Jul 142017
 
 July 14, 2017  Posted by at 9:21 am Finance Tagged with: , , , , , , , , , , ,  4 Responses »
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Pablo Picasso Nude, Green Leaves and Bust 1932

 

Global Shares Rise To Record New Highs (R.)
Britain In Worse Shape To Withstand A Recession Than In 2007 (G.)
IMF Warns Canada On Housing, Trade, Rate Hikes (R.)
40% Of The Fed’s Interest On Excess Reserves Is Paid To Foreign Banks (ZH)
Will Corporate Bonds Cross Over? (DDMB)
Turkey Chooses Russia Over NATO for Missile Defense (BBG)
100,000 and Counting: No Letup in Turkey Coup Purges a Year On (BBG)
Philip Morris’ Anti-Anti-Smoking Campaign (R.)
Globalisation: The Rise And Fall Of An Idea That Swept The World (G.)
Tepco: Decision Already Been Made To Release Radioactive Tritium Into Sea (JT)
Italy’s Poor Almost Triple in a Decade Amid Economic Slumps

 

 

Nothing has value anymore.

Global Shares Rise To Record New Highs (R.)

Upbeat data helped send world shares to a fourth all-time high in less than a month on Thursday as Wall Street edged higher in anticipation of solid earnings, while crude oil gained on evidence of stronger demand in China. Stocks were buoyed in Asia and elsewhere a day after Federal Reserve Chair Janet Yellen signaled a rise in interest rates would be less aggressive than some investors had expected. Sentiment was boosted after China reported upbeat data on exports and imports for June, the latest sign that the global growth is picking up a bit. That offset reports of higher production by key members of OPEC in a report by the International Energy Agency (IEA), lifting oil prices.

The data pushed Asian shares up more than 1% and lifted MSCI’s 47-country gauge of global equity markets to a fresh record high with a gain of 0.29%. “Yesterday’s move was in response to Yellen comments that should inflation remain below the 2% target rate, the central bank will be less aggressive in their tightening program,” said Sam Stovall, chief investment strategist at CFRA Research. “Today, the market is saying that’s old news and let’s focus on the matter at hand, which is earnings that will be coming out in earnest this week,” Stovall said. U.S. shares rose in anticipation second-quarter earnings will grow 7.8% for S&P 500 companies, according to Thomson Reuters data.

Read more …

Don’t worry, everybody is.

Britain In Worse Shape To Withstand A Recession Than In 2007 (G.)

Britain’s public finances are in worse shape to withstand a recession than they were on the eve of the 2007 financial crash a decade ago and face the twin threat of a fresh downturn and Brexit, the Treasury’s independent forecaster has warned. The Office for Budget Responsibility – the UK’s fiscal watchdog – said another recession was inevitable at some point and that Theresa May’s failure to win a parliamentary majority in last month’s election left the public finances more vulnerable to being blown off course than they were in 2007. In its first in-depth analysis of the fiscal risks facing Britain, the OBR said its main message was clear: “Governments should expect nasty fiscal surprises from time to time – because policy can only reduce risks, not eliminate them – and plan accordingly.

“And they have to do so in the context of ongoing pressures that are likely to weigh on receipts and drive up spending and a variety of risks that governments choose to expose themselves to for policy reasons. This is true for any government, but this one also has to manage the uncertainties posed by Brexit, which could influence the likelihood or impact of other risks.” The OBR said the size of the UK’s Brexit divorce bill – currently a matter of dispute between London and Brussels – would have little impact on the public finances. But it noted that even a small fall in Britain’s underlying growth rate after departure from the EU would lead to a big increase in the country’s debt burden.

If a knock to trade with the rest of Europe caused productivity to slip by just 0.1 percentage points over the next 50 years, tax receipts would be £36bn lower. With spending growth left unchanged, the debt-to-GDP ratio would end up around 50 percentage points higher, the OBR added. The campaign group Open Britain said the OBR’s report showed “a hard Brexit poses a real threat to our economy. People voted for £350m a week for the NHS, not a £36bn black hole in the public finances that could mean severe cuts to the NHS”.

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Has Australia been warned yet?

IMF Warns Canada On Housing, Trade, Rate Hikes (R.)

The IMF said on Thursday that while Canada’s economy has regained momentum, housing imbalances have increased and uncertainty surrounding trade negotiations with the United States could hurt the recovery. The report, written before the central bank raised interest rates by a quarter of a percentage point on Wednesday to 0.75%, also said the Bank of Canada’s current monetary policy stance is appropriate, and it cautioned against tightening. “While the output gap has started to close, monetary policy should stay accommodative until signs of durable growth and higher inflation emerge,” it said, adding that rate hikes should be “approached cautiously.” Cheng Hoon Lim, IMF mission chief for Canada, later clarified that even with Wednesday’s rate hike, monetary policy remains “appropriately accommodative.”

“The Bank of Canada’s increase of the policy rate reflects encouraging economic data over the past few months. We welcome the good news on the economy,” Lim said in an emailed statement. “Given the considerable uncertainty around the growth and inflation outlook, the Bank should continue to take a cautious approach in further adjusting the monetary policy stance,” she added. In a statement following its annual policy review with Canada, the IMF cautioned that risks to Canada’s outlook are significant – particularly the danger of a sharp correction in the housing market, a further decline in oil prices, or U.S. protectionism. It said financial stability risks could emerge if the housing correction is accompanied by a recession, but said stress tests have shown Canadian banks could withstand a “significant loss” on their uninsured residential mortgage portfolio, in part because of high capital position.

House prices in Toronto and Vancouver have more than doubled since 2009 and the boom has fueled record household debt, a vulnerability that has also been noted by the Bank of Canada. “The main risk on the domestic side is a sharp correction in the housing market that impairs bank balance sheets, triggers negative feedback loops in the economy, and increases contingent claims on the government,” the Fund said. The Fund also warned U.S. protectionism could hurt Canada, laying out a scenario for higher tariffs that could come with the renegotiation of NAFTA. If the United States raises the average tariff on imports from Canada by 2.1 percentage points and there is no retaliation from Canada, there would be a short-term impact on real GDP of about 0.4%.

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Bankers have no more use for borders than birds do.

40% Of The Fed’s Interest On Excess Reserves Is Paid To Foreign Banks (ZH)

Recall that as we showed first all the way back in 2011, the total cash on the books of commercial banks with operations in the US tracks the Fed’s excess reserves almost dollar for dollar. More importantly, the number is broken down by small and large domestic banks, as well as international banks. It is the last number that is of biggest interest, because now that Congress is finally scrutinizing the $4.5 trillion elephant in the room, i.e., the Fed’s balance sheet, it may be interested to know that approximately 40%, or $838 billion as of the latest weekly data, in reserves parked at the Fed belongs to foreign banks.

While we will reserve judgment, and merely point out that of the $100 or so billion in dividends and buybacks announced by US banks after the latest stress test a substantial amount comes directly courtesy of the Fed – cash that ultimately ends up in shareholders’ pockets – we will note that the interest the Fed pays to foreign banks operating in the US who have parked reserves at the Fed, amounts to $10.4 billion annualized as of this moment. This is a subsidy from the Fed, supposedly an institution that exists for the benefit of the US population, going directly and without any frictions to foreign banks, who – just like in the US – then proceed to dividend and buybacks these funds, “returning” them to their own shareholders, most of whom are foreign individuals.

While the number appears modest, it is poised to grow substantially as the Fed Funds rate is expected to keep growing, ultimately hitting 3.0% according to the Fed. Indicatively, assuming excess reserves remain unchanged for the next 2-3 years and rates rise to 3.0%, that would imply a total annual subsidy to commercial banks amounting to $65 billion, of which $25 billion would go to foreign banks every year. We wonder if this is the main reason why the Fed is so desperate to trim its balance sheet as it hikes rates, as sooner or later, someone in Congress will figure this out.

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Unintended consequences? One of many?

Will Corporate Bonds Cross Over? (DDMB)

Unbeknownst to unassuming corporate bond holders, they too will soon be forced into the slow lane. For the moment, the vast majority fancy themselves that equally exasperating driver who won’t get out of the fast lane, determined to bully their way to their damned destination. As for the perils of tailgating, they’re for the other guy, the less agile driver with rubbery reflexes. That’s all good and well and has been for many years. Bond market fender benders are nearly nonexistent. The question is: Will central bankers worldwide turn placid parkways into highways to hell as they ‘remove accommodation,’ to borrow from their gently genteel jargon? That’s certainly one way to interpret Federal Reserve Chair Janet Yellen’s latest promise to shrink the balance sheet ‘appreciably.’

Care for a translation? How easily does “Aggressive Quantitative Tightening” roll off the tongue? Perhaps you’ve just bitten yours instead. Enter the International Monetary Fund (IMF), The Institute of International Finance (IIF), The Bank of International Settlements (BIS), and by the way, the Emerging Markets complex including and especially China. As a former central banker, it is with embarrassing ease yours truly can bandy about fantastic figures. No surprise that nary an eyebrow was raised at the latest figures out of the IIF that aggregate global debt is closing in on $220 trillion, as touched on last week. Consider that to be the broad backdrop. Now, narrow in on the IMF’s concerns that financial stability could be rocked by a rumble in US corporate debt markets.

Using firms’ capacity to service their debts from current earnings as a simple and elegant yard stick, the report warned that one in ten firms are failing outright. The last two years of levering up have exacted rapid damage: earnings have fallen to less than six times interest expense, this during an era of unprecedented low interest rates. And as record non-financial debt as a percentage of GDP quickly approaches 50%, the share of income required to service this mountain is at a seven-year high. Should financial conditions tighten (the report was published in April prior to the Fed’s June rate hike), one-in-five firms are likely to default, which rises to 22% if rates continue to rise.

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“..The Russian system would not be compatible with other NATO defense systems, but also wouldn’t be subject to the same constraints imposed by the alliance, which prevents Turkey from deploying such systems on the Armenian border, Aegean coast or Greek border..”

Turkey Chooses Russia Over NATO for Missile Defense (BBG)

Turkey has agreed to pay $2.5 billion to acquire Russia’s most advanced missile defense system, a senior Turkish official said, in a deal that signals a turn away from the NATO military alliance that has anchored Turkey to the West for more than six decades. The preliminary agreement sees Turkey receiving two S-400 missile batteries from Russia within the next year, and then producing another two inside Turkey, according to the Turkish official, who asked not to be named because of the sensitivity of the matter. A spokesman for Russia’s arms-export company Rosoboronexport OJSC said he couldn’t immediately comment on details of a deal with Turkey. Turkey has reached the point of an agreement on a missile defense system before, only to scupper the deal later amid protests and condemnation from NATO.

Under pressure from the U.S., Turkey gave up an earlier plan to buy a similar missile-defense system from a state-run Chinese company, which had been sanctioned by the U.S. for alleged missile sales to Iran. Turkey has been in NATO since the early years of the Cold War, playing a key role as a frontline state bordering the Soviet Union. But ties with fellow members have been strained in recent years, with Turkish President Recep Tayyip Erdogan pursuing a more assertive and independent foreign policy as conflict engulfed neighboring Iraq and Syria. Tensions with the U.S. mounted over U.S. support for Kurdish militants in Syria that Turkey considers terrorists, and the relationship with the European Union soured as the bloc pushed back against what it sees as Turkey’s increasingly autocratic turn.

Last month, Germany decided to withdraw from the main NATO base in Turkey, Incirlik, after Turkey refused to allow German lawmakers to visit troops there. The missile deal with Russia “is a clear sign that Turkey is disappointed in the U.S. and Europe,” said Konstantin Makienko, an analyst at the Center for Analysis of Strategies and Technologies, a Moscow think-tank. “But until the advance is paid and the assembly begins, we can’t be sure of anything.” The Russian system would not be compatible with other NATO defense systems, but also wouldn’t be subject to the same constraints imposed by the alliance, which prevents Turkey from deploying such systems on the Armenian border, Aegean coast or Greek border, the official said. The Russian deal would allow Turkey to deploy the missile defense systems anywhere in the country, the official said.

[..] The official said the systems delivered to Turkey would not have a friend-or-foe identification system, which means they could be deployed against any threat without restriction.

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That must have been one hell of a conspiracy.

100,000 and Counting: No Letup in Turkey Coup Purges a Year On (BBG)

The scale of Turkey’s crackdown on alleged government opponents following last year’s attempted coup was confirmed by a top official, as the nation prepares to mark the anniversary of the failed putsch amid deepening concern over the rule of law. Authorities have fired 103,824 state employees and suspended 33,483 more since the July 15 bid to seize power by a section of the military, Deputy Prime Minister Numan Kurtulmus said in an interview. The purge of suspected followers of U.S.-based cleric Fethullah Gulen, accused by the government of orchestrating the coup attempt, is necessary to ensure national security, he said. ustice Ministry data showed 50,546 suspected members of Gulen’s organization were in prison on July 3, and that arrest warrants had been issued for 8,000 others. The preacher denies involvement in the takeover attempt.

“There might be crypto members of Feto who walk on the snow without leaving tracks,” Kurtulmus said, using an abbreviation of Gulen’s first name that officials have adopted since the defeated military power grab to refer to his movement. “Related agencies are carefully conducting their work against this possibility.” Just this week, Erdogan rebuffed criticism over the detention of a group of international rights activists, including the director of Amnesty International Turkey, as they held a workshop on an island off Istanbul. “They gathered as if they were holding a meeting to continue July 15,” the president said. Amnesty criticized Turkey on Tuesday after the detentions were extended by seven days. “It is truly absurd that they are under investigation for membership of an armed terrorist organization,” Amnesty Europe Director John Dalhuisen said in an email. “For them to be entering a second week in police cells is a shocking indictment of the ruthless treatment of those who attempt to stand up for human rights in Turkey.”

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Dirty deeds.

Philip Morris’ Anti-Anti-Smoking Campaign (R.)

A group of cigarette company executives stood in the lobby of a drab convention center near New Delhi last November. They were waiting for credentials to enter the World Health Organization’s global tobacco treaty conference, one designed to curb smoking and combat the influence of the cigarette industry. Treaty officials didn’t want them there. But still, among those lined up hoping to get in were executives from Japan Tobacco International and British American Tobacco Plc. There was a big name missing from the group: Philip Morris International Inc. A Philip Morris representative later told Reuters its employees didn’t turn up because the company knew it wasn’t welcome. In fact, executives from the largest publicly traded tobacco firm had flown in from around the world to New Delhi for the anti-tobacco meeting.

Unknown to treaty organizers, they were staying at a hotel an hour from the convention center, working from an operations room there. Philip Morris International would soon be holding secret meetings with delegates from the government of Vietnam and other treaty members. The object of these clandestine activities: the WHO’s Framework Convention on Tobacco Control, or FCTC, a treaty aimed at reducing smoking globally. Reuters has found that Philip Morris International is running a secretive campaign to block or weaken treaty provisions that save millions of lives by curbing tobacco use. [..] Confidential company documents and interviews with current and former Philip Morris employees reveal an offensive that stretches from the Americas to Africa to Asia, from hardscrabble tobacco fields to the halls of political power, in what may be one of the broadest corporate lobbying efforts in existence.

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It needs growth, and there ain’t none.

Globalisation: The Rise And Fall Of An Idea That Swept The World (G.)

It was only a few decades ago that globalisation was held by many, even by some critics, to be an inevitable, unstoppable force. “Rejecting globalisation,” the American journalist George Packer has written, “was like rejecting the sunrise.” Globalisation could take place in services, capital and ideas, making it a notoriously imprecise term; but what it meant most often was making it cheaper to trade across borders – something that seemed to many at the time to be an unquestionable good. In practice, this often meant that industry would move from rich countries, where labour was expensive, to poor countries, where labour was cheaper. People in the rich countries would either have to accept lower wages to compete, or lose their jobs. But no matter what, the goods they formerly produced would now be imported, and be even cheaper.

And the unemployed could get new, higher-skilled jobs (if they got the requisite training). Mainstream economists and politicians upheld the consensus about the merits of globalisation, with little concern that there might be political consequences. Back then, economists could calmly chalk up anti-globalisation sentiment to a marginal group of delusional protesters, or disgruntled stragglers still toiling uselessly in “sunset industries”. These days, as sizable constituencies have voted in country after country for anti-free-trade policies, or candidates that promise to limit them, the old self-assurance is gone. Millions have rejected, with uncertain results, the punishing logic that globalisation could not be stopped. The backlash has swelled a wave of soul-searching among economists, one that had already begun to roll ashore with the financial crisis. How did they fail to foresee the repercussions?

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The world should not allow the Fukushima secrecy any longer.

Tepco: Decision Already Been Made To Release Radioactive Tritium Into Sea (JT)

Radioactive tritium, said to pose little risk to human health, will be released from the crippled Fukushima No. 1 nuclear power complex into the sea, according to a top official of the plant operator. “The decision has already been made,” Takashi Kawamura, chairman of Tokyo Electric Power Company, said in a recent interview with media outlets, referring to the discharge of tritium, which remains in filtered water even after highly toxic radioactive materials are removed from water used to cool the damaged reactors at the plant. At other nuclear power plants, tritium-containing water has routinely been released into the sea after it is diluted. But the move by Tepco has prompted worries among local fishermen about the potential ramifications for their livelihood as public perceptions about fish and other marine products caught off Fukushima could worsen.

They are the first public remarks by the utility’s management on the matter, as Tepco continues its cleanup of toxic water and tanks containing it continue to fill the premises of the plant, where three reactors suffered meltdowns after tsunami flooded the complex in March 2011 following a massive earthquake. Kawamura’s comments came at a time when a government panel is still debating how to deal with tritium-containing water at the Fukushima plant, including whether to dump it into sea. Saying its next move is contingent on the panel’s decision, Kawamura indicated in the interview that Tepco will wait for a decision by the government before it actually starts releasing the water into sea. “We cannot keep going if we do not have the support of the state” as well as Fukushima Prefecture and other stakeholders, he said.

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The EU is one big success story.

Italy’s Poor Almost Triple in a Decade Amid Economic Slumps

Italians living below the level of absolute poverty almost tripled over the last decade as the country went through a double-dip, record-long recession. The absolute poor, or those unable to purchase a basket of necessary goods and services, reached 4.7 million last year, up from almost 1.7 million in 2006, national statistics agency Istat said Thursday. That is 7.9% of the population, with many of them concentrated in the nation’s southern regions. As Italy went through its deepest, and then its longest, recession since World War II between 2008 and 2013, more than a quarter of the nation’s industrial production was wiped out. Over the same period unemployment also rose, with the rate rising to as high as 13% in 2014 from a low of 5.7% in 2007. Joblessness was at 11.3% at last check in May.

For decades, Italy has grappled with a low fertility rate – just 1.35 children per woman compared with a 1.58 average across the 28-nation EU as of 2015, the last year for which comparable data are available. “The poverty report shows how it is pointless to wonder why there are fewer newborn in Italy,” said Gigi De Palo, head of Italy’s Forum of Family Associations. “Making a child means becoming poor, it seems like in Italy children are not seen as a common good.” The number of absolute poor rose last year in the younger-age classes, reaching 10% in the group of those between 18 and 34 years old. It fell among seniors to 3.8% in the age group of 65 and older, the Istat report also showed.

Earlier this year, the Rome-based parliament approved a new anti-poverty tool called inclusion income that is replacing existing income-support measures. It will benefit 400,000 households, for a total of 1.7 million people, Il Sole 24 Ore daily reported, citing parliamentary documents. The program will be funded with resources of around €2 billion ($2.3 billion) this year which should rise to nearly €2.2 billion in 2018, Sole also said

Read more …

Jul 062017
 
 July 6, 2017  Posted by at 9:07 am Finance Tagged with: , , , , , , , , , ,  3 Responses »
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Roy Lichtenstein Woman With Flowered Hat 1963

 

The Fed Grows Worried Its Loose Policy Threatens US Financial Stability (CNBC)
Fed Eyes September Announcement on Balance-Sheet Reduction (WSJ)
China’s Debt Binge Threatens Australia (CB)
Australian Housing ‘Bubble’ Fears Overblown, HSBC Economist Says (BBG)
Europe’s Quietly Growing Poor Population Is Getting Louder (Occupy)
German Banks Pose A Threat That Politicians Want To Hide (CNBC)
Saudi Arabia Chief Foreign Promoter Of Islamist Extremism In UK – Report (Ind.)
Theresa May: Austerity Prevents UK From Turning Into Greece (G.)
China’s Electric Cars Are Actually Pretty Dirty (BBG)
After Failure To Prove Trump-Russia Collusion, There’s Pro-Trump Websites (ZH)
Terrorists in Syria to Stage Provocations to Justify US Strikes – Moscow (Sp.)
Hollywood Promotes War On Behalf Of The Pentagon, CIA and NSA (M.)
Report In Sweden Claims Erdogan Orchestrated July 15 Coup In Turkey (SCF)
Three In Four Recent Greek Graduates Work For Less Than €800 A Month (K.)
EU Calls On Members To Aid Migrants Amid Rising Mediterranean Death Toll (G.)
EU Blamed For ‘Soaring’ Migrant, Refugee Death Toll (BBC)

 

 

I think the Fed has known this for a long time.

The Fed Grows Worried Its Loose Policy Threatens US Financial Stability (CNBC)

The Federal Reserve’s most recent interest rate hike came amid worries that keeping policy loose was posing increasing risks to financial stability and the economy. Fed officials indicated a determination to continue raising rates even with muted inflation levels, which they considered to be temporary and likely to rise over the long run to a targeted level of 2%, according to a summary from the June meeting of the policymaking Federal Open Market Committee. The Fed raised its benchmark rate target a quarter point at the meeting and outlined a plan to reduce its $4.5 trillion balance sheet of bond holdings it accrued while trying to stimulate the economy during and after the financial crisis. Meeting minutes released Wednesday indicated that Fed officials believe the balance sheet can be reduced with “limited” disruption to financial markets.

Officials also expressed little concern that low inflation would persist. However, Fed officials were divided on when the balance sheet runoff should begin, and did not release a timetable on when it would happen. Recent readings below the Fed’s 2% goal were attributed to “idiosyncratic factors, including sharp declines in prices of wireless telephone services and prescription drugs, and expected these developments to have little bearing on inflation over the medium run.” The rate hike came as several officials voiced concern over the effect, or lack thereof, that their recent measures were having on financial markets. Rather than causing conditions to tighten, they actually have grown looser since the central bank embarked on a series of hikes.

While the Fed has increased its benchmark rate target four times since December 2015, government bond yields have declined in recent months. Stocks have continued to gain in the second-longest bull market ever recorded, and multiple other measures of financial conditions remain loose. The meeting minutes reflected considerable discussion over why that was happening. Low bond yields, they reasoned, could be the product of “sluggish longer-term economic growth” as well as the Fed’s $4.5 trillion balance sheet of bond holdings.

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It’s time to say goodbye to the Fed and other central banks. They’re too destructive.

Fed Eyes September Announcement on Balance-Sheet Reduction (WSJ)

Federal Reserve officials have indicated there is a strong chance they will announce in September a decision to start shrinking the central bank’s portfolio of bonds and other assets, while putting off until December any further interest-rate increase. The moves would give officials time to assess how markets react to the balance-sheet reductions and to confirm their view that a recent slowdown in inflation will fade. Launching the balance-sheet plan in September also would afford Chairwoman Janet Yellen an opportunity to initiate it well ahead of any potential leadership transition. Her term as chair expires in February, and President Trump hasn’t indicated whether he would nominate her to a second term or replace her. While a final decision on the next Fed moves hasn’t been made, officials will have several opportunities in coming weeks to clarify their thinking.

The central bank releases minutes of the June meeting on Wednesday, and Ms. Yellen testifies before Congress next week. Officials will also gather in Jackson Hole at the end of August for an annual monetary-policy conference that will provide ample opportunities for them to offer further guidance. Earlier this year, some officials indicated they were considering raising interest rates in March, June and September and then starting the portfolio reduction plan in December. They did raise rates in March and June, but are considering the new strategy for several reasons. First, they agreed at their June policy meeting on how they would reduce the $4.5 trillion portfolio, and made that plan public. Some officials now think they might as well get started soon, given the U.S. economic expansion appears steady and global growth is improving.

