Nov 162017
 
 November 16, 2017  Posted by at 9:47 am Finance Tagged with: , , , , , , , , ,  8 Responses »
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Leonardo da Vinci Salvator Mundi 1513

 

Landmark Study Links Tory Austerity To 120,000 Deaths (Ind.)
Jeremy Corbyn Will Inevitably Become UK Prime Minister – Varoufakis (BI)
Why Care More About Benefit Scroungers Than Billions Lost To The Rich? (G.)
No Evidence Of Russian Interference In Brexit, PM May Admits In Parliament (RT)
China’s Outbound Investment Plunged 41% On Year In January To October (BBG)
Senior China Minister Says Some Officials Practice Sorcery (R.)
Corruption in China Could Lead To Soviet-Style Collapse – Graft Buster (ToI)
The Complete Idiot’s Guide To The Biggest Risks In China (ZH)
Why the Anti-Corruption Drive in Saudi Arabia is Doomed to Fail (CP)
Saudi Walks Back Escalation As Dramatic Moves Backfire (AP)
Friendly Reminder That Jeff Bezos Is Trying To Take Over The Universe (CJ)
Why Japan Knocks Down Its Houses After 30 Years (G.)
Kyle Bass: Investors to Pour Billions into Greece after Political Change (GR)
Lesvos Reaches Breaking Point, Mayor Declares General Strike (G.)
Monsanto, US Farm Groups Sue California Over Glyphosate Cancer Warnings (R.)
Plastics Found In Stomachs Of Deepest Sea Creatures (G.)

 

 

It doesn’t get much more damning than this. Nothing Monty Python about it.

Landmark Study Links Tory Austerity To 120,000 Deaths (Ind.)

The Conservatives have been accused of “economic murder” for austerity policies which a new study suggests have caused 120,000 deaths. The paper found that there were 45,000 more deaths in the first four years of Tory-led efficiencies than would have been expected if funding had stayed at pre-election levels. On this trajectory that could rise to nearly 200,000 excess deaths by the end of 2020, even with the extra funding that has been earmarked for public sector services this year. Real terms funding for health and social care fell under the Conservative-led Coalition Government in 2010, and the researchers conclude this “may have produced” the substantial increase in deaths.

The paper identified that mortality rates in the UK had declined steadily from 2001 to 2010, but this reversed sharply with the death rate growing again after austerity came in. From this reversal the authors identified that 45,368 extra deaths occurred between 2010 and 2014, than would have been expected, although it stops short of calling them “avoidable”. Based on those trends it predicted the next five years – from 2015 to 2020 – would account for 152,141 deaths – 100 a day – findings which one of the authors likened to “economic murder”. The Government began relaxing austerity measures this year announcing the end of its cap on public sector pay rises and announcing an extra £1.3bn for social care in the Spring Budget. Over three years the additional funding for social care is expected to reach £2bn, which Labour leader Jeremy Corbyn said was “patching up a small part of the damage” wrought by £4.6bn cuts.

[..] The papers’ senior author and a researcher at UCL, Dr Ben Maruthappu, said that while the paper “can’t prove cause and effect” it shows an association. And he added this trend is seen elsewhere. “When you look at Portugal and other countries that have gone through austerity measures, they have found that health care provision gets worse and health care outcomes get worse,” he told The Independent. One of his co-author’s, Professor Lawrence King of the Applied Health Research Unit at Cambridge University, said it showed the damage caused by austerity “It is now very clear that austerity does not promote growth or reduce deficits – it is bad economics, but good class politics,” he said. “This study shows it is also a public health disaster. It is not an exaggeration to call it economic murder.”

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After a report like that, yes. The Tories have taken things too far.

Jeremy Corbyn Will Inevitably Become UK Prime Minister – Varoufakis (BI)

Yanis Varoufakis, former finance minister of Greece and author of “Adults in the Room: My Battle with the European and American Deep Establishment,” explains that Jeremy Corbyn as Prime Minister may be a likely scenario and that this would be beneficial for the UK economy. The following is a transcript of the video. Isn’t it astonishing that after Jeremy Corbyn was being described as “the longest suicide note by the Labour Party” about a year ago, today there is an air of inevitability in a Corbyn-led government. I think it’s a delicious irony and I’m very excited by this transition from impossibility to inevitability. In the interests of full disclosure, I’m a friend of Jeremy Corbyn, a supporter, I’ve worked with his team and will continue to do so.

I believe that the re-orientation of British politics under Corbyn and in particular of the Labour Party is highly beneficial, not only to the large strata within British society that have been discarded in the last 20 to 30 years, but interestingly also for British business that produces real stuff as opposed to the City of London and various other service sectors that produce precarious jobs and nothing much of substance. British manufacturing has been left in the margins for far too long and the dearth of investment in fixed capital is something that this Conservative government has absolutely no interest in, or no concept of. A Labour, Corbyn-led government, might be what is necessary in order to create better circumstances both for labour and manufacturing capital in the United Kingdom.

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“Quite simply, people get hurt when the rich don’t pay their taxes.”

Why Care More About Benefit Scroungers Than Billions Lost To The Rich? (G.)

Will the Paradise Papers shift the public’s focus? The leaks alone are seemingly not enough. The 2016 British Social Attitudes survey was conducted just four months after the release of the Panama Papers. Even then, the British public remained more concerned about benefit claimants than tax avoiders. Fundamentally, the Paradise Papers are about numbers – vast sums of money disappearing offshore that could be spent on public services here in the UK. However, as the former chair of the UK Statistics Authority, Andrew Dilnot, has often pointed out, people are bad at dealing with numbers on this scale. Unless you are an economist or a statistician, numbers in the millions and billions are just not particularly meaningful.

The key is to link these numbers to their consequences. The money we lose because people like Lewis Hamilton don’t pay some VAT on their private jet means thousands more visits to food banks. The budget cuts leading to rising homelessness might not have been necessary if Apple had paid more tax. Fewer people might have killed themselves after a work-capability assessment if companies like Alphabet (Google) had not registered their offices in Bermuda, and the downward pressure on benefits payments was not so intense. The causal chains connecting these events are complex and often opaque, but that does not make their consequences any less real, especially for those who have felt the hard edge of austerity.

The Paradise Papers have dragged the murky world of offshore finance into the spotlight. However, calls for change may founder against the British public’s persistent focus on the perceived crimes of the poor. That is, unless we – as academics, politicians, journalists and others – can articulate how the decisions of the very rich contribute to the expulsion of the vulnerable from the protection of state-funded public services. Quite simply, people get hurt when the rich don’t pay their taxes.

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Oh, cut it out.

No Evidence Of Russian Interference In Brexit, PM May Admits In Parliament (RT)

Theresa May has rejected allegations that Russia interfered in the Brexit referendum. Speaking during Prime Minister’s Questions, she stated: “If they care to look at the speech on Monday, they will see that the examples I gave were not in the UK.” During a speech May gave at the Lord Mayor’s banquet, the British leader accused Russia of meddling in European elections, hacking attacks on western government institutions, and spreading fake news. During the customarily confrontational Prime Minister’s Questions, May said that, in her speech, she had indeed cited “Russian interference” occurring “in a number of countries in Europe.” However, she denied that this applied in any way to her own country.

Following the session, a spokesperson for Labour leader Jeremy Corbyn said that “I think we need to see more evidence about what’s being talked about. “In relation to Russia and tensions between NATO and Russia and western powers and Russia more generally, Jeremy has made clear on a number of occasions that we need to see an attempt through dialogue to ratchet down tensions with Russia.” May was responding to a question from Labour MP Mary Creagh, who referred to an assertion by Foreign Secretary Boris Johnson that he had seen no evidence of Russia interfering in the Brexit referendum. Johnson made the comment during an appearance before a Commons committee hearing on November 1. Upon prompting by a senior civil servant, Johnson replied “nyet,” and added in English that there was “not a sausage” of evidence.

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Once again: China needs its foreign reserves.

China’s Outbound Investment Plunged 41% On Year In January To October (BBG)

China’s non-financial outbound investment slumped to $86.3 billion in January to October, plunging 41% from a year earlier, as projects in some industries dried up. There were no new real estate, sports or entertainment deals for the period, the Commerce Ministry said in a statement Thursday. Most outbound investment was in leasing and business services, manufacturing, wholesale and retail sales and information technology services. “Irrational” outbound investment has been curbed further, the ministry said, repeating the language it has used this year as authorities push to halt capital outflows.

That’s reversing an unbroken streak of acceleration since at least 2010: Outbound investment soared 44.1% last year to $170.1 billion, about four times the 2009 level, Mofcom data show. “The combination of hardened capital controls and a crackdown on outbound M&A has dented China’s overseas investment,” said Tom Orlik, chief Asia economist at Bloomberg Economics in Beijing. “A short-term downturn was necessitated by the pressing need to stabilize the yuan. Sustained for too long, falling overseas investment would be tough to square with ambitions for greater international influence through the Belt and Road program.”

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In which sorcery is somehow the opposite of socialism.

Senior China Minister Says Some Officials Practice Sorcery (R.)

Some top Chinese officials are guilty of practicing sorcery and would rather believe in gurus and Western concepts of democracy than the Communist Party, a senior minister wrote on Thursday, warning of the danger they presented to its survival. China guarantees freedom of religion for major belief systems such as Buddhism, Christianity and Islam, but party members are meant to be atheists and are barred from what it calls superstitious practices, such as visits to soothsayers. Recent years have seen several cases of officials jailed as part of President Xi Jinping’s crackdown on corruption being accused of superstition, part of the party’s efforts to blacken their names.

Some senior officials in leadership positions had “fallen morally”, their beliefs straying from the correct path, wrote Chen Xi, the recently appointed head of the party’s powerful Organisation Department that oversees personnel decisions. “Some don’t believe in Marx and Lenin but believe in ghosts and gods; they don’t believe in ideals but believe in sorcery; they don’t respect the people but do respect masters,” he wrote in the official People’s Daily, referring to spiritual leaders or gurus. People in China, especially its leaders, have a long tradition of turning to soothsaying and geomancy to find answers to their problems in times of doubt, need and chaos. The practice has grown more risky amid Xi’s war on graft, in which dozens of senior officials have been imprisoned.

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Large scale arrests in the future?

Corruption in China Could Lead To Soviet-Style Collapse – Graft Buster (ToI)

China must step up its battle against corruption in order to safeguard against a Soviet-style collapse, the country’s second most senior graft buster said in an editorial on Wednesday. Yang Xiaodu, the deputy secretary of the Central Commission for Discipline Inspection, who was promoted to the ruling Communist Party’s 25-strong Politburo last month, said failure would risk the “red country changing colour”. In unusually direct and strongly worded criticism of previous administrations, Yang said “in a previous period”, corruption had been allowed to fester to such an extent that the party’s leadership had weakened, with supervision soft, and ideology apathetic. “It had developed to the point where if not rectified, the country could change colour,” Yang wrote in the official People’s Daily.

“The future fate of the party and the country’s people could follow the same old road to ruin as the Soviet Union and the Eastern Bloc.” President Xi Jinping, like many officials before him, is steeped in the party’s long-held belief that loosening control too quickly or even at all could lead to chaos and the break up of the country. The party regularly implores cadres to study the collapse of the Soviet Union in the early 1990s. Yang’s editorial is the latest salvo signalling that the intensity of Xi’s signature war on corruption would not wane despite the departure of Xi’s right-hand man, Wang Qishan, who was widely seen as China’s second most powerful politician before being replaced as anti-corruption chief in a leadership reshuffle last month. Wang’s replacement, Zhao Leji, wrote a similarly strongly worded editorial in the People’s Daily on Saturday.

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Not doing well. At all.

The Complete Idiot’s Guide To The Biggest Risks In China (ZH)

With both commodities and Chinese stocks suffering sharp overnight drops, it is hardly surprising that today trading desks have quietly been sending out boxes full of xanax their best under-25 clients (those veterans who have seen one, maybe even two 1% market crashes), along with reports explaining just what China is and why it matters to the new generation of, well, traders. One such analysis, clearly geared to the Ritalin generation complete with 3 second attention spans, comes from Deutsche Bank which in a few hundred words seeks to explain the key risks threatening the world’s most complex centrally-planned economy, and ground zero of the next financial crash. Which, one day after our summary take on why the Chinese commodity, economic and financial crash is only just starting (as those who traded overnight may have noticed), is probably a good place to reiterate some of the more salient points.

As Deutsche Bank’s Zhiwei Zhang writes in “Risks to watch in the next six months”, the key thing to keep in mind about China now that the 19th Party Congress is in the rear-view mirror, is that the government is likely to tolerate slower growth in 2018. Han Wenxiu, the deputy head of the Research Office of the State Council, said that GDP growth at 6.3% in 2018-2020 would be sufficient to achieve the Party’s 2020 growth target. And while this is a positive message for the long term, it indicates growth will likely slow in 2018. And, as DB warns, recent economic data suggest the economic cycle has indeed cooled down. For all those seeking key Chinese inflection points, here are the three big red flags involving China’s economy:

For the first time since Q4 2004, fixed asset investment (FAI) growth turned negative in real terms in Q3 this year.

Growth of property sales for the nation turned negative as well in October, the first time since 2015.

The property market boom in Tier 3 cities is also losing momentum.

We hope not to have lost by now all the Millennial traders who started reading this post. To those who persevered, here – in addition to the risks facing the economy – are the other two main risks facing China’s investors: (rising) inflation and (rising) interest rates.

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The most corrupt are the most powerful. Cue China.

Why the Anti-Corruption Drive in Saudi Arabia is Doomed to Fail (CP)

The problem in resource-rich states is that corruption is not marginal to political power, but central to acquiring it and keeping it. Corruption at the top is a form of patronage manipulated by those in charge, to create and reward a network of self-interested loyalists. It is the ruling family and its friends and allies who cherrypick what is profitable: this is as true of Saudi Arabia as it was true of Libya under Gaddafi, Iraq under Saddam Hussein and his successors, or Iraqi Kurdistan that was supposedly different from the rest of the country. Corruption is a nebulous concept when it comes to states with arbitrary rulers, who can decide – unrestrained by law or democratic process – what is legal and what is illegal. What typifies the politics of oil states is that everybody is trying to plug into the oil revenues in order to get their share of the cake.

This is true at the top, but the same is the case of the rest of the population, or at least a large and favoured section of it. The Iraqi government pays $4bn a month to about seven million state employees and pensioners. These may or may not do productive work, but it would be politically risky to fire them because they are the base support of the regime in power. Anti-corruption drives don’t work, because if they are at all serious, they soon begin to cut into the very roots of political power by touching the “untouchables”. At this point principled anti-corruption campaigners will find themselves in serious trouble and may have to flee the country, while the less-principled ones will become a feared weapon to be used against anybody whom the government wants to target.

A further consequence of the traditional anti-corruption drive is that it can paralyse government activities in general. This is because all officials, corrupt and incorrupt alike, know that they are vulnerable to investigation. “The safest course for them is to take no decision and sign no document which might be used or misused against them,” a frustrated American businessman told me in Baghdad some years ago. He added that it was only those so politically powerful that they did not have to fear legal sanctions who would take decisions – and such people were often the most corrupt of all.

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Wishful thinking?

Saudi Walks Back Escalation As Dramatic Moves Backfire (AP)

Saudi Arabia’s dramatic moves to counter Iran in the region appear to have backfired, significantly ratcheting up regional tensions and setting off a spiral of reactions and anger that seem to have caught the kingdom off guard. Now it’s trying to walk back its escalations in Lebanon and Yemen. On Monday, the kingdom announced that the Saudi-led coalition fighting Shiite rebels in Yemen would begin reopening airports and seaports in the Arab world’s poorest country, days after closing them over a rebel ballistic missile attack on Riyadh. The move came just hours after Lebanese Prime Minister Saad Hariri, who shocked the nation by announcing his resignation from the Saudi capital on Nov. 4, gave an interview in which he backed off his strident condemnation of the Lebanese militant Hezbollah, saying he would return to the country within days to seek a settlement with the Shiite militants, his rivals in his coalition government.

The two developments suggest that Saudi Arabia’s bullish young crown prince, Mohammed bin Salman, may be trying to pedal back from the abyss of a severe regional escalation. “This represents de-escalation by the Saudis,” said Yezid Sayigh, a senior fellow at the Carnegie Middle East Center in Beirut. “The general trend is that the Saudis are going to back off and this is largely because of the unexpected extent of international pressure, and not least of all U.S. pressure.” Mohammed bin Salman, widely known by his initials, MBS, has garnered a reputation for being decisive, as well as impulsive. At just 32 years old and with little experience in government, he has risen to power in just three years to oversee all major aspects of politics, security and the economy in Saudi Arabia. As defense minister, he is in charge of the Saudi-led war in Yemen.

He also appears to have the support of President Donald Trump and his son-in-law, senior adviser Jared Kushner, who visited the Saudi capital earlier this month. Saudi partners in the Gulf and the Trump administration rushed to defend the kingdom publicly after a rebel Houthi missile was fired at the Saudi capital, Riyadh, from Yemen last week. A top U.S. military official also backed Saudi claims that the missile was manufactured by Iran. However, Saudi Arabia’s move to tighten an already devastating blockade on Yemen in response to the missile was roundly criticized by aid groups, humanitarian workers and the United Nations, which warned that the blockade could bring millions of people closer to “starvation and death.” Saudi Arabia’s decision to ease the blockade after just a week suggests it bowed to the international criticism, and did not want the bad publicity of even more images of emaciated Yemeni children and elderly people circulating online and in the media.

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“WaPo ran sixteen smear pieces on Bernie Sanders in the span of sixteen hours at the hottest point in the Democratic presidential primary battle.”

Friendly Reminder That Jeff Bezos Is Trying To Take Over The Universe (CJ)

Jeff Bezos, currently the wealthiest human being on planet Earth, did not purchase the Washington Post in 2013 because he was expecting newspapers to make a lucrative resurgence. This self-evident fact doesn’t receive enough attention. I will say it again for emphasis: Jeff Bezos, who has used his business prowess to become the wealthiest person in the world, did not purchase the Washington Post in 2013 because he was expecting newspapers to make a profitable comeback. That did not happen. What did happen is the world’s richest plutocrat realizing that he needed a mouthpiece to manufacture public support for the neoliberal corporatist establishment that he is building his empire upon. This is why WaPo ran sixteen smear pieces on Bernie Sanders in the span of sixteen hours at the hottest point in the Democratic presidential primary battle.

[..] Last year Silicon Valley venture capitalist Chamath Palihapitiya said that Amazon is “a multi-trillion-dollar monopoly hiding in plain sight.” In June Stacy Mitchell, co-director of the Institute for Local Self-Reliance, wrote that Amazon is trying to “control the underlying infrastructure of the economy.”\ Bezos continues to get cozier and cozier with the US power establishment as his empire metastasizes across human civilization. He kicked WikiLeaks off Amazon servers in 2010, he scored a 600 million dollar contract with the CIA in 2013, he joined a Pentagon advisory board in 2016, he hung out with Defense Secretary James Mattis in August, and he’s spent nearly ten million dollars this year lobbying the federal government, which is likely what led to an NDAA amendment gifting Amazon a $54 billion market it’s expected to dominate as a supplier to the Pentagon. Billion. With a ‘b’.

[..] I gave this story a jokey headline, but seriously, watch Jeff Bezos very closely. Your future is increasingly more likely to be imperiled by new money tech plutocrats like him than by old money plutocrats like Soros and the Rothschilds.

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Interesting. Earthquakes are no. 1 incentive.

Why Japan Knocks Down Its Houses After 30 Years (G.)

In the suburban neighbourhood of Midorigaoka, about an hour by train outside Kobe, Japan, all the houses were built by the same company in the same factory. Steel frames fitted out with panel walls and ceilings, these homes were clustered by the hundreds into what was once a brand new commuter town. But they weren’t built to last. Daiwa House, one of the biggest prefabricated housing manufacturers in Japan, built this town in the 60s during a postwar housing boom. It’s not unlike the suburban subdivisions of the western world, with porches, balconies and rooflines that shift and repeat up and down blocks of gently curving roads. Most of those houses built in the 60s are no longer standing, having long since been replaced by newer models, finished with fake brick ceramic siding in beiges, pinks and browns.

In the end, most of these prefabricated houses – and indeed most houses in Japan – have a lifespan of only about 30 years. Unlike in other countries, Japanese homes gradually depreciate over time, becoming completely valueless within 20 or 30 years. When someone moves out of a home or dies, the house, unlike the land it sits on, has no resale value and is typically demolished. This scrap-and-build approach is a quirk of the Japanese housing market that can be explained variously by low-quality construction to quickly meet demand after the second world war, repeated building code revisions to improve earthquake resilience and a cycle of poor maintenance due to the lack of any incentive to make homes marketable for resale. In Midorigaoka, even the newer homes built in the 80s and 90s are nearing the end of their expected lifespan.

Under normal circumstances, their days might be numbered. But down at the end of one block, there’s a sign things are changing. Scaffolding surrounds a vacant house on a corner and workers from Daiwa House are clanging away inside. They’re not demolishing the house but refurbishing it – reorganising the floor plan, knocking down walls, opening up the kitchen and enhancing the insulation. Rather than tear down the house so the next buyer can build something new, they’re rebuilding it from the inside and putting it back on the market. It’s a relatively rare commodity, but something that is increasingly common across Japan: a secondhand home.

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I’ve long predicted that Greece will be much less peaceful once Syriza loses power. But yeah, the whole country’s put up for sale, so foreigners are certain to take over.

Kyle Bass: Investors to Pour Billions into Greece after Political Change (GR)

Hedge fund manager, Kyle Bass, believes that Greece will come out of the crisis and investors will pour billions into its economy once the government changes, according to a CNBC report. The founder and chief investment officer of Hayman Capital Management; which manages an estimated $815 million in assets, is closely following the course of the Greek economy and political situation, and has invested in Greek bank stocks. Bass says that foreign investors are waiting on the sidelines for a political shift to take place in 2018. “My best guess is a snap election for prime minister will be called between April and September of next year and Prime Minister Alexis Tsipras will lose power. When that happens, there will be a massive move into the Greek stock market. Big money will flow in as investors feel more confident with a more moderate administration,” Bass said.

“It’s going to take Kyriakos Mitsotakis; president of New Democracy, the Greek conservative party, to be voted in as prime minister to reform the culture and rekindle investor confidence,” the investor said. “I have no doubt 15 billion euros in bank deposits will come back to Greek banks if he’s elected. The stock and bond markets will also jump following the election.” Bass says that global investors are waiting for the political change in order to invest in real estate, energy and tourism. So far, the hedge fund manager noted, Greece has proceeded with privatizations of its main port; regional airports; its railway system; the largest insurance company, and there are more important ones to be completed within the next two years. “There is so much potential in Greece,” Bass said, noting that investors are waiting for the right moment to enter, the CNBC report concludes.

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Europe just lets it get worse.

Lesvos Reaches Breaking Point, Mayor Declares General Strike (G.)

With reception centers on Lesvos bursting at the seams and dozens more migrants arriving daily, the island’s mayor, Spyros Galinos, on Tuesday declared a general strike for Monday in protest. Currently, some 1,500 people – including hundreds of small children – are stranded on the island living in tents, and fears are growing that winter may bring a new humanitarian crisis. In total, there are more than 8,000 migrants and refugees on Lesvos, a favored destination of traffickers bringing people over from neighboring Turkey. “Lesvos has a population of 32,000 residents and there are at the moment 8,300 migrants and refugees,” Galinos told Kathimerini. Moreover, local police union members held a protest over deteriorating working conditions.

“The situation on Lesvos has fueled insecurity among citizens. The police force is dealing exclusively with the migrant issue,” the union chief Dimitris Alexiou said. “We are not expendables,” he added. And with flows to the eastern Aegean islands from Turkey showing no signs of letting up, locals and migrants have reached the end of their tether. Since the beginning of November, 1,603 people have arrived on the islands. In September, 6,000 people arrived from Turkey, the same number as in October. On Monday, another 101 migrants landed on eastern Aegean islands, while more than 400 arrived over the weekend. The situation in the Moria camp on Lesvos is a case in point.

“Conditions at Moria have reached breaking point as the facility is three times over capacity,” said Michael Bakas, coordinator of the northern Aegean branch of the Ecologist Greens, who escorted visiting Group of the Greens MEP and vice chairwoman of the European Parliament’s Subcommittee on Human Rights Barbara Lochbihler. Bakas said about 1,000 children are currently stranded at the camp. The issue will be discussed at the EU assembly on Wednesday.

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Monsanto must now have as many lawyers as scientists on its payroll. Time to say enough is enough.

Monsanto, US Farm Groups Sue California Over Glyphosate Cancer Warnings (R.)

Monsanto and U.S. farm groups sued California on Wednesday to stop the state from requiring cancer warnings on products containing the widely used weed killer glyphosate, which the company sells to farmers to apply to its genetically engineered crops. The government of the most populous U.S. state added glyphosate, the main ingredient in Monsanto’s herbicide Roundup, to its list of cancer-causing chemicals in July and will require that products containing glyphosate carry warnings by July 2018. California acted after the World Health Organization’s International Agency for Research on Cancer (IARC) concluded in 2015 that glyphosate was “probably carcinogenic”. For more than 40 years, farmers have applied glyphosate to crops, most recently as they have cultivated genetically modified corn and soybeans.

Roundup and Monsanto’s glyphosate-resistant seeds would be less attractive to customers if California requires warnings on products containing the chemical. In the lawsuit, filed in federal court in California, Monsanto and groups representing corn, soy and wheat farmers reject that glyphosate causes cancer. They say the state’s requirement for warnings would force sellers of products containing the chemical to spread false information.“Such warnings would equate to compelled false speech, directly violate the First Amendment, and generate unwarranted public concern and confusion,” Scott Partridge, Monsanto’s vice president of global strategy, said in a statement.

The controversy is an additional headache for Monsanto as it faces a crisis around a new version of an herbicide based on another chemical known as dicamba that was linked to widespread U.S. crop damage this summer. The company, which is being acquired by Bayer AG for $63.5 billion, developed the product as a replacement for glyphosate following an increase of weeds resistant to the chemical. Monsanto has already suffered damage to its investment of hundreds of millions of dollars in glyphosate products since California added the chemical to its list of products known to cause cancer, according to the lawsuit.

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Weep.

Plastics Found In Stomachs Of Deepest Sea Creatures (G.)

Animals from the deepest places on Earth have been found with plastic in their stomachs, confirming fears that manmade fibres have contaminated the most remote places on the planet. The study, led by academics at Newcastle University, found animals from trenches across the Pacific Ocean were contaminated with fibres that probably originated from plastic bottles, packaging and synthetic clothes. Dr Alan Jamieson, who led the study, said the findings were startling and proved that nowhere on the planet was free from plastics pollution. “There is now no doubt that plastics pollution is so pervasive that nowhere – no matter how remote – is immune,” he said. Evidence of the scale of plastic pollution has been growing in recent months. Earlier this year scientists found plastic in 83% of global tapwater samples, while other studies have found plastic in rock salt and fish.

Humans have produced an estimated 8.3bn tonnes of plastic since the 1950s and scientists said it risked near permanent contamination of the planet. Jamieson said underlined the need for swift and meaningful action. “These observations are the deepest possible record of microplastic occurrence and ingestion, indicating it is highly likely there are no marine ecosystems left that are not impacted by anthropogenic debris.” He said it was “a very worrying find.” “Isolating plastic fibres from inside animals from nearly 11 kilometres deep (seven miles) just shows the extent of the problem. Also, the number of areas we found this in, and the thousands of kilometre distances involved shows it is not just an isolated case, this is global.”

[..] The team examined 90 individual animals and found ingestion of plastic ranged from 50% in the New Hebrides Trench to 100% at the bottom of the Mariana Trench. The fragments identified include semi-synthetic cellulosic fibres, such as Rayon, Lyocell and Ramie, which are all microfibres used in products such as textiles, to plastic fibres that are likely to come from plastic bottles, fishing equipment or everyday packaging. Jamieson said deep-sea organisms are dependent on food “raining down from the surface which in turn brings any adverse components, such as plastic and pollutants with it.” “The deep sea is not only the ultimate sink for any material that descends from the surface, but it is also inhabited by organisms well adapted to a low food environment and these will often eat just about anything.”


This microscopic arrow worm has eaten a blue plastic fibre that is blocking the passage of food along its gut. Photograph: Richard Kirby/Courtesy of Orb Media

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Nov 112017
 
 November 11, 2017  Posted by at 9:26 am Finance Tagged with: , , , , , , , , , , ,  4 Responses »
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Henri Cartier Bresson Greenfield, Indiana 1960

 

How Economics Failed the Economy (Haque)
How Did The News Go ‘Fake’? When The Media Went Social (G.)
Global Economy: Communication Breakdown? (R.)
Financial Markets Are Still Blowing Off the Fed (WS)
Is There Any Way Out Of The ECB’s Trap? (Lacalle)
How to Break Out of Our Long National Tax Nightmare (BW)
Tesla’s Junk Bonds Trading Under Water, Could Spell Trouble For Elon Musk (MW)
China Faces Historic Corruption Battle, New Graft Buster Says (R.)
Putin, Trump Agree To Fighting ISIS In Syria, Kremlin Says (R.)
Uber Loses Appeal In UK Employment Rights Case (G.)
Greece Prepares Online Platform for ‘Airbnb Tax’ (GR)
Dijsselbloem: We Saved the Greek Banks but Overlooked Taxpayers (GR)
FOIA Litigation Is Shedding Light On The Case Of Julian Assange (Maurizi)

 

 

Absolute must read.

“Economics failed the economy by telling us that everything that could be traded should be traded, since trade is always beneficial to humankind.”

“..the economic growth that the US has chased so desperately, so furiously, never actually existed at all.”

How Economics Failed the Economy (Haque)

When, in the 1930s, the great economist Simon Kuznets created GDP, he deliberately left two industries out of this then novel, revolutionary idea of a national income : finance and advertising. Don’t worry, this essay isn t going to be a jeremiad against them, that would be too easy, and too shallow, but that is where the story of how modern economics failed the economy and how to understand how to undo it should begin. Kuznets logic was simple, and it was not mere opinion, but analytical fact: finance and advertising don t create new value, they only allocate, or distribute existing value in the same way that a loan to buy a television isn’t the television, or an ad for healthcare isn’t healthcare. They are only means to goods, not goods themselves. Now we come to two tragedies of history.

What happened next is that Congress laughed, as Congresses do, ignored Kuznets, and included advertising and finance anyways for political reasons -after all, bigger, to the politicians mind, has always been better, and therefore, a bigger national income must have been better. Right? Let’s think about it. Today, something very curious has taken place. If we do what Kuznets originally suggested, and subtract finance and advertising from GDP, what does that picture -a picture of the economy as it actually is reveal? Well, since the lion’s share of growth, more than 50% every year, comes from finance and advertising -whether via Facebook or Google or Wall St and hedge funds and so on- we would immediately see that the economic growth that the US has chased so desperately, so furiously, never actually existed at all.

Growth itself has only been an illusion, a trick of numbers, generated by including what should have been left out in the first place. If we subtracted allocative industries from GDP, we’d see that economic growth is in fact below population growth, and has been for a very long time now, probably since the 1980s and in that way, the US economy has been stagnant, which is (surprise) what everyday life feels like. Feels like. Economic indicators do not anymore tell us a realistic, worthwhile, and accurate story about the truth of the economy, and they never did -only, for a while, the trick convinced us that reality wasn’t. Today, that trick is over, and economies grow , but people’s lives, their well-being, incomes, and wealth, do not, and that, of course, is why extremism is sweeping the globe. Perhaps now you begin to see why the two have grown divorced from one another: economics failed the economy.

