beijing and the shadows were very much aligned for obvious reasons; going down, that is no longer true. Li and Xi will be held responsible for the downturn, the men behind the shadows won’t, because no-one will be able to find them. There’ll be middle men hanging from lampposts, but the big players will be retreating to London, New York, Monaco.

But I was going to let others do the talking today. Here are Ambrose’s numbers:

Chinese Anatomy Of A Property Boom On Its Last Legs (AEP)

So now we know what China’s biggest property developer really thinks about the Chinese housing boom. A leaked recording of a dinner speech by Vanke Group’s vice-chairman Mao Daqing more or less confirms what the bears have been saying for months.

It is a dangerous bubble, and already deflating. Prices in Beijing and Shanghai have reached the same extremes seen in Tokyo just before the Nikkei boom turned to bust, when the (quite small) Imperial Palace grounds were in theory worth more than California, and the British Embassy grounds (legacy of a good bet in the 19th Century) were worth as much as Wales.

“In 1990, Tokyo’s total land value accounts for 63.3% of US GDP, while Hong Kong reached 66.3% in 1997. Now, the total land value in Beijing is 61.6% of US GDP, a dangerous level,” said Mr Mao. “Overall, I believe that China has reached its capacity limit for new construction of residential projects”.

• China’s house production per 1,000 head of population reached 35 in 2011. The figure is below 12 in most developed economies “even when the housing market is hot; no country has a figure of greater than 14”.

• “By 2011, housing production per 1000 people reached 30 in Tier 2 cities, excluding the construction of affordable houses.

• “Many owners are trying to get rid of high-priced houses as soon as possible, even at the cost of deep discounts.

• “In China’s 27 key cities, transaction volume dropped 13%, 21%, 30% year-on-year in January, February, and March respectively.

• Among the 27 key cities surveyed, more than 21 have inventory exceeding 12 months, among which are 9 greater than 24 months.

• 42 new projects for elite homes in Beijing will be finished in 2015, hitting the market with an extra 50,000 units that “can’t possibly be digested”.

• China will have 400 million people over the age of 60 by 2033. Half the population will be on welfare by then.“

• Nomura: “We believe that a sharp property market correction could lead to a systemic crisis in China, and is the biggest risk China faces in 2014. The risk is particularly high in third and fourth- tier cities, which accounted for 67% of housing under construction in 2013 … ”

• Land sales and property taxes provided 39% of the Chinese government’s total tax revenue last year, higher than in Ireland when such “fair-weather” taxes during the boom masked the rot in public finances.

• The International Monetary Fund says China is running a budget deficit of 10% of GDP once the land sales are stripped out, and has “considerably less” fiscal leeway than assumed.

• Credit has already grown to $25 trillion. Fitch says China has added the equivalent of the entire US and Japanese banking systems combined in five years.

David Stockman points out what may be the biggest bull in the China shop: because of the massive debt expansion it’s undergone, its economy is inherently unstable. And it’s nonsense to presume that Beijing can, in Stockman’s nicely puts it, “walk the bubble back to stable ground”. This is in part due to the sense of entitlement government policies have instilled in the population, and in part to the rise of the shadow banking system that the Communist party not only has far less control over than it likes to make us believe, but that it fights an active economic war with over control of the economy. Unfortunately Stockman’s analysis, good as it is, glazes over that last point.

Beijings Tepid Efforts To Slow The Credit Boom Are Springing Giant Leaks

China is a case of bastardized socialism on credit steroids. At the turn of century it had $1 trillion of credit market debt outstanding – a figure which has now soared to $25 trillion. The plain fact is that no economic system can remain stable and sustainable after undergoing a 25X debt expansion in a mere 14 years. But that axiom is true in spades for a jerry-built command and control system where there is no free market discipline, meaningful contract law, honest economic information or even primitive understanding that asset values do not grow to the sky.

Nor is there any grasp of the fact that the pell-mell infrastructure building spree of recent years is a one-time event that will leave the economy drowning in excess capacity to produce concrete, steel, coal, copper, chemicals and all manner of fabrications and machinery, such as backhoes and cranes, which go into roads, rails and high rises.

At bottom the fatal error among China bulls is the failure to recognize that the colossal boom and bust cycle that China is undergoing is not symmetrical. The much admired alacrity by which the state guided the export boom after 1994 and the infrastructure boom after 2008 is not evidence of a superior model of governance; its only proof that when credit, favors, subsidies, franchises and speculative windfall opportunities are being passed out freely and to everyone, when there are all winners and no losers (e.g. China’s bankruptcy rate has been infinitesimal), a statist regime can appear to walk on water.

But what it can’t do is walk the bubble back to stable ground. The boom phase unleashes a buzzing, blooming crescendo of enterprising, investing, borrowing and speculating throughout the population that cannot be throttled back without resort to the mailed fist of state power. But the comrades in Beijing have been in the boom-time Santa Claus modality for so long that they are reluctant to unleash the economic gendarmerie.

That’s partly because their arrogance blinds them to the great house of cards which is China today, and partly because they undoubtedly understand that the party’s popularity, legitimacy and even viability would be severely jeopardized if they actually removed the punch bowl. [..]