Second, if Ms. Yellen isn’t nominated to a second term as chair, they would prefer not to wait until December and launch the plan shortly before her successor takes charge. Third, inflation remains a puzzle for the Fed. The unemployment rate fell to 4.3% in May, a 16-year low, yet price pressures have diminished in recent months, moving year-over-year inflation gauges further below the central bank’s 2% target. Some Fed officials in recent weeks have said they want to see more proof that such price softness is transitory before resuming rate increases, but haven’t signaled similar qualms about initiating the balance-sheet runoff. “Take the balance sheet, get that started, and position ourselves for a December rate increase,” said Chicago Fed President Charles Evans in an interview last month.

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But.. wasn’t it supposed to make Australia rich?

China’s Debt Binge Threatens Australia (CB)

No country can be indifferent to China’s economy, especially not Australia. We’re more exposed to what goes on in it than just about any other nation. China has long been the biggest market for our commodities, such as iron ore, coal and wool. And now it is the largest foreign buyer of our services, especially education and tourism. The upshot? Many thousands of Australian jobs depend on the health of the Chinese economy. Big Asian economies in our region – China, India and Indonesia – are bound to become even more important to us during this, the Asian Century. Our politicians like to dwell on the opportunities presented by the historic economic transformation to our north. But we’ll also need to be prepared for some nasty bumps along the way. The aftermath of China’s enormous corporate debt bubble could well be one of them.

For some years now China’s economic growth has been underpinned by an explosion in corporate lending. China has accounted for half – yes half – of all new credit created globally since 2005 according to the New York Federal Reserve. That’s a huge share for an economy that now only accounts for about 15% of the global economy. Alarm bells rang last August when the IMF pointed out the trajectory of credit growth in China was eerily similar to countries that experienced painful post-debt boom adjustments in the recent past. This includes Japan in the 1980s, Thailand prior to Asian Financial Crisis and Spain prior to the European debt crisis. The sheer pace of lending growth makes it likely many loans are going to marginal borrowers or unviable projects.

A recent Oxford University study that evaluated 65 major road and rail projects in China concluded just 28% could be considered “genuinely economically productive”. The rapid expansion of China’s less regulated “shadow banking” sector adds to the complexity. The Reserve Bank has described China’s financial system as “increasingly large, leveraged, interconnected, and opaque”. Authorities have recently taken steps to reduce credit growth in China but it continues to expand at a rapid pace. The Reserve’s latest review of financial stability published in April, said the risks continue to build. “The level of debt in China has risen significantly over the past decade to reach very high levels, with particularly strong growth in lending from the less regulated and more opaque parts of China’s financial system,” it said.

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Fire the guy, and all others like him.

Australian Housing ‘Bubble’ Fears Overblown, HSBC Economist Says (BBG)

Soaring home prices in Australia’s biggest cities are driven by strong demand and a lack of supply, rather than indicating a “bubble,” according to HSBC’s local Chief Economist Paul Bloxham. “At a national level, a key reason for rising housing prices has been housing under-supply,” Bloxham wrote in a research note on Thursday. “This also suggests that a significant fall in Australian housing prices, as occurred in the U.S. and Spain during the global financial crisis, is unlikely.” Five years of red-hot growth have left prices in Sydney and Melbourne up 80% and 60% since mid-2012, fueling bubble concerns. In June, Moody’s Investors Service cut the long-term credit ratings of Australia’s four biggest banks, saying surging home prices, rising household debt and sluggish wage growth pose a threat to the lenders.

Bloxham, a former staffer at the Reserve Bank of Australia, said that “fundamental factors” largely explain the price boom and, “as a result, we do not judge it to be a bubble.” Demand for housing in Melbourne and Sydney has been supported by domestic and international migration, foreign investment and a lack of new supply, he said. Price increases have been much smaller in places such as Perth, where demand has been weaker amid the waning of a mining boom. The Australian Prudential Regulation Authority has gradually been ratcheting up restrictions on riskier loans and in recent months the big lenders have all raised interest rates charged on interest-only loans. Bloxham said he believes these regulatory measures will help cool the market, along with lower demand from overseas and increased supply.

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“..more than 240 million people now live on the poverty line..”

Europe’s Quietly Growing Poor Population Is Getting Louder (Occupy)

[..] early last month, financial analysts lauded the explosive growth of the Eurozone, claiming that it had outdone the U.S. The ECB predicted that countries like Germany and France would be able to issue bonds worth over 600 billion euros by the end of the year. By all accounts it would seem that the storm has passed. The E.U. suffered long and hard, endured the departure of one of its most economically sound member-states, and has apparently managed to come out on top, even amid one of the most dire humanitarian crises in recent memory. However, a brief look at some the official reports published by E.U. economists paints a wholly different, less rosy picture. In March 2010, the European Commission published a detailed economic strategy that was intended to rescue the then 80 million citizens of the Eurozone from falling below the poverty line.

In a manner reminiscent of the Soviet Union, the Commission extensively defined “poverty” in as loose a terminology as possible, hoping to reduce the number of that population. It also measured income inequality using the wildly fluctuating per-capita incomes of each member-state. One of the more prevailing definitions used by the European Commission at the time was relative poverty: “People are said to be living in poverty if their income and resources are so inadequate as to preclude them from having a standard of living considered acceptable in the society in which they live. Because of their poverty they may experience multiple disadvantage through unemployment, low income, poor housing, inadequate health care and barriers to lifelong learning, culture, sport and recreation. They are often excluded and marginalized from participating in activities (economic, social and cultural) that are the norm for other people and their access to fundamental rights may be restricted.”

The purpose of the strategy was to implement, for lack of a better term, a “glorious 10-year plan” that would lift up the failing economies of the less developed or ailing member-states, encourage mobility within the Union and enable those 80 million citizens to be lifted above the poverty line. In 2017, the strategy was given a new, thorough assessment by Bruegel, a Brussels-based economic think-tank, which revealed that it not only failed to achieve its goal (an understandable outcome under the circumstances) but also increased the number of E.U. citizens risking poverty almost threefold. As of June, the European Commission website stated that more than 240 million people now live on the poverty line (around one-third of the E.U. population), with a full 9% of citizens suffering from deprivation.

That doesn’t factor in the considerable population of refugees and other marginalized communities such as the Roma, or the desperate populations of underdeveloped areas in countries like Romania. So where does all this leave the E.U.’s poor? According to predictions, financial troubles will escalate the already growing trend of social exclusion affecting women, single parents, immigrants and others in the E.U. for years to come. Already, E.U. citizens are choosing to abandon higher education in favor of steady employment. In countries like Greece, Macedonia and other member-states with expansive rural areas, the exodus of able-bodied young people combined with an aging population will lead to a long-term economic drain from which they may never recover.

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Too many banks? Or too much debt?

German Banks Pose A Threat That Politicians Want To Hide (CNBC)

With the Italian banking system in the spotlight, analysts have highlighted that Germany’s lenders are still not out of the woods, saying shipping loans and too many bank branches are some of the very real problems they are currently facing. German officials repeatedly tell EU members from the south of Europe to restructure their banking systems but industry experts believe they have a problem of their own as federal elections approach. “Germany is overbanked, too many banks, very little consolidation has taken place,” Carsten Brzeski, chief economist at ING Germany, told CNBC via email on Wednesday. There are approximately 2,400 separate banks with more than 45,000 branches throughout the country and over 700,000 employees, according to Commercial Banks Guide, an industry website.

This increases the cost income ratio for banks, Brzeski explained. Meanwhile, the IMF warned last May that cost-to-income and leverage remain high in Germany. “Low profitability reflects structural inefficiencies, persistent crisis legacy issues, provisions for compliance violations, and the need to adjust to the new regulatory environment,” the IMF said in the report last May. Another problem seems to be the reliance on the shipping industry for many banks. “I would point towards some specific issues with asset quality: Shipping is one of the priorities of the single supervisor, the ECB, for next year,” Gildas Surry, senior analyst at Axiom Alternative Investments, told CNBC on Wednesday when citing the biggest problem for the German banking sector.

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As May refuses to make public a government report. Dead end.

Saudi Arabia Chief Foreign Promoter Of Islamist Extremism In UK – Report (Ind.)

Saudi Arabia is the chief foreign promoter of Islamist extremism in the UK, a report has warned. The conservative Henry Jackson Society said there was a “clear and growing link” between Islamist organisations preaching violence and foreign state funding. In a new report entitled “Foreign Funded Islamist Extremism in the UK”, the thinktank calls for a public inquiry into extremism bankrolled by other countries. It suggests several Gulf states and Iran are responsible for much of the foreign funding of extremism in the UK, but that Saudi Arabia in particular had spent millions on exporting its conservative branch of Wahhabi Islam to Muslim communities in the West since the 1960s.

The thinktank, run by controversial journalist and political commentator Douglas Murray, said this typically took the form of endowments to mosques and Islamic educational institutions which host radical preachers and distribute extremist literature. The report calls for a public inquiry in Saudi Arabia’s connections with UK based extremism. The UK’s Saudi Arabian embassy told the BBC the allegations were “categorically false”. But it comes as the Government is facing mounting pressure to release its own report into Saudi funding of extremism. Responding to a parliamentary question on Tuesday, Theresa May said ministers were “considering advice on what is able to be published and will report to Parliament with an update in due course”.

The report, which has been in Ms May’s personal possession for six months, was first commissioned by David Cameron in 2015 following an agreement with the Liberal Democrats to get their support for Syrian air strikes. But last month a spokesman for the Home Office admitted to the Guardian that the report may not be published because its contents were “very sensitive”. Since coming to power in July last year, Ms May has courted the conservative kingdom, which is one of the main buyers of UK-made arms. Earlier this year, the Government approved £3.5bn-worth of arms exports licences to the Gulf state.

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This is getting too absurd. She’s claiming austerity can rescue a nation, but look at Greece. Someone like Steve Keen should set May straight once and for all. Corbyn doesn’t sound terribly clear either.

Theresa May: Austerity Prevents UK From Turning Into Greece (G.)

Theresa May raised the spectre of a Greek-style economic collapse if Britain fails to press ahead with tackling the deficit on Wednesday, as she was challenged repeatedly by Jeremy Corbyn over the public sector pay cap. With intense political pressure on the prime minister – including from her own cabinet colleagues – to ease the strain for cash-strapped public servants, including nurses and teachers, she warned MPs about the risks of loosening the purse strings. “This is not a theoretical issue. Let us look at those countries that failed to deal with it. In Greece, where they have not dealt with the deficit … What did we see with that failure to deal with the deficit? Spending on the health service cut by 36%. That does not help nurses or patients,” she said.

Comparisons with Greece were repeatedly used by George Osborne in 2010 to justify public spending cuts, as riots erupted on the streets of Athens over the stringent bailout conditions imposed by the IMF and the eurozone. But the analogy represented a significant ratcheting up of the pro-austerity argument from May. A Conservative spokesman emphasised remarks afterwards, saying: “There are siren calls from Labour to abandon any kind of fiscal restraint whatsoever. What happens, we’ve seen as a case study, is what happened in Greece.” He added: “I think she was suggesting if Jeremy Corbyn’s Labour party got the chance to impose its fiscal policies on the United Kingdom that is a very real threat.”

A spokesman for Corbyn described the claims as “preposterous”. “The situation in Greece is tied up with the eurozone and the management of the eurozone banks – we’re not remotely in that situation. Our manifesto and our pledges were costed, unlike the government’s,” he said.

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Prediction: the Green crowd is not going to listen.

China’s Electric Cars Are Actually Pretty Dirty (BBG)

China has been making great strides toward electrification. Electric vehicle sales are booming: Consumers bought more than 300,000 last year, and more than 5 million are expected to be on the road by 2020. The government just announced bold plans for a wave of big new battery factories. Encouraging as that may be, though, the move away from conventional cars and trucks won’t immediately reduce the country’s carbon emissions. On the contrary, the production and exploitation of electric vehicles in China actually produces more greenhouse gases and consumes more overall energy. In the short run, China’s moves could make greenhouse emissions go up, not down. Electric vehicles seem environmentally benign. They’re lightweight, energy-efficient, and potentially greener than their conventional counterparts.

But the reality is more complex. Their manufacture entails energy-intensive mining of rare elements, such as the lithium required for their batteries. Their fuel efficiency can make up for that in the course of use, but only if the electricity is produced in a relatively clean way. Developed nations get the best results, because they tend to generate electricity using cleaner sources. By one estimate, the average electric car in the U.S. has just half the greenhouse gas impact of a conventional car over its life cycle. It’s even less in the western, southern and northeastern parts of the country, where power plants draw more renewable power. A comprehensive energy model being developed by Argonne National Laboratory produces a similar estimate.

Europe does well, too. Looking at all the processes involved in the manufacture, use, and ultimate disposal of a range of both electrical and conventional vehicles, Norwegian researchers found that electric vehicles offer at least a 10% reduction in greenhouse gas emissions (assuming they were driven about 150,000 kilometers). To be sure, electric-vehicle batteries impose a host of other environmental costs linked to the mining of rare metals. But on carbon emissions, electric vehicles win out. The real challenge to reducing greenhouse gas emissions will be in developing nations – especially China, which is likely to dominate the global auto market for decades to come. Unfortunately, the structure of China’s industrial economy will make it difficult. One recent study by Chinese engineers estimated that electric vehicles generate about a 50% increase in both greenhouse gas emissions and total energy consumption over their life cycle. The manufacture of the lithium-ion battery alone accounts for 13% of the energy consumption and 20% of the emissions.

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It’s high time for a reset. The narrative is dead.

After Failure To Prove Trump-Russia Collusion, There’s Pro-Trump Websites (ZH)

Having failed miserably to produce even one single shred of tangible evidence that Trump colluded with Russia to stage a coup in 2016’s presidential election, Democrats, rather than simply admit that their entire crusade to prove a false narrative was nothing more than a charade designed to cover up their embarrassing defeat, have decided to shift the narrative to target “pro-Trump websites.” You know, because a couple of websites sharing stories over Facebook clearly overshadowed the 24/7 Hillary Clinton cheerleading sessions on CNN, MSNBC, NBC, ABC, CBS, Washington Post, New York Times… Per The Guardian, this convenient shift in the ‘Russian hacking’ narrative comes just as Trump’s former head of digital media has been summoned to appear before the Senate Intelligence Committee to answer for his alleged ‘sins:”

“The spread of Russian-made fake news stories aimed at discrediting Hillary Clinton on social media is emerging as an important line of inquiry in multiple investigations into possible collusion between the Trump campaign and Moscow. Investigators are looking into whether Trump supporters and far-right websites coordinated with Moscow over the release of fake news, including stories implicating Clinton in murder or pedophilia, or paid to boost those stories on Facebook.The head of the Trump digital camp, Brad Parscale, has reportedly been summoned to appear before the House intelligence committee looking into Moscow’s interference in the 2016 US election. Mark Warner, the top Democrat on the Senate intelligence committee carrying out a parallel inquiry, has said that at least 1,000 “paid internet trolls working out of a facility in Russia” were pumping anti-Clinton fake news into social media sites during the campaign.”

Ironically, the same investigators digging into the “Trump collusion” narrative admit that similar media campaigns were used during the Democratic primaries in favor of Bernie Sanders. Oddly, however, there has been no organized effort to figure out whether or not Bernie conspired with Putin to destroy Clinton’s chances at the White House. A huge wave of fake news stories originating from eastern Europe began washing over the presidential election months earlier, at the height of the primary campaign. John Mattes, who was helping run the outline campaign for the Democratic candidate Bernie Sanders from San Diego, said it really took off in March 2016. “In a 30-day period, dozens of full-blown sites appeared overnight, running full level productions posts. It screamed out to me that something strange was going on,” Mattes said. Much of the material was untraceable, but he tracked 40% of the new postings back to eastern Europe.

Four of the Facebook members posting virulent and false stories about Clinton (suggesting, for example, that she had profited personally by arming Islamic State extremists) had the same name, Oliver Mitov. They all had a very small number of Facebook friends, including one which all four had in common. When Mattes tried to friend them and contact them there was no reply.

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Does anyone still notice the lack of evidence?

Terrorists in Syria to Stage Provocations to Justify US Strikes – Moscow (Sp.)

According to information in the possession of Russian Foreign Ministry, terrorists in Syria are planning to stage chemical provocations in order to justify US strikes on government forces, Russian Ministry of Foreign Affairs spokeswoman Maria Zakharova said during her weekly presser on Thursday. Russia believes terrorists in Syria plan to stage chemical attacks in order to justify US airstrikes against the Syrian military, Zakharova said. “According to information available [to us], Syrian terrorist groups plan staged provocative actions with the use of chemical poison gases to justify US strikes against the positions of the Syrian government forces,” Zakharova told a weekly briefing.

Daesh has deployed chemical laboratories and special equipment for creating chemical bombs to Deir ez-Zor from Raqqa in Syria, Zakharova revealed. The relocation of the laboratories from Raqqa speaks to the US-led coalition’s “selective reluctance to see facts” and “aiding insurgents,” according to Zakharova. The spokeswoman reiterated that Russia will seek thorough probe of the April 4 incident in Khan Sheikhoun in addition to other ‘chemical’ provocations against the Syrian authorities. “We will continue to consistently seek the most professionally rigorous and politically impartial investigation into the investigation of both the Khan Sheikhoun chemical incident and other persistent chemical provocations against the legitimate Syrian government,” Zakharova said.

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Setting the social mood. Robert Prechter can tell you a lot about that. But he sees it as a phenomenon that moves itself.

Hollywood Promotes War On Behalf Of The Pentagon, CIA and NSA (M.)

When we first looked at the relationship between politics, film and television at the turn of the 21st century, we accepted the consensus opinion that a small office at the Pentagon had, on request, assisted the production of around 200 movies throughout the history of modern media, with minimal input on the scripts. How ignorant we were. More appropriately, how misled we had been. We have recently acquired 4,000 new pages of documents from the Pentagon and CIA through the Freedom of Information Act. For us, these documents were the final nail in the coffin. These documents for the first time demonstrate that the US government has worked behind the scenes on over 800 major movies and more than 1,000 TV titles.

The previous best estimate, in a dry academic book way back in 2005, was that the Pentagon had worked on less than 600 films and an unspecified handful of television shows. The CIA’s role was assumed to be just a dozen or so productions, until very good books by Tricia Jenkins and Simon Willmetts were published in 2016. But even then, they missed or underplayed important cases, including Charlie Wilson’s War and Meet the Parents. Alongside the massive scale of these operations, our new book National Security Cinema details how US government involvement also includes script rewrites on some of the biggest and most popular films, including James Bond, the Transformers franchise, and movies from the Marvel and DC cinematic universes.

A similar influence is exerted over military-supported TV, which ranges from Hawaii Five-O to America’s Got Talent, Oprah and Jay Leno to Cupcake Wars, along with numerous documentaries by PBS, the History Channel and the BBC. National Security Cinema also reveals how dozens of films and TV shows have been supported and influenced by the CIA, including the James Bond adventure Thunderball, the Tom Clancy thriller Patriot Games and more recent films, including Meet the Parents and Salt. The CIA even helped to make an episode of Top Chef that was hosted at Langley, featuring then-CIA director Leon Panetta who was shown as having to skip dessert to attend to vital business. Was this scene real, or was it a dramatic statement for the cameras?

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Expect Erdogan to be loud and poresent this weekend around the G20.

Report In Sweden Claims Erdogan Orchestrated July 15 Coup In Turkey (SCF)

Last year’s failed coup attempt in Turkey is nothing but a false flag orchestrated by Turkey s autocratic President Recep Tayip Erdogan and his henchmen to create a pretext for a mass persecution of critics and opponents in a state of perpetual emergency, a new detailed study titled ‘July 15: Erdogan’s Coup’ by Stockholm Center for Freedom (SCF) concluded. Based on publicly available data, the coup indictments, testimonials in court trials, private interviews, reviews of military expert opinions and other evidence collected by researchers, SCF is fairly confident that this attempt did not even qualify a coup bid in any sense of military mobilization which was unusually limited in numbers, confined in few cities, poorly managed, defied the established practices, tradition, rules of engagement and standard operating procedures in Turkish military.

This was a continuation of a series of false flags that were uncovered in the last couple of years under the authoritarian rule of Erdoan regime and it was certainly the bloodiest one, said Abdullah Bozkurt, the President of SCF. Erdogan appears to have tapped on widely circulated coup rumors in Turkish capital and staged own show to steal wind and set up his opposition for a persecution, he added. Judging from the results of the coup bid, Erdogan won big time by securing imperial presidency, consolidating his gains, stifle the opposition and even launching cross border military incursion into Syria for which he had been itching for too long. No wonder why he immediately called the attempt ‘a gift from God’. The report was originally published in Turkish. SCF plans to release an English edition soon with new changes and updated data.

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Shock doctrine. What can they do but leave?

Three In Four Recent Greek Graduates Work For Less Than €800 A Month (K.)

Almost three in every four (73%) people who graduated after 2011 in Greece collect no more than 800 euros per month, while one in six gets less than 400 euros per month, if they have a job, according to the findings of a survey the Foundation for Economic and Industrial Research (IOBE) presented on Wednesday. That compares with just 24% of pre-2011 graduates who get less than 800 euros per month. In the years of the financial crisis graduates have found it much more difficult to find work, as the unemployment rate among degree-holders soared from 7% in 2009 to 18% in 2016.

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Report after report circles around money. Not people.

EU Calls On Members To Aid Migrants Amid Rising Mediterranean Death Toll (G.)

Brussels will urge European countries to give shelter to more refugees from Africa to ease the pressure on Italy, as record numbers of people attempt the dangerous journey across the Mediterranean. The European Union executive wants all member states – including the UK – to contribute to resettling a total of 37,000 vulnerable people from five north African countries by the end of 2018. Interior ministers meeting in Tallinn on Thursday will be called on by Dmitris Avramopoulos, the EU home affairs commissioner, to make voluntary pledges by the middle of September. The appeal came as Amnesty International released a damning 31-page reportlinking “failing EU policies” to the the rising death toll in the Mediterranean, and shocking abuses faced by refugees and migrants in Libyan detention centres.

The EU resettlement plan is focused on children, as well as victims of people smugglers and torture, from Libya, Egypt, Niger, Sudan and Ethiopia. Most people making the perilous sea crossing from north Africa are deemed to be economic migrants not eligible for international protection. But the EU announced a relocation plan for vulnerable people as part of a package of emergency measures to help ease pressure on Italy. “It can be an important safety valve for people with vulnerabilities,” said an EU source. Frans Timmermans, European commission vice president, has made clear Brexit does not exclude the UK from the 2017-2018 programme, although pledges are voluntary. The plan, which has a strong emphasis on returning unwanted migrants, emerged as it was revealed that EU countries have paid in less than half of the funds promised to help African governments manage migration.

The Africa “trust fund” was announced with fanfare in 2015 to win African support for the deportation of unwanted migrants in Europe. Brussels has contributed €2.6bn (£2.3bn) from the EU budget, but officials are frustrated that national capitals are not digging deeper into their state coffers. Only €90bn of a promised €202bn has so far materialised. The UK has paid in €0.6bn of its promised €3bn, far less than Italy, which has paid €32bn. France, Germany and Spain have put in €3bn each, according to the latest data from the European commission.

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The EU will say: but look at all the money we gave! And then blames member states.

EU Blamed For ‘Soaring’ Migrant, Refugee Death Toll (BBC)

Amnesty International has blamed “failing EU policies” for the soaring death toll among refugees and migrants in the central Mediterranean. In a report, it said “cynical deals” with Libya consigned thousands to the risk of drowning, rape and torture. It said the EU was turning a blind eye to abuses in Libyan detention centres, and was mostly leaving it up to sea rescue charities to save migrants. More than 2,000 people have died in 2017 trying to get to Europe, it said. The EU has so far made no public comments on Amnesty’s report. It comes as interior ministers from the 28-member bloc are meeting in Tallinn, Estonia, to discuss the migrant crisis. They will review a $92m (£71m) action plan unveiled by the European Commission to deal with the issue.

The commission proposes to use more than 50% of the funds to boost the Libyan coastguard’s capacity to stop traffickers launching boatloads of migrants out to sea to be rescued. The rest is to help Italy feed, house and process the migrants who get there. “Rather than acting to save lives and offer protection, European ministers… are shamelessly prioritising reckless deals with Libya in a desperate bid to prevent refugees and migrants from reaching Italy,” said John Dalhuisen, Amnesty’s Europe director. “European states have progressively turned their backs on a search and rescue strategy that was reducing mortality at sea in favour of one that has seen thousands drown and left desperate men, women and children trapped in Libya, exposed to horrific abuses,” he said.