Now let us go one step, then two steps, further. Finance and advertising are no longer merely allocative industries today. They are now extractive industries. That is, they internalize value from society, and shift costs onto society, all the while, creating no value themselves. The story is easiest to understand via Facebook’s example: it makes its users sadder, lonelier, and unhappier, and also corrodes democracy in spectacular and catastrophic ways. There is not a single upside of any kind that is discernible -and yet, all the above is counted as a benefit, not a cost, in national income, so the economy can thus grow, even while a society of miserable people are being manipulated by foreign actors into destroying their own democracy. Pretty neat, huh?

It was *because* finance and advertising were counted as creative, productive, when they were only allocative, distributive that they soon became extractive. After all, if we had said from the beginning that these industries do not count, perhaps they would not have needed to maximize profits (or for VCs to pour money into them, and so on) endlessly to count more. But we didn’t. And so soon, they had no choice but to become extractive: chasing more and more profits, to juice up the illusion of growth, and soon enough, these industries began to eat the economy whole, because of course, as Kuznets observed, they allocate everything else in the economy, and therefore, they control it.

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Discuss. Do social media make you depressed?

How Did The News Go ‘Fake’? When The Media Went Social (G.)

The Collins Dictionary word of the year for 2017 is, disappointingly, “fake news”. We say disappointingly, because the ubiquity of that phrase among journalists, academics and policymakers is partly why the debate around this issue is so simplistic. The phrase is grossly inadequate to explain the nature and scale of the problem. (Were those Russian ads displayed at the congressional hearings last week news, for example?) But what’s more troubling, and the reason that we simply cannot use the phrase any more, is that it is being used by politicians around the world as a weapon against the fourth estate and an excuse to censor free speech. Definitions matter. Take, for example, the question of why this type of content is created in the first place.

There are four distinct motivations for why people do this: political, financial, psychological (for personal satisfaction) and social (to reinforce our belonging to communities or “tribes”). If we’re serious about tackling mis- and disinformation, we need to address these motivations separately. And we think it’s time to give much more serious consideration to the social element. Social media force us to live our lives in public, positioned centre-stage in our very own daily performances. Erving Goffman, the American sociologist, articulated the idea of “life as theatre” in his 1956 book The Presentation of Self in Everyday Life, and while the book was published more than half a century ago, the concept is even more relevant today. It is increasingly difficult to live a private life, in terms not just of keeping our personal data away from governments or corporations, but also of keeping our movements, interests and, most worryingly, information consumption habits from the wider world.

The social networks are engineered so that we are constantly assessing others – and being assessed ourselves. In fact our “selves” are scattered across different platforms, and our decisions, which are public or semi-public performances, are driven by our desire to make a good impression on our audiences, imagined and actual. We grudgingly accept these public performances when it comes to our travels, shopping, dating, and dining. We know the deal. The online tools that we use are free in return for us giving up our data, and we understand that they need us to publicly share our lifestyle decisions to encourage people in our network to join, connect and purchase.

But, critically, the same forces have impacted the way we consume news and information. Before our media became “social”, only our closest family or friends knew what we read or watched, and if we wanted to keep our guilty pleasures secret, we could. Now, for those of us who consume news via the social networks, what we “like” and what we follow is visible to many – or, in Twitter’s case, to all, unless we are in that small minority of users who protect their tweets. Consumption of the news has become a performance that can’t be solely about seeking information or even entertainment. What we choose to “like” or follow is part of our identity, an indication of our social class and status, and most frequently our political persuasion.

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The Fed is not the biggest player anymore.

Global Economy: Communication Breakdown? (R.)

A flattening of government bond yield curves that may presage an economic downturn could prompt verbal interventions in the coming week by central bankers still struggling to hit this cycle’s inflation targets. ECB chief Mario Draghi, U.S. Fed Chair Janet Yellen, BOJ Governor Haruhiko Kuroda and BOE head Mark Carney will form an all-star panel on Tuesday at an ECB-hosted conference in Frankfurt. The subject? “Challenges and opportunities of central bank communication.” Curve-flattening on both sides of the Atlantic, but more markedly in the United States, suggests investors have doubts over the future path of inflation and may be starting to price in a downturn just as the global economy picks up speed.

Since the Fed began raising rates in 2015, the difference between long- and short-term U.S. yields has shrunk to levels not seen since before the 2008 financial crisis, reaching 67 basis points – its flattest in a decade – in the past week. That partly reflects uncertainty about the passage of a Republican-sponsored bill to cut U.S. taxes, which has hauled down longer-term projections of inflation while expectations for upcoming rate increases push short-term yields higher. With curve-flattening typically signaling a muted outlook for both growth and inflation, the trend suggests investors see a risk that the Fed’s current monetary tightening cycle will start to slow the world’s biggest economy. A flatter curve, which makes lending less profitable, also poses a risk to the banking sector, nursed back to fragile health by central banks after it nearly collapsed a decade ago. But with crisis-era policies still largely in place, how would central banks cushion the impact of a downturn?

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Because of Draghi and Kuroda.

Financial Markets Are Still Blowing Off the Fed (WS)

There has been a lot of hand-wringing about junk bonds this week, that they have gotten clobbered, that losses have been taken, that this is a predictor of where stocks are headed, etc., etc., because after a steamy rally in junk-bond prices from the February 2016 low, there has now been a sell-off. When bond prices fall, bond yields rise by definition. And the average yield of BB-rated junk bonds – the upper end of the junk-bond spectrum – did this:

No one likes to lose money, and junk bonds did lose money this week, an astounding event, after all the easy money that had been made since early February 2016. But how far have yields really spiked? The chart below shows the same BofA Merrill Lynch US High Yield BB Effective Yield index, but it puts that “spike” into a three-year context:

For further context, the BB yield spiked – a true spike – to over 16% during the Financial Crisis, as bond prices crashed and as credit froze up. Currently, at 4.36%, the average BB yield is off record lows, but it’s still low, and junk bond prices are still enormously inflated, given the inherent credit risks, and have a lot further to fall before any hand-wringing is appropriate. The low BB yield means that risky companies with a junk credit rating can still borrow money at near record low costs in a world awash in global liquidity that is trying to find a place to go. This shows that “financial conditions” are very easy. The market has now four Fed rate hikes under its belt and the QE unwind has commenced. Another rake hike is likely in December. Tightening is under way. By “tightening” its monetary policy, the Fed attempts to tighten financial conditions in the markets. That’s its goal.

But that hasn’t happened yet. While short-term yields have responded to the rate hikes, longer-term yields are now lower than they’d been at the time of the rate hike in December 2016. Stocks have rocketed higher. Volatility indices are near record lows. And various yield spreads have narrowed sharply – for example, the difference between the 10-year Treasury yield and the 2-year Treasury yield is currently just 0.73 percentage points. In other words, raising money is easy and cheap. And “financial stress” in the markets, as measured by the St. Louis Fed’s Financial Stress Index, has just hit a record low. In the chart below, the red line (= zero) represents “normal financial market conditions.” Values below the red line indicate below-average financial market stress. Values above the red line indicate higher than average financial stress. The latest reading of the index dropped to -1.60, by a hair below the prior record low in 2014:

In other words, financial conditions have never been easier despite the current series of rate hikes, the Fed’s “balance-sheet normalization, and the hand-wringing about junk bonds this week. The chart below shows the Financial Stress Index going back to 2014. In that time frame, all values are below zero. Financial stress in the markets was heading back to normal in late 2015 and early 2016, as a small sector of the total markets – energy junk-bonds – were getting crushed and as the S&P 500 index experienced a downdraft. But in early February 2016, everything turned around:

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Europe’s problem is huge: “..the ECB repurchase program exceeds net sovereign bond issuances in the eurozone by more than seven times. Throughout the US QE (quantitative expansion) of the Federal Reserve, it never reached 100% of net issuances.” Thing is, it’s Draghi who keeps the global economy going.

Is There Any Way Out Of The ECB’s Trap? (Lacalle)

The ECB faces the Devil’s Alternative that Frederick Forsyth mentioned in one of his books. All options are potentially risky. Mario Draghi knows that maintaining the so-called stimuli involves more risks than benefits, but also knows that eliminating them could make the eurozone deck of cards collapse. Despite the massive injection of liquidity, he knows that he can not disguise political risks such as the secessionist coup in Catalonia. The Ibex reflects this, making it clear that the European Central Bank does not print prosperity, it only puts a floor to valuations. The ECB wants a weak euro. But it is a game of juggling to pretend a weak euro and at the same time a strong economy. The EU countries export mostly to themselves. Member countries sell more than two-thirds of their goods and services to other countries in the eurozone.

Therefore, the more they export and their economies recover, the stronger the euro, and with it, the risk of losing competitiveness. The ECB has tried to break the euro strength with dovish messages, but it has not worked until political risk reappeared. With the German elections and the prospect of a weak coalition, the results of the Austrian elections and the situation in Spain, market operators have realized – at last – that the mirage of “this time is different “in the European Union was simply that, a mirage. A weak euro has not helped the EU to export more abroad. Non-EU exports from the member countries have been stagnant since the monetary stimulus program was launched, even though the euro is much weaker than its basket of currencies compared to when the stimulus program began. The Central Bank Trap. This shows that export growth is not achieved by artificial subsidies such as a devaluation, but from added value, something that the EU has stopped looking for.

Escape From The Central Bank Trap explains that the ECB has got itself in a problem that is not easy to solve. The first evidence is that it should have finished its stimuli months ago according to its own plan, but is unable to do it. The second is that, with more than a trillion euros of excessive liquidity, the ECB keeps a figure of repurchases that were clearly unnecessary and that have resulted in the figure of excess liquidity being multiplied by more than ten. The third is that perverse incentives have taken over the European economic policy. Risks are relevant. This week I had the opportunity to speak at the Federal Reserve Bank of Houston and I explained that the ECB repurchase program exceeds net sovereign bond issuances in the eurozone by more than seven times. Throughout the US QE (quantitative expansion) of the Federal Reserve, it never reached 100% of net issuances.

Now that the ECB “reduces” these repurchases to 30 billion euros per month, it will continue to be more than 100% of net issuances. What does that mean? That the US always maintained a healthy secondary market alive, which guaranteed that there would not be huge risks of collapse when tapering started, because the Federal Reserve bought less than what was issued, paying attention to the market accepting the valuations of bonds and financial assets. By extending the repurchase program, the ECB admits that it does not know if there is a secondary market that would buy European government bonds at current yields. Ask yourself a question. Would you buy bonds from a heavily indebted state that has stopped its reform impulse with a 10-year yield of less than 2%, if the ECB did not buy them back? Exactly. No.

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What’s needed is a whole overthrow of taxation as we know it. The Paradise Papers point to where the changes should be.

How to Break Out of Our Long National Tax Nightmare (BW)

President Donald Trump wanted to call it the Cut Cut Cut Act. Congressional Republicans settled on the less catchy and no more descriptive Tax Cuts and Jobs Act. What the legislation that began making its way through the U.S. House of Representatives in early November actually would do is sharply reduce taxes for business while rearranging the personal income tax with a mix of cuts and increases. House Speaker Paul Ryan called the bill “a game changer for our country.” The president said it was “the rocket fuel our economy needs to soar higher than ever before.” That’s a lot to expect from some changes in the tax code. But then, here in the U.S. we’ve come to expect big things of our income taxes. On the right, cutting them has been portrayed for decades as a near-magical growth elixir. On the left, raising or rearranging them is seen as essential to making society fairer.

And across the political spectrum, economic and social policies have come to rely on carving credits, deductions, and other exceptions out of the tax code to favor this or that behavior. It can sometimes feel, in fact, as if “we have lost sight of the fact that the fundamental purpose of our tax system is to raise revenues to fund government.” That was the lament of President George W. Bush’s Advisory Panel on Federal Tax Reform in November 2005. But this bipartisan group of worthies couldn’t agree on how to raise those revenues either, instead offering two plans with differing priorities. Both were mostly ignored by Congress at the time, though some of the recommendations—such as shrinking the tax deductions for mortgage interest and state and local taxes—have found their way into this year’s bill. Overall, though, it appears that the legislation will only make it harder to raise revenue to fund government.

The House and Senate have passed budget resolutions clearing the way for $1.5 trillion in revenue losses over the next decade from the tax changes. That’s $150 billion a year to add to a federal deficit that totaled a sinister-sounding $666 billion, 3.5% of GDP, in the just-ended fiscal year. All of which is a longer way of saying that we’ll almost certainly be back at this once again in the all-too-foreseeable future, trying to figure out a better way to fund the government. Since 1981, the year of President Ronald Reagan’s big tax cut, Congress has passed and presidents have signed 55 bills that the Urban-Brookings Tax Policy Center counts as “major” tax legislation. During the prior 36 years there had been just 18. [..] Ominously, most previous U.S. tax eras ended with major wars that required big increases in government revenue. Let’s hope it doesn’t take that to break us out of the cut-reform-increase-repeat loop we’re currently trapped in.

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This will make the next debt round a lot harder, and more expensive.

Tesla’s Junk Bonds Trading Under Water, Could Spell Trouble For Elon Musk (MW)

Tesla’s first-ever pure corporate bonds are trading under water, boding ill for the Silicon Valley car maker’s next attempt to tap capital markets. Tesla sold $1.8 billion in the senior notes in August at a yield of 5.300%, at the height of excitement about the Model 3 and expectations the sedan’s production ramp would run as smoothly as Chief Executive Elon Musk had predicted. That same month, Tesla shares rose 10% to mark their last monthly gain this year so far. The stock lost 4.2% in September and 2.8% in October. The stock is down 9% so far in November, on the heels of a quarterly miss earlier in the month and news that the company has further pushed out its Model 3 production targets. “Third-quarter results put some pressure on the cash flow needs,” said Efraim Levy, an analyst with CFRA Research.

The wider-than-expected quarterly loss and production delays “makes it harder for them to get a sweeter deal than they had in the past,” on capital raising, be it when selling bonds or equity, he said. The 5.300% notes, which mature in 2025, were trading at 94 cents on the dollar on Friday to yield 6.287%, according to trading platform MarketAxess. On a spread basis, they were trading at 393 basis points above comparable Treasurys. The bonds fell under par within a week of issuance, but were holding above 97 cents for much of October. Wall Street has long seemed to accept that Tesla’s high capital expenses and negative free cash flow will be the reality for the company at least in the short term.

But the weak performance of the bonds may be a sign that bond investors, at least, are starting to disbelieve Tesla’s growth story and will be looking for higher premiums to take on higher risk, said Trip Miller, a managing partner at hedge fund, Gullane Capital LLC. That higher cost of borrowing will have its own negative implications, he said. “Maybe the dam is starting to break for Tesla,” Miller said. Gullane does not have a position in Tesla because “their balance sheet is very, very troublesome for us,” he said.

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Everyone’s fighting corruption these days. Time for us to start doing the same?

China Faces Historic Corruption Battle, New Graft Buster Says (R.)

China must win its battle against corruption or face being erased by history, its new top graft buster said in an editorial on Saturday, underscoring the ruling Communist party’s focus on eliminating corrupt behaviour. Zhao Leji, appointed to the new seven-member politburo standing committee last month and tasked to lead president Xi Jinping’s signature war on corruption, wrote in the state-run People’s Daily that failure would lead to the party’s downfall. “If our control of the party is not strong and party governance is not strict, then the party won’t be able to avoid being erased by history and the historic task the party carries will not be able to be fulfilled,” Zhao wrote. Xi, like others before him, has warned corruption is so serious it could lead to the end of the party’s grip on power.

The president’s corruption fight has ensnared more than 1.3 million officials. At last month’s five-yearly party congress he said it would continue to target both “tigers” and “flies“, a reference to elite officials and ordinary bureaucrats. Zhao, formerly a low-profile official, replaced Wang Qishan, whose sweeping anti-graft campaign had made him China’s second most-powerful politician. “The facts tell us and warn us that the party’s position as the top political leader and power is the foundation of our political stability, economic development, national unity and social stability,” Zhao wrote. Zhao leads the central commission for discipline inspection, having previously been in charge of the party’s powerful organisation department, which is in charge of personnel decisions. He added that there would be no tolerance of people who “just do what they want to do” and ignore orders or carry on with banned behaviours such as trying to get around policy decisions.

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It’s crazy these people are kept from talking.

Putin, Trump Agree To Fighting ISIS In Syria, Kremlin Says (R.)

Russian President Vladimir Putin and U.S. President Donald Trump agreed a joint statement on Syria on Saturday that said they would continue joint efforts in fighting Islamic State until it is defeated, the Kremlin said. The White House did not immediately respond to questions about the Kremlin announcement or the conversation the Kremlin said took place on the sidelines of the Asia-Pacific Economic Cooperation (APEC) summit in the Vietnamese resort of Danang. The Kremlin said the statement on Syria was coordinated by Russian Foreign Minister Sergei Lavrov and U.S. Secretary of State Rex Tillerson especially for the meeting in Danang. Putin and Trump confirmed their commitment to Syria’s sovereignty, independence and territorial integrity and called on all parties to the Syrian conflict to take an active part in the Geneva political process, it said.

Moscow and Washington agree there is no military solution to the Syrian conflict, according to the text of the joint statement published on the Kremlin’s website. Television pictures from Danang showed Putin and Trump chatting – apparently amicably – as they walked to the position where the traditional APEC summit photo was being taken at a viewpoint looking over the South China Sea. Earlier pictures from the meeting show Trump walking up to Putin as he sits at the summit table and patting him on the back. The two lean in to speak to each other and clasp each other briefly as they exchange a few words. Although the White House had said no official meeting was planned, the two also shook hands at a dinner on Friday evening. Trump has shown little appetite for holding talks with Putin unless there is some sense that progress could be made on festering issues such as Syria, Ukraine and North Korea.

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“Companies are hiding behind technology, bogusly classifying people as self-employed so they can get away from paying minimum wage.”

Uber Loses Appeal In UK Employment Rights Case (G.)

The ride-hailing firm Uber has lost its appeal against a ruling that its drivers should be classed as workers with minimum-wage rights, in a case that could have major ramifications for labour rights in the growing gig economy. The US company, which claims that drivers are self-employed, said it would launch a further appeal against the Employment Appeal Tribunal decision, meaning the case could end up in thesupreme court next year. Drivers James Farrar and Yaseen Aslam won an employment tribunal case last year after arguing they should be classified as workers, citing Uber’s control over their working conditions. Uber challenged the ruling at the tribunal in central London, warning that it could deprive riders of the “personal flexibility they value”. It claims that the majority of its drivers prefer their existing employment status.

The Independent Workers’ Union of Great Britain (IWGB), which backed the appeal, said drivers will still be able to enjoy the freedoms of self-employment – such as flexibility in choosing shifts – even if they have worker status. The union said the decision showed companies in the gig economy – which involves people on flexible working patterns with irregular shifts and minimal employment rights – have been choosing to “deprive workers of their rights”. Farrar said: “It is time for the mayor of London, Transport for London and the transport secretary to step up and use their leverage to defend worker rights rather than turn a blind eye to sweatshop conditions.” “If Uber are successful in having this business model, obliterating industrial relations as we know them in the UK, then I can guarantee you on every high street, in retail, fast food, any industry you like, the same thing will go on.”

Farrar said he was willing to fight the case all the way to the supreme court if necessary but called on Uber’s new chief executive, Dara Khosrowshahi, to intervene instead. “We’ve asked to meet him when he came to London and Uber declined to do that, which tells you everything.” Aslam said: “Today is a good day for workers, we made history. The judge confirmed that Uber is unlawfully denying our rights.” “It’s about making sure workers across the UK are protected. Companies are hiding behind technology, bogusly classifying people as self-employed so they can get away from paying minimum wage. That can’t be allowed to happen.”

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Good.

Greece Prepares Online Platform for ‘Airbnb Tax’ (GR)

Greece is cracking down on undeclared income of owners leasing residential lodgings on a short-term basis. Tax authorities are creating an online platform where Airbnb lodged properties should be declared, or face a hefty fine. According to a report in Naftemporiki, registration will be mandatory and it will provide property owners with a certification number, which should be declared on any digital platform, website and social media where it is advertised – including the Airbnb website. The platform will demand the declaration of the property, the names of the renters and the duration of the lease, or otherwise face a fine of up to €5,000. Naftemporiki says that income from short-term residential leasing will be taxed based on income.

Specifically, for a taxpayer with a yearly income of up to 12,000 euros, the tax rate for income derived from short-term residential leasing will reach 15%; 35% for a taxpayer with between 12,000 to 35,000 euros in annual income. Above an annual income of 45,000 euros, a taxpayer’s income from short-term residential leasing will reach the astronomical rate of 45%, i.e. nearly one in two euros goes to the state. Tax authorities aim to collect revenue from people who put their property for lease on Airbnb, as many crisis-hit Greeks try to make ends meet by renting their homes to foreign visitors. It is estimated that three million tourists will be hosted in Greek homes in 2017.

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He’s lying. They didn’t act to save the Greek banks, but the German and French ones. And he knows it.

Dijsselbloem: We Saved the Greek Banks but Overlooked Taxpayers (GR)

Outgoing Eurogroup chief Jeroen Dijsselbloem acknowledged on Thursday that Greece’s creditors put too much emphasis on saving the banks at the expense of ordinary taxpayers. In an exchange of views on Greece in the European Parliament’s Employment and Social Affairs Committee, Dijsselbloem was asked if he agrees with the view that Greece’s first bailout programme was designed to support the banks. Dijsselbloem noted that “banks were the biggest problem in all countries,” at the start of the crisis. “We had a banking crisis, a fiscal crisis and we spent a lot of the tax-payers’ money – in the wrong way, in my opinion – to save the banks so that the people criticizing us and saying that everything was being done for the benefit of the banks were to some extent right,” he said.

“This was the reason why we introduced the banking union and the introduction of higher standards, better supervision and a reform and rescue framework when banks have losses…Precisely so that we don’t find ourselves in that situation again,” Dijsselbloem added. Dijsselbloem also claimed that the labour market reforms adopted by Greece had brought “clear improvements” that were reflected in the latest unemployment figures in the country. Referring to the programme as a whole, the outgoing Eurogroup president said the economic situation in Greece had improved as a result of the reforms and stressed the need to conclude the third review on time.

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This story gets darker fast. The UK deleted a lot of documents relvant to the Assange accusations AND told the Swedes not to talk to him in London.

FOIA Litigation Is Shedding Light On The Case Of Julian Assange (Maurizi)

The siege by Scotland Yard agents around the red brick building in Knightsbridge has been gone for two years now. And with Sweden dropping the rape investigation last May, even the European arrest warrant hanging over Julian Assange’s head like the sword of Damocles has gone. Many expected the founder of WikiLeaks to leave the Ecuadorian Embassy in London, where he has been confined for over five years, after spending one and a half years under house arrest. But Assange hasn’t dared leave the Embassy due to concern he would be arrested, extradited to the US and charged for publishing WikiLeaks’ secret documents.

Julian Assange’s situation is unique. Like him and his work or not, he is the only western publisher confined to a tiny embassy, without access to even the one hour a day outdoors maximum security prisoners usually receive. He is being arbitrarily detained, according to a decision by the UN Working Group on Arbitrary Detentions in February 2016, a decision which has completely faded into oblivion. December 7th will mark seven years since he lost his freedom, yet as far as we know, in the course of these last 7 years no media has tried to access the full file on Julian Assange.

That is why next Monday, La Repubblica will appear before a London Tribunal to defend the press’ right to access the documents regarding his case, after spending the last two years attempting Freedom of Information requests (FOI) without success. It is entirely possible, however, that we will never be able to access many of these documents, as last week London authorities informed us that “all the data associated with Paul Close’s account was deleted when he retired and cannot be recovered”. A questionable choice indeed: Close is the lawyer who supported the Swedish prosecutors in the Swedish investigation on Julian Assange from the beginning. What was the rationale for deleting historical records pertaining to a controversial and still ongoing case?

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Nov 082017
 
 November 8, 2017  Posted by at 1:47 pm Finance Tagged with: , , , , , , , , , , ,  12 Responses »
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Salvador Dalí The oecumenial council 1960

 

Trying to figure out what on earth is happening in the Middle East appears to have gotten a lot harder. Perhaps (because) it’s become more dangerous too. There are so many players, and connections between players, involved now that even making one of those schematic representations would never get it right. Too many unknown unknowns.

A short and incomplete list of the actors: Sunni, Shiite, Saudi Arabia, US, Russia, Turkey, ISIS, Syria, Iran, Iraq, Libya, Kurds, Lebanon, Hezbollah, Hamas, Qatar, Israel, United Arab Emirates (UAE), Houthis, perhaps even Chechnya, Afghanistan, Pakistan. I know I know, add your favorites. So what have we got, or what do we know we’ve got? We seem to have the US lining up with Israel, the UAE and Saudi Arabia against Russia, Iran, Syria, Hezbollah. Broadly. But that’s just a -pun intended- crude start.

Putin has been getting closer to the Saudis because of the OPEC production cuts, trying to jack up the price of oil. Which ironically has now been achieved on the heels of the arrests of 11 princes and scores of other wealthy and powerful in the kingdom. But Putin also recently signed a $30 billion oil -infrastructure- deal with Iran. And he’s been cuddling up to Israel as well.

In fact, Putin may well be the most powerful force in the Middle East today. Well played?! He prevented the demise of Assad in Syria, which however you look at it at least saved the country from becoming another Iraq and Libya style failed state. If there’s one thing you can say about the Middle East/North Africa it’s that the US succeeded in creating chaos there to such an extent that it has zero control left over any of it. Well played?!

 

One thing seems obvious: the House of Saud needs money. The cash flowing out to the princes is simply not available anymore. The oil price is a major factor in that. Miraculously, the weekend crackdown on dozens of princes et al, managed to do what all the OPEC meetings could not for the price of oil: push it up. But the shrinkage of foreign reserves shows a long term problem, not some momentary blip:

 

 

Another sign that money has become a real problem in Riyadh is the ever-postponed IPO of Saudi Aramco, the flagship oil company supposedly worth $2 trillion. Trump this week called on the Saudi’s to list it in New York, but despite the upsurge in oil prices you still have to wonder which part of that $2 trillion is real, and which is just fantasy.

But yeah, I know, there’s a million different stocks you can ask the same question about. Then again, seeing the wealth of some of the kingdom’s richest parties confiscated overnight can’t be a buy buy buy signal, can it? Looks like the IPO delay tells us something.

And then you have the 15,000 princes and princesses who all live off of the Kingdom’s supposed riches (‘only 2,000’ profit directly). All of them live in -relative- wealth. Some more than others, but there’s no hunger in the royal family. Thing is, overall population growth outdoes even that in the royal family. Which means, since the country produces nothing except for oil, that there are 1000s upon 1000s of young people with nothing to do but spend money that’s no longer there. Cue mayhem.

 

 

And things are not getting better, Saudi Arabia loses money on every barrel it produces. There are stories about them lowering their break-even price, but let’s take that with a few spoonfuls of salt. A 25% drop in break-even prices in just one year sounds a bit too good. Moreover, main competitors like Iran would still have a much lower break-even price. So even if prices would rise further, the Saudi’s might only break even while Iran gets much richer. Running vs standing still.

 

Saudi Arabia Leads Gulf Nations in Cutting Break-Even Oil Price

Saudi Arabia, OPEC’s biggest oil producer, is also a leader when it comes to slashing the crude price the country needs to balance its budget. The kingdom will need oil to trade at $70 a barrel next year to break even, the IMF said Tuesday in its Regional Economic Outlook for the Middle East and Central Asia. That’s down from a break-even of $96.60 a barrel in 2016, the biggest drop of eight crude producers in the Persian Gulf. The break-even is a measure of the crude price needed to meet spending plans and balance the budget.

 

 

Gulf oil producers are cutting spending and eliminating subsidies after crude plunged from more than $100 a barrel in 2014 to average just over half that this year. The need to curb spending is more urgent with the Organization of Petroleum Exporting Countries cutting output to reduce a global glut. Oil will trade at $50 to $60 a barrel for the “medium term,” the IMF said.

 

 

So a thorough cleansing job of the royal family is perhaps inevitable, albeit very risky. King Salman and crown prince Mohammed bin Salman are up against a very large group of rich people. But there’s no way back now.

 

Saudi Banks Freeze More Than 1,200 Bank Accounts in Anti-Corruption Purge

Saudi Arabian banks have frozen more than 1,200 accounts belonging to individuals and companies in the kingdom as part of the government’s anti-corruption purge, bankers and lawyers said on Tuesday. They added that the number is continuing to rise. Dozens of royal family members, officials and business executives have been detained in the crackdown and are facing allegations of money laundering, bribery, extorting officials and taking advantage of public office for personal gain. Since Sunday, the central bank has been expanding the list of accounts it is requiring lenders to freeze on an almost hourly basis…

Much more will have to follow that. Doing a half way job is far too risky once the job has started. Not even $800 billion sounds like all that much. Separate families and factions within the royal family have had decades to accumulate wealth.

 

Saudi Crackdown Targets Up to $800 Billion in Assets

The Saudi government is aiming to confiscate cash and other assets worth as much as $800 billion in its broadening crackdown on alleged corruption among the kingdom’s elite, according to people familiar with the matter. Several prominent businessmen are among those who have been arrested in the days since Saudi authorities launched the crackdown on Saturday, by detaining more than 60 princes, officials and other prominent Saudis, according to those people and others. The country’s central bank, the Saudi Arabian Monetary Authority, said late Tuesday that it has frozen the bank accounts of “persons of interest” and said the move is “in response to the Attorney General’s request pending the legal cases against them.”

The most visible – and perhaps richest- of all those arrested -in western eyes- is Al-Waleed. The Bloomberg estimate of his wealth that came out this week is $19 billion. But their own article seems to indicate a much higher number. He owns 5% of Apple -says Bloomberg-, and that share alone would be worth $45 billion.

 

Alwaleed, Caught in Saudi Purge, Has Assets Across the World

Apple – Alwaleed bought 6.23 million shares, or 5 percent, of the computer and mobile-device maker for $115.4 million in 1997. He made these purchases between mid-March and April of that year while the company was still struggling to turn itself around. He has since continued to hold the stake while Apple’s valuation has soared to as high as $900 billion.

 

Going through all these numbers, you can imagine why the ruling family, or rather the rulers within that family, are getting nervous. And that’s where we get to an interesting piece by Ryan Grim at the Intercept, who says it’s not even 32-year-old crown prince Mohammed bin Salman, known as MBS, or King Salman, 81, who control the kingdom these days, it’s the United Arab Emirates (UAE) -and maybe Washington-.

The coup has already been perpetrated.

 

Saudi Arabia’s Government Purge – And How Washington Corruption Enabled It

The move marks a moment of reckoning for Washington’s foreign policy establishment, which struck a bargain of sorts with Mohammed bin Salman, known as MBS, and Yousef Al Otaiba, the United Arab Emirates ambassador to the U.S. who has been MBS’s leading advocate in Washington. The unspoken arrangement was clear: The UAE and Saudi Arabia would pump millions into Washington’s political ecosystem while mouthing a belief in “reform,” and Washington would pretend to believe that they meant it.