In short, the Chinese population “can’t handle the truth” in Jack Nicholson’s memorable line. They by now believe they are entitled to a permanent feast and have every expectation that their party and state apparatus will continue to deliver it. As a result, Beijing has resorted to a strategy of tip-toeing around the tulips in a series of start and stop maneuvers to rein-in the credit and building mania. But these tepid initiatives have pushed the credit bubble deeper into the opaque underside of China’s red capitalist regime, meaning that its inherent instability and unsustainability is being massively compounded.

The credit bubble is now migrating into the land of zombie borrowers such as coal mine operators who have always been heavily leveraged but now face plummeting demand and sinking prices owing to Beijing’s unavoidable crackdown on pollution and the rapid slowing of the BTU-intensive industrial economy. Moreover, the $6 trillion in shadow banking loans are the opposite of long-term debt capital: they are ticking time bombs in the form of 12-24 month credits that are being accumulated in a vast snow-plow of maturities that will only intensify the eventual crisis.

There’s no-one debating that Beijing walks a very tight line between growing its economy and bringing that growth back to earth. That would have been a severe challenge no matter what. But its biggest problem now is that there are many buttons and switches and levers in the economy that it effectively no longer even has access to. The shadow state within the state will, as long as there’s a profit in it, behave like water in the sense that you can build a dam at one place but it will find another route to flow down through. This Wall Street Journal article provides a nice example of the how and why of that process:

Entrusted Lending Raises Risks In Chinese Finance

With credit tight in China, companies in industries beset by overcapacity are turning to an unconventional source for cash – other companies – in a new rising risk for the country’s financial system. These company-to-company loans, known as entrusted lending, have emerged as the fastest-growing part of China’s shadow-banking system, which provides credit outside of formal banking channels. Net outstanding entrusted loans increased by 715.3 billion yuan ($115.4 billion) in the first three months of 2014 from a year earlier, according to the most recent data from China’s central bank.

The increase in entrusted loans last year was equivalent to nearly 30% of local-currency loans issued by banks – almost double the portion in 2012. The jump is all the more pronounced since China’s total social financing, a broad measure of overall new credit, shrank 561.2 billion yuan over the same period, largely because other forms of shadow credit declined as Beijing sought to rein in runaway debt growth. [..]

Officials at the People’s Bank of China, the central bank, have warned that much of the intercompany lending is flowing to sectors where the regulators have urged banks to reduce lending: the property market, infrastructure and other areas burdened by excess capacity. In central Shanxi province, 56% of entrusted loans in the past few years have gone to power producers, coking companies and steelmakers, among others, according to a recent paper by Yan Jingwen, an economist at the PBOC. Access to entrusted loans allows struggling companies to hang on longer than they otherwise could, delaying the consolidation that the government and some economists say is needed in a swath of industries.

Big publicly traded companies with access to credit – such as the shipbuilder Sainty Marine and specialty-chemicals producer Zhejiang Longsheng – are among the most active providers of entrusted loans. These companies, instead of investing in their core businesses, lend funds at hand to cash-strapped businesses at several times the official interest rate.

In an analysis for The Wall Street Journal, ChinaScope Financial, a data provider partly owned by Moody’s Corp., found that 10 publicly traded Chinese banks disclosed that the value of entrusted loans facilitated by them reached 3.7 trillion yuan last year, up 46% from the previous year. Compared with 2011, the amount was more than two-thirds higher.

It’s only a matter of time before the Communist party tries to assert control over, and ban, theses entrusted loans. But the people who initiated them will simply move on to other forms of shadow lending, ones that they probably already have waiting in the wings. There are many thousands of party officials and heads of state enterprises who are many miles deep into leveraged debt and will grasp onto any opportunity to double down on their wages in order not to be exposed as gamblers, to hold on to their positions, and to avoid the tar and feathered noose. Beijing will let them, lest the Forbidden City itself fill up with tarred feathers, and try to deflate the balloon puff by puff. As the shadows simultaneously re-inflate it just as fast, if not more.

Still, once it’s clear that you’ve greatly overbuilt, overborrowed and overleveraged, the only way forward is down. The “water always seeks the least resistance” analogy holds up there as well. At some point, in economics like in physics, gravity takes over. And this time around the China avalanche as it moves down its slope has a good chance of burying the rest of the world in a layer of dirt and bricks and mud and mayhem too. So we might as well try to understand this for real, not quit halfway down.

Entrusted Lending Raises Risks In Chinese Finance (WSJ)

With credit tight in China, companies in industries beset by overcapacity are turning to an unconventional source for cash—other companies—in a new rising risk for the country’s financial system. These company-to-company loans, known as entrusted lending, have emerged as the fastest-growing part of China’s shadow-banking system, which provides credit outside of formal banking channels. Net outstanding entrusted loans increased by 715.3 billion yuan ($115.4 billion) in the first three months of 2014 from a year earlier, according to the most recent data from China’s central bank.

The increase in entrusted loans last year was equivalent to nearly 30% of local-currency loans issued by banks – almost double the portion in 2012. The jump is all the more pronounced since China’s total social financing, a broad measure of overall new credit, shrank 561.2 billion yuan over the same period, largely because other forms of shadow credit declined as Beijing sought to rein in runaway debt growth. The growing popularity of such company-to-company lending offers a fresh – and to regulators, troubling – look at the rapid buildup of debt in China. In its latest report on the country’s financial stability, issued Tuesday, the central bank singled out entrusted lending as a problem, saying it is being used by banks to evade regulatory restrictions on lending. Banks, while generally not risking their own capital directly, act as middlemen in these transactions.