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Jun 222017
 
 June 22, 2017  Posted by at 9:35 am Finance Tagged with: , , , , , , , , , ,  2 Responses »
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Paul Klee Analysis of Various Perversities 1922

 

The Little Putsch That Could Beget a Great Big Coup (Stockman)
US Should Mind Its Own Business; It Shouldn’t Be In Syria (Ron Paul)
US Is A “Second Tier” Country (ZH)
America Grows Older And More Ethnically Diverse (BBG)
The Wheels Come Off Uber (Yves Smith)
Oil Prices ‘Like A Falling Knife’ (CNBC)
The Rise of a Prince Ends Doubts Over Saudi Arabia’s Direction (BBG)
Canada’s Housing Bubble Will Burst (BBG)
Rehousing Of Grenfell Tower Families In Luxury Block Gets Mixed Response (G.)
China NPL Prices Up 30% as New Gold Rush Gets Under Way (BBG)
Strong Interest, Low Price For NPLs of Greece’s Eurobank (K.)
Greeks Skeptical About Benefits, Prospects of EU (K.)
Greek Tourism Minister Says Arrivals Will Top 30 Million This Year (K.)

 

 

Davis is getting upset. He’s offering a free copy of his Trump book to every American at the link.

The Little Putsch That Could Beget a Great Big Coup (Stockman)

Let’s start with two obvious points about the whole Russia fiasco… Namely, there is no “there, there.” First off, the president has the power to declassify secret documents at will. But in this instance he could also do that without compromising intelligence community (IC) “sources and methods” in the slightest. That’s because after Edward Snowden’s revelations in 2013, the whole world was put on notice — and most especially Washington’s adversaries — that it collects every single electronic digit that passes through the worldwide web and related communications grids. Washington essentially has universal and omniscient SIGINT (signals intelligence). Acknowledging that fact by publishing the Russia-Trump intercepts would provide new knowledge to exactly no one. Nor would it jeopardize the lives of any American spy or agent (HUMINT).

It would just document the unconstitutional interference in the election process that had been committed by the U.S. intelligence agencies and political operatives in the Obama White House. That pales compared to whatever noise comes out of Langley (CIA) and Ft. Meade (NSA). And I do mean noise. Yes, I can hear the boxes on the CNN screen harrumphing that declassifying the “evidence” would amount to obstruction of justice! That is, since Trump’s “crime” is a given (i.e. his occupancy of the Oval Office), anything that gets in the way of his conviction and removal therefrom amounts to “obstruction.” Given that he is up against a Deep State/Democratic/Neoconservative/mainstream media prosecution, the Donald has no chance of survival short of an aggressive offensive of the type I just described. But that’s not happening because the man is clueless about what he is doing in the White House.

And he’s being advised by a cacophonous coterie of amateurs and nincompoops. So he has no action plan except to impulsively reach for his Twitter account. That became more than evident — and more than pathetic, too — when he tweeted out an attack on his own Deputy Attorney General, Rod Rosenstein. At least Nixon fired Elliot Richardson (his Attorney General) and Bill Ruckelshaus (Deputy AG): “I am being investigated for firing the FBI Director by the man who told me to fire the FBI Director! Witch Hunt.” Alone with his Twitter account, clueless advisors and pulsating rage, the Donald is instead laying the groundwork for his own demise. Were this not the White House, this would normally be the point at which they send in the men in white coats with a straight jacket.

[..] Even Senator John Thune, an ostensible Swamp-hating conservative, had nothing but praise for Special Counsel Robert Mueller, that he would fairly and thoroughly get to the bottom of the matter. No he won’t! Mueller is a card-carrying member of the Deep State who was there at the founding of today’s surveillance monster as FBI Director following 9/11. Since the whole $75 billion apparatus that eventually emerged was based on an exaggerated threat of global Islamic terrorism, Russia had to be demonized into order to keep the game going — a transition that Mueller fully subscribed to.

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“One thing that I am concerned about – because I’ve seen it happen so often over the years, are false flags.”

US Should Mind Its Own Business; It Shouldn’t Be In Syria (Ron Paul)

RT: Australia halted its cooperation. How significant is this development? Why did they do it? Ron Paul: I think that is good. Maybe wise enough, I wish we could do the same thing – just come home. It just makes no sense; there’s a mess over there. So many people are involved, the neighborhood ought to take care of it, and we have gone too far away from our home. It has been going on for too long, and it all started when Obama in 2011 said: “Assad has to go.” And now as the conditions deteriorate …it looks like Assad and his allies are winning, and the US don’t want them to take Raqqa. This just goes on and on. I think it is really still the same thing that Obama set up – “Get rid of Assad” and there is a lot of frustration because Assad is still around and now it is getting very dangerous, it is dangerous on both sides.

One thing that I am concerned about – because I’ve seen it happen so often over the years, are false flags. Some accidents happen. Even if it is an honest accident or it is deliberate by one side or the other to blame somebody. And before they stop and think about it, then there is more escalation. When our planes are flying over there and into airspace where we shouldn’t be, and we are setting up boundaries and say “don’t cross these lines or you will be crossing our territory.” We have no right to do this. We should mind our own business; we shouldn’t be over there, when we go over there and decide that we are going to take over, it is an act of aggression, and I am positively opposed to that. And I think most Americans are too if they get all the information they need.

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“..the US received its lowest marks in the categories of “tolerance and inclusion” and “health and wellness.“

US Is A “Second Tier” Country (ZH)

Most Americans’ idea of happiness involves lounging by the water or on a beach somewhere. But it turns out, human happiness can flourish even in freezing climates far from the equator. To wit, the Social Progress Imperative, a US-based nonprofit, released the results of its annual Social Progress Index report, which purports to rank countries based on the overall wellbeing of their citizens. Four Scandinavian countries – Denmark, Finland, Iceland and Norway claimed the top spots, while the US placed 18th out of 128, leaving it in what the SPI defines as the “second-tier” of countries based on citizens’ wellbeing, according to Bloomberg. Luckily, being “second-tier” doesn’t seem that bad, according to a definition found in the report. “Second-tier countries demonstrate “high social progress” on core issues, such as nutrition, water, and sanitation.

However, they lag the first-tier, “very high social progress” nations when it comes to social unity and civic issues. That more or less reflects the U.S. performance. (There are six tiers in the study.)” “We want to measure a country’s health and wellness achieved, not how much effort is expended, nor how much the country spends on healthcare,” the report states. In a nod to the controversy surrounding President Donald Trump’s anti-immigrant rhetoric, as well as his efforts to repeal and replace Obamacare, the report noted that the US received its lowest marks in the categories of “tolerance and inclusion” and “health and wellness.” America’s “tolerance” score has been sliding since 2014, around the time that several high-profile shootings of unarmed black men ignited the “Black Lives Matter” movement, sparking a national conversation about the prevalence of racism in US society.

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Just very slowly.

America Grows Older And More Ethnically Diverse (BBG)

The United States is growing older and more ethnically diverse, a trend that could put strains on government programs from Medicare to education, the Census Bureau reported Thursday. Every ethnic and racial group grew between 2015 and 2016, but the number of whites increased at the slowest rate — less than one hundredth of 1% or 5,000 people, the Census estimate shows. That’s a fraction of the rates of growth for non-white Hispanics, Asians and people who said they are multi-racial, according to the government’s annual estimates of population. President Donald Trump’s core support in the racially divisive 2016 election came from white voters, and polls showed that it was especially strong among those who said they felt left behind in an increasingly racially diverse country.

In fact, the Census Bureau projects whites will remain in the majority in the U.S. until after 2040. “Even then, (whites) will still represent the nation’s largest plurality of people, and even then they will still inherit the structural advantages and legacies that benefit people on the basis of having white skin,” said Justin Gest, author of “The New Minority,” a book about the 2016 election. The Census Bureau reported that the median age of Americans — the age at which half are older and half are younger — rose nationally from just over 35 years to nearly 38 years in the years between 2000 and 2016, driven by the aging of the “baby boom” generation. The number of residents age 65 and older grew from 35 million to 49.2 million during those 16 years, jumping from 12% of the total population to 15%.

That’s a costly leap for taxpayers as those residents move to Medicare, government health care for seniors and younger people with disabilities, which accounted for $1 out of every $7 in federal spending last year, according to the Kaiser Family Foundation. By 2027, it will cost $1 out of every $6 of federal money spent. Net Medicare spending is expected to nearly double over the next decade, from $592 billion to $1.2 trillion, the KFF reported.

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Excellent take-down from Yves.

The Wheels Come Off Uber (Yves Smith)

Not surprisingly, the financial press has been all ago about the drama of Travis Kalanick’s forced departure from Uber’s CEO position yesterday, and has focused on getting salacious insider details of his ouster. That means journalists largely ignored what ought to be the real story, which is whether Uber has any future. I anticipate that Hubert Horan will offer a longer-form treatment of this topic. Hubert had already documented, in considerable detail in his ten-part series, how Uber has no conceivable path to profitability. Its business model has been based on a massive internal contradiction: using a ginormous war chest to try to achieve a near-monopoly position in a low-margin, mature business that is fragmented geographically and locally.

Monopolies and oligopolies are sustainable only when certain factors are operative: the ability to attain a superior cost position through scale economies, which include network effects, or barriers to entry, such as regulations, very high skill levels, or high minimum investment requirements. Neither of these apply in the local car ride business. Even if Uber were able to drive literally every competing cab operator in the world out of business due to its ability to continue its predatory pricing, once Uber raised prices to a level where it achieved profits, new entrants (or revived old entrants) would come in. Uber will thus never be able to charge the premium prices (in excess of the level for a traditional taxi operator to be profitable) for the very long period necessary for Uber to merely be able to recoup the billions of dollars it has burned, mainly in subsidizing the cost of rides, let alone to achieve an adequate return on capital.

And that’s before you get to the fact that systematically much higher prices would mean fewer fares. The developments of the last few months mean Uber’s decay path is sure to accelerate. I’ve been following the business press for over 30 years. I can’t think of a single case where even an established, profitable business with an established franchise has had so many top level positions vacant, and for such bad reasons. As reader vidimi quipped, “With no CEO, CFO, COO, and CIO, uber is coming very close to becoming a self-driving company.” And that’s not even a full list. World-class communications expert Rachel Whetstone, who is recognized as a key force in rebuilding the Tories’ brand in the UK, quit in April.

The heads of engineering departed for failing to disclose a previous sexual investigation; the head of product and growth was forced out over a sexual impropriety at a company function. And in a scandal that will have a much longer tail, Uber’s former head of its Waymo driverless car unit, Anthony Levandowski, has had his case involving alleged theft of intellectual property from Google referred to the Department of Justice. Kalanick was deeply involved in Levandowski sudden exodus. It seems implausible that Kalanick didn’t know Levandowski was making off with Google files. If the case does lead to a criminal prosecution, it is hard to see how Kalanick could escape scrutiny as a potential criminal co-conspirator.

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Just in case you were wondering why King Salman named a new crown prince…

Oil Prices ‘Like A Falling Knife’ (CNBC)

Oil prices could be poised to fall below $40 a barrel before too long, according to an analyst at Energy Aspects, as the commodity appeared set to post its largest price slide in the first half of the year for the past two decades. “This is like a falling knife right now, I genuinely haven’t seen sentiment this bad ever,” Amrita Sen, the co-founder and chief oil analyst at Energy Aspects, told CNBC on Wednesday. “We have had clients emailing saying they have been trading this for 20 or 30 years and they have never seen something like this,” she added. Oil prices have tumbled more than 20% his year, marking its worst performance for the first six months of the year since 1997 and putting the commodity in bear market territory.

The ongoing decline in prices appears to have stemmed from investors discounting evidence of robust compliance by OPEC and non-OPEC producers with a deal to curtail a global supply overhang. Prices took a fresh leg lower in the previous session – dipping 2% – as new signs of rising output from Nigeria and Libya, the two OPEC members exempt from a deal to cut production. Output from the 14-member exporter group ticked higher in May due to rising production in Nigeria, Libya and Iraq, raising concerns about OPEC’s effort to shrink global stockpiles of crude oil. OPEC and other producers have committed to keeping 1.8 million barrels a day off the market through March. Libya’s oil production rose more than 50,000 barrels per day to 885,000 bpd. Meanwhile, exports of Nigeria’s benchmark Bonny Light crude oil are set to rise by 62,000 barrels per day in August.

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Absolutely. He’s the War Prince.

The Rise of a Prince Ends Doubts Over Saudi Arabia’s Direction (BBG)

With the anointment of Prince Mohammed bin Salman as heir to the Saudi throne, any doubts over the continuation of policies that have shaken up the Middle East have gone. Western diplomats already referred to the 31-year-old as “Mr. Everything,” because of his control over most aspects of domestic, foreign and defense affairs. His elevation ends a behind-the-scenes struggle for power and answers the question of what would happen to his plans for Saudi Arabia when King Salman, now 81, dies or steps aside. The most ambitious of these, Vision 2030, seeks to recalibrate the economy to end the country’s near-total dependence on oil revenue. But internationally, there are also ramifications. Last month, the prince again raised the stakes in the regional rivalry with Iran, saying that dialog was “impossible” as they fight a proxy war in Yemen.

He also led a multi-nation effort to isolate neighboring Qatar, causing a rift among fellow members of the Gulf Cooperation Council. That also looks set to turn into another long and potentially fruitless test of wills as Iran and Turkey come to Qatar’s aid. “The switch offers him the legitimacy and consensus of becoming the next king and that will validate his vision, his plans and his policies,” said Sami Nader, head of the Beirut-based Levant Institute for Strategic Affairs. “There were a lot of question marks about the future of Saudi Arabia and the transition. Now this debate has ended.” Widely known as MBS, he was made crown prince just after dawn in Riyadh, displacing his older cousin, Mohammed bin Nayef, who was also stripped of his post as interior minister in charge of domestic security forces and counter-terrorism policy.

The move was neither a shock nor a coup, and it means he could be running the kingdom for decades to come. What’s more, his tough approach to the intractable problems of the Middle East would appear to mesh well with U.S. President Donald Trump, who visited Saudi Arabia last month. Trump called the new crown prince Wednesday to offer congratulations on his elevation, the White House said in a statement. Trump and the prince “committed to close cooperation to advance our shared goals of security, stability, and prosperity across the Middle East and beyond,” according to the statement. The problem is what comes next. On Tuesday, the U.S. Department of State questioned Saudi Arabia’s justification at striking out at Qatar by cutting it off from diplomatic and transport links.

The bombing campaign in Yemen aimed at destroying the rebel Houthi forces that Saudi Arabia sees as proxies for Iran, meanwhile, appears to have no end in sight. Two years later, it has become bogged down, bloody and increasingly unpopular. “On the foreign policy side he’s also embroiled Saudi Arabia in Yemen and Qatar without an exit strategy,” said James Dorsey at Singapore’s Nanyang Technological University. These aren’t changes of direction for Saudi Arabia, but “what he has done is to stretch up a notch and put some very sharp edges on it, and at this point those are backfiring.”

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Any Canadian with a substantial mortgage who’s not actively trying to sell right now…..

Canada’s Housing Bubble Will Burst (BBG)

Canadian home sales fell the most in five years last month. That didn’t stop an increase in prices, which were up 18% nationwide from a year earlier. When you consider that most houses are leveraged assets, this represents huge gains for homeowners. While leverage can help boost performance on the way up, it becomes very dangerous on the way down. Leverage can turn even the best investments into poor ones when things go wrong, as losses are amplified. Equity can get wiped out pretty quickly on an overleveraged asset. Canadian real estate has been on fire for years. The housing price data there has made the U.S. real estate market during the boom of the mid-2000s look mild. The Federal Reserve Bank of Dallas puts out a global housing price index for more than 20 countries every quarter. Using this data, I looked at the real house price index data for Canada and compared it with the same data in the U.S. going back to 1975. Here’s this relationship from 1975 through the end of 2005:

Although there were some divergences in the early and late 1980s, both housing markets essentially ended up in the same place after 30 years. Now let’s add in the most recent data to see how things have unfolded since:

An enormous divergence occurred in 2006, when U.S. housing prices really began to soften, while Canadian price barely skipped a beat. This makes any differences in the past look like blips. The rise in Canadian real estate prices has been relentless. The U.S. housing market peaked in late 2006. Since then, based on this index, U.S. housing prices are still down almost 13% from their peak through the end of 2016. In that same time frame, Canadian housing prices are up 56%. From the 2006 peak, it took until late 2012 for real estate in the U.S. to bottom. We’ve since witnessed a 19% recovery from what was a 27% decline nationwide, on average. While the U.S. real estate downturn lasted almost six years, Canada’s housing market experienced just a 7% drawdown that lasted less than a year. And house prices in Canada reclaimed those losses in about a year and a half. Canadian housing has also outpaced its neighbors to the south since the 2012 bottom in U.S. real estate, with a 30% gain in that time.

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You can’t even blame these people. It’s the whole crazy idea of cities and governments blowing housing bubbles on purpose, that’s what’s wrong here.

Rehousing Of Grenfell Tower Families In Luxury Block Gets Mixed Response (G.)

Two miles south of the charred skeleton of Grenfell Tower is a large complex of sleek new apartments that some of those displaced by last week’s inferno will soon be able to call home. Kensington Row’s manicured lawns, clipped trees and burbling fountains are a haven from the rumbling traffic of two busy London thoroughfares, and its spacious, air-conditioned foyers a relief from June’s oppressive heatwave. Four unfinished blocks house the 68 flats purchased by the Corporation of London for families who lost their homes in Grenfell Tower. Workmen had been instructed not to talk to the media, but one said there was now a rush to complete the building work. “It’s a brilliant idea,” he said of the resettlement plan. Among those exercising dogs and small children, the views were more mixed. “It’s so unfair,” said Maria, who was reading the news in the Evening Standard with two neighbours.

She bought her flat two years ago for a sum she was unwilling to disclose. “We paid a lot of money to live here, and we worked hard for it. Now these people are going to come along, and they won’t even be paying the service charge.” Nick, who pays £2,500 a month rent for a one-bedroom flat in the complex, also expressed doubts about the plan. “Who are the real tenants of Grenfell Tower?” he asked. “It seems as though a lot of flats there were sublet. Now the people whose names are on the tenancies will get rehoused here, and then they’ll rent the flats out on the private market. And the people who were actually living unofficially in the tower at the time of the fire won’t get rehoused. “I’m very sad that people have lost their homes, but there are a lot of people here who have bought flats and will now see the values drop. It will degrade things. And it opens up a can of worms in the housing market.”

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When your bad debt is in a bubble, I guess you got it made?! Or should that be: you should be afraid?

China NPL Prices Up 30% as New Gold Rush Gets Under Way (BBG)

Bad loans are rapidly becoming the latest hot commodity in China as more domestic and foreign investors rush into the market and bid up prices. Non-performing loan prices have risen more than 30% this year, according to distressed investor Belos Capital Asia. The average selling price of NPLs has climbed to around 50 cents on the dollar in the past two years, from 30 cents, said Victor Jong, a partner in the deals and business recovery services unit of PricewaterhouseCoopers in Shanghai. Such a high level is “very rare” in international markets, Jong said. “There are just too many buyers grabbing a limited supply of NPLs,” said Hanson Wong, CEO of Belos Capital in Hong Kong. “At these prices, it’s pretty hard for these NPLs to be profitable.” Distressed investors are increasing as Chinese authorities encourage market-oriented ways to resolve lenders’ mounting piles of non-performing debt amid slowing economic growth.

A jump in valuations of real estate, which often act as underlying assets for secured loans, has boosted the debt’s recovery prospects. Combined with a surge in money supply, this has lifted bad-loan prices even in some less-developed regions of China, according to domestic distressed debt investor Bald Eagle Asset Management. Foreign investors including Oaktree Capital, Lone Star, Goldman Sachs and PAG have bought China NPLs in the current cycle that began in 2014, according to a March report from PwC. Non-performing loans at the country’s lenders jumped 61% in the past two years to 1.58 trillion yuan ($231 billion) at the end of March. In the previous NPL cleanup in China, between 2001 and 2008, secured debt was typically sold at 20 cents on the dollar, and unsecured creditors got back only 5 cents, said Wang Yingyi, a partner at Bald Eagle in Beijing.

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Looks like Greece should try China’s bad debt recipe.

Strong Interest, Low Price For NPLs of Greece’s Eurobank (K.)

The loans portfolio put up for sale by Eurobank is attracting strong investment interest but low offers as the lender begins the process for the transfer of nonperforming loans. This is a portfolio valued at €2.8 billion which has attracted the interest of about 20 investment funds in the data room, illustrating the strong leverage the NPL market commands, partly due to the banks’ commitment to reducing their bad loans by 40% by the end of 2019. The portfolio that Eurobank is selling includes debt from consumer loans and credit cards that have gone unpaid for years, most for at least a decade – i.e. since before the financial crisis broke.

Eurobank has made all the necessary moves for the collection of part of the €2.8 billion, without getting a great response. Therefore the prices in the market are expected to be particularly low for the portfolio, with estimates speaking of just 5% of the original value. Market professionals note that Eurobank’s effort to recover part of the dues just before the opening of the portfolio’s sale, offering debtors a haircut of up to 95% without any significant results, means that the price will likely drop below 5% too.

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Greeks are still stuck in the mindset of being proud to be deemed worthy of being a full member of the EU. So much so that they can’t see they’re not.

Greeks Skeptical About Benefits, Prospects of EU (K.)

As the European Union’s cohesion faces being sorely test by the upcoming Brexit negotiations and other challenges, Greeks appear increasingly skeptical about the benefits and prospects of the EU, according to a new study by London-based international policy institute Chatham House and research company Kantar. 74% of Greeks are worried about the outlook for the EU, according to the survey which was carried out on a sample of 1,000 people in 10 European countries: Britain, Belgium, Germany, Greece, Spain, France, Italy, Austria, Hungary and Poland.

The Greek figure was almost double the research average of 38%. Greeks were also significantly more downbeat than their counterparts, with 60% declaring themselves to be pessimistic compared to a research average of 40%. An even larger proportion of Greeks, 80%, said they believed more members of the bloc would follow Britain’s lead and decide to break away from the Union in the next 10 years. Predictably, following seven years of belt-tightening imposed by foreign creditors, a significant proportion of Greeks (67%) said that austerity was the EU’s biggest failure. 73% of Greeks believe that the decision of Britain to leave the EU will weaken the Union.

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A debt colony AND a tourist colony. With most of the best assets sold off to foreigners.

BTW, both Greeks and tourists would be much better off if Greece had its own currency and could lower daily prices.

Greek Tourism Minister Says Arrivals Will Top 30 Million This Year (K.)

The tourism sector is showing genuine signs of growth this year that suggest it will be the main driver of the Greek recovery, as it will help state revenues, the private economy, the country’s current accounts and employment. The government is for the first time speaking of 30 million arrivals in 2017. Bank of Greece data show that in the first four months of the year travel receipts increased by 2.4% or 23 million euros year-on-year, reaching 997 million euros. This increase was thanks to the 3.2% rise in arrivals and not average spending per trip, which posted a 0.8% decline. This means the 4.8% drop in travel receipts during the first quarter was offset in April, when arrivals rose 12% and receipts 11.3% annually. This positive picture is expected to have continued in May.

Retail sector representatives are looking forward to cashing in on the increase in arrivals, to offset the losses resulting from Greek households’ ever shrinking disposable incomes. Based on the bookings picture, turnover in retail commerce could rise by up to 5% this year. Addressing a conference organized by the Panhellenic Exporters Federation, Tourism Minister Elena Kountoura said that the data of the first five months point to an increase in arrivals, revenues, nights stayed and occupancy rates. They also show an increase in bookings for the summer ranging between 15 and 70%, depending on area, which led to her conclusion that Greece will have more then 30 million tourists this year after welcoming 28 million in 2016 and 26 million in 2015. The growth in tourism is also reflected in employment and commerce. The number of unemployed registered last month dropped by 56,820 people from April to 913,518, mainly thanks to the rise in seasonal employment in tourism and commerce.