MBS has won praise for some policies, like an openness to reconsidering Saudi Arabia’s ban on women drivers. Meanwhile, however, the 32-year-old MBS has been pursuing a dangerously impulsive and aggressive regional policy, which has included a heightening of tensions with Iran, a catastrophic war on Yemen, and a blockade of ostensible ally Qatar. Those regional policies have been disasters for the millions who have suffered the consequences, including the starving people of Yemen, as well as for Saudi Arabia, but MBS has dug in harder and harder. And his supporters in Washington have not blinked.

The platitudes about reform were also challenged by recent mass arrests of religious figures and repression of anything that has remotely approached less than full support of MBS. The latest purge comes just days after White House adviser Jared Kushner, a close ally of Otaiba, visited Riyadh, and just hours after a bizarre-even-for-Trump tweet. Whatever legitimate debate there was about MBS ended Saturday — his drive to consolidate power is now too obvious to ignore. And that puts denizens of Washington’s think tank world in a difficult spot, as they have come to rely heavily on the Saudi and UAE end of the bargain.

As The Intercept reported earlier, one think tank alone, the Middle East Institute, got a massive $20 million commitment from the UAE. And make no mistake, MBS is a project of the UAE — an odd turn of events given the relative sizes of the two countries. “Our relationship with them is based on strategic depth, shared interests, and most importantly the hope that we could influence them. Not the other way around,” Otaiba has said privately.

The kingdom’s broke. Not today, or tomorrow morning, but crown prince MBS is able to look at the numbers and go: Oh Shit! And if he doesn’t see it, he has Kushner (re: Israel) and Al-Otaiba to fill him in. All three relative youngsters -MBS is 32, Kushner is 36, Otaiba is 43- are exceedingly nervous by now.

And then you get war, or the threat of war. War in Yemen, a blockade of Qatar, and now ‘mingling’ in Lebanon with the somewhat mysterious removal of billionaire PM Hariri -allegedly on an Iran/Hezbollah assassination plot-, and outright threats against Iran and Hezbollah:

 

Lebanon’s Hariri Visits UAE As Home Crisis Escalates

Lebanon’s outgoing prime minister, Saad al-Hariri, made a brief visit to the United Arab Emirates from Saudi Arabia on Tuesday despite a deepening crisis back home and a rise in regional tensions triggered by his surprise resignation. Hariri announced his resignation on Saturday during a visit to his ally Saudi Arabia and has not yet returned to Lebanon. He said he believed there was an assassination plot against him and accused Iran, Saudi Arabia’s arch-rival, and its Lebanese ally Hezbollah of sowing strife in the Arab world.

His resignation has thrust Lebanon back into the frontline of the regional rivalry that pits a mostly Sunni bloc led by Saudi Arabia and allied Gulf monarchies against Shi‘ite Iran and its allies. Hariri’s office said he had flown to Abu Dhabi on Tuesday and then returned to Riyadh, but it gave no reason for the trip. It also did not say when he would return home. Hariri’s Future TV channel said he would also visit Bahrain but gave no reason.

In short: billionaire PM Hariri is a puppet. Just perhaps not of Saudi Arabia, but of Abu Dhabi. Whether he’s under house arrest in Riyadh, as has been suggested, is still unclear. But it’s a safe bet that he didn’t fly to Abu Dhabi -and back- alone, or of his own accord. He went to receive instructions.

 

Saudi Arabia Accuses Iran Of ‘Direct Military Aggression’ Over Yemen Missile

Saudi Arabia’s crown prince has accused Iran of “direct military aggression” by supplying missiles to Houthi rebels in Yemen, raising the stakes in an already tense standoff between the two regional rivals. Mohammed bin Salman linked Tehran to the launch of a ballistic missile fired from Yemen towards the international airport in the Saudi capital of Riyadh on Saturday. The missile was intercepted and destroyed.

“The involvement of the Iranian regime in supplying its Houthi militias with missiles is considered a direct military aggression by the Iranian regime,” the prince said on Tuesday during a phone conversation with the UK foreign secretary, Boris Johnson, according to the state-run Saudi Press Agency. He added that the move “may be considered an act of war against the kingdom”. Iran has called Riyadh’s accusations as baseless and provocative.

We have way of knowing what is true or not about this. We do know that Saudi Arabia have been executing a barbaric war in Yemen. With weapons from the US, UK, et al. So someone firing back wouldn’t be that far-fetched.

 

Regardless, Pepe Escobar, a journalist who knows much more than his peers, or at least doesn’t hold back as much as them, doesn’t see this end well for MBS, UAE, Israel, US, and whoever else is in their corner. Another losing war for the US in the Middle East? We’re losing count.

 

The Inside Story Of The Saudi Night Of Long Knives

A top Middle East business/investment source who has been doing deals for decades with the opaque House of Saud offers much-needed perspective: “This is more serious than it appears. The arrest of the two sons of previous King Abdullah, Princes Miteb and Turki, was a fatal mistake. This now endangers the King himself. It was only the regard for the King that protected MBS. There are many left in the army against MBS and they are enraged at the arrest of their commanders.” To say the Saudi Arabian Army is in uproar is an understatement. “He’d have to arrest the whole army before he could feel secure.”

[..] The story starts with secret deliberations in 2014 about a possible “removal” of then King Abdullah. But “the dissolution of the royal family would lead to the breaking apart of tribal loyalties and the country splitting into three parts. It would be more difficult to secure the oil, and the broken institutions whatever they were should be maintained to avoid chaos.” Instead, a decision was reached to get rid of Prince Bandar bin Sultan – then actively coddling Salafi-jihadis in Syria – and replace the control of the security apparatus with Mohammed bin Nayef. The succession of Abdullah proceeded smoothly.

Power was shared between three main clans: King Salman (and his beloved son Prince Mohammed); the son of Prince Nayef (the other Prince Mohammed), and finally the son of the dead king (Prince Miteb, commander of the National Guard). In practice, Salman let MBS run the show. And, in practice, blunders also followed. The House of Saud lost its lethal regime-change drive in Syria and is bogged down in an unwinnable war on Yemen, which on top of it prevents MBS from exploiting the Empty Quarter – the desert straddling both nations. The Saudi Treasury was forced to borrow on the international markets. Austerity ruled …

[..] aversion to MBS never ceased to grow; “There are three major royal family groups aligning against the present rulers: the family of former King Abdullah, the family of former King Fahd, and the family of former Crown Prince Nayef.” Nayef – who replaced Bandar – is close to Washington and extremely popular in Langley due to his counter-terrorism activities. His arrest earlier this year angered the CIA and quite a few factions of the House of Saud – as it was interpreted as MBS forcing his hand in the power struggle. According to the source, “he might have gotten away with the arrest of CIA favorite Mohammed bin Nayef if he smoothed it over but MBS has now crossed the Rubicon though he is no Caesar. The CIA regards him as totally worthless.”

[..] The source, though, is adamant; “There will be regime change in the near future, and the only reason that it has not happened already is because the old King is liked among his family. It is possible that there may be a struggle emanating from the military as during the days of King Farouk, and we may have a ruler arise that is not friendly to the United States.”

In the end, it all comes down to a familiar theme: follow the money. And we need to seriously question the economic reality of Saudi Arabia. That graph above of their foreign reserves looks downright grim.

With money comes power. Who loses money loses power. Saudi Arabia is bleeding money. The population surge is uncanny, and there are no jobs for all these young people. Perhaps the best they can do is be a US/Israel puppet in an attempt to ‘redo’ the map of the Middle East, but that has not been a very successful project off late -like the past 100 years-.

Then again, when you’re desperate you do desperate things. And when you’re a 32-year-old crown prince with more enemies than you can keep track of, you use what money is left to 1) keep up appearances, 2) steal what others have gathered, 3) buy weapons up the wazoo, and 4) go to war.

It all paints a very dark picture for the world. Russia won’t stand for attacks on Iran. And Iran won’t let attacks on Lebanon/Hezbollah go unanswered. All that is set to push up oil prices further, and all parties involved are just fine with that. Because they can buy more weapons with the additional profits.

I’ll leave you with Nassim Taleb’s comments on the situation. After all, Nassim’s from Lebanon, and knows that part of the world like the back of his hand:

 

 

 

Nov 082017
 
 November 8, 2017  Posted by at 9:56 am Finance Tagged with: , , , , , , , , ,  4 Responses »
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Henri Cartier Bresson Nehru Announces Gandhi’s Death, Birla House, Delhi, India Jan 30, 1948

 

700 Years of Data Forewarn of Rapid Reversal From Low Interest Rates (BBG)
Saudi Banks Freeze More Than 1,200 Bank Accounts in Anti-Corruption Purge (R.)
Saudi Crackdown to Confiscate Up to $800 Billion in Assets (WSJ)
Leaked Secret Israeli Cable Confirms Israeli-Saudi Coordination In Lebanon (ZH)
Lebanon – The Next Front In The Great Gas War (Golem XIV)
UK Sales Of Bombs And Missiles To Saudi Arabia Increase By Almost 500% (Ind.)
May to Lose Second Top Minister in One Week Over Secret Israel Meetings (BBG)
Those Who Broke The Economy Cannot Fix It (Ann Pettifor)
German ‘Wise Men’ Sound Alarm Over ‘Overheating’ Economy (R.)
Bean Counters: Lost in Paradise (Ren.)
British Mainstream Media Spreading Dangerous MMT Ideas (Bilbo)
Brick-and-Mortar Meltdown Sinks Property Prices (WS)
Catalan Secessionist Parties Fail To Agree On Unity Ticket For Vote (R.)
1 in 200 British, 1 in 60 Londoners Are Homeless (G.)

 

 

Long term is always better.

700 Years of Data Forewarn of Rapid Reversal From Low Interest Rates (BBG)

Forget secular stagnation. One historian says the world is actually in its ninth “real rate depression” and 700 years of data show that – when it comes – the turnaround could be sudden. In research published on the Bank of England’s staff blog, Harvard University’s Paul Schmelzing says most work pointing to a period of permanently lower equilibrium real interest rates is too short term. Instead, he tracked the risk-free rate since 1311 by identifying the dominant asset of each period – starting with sovereign rates in the Italian city states in the 14th and 15th centuries and moving to long-term rates in Spain, then the Province of Holland, the U.K., Germany, and finally the U.S. Real rates, or the benchmark interest rates minus inflation, have averaged 4.78% while the 200-year real-rate average is 2.6%.

That makes the current market environment “severely depressed,” Schmelzing wrote. However, it’s simply following a five-century downward trend, in which there have been nine periods of secular decline followed by reversals. The current period – since the 1980s – is the second-longest recorded and its closest historical analogy is the global “Long Depression” of the 1880s and 1890s which saw low productivity growth, deflationary price dynamics, and the rise of global populism and protectionism. This spell seems to have ended without a push from policy makers. That could be good news for those struggling to find a fix for the current low-rate environment. “There is strong evidence suggesting that the last ‘secular stagnation cycle’ started fading relatively autonomously after just over two decades following the key financial shock, not requiring the aid of decisive fiscal or monetary stimulus.”

Read more …

There’ll be more.

Saudi Banks Freeze More Than 1,200 Bank Accounts in Anti-Corruption Purge (R.)

Saudi Arabian banks have frozen more than 1,200 accounts belonging to individuals and companies in the kingdom as part of the government’s anti-corruption purge, bankers and lawyers said on Tuesday. They added that the number is continuing to rise. Dozens of royal family members, officials and business executives have been detained in the crackdown and are facing allegations of money laundering, bribery, extorting officials and taking advantage of public office for personal gain. Since Sunday, the central bank has been expanding the list of accounts it is requiring lenders to freeze on an almost hourly basis, one regional banker said, declining to be named because he was not authorised to speak to media.

The banker did not name the companies affected but said they included listed and unlisted firms across many sectors. He added that if the freezes stayed in place for long, they could start to hurt day-to-day business activities such as paying staff and creditors or making other transactions. A second banker said, however, that most of the frozen accounts belonged to individuals rather than companies, and that banks were being allowed by the regulator to continue to fund existing commitments. Among top business executives detained in the probe are billionaire Prince Alwaleed bin Talal, chairman of investment firm Kingdom Holding; Nasser bin Aqeel al-Tayyar, founder of Al Tayyar Travel; and Amr al-Dabbagh, chairman of builder Red Sea International.

The stocks of all three companies, which have issued statements saying they continue to operate as normal, plunged between 9 and 10% on Tuesday. One of the bankers speaking to Reuters said the central bank had met with some foreign banks this week to reassure them that the freezing of accounts targeted individuals, and that firms linked to those people would not be damaged.

Read more …

WSJ has gone full paywall.

Saudi Crackdown to Confiscate Up to $800 Billion in Assets (WSJ)

The Saudi government is aiming to confiscate cash and other assets worth as much as $800 billion in its broadening crackdown on alleged corruption among the kingdom’s elite, according to people familiar with the matter. Several prominent businessmen are among those who have been arrested in the days since Saudi authorities launched the crackdown on Saturday, by detaining more than 60 princes, officials and other prominent Saudis, according to those people and others. The country’s central bank, the Saudi Arabian Monetary Authority, said late Tuesday that it has frozen the bank accounts of “persons of interest” and said the move is “in response to the Attorney General’s request pending the legal cases against them.”

The purge is the most extensive of the kingdom’s elite in recent history. Crown Prince Mohammed bin Salman, the son of King Salman, was named heir to the throne in June and has moved to consolidate power. He has said that tackling corruption at the highest level is necessary to overhaul what has long been an oil-dependent economy. The crackdown could also help replenish state coffers. The government has said that assets accumulated through corruption will become state property, and people familiar with the matter say the government estimates the value of assets it can reclaim at up to 3 trillion Saudi riyal, or $800 billion.

Read more …

Strange bedfellows.

Leaked Secret Israeli Cable Confirms Israeli-Saudi Coordination In Lebanon (ZH)

Early this morning, Israeli Channel 10 news published a leaked diplomatic cable which had been sent to all Israeli ambassadors throughout the world concerning the chaotic events that unfolded over the weekend in Lebanon and Saudi Arabia, which began with Lebanese Prime Minister Saad Hariri’s unexpected resignation after he was summoned to Riyadh by his Saudi-backers, and led to the Saudis announcing that Lebanon had “declared war” against the kingdom. The classified embassy cable, written in Hebrew, constitutes the first formal evidence proving that the Saudis and Israelis are deliberately coordinating to escalate the situation in the Middle East. The explosive classified Israeli cable reveals the following:

• On Sunday, just after Lebanese PM Hariri’s shocking resignation, Israel sent a cable to all of its embassies with the request that its diplomats do everything possible to ramp up diplomatic pressure against Hezbollah and Iran.
• The cable urged support for Saudi Arabia’s war against Iran-backed Houthis in Yemen.
• The cable stressed that Iran was engaged in “regional subversion”.
• Israeli diplomats were urged to appeal to the “highest officials” within their host countries to attempt to expel Hezbollah from Lebanese government and politics.

As is already well-known, the Saudi and Israeli common cause against perceived Iranian influence and expansion in places like Syria, Lebanon and Iraq of late has led the historic bitter enemies down a pragmatic path of unspoken cooperation as both seem to have placed the break up of the so-called “Shia crescent” as their primary policy goal in the region. For Israel, Hezbollah has long been its greatest foe, which Israeli leaders see as an extension of Iran’s territorial presence right up against the Jewish state’s northern border.

Read more …

“Having failed to liberate the Syrians, Saudi, the West, its Sunni Gulf allies and Israel will now see if they can succeed in blocking any Iranian gas ambitions by liberating the Lebanese from their own government.”

Lebanon – The Next Front In The Great Gas War (Golem XIV)

The Great Gas War has already two distinct fronts: The now relatively quiet Northern Front in Ukraine and the Southern Front in Syria in which the Western empire has been losing. It looks to me that Lebanon is being targeted as the next front, where the West hopes its loses might be recouped. Yesterday, November 6th, Reuters reported, “Saudi Arabia said on Monday that Lebanon had declared war against it because of attacks against the Kingdom by the Lebanese Shi‘ite group Hezbollah.” This comes after Israel, Saudi’s long time though largely un-offical best friend in the region, has been very publicly preparing to renew its own war with Lebanon – or more accurately with Hezbollah. As the American news journal Newsweek put it recently, “ISRAEL PREPARES FOR ANOTHER WAR WITH HEZBOLLAH AS IDF PRACTICES LEBANON INVASION.”

Why now and why Lebanon? Well the rulers of Saudi, a Sunni dominated country, will tell us that it is because Hezbollah is a Shia terrorist organisation. “Hezbollah” literally means the “Party of Allah” or “Party of God”. Saudi Gulf affairs minister Thamer al-Sabhan yesterday pointedly referred to Hezbollah as, “the Lebanese Party of the Devil”. Saudi is not alone of course, Hezbollah has also been listed as a terrorist organisation by America, Israel, the Arab League, the UK and the EU. It is also, however, part of the popular government of Lebanon having seats in its parliament. I suggest, however, a powerful reason that a new war with Hezbollah may be in the offing is because Lebanon is the next link in any gas pipeline that could potentially bring Iranian Gas to Europe.

That was the reason the West decided to “liberate” the Syrian people and it will be why they decide to enforce the same salvation upon the people of Lebanon. Having failed to liberate the Syrians, Saudi, the West, its Sunni Gulf allies and Israel will now see if they can succeed in blocking any Iranian gas ambitions by liberating the Lebanese from their own government. I would not be surprised to hear quite soon from opposition groups vocally denouncing the government or at least Hezbollah. I expect spokes people from those groups to suddenly get a global platform along-side American and regional supporters such as Saudi.

Read more …

How to spell insanity.

UK Sales Of Bombs And Missiles To Saudi Arabia Increase By Almost 500% (Ind.)

The number of British-made bombs and missiles sold to Saudi Arabia since the start of its bloody campaign in Yemen has risen by almost 500%, The Independent can reveal. More than £4.6bn of arms were sold in the first two years of bombings, with the Government grant increasing numbers of export licences despite mounting evidence of war crimes and massacres at hospitals, schools and weddings. The United Nations says air strikes by the Saudi-led coalition are the main cause of almost 5,295 civilian deaths and 8,873 casualties confirmed so far, warning that the real figure is “likely to be far higher”. It has condemned the “entirely man-made catastrophe” leaving millions more on the brink of famine and sparking the world’s worst cholera epidemic, while blacklisting Saudi Arabia for killing and maiming children.

There is also fresh concern over the Kingdom’s attempt to shut all air, land and sea ports into Yemen, which it said was to stop the flow of weapons but will also halt aid imports. British-made bombs have been found at the scene of bombings deemed to violate international law but the UK has continued its political and material support for Riyadh’s campaign. Figures from the Department for International Trade (DIT) show that in the two years leading up to the Yemen war, £33m of ML4 licences covering bombs, missiles and countermeasures were approved. But in the two years since the start of Saudi bombing in March 2015, the figure increased by 457% to £1.9bn, according to calculations by Campaign Against the Arms Trade (CAAT). Licences covering aircraft including Eurofighter jets have also risen by 70% to £2.6bn in the same period.

Read more …

Secret meetings as the Middle East is imploding. And arms sales are exploding.

May to Lose Second Top Minister in One Week Over Secret Israel Meetings (BBG)

Prime Minister Theresa May is weighing whether to fire a member of her cabinet only seven days after her defense secretary quit in a sexual harassment scandal, as the U.K. government faces fresh turmoil in the midst of Brexit talks. May is likely to dismiss her International Development Secretary Priti Patel in a row over a succession of unauthorized meetings she held with Israeli officials behind the prime minister’s back, according to reports from the BBC and The Sun Tuesday, which the U.K. government declined to deny. The premier has not yet had the chance to speak to Patel – who is on an official trip to Africa – about the latest revelations. A conversation would be expected before a decision is made about the minister’s future. If she is forced out, Patel will be the second minister to depart May’s cabinet in one week, after Michael Fallon resigned from the defense ministry amid allegations over his past behavior toward women.

For some, May’s latest headache is yet another demonstration of her weakness, which draws repeated questions over how her government can last long enough to see Brexit to the finish line. If more dominoes drop – in the shape of senior ministers – the last one to fall could ultimately be the prime minister herself. “The destabilizing effect on an already weak administration has prompted another burst of speculation that May could soon be forced to resign,” Mujtaba Rahman of Eurasia Group said in a note to clients. He thought one likely scenario is for May to be toppled if she fails to get a grip on the latest crisis and is ousted because her MPs judge that the government cannot go on like this – and is incapable of recovering the authority a prime minister needs.

Read more …

The British economy is being bled dry….

Those Who Broke The Economy Cannot Fix It (Ann Pettifor)

Make no mistake, last week’s increase in interest rates was a big deal. Painful as it might be for a good share of the population, the real point is that the Bank is signalling the end of a particular phase of monetary policy. Since 2010 the counterpart to self-defeating austerity policies has been expansionary monetary policies. These have inflated assets – enriching the already-rich, while failing to stimulate wider economic recovery. Yesterday the Bank of England’s Monetary Policy Committee signalled an end of this dangerous game. But this technocratic realignment makes no difference to the fact that ‘the Guardians of the nation’s finances’ – Bank and Treasury economists – have failed absolutely to revive the economy.

You need look no further than the (ongoing) decline in real wages, to continuing low levels of private investment, and to the dangers of rising household debt. A small interest rate rise is hardly likely to improve these conditions. Bank and Treasury economists (aided and abetted by the OBR) are guilty of defeatism. They argue that despite their powers, THERE IS NOTHING TO BE DONE. It is assumed that somehow ‘the invisible hand’ or ‘the markets’ will, without intervention by the authorities, correct the weakness, insecurity and failures of the British economy. The prolonged and painfully weak recovery is regularly blamed on something defined as “productivity”. By shifting responsibility for economic failure on to productivity, the Bank, Treasury and OBR economists are saying that somehow economic failure is inherent to the economy – to businesses and especially to workers.

“Nothing to do with us, guv” they mutter. They add that the situation has been exacerbated by the vote to leave the EU. This is a handy way of denying that the ongoing economic failure of the British economy (and the Brexit vote) can be explained by austerity policies, and the failures of the financial system. By taking this approach, economists at the Bank have – conveniently – set the scene for endorsing further inaction by the Chancellor later this month. Yesterday the Governor of the Bank was flanked by Ben Broadbent and Dave Ramsden. Ben Broadbent, as a Goldman Sachs economist, was among the earliest to call for austerity policies. Dave Ramsden (who did not vote for the rate rise) implemented these policies as top economist at the Treasury.

But both Broadbent and Ramsden were senior figures in economic policy-making throughout the debt inflation that preceded the crisis, and (we presume) supporters of financial globalisation. It is obvious to anyone with an ounce of common sense that austerity policies have hurt the most vulnerable, and damaged Britain’s economic potential, by forcing a brutal adjustment to lower quality and lower paid work. Labour has been forced to bear the brunt of the Global Financial Crisis. The weakness in productivity is just the outcome of these policies, not the cause.

Read more …

… while Germany’s needs diverge ever more from those of southern Europe.

German ‘Wise Men’ Sound Alarm Over ‘Overheating’ Economy (R.)

The German economy is at risk of overheating, according to a leaked advisory council report that follows pressure from the Bundesbank for a swifter end to the ECB’s expansive monetary policy. In their annual report, seen by Handelsblatt newspaper, the five “wise men” who advise the German government on economic policy said the economy, which they expected to expand strongly this year and next, was moving gradually into a “boom phase”. “There are clear signs that economic capacity is over-utilised,” read the report, which is due to be published on Wednesday. Germans have been among the foremost critics of the ECB’s bond-buying program, which was introduced three years ago to depress borrowing costs and reignite growth in the euro zone’s heavily indebted southern periphery.

The wise men expected Germany’s economy to expand by 2% this year and by 2.2% in 2018, Handelsblatt said. With unemployment at its lowest level since the early 1990s, Germany’s circumstances are very different from Italy’s or Spain‘s, straining the ECB’s ‘one-size-fits-all’ monetary policy. ECB President Mario Draghi last month announced a halving n the size of its 2 trillion euro bond-buying program, but this is far from the return to conventional monetary policy many Germans, including Bundesbank president Jens Weidmann, demand. Without an intervention to cool the economy, Germany’s hawks fear the buoyant economy could tip over into an inflationary cycle. Last week, a senior official from Chancellor Angela Merkel’s conservatives warned that German savers would not tolerate continued low interest rates for much longer.

Read more …

Accountants and auditors are not doing their jobs.

Bean Counters: Lost in Paradise (Ren.)

“The phrase ‘Set a thief to catch a thief’ is common parlance,” says Professor Atul K. Shah. “‘Set a global brand of professional accountants to rob society and pilfer its taxes, bleeding governments’, is not, but it should be.’ Professor Bill Black says internal controls are absolutely critical in reducing fraud by insiders in particular, but not just insiders, as the Paradise Papers have repeatedly demonstrated. Emile Woolf says there is no way to remove control fraud and dodgy accounting practices from the economy without first prosecuting the culprits. “The devils that committed this criminal negligence – with the exception of the Royal Bank of Scotland (RBS) – have never been fined or prosecuted” he said. “What you can then do is create a ring fenced fund inside those institutions, earmarked to save them from going under. But the company has to recognise it has to be paid back.

“RBS is incapable of paying back the billions of fines it still owes for misconduct,” he says. “Where does that money come from and where does it go? Without the fines RBS would have made £100 million profit this year, but because of the reserve for fines in the USA and UK, all those fines are far too great to allow for payment of a dividend.” Of course calculating a true profit figure is difficult when a significant portion of that profit is fraudulent, because it doesn’t take into account the result of the inequities of ten years ago. “The worrying thing for all of us is if it happens again,” he says. “My hope is that three years from now, banks will be forced to recognise their loans that will never be repaid. But my worry is that this is going to be after the next financial crisis, because it’s happening again. There is no redeeming features in the present. The only difference is the next crisis is going to be bigger.”

Joel Benjamin told Renegade Inc that accounting is as much about *what* you count or don’t count as it is *how* you count it. “This is evidenced through the practice of ‘base erosion and profit shifting’ – shifting profits to offshore low or no tax jurisdictions, ” he said. In the space of 50 years, Britain’s economy has transformed from an industrial power house, to that of a finance-led extractive parasite, where the cash starved productive economy receives less than 10% of bank credit. “Until the Big Four accountancy firms are accurately viewed as enablers of corporate offshore dealing, regulatory arbitrage and ardent defenders of the neoliberal order, not the ‘reputable’ objective independent arbiters of the public interest as they claim, society will continue to be taken for a ride, and public services and social cohesion will continue their long decline,” he said.

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Bill Mitchell in a long talk with his alter ego.

British Mainstream Media Spreading Dangerous MMT Ideas (Bilbo)

Mitchell tried to tell me that governments do not spend by ‘printing money’ but rather just adjust bank accounts with numbers. But I know as anyone in the street knows that they just want to print more and more. That is at the core of MMT – they want the government to go on a spending spree and just ignore the inflationary consequences. They hide that by saying that “public spending cannot be unlimited and must be commensurate to the capacity of the economy” which is just a smokescreen that I can see through. And everybody will see through it. It is code for spend like a drunken’ sailor – throw money at lazy people who cannot be bothered finding a job. Throw money at public schools that teach socialist doctrines – you know about inequality and stuff like that.

Throw money at public hospitals so that people can receive unlimited health care without having to pay for it – that is the quickest way to encourage waste and bad behaviour. People know that they can just get sick and no matter what their income is they will get some care. Where is the incentive to stay healthy in that sort of system. The article also shows how stupid Mitchell is when it says he: “… debunks the idea that governments borrow money from international markets and with it the notion that they are hostage to the market.” Well where the hell else do they get the cash from? Does he really think we are that stupid? How come China has all those US government debt bonds or whatever they are called and the US government is spending the Chinese cash? How does he explain that obvious point?

Well he tried to claim the Chinese doesn’t issue US dollars and that only the US government issues US dollars so that it cannot possibly be funded by the Chinese. I don’t buy that, not that I understood anything he said about this – all this talk about trade surpluses accumulating financial claims in the currency that the deficit country issues, and then allowing the surplus nation to use those claims (say, US dollars in the first instance) to purchase US dollar financial assets etc ad nauseum. As if that tells us anything. How come the Chinese can loan the US government money that is what I want to know? Mitchell told the journalist that Jeremy Corbyn should not worry about international capital markets because Britain could impose capital controls if it wanted to. That gets to the nub of my worries – socialist governments stealing hard-earned cash from investors who actually have some get up and go.

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Malls don’t look like good investments.

Brick-and-Mortar Meltdown Sinks Property Prices (WS)

Commercial real estate prices soared relentlessly for years after the Financial Crisis, to such a degree that the Fed has been publicly fretting about them. Why? Because US financial institutions hold nearly $4 trillion of commercial real estate loans. But the boom in most CRE sectors is over. The Green Street Property Price Index – which measures values across five major property sectors – had soared 107% from May 2009 to the plateau that began late last year, and 27% from the peak of the totally crazy prior bubble that ended with such spectacular fireworks. But it has now turned around, dragged down by a plunge in prices for retail space. The CPPI by Green Street Advisors dropped 1.1% in October from September. In terms of points, the 1.4-point decline was the largest monthly decline since March 2009. The index is now below where it had been in June 2016:

This phenomenal bubble, as depicted by the chart above, has even worried the Fed because US financial institutions hold nearly $4 trillion of CRE loans, according to Boston Fed governor Eric Rosengren earlier this year. Of them, $1.2 trillion are held by smaller banks (less than $50 billion in assets). These smaller banks tends to have a loan book that is heavily concentrated on CRE loans, and these banks are less able to withstand shocks to collateral values. Rosengren found that among the root causes of the Financial Crisis “was a significant decline in collateral values of residential and commercial real estate.” But the CRE bubble isn’t unraveling as gently as the chart suggests. Some sectors are still surging, while others are plunging. According to the report, the index, which captures the prices at which CRE transactions are currently being negotiated and contracted, “was pushed down by falling mall valuations.”

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Puidgemont predicted to get 14-15 out of 135 seats. He won’t be the leader.

Catalan Secessionist Parties Fail To Agree On Unity Ticket For Vote (R.)

Catalan secessionist parties on Tuesday failed to agree on a united ticket to contest a December snap regional election, making it more difficult to rule the region after the vote and press ahead with their collective bid to split from Spain. Catalonia’s secessionist push has plunged Spain into its worst political crisis in four decades, triggered a business exodus, forced Madrid to cut its economic forecast and reopened old wounds from Spain’s civil war in the 1930s. Pro-independence groups have called for a general strike in the restive region on Wednesday. Catalan political parties had until midnight on Tuesday to register coalitions ahead of the Dec. 21 vote, but the two main forces which formed an alliance to rule the region for the last two years did not manage to agree on a new pact in time.

While they could still find an agreement after the vote, political analysts say the lack of a deal on a joint campaign may also trigger a leadership fight at the top of the movement. This is because center-right PdeCat (Catalan Democratic Party) of sacked Catalan president Carles Puigdemont is expected to be overtaken by leftist Esquerra Republicana de Catalunya (ERC) of former regional vice president Oriol Junqueras. Puigdemont and Junqueras are the two main leaders behind the current secession bid that last month led to a unilateral declaration of independence which Spain thwarted by imposing direct rule on the region. Junqueras is currently in custody pending a potential trial on charges of sedition, rebellion and misuse of public funds. Puigdemont, who faces the same charges, is currently in self-imposed exile in Belgium and has said he would oppose extradition.