Read more …

It’s time to crush the euro once and for all. But it’ll be a bitter fight against the zealots who depend on it for their ego’s.

3 Things You Have To Believe To Be A Euro Bull (Paul Singer)

The Euro reminds us of the weather in London: One minute you are basking in sparkling sunshine, and the next minute the sky opens in a deluge reminiscent of Noah’s flood. Could it really be that peripheral countries’ interest rates are plunging and borrowing costs have converged to pre-crisis levels, Greece is issuing debt, and the euro crisis is over forever, but Mario “Whatever-It-Takes” Draghi is musing about starting QE now? Have policymakers lost touch with reality to such a startling degree that they now reach for the QE bottle like it is some 1850s cure-all nostrum, regardless of what is wrong with the patient? All we can imagine is the good doctor, handle bar moustache and full regalia, sitting behind his desk: “You have the vapors? Take this QE, you’ll feel better. Ma’am, you have a little hysteria? QE is just the thing! Sir, this QE will cure that headache! Son, you need some inflation, so QE is just right for you.”

There is nothing – we repeat, nothing – that is being done at present to enable Europe to perform better economically, to encourage its unemployed to get off the dole, or to empower its peripheral countries to deal with their underperformance on a sustainable basis. In this context, the bloc’s primary focus on generating inflation is nothing short of astounding. Indeed, one could analogize this currency union at the present moment to a labor camp in the middle of a frozen waste: It is really bad to be locked in, but if you are obedient, you will at least get your next serving of bailout gruel, whereas if you are not obedient, you will be cast out into the howling cold of devaluation and collapse. Lure them in, load them up with debt and whip them into line … is this the plan that the Brussels crowd devised in the 1990s?

This is obviously preferable to constant and terrible continental warfare, but is it sustainable? How will it end? The spectacle is akin to a hair-raising (albeit slow-motion) TV series. Two years ago, it was about to collapse. Today it is working. What will happen on the next episode? All of this talk may seem flip and sardonic, but it is really amazing that this currency union sans sovereignty has lasted so long – long enough to make Rube Goldberg drool with jealousy. Nobody knows how it will ultimately turn out, but we must admire in a sense the gall of politicians who think they can stay the current course and therefore must believe that citizens will stand for no growth and high unemployment forever. Below are some specific outcomes that must be assumed to justify continued stability in the Eurozone, given current pricing of stocks and bonds:

  1. Italy’s current government will succeed in solving its problems in the promised 100 days, and there will be no talk of elections that might be won by the comedian (who wants out of the Euro).
  2. The Spanish and Italian unemployed will wait patiently for the good jobs they want without causing any social unrest or political turmoil.
  3. The higher trading value of the euro will not cause even more pain to the countries that would have already devalued their currencies more than 50% against the current euro price if they were not in the Eurozone. (Remember, if you cannot devalue, you have to increase productivity to be competitive with Germany and the rest of the world. Easy, right?)

Read more …

The world’s most important industry over the past 100 years is in trouble, and it will never recover. That’ll take some getting used to.

Chevron’s Profit Plunges 27% As Production Falls (AP)

Chevron Corp. reported a steep decline in its first-quarter profit because of lower global oil prices and bad weather that slowed oil production. Chevron said Friday that it earned $4.52 billion in the first three months of the year on revenue of $50.98 billion. Last year during the same period, Chevron earned $6.18 billion on revenue of $54.3 billion.

San Ramon, Calif.-based Chevron and other major oil companies are struggling to maintain production as they drain oil and gas from their fields around the world. At the same time, the cost of exploring new fields is rising as they have to venture into more extreme and remote conditions to access hydrocarbons. Profits are getting squeezed as these costs rise, because average oil prices have been roughly flat for about three years. Chevron is developing several enormous projects in Australia and the Gulf of Mexico that are expected to help the company expand its production in the coming years. But they aren’t producing anything yet, and analysts worry about Chevron’s ability to get the projects up and running on time and on budget.

In the first quarter of this year, Chevron’s oil and gas production fell 2% worldwide. In the U.S., production fell 4% as higher production of oil and natural gas in New Mexico and western Pennsylvania were more than offset by normal field declines elsewhere. Overseas, where Chevron produces the vast majority of its oil and gas, production fell 2%. Increased production from projects on Nigeria and Angola was offset by field declines and weather-related shutdowns in Kazakhstan.

Read more …

The race to nowhere is on.

Hundreds Of Multinational Giants Line Up For Tax Breaks In Britain (Telegraph)

Hundreds of multinational companies are lining up to establish operations in the UK, paving the way for thousands of new jobs and billions of pounds in extra tax revenues. Amid a renewed wave of mergers and acquisitions that has seen US drugs giant Pfizer’s renew its bid for rival AstraZeneca, KPMG, one of Britain’s biggest accountancy firms, said changes to the tax system aimed at improving the UK’s competitiveness were “paying dividends”. It said it was working with almost 100 multinational corporations that wanted to increase their footprint in this country.