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May 202017
 
 May 20, 2017  Posted by at 9:05 am Finance Tagged with: , , , , , , , , , ,  2 Responses »
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Minor White Windowsill Daydreaming Rochester NY 1958

 

The Housing Moment Investors Dread Is Here (DDMB)
Home Ownership Among Young UK Families Halves In 20 Years (TiM)
A Monster Eating the Nation (Jim Kunstler)
Democrats Are Falling For Fake News About Russia (Vox)
Harvard Study Reveals Extent of Anti-Trump Media Bias (HeatSt.)
Comey’s 2007 Brush With Scandal: Jim’s Loyalty Was More To Chuck Schumer (SD)
Constitutional Crisis In Washington? More Like Attempted Coup (David Goldman)
Brazil Plea-Bargain Testimony Says President Took $4.6 Million In Bribes (R.)
Maduro to Trump: ‘Get Your Dirty Hands Off Venezuela!’ (R.)
Theresa May To Create New, Government Controlled Internet in UK (Ind.)
Arctic Stronghold of World’s Seeds Flooded After Permafrost Melts (G.)
Varoufakis Claims Tsipras Pressured Him To Accept Creditors’ Demands (K.)
‘They Stole My Money’: Greek Dreams Of Retirement Turn Sour (AP)
Teen Refugees Trapped In Greece Turn To Prostitution (Spiegel)

 

 

Cracks in the mirage.

The Housing Moment Investors Dread Is Here (DDMB)

Amid the carnage in the auto sector, economists have sought solace in the comforts of home, sweet home. A recent Census release suggests that Millennials, long sidelined, have finally started to tiptoe into the home-buying market. The reception to the data was so effusive that other reports, suggesting housing has reached a much different sort of turning point, were lost in the fray. The good news is that the trend is unequivocal, based purely on supply and demand. The bad news is in the actual message. The May University of Michigan Consumer Sentiment survey showed a six-year low among those who think it’s a good time to buy a house and a 12-year high among those who say it’s a good time to sell. Disparities of this breadth tend to coincide with break points and that’s just where we’ve landed in the cycle.

The beginning of May officially marked the advent of a buyers’ market, defined simply as sellers outnumbering buyers by a wide enough margin to trigger falling prices. Yes, it’s the moment buyers have been waiting for. It is also the moment private equity investors, those who’ve crowded out natural buyers, have been dreading. Three factors determine home sales: interest rates, unemployment and prices. The recent decline in interest rates has provided some semblance of relief; purchase applications have bounced off April’s levels, when they were down four% over last year. April and May are obviously critical to the spring sales season. The low unemployment rate would seem to be a huge plus if it wasn’t for the stress building around thousands of layoff announcements across the retail and auto sectors that won’t find their way into this most lagging of economic indicators for months.

That is not to say those getting pink slips don’t know their fate, which should influence home sales going forward. Price is the one bright spot, with one glaring caveat: Falling home prices tend to be associated with a negative macroeconomic backdrop, which does not bode well for any buyer of, well, anything. Dig into the Federal Reserve’s recently released first quarter Senior Loan Officer Survey and you will see nothing of note on the residential mortgage side – banks reported that both loan demand and lending standards remained unchanged in the first three months of the year. But that is the here and now. Demand and supply in the auto sector, where pricing has been under pressure for some time, looked quite similar to that for houses several months back.

According to the Fed survey, at minus 13.3%, demand for auto loans flat-lined in deeply negative territory, as was the case in last year’s fourth quarter, the worst levels of the current expansion. This data point corroborated the Michigan survey, which showed that those who said it was a good time to buy a car fell to the lowest level since August 2014. Meanwhile, demand for credit card loans slid to minus 10.2% from minus 8.3% in the last three months of last year. In the event you’re detecting a trend, households are sending out distress signals that have just begun to be picked up in housing, even as household debt levels recapture their pre-crisis highs.

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A radical change to an entire society, and one that will take decades to absorb.

Home Ownership Among Young UK Families Halves In 20 Years (TiM)

The number of young family owning their own homes has halved across large parts of the country in the space of a generation, and the struggle to get on the housing ladder is not restricted to the South East. Research by The Resolution Foundation found that 31% of 25 to 34-year-olds surveyed were home owners in 2016, compared to 58% in 1994. Regionally, 30% of those surveyed in West Yorkshire owned homes last year, compared to 61% in 1994. Similarly, in Greater Manchester, home ownership levels fell to 29% from 59% over the same 22-year period. The South West also suffered a decline, to 36% last year from 62% in 1994, while East Anglia fell to 34% from 61% in the same period. The decrease was most pronounced in outer London, where home ownership dropped to 20% in 2016 from 55% in 1994.

Big falls were also recorded in other areas of the South East including Brighton, Southampton, Reading and Milton Keynes, with home ownership in the younger age group bracket declined from to 34% last year from 64% in 1994. The Resolution Foundation argued that such a ‘seismic shift’ in home ownership puts the younger generation in a very different position from that of the older, baby boomer generation, leaving many more young families living in the private rented sector. Lindsay Judge, a senior policy analyst at the Resolution Foundation, said: ‘London house prices always dominate the headlines, but with all eyes on the capital we’re missing the bigger picture. ‘From Bristol to East Anglia and up to West Yorkshire, large swathes of young families across the country simply cannot afford to buy their own home.’This has implications for their living standards in the here and now, but also in the future when their children grow up and they approach retirement without this key asset to draw upon in old age.

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“Why do you suppose nations employ foreign ministers and ambassadors, if not to conduct conversations at the highest level with other national leaders? And might these conversations include matters of great sensitivity, that is, classified information?”

A Monster Eating the Nation (Jim Kunstler)

Is there any question now that the Deep State is preparing to expel President Donald Trump from the body politic like a necrotic organ? The Golden Golem of Greatness has floundered pretty badly on the job, it’s true, but his mighty adversaries in the highly politicized federal agencies want him to fail spectacularly, and fast, and they have a lot of help from the NY Times / WashPo / CNN axis of hysteria, as well as such slippery swamp creatures as Lindsey Graham. There are more problematic layers in this matter than in a Moldavian wedding cake. America has been functionally ungovernable for quite a while, well before Trump arrived on the scene. His predecessor managed to misdirect the nation’s attention from the cumulative dysfunction with sheer charm and supernatural placidity — NoDrama Obama.

But there were a few important things he could have accomplished as chief exec, such as directing his attorney general to prosecute Wall Street crime (or fire the attorney general and replace him with someone willing to do the job). He could have broken up the giant TBTF banks. He could have aggressively sponsored legislation to overcome the Citizens United SOTUS decision (unlimited corporate money in politics) by redefining corporate “citizenship.” Stuff like that. But he let it slide, and the nation slid with him down a greasy chute of political collapse. Which we find embodied in Trump, a sort of tragicomic figure who manages to compound all of his other weaknesses of character with a childish impulsiveness that scares folks. It is debatable whether he has simply been rendered incompetent by the afflictions heaped on by his adversaries, or if he is just plain incompetent in, say, the 25th Amendment way.

I think we’ll find out soon enough, because impeachment is a very long and arduous path out of this dark place. The most curious feature of the current crisis, of course, is the idiotic Russia story that has been the fulcrum for levering Trump out of the White House. This was especially funny the past week with the episode involving Russian Foreign Minister Lavrov and Ambassador Kislyak conferring with Trump in the White House about aviation security around the Middle East. The media and the Lindsey Graham wing of the Deep State acted as if Trump had entertained Focalor and Vepar, the Dukes of Hell, in the oval office. Why do you suppose nations employ foreign ministers and ambassadors, if not to conduct conversations at the highest level with other national leaders? And might these conversations include matters of great sensitivity, that is, classified information? If you doubt that then you have no understanding of geopolitics or history.

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The writer starts off quite right, but then veers off into this incomprehensible stuff: “There are even legitimate reasons to believe that Trump’s campaign worked with Russian hackers to undermine Hillary Clinton. That may or may not turn out to be true, but it is least plausible and somewhat supported by the available evidence.”

Legitimate reasons that may not be true? “Somewhat” supported by evidence? That’s where I stop reading.

Democrats Are Falling For Fake News About Russia (Vox)

President Donald Trump is about to resign as a result of the Russia scandal. Bernie Sanders and Sean Hannity are Russian agents. The Russians have paid off House Oversight Chair Jason Chaffetz to the tune of $10 million, using Trump as a go-between. Paul Ryan is a traitor for refusing to investigate Trump’s Russia ties. Libertarian heroine Ayn Rand was a secret Russian agent charged with discrediting the American conservative movement. These are all claims you can find made on a new and growing sector of the internet that functions as a fake news bubble for liberals, something I’ve dubbed the Russiasphere. The mirror image of Breitbart and InfoWars on the right, it focuses nearly exclusively on real and imagined connections between Trump and Russia. The tone is breathless: full of unnamed intelligence sources, certainty that Trump will soon be imprisoned, and fever dream factual assertions that no reputable media outlet has managed to confirm.

Twitter is the Russiasphere’s native habitat. Louise Mensch, a former right-wing British parliamentarian and romance novelist, spreads the newest, punchiest, and often most unfounded Russia gossip to her 283,000 followers on Twitter. Mensch is backed up by a handful of allies, including former NSA spook John Schindler (226,000 followers) and DC-area photographer Claude Taylor (159,000 followers). There’s also a handful of websites, like Palmer Report, that seem devoted nearly exclusively to spreading bizarre assertions like the theory that Ryan and Sen. Majority Leader Mitch McConnell funneled Russian money to Trump — a story that spread widely among the site’s 70,000 Facebook fans. Beyond the numbers, the unfounded left-wing claims, like those on the right, are already seeping into the mainstream discourse.

In March, the New York Times published an op-ed by Mensch instructing members of Congress as to how they should proceed with the Russia investigation (“I have some relevant experience,” she wrote). Two months prior to that, Mensch had penned a lengthy letter to Vladimir Putin titled “Dear Mr. Putin, Let’s Play Chess” — in which she claims to have discovered that Edward Snowden was part of a years-in-the-making Russian plot to discredit Hillary Clinton. Last Thursday, Sen. Ed Markey (D-MA) was forced to apologize for spreading a false claim that a New York grand jury was investigating Trump and Russia. His sources, according to the Guardian’s Jon Swaine, were Mensch and Palmer:

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First, media exposure was a main factor in winning Trump the election. Now, not so much.

Harvard Study Reveals Extent of Anti-Trump Media Bias (HeatSt.)

A major new study out of Harvard University has revealed the true extent of the mainstream media’s bias against Donald Trump. Academics at the Shorenstein Center on Media, Politics and Public Policy analyzed coverage from Trump’s first 100 days in office across 10 major TV and print outlets. They found that the tone of some outlets was negative in as many as 98% of reports, significantly more hostile than the first 100 days of the three previous administrations:

The academics based their study on seven US outlets and three European ones. In America they analyzed CNN, NBC, CBS, Fox News, the New York Times, the Washington Post and the Wall Street Journal. They also took into account the BBC, the UK’s Financial Times and the German public broadcaster ARD. Every outlet was negative more often than positive. Only Fox News, which features some of Trump’s most enthusiastic supporters and is often given special access to the President, even came close to positivity. Fox was ranked 52% negative and 48% positive. The study also divided news items across topics. On immigration, healthcare, and Russia, more than 85% of reports were negative. On the economy, the proportion was more balanced – 54% negative to 46% positive:

The study highlighted one exception: Trump got overwhelmingly positive coverage for launching a cruise missile attack on Syria. Around 80% of all reports were positive about that.

The picture was very different for other recent administrations. The study found that President Obama’s first 100 days got a good write-up overall – with 59% of reports positive. Bill Clinton and George W Bush got overall negative coverage, it found, but to a much lesser extent than Trump. Clinton’s first 100 days got 40% positivity, while Bush’s got 43%. Trump has repeatedly claimed that his treatment by the media is unprecedented in its hostility. This study suggests that, at least when it comes to recent history, he’s right.

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Comey has a past.

Comey’s 2007 Brush With Scandal: Jim’s Loyalty Was More To Chuck Schumer (SD)

[..] the current episode is not the first time Comey and his associates plotted to oust a sitting Republican official through highly orchestrated political theater and carefully crafted narratives in which Comey is the courageous hero bravely fighting to preserve the rule of law. To understand how Comey came to be FBI director in the first place, and how he operates in the political arena, it is important to review the last scandal in which Comey had a front-row seat: the 2007 U.S. attorney firings and the fight over the 2004 reauthorization of Stellar Wind, a mass National Security Agency (NSA) surveillance program designed to mitigate terrorist threats in the wake of the 9/11 attacks. The pivotal scene in the Comey-crafted narrative, a drama that made Comey famous and likely paved the road to his 2013 appointment by President Barack Obama to run the FBI, occurred in a Beltway hospital room in early 2004.

In Comey’s view, Comey was the last honest man in Washington, the only person standing between a White House that rejected any restraints on its power, and the rule of law protecting Americans from illegal mass surveillance. A former White House counsel and attorney general with extensive first-hand experience dealing with Comey, however, paints a very different picture of what happened in that hospital room, and disputes numerous key details. In this account, Comey’s actions showcase a duplicitous, secretive schemer whose true loyalties were not to the officials to whom he reported, but to partisan Democrats like Senate Minority Leader Chuck Schumer (D-N.Y.). To fully understand and appreciate Jim Comey’s approach to politics, the writings and testimony of Alberto Gonzales, who served as both White House counsel and attorney general during the events in question and is intimately aware of Comey’s history of political maneuvering, is absolutely essential.

Gonzales’s descriptions of his interactions with Comey, included in his 2016 book “True Faith And Allegiance,” are detailed and extensive. While his tone is measured, the language he uses to describe Comey’s actions in 2004 and 2007 leaves little doubt about the former top Bush official’s views on Comey’s character. Gonzales’s opinion is clearly colored by the fact that Comey cravenly used him to jumpstart his own political career by going public with surprise (and questionable) testimony that Gonzales had attempted to take advantage of a deathly ill man in order to ram through authorization of an illegal surveillance program. Bush’s Attorney General John Ashcroft had taken ill and was in the hospital at a pivotal time. The legal authorization of a surveillance program meant to find and root out terrorist threats was days from expiring.

What happened in Ashcroft’s hospital room in March of 2004 later became political fodder for a hearing in which Senate Democrats used Comey to dredge up the 2004 hospital meeting to tar Gonzales’ credibility and suggest he was unfit to continue serving as attorney general. As the 2004 and 2007 sagas show, Comey is clearly no stranger to using the unarguably legal dismissal of government employees as the backdrop for casting himself as the story’s protaganist standing up to the forces of corruption. “[I] told my security detail that I needed to get to George Washington Hospital immediately. They turned on the emergency equipment and drove very quickly to the hospital,” Comey testified. “I got out of the car and ran up — literally ran up the stairs with my security detail.” “I was concerned that, given how ill I knew the attorney general was, that there might be an effort to ask him to overrule me when he was in no condition to do that,” Comey said.

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It’s a politics and media crisis.

Constitutional Crisis In Washington? More Like Attempted Coup (David Goldman)

This is NOT a Constitutional crisis, contrary to press hype, but an attempted coup, as a senior Republican statesman told a private briefing this week. As Prof. Jonathan Turley of George Washington University wrote yesterday at TheHill.Com, the much-ballyhooed Comey memo is “pretty thin soup” as far as obstruction of justice is concerned. “Encouraging leniency or advocating for an associate may be improper,” Prof. Turley added, but it doesn’t come close to the legal threshold for impeachment, especially because no criminal proceedings were underway or even contemplated against Gen. Flynn. What exactly is going on? The Democrats never accepted the Trump election victory, and neither did the McCain wing of the Republican Party, which was humiliated and sidelined by Trump. The Wall Street Journal editorial page published a signed op-ed yesterday claiming that Trump’s alleged leak of covert intelligence to Russian Foreign Minister Lavrov showed his unfitness for office.

Presidents and Cabinet members leak secret intelligence frequently, but whether they are held to account for it is a political matter. Obama and his then Defense Secretary Leon Panetta leaked the fact that Seal Team 6 had killed Osama bin Laden as well as the fact that a Pakistani physician had tipped the US off to his whereabouts, life-threatening leaks for which Obama was given a free pass. The object of all of this, said the Republican statesman, is to persuade a sufficient number of Republican congressman and senators to abandon Trump and declare him “unfit” for office. Nothing quite like this ever has happened in American politics. Trump will NOT be caught in an impeachable offense, but his detractors will NOT give up–so a prolonged “cold civil war” (Prof. Angelo Codevilla’s phrase) is likely to paralyze policy-making in Washington for some time. That can’t be good for the stock market.

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He shouldn’t last the weekend.

Brazil Plea-Bargain Testimony Says President Took $4.6 Million In Bribes (R.)

Brazil’s top court released plea-bargain testimony on Friday accusing President Michel Temer and his two predecessors of receiving millions of dollars in bribes, the most damaging development yet in a historic political corruption probe. The testimony made public by the Supreme Court is from executives of the world’s largest meatpacking company, and raises serious doubts about whether Temer can maintain his grip on the presidency. The scandals that have engulfed Brazil’s political class and many business elites reduce the chances that Temer, a conservative who took office after leftist former President Dilma Rousseff was impeached last year, can push through economic reforms crucial for Latin America’s biggest country to recover from its worst recession on record.

The Supreme Court on Thursday said it approved an investigation of Temer for corruption and obstruction of justice. Calls for his resignation intensified, including an editorial in the O Globo newspaper, which is normally criticized by leftists for backing conservative politicians. “This is easily the worst moment in Brazil since we returned to democracy,” said Claudio Couto, a political scientist at the Getulio Vargas Foundation, a top university, calling the claims “the mother of all plea bargains.” “This testimony is hitting everyone, all the major political players and, most importantly, a sitting president,” he added.

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How is it possible that in no western media reports on Venezuela the CIA is ever mentioned? Think they left when Chavez died? Think the country implodes like this all by itself?

Maduro to Trump: ‘Get Your Dirty Hands Off Venezuela!’ (R.)

Venezuelan President Nicolas Maduro blasted Donald Trump on Friday after a fresh round of U.S. sanctions and strong condemnation of his socialist government from the U.S. leader. “Enough meddling … Go home, Donald Trump. Get out of Venezuela,” Maduro thundered in a speech carried on live TV. “Get your dirty hands out of here.” The Trump administration imposed sanctions on the chief judge and seven other members of Venezuela’s Supreme Court on Thursday as punishment for annulling the opposition-led Congress in a series of rulings this year. The new sanctions package was aimed at stepping up pressure on Maduro and his loyalists following a crackdown on street protests and efforts to consolidate his rule of the South American oil-producing country. At the White House on Thursday, Trump expressed dismay at how once-booming Venezuela was now mired in poverty, saying “it’s been unbelievably poorly run” and calling the humanitarian situation “a disgrace to humanity.”

Maduro had initially urged the world to give Trump a chance after he was elected in November but his government unleashed its strongest condemnation to date of the Republican president. “President Trump’s aggressions against the Venezuelan people, its government and its institutions have surpassed all limits,” said a government statement that accused Washington of seeking to destabilize Venezuela and foment foreign intervention. The statement also accused Washington of financing the Venezuelan opposition while ignoring problems at home like income inequality and rights violations. “The extreme positions of a government just starting off only confirmed the discriminatory, racist, xenophobic, and genocidal nature of U.S. elites against humanity and its own people, which has now been heightened by this new administration which asserts white Anglo-Saxon supremacy,” the statement said.

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Classic. Using fear, of terrorism, of pornography, etc., to clamp down on everyone’s freedom, according to a certain party’s views. No privacy for you, guys. Use your votes wisely.

Theresa May To Create New, Government Controlled Internet in UK (Ind.)

Theresa May is planning to introduce huge regulations on the way the internet works, allowing the government to decide what is said online. Particular focus has been drawn to the end of the manifesto, which makes clear that the Tories want to introduce huge changes to the way the internet works. “Some people say that it is not for government to regulate when it comes to technology and the internet,” it states. “We disagree.” Senior Tories confirmed to BuzzFeed News that the phrasing indicates that the government intends to introduce huge restrictions on what people can post, share and publish online. The plans will allow Britain to become “the global leader in the regulation of the use of personal data and the internet”, the manifesto claims.

It comes just soon after the Investigatory Powers Act came into law. That legislation allowed the government to force internet companies to keep records on their customers’ browsing histories, as well as giving ministers the power to break apps like WhatsApp so that messages can be read. The manifesto makes reference to those increased powers, saying that the government will work even harder to ensure there is no “safe space for terrorists to be able to communicate online”. That is apparently a reference in part to its work to encourage technology companies to build backdoors into their encrypted messaging services – which gives the government the ability to read terrorists’ messages, but also weakens the security of everyone else’s messages, technology companies have warned.

The government now appears to be launching a similarly radical change in the way that social networks and internet companies work. While much of the internet is currently controlled by private businesses like Google and Facebook, Theresa May intends to allow government to decide what is and isn’t published, the manifesto suggests.

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They never thought about this?

Arctic Stronghold of World’s Seeds Flooded After Permafrost Melts (G.)

It was designed as an impregnable deep-freeze to protect the world’s most precious seeds from any global disaster and ensure humanity’s food supply forever. But the Global Seed Vault, buried in a mountain deep inside the Arctic circle, has been breached after global warming produced extraordinary temperatures over the winter, sending meltwater gushing into the entrance tunnel. The vault is on the Norwegian island of Spitsbergen and contains almost a million packets of seeds, each a variety of an important food crop. When it was opened in 2008, the deep permafrost through which the vault was sunk was expected to provide “failsafe” protection against “the challenge of natural or man-made disasters”. But soaring temperatures in the Arctic at the end of the world’s hottest ever recorded year led to melting and heavy rain, when light snow should have been falling.

“It was not in our plans to think that the permafrost would not be there and that it would experience extreme weather like that,” said Hege Njaa Aschim, from the Norwegian government, which owns the vault. “A lot of water went into the start of the tunnel and then it froze to ice, so it was like a glacier when you went in,” she told the Guardian. Fortunately, the meltwater did not reach the vault itself, the ice has been hacked out, and the precious seeds remain safe for now at the required storage temperature of -18C. But the breach has questioned the ability of the vault to survive as a lifeline for humanity if catastrophe strikes. “It was supposed to [operate] without the help of humans, but now we are watching the seed vault 24 hours a day,” Aschim said. “We must see what we can do to minimise all the risks and make sure the seed bank can take care of itself.”

The vault’s managers are now waiting to see if the extreme heat of this winter was a one-off or will be repeated or even exceeded as climate change heats the planet. The end of 2016 saw average temperatures over 7C above normal on Spitsbergen, pushing the permafrost above melting point. “The question is whether this is just happening now, or will it escalate?” said Aschim. The Svalbard archipelago, of which Spitsbergen is part, has warmed rapidly in recent decades, according to Ketil Isaksen, from Norway’s Meteorological Institute. “The Arctic and especially Svalbard warms up faster than the rest of the world. The climate is changing dramatically and we are all amazed at how quickly it is going,” Isaksen told Norwegian newspaper Dagbladet.

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I don’t know if they still talk.

Varoufakis Claims Tsipras Pressured Him To Accept Creditors’ Demands (K.)

Former finance minister Yanis Varoufakis on Friday hit out at Prime Minister Alexis Tsipras, claiming that the premier had tried to scare him into yielding to creditors’ demands. “In the summer of 2015 Alexis Tsipras told me that I should fear a new Goudi,” Varoufakis told VICE magazine, referring to a military coup that took place in Greece in 1909 amid simmering social tensions. The former minister, who has launched his own party, DiEM25, said the alleged statement struck him as a threat aimed at forcing him to agree with Tsipras’s decision to give in to creditors. In a Skai TV interview last week, Varoufakis said Greece “will become Kosovo, a protectorate run by an employee of the European Union.”

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Greece’s problem is public debt, not private debt. The people did not cause the crisis, they only pay for it.

‘They Stole My Money’: Greek Dreams Of Retirement Turn Sour (AP)

It was supposed to be a time to look forward to. After decades of work, retirement was for many meant to provide a chance to slow down and enjoy life. A holiday, an evening out with old friends, the odd fishing trip. Instead, many Greek pensioners say they are struggling to get by. The government has repeatedly cuts old age benefits as part of the country’s three international bailouts and many retirees now say they are at breaking point financially. Some have unemployed children they try to help on shrinking pensions, others are seeing rising taxes eat into lifetime savings. A new austerity bill approved in parliament early Friday cuts their pensions even further, putting their plight in focus.