An opinion poll released on Sunday by Barcelona-based newspaper La Vanguardia showed Junqueras’ ERC could garner between 45 and 46 seats in the 135-strong regional assembly while Puigdemont’s PdeCat would win between 14 and 15 seats. In order to reach the 68-seat threshold for a majority, they would then have to form a parliamentary alliance with anti-capitalist CUP, which is expected to get seven or eight seats. Such an alliance previously existed between 2015 and 2017.

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Down the drain.

1 in 200 British, 1 in 60 Londoners Are Homeless (G.)

More than 300,000 people in Britain – equivalent to one in every 200 – are officially recorded as homeless or living in inadequate homes, according to figures released by the charity Shelter. Using official government data and freedom of information returns from local authorities, it estimates that 307,000 people are sleeping rough, or accommodated in temporary housing, bed and breakfast rooms, or hostels – an increase of 13,000 over the past year. Shelter said the figures were an underestimate as they did not include people trapped in so-called “hidden homelessness”, who have nowhere to live but are not recorded as needing housing assistance, and end up “sofa surfing”. London, where one in every 59 people are homeless, remains Britain’s homelessness centre. Of the top 50 local authority homelessness “hotspots”, 18 were in Greater London, with Newham, where one in 27 residents are homeless, worst hit.

However, while London’s homeless rates have remained largely stable over the past year, the figures show the problem is becoming worse in leafier commuter areas bordering the capital, such as Broxbourne, Luton, and Chelmsford. Big regional cities have also seen substantial year-on-year increases in the rate of homelessness. In Manchester, one in 154 people are homeless (compared with one in 266 in 2016); in Birmingham one in 88 are homeless (119); in Bristol one in 170 are affected (199). Polly Neate, chief executive of Shelter, said: “It’s shocking to think that today, more than 300,000 people in Britain are waking up homeless. Some will have spent the night shivering on a cold pavement, others crammed into a dingy hostel room with their children. And what is worse, many are simply unaccounted for.

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Nov 052017
 
 November 5, 2017  Posted by at 9:37 am Finance Tagged with: , , , , , , , , , ,  4 Responses »
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Edward S. Curtis Navajo weaver c. 1907

 

Senior Princes, One Of World’s Richest Men Arrested In Saudi Crackdown (BBG)
Saudi Arabia Detains Princes, Ex-Ministers After Cabinet Reshuffle (MEE)
Shakeup Stuns Analysts Who Say It Shows Saudis Mean Business (BBG)
Lebanon PM Resigns, Bringing Saudi-Iran Proxy Conflict to the Fore (BBG)
Trump Urges Saudi Aramco to List on New York Stock Exchange (BBG)
China’s Zhou Warns on Rising Financial Risk in Blunt Article (BBG)
China To Expand Corruption Supervision Pilot Scheme Nationwide (R.)
Donna Brazile Considered Replacing Hillary Clinton With Joe Biden (G.)
The Great College Loan Swindle (Taibbi)
Santa Claus May Be Coming To Town, But Will The Shoppers Go Too? (G.)
In the World’s Most Livable Cities, Hardly Anyone Can Afford a Home (BBG)
Australia -Again- Snubs New Zealand Offer To Take Refugees (AFP)

 

 

Was there a coup? If so, who against who? Jared Kushner just came back from one of his secretive trips to Saudi a few days ago. He’s allegedly close with MBS. Osama Bin Laden’s older brother also arrested. Too much money floating around. And too many princes.

Senior Princes, One Of World’s Richest Men Arrested In Saudi Crackdown (BBG)

Saudi Arabia’s King Salman removed one of the royal family’s most prominent princes from his ministerial role and arrested other royals and top officials in an anti-corruption drive that clears any remaining obstacles to his son’s potential ascension to the throne. Acting on orders from a newly established anti-corruption committee, headed by Crown Prince Mohammed bin Salman, police arrested 11 princes, four ministers and dozens of former ministers, the Saudi-owned Al Arabiya television said. Prince Miteb, son of the late King Abdullah, was removed from his post as head of the powerful National Guards. Prince Alwaleed bin Talal, one of the world’s richest men and a shareholder of Citigroup and Twitter, was among those detained, according to a senior Saudi official who spoke on condition of anonymity.

“Laws will be applied firmly on everyone who touched public money and didn’t protect it or embezzled it, or abused their power and influence,” King Salman said in comments shown on state TV. “This will be applied on those big and small, and we will fear no one.” Prince Miteb was replaced by Prince Khaled Ayyaf, according to a royal decree. Before his ouster, Prince Miteb was one of the few remaining senior royals to have survived a series of cabinet shuffles that promoted allies of the crown prince, who is the direct heir to the throne. King Salman had already sidelined other senior members of the royal family to prevent any opposition to the crown prince, 32-year-old Prince Mohammed, known as MBS among diplomats and journalists, who replaced his elder cousin, Muhammed bin Nayef, in June.

That maneuver removed any doubt of how succession plans will unfold following the reign of King Salman, now 81. “The hardline approach is risky because it will solidify the dislike many powerful Saudis have for the crown prince, but it is likely that MBS succeeds, and emerges from this episode more empowered,” Hani Sabra, founder of Alef Advisory, a Middle East political risk practice, wrote in a note. “We can’t confidently project when a leadership transition will take place, but today’s developments are a signpost that MBS is moving toward the role of king.”

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From Middle East Eye.

Saudi Arabia Detains Princes, Ex-Ministers After Cabinet Reshuffle (MEE)

Saudi Arabia has detained 11 princes and dozens of former ministers through its newly formed anti-corruption committee, including erstwhile national guard minister Mutaib bin Abdullah. According to an MEE source in Riyadh, Mutaib was arrested along with his brother Turki. Famous multi-billionaire prince Al-Waleed bin Talal bin Abdulaziz and a number of former ministers and businessmen were also arrested. Both Mutaib bin Abdullah and Al-Waleed bin Talal are senior members of Saudi’s royal family. Also among the arrested were Waleed al-Ibrahim, founder of the MBC broadcasting group, and billionaire businessman Saleh Kamel. The arrests came hours after Saudi appointed new ministers. Economy minister Adel Fakieh was replaced by Mohammed al-Tuwaijri while Khaled bin Ayyaf replaced Mutaib, son of the late King Abdullah, as national guard minister.

The new anti-corruption committee, headed by Crown Prince Mohammed bin Salman, was formed by royal decree earlier on Saturday. The arrests and dismissals came just two months after King Salman replaced his nephew Mohammed bin Nayef with his son Mohammed as the country’s crown prince. The move consolidates Mohammed’s control of the kingdom’s security institutions, which had long been headed by separate powerful branches of the ruling family. “Since Mohammed bin Salman became the crown prince in June, we’ve seen a lot of upheaval,” Ian Black, of the London School of Economics, told Al Jazeera. “We’ve seen the announcement of this very ambitious Saudi plan to transform the Saudi economy, Vision 2030.” “The breadth and scale of the arrests appears to be unprecedented in modern Saudi history,” said Kristian Ulrichsen at Rice University.

In September the authorities arrested about two dozen people, including influential clerics, in what activists denounced as a coordinated crackdown. Analysts said many of those detained were resistant to Prince Mohammed’s aggressive foreign policy that includes the boycott of Gulf neighbour Qatar as well as some of his bold policy reforms, including privatising state assets and cutting subsidies.

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“Everybody will be worried now. Some of these names have been there for 30 years.”

Shakeup Stuns Analysts Who Say It Shows Saudis Mean Business (BBG)

Saudi Arabia’s unprecedented decision to arrest senior princes and billionaires shocked analysts across the region, but to some it’s a sign the kingdom is serious about change. The nation’s stocks declined. A newly formed anti-corruption committee, headed by Crown Prince Mohammed bin Salman, instructed police to arrest 11 princes, four ministers and dozens of former ministers, the Saudi-owned Al Arabiya television said. The decision comes about two weeks after the kingdom announced a series of projects, including a $500 billion city, as part of a plan to overhaul an economy that has been almost entirely dependent on oil revenue for decades. The Tadawul All Share Index fell 1.8% as of 10:04 a.m. in Riyadh.

Purges haven’t “been done at this scale or in this public manner before,” said Mohammed Ali Yasin, CEO of Abu Dhabi-based NBAD Securities. “Accountability has been introduced, no one is immune. Everybody will be worried now. Some of these names have been there for 30 years. This affects Kingdom Holding, Saudi Airlines and the Finance Ministry.” A plunge in crude prices has forced Saudi Arabia to face the shortcomings of its $650 billion economy. Part of its plan to prepare for life after oil is to sell shares in oil giant Aramco in 2018 and transform its stock market to a gateway into Saudi Arabia. “There should be some initial speculation in general as people are just concerned about what happened, this will be priced in,” said Mazen Al-Sudairi, the head of research at Al Rajhi Capital in Riyadh. “But if you look on the long term, this should be seen as a positive measure that is good for the country and the market.”

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More Saudi.

Lebanon PM Resigns, Bringing Saudi-Iran Proxy Conflict to the Fore (BBG)

Lebanese Prime Minister Saad al-Hariri unexpectedly resigned on Saturday in a televised speech from Saudi Arabia, saying he feared for his life and accusing Iran and its proxies of destabilizing his country and the region. Hariri, a pro-Saudi Sunni politician, said Lebanon has suffered enough because of the Iranian-backed Hezbollah and its grip on domestic politics. “I want to say to Iran and its followers that they are losing in their interference in the affairs of Arab nations, and our nation will rise as it did before – and the hands that are extended to it with evil will be cut off,” he said. The resignation raises the prospect of a renewed political confrontation between Iran and Saudi Arabia in Lebanon at a time when the Islamic Republic and its allies are widely seen to have won the proxy war against Sunni powers in neighboring Syria.

Saudi Arabia and Iran are on opposite ends of other regional conflicts such as Yemen and Iraq. The Lebanese government includes Hezbollah members, and Hariri’s decision aims to weaken the group’s legitimate representation, said Sami Nader, head of the Beirut-based Levant Institute for Strategic Affairs. “It’s part of an all-out Saudi confrontation with Iran,” he said. As the war against Islamic State in Syria and Iraq winds down, analysts are warning against a surge in other conflicts as regional and global powers seek to divide spheres of influence. And while Saudi Arabia failed in its pursuit to remove Syrian President Bashar al-Assad, an ally of Iran, from power, the kingdom has found a backer in U.S. President Donald Trump in his focus on containing Iran’s clout in the Middle East.

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And yet more Saudi.

Trump Urges Saudi Aramco to List on New York Stock Exchange (BBG)

President Donald Trump, raising the political stakes in what would be the largest initial public offering, said the U.S. would “very much appreciate” if Saudi Arabia’s government lists the Saudi Arabian Oil Co. on the New York Stock Exchange. “Important to the United States!” Trump said in a Twitter post from Honolulu early Saturday. Trump’s tweet, sent hours before he was set to depart for an 11-day tour of Asia, came out of the blue for Aramco, according to a person familiar with the company, who asked not to be named. But the move is consistent with a growing push by American regulators to lure companies to U.S. stock exchanges. Trump told reporters later Saturday aboard Air Force One that he was motivated to send the tweet because the Aramco IPO “will be just about the biggest ever” and the U.S. wants “to have all the big listings.”

The Saudis were not currently looking at listing on a U.S. exchange “because of litigation risk, and other risk, which is sad,” he said. “I want them to very strongly consider the New York Stock Exchange or NASDAQ or frankly anybody else located in this country,” Trump said. He added that he had recently spoken to King Salman. The tweet was “energy geopolitics in action,” said Jason Bordoff, director of the Center on Global Energy Policy at Columbia University and a former senior oil official in the Obama administration. “At a time when the Saudis are looking for the U.S. to get tougher on Iran, the Saudi-Russian relationship is warming, the Saudis are trying to attract international private capital, and the Chinese are rumored to be considering taking a piece of Aramco, Trump’s personal plea to list in N.Y. raises the diplomatic stakes of Aramco’s decision.”

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“Latent risks are accumulating, including some that are “hidden, complex, sudden, contagious and hazardous..”

China’s Zhou Warns on Rising Financial Risk in Blunt Article (BBG)

China’s financial system is getting significantly more vulnerable due to high leverage, according to central bank governor Zhou Xiaochuan, who also flagged the need for deeper reforms in the world’s second-biggest economy. Latent risks are accumulating, including some that are “hidden, complex, sudden, contagious and hazardous,” even as the overall health of the financial system remains good, Zhou wrote in a lengthy article published on the People’s Bank of China’s website late Saturday. The nation should toughen regulation and let markets serve the real economy better, according to Zhou. The government should also open up financial markets by relaxing capital controls and reducing restrictions on non-Chinese financial institutions that want to operate on the mainland, he wrote.

“High leverage is the ultimate origin of macro financial vulnerability,” wrote Zhou, 69, who is widely expected to retire soon after a record 15-year tenure. “In sectors of the real economy, this is reflected as excessive debt, and in the financial system, this is reflected as credit that has been expanding too quickly.” Zhou’s comments signal that policy makers remain committed to a campaign to reduce borrowing levels across the economy. Concern that regulators may intensify the deleveraging drive after the twice-a-decade Communist Party Congress has helped push yields on 10-year government bonds to a three-year high. Still, measures of credit continue to show expansion, with aggregate financing surging to a six-month high of 1.82 trillion yuan ($274 billion) in September. China’s corporate debt surged to 159% of the economy in 2016, compared with 104% 10 years ago, while overall borrowing climbed to 260%.

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Hard not to see Saudi and China doing the same thing.

China To Expand Corruption Supervision Pilot Scheme Nationwide (R.)

China will expand a pilot project for anti-graft supervision reforms nationwide next year that will consolidate existing corruption agencies, state-run news agency Xinhua reported, as President Xi Jinping expands his signature policy drive. Xinhua said in a report published late on Saturday China’s top legislature adopted a decision calling for new supervisory commissions to be set up by the People’s Congresses at provincial, city and county-levels to “supervise those exercising public power”. Xi’s signature anti-graft drive has jailed or otherwise punished nearly 1.4 million Communist Party members since 2012. The leader, who began his second five-year term in October, has vowed to maintain the “irreversible” momentum of the campaign to root out corruption.

China aims to pass a national supervision law and set up a new commission at the annual parliament meetings early next year. The new National Supervision Commission will work with the Communist Party’s anti-graft body, the Central Commission for Discipline Inspection, expanding the purview of Xi’s anti-graft campaign to include employees at state-backed institutions. Xinhua said the commissions to be set up nationwide under the China legislature’s new directive will have the power to investigate illegal activities such as graft, misuse of authority, neglect of duty, and wasting public funds.

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if you didn’t get yet what a catastrophe the Democratic party has become.

Donna Brazile Considered Replacing Hillary Clinton With Joe Biden (G.)

The former head of the Democratic National Committee says she considered initiating effort to replace Hillary Clinton as the party’s presidential nominee with then vice-president Joe Biden. Donna Brazile makes the revelation in a memoir being released on Tuesday entitled Hacks: The Inside Story of the Break-ins and Breakdowns that Put Donald Trump in the White House. Brazile writes that she considered initiating Clinton’s removal after she collapsed while leaving a 9/11 memorial service in New York City. Clinton later acknowledged she was suffering from pneumonia. But Brazile says the larger issue was that her campaign was “anemic” and had taken on “the odor of failure”.

After considering a dozen combinations to replace Clinton and her running mate, Tim Kaine from Virginia, Brazile writes that she settled on Biden and Cory Booker of New Jersey as those with the best chance of defeating Trump. Ultimately, the former DNC head says, “I thought of Hillary, and all the women in the country who were so proud of and excited about her. I could not do this to them.”

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“In higher education, every party you meet, from the moment you first set foot on campus, is in on the game.”

The Great College Loan Swindle (Taibbi)

Horror stories about student debt are nothing new. But this school year marks a considerable worsening of a tale that ought to have been a national emergency years ago. The government in charge of regulating this mess is now filled with predatory monsters who have extensive ties to the exploitative for-profit education industry – from Donald Trump himself to Education Secretary Betsy DeVos, who sets much of the federal loan policy, to Julian Schmoke, onetime dean of the infamous DeVry University, whom Trump appointed to police fraud in education. Americans don’t understand the student-loan crisis because they’ve been trained to view the issue in terms of a series of separate, unrelated problems. They will read in one place that as of the summer of 2017, a record 8.5 million Americans are in default on their student debt, with about $1.3 trillion in loans still outstanding.

In another place, voters will read that the cost of higher education is skyrocketing, soaring in a seemingly market-defying arc that for nearly a decade now has run almost double the rate of inflation. Tuition for a halfway decent school now frequently surpasses $50,000 a year. How, the average newsreader wonders, can any child not born in a yacht afford to go to school these days? In a third place, that same reader will see some heartless monster, usually a Republican, threatening to cut federal student lending. The current bogeyman is Trump, who is threatening to slash the Pell Grant program by $3.9 billion, which would seem to put higher education even further out of reach for poor and middle-income families. This too seems appalling, and triggers a different kind of response, encouraging progressive voters to lobby for increased availability for educational lending.

But the separateness of these stories clouds the unifying issue underneath: The education industry as a whole is a con. In fact, since the mortgage business blew up in 2008, education and student debt is probably our reigning unexposed nation-wide scam. It’s a multiparty affair, what shakedown artists call a “big store scheme,” like in the movie The Sting: a complex deception requiring a big cast to string the mark along every step of the way. In higher education, every party you meet, from the moment you first set foot on campus, is in on the game.

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Fear of Christmas.

Santa Claus May Be Coming To Town, But Will The Shoppers Go Too? (G.)

Christmas is still seven weeks away, but, unsurprisingly, that does not stop retailers getting into the festive spirit early in the hope to attract crowds to the tills. On Tuesday, singer Rita Ora will turn on the Christmas lights on Oxford Street to mark the beginning of the festivities, close to Marks & Spencer’s Marble Arch branch. But will it be a merry Christmas for retailers? This week both M&S and Sainsbury’s will announce half-year results at an uncertain time for the high street. A recent survey from the CBI showed high street sales falling at their fastest rate since the height of the recession in 2009 as inflation causes households to put the brakes on spending. The cost of groceries, clothes and electronics has been rising since the Brexit vote last year, piling pressure on shoppers.

Recently, Asda’s income tracker found that there has been a slump on the spending power of the average household, while research from Lloyds Bank found that families are feeling the strain of the rising costs of living compared with a year ago. All of which could add up to a grim Christmas for retailers as shoppers struggle to deal with the post-Brexit economy. A further warning was sounded last week when Next reported a fall in October high street sales. Retailers will be hoping that Rita Ora will be able to instil some festive cheer to start off the shopping season.

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Same story all over the world.

In the World’s Most Livable Cities, Hardly Anyone Can Afford a Home (BBG)

Home ownership among young Australians has fallen to the lowest level on record, as an explosive property boom squeezes out all but the wealthiest. Supercharged by record low interest rates, a lack of supply and a tax system that favors property investors, home prices have surged more than 140% in the past 15 years, propelling Sydney past London and New York to rank as the world’s second-most expensive housing market. Melbourne, ranked the world’s most livable city the past seven years by the Economist Intelligence Unit, is now the planet’s sixth-most expensive place to buy a house. In response, home ownership among the young has plunged: only 45% of 25-to-34 year-olds own their own home, down 16%age points from the 1980s, with almost half the decline coming in the past decade.

At the same time, hefty mortgages have pushed household debt to a record, acting as a drag on the economy’s 26 years of unbroken growth. As more people retire still owing a mortgage, or renting, they are more likely to qualify for government welfare, undermining the A$2.3 trillion ($1.8 trillion) pension savings system. “The great Australian dream of home ownership is becoming a nightmare,’’ said Brendan Coates, a housing policy expert at the Grattan Institute. “It’s down to a collective failure of government policy that will take at least two decades to fix.” Voter angst over housing affordability is mounting: almost 90% of Australians fear future generations won’t be able to buy a home, according to an Australian National University survey.

Failure to address the issue is heaping pressure on a government already under fire for the botched rollout of a A$49 billion national high-speed internet network, and energy-policy bungling that’s sent power bills soaring and triggered fears of blackouts this summer. One of the biggest flashpoints are tax incentives that have turned housing into a speculative financial asset. First-home buyers complain they can’t compete against investors, who through a perk known as negative gearing can claim the costs of owning a property-for-rent – including mortgage interest – as a tax deduction against other income. The allure of property investment was turbocharged in 1999, when capital gains tax was halved. With housing prices seen as a one-way bet, investors piled in.

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People deserve to go to jail for what Australia has done to these people.

Australia -Again- Snubs New Zealand Offer To Take Refugees (AFP)

Australia Sunday snubbed New Zealand’s renewed offer to resettle 150 refugees held at remote Pacific camps, despite the closure of one detention centre in Papua New Guinea which has triggered a stand-off between detainees and the authorities. Canberra has been forced on the defensive by the move from Wellington’s new government, with Prime Minister Malcolm Turnbull saying Australia would instead prioritise a similar deal with the US to resettle refugees in America, despite slow progress. The issue re-emerged when the conservative Australian prime minister met his centre-left New Zealand counterpart Jacinda Ardern for the first time Sunday in Sydney. Pressure to resettle refugees increased after the Australian centre on PNG’s Manus Island was shut Tuesday after the nation’s Supreme Court ruled it unconstitutional.

About 600 detainees are refusing to leave citing safety fears if they move to transition centres where locals are reportedly hostile. But conditions in the camp are deteriorating with limited food and water and electricity cut off, with the United Nations warning of a humanitarian emergency. Under its tough immigration policy, Canberra sends asylum seekers who try to reach Australia by boat to two camps, in Manus and Nauru, and they are barred from resettling in Australia. Australia has struggled to move the refugees to third countries such as Cambodia or PNG. “The offer is very genuine and remains on the table,” Ardern told reporters after meeting Turnbull. But the Australian leader replied that while he appreciated the offer – first made by Wellington in 2013 – “we are not taking it up at this time”.

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Aug 182017
 
 August 18, 2017  Posted by at 8:53 am Finance Tagged with: , , , , , , , , ,  6 Responses »
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Edward S. Curtis Slow Bull Dakota Sioux Medicine Man In Prayer 1907

 

Never Doubt Regression To The Mean (Rosso)
The Stock Market Bubble is So Big Even the Fed’s Talking About It (Phoenix)
Ice-Nine: The Plan To Freeze The Financial System (Rickards)
Neoliberalism: The Idea That Changed The World (G.)
So When Will China’s Debt Bubble Finally Blow Up? (WS)
Charlene Chu Lays Out China’s “Doomsday” Scenario (ZH)
China’s New Problem: Frenzy Of Consumer Lending Creates Debt Explosion (CNBC)
‘Simply Doesn’t Cut It’: Elizabeth Warren Slams Wells Fargo Board Changes (BI)
Deutsche Bank, Bank of America Settle Agency Bond Rigging Lawsuits (R.)
Who Is Lobbying Mike Pence And Why? (IBT)
Mr. President: Close Down More “Advisory Councils” (Rossini)
Spain Lacks Capacity To Handle Migration Surge – UNHCR (G.)

 

 

After a week of senseless violence and rhetoric, we could sure do with a medicine man praying for peace. I know, they say this is what the Fourth Turning looks like. But I don’t have to like it. Seeing some of the pictures of traumatized people in Barcelona I couldn’t help thinking how much they looked like those I’ve seen from Syria and Libya. Senseless violence.

 

 

Part of a longer piece on retirement distributions. Very strong graph.

Never Doubt Regression To The Mean (Rosso)

Since 1877, secular bull years have totaled 80 vs. 52 for bears, which is a 60/40 ratio. Surprised? Bear markets happen more often than investors are led to believe. They usually occur at times of overvaluation which makes recent retirees or those close to retirement at greater risk of experiencing negative or poor future returns. Bad luck or rotten timing. Either way, it’s going to be important to remain cognizant of portfolio distribution rates, place renewed priority on risk management, and adjust spending accordingly perhaps over the next ten years. Those who were proactive to minimize stock and high-yield bond portfolio risk (like several of the writers for Real Investment Advice), and redeployed capital into stocks at 13x earnings in the summer of 2009, helped new retirees at that time meet their retirement objectives. In addition, they have experienced a cyclical tailwind in stocks that has allowed greater distribution rates. Great luck!

Stock market cycles are vast and span decades. Don’t stumble into a Recency Bias trap where you believe current complacent market conditions lay the path to a smooth, high-return future. Markets are mean reverting mechanisms. Cycles indeed change. Usually, markets are more volatile with periods of 5% pullbacks occurring every 3-4 months. As investors, this year we’ve witnessed shallow retracements followed up by buys on the dips. An environment like this fosters overconfidence. Volatility may excite traders and be helpful to those who are seeking lower prices to purchase risk assets. For those in retirement distribution mode, volatility and corrections have potential to place portfolio longevity in jeopardy.

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“Remember, we’re talking about the Fed here… a group of people who go above and beyond to ignore risks in order to maintain the status quo…”

The Stock Market Bubble is So Big Even the Fed’s Talking About It (Phoenix)

The Fed confirmed yesterday that stocks are in a bubble. Lost amidst the usual Fed-speak about inflation and other items were the following nuggets. 1) “Equities” (read: stocks) were the primary reason the Fed discussed financial stability risks. 2) The Fed raised its assessment of financial stability from “notable” to “elevated.” 3) The Fed discussed “stock valuations.” This is simply incredible. Remember, we’re talking about the Fed here… a group of people who go above and beyond to ignore risks in order to maintain the status quo. Put another way, the stock market bubble is now so massive that even THE FED is talking about it. Indeed, the Fed is even openly states that the bubble might cause financial instability (read: a CRASH). It’s not difficult to see what the Fed is talking about. Based on their cyclical adjusted price to earnings ratio (CAPE) stocks are in CLEAR bubble territory.

As you can see, stocks are currently as overpriced as they were at the 1929 peak. Indeed, the only time stocks were MORE expensive was the Tech Bubble: the single largest stock market bubble in history. They say you don’t ring a bell at the top. But what the Fed did yesterday is DARN close. So what happens when the markets wake up to the fact that yet another massive bubble is beginning to burst?

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Freeze it before the collapse.

Ice-Nine: The Plan To Freeze The Financial System (Rickards)

In my book The Road to Ruin, I discuss a phenomenon called “ice-nine.” The name is taken from a novel, Cat’s Cradle, by Kurt Vonnegut. In the novel, a scientist invents a molecule he calls ice-nine, which is like water but with two differences. The melting temperature is 114.4 degrees Fahrenheit (meaning it’s frozen at room temperature), and whenever ice-nine comes in contact with water, the water turns to ice-nine and freezes. The ice-nine is kept in three vials. The plot revolves around the potential release of ice-nine into water, which would eventually freeze the rivers and oceans and end all life on Earth. Cat’s Cradle is darkly comedic, and I highly recommend it. I used ice-nine in my book as a metaphor for financial contagion.

If regulators freeze money market funds in a crisis, depositors will take money from banks. The regulators will then close the banks, but investors will sell stocks and force the exchanges to close and so on. Eventually, the entire financial system will be frozen solid and investors will have no access to their money. Some of my readers were skeptical of this scenario. But I researched it carefully and provided solid evidence that this plan is already in place — it’s just not well understood. But the ice-nine plan is now being put into practice. Consider a recent Reuters article that admitted elites would likely shut down the entire system when the next financial crisis strikes. The article claimed that the EU is considering actions that would temporarily prevent people from withdrawing money from banks to prevent bank runs.

“The desire is to prevent a bank run, so that when a bank is in a critical situation it is not pushed over the edge,” said one source. Very few people are aware of these developments. They get a brief mention in the media, if they get mentioned at all. But people could be in for a shock when they try to get their money out of the bank during the next financial crisis. Think of it as a war on currency or a war on money. Even the skeptics can see how the entire financial system will be frozen solid in the next crisis. The only solution is to have physical gold, silver and bank notes in private storage. The sooner you put your personal ice-nine protection plan in place, the safer you’ll be.

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“..the ideal of society as a kind of universal market (and not, for example, a polis, a civil sphere or a kind of family) and of human beings as profit-and-loss calculators (and not bearers of grace, or of inalienable rights and duties)..”

Neoliberalism: The Idea That Changed The World (G.)

Last summer, researchers at the IMF settled a long and bitter debate over “neoliberalism”: they admitted it exists. Three senior economists at the IMF, an organisation not known for its incaution, published a paper questioning the benefits of neoliberalism. In so doing, they helped put to rest the idea that the word is nothing more than a political slur, or a term without any analytic power. The paper gently called out a “neoliberal agenda” for pushing deregulation on economies around the world, for forcing open national markets to trade and capital, and for demanding that governments shrink themselves via austerity or privatisation. The authors cited statistical evidence for the spread of neoliberal policies since 1980, and their correlation with anaemic growth, boom-and-bust cycles and inequality.

Neoliberalism is an old term, dating back to the 1930s, but it has been revived as a way of describing our current politics – or more precisely, the range of thought allowed by our politics. In the aftermath of the 2008 financial crisis, it was a way of assigning responsibility for the debacle, not to a political party per se, but to an establishment that had conceded its authority to the market. For the Democrats in the US and Labour in the UK, this concession was depicted as a grotesque betrayal of principle. Bill Clinton and Tony Blair, it was said, had abandoned the left’s traditional commitments, especially to workers, in favour of a global financial elite and the self-serving policies that enriched them; and in doing so, had enabled a sickening rise in inequality. Over the past few years, as debates have turned uglier, the word has become a rhetorical weapon, a way for anyone left of centre to incriminate those even an inch to their right. (No wonder centrists say it’s a meaningless insult: they’re the ones most meaningfully insulted by it.)

But “neoliberalism” is more than a gratifyingly righteous jibe. It is also, in its way, a pair of eyeglasses. Peer through the lens of neoliberalism and you see more clearly how the political thinkers most admired by Thatcher and Reagan helped shape the ideal of society as a kind of universal market (and not, for example, a polis, a civil sphere or a kind of family) and of human beings as profit-and-loss calculators (and not bearers of grace, or of inalienable rights and duties). Of course the goal was to weaken the welfare state and any commitment to full employment, and – always – to cut taxes and deregulate. But “neoliberalism” indicates something more than a standard rightwing wish list. It was a way of reordering social reality, and of rethinking our status as individuals.

Still peering through the lens, you see how, no less than the welfare state, the free market is a human invention. You see how pervasively we are now urged to think of ourselves as proprietors of our own talents and initiative, how glibly we are told to compete and adapt. You see the extent to which a language formerly confined to chalkboard simplifications describing commodity markets (competition, perfect information, rational behaviour) has been applied to all of society, until it has invaded the grit of our personal lives, and how the attitude of the salesman has become enmeshed in all modes of self-expression. In short, “neoliberalism” is not simply a name for pro-market policies, or for the compromises with finance capitalism made by failing social democratic parties. It is a name for a premise that, quietly, has come to regulate all we practise and believe: that competition is the only legitimate organising principle for human activity.