PwC, Britain’s biggest accountancy firm, said it was in dialogue with “more than 100” multinational companies, while EY said last year that 60 firms were looking to complete global and regional headquarters relocations into the UK. EY estimated this would add £1bn to corporation tax revenues and create more than 5,000 jobs. Ministers said the revival would help to rebalance Britain’s economy and secure a self-sustaining recovery. “The UK is now very much top of the list for foreign companies looking to increase their activity in the UK,” said David Gauke, the exchequer secretary to the Treasury.

“A few years ago it wasn’t even making the shortlist. All sorts of industries are looking at the UK in a way that is very encouraging. “There is increasingly the sense that the UK is as competitive and as attractive as other jurisdictions, whereas previously multinationals might have looked at Ireland, the Netherlands and Switzerland.” The renewed appetite is in stark contrast to a few years ago, when almost two dozen firms, including advertising giant WPP moved their global headquarters abroad. Several, including WPP, have said they will move back to the UK following the tax overhaul.

Read more …

Come on, America, buy a car! Make it two!

Carmakers’ Summer Plans: Back to Bankruptcy? (Bloomberg)

With General Motors’ non-recall scandal raising fresh questions about the kind of company taxpayers rescued five years ago, and its lawyers back in front of a bankruptcy court this week to fend off class-action suits, Detroit is finding out just how difficult it can be to escape the stain of bailout. Another reminder was this week’s report from the Troubled Asset Relief Program special inspector general, indicating the losses on GM and Chryslers’ bailouts ($11.2 billion and $2.9 billion respectively) were higher than previous Treasury Department accountings. Be prepared, taxpayers, the worrying news on your two carmaker “investments” seems to be just getting started.

America’s auto market remains a precarious contradiction: loan terms are longer than ever and subprime penetration is approaching pre-recession levels, yet transaction prices are up. Gas prices, which usually spike in the summer, are heading toward 2008 levels again — yet trucks have been outselling cars for months. Even sales volume itself has to be questioned as inventory to sales ratios indicate that the automakers’ real customers, new car dealers, are choking on supply that factories count as sales. And you don’t have to guess which automakers have the most exposure on these issues.

Read more …

Always good.

Punk Economics: Lessons from the Banking Crisis (David McWilliams)

Read more …

Chinese Anatomy Of A Property Boom On Its Last Legs (AEP)

So now we know what China’s biggest property developer really thinks about the Chinese housing boom. A leaked recording of a dinner speech by Vanke Group’s vice-chairman Mao Daqing more or less confirms what the bears have been saying for months. It is a dangerous bubble, and already deflating. Prices in Beijing and Shanghai have reached the same extremes seen in Tokyo just before the Nikkei boom turned to bust, when the (quite small) Imperial Palace grounds were in theory worth more than California, and the British Embassy grounds (legacy of a good bet in the 19th Century) were worth as much as Wales. Li Junheng from JL Warren Capital has translated his comments, which I pass on for readers.

“In 1990, Tokyo’s total land value accounts for 63.3% of US GDP, while Hong Kong reached 66.3% in 1997. Now, the total land value in Beijing is 61.6% of US GDP, a dangerous level,” said Mr Mao. “Overall, I believe that China has reached its capacity limit for new construction of residential projects. Only those coastal Tier 3/Tier 4 cities have the potential for capacity expansion. “I don’t see any possibility for a rise in home prices, especially in cities with large housing inventory, unless the government pushes out another few trillion. Beijing and Shanghai have already been listed among the most expensive cities in the world in terms of the medium central city property prices.”

Mr Mao said China’s house production per 1,000 head of population reached 35 in 2011. The figure is below 12 in most developed economies “even when the housing market is hot; no country has a figure of greater than 14”.

“By 2011, housing production per 1000 people reached 30 in Tier 2 cities, excluding the construction of affordable houses. A persistently high figure such as this should cause alarm,” he said.

China’s anti-corruption campaign is spreading terror through the Party cadres. They are frantically trying to offload properties in the top-end range of 40,000 – 50,000 yuan per square metre in case their ill-gotten wealth is exposed by spot audits. The numbers of flats and houses for sale has suddenly doubled. “Many owners are trying to get rid of high-priced houses as soon as possible, even at the cost of deep discounts. As a result, ordinary people who want to sell homes in the secondary market must face deep price cuts,” he said.

“In China’s 27 key cities, transaction volume dropped 13%, 21%, 30% year-on-year in January, February, and March respectively. We expect the trend to continue in April. The drivers behind the fall in price are credit tightening from the banks.”

“Most cities have seen an increase in the ratio of inventory to sales. Among the 27 key cities we surveyed, more than 21 have inventory exceeding 12 months, among which are 9 greater than 24 months. The supply of residential buildings is rapidly increasing month-on-month.”

Mr Mao said 42 new projects for elite homes in Beijing will be finished in 2015, hitting the market with an extra 50,000 units that “can’t possibly be digested”.

As for the demographic time-bomb, he said China will have 400 million people over the age of 60 by 2033. Half the population will be on welfare by then. “If China fails to develop technology as a driving force for its economic growth, the country will be in trouble.”

So there we have it. Vanke Group say the comments do not reflect the view of the company or indeed Mr Mao – which is odd – but they do not dispute that the recording is authentic. His words compliment recent warnings by Nomura’s Zhiwei Zhang that the problem is even worse in the smaller cities in the interior, as we reported last month: “We believe that a sharp property market correction could lead to a systemic crisis in China, and is the biggest risk China faces in 2014. The risk is particularly high in third and fourth- tier cities, which accounted for 67% of housing under construction in 2013,” he said.