Greece once had a generous pension system – too generous to be sustainable, especially with an aging population. Retirement was possible from as early as the age of 55 after 30 years of work. Many had extra perks: public sector employees could retire as early as 52. Some women with young children could retire with a reduced pension at 50. But the financial crisis left Greece reliant on international creditors, who pushed for economic change – not least to pensions. The standard retirement age is now 67. Many early retirement provisions have been abolished. Including pensions, incomes have dropped 40% over the last seven years of crisis. Here is a look at the problem through the stories of four pensioners.

Mina Griva, 78, widow and former factory worker Griva’s husband, who worked in a steel plant in Greece, died eight years ago. Her initial widow’s pension of €998 ($1,110) and a €300 supplementary pension have been cut to €560 and €150 respectively. “They’ve destroyed us,” said Griva, who now helps out daily at a municipal care center for the elderly. “Pensioners are crying.” A mother of five, she uses her pension to help her son, who’s been unemployed for five years. She moved out of her small Athens apartment to give it to him, and lives in a single room on the last floor of the building. Now, she avidly watches political talk shows on TV to figure out how much further her pension will drop.

Griva left Greece in 1964 and worked for 15 years in Germany, initially as a cleaner in a cheese factory and later working an ironing press in a clothing factory. Times were tough in Greece then, and she worked double eight-hour shifts to send money home to her family. She saved, and eventually had enough to secure homes for her children, and a small apartment for herself. She thought she was securing her family’s future. “We left here to build something,” said Griva. Instead, the austerity measures ate into their lives, with new property taxes, layoffs and income cuts. “Now you can’t even buy a bread ring for your grandchildren,” she said. “I don’t know where this will go. Things are very, very hard.”

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Damn you, Brussels. Damn you, Merkel, Rutte, Hollande, Cameron, Renzi. You created this.

Teen Refugees Trapped In Greece Turn To Prostitution (Spiegel)

Mohammed is approached by a middle-aged man wearing greasy beige pants, a blue shirt and a blue baseball cap. Although the man speaks Greek, the 17-year-old boy from Afghanistan knows exactly what he wants. “No,” Mohammad repeatedly says in English, his voice cracking and his eyes filling with tears. But the man keeps pushing. “Come with me. I will give you food, pay you.” The man only stops when he realizes he is being watched. He then grudgingly walks away and sits down on a nearby bench. From there, he starts scouring the field again, searching for another boy. It was broad daylight on a sunny Tuesday morning on Victoria Square in the heart of Athens. The square has been a meeting place and a makeshift home for thousands of migrants since the refugee crisis hit Greece two years ago – and now it is increasingly becoming a prostitution hub for underage refugees.

Mohammad hasn’t gone that far yet, but he says it is only a matter of time until he goes home with a man. He has just 30 euros left in his pocket, and he is quickly losing hope. “When this money runs out, I fear I will have no other choice but do what the others are doing. Have sex with these older men. What should I do? I have no place to stay, nothing to eat. Should I just die in the park?” he says, finally bursting into tears. Mohammed says he lost his parents in an attack in Afghanistan. He has been in Athens for a month, he says, after fleeing his home alone and reaching the Greek island of Lesbos last February, where he registered as a minor. He then claimed to be an adult to escape the violence in the island’s notorious Moria camp. Since then, despite looking very much like a teenager, with pimples, a small stature and thin voice, he has been turned away from shelters for minors.

When night comes, Mohammad rolls himself up in a blanket on a corner of the square. His only possession is a yellow envelope that he guards closely. Inside, he keeps his refugee registration papers and a single-page CV. According to Mohammad’s papers, he applied for asylum in Lesbos in November 2016. The date set for his interview is January 4, 2018. It is mostly boys from Afghanistan, Pakistan and Syria – who either came alone or were separated from their families along their perilous journey to Europe – who are now waiting for their refugee claims to be processed in Greece. In the meantime, the authorities are supposed to look after them, but there are only 53 shelters with 1,272 spots. Of the approximately 2,000 registered minors, about 800 are housed in large camps, are in police custody or are homeless.

[..] Everyone – the authorities, the NGO workers, the police – know what is going on. But nobody seems willing or able to do anything about it. And this despite the fact that the adult clients are breaking the law, despite the fact that various institutions have devoted themselves to protecting young refugees. But prostitution is booming because the system is failing. Because Greece doesn’t have the resources to take care of underage refugees. Because the processing of asylum applications is chaotic and authorities from one agency don’t know what authorities from other agencies are doing. And because the boys need to file criminal complaints before their clients can be prosecuted.

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Mar 292017
 
 March 29, 2017  Posted by at 9:06 am Finance Tagged with: , , , , , , , , , ,  1 Response »
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Dismantling clock outside Daily Telegraph building, Fleet Street, London, 1930

 

Jim Rogers Says Fed Has No Clue, Will ‘Ruin Us All’ (BBG)
Article 50: British PM May Signs Letter That Will Trigger Brexit (BBC)
Scottish Parliament Votes For Second Independence Referendum (G.)
Why Brexit Is Best for Britain: The Left-Wing Case (NYT)
ECB Needs Democratic Oversight If The Euro Is To Survive (TI)
12 People, Things That Ruined The EU (Pol.)
Le Pen Victory Five Times As Dangerous As Greek Meltdown – UBS (CNBC)
China Is Desperately Trying To Save A Too Big To Fail Dairy Company (Qz)
Huishan Dairy Turmoil Highlights China’s $8 Trillion Shadow Loan Risk (BBG)
Hong Kong Underground Banks Cash In On Flood Of Money Out Of China (BBG)
A World Without Retirement (G.)
Germany Questions Erdogan’s Turkey ‘Coup’ Narrative (BBC)
Central Europe’s Leaders Reject EU’s Relocation Of Refugees (AP)

 

 

Just so you know. Motorcycle Boy.

Jim Rogers Says Fed Has No Clue, Will ‘Ruin Us All’ (BBG)

Jim Rogers, chairman at Rogers Holdings, explains what the Federal Reserve did wrong in response to the financial crisis and how their mistakes spread to global central banks. Jane Foley, senior FX strategist at Rabobank, joins the conversation with Bloomberg’s Francine Lacqua on “Bloomberg Surveillance.”

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Nothing to fear but…

Article 50: British PM May Signs Letter That Will Trigger Brexit (BBC)

Theresa May has signed the letter that will formally begin the UK’s departure from the European Union. Giving official notice under Article 50 of the Lisbon Treaty, it will be delivered to European Council president Donald Tusk later. In a statement in the Commons, the prime minister will then tell MPs this marks “the moment for the country to come together”. It follows June’s referendum which resulted in a vote to leave the EU. Mrs May’s letter will be delivered at 12:30 BST on Wednesday by the British ambassador to the EU, Sir Tim Barrow. The prime minister, who will chair a cabinet meeting in the morning, will then make a statement to MPs confirming the countdown to the UK’s departure from the EU is under way.

She will promise to “represent every person in the whole United Kingdom” during the negotiations – including EU nationals, whose status after Brexit has yet to be settled. “It is my fierce determination to get the right deal for every single person in this country,” she will say. “For, as we face the opportunities ahead of us on this momentous journey, our shared values, interests and ambitions can – and must – bring us together.” Attempting to move on from the divisions of June’s referendum, Mrs May will add: “We are one great union of people and nations with a proud history and a bright future. “And, now that the decision has been made to leave the EU, it is time to come together.”


Guardian front page today. Got to wonder why they left off Greece.

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How many referendums will it take in the end?

Scottish Parliament Votes For Second Independence Referendum (G.)

Nicola Sturgeon has won a key Holyrood vote on her plans for a second independence referendum, triggering accusations from UK ministers that her demands are premature. Sturgeon won by a 10-vote majority after the Scottish Greens backed her proposals to formally request from the UK government the powers to stage a fresh independence vote at around the time Britain leaves the EU, in spring 2019. She is due to write to Theresa May later this week, asking for Westminster to hand Holyrood the temporary powers to stage the referendum under a section 30 order. She said she would avoid writing until the prime minister had invoked article 50 to trigger the Brexit process, which she is expected to do on Wednesday. “It is not my intention to do so confrontationally, instead I only seek sensible discussion,” Sturgeon told MSPs.

The vote, which split the Scottish parliament cleanly between pro- and anti-independence parties, deepened the dispute between the two governments over both the need for and the timing of the vote. David Mundell, the Scottish secretary, told the BBC the answer to Sturgeon’s request would be no. “We won’t be entering any negotiations at all until the Brexit process is complete,” he said. “Now is the time for the Scottish government to come together with the UK government, work together to get the best possible deal for the UK, and that means Scotland, as we leave the EU.” Mundell rejected Sturgeon’s claims that May had told her the terms of the UK’s departure from the EU and its new trade deal would be clear in about 18 months. Sturgeon said that timeframe matched her preference for a referendum just as the UK quits the EU in March 2019. He said it was too early to say how quickly a Brexit deal could be concluded or whether transitional arrangements were needed.

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“We don’t change our position according to elections..”

Why Brexit Is Best for Britain: The Left-Wing Case (NYT)

Ms. Watkins is a “Lexiteer,” as left-wing supporters of ‘Brexit’ like me are known. We were hardly a significant force among the 52% of Britons who voted to leave in the referendum of June 23. But we were an influence. A counterweight to the anti-immigrant fear mongering of the former leader of the right-wing U.K. Independence Party, Nigel Farage, Lexiteers argued a left-wing, democratic and internationalist case for Brexit. The position was expressed crisply by Perry Anderson, the former longtime editor of New Left Review: “The E.U. is now widely seen for what it has become: an oligarchic structure, riddled with corruption, built on a denial of any sort of popular sovereignty, enforcing a bitter economic regime of privilege for the few and duress for the many.”

Although Lexiteers have little patience for the national nihilism of “Davos Man,” the globalist elite, we are no xenophobes. We voted Leave because we believe it is essential to preserve the two things we value most: a democratic political system and a social-democratic society. We fear that the European Union’s authoritarian project of neoliberal integration is a breeding ground for the far right. By sealing off so much policy, including the imposition of long-term austerity measures and mass immigration, from the democratic process, the union has broken the contract between mainstream national politicians and their voters. This has opened the door to right-wing populists who claim to represent “the people,” already angry at austerity, against the immigrant.

It was the free-market economist Friedrich Hayek, the intellectual architect of neoliberalism, who called in 1939 for “interstate federalism” in Europe to prevent voters from using democracy to interfere with the operation of the free market. Simply put, as Jean-Claude Juncker, the president of the European Commission (the union’s executive body), did: “There can be no democratic choice against the European treaties.” The union’s structures and treaties are designed accordingly. The European Commission is appointed, not elected, and it is proudly unaccountable to any electorate. “We don’t change our position according to elections” was how the commission’s vice president Jyrki Katainen greeted the victory of the anti-austerity party Syriza in Greece in 2015.

The European Parliament is not a real parliament. It is not a legislature; its deputies neither offer manifestoes nor carry out the ideas they propose to voters. Elections in improbably large constituencies, with pitifully low turnouts, change nothing. As a Parliament staff member said at the European Research Seminar at the London School of Economics, “The only people who listen to M.E.P.s are the interpreters,” referring to the members of the Parliament. The European Council, an intergovernmental body where decisive legislative power actually lies, especially for Chancellor Angela Merkel of Germany, comprises member countries’ heads of state, who generally meet just four times a year. They are not directly elected by the inhabitants of the nations whose fate they decide. As for the union principle of “subsidiarity,” a supposed preference for decentralized governance, it is ignored in all practical matters.


Oh, those days of innocence …

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Fine, but who’s going to do it? The ECB is independent?!

ECB Needs Democratic Oversight If The Euro Is To Survive (TI)

The ECB urgently needs to increase democratic oversight and accountability if the euro is to survive the next crisis, according to a new report on the Bank’s governance by Transparency International EU entitled “Two sides of the same coin? Independence and accountability at the ECB”. The report finds that a lack of political leadership and decisive reform has led the ECB to stray into the area of political decision-making, without appropriate democratic scrutiny. This has been accompanied by a marked decline in public trust at a time when the ECB has been granted extensive new powers to supervise major European banks.

“While the ECB has saved the single currency more than once, the absence of a Eurozone finance ministry as counterpart to the ECB means that the Bank has had to stretch its mandate to breaking point,” said Leo Hoffmann-Axthelm, Research and Advocacy Coordinator at Transparency International EU. “If the euro is to survive the next crisis, then EU Member States need to stop hiding behind the technocrats at the ECB, overcome political inertia and get serious about reforming the Eurozone”, continued Hoffmann-Axthelm. The report finds that preserving the ECB’s independence limits its accountability to citizens, and recommends that the Bank should compensate this by increasing its transparency. The ECB should take immediate steps, such as automatically publishing its decisions and opinions and being more open about the political choices it faces, rather than insisting its decisions are purely technical.

For example, at the height of the Greece crisis in 2015 the ECB repeatedly limited the ceiling on Emergency Liquidity Assistance for the country’s banks without publicly announcing it. The ECB’s discretionary powers allowed it to put pressure on Greek banks while negotiating bailout reforms with the Greek government as part of the Troika of international creditors. Similar dynamics could play out in the upcoming negotiations with Greece, and with the current recapitalisation of Italian lender Monte dei Paschi di Siena, which threaten the Eurozone’s current fragile stability, according to the group. “Clearly decisions which affect the fate of whole economies should have some kind of democratic oversight. The ECB should not be in a position to pull the plug on a country’s euro membership, a decision ultimately down to democratically elected politicians”, said Hoffmann-Axthelm.

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An entertaining and educational list.

12 People, Things That Ruined The EU (Pol.)

Last weekend, European leaders gathered in Rome for the 60th anniversary of the Treaty of Rome. They discussed, not for the first time, how to get the EU back on track. And they told each other they are still committed to the Union and believe in its future. (We’ve heard that one before, too.) But let’s just suppose that, when the European leaders sat down for lunch at the Quirinal Palace, some of them had a little too much of the pinot grigio and waxed nostalgic about the days when the idea of a united Europe was still young and promising and beautiful. And then they talked about this week and how British Prime Minister Theresa May would send her goodbye letter and they started slurring their words, saying Grexit, Brexit, Frexit, and they finally admitted to each other that something has gone horribly wrong. When they stood up and got ready to leave, they were devastated, saying to each other: “Good God, how did it come this and, more importantly, who is to blame?” We’ve gathered a dozen suggestions.

1. Zeus Whenever Europe is in trouble, its advocates claim the EU lacks a proper narrative. The whole idea of an “ever-closer union” is still a fine one, they argue, and the only thing that’s needed for people to understand it is a memorable story. The most memorable story about Europe, of course, is the one about Zeus. The Greek God disguised himself as a white bull in order to approach a beautiful girl called Europa. When Europa, perhaps naively, climbed on his back, the God-turned-bull abducted and ravished her. No need to take the story too literally when analyzing the EU’s current malaise (no white bulls there). But it is good to keep in mind that Europe’s founding myth doesn’t exactly bode well for its future. If negative narratives about the EU seem to resonate far more than positive ones, maybe it’s because the Greek gods loaded the dice.

2. Edith Cresson Going straight from Zeus, ruler of Mount Olympus, to good old Edith Cresson may seem a bit of a stretch. But as a strong contender for the title of worst European commissioner ever, the Frenchwoman does have a claim to fame, too. In the early 1990s, Cresson was a French prime minister who quickly fell out of favor and was forced to resign after less than a year in office. That apparently qualified her for a high-powered job in Brussels. As commissioner for science, research and development, Cresson famously paid her dentist to be a scientific adviser. In 1999, allegations of fraud intended to target Cresson ended up bringing down the entire Commission. To put it crudely: Cresson did to the EU what Zeus did to Europa.

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Le Pen won’t ruin the EU. That’s already been done.

Le Pen Victory Five Times As Dangerous As Greek Meltdown – UBS (CNBC)

Europe could be on track to encounter a shock wave up to five times as turbulent as the start of the euro zone debt crisis if French presidential candidate Marine Le Pen was able to secure victory in May, according to a team of UBS analysts. Strategists at the Swiss banking giant stressed the prominence of the anti-immigration and anti-European Union National Front leader meant France’s fast approaching general election would be the most serious political risk event in the region this year. Le Pen, who leads in the latest opinion polls, has vowed to renegotiate the terms of France’s membership of the EU and ditch the single currency if elected as the country’s new premier in just over two months’ time.

“The systemic importance of France for the European project is such that the margin for damage limitation may well be a lot thinner than has been the case in Greece in the past or could be the case for Spain or Italy even,” UBS analysts said in a note. The bank predicted the shock of a Le Pen victory on sovereign spreads could be as dramatic as when Spain and Italy appeared to be on the brink of financial collapse in 2012. UBS forecast a move of up to 500 basis points in sovereign spreads if Le Pen entered the Élysée Palace in early May. In comparison to a peripheral economy such as Greece, when Athens was on the brink of financial collapse in 2010, sovereign spreads widened by around 100 basis points. “It is certainly arguable that risks to the euro zone’s cohesion emanating from the core are by definition more severe and harder to diffuse than those emanating from the periphery,” UBS analysts added.

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A curious case. Shares fell 85% (indefinite trading halt) and nobody seems to know why.

China Is Desperately Trying To Save A Too Big To Fail Dairy Company (Qz)

A mysterious collapse in a Chinese dairy maker’s shares last week has renewed fears that China’s financial system is so shaky that authorities can do nothing but to muddle through a credit crunch. Shares of China Huishan Dairy Holdings plunged 85% in an hour on March 24, wiping more than $4 billion from its market value. The crash, the biggest-ever intraday fall in Hong Kong, prompted an indefinite trading halt. It also caused collateral damage to firms linked to the Liaoning-based company, which has more than 11,600 employees and operates the largest number of dairy farms in China. Market observers are still trying to figure out what exactly triggered the sudden sell-off. A company statement filed to the Hong Kong stock exchange March 28 unearthed at least part of the mystery.

In its first public comments since the stock crash, Huishan confirmed media reports that it had missed interest payments to its creditors, and that on March 23 the Liaoning provincial government held a meeting with the company and its 20-plus creditor banks to discuss remedies. According to the statement, the Liaoning government proposed an “action plan” to solve any overdue interest payments within two weeks and to help improve Huishan’s liquidity position within a month. Some creditors—including Bank of China and Jilin Jiutai Rural Commercial Bank—pledged in the meeting that they “would continue to have confidence in the Group [Huishan] which has over 60 years of operating history,” said the statement. The company also dismissed previous reports that it had issued fake invoices, and that chairman and controlling shareholder Yang Kai had misappropriated funds to invest in real estate in Shenyang, Liaoning’s capital.

The statement confirmed that Yang’s wife Ge Kun, who is also an executive director in charge of relationships with the company’s principal bankers, has been out of contact since March 21, the same day that Yang learned of the late payments. Financial news outlet Caixin revealed more details (link in Chinese) about the bailout package, based on an interview with creditor Hongling Capital head Zhou Shiping, who was at the March 23 meeting. The Liaoning government will pay over 90 million yuan ($13 million) for land owned by Huishan to inject cash into the company. It also ordered financial institutions involved not to downgrade the company’s credit rating or file lawsuits against it.

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Huishan is a bunch of highly leveraged shadow cows.

Huishan Dairy Turmoil Highlights China’s $8 Trillion Shadow Loan Risk (BBG)

Turmoil at a small Chinese dairy company is shedding rare light on the final destination for some of the country’s estimated $8 trillion of shadow banking loans. Jilin Jiutai Rural Commercial Bank, a major creditor to embattled China Huishan Dairy., said late Tuesday it has extended a total of 1.35 billion yuan ($196 million) in credit to the dairy producer, including 750 million yuan through the purchase of investment receivables from a finance lease company. Investment receivables – a category that can include using wealth-management products, asset-management plans and trust-beneficiary rights to disguise what are in effect loans – allow banks to reduce the amount of cash they need to set aside for capital and provisions for loan losses.

The practice of recording loan-type exposures on balance sheets under categories including investment receivables has allowed hundreds of smaller Chinese banks to boost assets and profits. At the same time, it has created opaque risks that could lead to failures, bailouts or liquidity shocks with the potential to jolt national and global markets. The external public relations agency for Jiutai didn’t immediately reply to an email seeking comment. The bank doesn’t appear to have broken any disclosure rules on its receivables. China’s shadow banking system could lead to losses of $375 billion, CLSA estimated in September. The brokerage said such financing expanded at an annual 30% pace from 2011 through 2015 to reach 54 trillion yuan, or 79% of the nation’s GDP. But details have rarely surfaced on the specifics of individual shadow banking arrangements.

“Chinese banks are lending more and more money to companies in recent years through investment receivables, partly to circumvent regulatory or internal rules,” said Yulia Wan, a Shanghai-based banking analyst at Moody’s Investors Service. Lenders don’t disclose enough information about where the money goes, according to Wan. In addition, the banks usually don’t provision enough for such exposures, and they fund the transactions through short-term borrowing from other financial institutions, Wan said. “This practice poses risks to both investors and banks themselves.”

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People will find a way. And then so will the money.

Hong Kong Underground Banks Cash In On Flood Of Money Out Of China (BBG)

Business is good, but Dickson Chan is worried. The Hong Kong money changer saw remittances from mainland China increase by 10% to 20% last month from the end of 2016, yet he is not sure how long the operation can last. The company he works for, Professional Foreign Currency Exchange, helps clients move cash between China and Hong Kong with a bank account in each place by squaring opposing transactions. “Now people feel that the Chinese government may tighten capital controls further and it wants more yuan depreciation, so many clients want to transfer money to Hong Kong more quickly,” Chan said from his store, located in the basement of a drab mall in Causeway Bay, the world’s second-priciest retail district. “We’re worried the Chinese government will introduce some regulations to ban this business, so now although we’re still doing it, we’re trying to raise revenues from other currencies.”

The fate of Hong Kong’s money changers shows both the reach of Chinese authorities, and the limits to their power. While a determined crackdown could kill the industry, such a response would risk spooking China’s citizens and exacerbating outflow pressures. The exodus of funds from Asia’s largest economy has spurred three years of yuan depreciation that at times roiled global markets and influenced monetary policies worldwide, and pushed up asset prices in cities from Hong Kong to Vancouver. An estimated $1.8 trillion has left Asia’s largest economy from the start of 2015 through January 2017, as the yuan lost almost 10% and returns on onshore assets dropped amid slowing economic growth. To stem the flows, the authorities have tightened capital curbs, stepping up scrutiny of residents’ foreign-currency purchases and limiting insurance buying in Hong Kong.Money changers in Hong Kong provide ways to sidestep such restrictions.

Once the cash reaches the semi-autonomous Chinese city, which has no capital controls, it can go almost anywhere. Hong Kong’s shopping districts are dotted with money changers advertising their remittance services and yuan conversion rates in simplified Chinese characters typically used on the mainland. There are 1,891 licensed money operators in the city, Hong Kong customs data show. Money changers or remittance firms need to obtain a license from the government, which requires the companies to conduct customer due diligence and keep records. As part of a sweeping effort to contain outflows, just before the new year, Chinese regulators boosted disclosure requirements for citizens converting yuan into foreign exchange — while retaining the $50,000 annual quota. Authorities busted at least 380 cases of major underground banking involving more than 900 billion yuan ($131 billion) of funds last year.

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A bit shaky in predictions etc., but this is very much is where we’re going. Retirement was an anomaly.

A World Without Retirement (G.)

We are entering the age of no retirement. The journey into that chilling reality is not a long one: the first generation who will experience it are now in their 40s and 50s. They grew up assuming they could expect the kind of retirement their parents enjoyed – stopping work in their mid-60s on a generous income, with time and good health enough to fulfil long-held dreams. For them, it may already be too late to make the changes necessary to retire at all. In 2010, British women got their state pension at 60 and men got theirs at 65. By October 2020, both sexes will have to wait until they are 66. By 2028, the age will rise again, to 67. And the creep will continue. By the early 2060s, people will still be working in their 70s, but according to research, we will all need to keep working into our 80s if we want to enjoy the same standard of retirement as our parents.