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I’m still convinced that people will react shocked if China is the first domino. But though Charlene Chu is right that China controls most of its system, its control over Chinese obligations abroad isn’t nearly that strong. Xi knows this, and that’s why Chinese purchases abroad are shrinking. China has become part of the global financial system with monopoly money. And sure, it has dollars and Treasuries, but they’re neither limitless nor limitlessly fungible. Weakest point? Local governments who have borrowed from foreign sources. Or from domestic ones that get their credit from foreigners. Shadow banks.

So When Will China’s Debt Bubble Finally Blow Up? (WS)

Corporate debt in China has soared to $18 trillion, or 169% of GDP, the largest pile of corporate debt in the world, according to the worried BIS. The OECD has warned about it earlier this year. The New York Fed warned about this debt boom in February and that it could lead to a “financial crisis,” but that authorities have many tools to control it. The IMF regularly warns about China’s corporate debt, broken-record-like, and did so again a few days ago, lambasting the authorities for their reluctance to tamp down on the growth of debt. The “current trajectory,” it said, “could eventually lead to a sharp adjustment.” The Chinese authorities – the government and the central bank, supported by the state-owned megabanks – have allowed some bonds to default, rather than bail them out, to make some kind of theoretical point, and they have been working furiously on a balancing act, tamping down on the credit growth that fuels the economy and simultaneously stimulating the economy with more credit to keep the debt bubble from imploding.

A misstep could create a global mess. “Everyone knows there’s a credit problem in China, but I find that people often forget about the scale; it’s important in global terms,” Charlene Chu told the FT. Back in 2011, when she was still a China banking analyst at Fitch Ratings, she went out on a limb with her radical estimates that there was much more debt than disclosed by the central bank, particularly in the shadow banking system, that banks were concealing risky loans in off-balance-sheet vehicles, and that this soaring opaque debt could have nasty consequences. Her outlandish views at the time have since then become the consensus. And this pile of debt is in much worse shape than officially acknowledged, she says in her latest report, cited by the FT. She’s now with Autonomous Research.

She figured that by the end of 2017, bad debt in China could hit 51 trillion yuan, or $7.6 trillion. Or about 68% of GDP! It would take the bad-debt ratio to an astronomical 34% of all loans, and way above the 5.3% that the authorities are proffering. And the authorities – the government, the central bank, supported by the state-owned banks – are now pulling all levers to keep this under control. “What I’ve gotten a greater appreciation for is how everything is so orchestrated by the authorities,” she said. “The upside is that it creates stability. The downside is that it can create a problem of proportions that people would think is never possible. We’re moving into that territory.”

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More Chu. Remarkable how she says “.. the ability to avoid recognizing losses only delays the inevitable day of reckoning as problems fester for longer, and grow larger than in an economy where actors respond purely to market incentives.” Remarkable because that describes America as much as it does China.

Charlene Chu Lays Out China’s “Doomsday” Scenario (ZH)

The first time we laid out the dire calculations about what is perhaps the biggest mystery inside China’s financial system, namely the total amount of its non-performing loans, by former Fitch analyst Charlene Chu we called it a “neutron bomb” scenario, because unlike virtually every other rosy forecast the most dire of which topped out at around 8%, Chu argued that the amount of bad debt in China was no less than a whopping 21% of total loans. While traditional bank loans are not Chu’s prime focus – she looks at the wider picture, including shadow banking – she says her work suggests that nonperforming loans may be at 20% to 21%, or even higher. The chart below shows just how much of an outlier Chu’s stark forecast was in comparison to her peers, and especially the grotesquely low and completely fabricated official number released by the banks and the government.

Recall that one of the biggest scandals in China in 2014 was the realization (as many had warned previously) that millions of tons of commodities were rehypothecated countless times, and thus “pledged” as collateral to numerous counterparties, and that as a result these same counterparties were unable to make sense of who owns what at one of China’s largest ports, Qingdao. In this context, it is safe to assume that loss given default rates in China are if not 100% (or more, which is impossible in theoretical terms but in practice is quite possible, as another curious side effect of unlimited collateral rehypothecation), then as close to it as possible.

Fast forward to today, when Charlene Chu, described by the FT as “one of the most influential analysts of China’s financial system” is back with a revised estimate that the bad debt in China has now reached a stunning $6.8 trillion above official figures and warns that the government’s ability to enforce stability has allowed underlying problems to go unchecked. [..] So if Chu held the wildly outlier view nearly two years ago that China’s NPLs amount to 21% of total, what is her latest estimate? The number is a doozy: in her latest report, Chu estimates that bad debt in China’s financial system will reach as much as Rmb51 trillion , or $7.6 trillion, by the end of this year, more than five times the value of bank loans officially classified as either non-performing or one notch above.” That estimate implies a bad-debt ratio of 34%, orders of magnitude above the official 5.3% ratio for those two categories at the end of June.

One factor that has foiled countless shorts over the years is that Beijing can simply order state-owned banks to keep lending to a lossmaking zombie company or to a smaller lender that relies on short-term interbank funding to stay liquid, and that’s precisely what has been happening, when looking at the various non-conventional credit pathways in China in recent years, which include Wealth Management Products, Bank Loans to Non-Bank Institutions, Shadow Banking, Repos and Certificates of Deposit.

But Chu said the ability to avoid recognizing losses only delays the inevitable day of reckoning as problems fester for longer, and grow larger than in an economy where actors respond purely to market incentives. That said, the recent spike in corporate bankruptcies indicates that even Beijing is slowly shifting to a more “market” driven stance. “What I’ve gotten a greater appreciation for is how everything is so orchestrated by the authorities,” she said. “The upside is that it creates stability. The downside is that it can create a problem of proportions that people would think is never possible. We’re moving into that territory.” Finally, putting it all in context is the following chart showing the total size of China’s financial sector, which as of the latest quarter has grown to $35 trillion, double the size of the US.

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Subtle tactics from Xi. Shift the debt but keep it high. What do you think the odds are that after the Party Congress China will withdraw into itself?

China’s New Problem: Frenzy Of Consumer Lending Creates Debt Explosion (CNBC)

The Chinese government is moving to tackle high debt levels, but the country is still borrowing more, Deutsche Bank said in a report released Thursday. That’s because short-term consumer debt in China has begun to surge as authorities try to alleviate the high levels of corporate indebtedness. The redistribution comes as Beijing is trying to strike a balance between stability and strength in its economy. Household debt in China is growing “very fast” and has accelerated in the last three to four months, according to Deutsche Bank: “If we focus purely on the consumer lending … then China has been undergoing something akin to a consumer lending frenzy.” According to Deutsche Bank, corporate credit has fallen to 45% of net new credit, down from 65% in the last 10 years. Instead, Beijing is allowing households and governments to borrow more to fund growth, which is targeted for around 6.5% in 2017, said the analysts.

Now, short-term consumer credit is growing 35% year-over-year, and may hit about 40% year-over-year by the end of December at the current trend, Deutsche Bank said. The bank said it isn’t yet clear where exactly the short-term consumer credit is being deployed, although 70 to 80% of that debt has historically been credit card-related. Overall household credit growth in China, the analysts noted, is growing around 24% year-over-year. At the end of the first half of 2017, corporate the debt-to-GDP ratio fell to 165% from the peak of 169% in the first quarter of 2016. That was “more of a ‘stabilization’ than a significant reduction,” Deutsche Bank said, calling it an “explosion” of growth. Meanwhile, household and government debt however rose by 8 to 9% of GDP. “So when viewed in aggregate China is still leveraging up apace,” the Deutsche Bank report concluded.

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Maybe somoneone should explain to Warren what the Fed is and does. Or Washington for that matter.

‘Simply Doesn’t Cut It’: Elizabeth Warren Slams Wells Fargo Board Changes (BI)

Wells Fargo’s effort to turn the page on consumer fraud scandals is falling short. That’s according to Massachusetts senator Elizabeth Warren, who has requested the Federal Reserve remove the bank’s board members who served between May 2011 and July 2015 in response to a series of vast consumer fraud scandals. The bank, already in hot water for creating millions of unauthorized accounts, recently admitted to also selling auto insurance without customers’ knowledge. Wells Fargo’s response? It has promoted an ex-Fed board governor, Elizabeth Duke, to chairwoman of the board. Duke, a champion of community banks while at the Fed, became a Wells Fargo director in 2015 and was named vice chair last year after the first round of scandals broke and led to the resignation of then-CEO John Stumpf.

Business Insider contacted Senator Warren to get her reaction. “Letting a few board members retire early and shuffling around current board members simply doesn’t cut it,” Warren said in an email. “The Fed should remove all remaining board members who served during the fake-accounts scandal.” Warren also renewed her call for board members’ removal with a new letter to Fed chairman Janet Yellen dated August 16, and voicing her dissatisfaction at what she sees as central bank inaction. “Instead of taking steps to remove the responsible Wells Fargo Board members, the Federal Reserve has actually sought to reduce their obligations and the obligations of other directors at the country’s biggest banks,” the letter said. In July, Warren repeatedly pressed Fed Chair Janet Yellen on the issue during recent Congressional testimony but Yellen would only say the central bank had the power to remove the directors — not that it had any inclination to do so.

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More free rides for bankers. Warren! Oh wait, your own party takes their contributions.

Deutsche Bank, Bank of America Settle Agency Bond Rigging Lawsuits (R.)

Deutsche Bank and Bank of America agreed to pay a combined $65.5 million to settle investor litigation accusing large banks of rigging the roughly $9 trillion government agency bond market over a decade. Preliminary settlements totaling $48.5 million for Deutsche Bank and $17 million for Bank of America were filed on Thursday with the U.S. District Court in Manhattan, and require a judge’s approval. Both banks denied wrongdoing. The settlements were the first in litigation accusing 10 banks of engaging in a “brazen conspiracy” to rig the market for U.S. dollar-denominated supranational, sub-sovereign and agency (SSA) bonds, court papers show. The investors are led by the Iron Workers Pension Plan of Western Pennsylvania, KBC Asset Management, and the Sheet Metal Workers Pension Plan of Northern California.

They accused banks of communicating by phone, chatrooms and instant messaging to share pricing data and function as a collective “super-desk,” while letting traders coordinate their strategies, to boost profit. This collusion allegedly ran from 2005 to 2015, and forced customers to accept unfair prices on bonds they bought and sold, court papers show. BNP Paribas, Citigroup, Credit Agricole, Credit Suisse, HSBC, Nomura, Royal Bank of Canada and Toronto-Dominion Bank were also sued, and all sought dismissals. U.S. regulators have also examined possible manipulation in the SSA bond market. The Manhattan court is home to a slew of private litigation accusing big banks of conspiring to rig various financial markets, interest rate benchmarks and commodities. Late Wednesday night, another group of investors sued six banks, claiming they rigged the more than $1 trillion stock lending market.

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Simply how all of Washington works.

Who Is Lobbying Mike Pence And Why? (IBT)

Mike Pence has been among the Trump administration’s most prominent voices pressing to replace the Affordable Care Act, repeal post-crisis financial regulations, privatize American infrastructure and promote fossil fuels. Those positions would benefit the industries that have been directly lobbying Pence since he was elected vice president, according to federal documents reviewed by International Business Times. Amid speculation that Pence could mount his own presidential bid — or replace Trump if he leaves office early — the former Indiana governor and U.S. congressman has been directly lobbied by major health care and drug companies, Wall Street firms, oil and gas interests and industry groups interested in shaping a federal infrastructure privatization initiative.

Pence’s office has also been lobbied by his former congressional chief of staff on behalf of insurance, defense contracting and telecommunications companies — and that lobbying revolved around health care policy, defense spending and net neutrality. Pence has enthusiastically backed the policies by the lobbying firms. While other vice presidents have been the target of lobbying in the past, Pence has been viewed as one of the most powerful vice presidents in recent history. He is a longtime politician serving a president with no experience in elected office, and during his vice-presidential selection process, Trump was reportedly offering potential running mates a vast policy portfolio to oversee. Pence also oversaw Trump’s White House transition, which shaped the administration’s personnel decisions and many of its policy proposals.

Companies that have lobbied the vice president have spent tens of millions of dollars in total federal lobbying so far this year. Here is a deeper look at the major industries lobbying him — and what exactly they have been pushing for in their efforts to influence the vice president. Despite his onetime support for expanding Obamacare subsidies in his home state, Pence has reversed course and led the Trump administration’s legislative bid to repeal the Affordable Care Act — just as health insurers have been lobbying him in 2017.

“If you’re one of those Americans who want to see Obamacare repealed and replaced, we literally are days, or maybe just weeks, away from being able to accomplish that historic objective,” he told conservative talk radio host Rush Limbaugh last month. “We believe if they can’t pass this carefully crafted repeal and replace bill — we do those two things simultaneously — we ought to just repeal only and then have enough time built into that legislation to craft replacement legislation.” The Pence-led repeal effort could be a financial boon to health insurers like Blue Cross and Blue Shield, as well as UnitedHealthcare Group — both which have been in direct contact with Pence, according to records reviewed by IBT.

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Libertarian view.

Mr. President: Close Down More “Advisory Councils” (Rossini)

So President Trump closed down his “Manufacturing Council” and no one cheered? What a shame. Why was there a “Manufacturing Council” to begin with? It’s not the job of the president to meddle with our economy. His job description says nothing about benefitting “manufactures” or “scientists” or “Silicon Valley” or anyone else. These “Councils” are breeding grounds for the cronyism that has virtually destroyed the American Dream. If a CEO has the ear of the president, do you think he’s going to “advise” the president to do anything that will hurt his own business? On the other hand, would the CEO be tempted to advise the president to hurt his competitors, both foreign and domestic? Would the CEO advise the president to make it hard for start-ups and entrepreneurs to compete?

Would he advise for subsidies? Strict licensing laws? The president doesn’t need Advisory Councils, Czars, or any other destroyer of our economic liberties. Let the CEO’s be “counciled” themselves by free market prices. Let them deal with economic reality as it is, not massage the president for unconstitutional interventions. Let them stand on their own. Either satisfy consumers profitably, or fold up so that other people can. The president, at the same time, should stop pretending that he can push buttons and pull levers to make the economy run. Nothing could be further from the truth. Government intervention only stifles the economy.

The economy continues to function despite the political intrusions that exist. Fortunately, entrepreneurs are creative enough to always find ways around so-called government “regulations”. There’s always a loophole somewhere. But why make it hard on entrepreneurs to begin with? Just get the heck out of the way! But alas, the government and multi-national corporations are attached at the hip. One scratches the back of the other. Mr. President, close down all the “Advisory Councils,” and keep your hands off the economy.

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Spain’s views on this may have changed last night.

Spain Lacks Capacity To Handle Migration Surge – UNHCR (G.)

Spain lacks the resources and capacity to protect the rising number of refugees and migrants reaching it by sea, the UN refugee agency has said. The warning from UNHCR comes as the Spanish coastguard said it rescued 593 people in a day from 15 small paddle boats, including 35 children and a baby, after they attempted to cross the seven-mile Strait of Gibraltar. The number of refugees and migrants risking the sea journey between Morocco and Spain has been rising sharply, with the one-day figure the largest since August 2014, when about 1,300 people landed on the Spanish coast in a 24-hour period. About 9,300 migrants have arrived in Spain by sea so far this year, while a further 3,500 have made it to two Spanish enclaves in north Africa, Ceuta and Melilla, the EU’s only land borders with Africa.

María Jesús Vega, a spokeswoman for UNHCR Spain, said police were badly under-resourced and there was a lack of interpreters and a shortage of accommodation for the new arrivals. “The state isn’t prepared and there aren’t even the resources and the means to deal with the usual flow of people arriving by sea,” she said. “Given the current rise, we’re seeing an overflow situation when it comes to local authorities trying to cope at arrival points.” Vega said the agency was seeing a very high number of vulnerable people including women, victims of people-trafficking, and children. “What we’re asking is for there to be the right mechanisms in place to ensure people are treated with dignity when they come,” she said.

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Jan 092017
 
 January 9, 2017  Posted by at 10:34 am Finance Tagged with: , , , , , , , , , ,  7 Responses »
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AFP Photo/Johannes EISELE Giant Trump Chicken

Locating Fascism on the Home Map (Ford)
‘The Bull Market Is In Its Final Inning’ (CNBC)
Chinese Warns Trump: End One China Policy And China Will Take Revenge (R.)
It’s Gonna Be Huge: China Factory Hatches Giant Trump Chickens (AFP)
How Meaningful Will China “Opening Up” Markets To Foreigners Be? (BBG)
China Tightens Rules After Anti-Corruption Staff Caught Up In Graft (R.)
China’s Pyrrhic Growth Victory Spurs 2017 Shift To Contain Risks (BBG)
The Rise, Fall and Comeback Of China’s Economy Over The Last 800 Years (BI)
Australia Predicts Dramatic Fall In Iron Ore Prices (BBC)
FBI Arrests Volkswagen Exec on Conspiracy Charges in Emissions Scandal (NYT)
UK Motorists Launch Class-Action Suit Against VW (G.)
Le Pen: I’ll Come To Brussels And Dismantle France’s Relationship With EU (EUK)
Beppe Grillo Calls For Five Star Movement Vote On Quitting Farage Bloc (G.)
New Cold Snap, Heavy Snowfall Causes Problems Across Greece (Kath.)

 

 

Hear hear!

Locating Fascism on the Home Map (Ford)

In decadence and decline, the U,S. has produced two strong strains of fascism that now vie for supremacy. The First Black President, now outgoing, represents the “cosmopolitan, global obsessed” variety of fascist. Donald Trump hails from an older fascist strain, “crude and petty, too ugly for global prime time.” At this stage in history, the two corporate parties seem incapable of producing anything other than fascists of one kind or the other.

Barack Obama was a savior – of a drowning ruling class. Under his administration, Wall Street rose from near-death to new heights of speculative frenzy, awash in capital brutally extracted from the vanishing assets and past and future earnings of the vast majority of the population, or gifted in the form of trillions in free money at corporate-only Federal Reserve windows. The Big Casino, reduced to a rubble of its own contradictions in 2008, ushered in the New Year just shy of the once-fantastical 20,000 mark. Analysts credited Donald Trump’s victory for the bankers’ bacchanal, but it was Obama who made the party possible by overseeing the restructuring of the U.S. economy to accommodate and encourage the hyper-consolidation of capital – another way to describe the deliberate deepening of economic (and political) inequality. Having accomplished the mission assigned him by Wall Street in return for record-breaking contributions to his first campaign, Obama is said to be angling for a hot-money squat in Silicon Valley, the super-rich sector that was most supportive of his presidency.

Meanwhile, Hillary Clinton is melting quicker than the Wicked Witch of the West, principally due to the failure of traditionally Democratic working (and out of work) people of all races to turn out on November 8 – a perfectly understandable response to a party and a system that offers them absolutely nothing but grief, in ever quickening increments. The merciless downsizing of the American worker is a central element of Obama’s legacy. Real wages had been frozen or declining for decades. However, economic restructuring in the Age of Obama demanded that millions of workers be crushed all the way through the floor to a lower level of hell: temporary, contract, not-really-a-job, part-time “gig” employment. If the 1930s squatter shanty-towns called “Hoovervilles” were testaments to President Herbert Hoover’s economic policies, then the maddeningly precarious, no guaranteed hours, no benefits, zero job security, fraction of a shift, arbitrarily scheduled employment of today should be called ObamaJobs. A new study by economists at Princeton and Harvard universities shows that an astounding 94% of the 10 million jobs created during the First Black President’s two terms in office were ObamaJobs.

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“Risk has been priced out of the market..”

‘The Bull Market Is In Its Final Inning’ (CNBC)

As investors await the Dow Jones 20,000 with baited breath, one widely followed chart watcher believes the current market rally is actually on its last legs. On Friday, blue chip shares in the Dow Industrial Average flirted with the psychologically charged 20,000 level, which have largely been driven higher by anticipation over President-elect Donald Trump’s business-friendly policies. Yet a few observers think the party is nearly over, and the punch bowl is about to run dry. “Risk has been priced out of the market,” said Sven Henrick of NorthmanTrader.com on CNBC’s “Futures Now.” Henrich, who is known online as the Northman Trader, said that despite the abundance of optimism on the part of investors, technical indicators could be pointing to some near-term pain.

According to the Northman’s chartwork, every time the S&P 500 Index has hit new highs, it eventually retreats back towards its 25-day moving average line, which would translate to a 4% pullback from current levels. The S&P 500 has rallied 6% since the election, and hit an intraday record high on Friday. “I would expect that at some point there would be a buying opportunity for people who may want to invest in this market,” said Henrich. “But if this line breaks, we may see significantly more downside that we’ve seen in previous corrections as well.” What’s more, Henrich also believes that the S&P 500 has continued to trade in a “bearish wedge pattern” that began just after the end of the last recession.

The wedge pattern Henrich speaks of consists of two trend lines: One that runs along the S&P’s highs and a second that runs along its lows, that look to meet sometime in 2017. It is at that point that Henrich believes the rally will have run its course, and a downside will soon follow. On a fundamental basis, the Northman Trader is troubled by “record debt levels” that the global governments have incurred. “In 2016, the U.S. government ran a deficit of over $600 billion,” explained Henrich.” “If we now add tax cuts and stimulus spending, you’re either going to have to cut a significant amount of programs somewhere, or you’re going to end up with an even larger deficit.”

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For domestic use only?

Chinese Warns Trump: End One China Policy And China Will Take Revenge (R.)

State-run Chinese tabloid Global Times warned U.S. President-elect Donald Trump that China would “take revenge” if he reneged on the one-China policy, only hours after Taiwan’s president made a controversial stopover in Houston. Taiwanese President Tsai Ing-wen met senior U.S. Republican lawmakers during her stopover in Houston on Sunday en route to Central America, where she will visit Honduras, Nicaragua, Guatemala and El Salvador. Beijing had asked Washington not to allow Tsai to enter the United States and that she not have any formal government meetings under the one China policy. A photograph tweeted by Texas Governor Greg Abbott shows him meeting Tsai, with a small table between them adorned with the U.S., Texas and Taiwanese flags. Tsai also met Texas Senator Ted Cruz.

“Sticking to (the one China) principle is not a capricious request by China upon U.S. presidents, but an obligation of U.S. presidents to maintain China-U.S. relations and respect the existing order of the Asia-Pacific,” said the Global Times editorial on Sunday. The influential tabloid is published by the ruling Communist Party’s official People’s Daily. Trump triggered protests from Beijing last month by accepting a congratulatory telephone call from Tsai and questioning Washington’s commitment to China’s position that Taiwan is part of one China. “If Trump reneges on the one-China policy after taking office, the Chinese people will demand the government to take revenge. There is no room for bargaining,” said the Global Times.

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“..mimic his signature hand gestures with their tiny wings.”

It’s Gonna Be Huge: China Factory Hatches Giant Trump Chickens (AFP)

A Chinese factory is hatching giant inflatable chickens resembling Donald Trump to usher in the Year of the Rooster. The five-metre (16-foot) fowls sport the distinctive golden mane of the US president-elect and mimic his signature hand gestures with their tiny wings. Cartoon figures of animals from the Chinese zodiac are ubiquitous around Chinese New Year at the end of this month. The balloon factory is selling its presidential birds for as much as 14,400 yuan ($2,080) on Chinese shopping site Taobao for a 10-metre version.


A golden mane and tiny wings that mimic his hand gestures – the resemblence of inflatable chickens produced for the Chinese New Year to US President-elect is unmistakable (AFP Photo/Johannes EISELE)

“I saw his image on the news and he has a lot of personality, and since Year of the Rooster is coming up I mixed these two elements together to make a Chinese chicken,” factory owner Wei Qing told AFP. “It is so funny, so we designed it and tried to sell it and it turned out to be popular.” The cartoon balloon appeared to be based on a sculpture designed by US artist Casey Latiolais, which was unveiled at a shopping mall last month in Taiyuan, capital of the northern province of Shanxi. Wei said he was not aware that the American designer had created the original, but added that “there are some differences in the facial expression. And that one is glass. Ours is inflatable.”

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“If we do get any reforms this year, they are going to be Potemkin reforms. The veneer will look like they are moving to a market economy, and the reality will be anything but.”

How Meaningful Will China “Opening Up” Markets To Foreigners Be? (BBG)

China’s recent policy of opening its markets to foreigners is expected to continue this year, but there are questions about how meaningful the change will be amid a clampdown on money leaving the country. While China loosened restrictions on its interbank bond market and relaxed rules for offshore investors trading stocks, it also saw $762 billion head overseas in the first 11 months of last year, according to Bloomberg Intelligence estimates, as investors sought safety in foreign assets. That helped push the yuan down 6.5% against the dollar in 2016, the most since 1994. Seeking to stem the flow, mainland authorities tightened rules that contributed to MSCI Inc. refusing to add Chinese-listed shares to its global indexes.

China’s regulators have indicated that this year foreigners might be allowed to access commodity futures and bond derivatives, while MSCI will again consider adding mainland stocks. But concerns remain about how open China’s markets will be, especially on the issue of taking assets out of the country. The contrast highlights the tension authorities face between inviting more investment while keeping control of the financial sector. “I’d describe China’s strategy as a pipeline strategy. Essentially what they do is to create various pipelines of inflows and outflows,” said John Greenwood, London-based chief economist at Invesco Asset Management. “The problem is the flows are always in the opposite direction of what they want.”

Among last year’s steps, Beijing lifted almost all quotas on China’s interbank bond market and scrapped some constraints under the Qualified Foreign Institutional Investor program, which governs how offshore funds invest in mainland markets. The Shenzhen-Hong Kong stock exchange link, the second between the mainland and the former British colony, opened in December. Expectations then rose as an official with the People’s Bank of China said the central bank is committed to further opening the interbank market, including giving foreign investors access to foreign-exchange and interest-rate derivatives to hedge risks, and expanding trading hours. Even as China opens up to incoming funds, it has been clamping down on outflows.

Officials have banned the use of friends’ currency quotas, made it more difficult to buy insurance policies in Hong Kong and prepared restrictions on overseas acquisitions by Chinese companies. Grants of new quotas for domestic fund managers to invest overseas were frozen, according to data compiled by Bloomberg. The tightening of outflow rules makes it hard for some to say that the country is fully embracing financial reform. “We have already seen in China’s case, markets only work when they go up. You are not allowed to go down,” said Michael Every at Rabobank in Hong Kong. “If we do get any reforms this year, they are going to be Potemkin reforms. The veneer will look like they are moving to a market economy, and the reality will be anything but.”

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“500,000-plus corruption investigators..” Who are corrupt.

China Tightens Rules After Anti-Corruption Staff Caught Up In Graft (R.)

China’s top anti-corruption watchdog has tightened supervision of its 500,000-plus corruption investigators, after some of its own staff were caught in graft probes. The Central Commission for Discipline Inspection (CCDI) said in a statement on its website late on Sunday that a new regulation would be applied to procedures such as evidence collection and case reviews, without providing further details. “Trust cannot replace supervision,” the CCDI said in the statement, released after it held an annual 3-day meeting. “We must make sure the power granted by the (Communist) Party and the people is not abused,” it said.

State newspaper the China Daily, which did not indicate its sources, said the new regulation would set clear standards on how to handle corruption tips, how to handle ill-gotten assets, and would encourage audio and video recordings to be made throughout interrogations. More than 7,900 disciplinary officials have been punished for wrongdoing since 2012, the newspaper said, citing CCDI figures. Of those, 17 were CCDI staffers who were put under investigation for graft, it said. On Friday, state news agency Xinhua quoted Chinese President Xi Jinping as saying that the battle against corruption “must go deeper”, and called for the Communist Party to be governed “systematically, creatively and efficiently”.

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Stuck.

China’s Pyrrhic Growth Victory Spurs 2017 Shift To Contain Risks (BBG)

As China’s top leaders tallied the cost of another year of debt-fueled growth at a December meeting, the imperative for stability as a leadership reshuffle loomed later this year prompted an unexpected conclusion. The price was too high, the leaders agreed, according to a person familiar with the situation. The buildup of debt used to fuel smokestack industries from steel to cement had helped win the short-term battle for growth, but the triumph itself undermined the foundations of long-term expansion, the leaders decided, according to the person, who asked not to be named because the meeting was private. What followed was an order to central and local government officials that if they are forced to choose this year, stability must be the priority while everything else, including the growth target and economic reform, is secondary, said another four people familiar with the situation.

Other concerns aired at the meeting that contributed to the policy shift were the short-term risk of a confrontation with the U.S. under President-elect Donald Trump over trade or Taiwan, and longer-term challenges including how to spur the innovation needed to prevent economic stagnation as well as cleaning up toxic air that enrages and poisons citizens, said the person. Left unsaid was that economic growth underpins the legitimacy of Communist Party rule. “China’s reaching the point where it has to pick its poison and giving up a half%age point of growth would be far less politically damaging than instability in the bond or currency markets,” said David Loevinger, a former China specialist at the U.S. Treasury and now an analyst at fund manager TCW in Los Angeles. “Looking past the Party Congress later in the year, President Xi Jinping may realize that unlike his predecessor, Hu Jintao, he can’t kick the can to his successor, even more so if he plans on extending his term” beyond 2022.

At the December meeting, officials expressed alarm over the nation’s rapid accumulation of total debt, with some present noting that other nations have experienced crises after allowing debt to climb to about 300% of gross domestic product, the person said. China’s credit boom may have pushed overall debt at the end of 2016 to 265% of GDP. Also aired at the meeting was the risk that China falls into the so-called Thucydides trap, a theory attributed to the eponymous Greek philosopher that says a rising power will clash with an established force. So menacing is the array of economic and political challenges confronting the nation that some leaders at the meeting said there’s no prospect for yuan appreciation against the dollar until at least 2020, said the person. “Tapping the brakes may help avoid the economy skidding off the road,” said Frederic Neumann at HSBC in Hong Kong.

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Interesting point of view.

The Rise, Fall and Comeback Of China’s Economy Over The Last 800 Years (BI)

China’s economy led its European counterpart by leaps and bounds at the start of the Renaissance. China was so far ahead, in fact, that economic historian Eric L. Jones once argued that the Chinese empire “came within a hair’s breadth of industrializing in the fourteenth century.” At the start of the 15th century, China already had the compass, movable type print, and excellent naval capacity. In fact, Chinese Admiral Zheng He commanded expeditions to Southeast Asia, South Asia, Western Asia, and East Africa from about 1405-1433 – about a century before the Portuguese reached India. He also had ships several times the length of Christopher Columbus’ Santa Maria, the largest of Columbus’ three ships that crossed the Atlantic.

Still, it’s hard to understand the magnitude of the shift China’s economic fortunes have seen just with historical anecdotes. And so, in a recent note to clients, Macquarie Research’s Viktor Shvets included two fascinating charts showing the changes China saw over the last 800 years, which we included below. The first chart shows the estimated percent share of a given country’s economy as a part of the overall world economy. In the 15th and 16th centuries, China was about 25-30% of the global economy, but come 1950-1970, after the destruction of World War II and under the rule of Mao Zedong, it was under 5%. Today, its economy is about 17% of the global economy – roughly the same as the US.

The second chart compares GDP per capita in China, Japan, and the US to the British GDP per capita measured in 1990 US dollars. In this case, the British GDP per capita in each year is 100, so if a number from China, Japan, or the US is above 100, then its GDP per capita is greater than in Britain, and if the number falls below 100, per capita output is lower than that in Britain. As Shvets writes, on a per capita basis, China was the wealthiest part of the world in the 1200-1300s — aside from Italy. Even as late as the 1600s it was roughly on par with the Brits. However, after that, the GDP per capita relative to Britain declines all the way up to the 1970s, when it was below 10% of the British standard of living. Around 1990, it starts to pick up again, but it has yet to recover to levels seen in 1200-1600.