Nomura said residential construction has jumped fivefold from 497m square metres in new floor space to 2.596m last year. Floor space per capita has reached 30 square metres, surpassing the level in Japan in 1988. Land sales and property taxes provided 39% of the Chinese government’s total tax revenue last year, higher than in Ireland when such “fair-weather” taxes during the boom masked the rot in public finances.

There is a huge problem in all this. The International Monetary Fund says China is running a budget deficit of 10% of GDP once the land sales are stripped out, and has “considerably less” fiscal leeway than assumed. The state finances are not what they seem.

This does not necessarily mean that China will spiral into crisis. David Li Daokui – former adviser to the Chinese central bank – told me the nuclear trump card of the authorities is the Reserve Requirement Ratio, currently 20%. They can inject up to $2 trillion into the banking system if need be by slashing the RRR to single figures. It was 6% in the late 1990s. The question is whether President Xi Jinping wishes to take his lumps now by pricking the speculative bubble and forcing capitulation – hopefully in a controlled deleveraging – or whether he will blink as his predecessor famously did in the summer of 2012 and let rip with another round of stimulus.

Blinking stores up greater trouble later. Credit has already grown to $25 trillion. Fitch says China has added the equivalent of the entire US and Japanese banking systems combined in five years.

On balance it is better for China to get the trauma over and done with sooner rather than later. But the rest of the world should be under no illusions as to what it means. This policy decision – should President Xi stay the course – is equivalent in global scale to the decision by Fed chief Benjamin Strong to pop the US speculative bubble in 1928, causing a commodity slump that was transmitted worldwide through the dollar based currency system (Inter-War Gold Standard) and which later snowballed into something far worse. The US was then the world’s rising creditor power, with foreign reserves above 6% of global GDP, almost exactly the same as China’s holdings today. When China sneezes … you will catch a cold, wherever you are.

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“China is a case of bastardized socialism on credit steroids [..] But what it can’t do is walk the bubble back to stable ground”

Beijings Tepid Efforts To Slow The Credit Boom Are Springing Giant Leaks (Stockman)

China is a case of bastardized socialism on credit steroids. At the turn of century it had $1 trillion of credit market debt outstanding – a figure which has now soared to $25 trillion. The plain fact is that no economic system can remain stable and sustainable after undergoing a 25X debt expansion in a mere 14 years. But that axiom is true in spades for a jerry-built command and control system where there is no free market discipline, meaningful contract law, honest economic information or even primitive understanding that asset values do not grow to the sky.

Nor is there any grasp of the fact that the pell-mell infrastructure building spree of recent years is a one-time event that will leave the economy drowning in excess capacity to produce concrete, steel, coal, copper, chemicals and all manner of fabrications and machinery, such as backhoes and cranes, which go into roads, rails and high rises. The borrowing, building and speculating mania in China has obviously gotten so extreme that even the new regime in Beijing has been desperately trying to cool it down. But this will end up as a catastrophic failure—not the “soft landing” brayed about by Wall Street bulls who do not have the slightest comprehension of the difference between free market capitalism and the phony “red capitalism” that has been confected by the party-controlled apparatus of the massive, intrusive, bureaucratic and hierarchically-driven Chinese State.

At bottom the fatal error among China bulls is the failure to recognize that the colossal boom and bust cycle that China is undergoing is not symmetrical. The much admired alacrity by which the state guided the export boom after 1994 and the infrastructure boom after 2008 is not evidence of a superior model of governance; its only proof that when credit, favors, subsidies, franchises and speculative windfall opportunities are being passed out freely and to everyone, when there are all winners and no losers (e.g. China’s bankruptcy rate has been infinitesimal), a statist regime can appear to walk on water.

But what it can’t do is walk the bubble back to stable ground. The boom phase unleashes a buzzing, blooming crescendo of enterprising, investing, borrowing and speculating throughout the population that cannot be throttled back without resort to the mailed fist of state power. But the comrades in Beijing have been in the boom-time Santa Claus modality for so long that they are reluctant to unleash the economic gendarmerie.

=======

That’s partly because their arrogance blinds them to the great house of cards which is China today, and partly because they undoubtedly understand that the party’s popularity, legitimacy and even viability would be severely jeopardized if they actually removed the punch bowl. Just look at the angry crowds which mill about when a bankrupt entrepreneur skips town and locks up his factory sans all the equipment; or when developers are forced to discount vastly over-priced luxury apartment units they sold to middle class savers/speculators; or when banks attempt to disavow repayment responsibility for “trust products” they sold out the backdoor through affiliates; or the growing millions of rural peasants who have been herded into high-rises without jobs after their land was expropriated by crooked local officials and developers trying to make GDP quotas and a quick fortune, respectively.

In short, the Chinese population “can’t handle the truth” in Jack Nicholson’s memorable line. They by now believe they are entitled to a permanent feast and have every expectation that they party and state apparatus will continue to deliver it. As a result, Beijing has resorted to a strategy of tip-toeing around the tulips in a series of start and stop maneuvers to rein-in the credit and building mania.