This is what a world without retirement looks like. Workers will be unable to down tools, even when they can barely hold them with hands gnarled by age-related arthritis. The raising of the state retirement age will create a new social inequality. Those living in areas in which the average life expectancy is lower than the state retirement age (south-east England has the highest average life expectancy, Scotland the lowest) will subsidise those better off by dying before they can claim the pension they have contributed to throughout their lives. In other words, wealthier people become beneficiaries of what remains of the welfare state. Retirement is likely to be sustained in recognisable form in the short and medium term. Looming on the horizon, however, is a complete dismantling of this safety net.

For those of pensionable age who cannot afford to retire, but cannot continue working – because of poor health, or ageing parents who need care, or because potential employers would rather hire younger workers – the great progress Britain has made in tackling poverty among the elderly over the last two decades will be reversed. This group is liable to suffer the sort of widespread poverty not seen in Britain for 30 to 40 years. Many now in their 20s will be unable to save throughout their youth and middle age because of increasingly casualised employment, student debt and rising property prices. By the time they are old, members of this new generation of poor pensioners are liable to be, on average, far worse off than the average poor pensioner today.

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The strongest wording I’ve seen to date.

Germany Questions Erdogan’s Turkey ‘Coup’ Narrative (BBC)

German Interior Minister Thomas De Maiziere has said Turkey will not be allowed to spy on Turks living in Germany. Reports say the head of Turkey’s intelligence service handed a list of people suspected of opposition sympathies to his German counterpart. The list is said to include surveillance photos and personal data. Germany and other EU states have banned local rallies in support of Turkish President Recep Tayyip Erdogan. Turkish ministers have been seeking to campaign among ethnic Turks in a referendum on 16 April on increasing his powers. Some 41,000 people have been arrested in Turkey since a coup was defeated in July of last year.

According to Germany’s Sueddeutsche Zeitung newspaper and several public broadcasters, the head of Turkey’s intelligence service MIT, Hakan Fidan, handed Bruno Kahl a list of 300 individuals and 200 organisations thought to be linked to the Gulen movement at a security conference in Munich in February The apparent aim was to persuade Germany’s authorities to help their Turkish counterparts but the result was that the individuals were warned not to travel to Turkey or visit Turkish diplomatic addresses within Germany, home to 1.4 million voters eligible to vote in the referendum. Mr De Maiziere said the reports were unsurprising.

“We have repeatedly told Turkey that something like this is unacceptable,” he said. “No matter what position someone may have on the Gulen movement, here German jurisdiction applies and citizens will not be spied on by foreign countries.” [..] “Outside Turkey I don’t think anyone believes that the Gulen movement was behind the attempted putsch,” said German spy chief Hans-Georg Maassen. “At any rate I don’t know anyone outside Turkey who has been convinced by the Turkish government.” And Lower Saxony Interior Minister Boris Pistorius went further, saying, “We have to say very clearly that it involves a fear of conspiracy you can class as paranoid.”

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And Brussels is toothless. But it will all come down on Greece anyway, so why bother?

Central Europe’s Leaders Reject EU’s Relocation Of Refugees (AP)

Leaders from Central Europe said Tuesday they reject a European Union policy that calls for all member states to receive migrants, protesting suggestions that the level of their compliance could be linked to the availability of EU funds to them. A meeting in Warsaw of the so-called Visegrad Group brought together Poland’s Prime Minister Beata Szydlo and her counterparts from Hungary, Slovakia and the Czech Republic for talks including EUs migrant policies and a plan of sharing some 160,000 migrants among member states to ease the migrant wave pressure on Greece and Italy.

The EU recently warned of financial consequences to those who do not comply. Central European leaders said they reject the relocation plan and will not yield under the financial pressure, which they called an attempt at blackmail. Hungary’s Prime Minister Viktor Orban said his country was further sealing its borders and tightening regulations to block access to any more migrants. The Visegrad Group aspires to have a greater role in EU policies while at the same time makes a point of criticizing the bloc’s decisions. [AP]

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Dec 192016
 
 December 19, 2016  Posted by at 9:23 am Finance Tagged with: , , , , , , , , , , ,  2 Responses »
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Oil wells in Venice, California, bringing oil up from beach area 1952

Amid The Bombs of Aleppo, All You Can Hear Are The Lies (Peter Hitchens)
Coup Or No Coup: The Electoral College Votes On Monday (ZH)
A Spy Coup in America? (Robert Parry)
Trump Wants To Hear Hacking Evidence Direct From FBI (WSJ)
The $12 Trillion Credit Risk Juggle (BBG)
Gone in 60 Seconds: Chinese Snap Up Dollars as Yuan Tanks (BBG)
As Yuan Weakens, Chinese Rush To Open Foreign Currency Accounts (R.)
China Central Bank Presses Banks To Help After Interbank Lending Freezes (R.)
China To Strictly Limit Property Speculation In 2017 (R.)
Italy Banking Crisis is Also a Huge Crime Scene (DQ)
Ireland Appeals EU Order To Collect €13 Billion In Back Taxes From Apple (AP)
Apple To Appeal EU Tax Ruling, Says It Was A ‘Convenient Target’ (R.)
India Has Less And Less Reason To Exist In Its Current Form (Bhandari)
Greek Migration Minister Eyes ‘Closed’ Facilities On Islands (Kath.)
The Seven Deadly Things We’re Doing To Trash The Planet (John Vidal)

 

 

Hitchens is a veteran. And western propaganda on Aleppo has gotten way out of hand.

Amid The Bombs of Aleppo, All You Can Hear Are The Lies (Peter Hitchens)

[..] the old cliche ‘the first casualty of war is truth’ is absolutely right, and should be displayed in letters of fire over every TV and newspaper report of conflict, for ever. Almost nothing can be checked. You become totally reliant on the people you are with, and you identify with them. If you can find a working phone, you will feel justified in shouting whatever you have got into the mouthpiece – as simple and unqualified as possible. And your office will feel justified in putting it on the front page (if you are lucky). And that is when you are actually there, which is a sort of excuse for bending the rules.

In the past few days we have been bombarded with colourful reports of events in eastern Aleppo, written or transmitted by people in Beirut (180 miles away and in another country), or even London (2,105 miles away and in another world). There have, we are told, been massacres of women and children, people have been burned alive. The sources for these reports are so-called ‘activists’. Who are they? As far as I know, there was not one single staff reporter for any Western news organisation in eastern Aleppo last week. Not one. This is for the very good reason that they would have been kidnapped and probably murdered. The zone was ruled without mercy by heavily armed Osama Bin Laden sympathisers, who were bombarding the west of the city with powerful artillery (they frequently killed innocent civilians and struck hospitals, since you ask).

That is why you never see pictures of armed males in eastern Aleppo, just beautifully composed photographs of handsome young unarmed men lifting wounded children from the rubble, with the light just right. The women are all but invisible, segregated and shrouded in black, just as in the IS areas, as we saw when they let them out. For reasons that I find it increasingly hard to understand or excuse, much of the British media refer to these Al Qaeda types coyly as ‘rebels’ (David Cameron used to call them ‘moderates’). But if they were in any other place in the world, including Birmingham or Belmarsh, they would call them extremists, jihadis, terrorists and fanatics. One of them, Abu Sakkar, famously cut out and sank his teeth into the heart of a fallen enemy, while his comrades cheered. This is a checked and verified fact, by the way.

Sakkar later confirmed it to the BBC, when Western journalists still had contact with these people, and there is film of it if you care to watch. There is also film of a Syrian ‘rebel’ group, Nour al-din al Zenki, beheading a 12-year-old boy called Abdullah Issa. They smirk a lot. It is on the behalf of these ‘moderates’ that MPs staged a wholly one-sided debate last week, and on their behalf that so many people have been emoting equally one-sidedly over alleged massacres and supposed war crimes by Syrian and Russian troops – for which I have yet to see a single piece of independent, checkable evidence.

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A real American Christmas comedy.

Coup Or No Coup: The Electoral College Votes On Monday (ZH)

With even Harvard’s Larry Lessig admitting that his efforts to flip the Electoral College against Trump have failed miserably, it’s a near certainty that Trump will, in fact, be elected President when the Electoral College casts their votes tomorrow. That said, there could always be surprises and, as such, The Hill has published a list of five things you should keep an eye on as electors get set to cast their ballots. First, here is how the 538 electors should cast their ballots if they all strictly follow the will of the voters in their respective states.

That said, we know that at least one Texas elector, Chris Suprun, has vowed to go rogue tomorrow and anxious eyes will be waiting to see if anyone decides to join him. As The Hill points out, there hasn’t been an election since 1836 in which more than 1 elector changed his vote, so even 2 defectors would make history.

There’s no evidence of a widespread number of Republican defections—just one Republican elector from Texas has gone public with plans to break from Trump. But there hasn’t been an election in which more than one elector jumped ship for reasons other than the death of a candidate since 1836, according to the nonprofit FairVote. So a defection by even one more Republican elector would make history.

The next thing to watch is whether any Democrat electors will cast protest votes. A small group of Democratic electors had vowed to join Larry Lessig’s coup attempt by throwing their support behind an alternative Republican candidate. While this now seems like a remote possibility, it is something to watch for.

Democratic electors are the ones beating the drums for the revolt, yet they’re largely powerless to change the outcome. A handful of electors are already planning on uniting around a Republican alternative as a protest, but it’s still unclear how many are willing to join the protest. In theory, a unified front of the 232 Democrats could join with 38 Republicans to elect an alternative president. But in practice, the anti-Trump electors will be lucky if more than a dozen Democrats break.

With 29 states and the District of Columbia binding their electors by law, it will also be interesting to see if anyone in those states choose to defect, and if so, what penalties will be levied upon them.

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Lots of info from Parry, but basically just confirms what we already knew.

A Spy Coup in America? (Robert Parry)

As Official Washington’s latest “group think” solidifies into certainty – that Russia used hacked Democratic emails to help elect Donald Trump – something entirely different may be afoot: a months-long effort by elements of the U.S. intelligence community to determine who becomes the next president. I was told by a well-placed intelligence source some months ago that senior leaders of the Obama administration’s intelligence agencies – from the CIA to the FBI – were deeply concerned about either Hillary Clinton or Donald Trump ascending to the presidency. And, it’s true that intelligence officials often come to see themselves as the stewards of America’s fundamental interests, sometimes needing to protect the country from dangerous passions of the public or from inept or corrupt political leaders.

It was, after all, a senior FBI official, Mark Felt, who – as “Deep Throat” – guided The Washington Post’s Bob Woodward and Carl Bernstein in their Watergate investigation into the criminality of President Richard Nixon. And, I was told by former U.S. intelligence officers that they wanted to block President Jimmy Carter’s reelection in 1980 because they viewed him as ineffectual and thus not protecting American global interests. It’s also true that intelligence community sources frequently plant stories in major mainstream publications that serve propaganda or political goals, including stories that can be misleading or entirely false. So, what to make of what we have seen over the past several months when there have been a series of leaks and investigations that have damaged both Clinton and Trump — with some major disclosures coming, overtly and covertly, from the U.S. intelligence community led by CIA Director John Brennan and FBI Director James Comey?

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The WSJ headline is: “Donald Trump’s Team Tones Down Skepticism on Russia Hacking Evidence”. But all he does is say: “show us the proof, show me and the American people.” So let’s have it.

Trump Wants To Hear Hacking Evidence Direct From FBI (WSJ)

Fresh signs emerged Sunday that President-elect Donald Trump could embrace the intelligence community’s view that the Russians were behind a computer-hacking operation aimed at influencing the November election. A senior Trump aide said Mr. Trump could accept Russia’s involvement if there is a unified presentation of evidence from the Federal Bureau of Investigation and other agencies. This followed weeks of skepticism from the president-elect and his supporters that there is sufficient evidence that Russia was responsible for cyberattacks against the Democratic National Committee or leak of stolen emails.

Speaking on Fox News Sunday, Mr. Trump’s incoming chief of staff, Reince Priebus, said the president-elect “would accept the conclusion if these intelligence professionals would get together, put out a report, show the American people that they are actually on the same page.” His statement follows an intensifying bipartisan push on Capitol Hill to launch a separate investigation into the matter. Mr. Trump has called for opening up new lines of cooperation with Russia, and some of his critics in both parties have said his refusal so far to say Russia tried to interfere in the election was a sign that he doesn’t believe that Moscow is a U.S. adversary.

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That’s quite the shift.

The $12 Trillion Credit Risk Juggle (BBG)

After the financial crisis, regulators were worried about too much risk being concentrated in too few hands.They are still concerned, but the hands have changed. The U.S. Treasury’s Office of Financial Research is devoted to worrying about everything and anything that could spur another financial crisis, and near the top of the list is the post-crisis explosion in corporate credit. This pile of debt is “a top threat to stability,” according to this Treasury unit’s latest report, as Bloomberg’s Claire Boston wrote on Tuesday. In particular, these researchers are wary of the changing composition of who owns these bonds. Big banks and hedge funds own a much smaller proportion, while insurers and mutual funds own much more of it.


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More specifically, banks and household and nonprofits, a category that includes hedge funds, have reduced their holdings of U.S. corporate credit by $1.6 trillion since 2008, while insurers, mutual funds and the rest of the world have increased it by $3.6 trillion, according to data compiled by Goldman Sachs that includes foreign sovereign debt and asset-backed securities. This is a salient matter. The Federal Reserve just raised rates for a second time in two years and predicts three rate increases next year, possibly marking the end of this era of financial repression that’s spurred a record pace of corporate-debt sales.

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With Goldman predicting the biggest fall for the yuan in 20 years, Beijing is in a bind.

Gone in 60 Seconds: Chinese Snap Up Dollars as Yuan Tanks (BBG)

Chinese savers, eager to convert their yuan before the currency keeps depreciating, are snapping up U.S. dollar investment products that offer options for keeping money at home instead of sending it overseas. The latest wealth management products from China Merchants Bank last week, paying 2.37% annual interest on U.S. dollars, sold out in 60 seconds flat. “You won’t be able to get it online because it’s gone in less than a minute,” said a branch manager, who would only give the surname Xu, and encourages customers to book a day in advance next time. A growing number of offerings of such U.S. dollar funds and how quickly they’re being purchased show the surging demand for foreign currency amid outflows that are estimated to have totaled more than $1.5 trillion since the beginning of 2015.

By shifting into dollars – U.S., Australian and Hong Kong are among the favorites – deposit holders are shielded from the yuan’s losses without having to take their money out of the country to seek returns. “It seems an attractive choice to convert the yuan into the dollar sooner rather than later,” Harrison Hu at NatWest Markets, a unit of RBS, wrote in a note. He estimates that household purchases of foreign exchange could double to $15 billion a month in the coming quarter, absent new controls. A more hawkish than expected outlook from the U.S. Federal Reserve after it lifted interest rates last week has helped accelerate a dollar rally, with analysts predicting further gains. As the yuan has declined, China’s authorities have tried to vigorously enforce strict rules on moving cash over the border, where it is often invested in purchases such as real estate.

In recent weeks, policy makers in Beijing have put the brakes on everything from companies buying assets overseas to offshore purchases of life insurance to stem the tide of cash outflows. The fresh measures include checks by the currency regulator on any capital account transactions involving foreign exchange of $5 million or more. That followed steps earlier this year to ban the sharing of foreign-exchange quotas. In November, banks sold 49% more foreign-currency denominated wealth management products, most of them in U.S. dollars, than in October, according to PY Standard. November’s foreign currency deposits increased 11.4% from a year earlier, more than double the 4.8% rise in October, according to the People’s Bank of China.

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If you’re really a market economy, what do you do?

As Yuan Weakens, Chinese Rush To Open Foreign Currency Accounts (R.)

Zhang Yuting lives and works in Shanghai, has only visited the United States once, and rarely needs to use foreign currency. But that hasn’t stopped the 29-year-old accountant from putting a slice of her bank savings into the greenback. She is not alone. In the first 11 months of 2016, official figures show that foreign currency bank deposits owned by Chinese households rose by almost 32%, propelled by the yuan’s recent fall to eight-year lows against the dollar. The rapid rise – almost four times the growth rate for total deposits in the yuan and other currencies as recorded in central bank data – comes at a time when the yuan is under intense pressure from capital outflows. The outflows are partially a result of concerns that the yuan is going to weaken further as U.S. interest rates rise, and because of lingering concerns about the health of the Chinese economy.

U.S. President-elect Donald Trump’s threats to declare China a currency manipulator and to impose punitive tariffs on Chinese imports into the U.S., as well as tensions over Taiwan and the South China Sea, have only added to the fears. “Expectations of capital flight are clear,” said Zhang, who used her yuan savings to buy $10,000 this year. “I might exchange more yuan early next year, as long as I’ve got money.” Household foreign currency deposits in China are not huge compared to the money that companies, banks and wealthy individuals have been directing into foreign currency accounts and other assets offshore. All up, households had $118.72 billion of foreign money in their bank accounts at the end of November, while total foreign currency deposits were $702.56 billion. But the high growth rate in the household forex holdings are symbolic of a growing headache for the government as it struggles to counter the yuan’s weakness

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Liquidity is one of the things central banks do not control. Not in the way China sees control.

China Central Bank Presses Banks To Help After Interbank Lending Freezes (R.)

China’s central bank stepped in to urge major commercial banks to lend to non-bank financial institutions on Thursday afternoon after many suspended interbank operations amid tight liquidity conditions, Caixin reported. The People’s Bank of China intervened to help institutions such as securities firms and fund managers after banks, including the big four state-owned banks, became reluctant to make loans, the financial magazine said, citing traders and institutional sources. Caixin said that traders pointed to worsening sentiment among banks about market conditions and growing caution over interbank lending, especially after the U.S. Fed triggered a sell-off in the bond futures market on Thursday by signaling more rate hikes in 2017. Liquidity has become a major factor affecting the market after the central bank increased the cost of capital through open market operations in the past month, the magazine added.

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Don’t believe a word of it.

China To Strictly Limit Property Speculation In 2017 (R.)

China will strictly limit credit flowing into speculative buying in the property market in 2017, top leaders said at an economic conference on Friday, as reported by the official Xinhua news agency. “Houses are for people to live in, not for people to speculate,” Xinhua said, citing a statement issued by the leaders after the Central Economic Work Conference concluded. “We must control credits in the macro sense,” they said in the statement. China will also boost the supply of land for cities where housing prices face stiff upward pressure, they said. China must quickly establish a long-term mechanism to restrain property bubbles and prevent price volatility in 2017, Xinhua said. Top leaders began the conference on Wednesday to map out economic and reform plans. The annual event is keenly watched by investors for clues to policy priorities and economic targets in the year ahead.

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That’s what the country always used to be good at after all.

Italy Banking Crisis is Also a Huge Crime Scene (DQ)

The Bank of Italy’s Target 2 liabilities towards other Eurozone central banks — one of the most important indicators of banking stress — has risen by €129 billion in the last 12 months through November to €358.6 billion. That’s well above the €289 billion peak reached in August 2012 at the height of Europe’s sovereign debt crisis. Foreign and local investors are dumping Italian government bonds and withdrawing their funding to Italian banks. The bank at the heart of Italy’s financial crisis, Monte dei Paschi di Siena (MPS), has bled €6 billion of “commercial direct deposits” between September 30 and December 13, €2 billion of which since December 4, the date of Italy’s constitutional referendum.

Italy’s new Prime Minister Paolo Gentiloni, who took over from Matteo Renzi after his defeat in the referendum,said his government — a virtual carbon copy of the last one — is prepared to do whatever it takes to stop MPS from collapsing and thereby engulfing other European banks. His options would include directly supporting Italy’s ailing banks, in contravention of the EU’s bail-in rules passed into law at the beginning of this year. Though now, that push comes to shove, the EU seems happy to look the other way. While attention is focused on the rescue of MPS, news regarding another Italian bank, Banca Etruria, has quietly slipped by the wayside. On Friday it was announced that the first part of an investigation concerning fraudulent bankruptcy charges, in which 21 board members are implicated, had been closed.

This strand of the investigation concerns €180 million of loans offered by the bank which were never paid back, leading to the regional lender’s bankruptcy and eventual bail-in/out last November that left bondholders holding virtually worthless bonds. The Banca Etruria scandal is a reminder — and certainly not a welcome one right now for Italian authorities — that a large part of the €360 billion of toxic loans putrefying on the balance sheets of Italy’s banks should never have been created at all and were a result of the widespread culture of corruption, political kickbacks, and other forms of fraud and abuse infecting Italy’s banking sector. Etruria is also under investigation for fraudulently selling high-risk bonds to retail investors — a common practice among banks in Italy (and Spain) during the liquidity-starved years of Europe’s sovereign debt crisis.

Put simply, “misselling” subordinated debt to unsuspecting depositors was “the way they recapitalized the banking system,” as Jim Millstein, the U.S. Treasury official who led the restructuring of U.S. banks after the financial crisis, told Bloomberg earlier this year.

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Yeah, it’s unfair!!

Ireland Appeals EU Order To Collect €13 Billion In Back Taxes From Apple (AP)

Ireland will appeal the European Union’s order to force it to collect a record €13bn in taxes from Apple, the Irish government has said. The Irish finance department’s announcement on Monday comes nearly four months after EU competition authorities hit Apple with the back-tax bill based on its longtime reporting of European-wide profits through Ireland. The country charges the American company only for sales on its own territory at Europe-low rates that in turn have been greatly reduced by the controversial use of shell companies at home and abroad. In its formal legal submission, the Dublin says its low taxes are the whole point of its sales pitch to foreign investors — and said it is perfectly legal to levy far less tax on profits than imposed by competitors.

It accuses EU competition authorities of unfairness, exceeding their competence and authority, and seeking to breach Ireland’s sovereignty in national tax affairs. The ruling unveiled 30 August by the European competition commissioner Margrethe Vestager called on Apple to pay Ireland the €13bn for gross underpayment of tax on profits across the bloc from 2003 to 2014. Her report concluded that Apple used two shell companies incorporated in Ireland to permit Apple to report its Europe-wide profits at effective rates well under 1%. The scope of the order could have been even greater because EU time limits meant the judgment could include potential tax infringements dating only from 2003, not all the way back to Apple’s original 1991 tax deal with Ireland. But Irish specialists in corporate tax estimate that the EU’s order, if enforced, actually would total €19bn because of compounding interest from delayed payment.

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Everybody appeals.

Apple To Appeal EU Tax Ruling, Says It Was A ‘Convenient Target’ (R.)

Apple will launch a legal challenge this week to a record $14 billion EU tax demand, arguing that EU regulators ignored tax experts and corporate law and deliberately picked a method to maximize the penalty, senior executives said. Apple’s combative stand underlines its anger with the European Commission, which said on Aug. 30 the company’s Irish tax deal was illegal state aid and ordered it to repay up to €13 billion to Ireland, where Apple has its European headquarters. European Competition Commissioner Margrethe Vestager, a former Danish economy minister, said Apple’s Irish tax bill implied a tax rate of 0.005% in 2014. Apple intends to lodge an appeal against the Commission’s ruling at Europe’s second highest court this week, its General Counsel Bruce Sewell and CFO Luca Maestri told Reuters.

The iPhone and iPad maker was singled out because of its success, Sewell said. “Apple is not an outlier in any sense that matters to the law. Apple is a convenient target because it generates lots of headlines. It allows the commissioner to become Dane of the year for 2016,” he said, referring to the title accorded by Danish newspaper Berlingske last month. Apple will tell judges the Commission was not diligent in its investigation because it disregarded tax experts brought in by Irish authorities. “Now the Irish have put in an expert opinion from an incredibly well-respected Irish tax lawyer. The Commission not only didn’t attack that – didn’t argue with it, as far as we know – they probably didn’t even read it. Because there is no reference (in the EU decision) whatsoever,” Sewell said.

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A police state that bans gold and creates a huge underground market in it.

India Has Less And Less Reason To Exist In Its Current Form (Bhandari)

Assaults on people’s private property and the integrity of their homes through tax-raids continue. In a recent notification, government has made it clear that any ownership of jewelry above 500 grams of gold per married woman will be put under the microscopic scrutiny of tax authorities. Steep taxes and penalties will be imposed on those who cannot prove the source of their gold. In India’s Orwellian new-speak this means that because bullion has not been explicitly mentioned, its ownership will be deemed to be illegal. Courts will do what Modi wants. Huge bribes will have to be paid. Sane people are of course cleaning up their bank lockers. The secondary consequence of this will be a steep increase in unreported crimes, for people will be afraid of going to the police after a theft, fearing that the tax authorities will then ask questions.