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And what does this say about China?

Australia Predicts Dramatic Fall In Iron Ore Prices (BBC)

Shares in Australian mining companies have fallen after the government forecasted a dramatic decline in iron ore prices. The government forecast an iron ore price of $46.70 a tonne by 2018, almost half the current level of $80. The current price is supported by resurgent demand from China. But the Department of Industry, Innovation and Science said that demand was unlikely to continue over the coming years. The department also lowered its forecast for iron ore exports by 2% to 832.2 million tonnes for the fiscal year 2016-17. Australia is the world’s biggest supplier of iron ore and shares in the country’s main mining companies fell after the report was released. Hardest hit was Fortescue Metals which fell more than 3% in early trade, while commodity giants BHP Billiton and Rio Tinto also saw their shares prices drop. In its forecast early last year, the department had predicted an iron ore price of $44.10 per tonne, but an increase in Chinese demand spurred the price to above $80.

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This guy’s been lying outright to US authorities.

FBI Arrests Volkswagen Exec on Conspiracy Charges in Emissions Scandal (NYT)

The Federal Bureau of Investigation has arrested a Volkswagen executive who faces charges of conspiracy to defraud the United States, two people with knowledge of the arrest said on Sunday, marking an escalation of the criminal investigation into the automaker’s diesel emissions cheating scandal. Oliver Schmidt, who led Volkswagen’s regulatory compliance office in the United States from 2014 to March 2015, was arrested on Saturday by investigators in Florida and is expected to be arraigned on Monday in Detroit, said the two people, a law enforcement official and someone familiar with the case. [..] In a statement, Jeannine Ginivan, a spokeswoman for Volkswagen, said that the automaker “continues to cooperate with the Department of Justice” but that “it would not be appropriate to comment on any ongoing investigations or to discuss personnel matters.”

Lawsuits filed against Volkswagen by the New York and Massachusetts state attorneys general accused Mr. Schmidt of playing an important role in Volkswagen’s efforts to conceal its emissions cheating from United States regulators. Starting in late 2014, Mr. Schmidt and other Volkswagen officials repeatedly cited false technical explanations for the high emissions levels from Volkswagen vehicles, the state attorneys general said. In 2015, Mr. Schmidt acknowledged the existence of a so-called defeat device that allowed Volkswagen cars to cheat emissions tests. Volkswagen eventually said that it had fitted 11 million diesel cars worldwide with illegal software that made the vehicles capable of defeating pollution tests. [..] James Liang, a former Volkswagen engineer who worked for the company in California, pleaded guilty in September to charges that included conspiracy to defraud the federal government and violating the Clean Air Act. But Mr. Schmidt’s arrest brings the investigation into the executive ranks.

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Settling the UK alone could cost VW £3.6 billion.

UK Motorists Launch Class-Action Suit Against VW (G.)

Thousands of British motorists have launched a lawsuit against Volkswagen over the “dieselgate” emissions scandal, in a claim that could end up costing the carmaker billions of pounds. The group of 10,000 VW owners has filed a class action lawsuit against the German car firm, seeking £30m, or £3,000 each. If VW ends up having to pay the amount to each one of the 1.2 million people in the UK who own affected cars, including its Skoda, Audi and Seat marques, it would cost the company around £3.6bn.The German firm has yet to reach a settlement with British and European owners affected by the scandal, in which the company admitted using “defeat devices” to cheat emissions tests, making its cars appears greener than they were.

It has not compensated British owners despite reaching a £15bn settlement with 500,000 US drivers, offering instead to fix affected vehicles. The class action suit, which is being led by law firm Harcus Sinclair, is expected to claim that drivers should be compensated because they paid extra for what they thought were clean diesel cars. In fact, the claimants will allege, the cars emitted far higher levels of NOx – a mixture of pollutants nitrogen oxide and nitrogen dioxide – than stated. Damon Parker, head of litigation at Harcus Sinclair, told the Daily Mail that claimants were “angry and believe that VW might get away with it”. “They feel that they have been left with no choice but to take legal action,” Parker said. “We have paved the way for consumers who trusted but were let down by VW, Audi, Seat and Skoda to seek redress through our courts.

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My guess is pollsters and media will get this as wrong as they got Brexit and Trump.

Le Pen: I’ll Come To Brussels And Dismantle France’s Relationship With EU (EUK)

Marine Le Pen announced her first foreign visit would be to Brussels to dismantle France’s relationship with the EU if elected president later this year. The National Front leader has been a long-time critic of the EU and has promised to push back the sprawling European superstate and take back sovereignty to France. The 48-year-old said: “I would go to Brussels to immediately launch negotiations allowing me to give back to the French people their sovereignty.” The right-wing leader attacked the faltering euro currency as one of the root problems of the EU and described her main economic proposals as “economic patriotism, intelligent protectionism and a return to monetary independence”. She added: “The euro is a major obstacle to the development of our economy.”

Le Pen mooted that she was in favour of maintaining a form of common currency mechanism between France and the EU to help prevent sharp currency fluctuations. Recent opinion polls predicted that Le Pen would finish second in April’s first round of voting – putting her through to the next round in a run-off against Les Repubicain’s François Fillon. If pollsters are correct, France would be guaranteed a right-wing leader after five years of left-wing leadership from Francois Hollande.

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Farage got his price, Grillo still has nothing. Weird to ally himself with Verhofstadt, but it’s how Brussels is set up: you either force yourself into some group or you don’t count.

Beppe Grillo Calls For Five Star Movement Vote On Quitting Farage Bloc (G.)

The founder of Italy’s populist Five Star Movement (M5S) has asked members to vote on splitting from a Eurosceptic bloc of MEPs co-chaired by Nigel Farage. Beppe Grillo, a comedian turned politician, said in a post on his blog that since Farage had led Ukip to Britain voting to leave the EU, the two parties no longer shared common goals and he recommended leaving the Europe of Freedom and Direct Democracy (EFDD). “Recent events in Europe, such as Brexit, have led us to reconsider the nature of the EFDD group,” Grillo wrote. “With the extraordinary success of the leave campaign, Ukip achieved its political objective: to leave the EU. “Let’s discuss the concrete facts: Farage has already abandoned the leadership of his party and British MEPs will leave the European parliament in the next legislature. Until then, our British colleagues will be focused on developing the choices that will determine the UK’s political future.”

Grillo and Farage forged an alliance over lunch in Brussels after 2014’s European elections, in which Ukip took the largest share of the vote in Britain and M5S came second in Italy after winning 17 seats. Both said at the time that the group was aimed at “restoring freedom and national democracy”, with Farage adding: “Expect us to fight the good fight to take back control of our countries’ destinies.” In a move that would see his party mesh with European liberals, Grillo has called an online referendum, scheduled for Sunday and Monday, on breaking away and instead forming a new group with the Alliance of Liberals and Democrats for Europe (ALDE), led by the former Belgian prime minister, Guy Verhofstadt, who is also the EU’s chief Brexit negotiator. Grillo has long called for a referendum on Italy’s membership of the euro currency, but not on Italy leaving the EU.

With ALDE’s 68 MEPs, the alliance could become the “third political force in the European parliament”, Grillo wrote, while pointing to the fact that his party had only voted alongside Ukip about 20% of the time within the past few years. He said the two shared values linked to “direct democracy, transparency, freedom and honesty”. “With our vote we can make a difference and influence the result of many important decisions to counter the European establishment,” Grillo added. Farage said in a statement: “In political terms it would be completely illogical for Five Star to join the most Euro fanatic group in the European parliament. The ALDE group doesn’t support referenda or the basic principle of direct democracy. ALDE are also the loudest voice for a EU army. I suspect if Five Star joins ALDE it’s support will not last long.” A Ukip spokesman said: “Both Ukip and Five Star are free to choose to stay or quit a political relationship. While it’s interesting that some Five Star MEPs adamantly wish to stay in the EFDD group, as adults we wish them all the best whatever they do.”

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The scandal spreads and deepens. Tens of millions have been handed to NGOs to prepare for winter, and they simply haven’t done it. While those of us that could make it happen don’t have the money. People have to die first?

New Cold Snap, Heavy Snowfall Causes Problems Across Greece (Kath.)

A new cold snap brought snowfall to many parts of the country, leaving the Sporades islands of Alonissos and Skopelos without a ferry connection to the mainland and the Aegean islands of Lesvos and Chios struggling to care for hundreds of migrants amid freezing temperatures. Schools remained closed in many parts of the country due to heavy snowfall, including in the northern suburbs of Athens. According to meteorologists, the bad weather is set to continue through Wednesday. From Monday evening, the cold snap is forecast to spread to eastern Macedonia, Thrace, Halkidiki, the northern Aegean, the Sporades and across Crete. Storms are also likely at sea.


Moria camp, Lesbos, Jan 7

Temperatures are set to drop to -16 degrees Celsius in western Macedonia. The icy conditions left many households in the Thessaloniki region without water as pipes froze or broke. Most schools in the region were to remain closed on Monday due to heavy snowfall and low temperatures. The cold snap has made road travel risky in many parts of the country with motorists advised to fit their cars with anti-skid chains in northern areas.


Moria camp, Lesbos, Jan 7

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Oct 142016
 
 October 14, 2016  Posted by at 9:20 am Finance Tagged with: , , , , , , , , , ,  Comments Off on Debt Rattle October 14 2016
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Lewis Wickes Hine Newsies in St. Louis, N. Broadway and De Soto. 1910

Fed Creates Junk Bond And Stock Market Bubble (SA)
Draghi Sends Corporate Yields So Negative the ECB Can’t Buy Them (BBG)
There’s No Plateau in a Housing Bubble, Not Even in Canada (WS)
30% Junk Rally Gives Traders Heartburn (BBG)
China’s Tough Choice: Supporting Growth Or Controlling Debt (CNBC)
China Export Dip Tempts Policy Makers to Keep Weakening Yuan (BBG)
Shanghai Banks Told To Limit Loans To Property Developers (R.)
Standard & Poor’s Warns On UK Reserve Currency Status As Brexit Hardens (AEP)
Hundreds Of Properties Could Be Seized In UK Corruption Crackdown (G.)
Some of Donald Trump’s Economic Team Diverge From Candidate (WSJ)
Renzi Gambles All on Referendum Haunted by Weak Italian Economy (BBG)
Walloon Revolt Against Canada Deal Torpedoes EU Trade Policy (Pol.)
Germany Proposes North Africa Centers For Rescued Migrants (AFP)

 

 

“..this borrowing to fund buybacks and dividends doesn’t last this long and it has never lasted three years..”

Fed Creates Junk Bond And Stock Market Bubble (SA)

The chart below emphasizes the point that real business investment has declined while commercial and industrial loans are increasing. The leverage in the system is the highest ever as cheap money is not going to the right places. Businesses will only invest in new initiatives if they see sales growth in the future. Low interest rates will not cause a manager to invest in a new initiative. However, managers are still tempted to take the free money, so they pile it into the easiest place: dividends and buybacks.

As you can see, the total payout ratio of dividends and buybacks has exceeded 100% for the past two years. Usually, this borrowing to fund buybacks and dividends doesn’t last this long and it has never lasted three years, so leverage is near its brink.

The chart below shows how levered the balance sheets of corporations are. The leverage on investment-grade balance sheets is at a record high. The three bubbles that you can see in the chart below have all been created by the Federal Reserve’s easy money policies.

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Super Clueless Mario surprises himself.

Draghi Sends Corporate Yields So Negative the ECB Can’t Buy Them (BBG)

The European Central Bank is starting to price itself out of the corporate-bond market as yields plumb such lows that some notes are no longer eligible for its purchase program. ECB President Mario Draghi’s unprecedented buying of corporate debt has sent borrowing costs tumbling to a record and now yields on some securities are so low they fall outside the ECB’s own criteria. Yields on bonds from Paris’s public transport network have already dropped below the threshold of minus 0.4%, while those from Siemens, Europe’s biggest engineering company, France’s train operator SNCF and Sagess, which manages the nation’s strategic oil reserves, are also approaching the cut-off point.

The increasingly negative yields are raising questions about how much more the ECB can do in credit markets to stimulate growth. Yields on €2.6 trillion ($2.9 trillion) of government bonds in Europe have already turned negative after the central bank bought €1.3 trillion of fixed-income assets, including €32 billion of corporate bonds. “This is a sign of how much impact corporate bond buying has had on the credit market,” said Barnaby Martin at Bank of America. “If corporate yields continue to fall, then conceivably it could impact the ECB’s ability to buy bonds. It’s surprising how quickly we’ve reached this situation.”

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“When a bubble pops, the first thing that stops is transactions..”

There’s No Plateau in a Housing Bubble, Not Even in Canada (WS)

Once enough people are priced out of the housing market, demand collapses. This would normally be where housing bubbles deflate in a very painful manner for lenders, homeowners, and everyone getting their cut, including governments and the real estate industry. But there has been a strong influx of mostly Chinese investors that need to get their money, however they obtained it, out of harm’s way at home, and they pile into the market, and they don’t care what a property costs as long as they think they can sell it for more later. But British Columbia threw a monkey wrench in to the calculus this summer when it adopted a 15% real estate transfer tax and other measures aimed squarely at non-resident investors. It hit home, so to speak.

Total sales in Vancouver plunged 32.5% in September from a year ago, with sales of detached homes falling off a cliff – down 47%. Home sales have fallen every month since their all-time crazy peak in February on a seasonally adjusted basis, for a cumulative decline of 44%, according to Marc Pinsonneault, Senior Economist at Economics and Strategy at the National Bank of Canada. But home prices have not yet fallen, he wrote in the note, “because market conditions have just started to loosen from the tightest conditions on records. We see home price deflation starting soon (10% expected over twelve months).” His chart shows the plunge in sales (red line, left scale, in thousands of units) even as active listings have started to rise (blue line, right scale):

In Toronto, the opposite is happening, with sales spiking on a seasonally adjusted basis way past prior record levels, even as new listings have plunged.

For now, “Toronto is now the red hot market,” explains Pinsonneault: “Home sales broke records in each of the last three months. But the historically low supply (in terms of the number of homes listed for sale) is also contributing to market conditions that are the tightest on records.” But the situation can turn on a dime, as Vancouver demonstrated. When a bubble pops, the first thing that stops is transactions. This happens suddenly. Sellers refuse to cut their prices, while buyers refuse to step up to the plate. Things grind to a halt.

Once sellers are forced to relent on price, transactions start rolling again, at lower prices, and each lower price, due to the metrics of comparable sales, pressures down future prices of other transactions. Once Chinese investors figure out that they’re likely to lose a ton of money in Canadian real estate, because their compatriots who’ve piled into the market before them have already lost a ton of money, they’re going to lose their appetite. This is the hot money. It evaporates suddenly and without a trace. As Vancouver shows, bubbles don’t end in a plateau.

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Chasing yield doesn’t look like the best way forward.

30% Junk Rally Gives Traders Heartburn (BBG)

It’s becoming difficult to see how the lowest-rated U.S. junk bonds can continue to rally. They’ve posted their best performance since 2009, with more than a 30% return so far this year. And now investors from Goldman Sachs Asset Management to Highland Capital are starting to become nervous about this debt, and with good reason: If there’s any sort of economic shock at all, these notes are poised to lose a lot. And some sort of shock is entirely possible in the near future. These notes have benefited from two overwhelming factors this year:

1) New stimulus efforts in Japan and Europe have pushed investors into the most-speculative notes, especially those in the U.S.

2) Oil prices have rallied from the lows reached earlier this year, giving some highly indebted energy companies more time to survive after seeing their corporate lives flash before their eyes last year.There are signs that both dynamics are reaching their limits.Central bankers in Europe and Japan are running out of ways to stimulate their economies after deploying negative-rate policies that are eroding the stability of their financial systems. Instead of trying to add stimulus, policy makers in both regions are being forced to tweak existing bond-buying programs to keep them viable. And oil prices have rallied, but not as much as energy junk bonds, which have gained more than 49% since the end of February. This has propelled gains on the broader high-yield market.

[..] current prices aren’t high enough to sustain the current momentum in these bonds. That’s because a “significant amount” of the lowest-rated unsecured bonds of energy companies are pricing in oil at $70 a barrel over the longer term, Jefferies analyst Michael Carley said. Taking a step back, why should the lowest, most-leveraged junk bonds continue to do well? This debt should do best when an economy is steadily growing, interest rates are low and companies have bright futures. But U.S. companies are facing an earnings recession, the Federal Reserve is poised to raise rates again within the next few months and companies are borrowing at a faster pace than they’re increasing their incomes.

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The choice China refuses to make; they do both and run only to move backwards.

China’s Tough Choice: Supporting Growth Or Controlling Debt (CNBC)

China’s economic transition has caused a problem for the government—how to avert a sharp slowdown while keeping a lid on ballooning debt. In a report Thursday, rating agency Standard and Poor’s highlighted the “tough choice between supporting growth and controlling debt sustainability” as China tries to find new ways to fund public investments. “Although aggregate and provincial GDP growth stabilized in the first two quarters of 2016, we believe the fiscal conditions of Chinese local governments are under more pressure given the weakened economy,” S&P analysts wrote in a report. The rising debt pile of local government financing vehicles (LGFV) raised questions on credit risks, said S&P.

“As long as investments remain a growth impetus, it is very hard to shift away from the old public financing model to weaken the LGFVs’ role in public investment,” said S&P credit analyst, Xin Liu. “The growing pile of LGFV debt will add to the fiscal vulnerability of local governments, which already rely on these financing vehicles to execute public investment mandates,” she added. S&P’s warning on local government debt comes amid concerns about overall debt levels in the country as the world’s second-largest economy begins to slow after years of boisterous growth. Corporate debt is also under focus. In another report released on Tuesday, S&P warned that the “unabated growth” of China’s corporate debt could cost the country’s bank “dearly”.

It said the current growth rate of China’s debt “is not sustainable for long”. S&P said if the growth in debt doesn’t slow, the ratio of problem credit to total credit facing China’s banks could triple to 17% by 2020. The banks may then need to raise fresh capital of up to 11.3 trillion Chinese yuan ($1.7 trillion), which is equivalent to 16% of China’s 2015 nominal GDP. The Bank of International Settlements warned recently excessive credit growth in China will increase the country’s risk of a banking crisis in the next three years.

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A plunging reserve currency. What’s not to like?

China Export Dip Tempts Policy Makers to Keep Weakening Yuan (BBG)

China’s renewed export weakness is coinciding with a clampdown on surging home prices and corporate debt, stoking expectations policy makers will allow further yuan depreciation to buffer the economy. Exports in September dropped the most since February amid anemic global demand (-10%), while imports declined 1.9%, leaving a $42 billion trade surplus. Analysts at Bank of America, RBC and Capital Economics estimate further depreciation for the yuan, already near a six-year low. With S&P Global Ratings and the International Monetary Fund among those warning about the threats from rapid credit expansion, policy makers risk cooling the economy with new property restrictions. But their plan for economic growth of at least 6.5% this year leaves little room for maneuver.

The upshot: a weaker yuan is needed to support an industrial sector that’s returning to profitability as it emerges from four years of deflation. “China is running out of options and letting the yuan go is the lowest-cost option for them,” said Sue Trinh, head of Asia FX strategy at RBC Capital Markets in Hong Kong. “We’ve seen them move in this direction. There’s more work to do.” The yuan is headed for the biggest weekly decline since January as mainland markets returned from holiday to face intensified depreciation pressures from a rising dollar. The yuan has dropped 3.4% against the dollar this year, the biggest decline in Asia. While depreciation’s not helping exporters in dollar terms, it cushions the blow when their shipments are counted in local currency terms, underpinning a recovery in industrial profits.

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What’s Chinese for whack-a-mole?

Shanghai Banks Told To Limit Loans To Property Developers (R.)

Banks in China’s financial hub Shanghai have been asked by authorities to limit loans to property developers for land purchases and to scrutinize would-be borrowers suspected of trying to access mortgages by getting divorced, the Shanghai Daily reported on Friday. The steps were the latest in a string of measures around the country to try to cool a property market seen at risk of overheating. Quoting unidentified commercial bankers, the newspaper said banks were told that housing developers should pay at least 30% down on residential projects instead of relying on bank loans.

It said some developers had put only 10% down on projects and raised the remaining funds through bank and gray-market loans. Banks were also asked to reject mortgage applications of people who had divorced within three months, it quoted an internal filing from a Shanghai-based rural commercial bank as saying. A property price rally has prompted a home buying frenzy in parts of China, in some cases prompting couples to get divorced to circumvent buying restrictions and invest in multiple homes. Police last month detained seven property agents in Shanghai for spreading rumours of plans for a new government regulation that caused a rash of divorces and a rush to buy new homes.

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More cause for finger pointing.

Standard & Poor’s Warns On UK Reserve Currency Status As Brexit Hardens (AEP)

Britain is in danger of misreading the political landscape in Europe and faces the possible loss of its reserve currency status if it fails to secure full access to the European single market, Standard & Poor’s has warned. The powerful US rating agency said the British government is treading into hazardous waters in negotiations with the EU and is risks serious damage to economy’s future growth trajectory, with long-term implications for the debt profile and the country’s credit-worthiness. S&P fears that loss of unfettered access to the single market would have incalculable consequences for business, yet the Government so far appears almost insouciant about this.

“There seems to be this view that ‘we’re a big important economy, the Europeans export a lot to us, so they have got to give us what we want’, but is that really true?” said Ravi Bhatia, the director of sovereign ratings in charge of Britain. “Individually most of these countries don’t export that much to the UK, and were seeing a hardening of attitudes,” he said. Mr Ravi said Britain has limited scope for a spree on infrastructure projects and is walking a fine line on budget policy. “Before Brexit, the trajectory was planned fiscal consolidation, but we’re no longer certain we’re going to see that,” he said. “If they ramp up fiscal spending they’ll get a stimulus and that is good in one way as it will help boost growth, but they have to finance that spending; it will raise the deficit, and the debt stock is already high,” he told the Daily Telegraph.

Standard & Poor’s stripped Britain of its AAA status immediately after the Brexit vote in June, slashing the rating by two notches to AA, although the move was well-flagged in advance. It described the vote as seminal event that would lead to a “less predictable, stable, and effective policy framework in the UK”. The agency will issue its next verdict at the end of this month. Any further downgrade at this delicate juncture would be more serious, amounting to a red card on the Government’s hard-nosed rhetoric and negotiating tactics It is unprecedented for a AAA state to lose three notches in a matter on months.

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First they invite them in…

Hundreds Of Properties Could Be Seized In UK Corruption Crackdown (G.)

Hundreds of British properties suspected of belonging to corrupt politicians, tax evaders and criminals could be seized by enforcement agencies under tough new laws designed to tackle London’s reputation as a haven for dirty money. Huge amounts of corrupt wealth is laundered through the capital’s banks. The National Crime Agency believes up to £100bn of tainted cash could be passing through the UK each year. Much of it ends up in real estate, and in other assets such as luxury cars, art and jewellery. The criminal finances bill, published on Thursday, is designed to close a loophole which has left the authorities powerless to seize property from overseas criminals unless the individuals are first convicted in their country of origin.

It will introduce the concept of “unexplained wealth orders”. The Serious Fraud Office, HM Revenue and Customs and other agencies will be able to apply to the high court for an order forcing the owner of an asset to explain how they obtained the funds to purchase it. The orders will apply to property and other assets worth more than £100,000. If the owner fails to demonstrate that a home or piece of jewellery was acquired using legal sources of income, agencies will be able to seize it. The law targets not just criminals, but politicians and public officials, known as “politically exposed persons”. Depending on how quickly it passes through parliament, the bill could come into force as early as spring 2017.

“There are some hundreds of properties in the UK strongly suspected to have been acquired with the proceeds of corruption,” said the campaign group Transparency International, which has been pressing for the new measures. “This will provide low-hanging fruit for immediate action by law enforcement agencies, if those agencies are properly resourced.”

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Whaddayaknow? The WSJ has a Trump story that’s not about genitals. Surrounding yourself with people who don’t agree with you is often not a bad sign.

Some of Donald Trump’s Economic Team Diverge From Candidate (WSJ)

Advisers concede there is a tug-of-war between the supply-siders and the protectionists, but Mr. Kudlow said he saw similar disagreements in the White House as a budget official for President Ronald Reagan. And Mr. Navarro, whose trade skepticism closely reflects Mr. Trump’s public views, said the campaign is “very much united” on trade. When Mr. Navarro ran for Congress two decades ago, Hillary Clinton, then the first lady, campaigned at one of his San Diego rallies. “Pure serendipity—sweet manna from heaven,” he wrote in a book recounting the campaign. He sought to oust the Republican incumbent by making the race a referendum on then-GOP House Speaker Newt Gingrich. Last month, Mr. Navarro flew with Messrs. Trump and Gingrich to a rally in Fort Myers, Fla. He now says he was “seduced” by the Clintons and “over time, that seduction has turned into betrayal and ultimately disbelief.”

Other top advisers include David Malpass, a Reagan administration official, who as chief economist of Bear Stearns in 2007 dismissed concerns that the housing sector would take the economy into a recession, let alone cause the financial crisis that brought down his bank. When he first met Mr. Trump before a rally in an airplane hangar at Dallas’ Love Field last year, conservative economist Stephen Moore pushed back against Mr. Trump’s invitation to join the campaign. “I can’t work for you because I’m free trade, and I know you’re more of a protectionist,” Mr. Moore recalled saying. Mr. Trump said they could “agree to disagree on that issue,” Mr. Moore said. Advisers say Mr. Trump’s decision to hire people he doesn’t fully agree with shows maturity. “Hillary is more like the red army, with everyone marching in lockstep,” said Mr. Kudlow.

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No. 1 concern in Berlin and Brussels.

Renzi Gambles All on Referendum Haunted by Weak Italian Economy (BBG)

Italians are about to have their say on Prime Minister Matteo Renzi and the economy isn’t doing him any favors. When the country holds a referendum on a key constitutional change Dec. 4, many voters will have more than “Yes” or “No” on their mind. They’ll probably take the opportunity to vent their frustration over the snail’s pace of growth after the latest recession. [..] All but one of Italy’s main polling firms signaled this month that “No” will prevail in the referendum, with surveys saying on average that the reform will be rejected by 52.2% of voters, up from 50.4% in September. To make things potentially worse for Renzi, just three days before the vote, Italians will learn whether the recovery resumed after stalling in the three months through June, when the national statistics office publishes its final reading of third quarter GDP.

“We might go to the polling stations in the wake of a negative GDP figure,” said Alberto Bagnai, who teaches economics at Gabriele d’Annunzio University in Pescara. “That could have a direct impact on the vote.” While recent industrial data have exceeded expectations, confidence among households and executives about the outlook is not very optimistic. Renzi himself acknowledged that economic concerns might influence voters and has tried to reassure them. Last week, the premier and his Finance Minister Pier Carlo Padoan repeatedly defended the government’s above-consensus target of 1% growth next year. The central bank called the goal “very optimistic” – a code phrase signaling difficulties ahead.

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A sorrowful bunch.

Walloon Revolt Against Canada Deal Torpedoes EU Trade Policy (Pol.)

The EU’s once-mighty trade negotiators never dreamed that their powers would be stripped from them so unceremoniously – and possibly for good. The Francophone parliament of the Federation of Wallonia-Brussels – only 10 minutes’ walk from EU headquarters — stands to win a place in history for sinking the EU’s landmark trade deal with Canada and potentially for scuppering the European Commission’s ability to lead the world’s biggest trade bloc for many years. Failure to conclude the Comprehensive Economic and Trade Agreement (CETA) by this month’s deadline would be a devastating blow to the EU, which has spent seven years working on the tariff-slicing agreement with Ottawa.

“It’s crazy. If we allow a regional parliament to block a trade deal that will benefit the whole EU, where does this lead us to?” said Christoph Leitl, president of the Global Chamber Platform, a worldwide alliance of business chambers. “CETA is not just a deal with Canada, it has model character for Europe’s future trade relations.” The Federation of Wallonia-Brussels parliament, which focuses on the cultural and educational concerns of 4.5 million French speakers in Belgium, voted Wednesday evening to reject CETA because of worries about public services and agriculture. [..] Unless the Belgian central government can find an imaginative compromise quickly, the EU will be unable to corral the signatures of all 28 EU countries before an EU-Canada summit on October 27.

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German efficiency. Send them where you can’t see them.

Germany Proposes North Africa Centers For Rescued Migrants (AFP)

Migrants rescued at sea should be taken to centers in north Africa where their claims for asylum in EU countries can be studied, German interior minister Thomas de Maiziere proposed Thursday. De Maiziere made the suggestion as he arrived for a Luxembourg meeting of EU interior ministers who are trying to slow the migrant flow from Libya to Italy after a March deal with Turkey sharply reduced the influx to Greece, the main entry point for Europe last year. “People who are rescued in the Mediterranean should be brought back to safe accommodation facilities in northern Africa,” de Maiziere told reporters. “Their need for protection would be verified and we would put into place a resettlement to Europe with generous quotas, fairly divided between the European countries,” the minister said.

“The others have to go back to their home countries,” he added. EU countries, confronting populist opposition to refugees, have long feuded over quotas for relocating asylum seekers from Greece and Italy as well as for resettling people from refugee camps. De Maiziere did not mention a specific country in north Africa but EU officials have been discussing efforts to curb the migrant flow with Libya, the main transit point for African migrants heading to Europe. However, Libya’s new national unity government last week rejected calls from some EU countries to build refugee camps on its shores, saying the bloc could not “shirk its responsibility” while it struggled to restore peace and stability.

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Encore.

There’s No Plateau in a Housing Bubble, Not Even in Canada (WS)

Canadian house prices jumped 11.7% in September from a year ago, according to The Teranet–National Bank National Composite House Price Index released today. But the index papers beautifully over the dynamics in each metro. In six of the 11 metro markets of the index, prices have been languishing or even declining over the past couple of years, as they’ve hit the wall of reality after often stupendous price gains in the prior decade: Montreal, Calgary, Edmonton, Quebec City, Halifax, and Ottawa-Gatineau. In the two largest markets – Toronto and Vancouver, which combined account for 54% of the index – prices have blown through the roof. Both markets are among the hottest, most over-priced housing bubbles in the world.

UBS recently ranked Vancouver Number 1 globally on that honor roll. But suddenly the dynamics have changed. Vancouver’s housing market is in turmoil, to use a mild word, as sales have crashed, after the implementation of a real-estate transfer tax this summer by British Columbia, aimed squarely at non-resident investors. In Vancouver, those investors are mostly Chinese. And where do these folks now go to inflate prices? Toronto. Still, the national house price index (red line, right scale), after the 11.7% jump over the past 12 months (blue columns, left scale), has doubled since 2005!

The index, similar to the Case-Shiller Home Price index in the US, is based on repeat sales. It looks at properties that sold at least twice over the years to establish “sales pairs.” It then uses a proprietary formula to deduct price changes from these transactions and extrapolate them into an index for each of the 11 markets and nationally. It’s not perfect, but it offers an alternative view to median prices or Canada’s “benchmark” prices. Prices in Toronto have been spiking (red line, right scale), with double-digit year-over-year%age gains (blue columns, left scale) so far this year, including a breath-taking 16% in September.