But these tepid initiative have pushed the credit bubble deeper into the opaque underside of China’s red capitalist regime, meaning that its inherent instability and unsustainability is being massively compounded. The billiard balls that have been bouncing around the table since Beijing attempted to throttle lending by the Big State banks a few years ago provides a dramatic example.

In round one the big banks attempted to avoid credit growth ceilings by taking a leaf out of Citigroup’s playbook, and opened up back-door affiliates which operated off-balance sheet in the world of so-called shadow banking. These affiliates peddled “trust products” which were essentially high yield CDs that returned double or triple the regulated ceiling on regular bank deposit accounts. And how were these back door affiliates to earn a profit when paying say 12% for funds? No problem! The loan departments of the big state banks kindly referred their shaky credits and borrowers desperately underwater to their back-door affiliates who then presented such dodgy supplicants with an offer they couldn’t refuse.–namely, 20% money for 12 or 24 months as an alternative to being shut-off by the parent bank

So the credit house of cards was just enlarged, extended and riddled with more repayment cliffs just around the next corner. From a standing start in 2010, trust product loans and other shadow banking credit extensions have exploded to upwards of $6 trillion.

But here’s the thing. The credit bubble is now migrating into the land of zombie borrowers such as coal mine operators who have always been heavily leveraged but now face plummeting demand and sinking prices owing to Beijing’s unavoidable crackdown on pollution and the rapid slowing of the BTU-intensive industrial economy. Moreover, the $6 trillion in shadow banking loans are the opposite of long-term debt capital: they are ticking time bombs in the form of 12-24 month credits that are being accumulated in a vast snow-plow of maturities that will only intensify the eventual crisis.

To be sure, the state banking regulators have belatedly launched a campaign to crack-down on the explosion of shadow banking loans, but already the proof of the inherent asymmetry in China’s bubble/bust cycle is in. New credit extension is now migrating to the last refuge of an aging bubble–namely, non-financial corporations are plowing vast sums of cash into speculative lending. As the following excerpts from the Wall Street Journal show, such lending has now reached epidemic proportions, and is a direct rebuke to the tepid and well-telegraphed efforts of Beijing to rein in China’s monumental credit bubble:

These company-to-company loans, known as entrusted lending, have emerged as the fastest-growing part of China’s shadow-banking system, which provides credit outside of formal banking channels.The increase in entrusted loans last year was equivalent to nearly 30% of local-currency loans issued by banks—almost double the portion in 2012. The jump is all the more pronounced since China’s total social financing, a broad measure of overall new credit, shrank 561.2 billion yuan over the same period, largely because other forms of shadow credit declined as Beijing sought to rein in runaway debt growth.

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It’s all in the mind. That is. Abenomics is. Says Abe.

Is Japan Totally F##ked? (Zero Hedge)

We have detailed the straitjacket into which the Japanese have been strapped for the past two decades numerous times in the last few years (in great detail here) but as Grant Williams leaned back in his most comfortable chair after reading an article about proposed changes to the GPIF (Government Pension Investment Fund), Japan’s public pension fund; the thought popped into his mind – “Japan really is totally f##ked.” What led him to that well-thought-out and eruditely expressed conclusion? Read on… In an interview with CNN’s Fareed Zakaria earlier this year, Abe explained the true significance of the third arrow:

“What is important about the third arrow, structural reform, is to convince those who resist the steps I am taking and to make them realize that what I have been doing is correct, and by so doing, to engage in structural reform.”

Read that again.Yes folks, the important part of structural reform in Japan is to convince people that Abe is correct. If he can convince them he is right, they will have engaged in structural reform. Confused? You should be. This is how Japan works — or doesn’t. Immigration reform has been widely recognized as the only answer to Japan’s crippling demographic problem for well over three decades. Nothing has been done about it. How about the “Wage Surprise” — increasing wages on a national basis — hailed by Abe as the key to lifting Japan out of the doldrums, and a key feature of Abenomics?

Doh?! Markets will eventually tire of Abe’s continual promises that more is coming, so he desperately needs to somehow break the entrenched deflationary attitude in Japan. (WSJ): In a survey of 1,000 consumers on March 29-30 by broadcaster Fuji News Network, 69% said they had not made any special purchases ahead of the sales tax rise, and 77.4% said they didn’t feel an economic recovery was under way. Good luck with that attitude problem, Shinzo. This week we got a look at how Abe is faring with one of his promises, that of guaranteed 2% inflation. Core CPI (excluding food and energy) rose 1.3% in March — unchanged from the previous month and lower than analyst forecasts. Of course, that was taken as a sign that further easing by the BoJ would be forthcoming…

And round and round it goes… until it stops. The briefcase in Pulp Fiction ONLY works because we DON’T find out what is in it. Abe’s third arrow can be loaded into the bow, but it can’t be fired once and for all, because if it IS fired, the game is up. There will still be continual promises of more to come, and markets may buy into that for a while; but, like all central bank-induced “boom times,” Abenomics has a shelf life, and that is nearing an end. The changes at the GPIF are potentially disastrous, and Kuroda’s BoJ and Abe’s government are desperately trying to MacGyver their way out of an impossible situation, armed only with hollow promises and faith, when what they really need is duct tape and a Swiss army knife.