At the same time, the gold market has mostly gone underground, and apparently the volume of gold buying has gone up. The salaried middle class is the consumption class, often heavily indebted. Poor people have limited amounts of gold. The government is merely doing what pleases the majority and their sense of envy, to the detriment of small businesses and savers. Now, the middle class is starting to face problems as well. This will worsen once the the impact of the destruction of small businesses becomes obvious. India has always had a negative-yielding economy. It has suddenly become even more negative-yielding. Business risk has gone through the roof. Savers will be victimized. It is because of negative yields that Indian savers buy gold. They will buy more going forward.

Sane Indians should stay a step ahead of their rapacious government and the evolving totalitarian society, which are less and less inhibited by any institutions or values in support of liberty. India will become a police state, likely with the full support of most Indians. Nationalism will be the thread that weaves them together. But it is a fake thread, devoid of any value. Eventually, there will be far too many stresses in the system, whose institutions are already in an advance stage of decay. India as it exists today is a British creation. With the British now gone for 69 years, it is an entity has less and less reason to exist in its current form.

Read more …

Yeah, let’s all get crazy when Brussels says so.

Greek Migration Minister Eyes ‘Closed’ Facilities On Islands (Kath.)

Despite widespread opposition in the ranks of SYRIZA to such a prospect, Migration Minister Yiannis Mouzalas has called for the creation of “closed” reception centers for migrants on Aegean islands, saying they will help minimize tensions amid local communities. A key reason for building tensions at existing centers on the islands is the slow pace at which migrants’ asylum applications are being processed. German Chancellor Angela Merkel made a pointed reference to the slow pace of migrant returns from Greece to Turkey last week. However, official figures show that an agreement signed in March between the European Union and Ankara significantly curbed arrivals in Greece. Of the 172,699 migrants that arrived in Greece from Turkey this year, only 20,457 have landed on the islands since the beginning of April, when the EU-Turkey deal went into effect.

Asylum officials on the Aegean islands have received a total of 21,314 applications, while 2,110 have appealed against initial rejections. The government hopes to create new facilities to accommodate migrants who have displayed delinquent behavior in a bid to curb the outbreak of rioting at larger centers and to stop thefts and other petty crimes that have been testing tolerance in local communities. “We propose small facilities for 150-200 people,” Mouzalas told Kathimerini, adding that authorities were not seeking the tolerance but the “solidarity” of islanders to help “normalize the situation.” As for the prospect of transferring some migrants from island centers to facilities on the mainland, Athens has asked EU officials about it but has failed to receive a response amid fears that such a move would constitute a violation of the EU-Turkey pact, Mouzalas said.

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There’s far more than seven, but hey, it’s John Vidal. Who spent half his life doing this.

The Seven Deadly Things We’re Doing To Trash The Planet (John Vidal)

A baby ibex on a precipitous cliff edge. The hyenas of Harar eating from a human hand. Leopards in Mumbai, whales breaching and baby turtles heading blindly away from the sea. We are amazed by images of wildlife seen in ever more beautifully filmed natural history documentaries. They raise awareness, entertain, inform and amuse. We weep when we hear there are fewer birds in the sky, or that thousands of species are critically endangered. But there are some metaphorical megafauna that the BBC and we in the media really do not want everyone to see. After half a lifetime writing for the Guardian about the decline of the natural world, I have to report that there is a herd of enormous elephants in the forest that are trashing the place. We avert our eyes and pretend they are not there. We hope they will go away, but they appear to be breeding. But it is now clear that they are doing so much damage that unless confronted, there is little chance that the rest of the animals, including us, will survive very long.

Hyper-consumerism is the dominant matriarch of this destructive herd and the dysfunctional economic model that supports it, generating waste and ecological damage on a massive scale. The average US supermarket offers nearly 50,000 products; in the UK we throw away millions of tonnes of food a year; mobile phones have an average lifespan of just over a year; computers and cars just a few years more. The free market economy that has been built around it celebrates speed, obsolescence and quantity over longevity and efficiency. But we know that hyper-consumerism leads directly to deforestation, over-extraction of minerals, the waste of natural resources and pollution. We simply have too much stuff that no one possibly needs. To avoid ecological disaster, it must be culled.

Read more …

Aug 062016
 
 August 6, 2016  Posted by at 9:00 am Finance Tagged with: , , , , , , , , , , ,  Comments Off on Debt Rattle August 6 2016
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Ben Shahn Sideshow, county fair, central Ohio 1938

UK’s Four Biggest Banks £155 Billion Short Of Safety (Ind.)
Want To Avoid Recession? Then Shower UK Households With Cash (G.)
A Realistic Look at July’s Nonfarm Payrolls (M2)
The Politically Incorrect Jobs Numbers Everyone is Hushing Up (WS)
Hacked Bitcoin Firm Plans To Spread Losses Across All Users (CNBC)
In China, When in Debt, Dig Deeper (WSJ)
Only In China: Companies Become Banks To ‘Solve’ Financial Difficulties
Galbraith Says Critics Have It All Wrong Over Greece ‘Plan X’ (Kath.)
Stiglitz Quits Panama Papers Probe, Cites Lack Of Transparency (R.)
Is Hillary Clinton Corrupt? An Archive of Financial Improprieties (Medium)
Average American 15 Pounds Heavier Than 20 Years Ago (HDN)

 

 

“That sum is not far away from the present market capitalisation of these banks, implying that they are massively overexposed.”

UK’s Four Biggest Banks £155 Billion Short Of Safety (Ind.)

The UK’s four biggest banks would need to raise another £155bn in fresh capital to withstand a new financial crisis, despite the view of the Bank of England Governor that lenders have an adequate cushion to cope with further turmoil. Those are the results of research from three respected financial academics – and add to a growing feeling that the Bank of England is dangerously undercooking its capital requirements on UK lenders in the face of swelling instability in financial markets. UK banks had to be rescued in 2008 and 2009 at massive cost to British taxpayers. Capital represents the shareholder funds in banks available to absorb losses. When losses are greater than the capital cushion the bank is bust and may need to tap state support if deemed to be systemically important by politicians and regulators.

In a new paper Viral Acharya of New York University, Diane Pierret of the University of Lausanne and Sascha Steffen of the University of Mannheim calculate that HSBC, Barclays, Lloyds and the Royal Bank of Scotland would need to raise $185bn (£155bn) of new equity between them to retain a 5.5% capital cushion in a crisis, which is the benchmark of safety used in the past by the European Banking Authority. That sum is not far away from the present market capitalisation of these banks, implying that they are massively overexposed. The EBA’s stress test exercise last Friday showed the UK’s major lenders would see their capital diminished in another European economic crisis, but not below the 5.5% level of so-called “risk-weighted assets” that would have created pressure for more equity injections.

[..] Acharya, Pierret and Steffen argue that the broader European banking sector could be undercapitalised to the tune of around €890bn – a figure they calculated using stock market valuations of banks’ equity rather than the sums reported by lenders themselves. Bank share prices have continued to fall since last Friday’s EBA stress test, implying investors are far from reassured by the fact that most lenders received a clean bill of health from the regulators.

Read more …

Would it even help anymore?

Want To Avoid Recession? Then Shower UK Households With Cash (G.)

Just give people the money. Give them cash, dole it out, increase benefits, slash VAT, hand it to those most likely to spend it: the poor. Put £1,000 into every debit account. Whatever you do, don’t give it to banks. They will just hoard it or use it to boost house prices. Britain is suffering from a classic liquidity trap. There is insufficient demand. Yet all the Bank of England did on Thursday was wring its hands, blame Brexit and go on digging the same old holes. They are labelled lower interest rates, quantitative easing and more cash for banks. Those policies have been in place for some seven years. They have failed, failed, failed. Not one commentator yesterday thought cutting interest rates to 0.25% would make any difference to the threat of recession.

Worse, by cutting annuity yields it would impoverish many old people who would otherwise spend. The Bank’s cumbersome monetary bureaucracy was set up to keep inflation under control by curbing bank lending. That failed during the credit crunch. Now it is failing in the opposite direction. Channelling policy through the banks has proved useless in protecting the economy from deflation and recession. The Bank is trapped intellectually in the world in which it lives, that of the City and the banking system. Like chateau generals at the Somme, it never ventures to the economy’s frontline, where buyers meet sellers and generate growth. It thinks of bonds, investments and the only glamour spending it recognises, on infrastructure. It believes that an economy can be regenerated through middle-class home ownership and state mega-projects.

But there is no shortage of funds to invest. Companies, like banks, are awash in cash. The problem is that savers are not spending; if they spend on anything it is on property, and that, too, may now slide. It is irresponsible to await the chancellor’s autumn statement and a political fiddle with tax rates. The engine of the economy must crash into forward gear. Money must be got into bank accounts, cash cards, shops tills and revenues. The plea from 35 economists published in the Guardian this week for “unconventional measures” made only one mistake. It suggested more spending on state infrastructure, which is just spending delayed. Where the economists were right was in suggesting “an immediate increase in household disposable incomes”.

Read more …

“..the U-6 unemployment number is 10.7% of the nation’s workforce..”

A Realistic Look at July’s Nonfarm Payrolls (M2)

The Bureau of Labor Statistics (BLS) released its nonfarm payroll data this morning, showing that 255,000 jobs were created in July. The unemployment rate remained at 4.9%. May data was revised up from the eyebrow-raising low number of 11,000 jobs to 24,000 jobs while June was also revised upward from 287,000 jobs to 292,000. That brought the monthly average to 190,000 jobs over the past three months. Unfortunately, drilling down into the more granular details, a far less rosy picture emerges; a picture which is far more consistent with an economy feeling the continued weight of unprecedented wealth and income inequality; a picture that is far more correlated to an economy where “58% of all new income since the Wall Street crash has gone to the top 1%,” to quote Senator Bernie Sanders.

The data for July shows that the U-6 unemployment number is 10.7% of the nation’s workforce, more than double the official number of 4.9%. The U-6 unemployment rate includes the number of people unemployed; plus individuals just marginally attached to the labor force; plus those employed part-time for economic reasons. (The Bureau of Labor Statistics provides the following definition of marginally attached: “Persons marginally attached to the labor force are those who currently are neither working nor looking for work but indicate that they want and are available for a job and have looked for work sometime in the past 12 months. Discouraged workers, a subset of the marginally attached, have given a job-market related reason for not currently looking for work.)

But a far bigger problem with the BLS data is what constitutes an “employed” worker to our Federal government’s numbers crunchers. According to the Bureau of Labor Statistics, you could be an out of work MBA graduate but if you help your brother in his deli for 15 hours in a week while living in his home, you’re counted as employed. (The BLS says that a worker who makes no money at all donating his or her services to a family business for 15 hours or more per week is considered employed.)

Read more …

The US keeps addding more people than jobs.

The Politically Incorrect Jobs Numbers Everyone is Hushing Up (WS)

On its population clock, the Census Bureau estimates that the US population on August 5, 2016, at 4:49 p.m. ET (yup, down to the minute) was 324.17 million. That’s up from 308.76 million in April 2010. Since the darkest days of the Great Recession, the US population has grown by 15.4 million. The Census Bureau also estimates that there are currently 8.6 births per minute, minus 4.6 deaths per minute, plus 2 arriving immigrants (“net”) per minute, for a gain of nearly 6 folks per minute. Everyone ages, so the young ones move into the labor force, but the baby boomers are fit and healthy and don’t feel like retiring, and so they hang on to their jobs for as long as they can, despite the rampant age discrimination they face in many sectors, particularly in tech, though obviously not in politics.

In 2010, 24% of the people were under 18. That was 74 million people. Millions of them have since moved into the labor force, elbowing each other while scrambling for jobs, as have those millions who were then between 18 and their twenties and in college or grad school. These millennials have arrived on the job market in very large numbers. In April 2010, there were 130.1 million nonfarm payrolls. In today’s July report, there were 144.4 million. Hence, 14.3 million jobs have been added to the economy over the time span, even as the total population has grown by 15.4 million. So that’s not working out very well. On average, 205,300 jobs need to be created every month just to keep up with population growth and not allow the unemployment situation to get worse.

Read more …

Maybe they should be forced to pay back all their clients and close?

Hacked Bitcoin Firm Plans To Spread Losses Across All Users (CNBC)

The bitcoin exchange Bitfinex has said it is considering sharing losses among all its users after around $70 million worth of bitcoin was stolen earlier in the week. “We are still working out the details so nothing is set in stone, however we are leaning towards a socialized loss scenario among bitcoin balances and active loans to (bitcoin/dollar) positions,” the Hong-Kong based company said on its website on Friday. Bitfinex revealed it had been hacked on Tuesday and suspended trading, causing prices of the digital currency to fall significantly. A total of 119,756 bitcoins, worth $68 million at current prices, were reportedly stolen as a result of a security breach.

The company added in its latest statement that nothing had yet been decided and it was still settling positions and account balances. Bitfinex’s “socialized loss scenario” most likely means it will distribute its losses among all of the platform’s users, according to Charles Hayter, chief executive and founder of digital currency comparison website CryptoCompare. This would mean users whose bitcoins were never originally stolen would be affected. “In essence, (this is) a haircut for all users on their deposits. To what degree depends on the devil in the details and what the total capital held by BitFinex is,” Hayter told CNBC via email.

Read more …

A heavily indebted company gets permission to open a bank, to rival another bank that has 25% of its loans off-balance-sheet and non-performing. What could go wrong?

In China, When in Debt, Dig Deeper (WSJ)

When the going gets tough in China, just get a bank. With profits headed south, heavily indebted Chinese heavy-machinery giant Sany Heavy Industries said this week it won approval to set up a bank in the Hunan province city of Changsha. With 3 billion yuan ($450 million) of registered capital, it will be a relatively large institution as Chinese city-based banks go. Sanyplans to join forces with a pharmaceutical company and an aluminum company.

In recent months several city commercial banks in China have been taken over by the likes of tobacco and travel companies, recapitalized and renamed. Banking licenses are scarce in China, and rarely are new banks set up from scratch. Sany’s Sanxiang Bank will be up and running in six months. It will go up against crosstown rival Bank of Changsha, which at the end of last year had substantial 90 billion yuan book of off-balance-sheet loans, more than a quarter of them nonperforming. Sany had better ramp up quickly.

Read more …

Comment on the WSJ piece above.

Only In China: Companies Become Banks To ‘Solve’ Financial Difficulties

China is desperate to solve several problems it has due to its debt to GDP ratio being north of 300%. It may have found a pretty unconventional one by letting companies become banks, according to a report by the Wall Street Journal. “With profits headed south, heavily indebted Chinese heavy-machinery giant Sany Heavy Industries said this week it won approval to set up a bank in the Hunan Province city of Changsha. With 3 billion yuan ($450 million) of registered capital, it will be a relatively large institution as Chinese city-based banks go. Sany plans to join forces with a pharmaceutical company and an aluminum company. Sany already operates an insurance and finance division with the goal of internal financing and insurance services for clients.”

One problem is that companies are defaulting on bond payments and there is no adequate resolution mechanism for bad debts, at least according to Goldman Sachs. “A clearer debt resolution process (for example, how debt restructuring on public bonds can be achieved, how valuation and recovery on defaulted bonds are arrived at, the timely disclosure of information and clarity on court-sanctioned processes) would help to pave the way for more defaults, which in our view are needed if policymakers are to deliver on structural reforms,” the investment bank writes in a note. By becoming or owning banks, the companies can just shift debt around different balance sheets to avoid a default, although this is probably not the resolution that Goldman Sachs had in mind when talking about structural reforms.

Another problem is that the regime has more and more difficulties pushing more debt into the economy to grease the wheels and keep GDP growth from collapsing entirely. China needs 11.9 units of new debt to create one unit of GDP growth. At the same time, the velocity of money or the measure of how often one unit of money changes hands during a year has fallen to below 0.5, another measure of how saturated the economy is with uneconomical credit. If the velocity of money goes down, the economy needs a higher stock of money to keep the same level of activity.

Read more …

Kathimerini is going off the rails, as are a group of Greeks. Accusing Varoufakis and Galbraith of planning a military coup is so far beyond the pale, it’s reason to look at legal action.

Galbraith Says Critics Have It All Wrong Over Greece ‘Plan X’ (Kath.)

University of Texas professor James Galbraith, a close associate of Yanis Varoufakis, has urged the 23 US-educated Greeks who recently criticized him for his part in last year’s negotiations with Greece’s creditors to read his book. Galbraith’s response came in the form of a letter to Kathimerini, which had published a story on July 29 on the letter from the 23 academics, addressed to the president of the University of Texas. In his own letter, Galbraith mentions the fact that his critics say they learned of his work as head of the team that worked on the so-called “Plan X” from interviews in the Greek press and excerpts of the Greek translation of his book, “Welcome to the Poisoned Chalice” (Yale University Press).

He asks why, given their knowledge of English, they did not read the original: “Had they done so, they would have found that the allegations they made are factually false.” Galbraith characterizes Plan X as “preliminary,” admitting that “the work of a small team cannot fully prepare for such a dramatic event.” He repeats that it would only have been activated if the Europeans had carried out their threat to cut off emergency liquidity via the ECB to Greek banks. “This would have triggered a forced exit of Greece from the euro, against the will of the government,” he notes. “The threat had been delivered by the president of the Eurogroup, Jeroen Dijsselbloem, in late January,” he adds, mentioning also the suggestion by German Finance Minister Wolfgang Schaeuble that Greece take a “holiday from the euro.”

Galbraith further rejects the claim made by the 23 that his plan constituted a “monetary-cum-military coup d’etat” and that it would involve “mobilizing the Greek armed forces to suppress possible civil disorder.” “We did not suggest using the military inappropriately or outside the Constitution. The only use of the word ‘mobilization’ in my book refers to the civil service.” He also denies that the plan included a plot to arrest the governor of the central bank. The memo on Plan X, as Galbraith repeats in his letter, “was prepared at the request of the prime minister” and “at no time was the working group engaged in advocating exit or any policy choice. The job was strictly to study the operational issues that would arise if Greece were forced to issue scrip or if it were forced out of the euro.”

Finally, Galbraith responds to claims in the letter from the 23 that he regretted the non-activation of Plan X. “This claim also is false,” he writes, making reference to his interview with Kathimerini on July 6, 2016, in which he had stated that “we were preparing for a scenario that everyone hoped to avoid.”

Read more …

“..even as an expert on economic and organized crime, I was amazed to see so much of what we talk about in theory was confirmed in practice..”

Stiglitz Quits Panama Papers Probe, Cites Lack Of Transparency (R.)

The committee set up to investigate lack of transparency in Panama’s financial system itself lacks transparency, Nobel Prize-winning economist Joseph Stiglitz told Reuters on Friday after resigning from the “Panama Papers” commission. The leak in April of more than 11.5 million documents from the Panamanian law firm Mossack Fonseca, dubbed the “Panama Papers,” detailed financial information from offshore accounts and potential tax evasion by the rich and powerful. Stiglitz and Swiss anti-corruption expert Mark Pieth joined a seven-member commission tasked with probing Panama’s notoriously opaque financial system, but they say they found the government unwilling to back an open investigation.

Both quit the group on Friday after they say Panama refused to guarantee the committee’s report would be made public. “I thought the government was more committed, but obviously they’re not,” Stiglitz said. “It’s amazing how they tried to undermine us.” The Panamanian government defended the committee’s “autonomous” management in a statement issued later on Friday, and while it said it regretted the resignations of Stiglitz and Pieth, it chalked them up to unspecified “internal differences.”

[..] In addition to embarrassing leaders worldwide who had interests tied to secretive business concerns, the leak heaped pressure on Panama, well-known for its lax financial laws, to clean up its act. “I have had a close look at the so called Panama Papers, and I must admit that even as an expert on economic and organized crime, I was amazed to see so much of what we talk about in theory was confirmed in practice,” Pieth said in a telephone interview. In the papers he said he found evidence of crimes such as money laundering for child prostitution rings. “We’re being asked to do this as a courtesy for them and we’re paraded in front of the world media first, and then we’re told to shut up when they don’t like it,” Pieth, a criminal law professor at Basel University, said.

Read more …

Long and strong summary by Kristi Culpepper. Damning.

Is Hillary Clinton Corrupt? An Archive of Financial Improprieties (Medium)

[..] Under Clinton’s leadership, the State Department approved $165 billion worth of commercial arms sales to 20 nations whose governments have given money to the Clinton Foundation, according to an IBTimes analysis of State Department and foundation data. That figure – derived from the three full fiscal years of Clinton’s term as Secretary of State (from October 2010 to September 2012) – represented nearly double the value of American arms sales made to the those countries and approved by the State Department during the same period of President George W. Bush’s second term.

The Clinton-led State Department also authorized $151 billion of separate Pentagon-brokered deals for 16 of the countries that donated to the Clinton Foundation, resulting in a 143% increase in completed sales to those nations over the same time frame during the Bush administration. These extra sales were part of a broad increase in American military exports that accompanied Obama’s arrival in the White House. The 143% increase in U.S. arms sales to Clinton Foundation donors compares to an 80% increase in such sales to all countries over the same time period.

[..] It’s really not all that difficult to see why Clinton hasn’t given a press conference in 244 days and avoids the media at her campaign events, is it? Asking her to explain every ethically questionable deal she has been involved in would probably take longer than the State Department requires to vet her emails.

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In just 20 years. Wow.

Average American 15 Pounds Heavier Than 20 Years Ago (HDN)

There’s no doubt about it: Americans are getting heavier and heavier. But new U.S. estimates may still come as a shock – since the late 1980s and early 1990s, the average American has put on 15 or more additional pounds without getting any taller. Even 11-year-old kids aren’t immune from this weight plague, the study found. Girls are more than seven pounds heavier even though their height is the same. Boys gained an inch in height, but also packed on an additional 13.5 pounds compared to two decades ago. When looked at by race, blacks gained the most on average. Black women added 22 pounds despite staying the same average height. Black men grew about one-fifth of an inch, but added 18 pounds, the study found.

[..] According to the report, the average weight of men in the United States rose from 181 pounds to 196 pounds between 1988-1994 and 2011-2014. Their average height remained the same at about 5 feet, 9 inches. The average woman, meanwhile, expanded from 152 pounds to 169 pounds while her height remained steady at just under 5 feet, 4 inches.

Read more …

Jul 092016
 
 July 9, 2016  Posted by at 8:25 am Finance Tagged with: , , , , , , , , , ,  Comments Off on Debt Rattle July 9 2016
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Jack Delano Mike Evans, welder, Proviso Yard, Chicago & North Western RR 1940

The Decline & Fall Of The Biggest Bond Market In The World (ZH)
More Than 20% Of Americans Are Simply Too Poor To Shop (NYPost)
What If I Told You Employment Actually Declined 119,000 In June (Rosenberg)
Chicken Little Economists Are Wrong About Brexit (MW)
UK Property Hits Levels Of Unaffordability Not Seen Since 2007 (TiM)
If Bank Stocks Are Linked to Bank Lending, Europe Should Worry (BBG)
Italy PM’s Tuscan Nightmare: The Fall Of ‘Daddy Monte’ (R.)
Albert Edwards: Brexit Is Old News, Time To Worry About Italy (VW)
Italy’s In An Economic Straitjacket, Needs To Be Freed: Albert Edwards (CNBC)
Only Europe’s Radicals Can Save The EU: Yanis Varoufakis (Newsweek)
Worst. Coup. Ever. (TeleSur)
The Persian Gulf’s Huge New Export: Debt (WSJ)
Greek Exports Record Major Decline In May (Kath.)
Russia Hits Back At ‘Anti-Russian’ NATO ‘Hysteria’ (CNBC)

 

 

Stop it already!

The Decline & Fall Of The Biggest Bond Market In The World (ZH)

Government bonds are themselves becoming more illiquid, most particularly, as CLSA’s Chris Wood notes, in a country like Japan where the Bank of Japan has been buying more than the net issuance. Monthly trading of JGBs by lenders and insurers has collapsed from a peak of ¥123tn in April 2012 to a record low of ¥15tn in May 2016. This raises the pertinent issue of whether the Bank of Japan has reached the practical limit of its government buying programme in terms of its current purchase programme of ¥80tn relative to estimated annual JGB net new issuance of ¥34tn.