Vancouver makes Toronto look practically tame. Vancouver went completely crazy, with year-year-over price gains reaching 26% in the summer. Now a new reality went into effect. Market activity has collapsed, as no one knows what anything is worth, with buyers and sellers jockeying for position. And on a monthly basis, the index was essentially flat (+0.2%):

Most Canadians have not seen their incomes rise anywhere near the rate of the house price inflation of the past many years, if their incomes rose at all. Thus, many of them have been priced out of the housing market, or have access to it only via highly risky financing schemes that put both lenders and borrowers at risk, despite historically low interest rates. Once enough people are priced out of the housing market, demand collapses. This would normally be where housing bubbles deflate in a very painful manner for lenders, homeowners, and everyone getting their cut, including governments and the real estate industry. But there has been a strong influx of mostly Chinese investors that need to get their money, however they obtained it, out of harm’s way at home, and they pile into the market, and they don’t care what a property costs as long as they think they can sell it for more later.

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Jun 032016
 
 June 3, 2016  Posted by at 8:17 am Finance Tagged with: , , , , , , , , ,  9 Responses »
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Harris&Ewing Happy News Cafe, “restaurant for the unemployed”, Washington, DC 1937

Bill Gross: Capitalism Doesn’t Work At 0% (CNBC)
Negative-Yielding Sovereign Debt Tops $10 Trillion (WSJ)
Japan’s Sovereign Debt Burden Is Quietly Falling the Most in the World (BBG)
Explosion in Quasi-Sovereign Bond Issuance Is Making Analysts Queasy (BBG)
US-China Trade Troubles Grow (WSJ)
One Third Of Americans Are ‘Just Getting By’ (NY Times)
OECD Sees ‘Dramatic And Destabilising’ End To Australia Property Boom (AFR)
Fed Likely To Avoid Rate Hike Before Britain Votes On Leaving EU (R.)
Draghi Insists ECB Stimulus Only Half Done (BBG)
Bank of France Cuts Inflation Outlook, 2017 GDP Forecast (WSJ)
Bundesbank Cuts German GDP Forecasts On Weaker Export Demand (R.)
President Obama, Pardon Edward Snowden and Chelsea Manning (G.)
Facial Recognition Will Soon End Your Anonymity (MW)
The Fat Lady Always Sings Twice (Jim Kunstler)
Fewer Than 500 of 163,000 Migrants Find Jobs In Sweden (BB)
Corruption Gripes Help Five Star Movement Top Italy Local Election Polls (G.)
US Announces Near-Total Ban On Trade Of African Elephant Ivory (AFP)

Central bankers seem to think it does, though.

Bill Gross: Capitalism Doesn’t Work At 0% (CNBC)

Bill Gross has some bad news for investors. In his June investment outlook released Thursday, the widely followed bond fund manager contended that bond and stock returns realized in the last 40 years are “a grey if not black swan event that cannot be repeated.” Investors should not expect 7% returns on bonds or returns in the high single digits or double digits on stocks, Gross told CNBC on Thursday. “The markets are entirely different and it would pay to travel to Mars as opposed to stay on Earth, because the returns here are very, very low,” the manager of the Janus Capital Unconstrained Bond Fund, said on CNBC’s “Power Lunch”. Gross said easy central bank policy could hold down bond returns. Central banks in Europe and Japan have adopted negative interest rates, while the Federal Reserve’s target rate is at 0.25 to 0.50%.

German and Japanese 10-year bonds currently have negative yields, while their 30-year bonds yield less than 1%. The U.S. 10-year Treasury note yield sat around 1.8% Thursday. Gross contended those rate trends can hurt not only savers but also the broader economy. He said Fed policymakers, who have signaled they could hike rates at least once this year, realize they need to normalize policy. “Ultimately, they have to move back up and I think a certain number of Fed governors realize that the normalization process is necessary in order to save business models and to save capitalism basically because capitalism doesn’t work at 0% and it doesn’t work at negative interest rates,” he said.

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Negative bonanza.

Negative-Yielding Sovereign Debt Tops $10 Trillion (WSJ)

The amount of global sovereign debt with negative yields surpassed $10 trillion for the first time in May, according to Fitch Ratings. The measure stood at $10.4 trillion on May 31, up 5% from $9.9 trillion on April 25, when the rating agency last measured the amount, according to a Thursday report. It is spread across 14 countries, with Japan by far the largest source of negative-yielding bonds. Of the total, $7.3 trillion was long-term debt and $3.1 trillion was short-term debt.

The amount of debt with yields below zero has increased sharply this year as global central banks have instituted unconventional policy measures, such as negative interest rates. The Bank of Japan in January surprised markets by driving its rates below zero, pushing Japanese government-bond yields sharply lower. Banks in the euro currency bloc have also increased demand for government debt to meet regulatory requirements, another factor weighing on yields, Fitch said. “Higher amounts of Japanese and Italian sovereign securities with sub-zero yields were the biggest contributors to the monthly changes,” said Fitch analysts, led by Robert Grossman.

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Because it’s shifting into private hands. The BOJ buys it all. Which allows the government to keep on borrowing with abandon.

Japan’s Sovereign Debt Burden Is Quietly Falling the Most in the World (BBG)

Japan for years has been renowned for having the world’s largest government debt load. No longer. That’s if you consider how the effective public borrowing burden is plunging – by one estimate as much as the equivalent of 15 percentage points of GDP a year, putting it on track toward a more manageable level. Accounting for the Bank of Japan’s unprecedented government bond buying from private investors, which some economists call “monetization” of the debt, alters the picture. Though the bond liabilities remain on the government’s balance sheet, because they aren’t held by the private sector any more they’re effectively irrelevant, according to a number of analysts looking at the shift. “Japan is the country where public debt in private hands is falling the fastest anywhere,” said Martin Schulz at Fujitsu Research Institute in Tokyo.

While Japan’s estimated gross government debt is now over twice the size of the economy, according to Schulz’s calculations using BOJ data, the shuffle of holdings from private actors like banks and households to the central bank is having a big impact. It means debt in private hands will fall to about 100% of GDP in two to three years, from 177% just before Prime Minister Shinzo Abe took power in late 2012, he estimates. It’s not like Japan is slowing down on borrowing. Abe’s administration is now laying the groundwork for another burst of fiscal stimulus, which could be funded by selling bonds. He also announced Wednesday a delay to a sales tax hike planned for April 2017, rebuffing fiscal hawks who argued it was vital to raise revenue.

Finance Minister Taro Aso explained Tuesday that “the biggest problem is that private consumption hasn’t risen,” making now not a good time to raise the levy. Helping improve household sentiment could be one reason for making it explicit that at least some of the government bonds in the BOJ’s holdings will be written off. If Japanese consumers understand they’re not on the hook for all the gross debt outstanding, their mood could potentially perk up.

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What can we say but: Anything Goes!

Explosion in Quasi-Sovereign Bond Issuance Is Making Analysts Queasy (BBG)

Which fixed-income asset class is growing fast, outperforms similar debt issues, and rarely defaults? Emerging market ‘quasi-sovereign’ bonds, of course! At some $600 billion, debt sold by state-supported companies in emerging markets ranging from China to Oman has surpassed the amount of emerging market government debt outstanding, according to a new note from Bank of America Merrill Lynch. Such quasi-sovereign debt issuance has helped propel the stunning growth of the overall bond market, with EM issuance accounting for 47% of the growth in global debt between 2007-14, compared to 22% in the previous seven years, according to S&P Global Ratings.

But the surge in ‘quasi’ bonds is making some feel, well, queasy. “Quasi-sovereigns are effectively a ‘contingent liability’ for a country,” write the BofAML analysts, led by Kay Hope. They note that quasi-sovereign issuance now makes up half of the $1.6 – 1.8 trillion euro- and dollar-denominated corporate bond market for emerging markets, which could put added pressure on strained emerging market coffers.

China, with its lumbering state-owned enterprises, accounts for a full quarter of this kind of debt — despite the Chinese sovereign itself lacking virtually any foreign-denominated bonds. Meanwhile, the amount of debt from Brazilian quasi-sovereigns has nearly quadrupled, according to BofAML, while that sold by Mexico’s state-owned companies has just about doubled. Much of the growth has been driven by companies in the energy and commodities sectors, with giants of industry including Pemex, Petrobras, China National Offshore Oil and Gazprom all tapping the market in recent years.

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There’s going to be trouble.

US-China Trade Troubles Grow (WSJ)

The U.S. and China, facing mounting political pressures at home, are seeing economic tensions flare to their worst point in years over currency and trade practices. China has pushed the yuan to a five-year low against the dollar, reviving charges from American firms of currency manipulation to gain a competitive advantage for Chinese goods. The Obama administration has fired off a series of trade complaints and levied duties on several Chinese industries, from chicken feet to cold-rolled steel used in appliances and auto parts. The friction between the world’s two largest economies could worsen as domestic politics collide with already weak growth.

The U.S., seeing heightened anti-China rhetoric in the presidential election, wants China to press ahead with promised policies to open up its markets and allow greater international investment. Chinese leaders, worried about a deeper economic slowdown, are trying to keep factories humming and prevent the kind of market unrest that gripped global investors over the past year. [..] Some analysts think President Xi Jinping, wanting to consolidate power in the Communist Party ahead of a leadership transition next year, has paused reform efforts and instead is revving up the old playbook of credit-fueled growth and infrastructure spending. His aim: Ensure economic stability and mollify rivals, they say.

An attempt last year by Beijing to allow markets to play a role in setting its exchange rate was mismanaged, adding to a summertime of woe for China’s financial markets and sparking global jitters. The reaction surprised Chinese officials and created a headache for reformers. The Chinese government is keeping steel mills, coal plants and a host of manufacturing industries afloat despite dwindling demand and a tumble in commodity prices that should have closed many. [..] By supporting excess production capacity, the Chinese government is “engaged in economic warfare against the U.S.,” said John Ferriola, chief executive of North Carolina steel giant Nucor Corp. “Thousands of hardworking Americans have lost their jobs because of these illegal, unfair trade practices.”

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“..nearly half of all respondents said they could not cover an unexpected expense of $400..”

One Third Of Americans Are ‘Just Getting By’ (NY Times)

In the United States, nearly one-third of adults, about 76 million people, are either “struggling to get by” or “just getting by,” according to the third annual survey of households by the Federal Reserve Board. That finding, dismal though it is, represents a mild improvement in general well-being last year, compared with the two years before. The improvement, however, was clearly too little to raise Americans’ spirits: The new survey, which was conducted in late 2015 and released last week, also shows that optimism about the future has tempered. The Fed policy committee should take the survey to heart when it meets this month to decide whether to raise interest rates.

Higher rates are a way to slow an economy that is at risk of overheating – a far-fetched proposition when tens of millions of Americans are barely hanging in there. Congress and other economic policy makers, as well as the presidential candidates, could also use the survey to get some insight into Americans’ real economic problems. Among them is deep insecurity. Nearly 70% of adults said they were “living comfortably” or “doing O.K.” — up a bit from previous years — but nearly half of all respondents said they could not cover an unexpected expense of $400, or could do so only by selling something or borrowing money. Americans seeking a path upward through education are staggering under a load of debt. The median debt load for someone with a bachelor’s degree was $19,162.

For a master’s, it was $36,000, and for a professional degree, $100,000. Many students with debt use deferments or other plans to delay or extend repayments, but in most cases that increases the balance they owe. For those making payments, the average monthly bill was $533. By all indications, however, they are the relatively lucky ones. Americans who had attended college accounted for most of the improvement reported in the survey. Financial stress was more prevalent among less-educated people who responded to the survey, as well as racial and ethnic minorities and adults making less than $40,000 a year.

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Please remember and compare to yesterday’s (also OECD): “We’re a little concerned about housing prices in the greater Vancouver area and Toronto..”

OECD Sees ‘Dramatic And Destabilising’ End To Australia Property Boom (AFR)

Australia may be on the cusp of a “dramatic and destabilising” end to the housing boom rather than a hoped-for soft landing because of the apartments building boom, the Organisation for Economic Co-operation and Development said. In its latest assessment of the threats to the economy, the Paris-based think tank said jitters over the federal election are adding to risks, and called for an increase in the goods and services tax. Somewhat paradoxically, the OECD appears particularly worried about how to interpret changes in the housing market – even as it notes simultaneously that risks of a boom appear to be receding which, it argues, provides leeway for even more official interest rate cuts.

“Domestically, the unwinding of housing market tensions to date may presage dramatic and destabilising developments, rather than herald a soft landing,” it said. Parts of the real estate industry have already warned about failed settlements as record numbers of new apartments come due for completion in Sydney, Melbourne and Brisbane this year and next. The warning, which is accompanied by graphs showing dwelling approvals retreating from a peak and house prices levelling out, appears to have been prepared ahead of more recent evidence of a rebound in both measures.

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First things first.

Fed Likely To Avoid Rate Hike Before Britain Votes On Leaving EU (R.)

The U.S. Federal Reserve may be forced to delay a rate hike at its June meeting because of mounting concern over the economic fallout from Britain’s vote on whether to leave the European Union. The geopolitical risk likely will push any rate increase until at least July, despite apparent consensus among Fed officials that a hike is warranted by stronger U.S. growth and tight labor markets. The Fed’s June 14-15 rate-setting meeting comes just a week before the British vote on June 23. A “leave” vote is expected to roil financial markets, cause credit spreads to widen, trigger a rush into safe assets and bolster the dollar. The dollar’s recent stability is one reason the Fed has become more comfortable with raising rates, and officials may want to let the threat of Brexit pass before moving to tighten financial conditions.

Fed Board Governor Daniel Tarullo on Thursday joined the chorus of those warning of his concerns over the British vote, telling Bloomberg that Brexit would be a “factor” he would consider at the Fed’s June policy meeting and said that the British vote’s impact on markets would be key. [..] If the Fed does indeed take a pass at its June meeting, officials have signaled they’ll be ready to move in July. Minutes of the Fed’s March policy meeting showed officials preparing the ground for higher rates sometime in the summer months. After July, the next option would be September, in the middle of a U.S. election campaign, in which the Fed and Yellen could well become targets of debate.

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The illusion gets expensive, as returns diminish.

Draghi Insists ECB Stimulus Only Half Done (BBG)

Mario Draghi’s insistence that his stimulus program is only half done brings with it a worrying thought. What if its best effects are already spent anyway? At least four times at Thursday’s press conference in Vienna, the European Central Bank president emphasized how policy makers need to see the “full impact” and must “focus on implementation” of their measures. That augurs a busy month ahead as officials keep hoovering up government debt, start buying corporate bonds and enact the first of four long-term loan offerings to banks. While Draghi’s remarks suggest the next major calendar point for the ECB’s assessment of its stimulus will be September – after the release of economic-growth data and coinciding with its fresh forecasts – the omens so far are weak.

Yet another report of negative consumer prices this week underscored the challenge of revitalizing an economy fatigued by years of debt crises and delayed reforms, and battered by global forces beyond the ECB’s control. “We’re getting to the point of radically diminishing effectiveness of these interventions,” Andrew Balls, Pimco’s global fixed income chief investment officer, said on Bloomberg Television. “If we get a recession, which is perfectly plausible over the next three to five years, there’s a real question in terms of how policy makers can respond.”

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France blames emerging economies.

Bank of France Cuts Inflation Outlook, 2017 GDP Forecast (WSJ)

The Bank of France cut its inflation forecasts and trimmed its 2017 economic growth forecast in a semi-annual economic outlook Friday. The Bank of France pared back its GDP forecast for 2017 to 1.5% from 1.6% in December as it expects weaker trade to drag on the French economy. Despite a stronger-than-expected first quarter, it kept its GDP forecast for the whole of 2016 at 1.4%. The softer forecasts indicate how weak oil prices and uncertainty over the outlook for the global economy are cooling eurozone economies just as they emerge from a long period of weak growth. “While global demand is dynamic, it will accelerate only slightly in 2016, due to a less favorable growth outlook than previously forecast in emerging economies,” the Bank of France said.

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Germany blames exports in general. Stingy Greeks?!

Bundesbank Cuts German GDP Forecasts On Weaker Export Demand (R.)

The Bundesbank cut its German inflation and growth forecasts on Friday citing weaker demand for exports, even as it predicted that robust consumer demand and a tightening labor market would keep the domestic economy buoyant. The euro zone’s biggest economy has been an outperformer in recent years, posting healthy growth and driving the currency bloc’s best run since the start of the global financial crisis almost a decade ago. Exporters have been forced to “surrender” some of their market share gained in recent years, however, and this trend may continue this year and offset strong domestic factors, the central bank said in a biannual economic outlook.

“This should probably be interpreted mainly as a correction of previous market share gains not explained by price competitiveness,” the Bundesbank said. “This process could continue further into 2016 according to Ifo and DIHK surveys, in which industrial firms reported subdued export expectations and only a comparatively moderate increase in exports this year,” it said. The bank now sees GDP growing at 1.7% this year, below a December projection for 1.8%, and 1.4% in 2017, down from 1.7% seen earlier. The growth rate would then rebound to 1.6% in 2018.

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Not going to happen.

President Obama, Pardon Edward Snowden and Chelsea Manning (G.)

As he wraps up his presidency, it’s time for Barack Obama to seriously consider pardoning whistleblowers Chelsea Manning and Edward Snowden. Last week, Manning marked her six-year anniversary of being behind bars. She’s now served more time than anyone who has leaked information to a reporter in history – and still has almost three decades to go on her sentence. It should be beyond question at this point that the archive that Manning gave to WikiLeaks – and that was later published in part by the Guardian and New York Times – is one of the richest and most comprehensive databases on world affairs that has ever existed; its contribution to the public record at this point is almost incalculable. To give you an idea: in just the past month, the New York Times has cited Manning’s state department cables in at least five different stories.

And that’s almost six years after they first started making headlines. We know now that, despite being embarrassing for the United States, the leaks caused none of the great harm that US government officials said would come to pass. Even the government admitted during Manning’s trial that no one died because of her revelations, despite the hyperbolic government comments at the time, including that WikiLeaks had “blood on its hands”. (By the way, the US officials knew they were exaggerating in the media at the time.) Even if you think that she deserves some punishment for breaking the law, six years behind bars (and being tortured during her pretrial confinement) should be more than enough.

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Creepy.

Facial Recognition Will Soon End Your Anonymity (MW)

Nearly 250 million video surveillance cameras have been installed throughout the world, and chances are you’ve been seen by several of them today. Most people barely notice their presence anymore – on the streets, inside stores, and even within our homes. We accept the fact that we are constantly being recorded because we expect this to have virtually no impact on our lives. But this balance may soon be upended by advancements in facial recognition technology. Soon anybody with a high-resolution camera and the right software will be able to determine your identity. That’s because several technologies are converging to make this accessible. Recognition algorithms have become far more accurate, the devices we carry can process huge amounts of data, and there’s massive databases of faces now available on social media that are tied to our real names.

As facial recognition enters the mainstream, it will have serious implications for your privacy. A new app called FindFace, recently released in Russia, gives us a glimpse into what this future might look like. Made by two 20-something entrepreneurs, FindFace allows anybody to snap a photo of a passerby and discover their real name — already with 70% reliability. The app allows people to upload photos and compare faces to user profiles from the popular social network Vkontakte, returning a result in a matter of seconds. According to an interview in the Guardian, the founders claim to already have 500,000 users and have processed over 3 million searches in the two months since they’ve launched.

What’s particularly unsettling are the use cases they advocate: identifying strangers to send them dating requests, helping government security agencies to determine the identities of dissenters, and allowing retailers to bombard you with advertisements based on what you look at in stores. While there are reasons to be skeptical of their claims, FindFace is already being deployed in questionable ways. Some users have tried to identify fellow riders on the subway, while others are using the app to reveal the real names of porn actresses against their will. Powerful facial recognition technology is now in the hands of consumers to use how they please.

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American history 101.

The Fat Lady Always Sings Twice (Jim Kunstler)

That was the week Hillary began to look like the candidate who fell off a truck wearing a Nixon mask. Email-gate is taking on the odor of Watergate — the main ingredient of which was not the dopey crime itself but the stonewalling around it. The State Department Inspector General’s report saying definitively, no, she was not “allowed” to use a private, unsecured email server validated Donald Trump’s juvenile name-calling of “Crooked Hillary.” We may never hear the end of that now (if Trump is actually nominated). And, of course, there lurks the Godzilla-sized skeleton in her closet of the still-unreleased Goldman Sachs speech transcripts, the clamor over which is sure to grow. Meanwhile the specter of the California primary looms, a not inconceivable loss to Bernie Sanders.

And onto the convention in Philly which I contend will be even more fractious and violent than the 1968 fiasco in Chicago. I’ll say it again: Hillary is a horse that ain’t gonna finish. The Democrats better be prepared to haul Uncle Joe out of the closet, fluff up his transplanted hair, wax his dentures, give him a few Vitamin B-12 shots, and stick a harpoon in his fist for the autumn run against the White Whale (if Trump is actually nominated). The Republican convention in Cleveland is apt to be as bloody and violent a spectacle too (if Trump is actually nominated), with Black Lives Matters cadres having already promised to put on a show for global television and their Latino counterparts marching with Mexican Flags and cute signs saying: Trump: Chingate tu madre, perhaps garnished with the sobriquet pendejo.

In such a situation, Trump has enormous potential to make things worse with his childish snap-backs. Hubert Humphrey in 1968 at least had the good sense to keep his mouth shut about the moiling multitudes out on Michigan Avenue inveighing against him. The Vietnam War was a grave debacle, and it especially pissed off the young men subject to being drafted to fight in it, but the woof and warp of American life was otherwise intact. Blue collar workers still pulled in high wages in the Big Three auto plants, and women had not yet declared war on men, and the airwaves weren’t pornified, and there were still people in government with moral authority who loudly opposed official policy. The sobering martyrdoms of Martin Luther King and Robert Kennedy sanctified the opposition to the status quo.

Even Hubert Humphrey himself, a thoughtful man underneath his Rotarian clown mask, began to turn away from Lyndon Johnson’s war hawks. Nixon won. He surely benefited most not so much from the war issue and the riots in the streets as from the mass defection of Southern states from the long-entrenched domination of the Democratic Party — directly due to Johnson’s dismantling of the old Jim Crow laws. As a personality, Nixon was as much a pendejo as Donald Trump, but no one doubted his ability to run the machinery of government, if not the way they wanted to run it.

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” The figures of migrant unemployment follow a trend in Sweden of high unemployment for foreigners.”

Fewer Than 500 of 163,000 Migrants Find Jobs In Sweden (BB)

Sweden’s state-funded broadcaster has revealed that of 163,000 migrants who came to Sweden, less than 500 have found jobs. Sweden saw a record 163,000 applications for asylum last year as a result of the migrant crisis and many Swedes were assured that the new arrivals would contribute to the economy; but new research from Sweden’s state-owned SVT reveals that fewer than 500 migrants have found work. Using data from the Swedish employment agency and the Swedish migration authority, Migrationsverket, the network claims that only 494 asylum seekers are contributing to the economy, The Local reports. While in many countries asylum seekers are banned from formally working while their application is being processed, in Sweden there are exceptions.

The “at-und” is an exemption granted by Migrationsverket which allows asylums seekers access to the labour market. In an effort to explain the incredibly low number of migrants working, Lisa Bergstrand of Migrationsverket told SVT: “There was an incredible number of people applying for asylum in Sweden and so that we should be able to register them, we had to de-prioritise certain tasks, and that was the matter of jobs”. Of the migrants who claimed asylum in 2015 approximately one third of the men and women aged 20-64 were given the exemption to allow them to work, which is around 53,790 migrants. The figures of migrant unemployment follow a trend in Sweden of high unemployment for foreigners. The unemployment for those born in Sweden is at the lowest point since the 2008 financial crisis at around 4.8%, while foreign born unemployment is at 14.9%.

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Question to Italian readers: what effect has the death of Casaleggio had on Beppe?

Corruption Gripes Help Five Star Movement Top Italy Local Election Polls (G.)

Alessandro Aquilini had her by the hand. And he wasn’t letting go. Virginia Raggi, the woman tipped to be the next mayor of Rome, was hunting for votes in the street market in Boccea, a lower middle-class district of the Italian capital. Raggi’s trademark is exquisite courtesy – she proffers a slender hand even to reporters who approach her with hostile questions. At the butcher’s stall, though, she got more of a handshake than she bargained for. “We need help,” the 50-year-old Aquilini began. “Left. Right. Centre. We can’t take any more [of party politicians]. This country needs a bit more honesty.” Still gripping Raggi’s hand as he stretched across the slabs of veal, the burly butcher added: “We’re up to here with taxes and corruption.”

His monologue captured many of the reasons why Raggi, the candidate of the Five Star Movement (M5S), is leading the polls ahead of local elections in Rome and other Italian cities on Sunday. Unlike other non-traditional movements that have prospered in Europe, such as Syriza in Greece, the M5S’s protest is not so much against austerity as the corruption and cronyism of Italy’s mainstream parties. Nowhere has this been highlighted more vividly than Rome, where establishment politicians and officials are on trial alongside alleged mobsters, charged with conspiring to pocket millions of euros from rigged public contracts. All three of the final polls released before a ban took effect on 21 May put Raggi ahead by 3-6%age points in the mayoral race.

Run-offs between the two leading candidates in each town are slated for 19 June. Only then will it be known if the 37-year-old lawyer – almost unknown to the public until a few months ago – has won. A victory for Raggi would be a stinging reverse for Italy’s prime minister, Matteo Renzi, who leads the centre-left Democratic party, and a dramatic breakthrough for the internet-based M5S. Founded less than seven years ago by the comedian Beppe Grillo and his digital guru, the late Gianroberto Casaleggio, the M5S is today Italy’s leading opposition party. Grillo has said he will set fire to himself in public if Raggi fails to win. But he may yet regret that pledge.

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Is there hope?

US Announces Near-Total Ban On Trade Of African Elephant Ivory (AFP)

US authorities announced a near-total ban on the trade of African elephant ivory Thursday, finalizing a years-long push to protect the endangered animals. “Today’s bold action underscores the United States’ leadership and commitment to ending the scourge of elephant poaching and the tragic impact it’s having on wild populations,” Secretary of the Interior Sally Jewell said. The new rule “substantially limits” imports, exports and sales of such ivory across state lines, the US Fish and Wildlife Service (FWS) said. However, it does make exceptions for some “pre-existing manufactured” items, such as musical instruments, furniture and firearms that contain less than 200 grams of ivory and meet other specific criteria, according to the FWS.

Antiques, as defined under the Endangered Species Act, are also exempt. The new measures fulfill restrictions in an executive order on combating wildlife trafficking issued by President Barack Obama in 2013, the FWS said in its statement announcing the ban. It said that once illegal ivory enters the market it becomes virtually impossible to tell apart from legal ivory, adding that demand for elephant ivory, particularly in Asia, “is so great that it grossly outstrips the legal supply and creates a void in the marketplace that ivory traffickers are eager to fill.”

“We hope other nations will act quickly and decisively to stop the flow of blood ivory by implementing similar regulations, which are crucial to ensuring our grandchildren and their children know these iconic species,” Jewell said. The Wildlife Conservation Society welcomed the ban, calling it historic and groundbreaking. “The USA is shutting down the bloody ivory market that is wiping out Africa’s elephants,” WCS president and chief executive Cristian Samper said in a statement. “The USA is boldly saying to ivory poachers: You are officially out of business.” Some 450,000 elephants can be found on the African continent and it is estimated that more than 35,000 of these animals are killed each year.

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May 272015
 
 May 27, 2015  Posted by at 9:46 am Finance Tagged with: , , , , , , , , , , ,  1 Response »
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Walker Evans Shoeshine stand, Southeastern US 1936

China Blows Its Debt Bubble Bigger (Pesek)
Bernanke: No Risk Of Hard Landing In China (Reuters)
Greece May Delay IMF Payments Till The End Of June (Guardian)
Greece’s Creditors Must ‘Get Their Act Together’, Says Varoufakis (AFP)
Steve Keen: Varoufakis Battles ‘Divorce Lawyer’ Style Austerity Talks (CNBC)
Juncker Questions Varoufakis, Tsipras (Kathimerini)
Greek Default, European Bankruptcy (Jacques Sapir)
A Parallel Currency For Greece: Part I (VoxEU)
Half Of Greeks Cover Their Needs From Their Deposits (Kathimerini)
EU Funds At Risk Due To Project Payment Freeze By Athens (Kathimerini)
Target Of Greek Scorn Shapes Nation’s Fate As IMF’s Storm Chaser (Bloomberg)
Landlords Enjoy £14 Billion Tax Breaks In UK Buy-To-Let Expansion (Guardian)
Corruptionomics in Italy (Alessio Terzi)
Robert Mundell, Evil Genius Of The Euro (Greg Palast, 2012)
In EU, Reform Means Different Things To Member Countries (Guardian)
Big Oil Bosses’ Bonuses Linked To $1 Trillion Spending on Drilling (Guardian)
Why Finance Is Too Much Of A Good Thing (Martin Wolf)
Canada’s Economy Out Of The Woods? Think Again (CNBC)
FIFA Officials Arrested on Corruption Charges; Face Extradition to US (NY Times)
Can Organic Farming Counteract Carbon Emissions? (WSJ)

“Even among China’s many questionable credit vehicles, local-government financing vehicles are a standout.”

China Blows Its Debt Bubble Bigger (Pesek)

There are plenty of reasons one could argue China isn’t on the verge of a debt crisis: The country has $3.7 trillion in currency reserves, a closed financial system and ambitious leaders who claim to be on the case. And doesn’t the biggest rally in Chinese stocks since 2008 count for anything? But like Japan and other highly-indebted countries that have struggled to deleverage, China isn’t showing the requisite tolerance for pain. A case in point was the government’s May 15 decision to order banks to prop up the same local-government financing vehicles, or LGFVs, that it claimed to be reining in. Then the People’s Bank of China decided this week to guide the three-month Shanghai Interbank Offered Rate to its lowest level since 2008.

By manipulating “shibor” in this way, the People’s Bank of China is helping regional leaders accelerate their unsustainable borrowing. Neither of these steps will help China avoid a Japan-like crisis. Rather, they are likely to ensure a belated financial reckoning in the years ahead with the potential to shake the global economy. The encouragement of local government borrowing is especially alarming. Even among China’s many questionable credit vehicles, LGFVs are a standout. They allow provincial governments to use state-owned resources and assets, like land, to borrow from banks. LGFVs have become a potent symbol of the country’s post-2008 overindulgence in debt, with local government obligations now exceeding the entire German economy.

The Chinese government has also been urging banks to increase lending to borrowers with liquidity troubles, relaxing rules for companies to conduct off-balance-sheet borrowing and prodding the PBOC to do whatever it takes to cap local-government bond yields. Meanwhile, by allowing local government to shift their LGFV debt to fresh bonds, the Chinese government has eliminated any remaining semblance of transparency in those markets. Entrepreneurial government officials who want to raise some cash to fund dubious projects now have a license to do so without leaving a paper trail.

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Meet the expert.

Bernanke: No Risk Of Hard Landing In China (Reuters)

Former Federal Reserve Chairman Ben Bernanke said that China’s economic slowdown should not worry markets as there was no risk of a hard landing, and emphasized that a move to raise U.S. rates should be viewed as a positive sign for the world’s largest economy. Bernanke, who participated in an open interview at a private-sector forum in Seoul on Wednesday, said the expected U.S. rate hike would be “anticlimactic” when it happens and that there would only be minor negative impact on South Korea. “There may be some volatility. Countries like Korea are very well placed because it has very good policy, good institutions. It’s not weak or underdeveloped and doesn’t know how to handle capital flows.”