Abenomics is a plan by which to change Japanese behaviour; but as anyone who has spent any time in that wonderful, perplexing country will tell you, the Japanese do NOT change their behaviour — even when facing a demographic disaster. Sorry, but Abenomics is actually nothing at all.

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Take note.

The Last Two Times Margin Debt Reversed From High All Hell Broke Loose (TPit)

The last two times when margin debt reversed and fell after a record-breaking spike, all hell broke loose. In 2000, it was simultaneous. In 2007, it was delayed by a few months. Today, on the surface, everything is still hunky-dory. The Dow is just fractions below its all-time high that it set on Wednesday. But beneath the surface, parts of the stock market are already coming unglued, and holders of momentum stocks have been eviscerated. The Nasdaq Biotech Index had beautifully shot up along an exponential curve. Then the hot air hissed out of it, and it swooned 21% in six weeks. The index includes big players, like Biogen, not just startups with big dreams and no drugs.

After some buying on the dip, the index closed on Thursday down “only” 15%. But that hasn’t saved smaller momentum stocks: Exelixis is down 58% from its 52-week high and 92% from its all-time high shortly after its IPO in early 2000; Halozyme is down 60% from its high in early January. And so on. In the social media space, the bloodletting has been ugly. The Social Media ETF SOCL is down 23%, but stronger stocks like Facebook (down 16% from its high a month ago) paper over individual fiascos, like Twitter, which has plummeted 48% from its peak last year to below its IPO price. Other momentum stocks are getting annihilated: Amazon down 25% since January, Netflix down 27% in just two months. From their peaks, Pandora crashed 39%, Gogo 63%, and Imperva, a Big Data security outfit, 65%.

Then there’s the “Cloud,” the single most hyped miracle-sector last year. Escalator up, elevator down. Workday, which sells cloud-based corporate software, went public in late 2012 and soared. Two months ago, it sprung a leak and the hot air hissed out of it. It’s down 36%. Veeve, which sells cloud-based healthcare software, has crashed 60% from its November high, shortly after it had gone public. Salesforce is down 22%. ServiceNow lost 30% over the past two weeks. LinkedIn reported a loss after hours on Thursday and got hammered. It’s now down 40% from its peak last September. Jive Software is down 71% from its high in 2012.

They aren’t just outliers. They’re included in the index of 37 publicly traded cloud companies that VC firm Bessemer Venture Partners put together and updates on a weekly basis. From the beginning of the data series in January 2012 to February 27, 2014, the index had soared 129%. But in the two months since then, the index gave up more than half of its gains and lost $58 billion in market cap!

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Marc Faber: A Big Correction Will Hit US Markets This Year (CNBC)

Technology stocks may have suffered a sell-off in the last few weeks, but the U.S. market as a whole is still set for a dramatic correction this year, Marc Faber, the market watcher known as “Dr. Doom” told CNBC Wednesday. The editor and publisher of The Gloom, Boom and Doom Report said that he personally favors emerging market securities that are still “cheap,” adding that he had even made investments in Iraq last year. “We had already a big break in the market but we haven’t had yet the big break in the overall market,” he said.

In early April, the wider technology sector was hit by a selloff in momentum stocks which saw the Nasdaq Composite Index fall below 4,000 points for the first time since early February. Momentum stocks are fast-rising stocks which can unexpectedly reverse when investors fear they have overshot and a bubble is brewing. The Nasdaq Composite suffered its worst weekly hit since June 2012, and recorded its longest weekly losing streak since late 2012. Telecommunication, social media, and biotechnology companies were all part of the move lower, but Faber believes this selling will eventually hit the wider indexes, with energy and utility companies seeing a sharp pullback. Faber reiterated his concerns that equities were facing a crash that could be worse than the financial world saw in 2008.

“I believe it is too late to buy the U.S. stock market,” he said. Faber questioned the future returns of these U.S. stocks, highlighting that record low interest rates and high valuations mean companies will not be able to give back bumper returns to their investors. “In general, I think individual investors have excessively optimistic expectations about their future returns,” Faber said. The notable bear also underlined his belief that emerging markets provide a more suitable option for more profitable investments. He added that he has parked cash in countries such as Vietnam, Iraq, Malaysia, Thailand, and Singapore.

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Presented without comment.

Pray To The God Of Hockey Sticks … (Zero Hedge)

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Big topic.

Workforce Participation at 36-Year Low as Jobs Climb (Bloomberg)

Even the strongest job growth in two years isn’t enough to entice more people into the labor force, one of the biggest conundrums of the U.S. economic expansion. The share of the working-age population either employed or seeking a job declined in April for the first time this year, helping drive the unemployment rate down to 6.3%, the lowest since September 2008. At 62.8%, the so-called participation rate matches the lowest since March 1978. A shrinking workforce saps the U.S. of the manpower needed to boost the expansion to a higher level, keeping the world’s largest economy merely plodding along. It also undercuts the theory that sustained growth alone will be enough to attract more Americans, from students to people discouraged over employment prospects, back into the hunt for jobs.

“It doesn’t seem like the improving job market is really pulling people back into job-seeking,” said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York. “It is kind of a sobering message about the supply side of the economy and the economy’s potential growth rate.” The decline in participation from 63.2% in March came as fewer Americans entered the work force, while the number of people who have given up the search for employment remained close to the average for the last year. There were 783,000 of these so-called discouraged workers in April, compared with 835,000 a year earlier.