A Fed rate hike, expected by markets before the end of this year, would be something to cheer about, said Bernanke, who now works at the Brookings Institution, bond giant Pimco and hedge fund Citadel. “I don’t know when (the rate hike will come), but when that begins, that’s good news, not bad news because it means the U.S. economy is strong enough.” Bernanke also said the economic slowdown in China is necessary as it needs to change its growth model to be more sustainable in the long term. “China was growing 10% a year. And it was doing that through heavy capital investment, steel plants and so on. Very export oriented,” he said. “As the country gets more rich and sophisticated that kind of growth is no longer successful.”

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First move in a while? Promptly denied in Athens.

Greece May Delay IMF Payments Till The End Of June (Guardian)

Greece could secure vital weeks to negotiate a rescue deal with its creditors if Athens is able to delay repayments worth €1.6bn to the IMF, as critical deadlines approach. The proposal to combine four IMF repayments due in June and delay payment until the end of the month would win more time for vital debt talks that resumed on Tuesday. Greece must repay €300m on 5 June, the first of four instalments due next month. The IMF, its biggest creditor after the European Union, often waits a month before receiving funds from debtor countries. A senior eurozone official close to the talks with Athens told Reuters: “There is the possibility of putting together several payments that Greece would need to make to the IMF in the course of June and then just make one payment.”

The news agency said a second official close to the talks also acknowledged that a payment delay was a possibility. The first official said: “That’s basically a technical treasury exercise and they could tell the IMF that this is how they want to do it and the IMF would probably have to be OK with that.” Shut out of international markets, Athens has conceded that it will miss the 5 June payment without new loans from the EU, which is demanding reforms that will make the country’s debt sustainable. Last week, the interior minister, Nikos Voutsis, a longstanding ally of the prime minister, Alexis Tsipras, said the country needed to strike a deal with its European partners within the next couple of weeks or it would default on its IMF repayments. In remarks that heightened the possibility of a default, he said: “This money will not be given and is not there to be given.”

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“It’s about time the institutions, in particular the IMF, get their act together..”

Greece’s Creditors Must ‘Get Their Act Together’, Says Varoufakis (AFP)

Greece’s creditors must “get their act together” and help produce a new loan deal for the cash-strapped country, Finance Minister Yanis Varoufakis said Tuesday. “It’s about time the institutions, in particular the IMF, get their act together, and come to an agreement with us,” the outspoken Varoufakis told CNN. Greece’s radical left government in recent days has sent conflicting messages on its finances as the state is gradually running out of money. The cash crunch has been caused by the government’s inability to agree with its international creditors on reforms that would unlock some €7.2 billion in promised bailout cash.

Over the weekend, a cabinet minister said Greece had “no money” to make a series of repayments to the IMF from June 5. “The instalments for the IMF in June are (overall) €1.6 billion. This money will not be given. There isn’t any to be given. This is a known fact,” Interior Minister Nikos Voutsis said on Sunday. A day later, a government spokesman insisted the country would keep up with its payments for as long as it could. “To the extent that we are able to pay, we will keep on repaying these obligations,” government spokesman Gabriel Sakellaridis told reporters. Varoufakis on Tuesday denied that Greece is about to run out of money. “Our state, as a result of huge sacrifices by the Greek people, has managed to live within its means,” he said.

“We will make the payment because I have no doubt that we will have an agreement,” he added. Talks in Brussels over the Greek reform list are to resume on Tuesday. According to Athens, the two sides are still apart on tax issues, social insurance, labour rights and the size of Greece’s budget surplus. The government hopes to secure an agreement by early June at the latest.

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“Mainly his frustration, the fact that the one thing that he can’t discuss with the finance ministers of Europe is economics..”

Steve Keen: Varoufakis Battles ‘Divorce Lawyer’ Style Austerity Talks (CNBC)

Greece’s controversial finance minister, Yanis Varoufakis, has blamed the euro zone’s insistence on greater austerity measures as the real reason why talks with lenders are stalling, and not any lack of willingness on Greece’s part to implement reforms. In a blog post published Monday, Varoufakis said the Greek government’s negotiations with its creditors have been entirely misrepresented as “unwilling” by the world’s media when Athens is actually very keen to put economic reforms in place. “The problem is simple: Greece’s creditors insist on even greater austerity for this year and beyond – an approach that would impede recovery, obstruct growth, worsen the debt-deflationary cycle, and, in the end, erode Greeks’ willingness and ability to see through the reform agenda that the country so desperately needs,” Varoufakis said in a Project Syndicate blog post, published on Monday.

“Our government cannot – and will not – accept a cure that has proven itself over five long years to be worse than the disease,” he added. At the same time, former colleague, fellow economist and close friend of Varoufakis, Steve Keen said the finance minister was frustrated with the progress of Greece’s talks with the euro zone, adding Varoufakis had compared the talks to dealing with “divorce lawyers”. Keen, chief economist of the Institute of Dynamic Economic Analysis (IDEA) who is credited with forecasting the economic crisis from as early as 2005, said the finance ministers of Europe refused to discuss certain euro policies, according to Varoufakis.

Keen, who also heads up the school of economics, history and politics at Kingston University in London, first met Varoufakis when they both worked as lecturers at Sydney University in the late 1980s. When asked what they mainly discuss at the moment, Keen said, “Mainly his frustration, the fact that the one thing that he can’t discuss with the finance ministers of Europe is economics,” he told CNBC. “He goes inside, he is expected to be discussing what the economic impact of the policies of the euro are and how to get a better set of policies, living within the confines of the euro and the entire European Union system, and he said they simply won’t discuss it. He said it is like walking into a bunch of divorce lawyers, it is not anything like what you think finance ministers should be talking about,” Keen said, adding that he thought current austerity reforms being suggested by the euro zone were a “fantasy”.

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Way beyond his mandate. Still wondering how that became so accepted in Europe.

Juncker Questions Varoufakis, Tsipras (Kathimerini)

As Greece’s negotiations with its creditors enter the most critical phase, the country’s finance minister created fresh confusion on Tuesday with statements regarding possible tax reforms which were almost immediately revoked. Meanwhile, fuelling speculation about how much longer Varoufakis can stay in the crucial post of finance minister, European Commission President Jean-Claude Juncker declared that he was “not helping the process.” “Mr Varoufakis is the finance minister of a country that has to confront huge problems and he doesn’t give the feeling that he knows that,” Juncker told the MNI news agency. Asked by the MNI reporter whether he trusted Prime Minister Alexis Tsipras, Juncker took 14 seconds to answer “yes” but said Tsipras was becoming “increasingly responsible.”

In the interview Juncker also presented his opinions on what concessions should be made from each side in the tough negotiations while saying it was imperative to achieve a deal that includes the International Monetary Fund, which is awaiting a €300 million repayment from Greece next week. Referring to proposed changes to the Greek value-added tax system that are under discussion, Juncker said these reforms must yield €1.8 billion, or 1% of gross domestic product, in order to narrow a fiscal gap. He said pension reform was also crucial, pointing to the large proportion of early retirements in Greece in particular, while suggesting that labor reforms – another sticking point – could be postponed until the fall.

The Brussels Group negotiations resume on Wednesday with a Euro Working Group teleconference expected to take place on Thursday. In Athens, government sources said they expected a deal by the weekend so an emergency Eurogroup can be held next Tuesday. But confusion about the details such a deal would entail was deepened by Varoufakis. The minister told a press conference the government was considering introducing a “small” levy on ATM withdrawals. Two hours after the statement, his ministry said that the idea of taxing bank transactions had been proposed during negotiations but was withdrawn following “objections by the Finance Ministry.”

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“..one can see a preference emerging for an austerity which sweeps everything away wherever it passes.”

Greek Default, European Bankruptcy (Jacques Sapir)

The negotiations with Greece have been lead against any good sense or, more exactly, against any democratic good sense (which we are forced to agree is not quite the same thing). There have been attempts to discredit, to threaten, even to corrupt the Greek negotiators. These negotiations are actually being held in the greatest of obscurity. We do not have at disposal the minutes of the declarations of the participants, and one leaves it over to the press the produce “leaks“ the content of which is uncontrollable, precisely because of the lack of minutes. Yannis Varoufakis has expressed this quite well on his blog, admitting that he taped the negotiations so that one day we will know what to make out of the behavior of all parties involved.

“And maybe that we should question the European institutions, where decisions of fundamental importance are being taken, in the name of the European citizens, but minutes of which are neither taken down nor published. Secrecy and a credulous press are not good harbingers for European democracy.” Considering that Varoufakis is in reality a defender of the European project, one must understand, and measure the amplitude and the reach of his criticism. In effect, it is European democracy, not so much as a principle (already badly harmed since the 2005 refusal to take into account the referendums in France and in the Netherlands) but as a system of operational rules, with the purpose of ensuring the responsibility of actors for their acts, which is absent today. We know quite well that without responsibility there is democracy no longer.

What Varoufakis is saying, is that the European Union is no longer, in its day to day functioning, a democratic system. But the failure also concerns the aims of the European Union. In the case of Greece, one pretends officially wanting to keep the country in the Eurozone. But, in fact, and for various reasons, one can see a preference emerging for an austerity which sweeps everything away wherever it passes. Greece’s position has received the support of many economists and even the IMF has considered that on a number of points, the Greek government was right. But, nothing doing. It is all happening as if the German government, it must be said with the help of the French government which is behaving – alas – in this instance as the most eager of vassal, as the lowest of lackeys, were seeking to impose at any price upon ALL the countries of the Eurozone the death-bringing austerity which is its policy.

And one can understand that concessions to Greece would immediately entail demands emanating from Spain. In this latter country, Podemos, the party coming out of the movement of the indignés has carried away on this Sunday, May 24, a few beautiful victories which are rendering the position of the Spanish Prime Minister, Rajoy, ever more fragile. But this is true also of Portugal and Italy. Concessions to Greece would signal the beginning of a wholesale putting into question of austerity, something the German government doesn’t want to happen under any pretext. For ideological reasons, but also for some very material ones.

What is profiling itself on the horizon is not a Greek default, or more exactly, not only a Greek default. We are witnessing the bankruptcy of the Europeist ideology, and of the European Union as well. Through the Greek default, we will be witnessing a defaulting of the politics of the European Union, taken hostage by Germany. So that this default will be a European default, as it will signal the end of a certain idea of the European Union and will open a deep and durable crisis within Europe. European institutions will be affected in their legitimacy. This default will be the basis of the coming revolution.

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A useful overview that includes Cochrane, Parenteau and Varoufakis’ ideas.

A Parallel Currency For Greece: Part I (VoxEU)

Absent a deal with creditors, very soon, short of cash, the Greek government might default on its debt. To prevent this from happening, and to avoid taking new extra doses of useless and painful austerity, Athens could be bound to resort to the introduction of some kind of new domestic currency – in parallel to the euro – for the government to be able to make payments to public employees and pensioners while freeing up the euros needed to pay out its creditors. The ECB has not denied this possibility. Recently, ECB sources have unofficially discussed the issue with the media in some detail (albeit anonymously), and executive board member Yves Mersch has referred to a parallel currency for Greece as one of “the exceptional tools that any government can consider if it has no other options,” noting that all these tools bear high costs.

Is this really so? Is it really the case that a parallel currency would be worse than the current medicine Greece is taking (and is set to be taking for an indefinite future)? A parallel currency per se would neither prevent the risk of Greece’s disorderly default nor automatically help it out of depression. But not all parallel currencies are born equal, and there are various ways to design a parallel currency, each bearing significantly different implications. Below we compare the proposals currently on the table and discuss how a parallel (quasi) currency could be designed to promote Greece’s economic recovery. The issue is relevant for all countries suffering a weak economic activity, with no autonomous monetary policy, and limited fiscal space.

John Cochrane (2015) considers the possibility that the Greek government issues small cuts, zero-coupon bonds as promises to repay the bearer an equivalent amount of euros at some future date (IOUs). These IOUs could take the form of paper securities or electronic book entries in bank accounts, and the government could roll them over every year, just as for any type of debt obligation. The IOUs could be used to pay public salaries, pensions, and social transfers as well as to recapitalise or lend to banks. The IOUs would trade at a discount, but if the government accepted them at face value for tax payments, the discount might not be large. Mostly, the discount would reflect the risk that Greece either reneges on its commitment to accept its own debt for tax payments or suspends the roll over, thereby defaulting on the new debt. As Cochrane notices, introducing the IOUs would amount to creating a separate or dual currency that would allow Greece not to leave the Eurozone.

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The other half doesn’t have any…

Half Of Greeks Cover Their Needs From Their Deposits (Kathimerini)

Greek salaried workers cannot buy what they want but, rather, have to limit themselves to what they can afford on their reduced disposable income, a survey by the Labor Institute of the General Confederation of Greek Labor (GSEE) and the Association of Working Consumers of Greece (EEKE) showed on Tuesday. Crucially, 47% of consumers surveyed said they have relied on their savings to cover their needs in the past few months, while 16% were forced to borrow to spend, as the reduction of incomes continued in 2015 for more than half of Greece’s wage-earners (53%), the survey conducted in mid-February revealed – though this is markedly better than the 70% rate recorded last September.

In terms of expectations for the current quarter, consumers (who responded just three or four weeks after the change in government) said that things could not get much worse: Three in four (75%) said incomes would remain stable (from 57% in September), 16% expected a decline (from 40% five months earlier) and 9% even expected to see their incomes rise.

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To be filed under ‘irony’?!

EU Funds At Risk Due To Project Payment Freeze By Athens (Kathimerini)

Greece runs the immediate risk of missing out on €1 billion worth of EU subsidies this year from the previous support framework, which expires on December 31, as a payment freeze by the state has blocked the proper implementation of projects that will have to finish by the end of the year. Although the subsidy absorption rate had improved considerably in recent years, reaching a level of 85%, failure to stick to that rate this year – the last of the extended 2007-2013 program – would hamper Greece’s capacity to utilize the EU funds. At greater risk are not only the highway and environmental projects but also investment plans that are being implemented by the private sector. Economic uncertainty has suspended any resolve for investing, resulting in an extensive inability to absorb the funds Brussels has set aside for Greece.

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Hit man.

Target Of Greek Scorn Shapes Nation’s Fate As IMF’s Storm Chaser (Bloomberg)

When the IMF’s point man on Greece, Poul Thomsen, rebuffed the nation’s proposal in December to unlock more bailout funding, he wound up making his job even tougher. The Greek government’s failure then to secure an agreement with its creditors helped pave the way for its defeat in January by the anti-austerity Syriza party. Instead of negotiating with Greece’s establishment, Thomsen finds himself facing a novice group whose leaders have likened the lenders’ conditions to “fiscal waterboarding.” Now the 60-year-old Danish economist is holding his ground against Syriza economic plans that fail to meet IMF criteria for putting Greece’s debt on a sustainable path.

And this time, the nation’s membership in the euro and the IMF’s credibility hang in the balance as Greece runs low on cash and European leaders look to the fund’s blessing before disbursing more bailout money. The situation has Thomsen, whose thesis adviser was an architect of the euro, in the role of helping decide the currency’s fate. Thomsen has been closely involved with the Greek bailout since its inception in 2010, and often represents the fund at meetings of euro-area finance ministers, where officials from the European Commission and ECB also typically attend. Those two institutions and the IMF form the so-called troika of Greek creditors.

“That deal in December was a hugely missed opportunity,” said Martin Edwards, an international-relations professor at Seton Hall University in South Orange, New Jersey, who has researched IMF lending programs. “They moved from having a moderately cooperative government to one that wasn’t going to be in their corner. This is a problem of their own devising.”

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“A fraction of this amount would go a long way towards fixing our housing shortage, and giving millions of priced-out families and young people the chance of a stable home.”

Landlords Enjoy £14 Billion Tax Breaks In UK Buy-To-Let Expansion (Guardian)

Landlords enjoyed a record £14bn in tax breaks in 2013, according to figures revealing the expansion of the UK’s buy-to-let market in the aftermath of the financial crisis. Some £6.3bn was declared against the cost of mortgage interest alone in the 2012-13 financial year, according to information obtained by the Guardian from HMRC through a freedom of information request. The figures also reveal that the number of landlords has increased by more than one-third over the past six years. In the 2012-13 financial year, 2.1 million taxpayers declared income from property, up from 1.5 million in 2007-08.

The anti-homelessness charity Shelter has called for the government to conduct an urgent review of the tax treatment of landlords, who can also deduct the cost of insurance, maintenance and repairs, utility bills, legal fees and other expenses from their income. Owner-occupiers are not entitled to the same privileges. In response to the figures, Campbell Robb, Shelter’s chief executive, said: “In the context of looming welfare cuts and a dramatic shortage of homes, all those struggling to keep up with sky-high housing costs will be shocked to hear that a massive £14bn has been given in tax breaks for landlords in just a year.

“A fraction of this amount would go a long way towards fixing our housing shortage, and giving millions of priced-out families and young people the chance of a stable home. “In the Queen’s speech the new government must start to set out a comprehensive plan that will finally build the homes this country desperately needs, and an urgent review of these huge tax breaks must be part of this.”

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Masters of corruption.

Corruptionomics in Italy (Alessio Terzi)

In line with its National Reform Programme for the period 2015-16, Matteo Renzi’s government obtained parliament’s approval on a new anti-corruption law on May 21. We document the sheer size of corruption in Italy and argue that tackling it is not only a matter of fairness, but also crucial to boost the country’s potential output after three years of recession and almost two decades of stagnation. Experience from past success cases suggests that only forceful and comprehensive actions will succeed in bringing corruption under control.

The problem of corruption in Italy is real and large. Transparency International’s Corruption Perception Index, the most widely used indicator of corruption, shows how Italy occupies the last place in Europe and 69th in the world, on par with Romania, Bulgaria, and Greece. This picture is confirmed by other organisations. The World Bank’s indicator for Control of Corruption ranks Italy 95th out of 215 countries, again neck and neck with Greece, Romania, and Bulgaria. The WEF ranks Italy 102nd out of 144 countries on indicators related to ethics and corruption.

The economic consequences of corruption can be dissected in two classes: static and dynamic. Statically, corruption leads to the creation of deadweight losses, as it drives prices above their marginal cost of production. This implies a loss for both the public (e.g. in the form of investment projects being more expensive) and the private sector (e.g. in a bureaucratic procedure costing more to execute). The Italian Court of Auditors estimates these direct costs of corruption to be in the order of magnitude of €60bn per year, equivalent to roughly 4% of the country’s GDP.

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A timely reminder: “..when crises arise, economically disarmed nations have little to do but wipe away government regulations wholesale, privatize state industries en masse, slash taxes and send the European welfare state down the drain.”

Robert Mundell, Evil Genius Of The Euro (Greg Palast, 2012)

The idea that the euro has “failed” is dangerously naive. The euro is doing exactly what its progenitor – and the wealthy 1%-ers who adopted it – predicted and planned for it to do. That progenitor is former University of Chicago economist Robert Mundell. The architect of “supply-side economics” is now a professor at Columbia University, but I knew him through his connection to my Chicago professor, Milton Friedman, back before Mundell’s research on currencies and exchange rates had produced the blueprint for European monetary union and a common European currency. Mundell, then, was more concerned with his bathroom arrangements. Professor Mundell, who has both a Nobel Prize and an ancient villa in Tuscany, told me, incensed:

“They won’t even let me have a toilet. They’ve got rules that tell me I can’t have a toilet in this room! Can you imagine?” As it happens, I can’t. But I don’t have an Italian villa, so I can’t imagine the frustrations of bylaws governing commode placement. But Mundell, a can-do Canadian-American, intended to do something about it: come up with a weapon that would blow away government rules and labor regulations. (He really hated the union plumbers who charged a bundle to move his throne.) “It’s very hard to fire workers in Europe,” he complained. His answer: the euro. The euro would really do its work when crises hit, Mundell explained. Removing a government’s control over currency would prevent nasty little elected officials from using Keynesian monetary and fiscal juice to pull a nation out of recession.

“It puts monetary policy out of the reach of politicians,” he said. “[And] without fiscal policy, the only way nations can keep jobs is by the competitive reduction of rules on business.” He cited labor laws, environmental regulations and, of course, taxes. All would be flushed away by the euro. Democracy would not be allowed to interfere with the marketplace – or the plumbing. [..] The supply-side economics pioneered by Mundell became the theoretical template for Reaganomics – or as George Bush the Elder called it, “voodoo economics”: the magical belief in free-market nostrums that also inspired the policies of Mrs Thatcher. Mundell explained to me that, in fact, the euro is of a piece with Reaganomics: “Monetary discipline forces fiscal discipline on the politicians as well.” And when crises arise, economically disarmed nations have little to do but wipe away government regulations wholesale, privatize state industries en masse, slash taxes and send the European welfare state down the drain.

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Which is why the EU has no future.

In EU, Reform Means Different Things To Member Countries (Guardian)

The most over-used word in Brussels is “reform”. There is not a leader in the EU who does not urge reform of the union. The trouble is they all mean different things when they declaim the r-word. A German leader urges reform and means belt-tightening, structural change, balanced budgets in the push for global competitiveness. If you’re a French or Italian leader, reform means less austerity, more public spending, policies geared to growth not contraction, to jobs and not more unemployment. And David Cameron, who couches his referendum campaign in the need to reform the EU, of course, means a new deal for Britain.

Reform means concessions to UK exceptionalism in the EU, with 27 countries recognising and adjusting to Britain’s uniqueness in Europe. In the arguments about the looming renegotiation of Britain’s position in the EU, the emphasis until now has been on form rather than substance, the shape that a deal might take rather than what it might bring. This has focused on the calls for reopening the EU treaties, changing the terms of British EU membership, conferring a new legal order on that status. It is still not clear what might happen because Cameron has been deliberately vague about what he wants, exploring what the others – by the other 27 leaders, Cameron usually means Angela Merkel – might be prepared to give.

Cameron’s argument is that treaty change is necessary because of the impact of the euro crisis, that the eurozone needs a radical shift towards greater political and fiscal integration to shore up the single currency. Of course, Cameron speaks with a forked tongue because his argument is aimed at exploiting that renegotiation to rewrite the terms of British membership. Treaty change in any major way will not happen. It is too difficult. It will take too long. And eurozone leaders are also intensely irritated by the lecturing from Cameron and George Osborne, the chancellor, about how to put their house in order.

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Ain’t we smart?

Big Oil Bosses’ Bonuses Linked To $1 Trillion Spending on Drilling (Guardian)

Bosses at the world’s big five oil companies have been showered with bonus payouts linked to a $1tn crescendo of spending on fossil fuel exploration and extraction over nine years, according to Guardian analysis of company reports. The unprecedented push to bring untapped reserves into production, and to exploit new and undiscovered fields, involves some of the most complex feats of engineering ever attempted. It also reflects how confident Exxon Mobil, Shell, Chevron, Total and BP are that demand will remain high for decades to come.

The big oil groups are pressing ahead with investments despite the International Energy Agency (IEA) estimating that two-thirds of proven fossil fuel reserves will need to remain in the ground to prevent the earth from warming 2C above pre-industrial levels – a proposed temperature limit beyond which scientists warn of spiralling and irreversible climate change. Multi-billion-dollar capital projects amount to huge, long-term bets by the big five that exorbitant costs associated with unlocking hydrocarbon reserves in some of the most inaccessible locations on the planet can eventually be recouped and converted into profits. Bonuses for chief executives at all five firms are tied to the achievement of delivery milestones in the construction and deployment of such projects.

Shell’s Ben van Beurden, for example, last year received a pay deal worth $32.2m, including bonuses linked to delivering “a high proportion of flagship projects on time and on budget”. These are thought to include four platforms floating 1,000 metres or more above deepwater wells in the Gulf of Mexico, Gulf of Guinea and South China Sea. Similarly, BP’s Bob Dudley was awarded a pay deal worth $15.3m, with bonuses linked to seven “major projects”, thought to include Sunrise, a tar sands joint venture in Canada, as well as projects in Angola, Azerbaijan, the Gulf of Mexico and the North Sea.

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“The first is direct damage: an unsustainable credit-fuelled boom, say. Another is indirect damage that results from a breakdown in trust in a financial arrangements..”

Why Finance Is Too Much Of A Good Thing (Martin Wolf)

An organised society offers two ways of becoming rich. The normal way has been to exercise monopoly power. Historically, monopoly control over land, usually seized by force, has been the main route to wealth. A competitive market economy offers a socially more desirable alternative: invention and production of goods and services. Alas, it is also possible to extract rents in markets. The financial sector with its complexity and implicit subsidies is in an excellent position to do so. But such practices do not only shift money from a large number of poorer people to a smaller number of richer ones. It may also gravely damage the economy.

This is the argument of Luigi Zingales of Chicago Booth School, a strong believer in free markets, in his presidential address to the American Finance Association. The harm takes two forms. The first is direct damage: an unsustainable credit-fuelled boom, say. Another is indirect damage that results from a breakdown in trust in a financial arrangements, due to crises, pervasive “duping”, or both. Prof Zingales emphasises the indirect costs. He argues that a vicious circle may emerge between public outrage, rent extraction and back to yet more outrage. When outrage is high, it is difficult to maintain prompt and unbiased settlement of contracts. Without public support, financiers must seek political protection. But only those who enjoy large rents can afford the lobbying.

Thus, in the face of public resentment, only rent-extracting finance – above all, the mightiest banks – survive. Inevitably, this further fuels the outrage. None of this is to deny that finance is essential to any civilised and prosperous society. On the contrary, it is the very importance of finance that makes the abuses so dangerous. Indeed, there is substantial evidence that a rise in credit relative to gross domestic product initially raises economic growth. But this relationship appears to reverse once credit exceeds about 100% of GDP. Other researchers have shown that rapid credit growth is a significant predictor of a crisis.

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Beware housedold debt, hiding behind the housing bubble.

Canada’s Economy Out Of The Woods? Think Again (CNBC)

The state of Canada’s finances is back in focus this week with economists questioning whether the country has managed to combat a worrying rise in private debt. An independent policy think tank, called the Fraser Institute, made headlines last Wednesday when it described concerns as “overblown,” adding that there was little evidence that Canadian households were irresponsibly borrowing too much. However, that argument is now being challenged by David Madani, an economist focused on the north American nation at Capital Economics. He called the research “misleading” as it only showed the payments on debt interest, not the principal repayments which reduce the original loan amount.

“Principal repayments often represent a large portion of debt obligations, especially when it comes to housing mortgage debt,” he said in a note released on Monday. “Should market interest rates rise over the next several years, as we anticipate, household debt obligations will become much more onerous.” Canada’s economy has seen house prices and debt levels continue to climb despite the global financial crash of 2008. Former governor of the Bank of Canada, Mark Carney, warned of elevated household debt levels on several occasions during his tenure.

New statistics in March showed that Canadian households held roughly C$1.63 ($1.32) of credit market debt for every dollar of disposable income in the fourth quarter of 2014 – a record high, according to Statistics Canada who published the data. The country has also had to deal with a dramatic fall in the price of oil with its economy very much reliant on the commodity. The central bank delivered a rate cut in January and market participants are gearing up for another policy meeting this week. The current governor of the Bank of Canada, Stephen Poloz, said last week that this policy was “working” and that the cut would benefit households with a mortgage.

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Question: how did the NY times know where and when the arrests were going to take place?

FIFA Officials Arrested on Corruption Charges; Face Extradition to US (NY Times)

Swiss authorities conducted an extraordinary early-morning operation here Wednesday to arrest several top soccer officials and extradite them to the United States on federal corruption charges. As leaders of FIFA, soccer’s global governing body, gathered for their annual meeting, more than a dozen plain-clothed Swiss law enforcement officials arrived unannounced at the Baur au Lac hotel, an elegant five-star property with views of the Alps and Lake Zurich. They went to the front desk to get keys and proceeded upstairs to the rooms. The arrests were carried out peacefully, with at least two men being ushered out of the hotel without handcuffs. One FIFA official, Eduardo Li of Costa Rica, was led by the authorities from his room to a side-door exit of the hotel. He was allowed to bring his luggage, which was adorned with FIFA logos.

The charges allege widespread corruption in FIFA over the past two decades, involving bids for World Cups as well as marketing and broadcast deals, according to three law enforcement officials with direct knowledge of the case. The charges include wire fraud, racketeering and money laundering, and officials said they targeted members of FIFA’s powerful executive committee, which wields enormous power and does its business largely in secret. The arrests were a startling blow to FIFA, a multibillion-dollar organization that governs the world’s most popular sport but has been plagued by accusations of bribery for decades.

The inquiry is also a major threat to Sepp Blatter, FIFA’s longtime president who is generally recognized as the most powerful person in sports, though he was not charged. An election, seemingly pre-ordained to give him a fifth term as president, is scheduled for Friday. Prosecutors planned to unseal an indictment against more than 10 officials, not all of whom are in Zurich, law enforcement officials said. Among them are Jeffrey Webb of the Cayman Islands, a vice president of the executive committee; Eugenio Figueredo of Uruguay, who is also an executive committee vice president and until recently was the president of South America’s soccer association; and Jack Warner of Trinidad and Tobago, a former member of the executive committee who has been accused of numerous ethical violations.

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It can produce enough food for everyone, while at the same time cutting CO2 and toxicity in our food. It can not generate gigantic profits fro Big Ag and the chemical industry, though.

Can Organic Farming Counteract Carbon Emissions? (WSJ)

Organic practices could counteract the world’s yearly carbon dioxide output while producing the same amount of food as conventional farming, a new study suggests. The white paper by the Rodale Institute, a nonprofit that advocates for the use of organic practices, says that using “regenerative organic agriculture,” such as low or no-tillage, cover crops and crop rotation, will keep photosynthesized carbon dioxide in the soil instead of returning it to the atmosphere. Citing 75 studies from peer-reviewed journals, including its own 33-year Farm Systems Trial, Rodale Institute concluded that if all cropland were converted to the regenerative model it would sequester 40% of annual CO2 emissions; changing global pastures to that model would add another 71%, effectively overcompensating for the world’s yearly carbon dioxide emissions.

Michel Cavigelli, a research soil scientist at the USDA’s Agricultural Research Service, which has a slightly different 19-year side-by side study, says his research also shows that organic soil has higher carbon content than conventional but warns that the devil is in the details. For example, the USDA study tills the organic plot and that might cause the manure’s carbon to stay deeper in the soil. But the question organic farming always comes back to is whether farming without synthetic pesticides and genetically modified organisms is really a viable way to feed the planet. Rodale Institute believes it can do that and better. In the longest-running study of its kind, Rodale’s Farming Systems Trial compares organic farming with conventional farming, by farming neighboring plots just as organic farmers and traditional farmers would.

That means its organic farming plot utilizes techniques like crop rotation and cover crops while the conventional plot uses common synthetic pesticides and genetically modified organisms. Both organic and conventional fields were divided into tilled and no-till areas to reflect that farmers use both practices. The findings show that organic farming yields are lower than conventional in the first few years, while conventional crops do better in the first years than they do later on. Over time the production equals out and with organic outperforming conventional farming production in years of drought (organic corn yields 31% more than conventional corn during drought).

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