The number of people coming into the workforce — by either landing a job or starting a search for work — plunged to 5.84 million in April, the fewest since November 2008, according to figures from the Labor Department. The 14% decrease from the prior month’s 6.79 million was the biggest since 1995. Those leaving the labor force, which include retirees, people who choose to take care of family members and those pessimistic about finding employment, totaled 6.66 million, little changed from the 6.42 million averaged over the prior 12 months. “It wasn’t so much that more people left, it was that a lot fewer than average entered,” Karen Kosanovich, an economist at the Bureau of Labor Statistics, said in an interview.

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Still a Big topic.

Labor Force Drop-Outs Outnumber US Jobs Recovered Since Depression (Zero Hedge)

While we expect much media coverage of the fact that as of the end of April, total jobs have risen to 138,252K or just 98,000 jobs shy of the December 2007 highs when the depression started (which means that the next jobs report will finally show a full recovery of the jobs lost in the past 6 years), another fact which will not receive nearly as much attention is that the cumulative increase in Americans who have, over the same period, dropped out of the labor force has more than “made up” for the job gains. In fact, it may come as a surprise to most, that since the peak of the depression in February 2010, when the job number dropped to 129.7 million and has been rising ever since, the average monthly number of job adds is 172K. And what about the average monthly number of people who drop out of the labor force since February 2010? 175K, or a virtually perfect mirror image.

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Well, the EU/US supported Right Sector has started killing civilians in the east.

‘Europe Should Shun Russia Sanctions on Economic Cost’ (BusinessWeek)

Any “sensible” European Union citizen should oppose further sanctions on Russia because of the economic cost for Europe, EU Commissioner Olli Rehn said. “It would harm everybody, the Europeans and the Russians,” Rehn, the European Commissioner for Economic Affairs, said in an interview in Vienna today. Yet “it can only be avoided if Russia is committed to avoiding aggravation and escalation of this crisis,” he said. As EU governments weigh economic sanctions on Russia for failing to stop separatists in Ukraine, the slowing Russian economy is already having a “negative impact” on Finland and Austria, Rehn said. That economic fallout probably will spread to Germany, Poland and the Baltic countries, he said.

Ukraine’s conflict escalated as the army sent armored vehicles and artillery today in a bid to retake the eastern town Slovyansk, a stronghold of pro-Russian separatists. Russian President Vladimir Putin had demanded Ukraine pull back troops as his forces remain massed across the border. “Everybody should try to reduce tension in eastern Ukraine and thus try to prevent an escalation of this regional crisis into a European-wide crisis,” said Rehn, who is on leave from his EU post while running for a seat in European Parliament elections starting May 22.

Even before the U.S and EU imposed sanctions on Russia, the weaker Russian ruble cut sales at Finnish tax-free shops on the border by about 30% compared with a year earlier, Rehn said. The ruble declined 0.7% against the dollar today, trimming the Russian currency’s advance over the past five days to 0.5%. The ruble’s 8.3% retreat this year is the second-worst after Argentina’s peso among 24 developing-country peers monitored by Bloomberg. “From the standpoint of the European Union, I think it is important we show unity in this crisis,” Rehn said. “We have to stand united because if we were disunited, we know Russia would be very skillful in playing that game against European countries.”

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Anyone surprised raise your hands.

Oil Industry, US Government Woefully Unprepared For Spill In Arctic (RT)

A new study says there is a lack of both scientific data and preparedness on the part of private and public entities to properly address an oil spill in the Arctic Ocean, which global powers and industry expect to exploit for energy exploration. Climate change is thawing sea ice in the Arctic, opening up new opportunities for energy development. Approximately 30% of the world’s undiscovered natural gas and about 15% of its untapped oil lie in the Arctic. But the majority, 84%, of the estimated 90 billion barrels of oil and 47.3 trillion cubic meters of gas remain offshore.

Waiting for eager energy developers are some of the world’s most extreme weather conditions “and environmental settings, limited operations and communications infrastructure, a vast geographic area, and vulnerable species, ecosystems, and cultures,” the National Research Council wrote. The five countries with territorial claims in the Arctic – Canada, Denmark, Norway, Russia, and the United States – have stated intentions to develop these reserves, if they haven’t begun already. Yet the National Research Council’s new study – funded by US federal agencies and the leading trade group for the oil industry, the American Petroleum Institute – found that energy companies currently lack Arctic oil spill response plans, as it is their responsibility to address such an event.

That said, public entities often take the lead in spill response actions, yet the US government does not have infrastructure capabilities in place despite its rush to establish dominance in the region. “The lack of infrastructure and oil spill response equipment in the U.S. Arctic is a significant liability in the event of a large oil spill,” the report states. “Building U.S. capabilities to support oil spill response will require significant investment in physical infrastructure and human capabilities, from communications and personnel to transportation systems and traffic monitoring.”

The “significant investment” on infrastructure could come from public-private partnerships, the report suggests, though the politics of offering industry further subsidies may be problematic. Adequate research into what awaits industry in the extreme cold of Arctic waters is also lacking, the report said. There is little understanding of how the low temperatures would affect both spilled oil and commonly-used techniques to reverse the effects of a spill, such as the spread of chemical dispersants. The report goes as far as suggesting that the only way to know is to conduct a controlled oil spill.

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