In this respect, the Japanese central bank has from a potentially monetisation standpoint always defended the integrity of its JGB purchase programme by stressing that it only buys JGBs in the secondary market, which means that the seller of the JGB to the BoJ forfeits a claim to that asset. This is contrasted to what would happen if the BoJ bought JGBs in the primary market on an open-ended basis. Such a process would be highly inflationary and, sooner or later, would be viewed by the market as such. And as Wood concludes, the next step is obvious…

“This is why Japan, as well as America, is also a candidate for monetisation of infrastructure stimulus or for what Bernanke has called a “money-financed fiscal programme”, or what has been called in other quarters “overt monetary financing”. This is because Bank of Japan governor Haruhiko Kuroda is now looking for a new alternative form of monetary easing, given he has probably reached the practical limits of responsible JGB buying, as already discussed, while his initial move to impose negative rates in January led to the opposite market reaction than expected (ie, a stronger yen and a weaker stock market) while also proving politically very unpopular. This probably explains why Kamikaze Kuroda has not expanded the negative rate policy further since January even though inflation and inflation expectations have moved in the opposite direction of what he has been targeting.”

The latest data will make it harder for Kuroda to do nothing at the next BoJ policy meeting due to be held on 28-29 July given the stress he has put on monitoring inflation expectations. That is unless he just admits he has failed! Given the unattractive options of buying still more JGBs or ETFs, or risking an undoubtedly unpopular expansion of negative rates, Kuroda and indeed Abe will be looking for a new approach. Monetisation of infrastructure stimulus may be the option. Meanwhile, in an effort to calm potential concerns about the integrity of the fiscal budget central bankers implementing such a future monetisation of infrastructure spending will doubtless be at pains to describe the process as a “one off” though, as the ever theoretical Bernanke stated in his blog: “To have its full effect, the increase in the money supply must be perceived as permanent by the public.”

Read more …

But the jobs report?!

More Than 20% Of Americans Are Simply Too Poor To Shop (NYPost)

Retailers have blamed the weather, slow job growth and millennials for their poor results this past year, but a new study claims that more than 20% of Americans are simply too poor to shop. These 26 million Americans are juggling two to three jobs, earning just around $27,000 a year and supporting two to four children — and exist largely under the radar, according to America’s Research Group, which has been tracking consumer shopping trends since 1979. “The poorest Americans have stopped shopping, except for necessities,” said Britt Beemer, chairman of ARG. Beemer has been tracking this subgroup for two years, ever since his weekly surveys of 15,000 consumers picked up that 21% of consumers did not finish their Christmas shopping in 2014 due to being too busy working.

That number grew to 29% last year, and Beemer dug in to learn more about them, calling them on holidays. He estimates that this group has swelled from 6 million households four years ago, because their incomes have not kept pace with expenses like medical costs. Nearly half of all Americans have not seen an increase in salary over the last five to seven years, and another 28% have seen their take-home pay reduced by higher medical insurance deductions or switching to part-time jobs, ARG found. “It’s scary when you start to see things that you’ve never seen before,” said Beemer. “People are so pessimistic about their future.” Most of those living on the edge — 68% are women between the ages of 28 and 38 — work in retail or in call centers, according to Beemer.

Read more …

Rosenberg flip flop. “This is otherwise known as looking at the big picture.”

What If I Told You Employment Actually Declined 119,000 In June (Rosenberg)

David Rosenberg: What if I told you that employment actually declined 119,000 in June and has been faltering now for three months in a row? Yes, that is indeed the case. Of course, the focus, as always is on the non-farm payroll report but keep in mind that while this is the data series that moves markets, it does not necessarily have the final word on how the labor market is truly faring. Okay, so let’s get the pablum out of the way first. Nonfarm payrolls surprised yet again but this time to the upside — surging 287,000 in the best showing since last October and again making a mockery of the consensus economics community which penned in a 180,000 bounce….

…as if the Household sector ratified the seemingly encouraging news contained in the payroll data as this survey showed a tepid 67,000 job gain last month and rather ominously, in fact, has completely stagnated since February. Historians will tell you that at turning points in the economy, it is the Household survey that tends to get the story right.

[..] The simple fact of the matter is that May and June were massive statistical anomalies. The broad trends tell the tale. Go back to June 2014 and the six-month trend in payrolls is running at a 2.2% annual rate and the three-month trend at 2.4%. A year ago, as of June 2015, the six-month pace was 1.9% and the three-month at 2.2%. Fast forward to today, and the six-month annualized rate is 1.4% and the three-month has slowed all the way down to a 1.2%. This is otherwise known as looking at the big picture.

When the Household survey is put on the same comparable footing as the payroll series (the payroll and population-concept adjusted number), employment fell 119,000 in June – again calling into question the veracity of the actual payroll report — and is down 517,000 through this span. The six-month trend has dipped below the zero-line and this has happened but two other times during this seven-year expansion.

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“..the E.U.’s “free-trade zones” have become classic Orwellian nomenclature. Flip it: “Free-trade zone” means “unfree-trade zone.”

Chicken Little Economists Are Wrong About Brexit (MW)

A few years ago when Grexit was the E.U. crisis du jour, I explained why Greece just didn’t matter to the world’s economies or the U.S. stock markets in columns like this one called, “Apple is bigger than the entire Greek economy.” Did you know that Great Britain’s GDP is 10 times larger than Greece’s? Unlike with Apple vs Greece’s entire GDP, at $2.7 trillion per year, Britain’s economy is equal to the combined market cap of Apple, Google, Microsoft, Exxon Mobil, Berkshire Hathaway, Amazon and Facebook. The total market cap of the DJIA is only (?) about $5.5 trillion, or twice Britain’s GDP. Clearly, Brexit has a much bigger potential to impact the broader economy and the financial markets than Greece ever did.

Which, in my opinion, is a good thing. Greece’s economy has shrunk 20% since the great Greek Financial Crises Du Jour was hitting the markets and the country chose to stay in the E.U. rather than getting out. Staying in the E.U. has created a Great Depression kind of decline in the economy there. Now I don’t think Great Britain has ever been positioned as poorly as Greece has been inside the E.U., so I certainly don’t think its economy is about to crash 20% in the next two or three years whether in or out of the E.U. But I like the prospects for the country to unwind the cumbersome red tape, regulations and control from the E.U.’s central powers, thereby unleashing entrepreneurship, innovation and freer trade,

One of the great ironies that Brexit has highlighted is that the E.U.’s “free-trade zones” have become classic Orwellian nomenclature. Flip it: “Free-trade zone” means “unfree-trade zone.” As LunaticTrader put it in a discussion about all of this on Scutify: “The E.U. worked well until the late 1990s when it was mainly a free-trade zone. It has gradually morphed into an ‘unfree trade zone’ because that ‘free’ has been gradually replaced by 80000 laws and regulations, combined with the euro, which took away the weaker countries’ (Greece, Italy, Spain…) main tool to manage their own economy. This doesn’t offer any economic benefits to the weaker E.U. members, as has become abundantly clear.”

From this corner’s perspective, Great Britain’s leaving the E.U. gives the nation itself a much higher probability of creating economic growth and prosperity for its citizens than staying in the E.U. ever did. That new upside potential, plus the fact that its economy is large enough to impact the global and U.S. economies nets out to Brexit being a positive, despite all the handwringing in the media and Chicken Little politicians, economists, pundits and traders who are basically begging you to freak out about it.

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What Brexit will correct.

UK Property Hits Levels Of Unaffordability Not Seen Since 2007 (TiM)

UK house prices continued to rise in June, adding almost £3,000 in a month, stretching affordability to levels not seen since the run-up to the financial crisis in 2007, a new survey suggests. Halifax said it was too early to say how the referendum that sanctioned the UK’s decision to leave the EU will impact the housing market, but added there were signs the pace of growth is easing. The price of the average home in the UK rose by 1.3% between May and June, or by £2,708, to hit £216,823, up from 0.6% the previous month, according to the latest index by the mortgage lender. Meanwhile, the ratio of house prices to earnings rose to 5.70 in June from 5.65 in May, marking its highest level since October 2007.

This means that buying a new home will cost the average workers close to six years of their earnings before tax. On an annual basis, however, prices grew by 8.4%, down from 9.2% in May, posting the lowest growth since July last year. Martin Ellis, Halifax housing economist, said: ‘There is evidence that the underlying pace of house growth may be easing.’ And added: ‘House prices continue to increase, albeit at a slower rate, but this precedes the EU referendum result, therefore it is far too early to determine any impact since.’ The Bank of England this week warned that property prices ‘had become stretched’ in recent months – meaning a cooling of the market was likely at some point regardless of the Brexit vote.

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“..if banks decide to keep their balance sheets unchanged until the end of 2017, this could halve economic growth in the euro area next year.”

If Bank Stocks Are Linked to Bank Lending, Europe Should Worry (BBG)

Don’t underestimate the toll that the post-Brexit bank equity rout can take on the euro-area economy. Initial calculations of the effect of the U.K. referendum on the region’s recovery have suggested that the blow will be relatively mild, with ECB President Mario Draghi telling European Union leaders that the impact from direct trade could add up to 0.5 %age point over three years. But such scenarios don’t take into account the consequence of the 23% decline in bank stocks since the Brexit vote. Historically, bank equities have correlated strongly with bank lending, with about a year’s lag, as the chart below shows.

Deutsche Bank analysts led by Marco Stringa argue in a July 5 paper that there’s also a causal link: As banks are now under regulatory pressure to raise capital, slumping stock prices and low profitability make it very difficult to build up funds either externally or internally. Deutsche Bank’s own share price has fallen by more than 25% since June 23. If banks struggle to raise capital, they may come under extra pressure to shrink assets. That could mean less lending to the economy. Bankers often claim that asking them to have more funds of their own instead of borrowing from the market hampers their ability to extend credit. Regulators retort that higher capital requirements in fact strengthen a bank’s ability to make loans, not the opposite.

Even so, it might mightn’t take much for Brexit to put a stop to the timid pick-up in euro-area bank lending that started just last year. That’s not least because of the impact of uncertainty on households’ and companies’ investment choices. The impact of a renewed credit crunch on Europe’s largely bank-dependent companies could be severe. Not by chance, fixing the banks to restart credit to the real economy has been one of the main goals of the ECB’s policies since the crisis. Stringa estimates that if banks decide to keep their balance sheets unchanged until the end of 2017, this could halve economic growth in the euro area next year. Worse still, if lenders only manage to raise half of the funds they need to meet what the economists refer to as “Basel IV” requirements, this could force them to reduce their loan book’s risk-weighted assets.

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May have co-financed Columbus: “In 1624, the Medici Grand Duke of Tuscany rushed to the defense of depositors of a bank that was by then already 152 years old..”

Italy PM’s Tuscan Nightmare: The Fall Of ‘Daddy Monte’ (R.)

In 1624, the Medici Grand Duke of Tuscany rushed to the defense of depositors of a bank that was by then already 152 years old, Monte dei Paschi di Siena, guaranteeing their savings at a time of economic crisis. Nearly 400 years later, Italian Prime Minister and fellow Tuscan Matteo Renzi aims to do something similar as the world’s oldest bank and Italy’s third-largest lender again threatens the region’s savers. This time the stakes are much higher. The collapse of Monte dei Paschi could not only impoverish thousands of ordinary Italians, it could lead to a wider banking crisis, help tip Renzi from power and provide another strong jolt to the European Union, already reeling from Britain’s referendum vote to leave the group.

“The government must assume its responsibilities, save the bank and its investors, otherwise this gangrene will spread to the rest of the system,” said Romolo Semplici, a 58-year-old real estate entrepreneur whose 22,000-euro investment in the bank’s shares is now worth less than 200 euros. “I’ve always been pro-European, but if Europe doesn’t protect its own citizens then we should think twice if this the kind of Europe that we want to be in.” Government sources say Italy is considering options to prop up the bank, including a state guarantee that would enable the bank to raise money it would otherwise struggle to secure from skeptical investors. Many bankers say the bank will inevitably have to raise around €3-4 billion.

Officials in Brussels, a world away from the medieval cobble-stoned alleys of Siena, one of Italy’s most popular tourist centers, may stand in Renzi’s way. A state rescue of Monte dei Paschi would be the first real test of EU rules limiting the use of taxpayers’ money to bail out investors. The rules require holders of the bank’s shares and junior debt to bear some of the losses. Depositors with more than €100,000 would also be hit. The bank’s share price has halved since Britain voted on June 23 to leave the EU, as investors stampede out of Italian banks on concerns that Brexit could send Italy back into recession and saddle them with even more bad debts.

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“..Italy may fall in October or may not, but it will eventually occur..”

Albert Edwards: Brexit Is Old News, Time To Worry About Italy (VW)

Edwards looks at the 2008 financial crisis and says it was not Lehman Brothers that was causation. Lehman was a symptom of an economic engine already in decline. Likewise there is Brexit, an issue he notes has been accompanied by some of the most emotional ranting he’s seen – on both sides of the argument, including his own. Brexit will be used as an excuse for all sorts of economic ills, but it is only a symptom, a benchmark for a larger trend. When he takes off the emotional hat, he says the real issue is the continued dismantling of the European Union that is upon which savvy investors should focus. There is a game of dominoes being played out and Brexit was just the latest move in a trend.

“In the aftermath of the Brexit vote there is an increasing fear of other dominoes falling within the heart of the EU – the eurozone,” Edwards wrote. “Italy is bleeping very loudly on most people’s radars with its banking crisis and impending referendum seen as leaving the country on a knife-edge.” The Italian banking crisis is important, but it is not the primary problem. “It is a symptom of the problem that problem being a perpetually stagnant economy and deflation,” he wrote. “Italy simply does not appear to be able to grow inside the eurozone and more importantly probably never will.” But it is not just Italy that could be part of the trend extension, the trend could be extended across Europe.

In making this analysis, Edwards does not cite all too simple issues of immigration, fear of globalization or a lack of foresight by the slovenly masses who vote. He looks at economic numbers and notes that it’s not just Italy that is at risk of withdrawing from a marriage. There have been economic winners and losers, and they are clear and documentable. “Indeed the Italian economy has barely grown one jot since it joined the eurozone at the start of 1999 while Germany has grown rich,” he said, pointing to one clear winner with many clear losers. “As inevitably people compare their fortunes with that of their neighbours, the Italians are mighty pissed off.”

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“..the country is “condemned to perpetual economic stagnation within the strictures of the euro zone..”

Italy’s In An Economic Straitjacket, Needs To Be Freed: Albert Edwards (CNBC)

The citizens of Italy will vote to leave the euro zone after an impending recession and a shift in power inside the country’s political system, according to Societe Generale’s notoriously bearish strategist, Albert Edwards. “The people are angry,” Edwards said in a note Friday, highlighting a poll in May by IPSOS Global that showed almost half of Italians would vote “out” in a referendum on their country’s EU membership. “Italy simply does not appear to be able to grow inside the euro zone and more importantly probably never will … after the next recession I believe a majority of Italians will have had enough of the euro zone experiment and vote in the radical Five Star Movement,” he added.

Anti-establishment Five Star Movement (M5S) is now Italy’s most popular party after a poll on Wednesday showed that it would win an election over Prime Minister Matteo Renzi’s Democratic Party (PD), according to Reuters. This comes at a time when Renzi is trying to deal with a fragile banking system, bogged down by non-performing loans. A referendum on constitutional reform this October is also looming and could well usher in new elections. But Edwards suggests that the Italian bank crisis – and also Brexit – are not a cause of the world’s economic problems, but just symptoms. The real issue is that the country is “condemned to perpetual economic stagnation within the strictures of the euro zone,” he said, suggesting that recapitalizing the Italian banks will not solve their problems.

With a slew of figures, the Societe Generale strategist detailed in his research note how unemployment has risen since the mid-2000s and how productivity has stagnated. Going forward, he believes Renzi should announce an “aggressive fiscal pump” despite the complaints that might arise from Germany and the European Commission. “Italy has played by the fiscal austerity rules for too long. Although its problems are structural in nature, after running an underlying primary fiscal surplus for some 20 years it is time to break free from its self-imposed deflationary fiscal chains,” he added.

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Question is: why save the EU?

Only Europe’s Radicals Can Save The EU: Yanis Varoufakis (Newsweek)

Spaniards went to the polls three days after the shock of Brexit to produce a result that, ostensibly, delivers victory to the status quo. However, the status quo is tired, fragmenting, and prone to vicious unraveling unless the EU’s deconstruction is impeded. But, the Spanish establishment, which is determined to maintain the status quo, lacks both the analytical power and the political will to impede the EU’s disintegration. And so an electoral result in favor of continuity becomes the harbinger of deep uncertainty. Reeling under the British voters’ radical verdict, “official” Europe took solace from Spain’s general election outcome. They read into it evidence that the post-Brexit fear factor may help knock some “sense” into voters, putting them off “populist” parties.

But, even if this is so, for how long will fear keep voters loyal to a crumbling status quo? The threat of a pyrrhic victory for Spain’s establishment is, thus, clear and present. Spain and the U.K. differ in one crucial sense. While EU policies and institutions have damaged the Spanish economy a great deal more than Britain’s, Spain’s political system remains largely free of euroskepticism. The paradox dissolves quickly when one considers the traditional lack of legitimacy of the Spanish elites in their own country. British Tories, like Michael Gove and Boris Johnson, knew they could draw mass support from a slogan like “We want our country back!” The Spanish establishment cannot do this.

And they cannot do it because, over the last four decades, they managed to retain control by offering voters an unlikely deal: “You keep us in government and we shall do what is necessary to rid you of us, by transferring power to Brussels and to Frankfurt.” Calling for a restoration of sovereignty now would strike Spanish voters as backtracking on the promise to rid them of their local rulers. But, then again, this promise is under increasing strain at a time when the process of Europeanization is in serious trouble.

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As you may have noticed, I find it ever harder to stay away from politics. This is because the economic collapse increasingly spils over into what is after all a fully integrated politico-economic system. In this case, what caused Brexit is also what makes Corbyn strong. But Britons are not nearlly far enough along in the Kübler-Ross cycle to understand this. They’re still stuck in blaming other people for the perceived injustices that befall them.

Worst. Coup. Ever. (TeleSur)

As the Chilcot Inquiry report is released to the public, those MPs attempting to depose Labour leader Jeremy Corbyn—their leading lights inescapably sullied by having supported the war—are suing for peace. Over a week of high-profile resignations, statements, demands, pleas and threats have seemingly done little but consolidate Corbyn’s position. In record time, it has gone from being a coup to a #chickencoup to a #headlesschickencoup. This could be the biggest own-goal in the history of British politics. Journalists steeped in the common sense of Westminster, assumed that it was all over for Labour’s first ever radical socialist leadership. How can he lead, they reasoned, if his parliamentary allies won’t work with him?

This, in realpolitik terms, merely encoded the congealed entitlement and lordly presumption of Labour’s traditional ruling caste. Even some of Corbyn’s bien-pensant supporters went along with this view. They should have known better. The putschists’ plan, such as it was, was to orchestrate such media saturation of criticism and condemnation aimed at Corbyn, to create such havoc within the Labour Party, that he would feel compelled to resign. The tactical side of it was executed to smooth perfection, by people who are well-versed in the manipulation of the spectacle. And yet, in the event that Corbyn was not wowed by the media spectacle, not intimidated by ranks of grandees laying into him, and happy to appeal over the heads of party elites to the grassroots, their strategy disintegrated.

This was not politics as they knew it. The befuddlement was not for want of preparation. From even before his election as Labour Party leader, there were briefings to the press that a coup would be mounted soon after his election. And in the weeks leading up to the European Union referendum, Labour Party activists reported that they were expecting a coup to be launched after the outcome was announced, regardless of what the result was. This seemed like a half-baked idea—there was still no overwhelming crisis justifying a coup attempt—and so it turned out to be.

Undoubtedly, part of the rationale for hastening the attempted overthrow was the looming publication of the findings of the Chilcot Inquiry, which was expected to be harshly critical of former Prime Minister Tony Blair, of the justification for the invasion of Iraq, and of the relationship with the Bush administration. Given the role of the Parliamentary Labour Party in leading Britain into that war, against fierce public and international opposition, and given its role in supporting the subsequent occupation, this was a bad moment to have Corbyn at the helm. In the event, Corbyn survived to make a dignified statement apologizing for Labour’s role in the disaster and promising to embark upon a different foreign policy—one quite at odds with that supported by the pro-Trident, pro-bombing backbenchers.

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The world needs more debt!

The Persian Gulf’s Huge New Export: Debt (WSJ)

The energy-producing states of the Persian Gulf are issuing bonds at the fastest clip ever, showing how the oil bust is reshaping the region’s finances despite a near doubling of crude prices this year. The Gulf Cooperation Council states of Saudi Arabia, United Arab Emirates, Bahrain, Kuwait, Qatar and Oman together have raised a record $18 billion in 2016, according to Dealogic, helping refill coffers depleted by sharp revenue declines. Investors expect issuance to increase further, as governments brace for lower prices than they were budgeting only a few years ago. Saudi Arabia is expected to raise up to $15 billion more in the coming weeks, and total issuance by the Gulf nations could reach $35 billion this year, according to JP Morgan Chase, more than doubling the previous high set in 2009.

The issuers are paying slightly higher costs than other emerging countries with similar ratings, reflecting uncertainty over how successful they will be in opening up their economies, the region’s geopolitical risks and the murky outlook for oil prices, analysts and portfolio managers said. But the bond sales generally have been successful, driven by strong demand from local investors and banks, improving market sentiment due to the oil rebound, and a persistent decline in global interest rates that is putting a premium on securities with better yields. In May, Qatar raised $9 billion in an offering that drew more than twice that sum in orders. The five-year notes issued by the nation of 2.5 million trade at 2.13%. That is more attractive when compared with 1.83% on the comparably rated bonds issued by Korea National Oil, according to Anita Yadav at Emirates NBD.

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-12.4% YoY

Greek Exports Record Major Decline In May (Kath.)

Exports posted a significant decline in May, reflecting to a great extent the impact of the uncertainty from Athens’s months-long negotiations with its creditors, as well as of the industrial action at the ports of Piraeus and Thessaloniki. According to Hellenic Statistical Authority (ELSTAT) figures issued on Friday, exports contracted 12.4% compared with May 2015, amounting to 2.02 billion euros. The decline came to 6.4% not including fuel products, as exports recorded their first decline in the last four months.

“This decline, besides the general problems and the continued uncertainty in the Greek economy, is partly due to the situation in the country in recent months, as the industrial action at the ports of Thessaloniki and Piraeus started in May,” noted the Greek International Business Association (SEVE) in a statement. Panhellenic Exporters Association chief Christina Sakellaridi added that “an entire year has passed since the capital controls were imposed without normality having been restored to the market. The only favorable impact is expected from the repayment of the state’s dues to private parties, the activation of the investment incentives law, the restoration of cheap liquidity flows to banks, the developments concerning bad loans and privatizations, and the attraction of new investments.”

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“..absurd to talk about any threat coming from Russia at a time when dozens of people are dying in the center of Europe and when hundreds of people are dying in the Middle East daily..”

Russia Hits Back At ‘Anti-Russian’ NATO ‘Hysteria’ (CNBC)

At a NATO summit in Warsaw, Poland on Friday, the military alliance is expected to formally agree to deploy four battalions with a total of 3,000 to 4,000 troops to the Baltic states (Estonia, Latvia and Lithuania) and Poland on a rotational basis. The deployment comes amid increasing concerns in those areas (all of which were under Soviet control during the Cold War) that Russia could be prepared to try to increase or regain its sphere of influence. In a statement on Thursday, NATO also said it would “strengthen political and practical cooperation with Ukraine, Georgia and the Republic of Moldova” – all former Soviet republics experiencing increasing tensions with Russia due to their political and economic relations with the EU.

In addition, the EU and NATO signed a declaration on Friday aimed at bolstering the region’s security ahead of the full NATO summit Friday afternoon. Left out in the cold from NATO and ostensibly the reason for such a deployment, Kremlin spokesman Dmitry Peskov reportedly hit back at the alliance, saying its actions were akin to “anti-Russian hysteria.” “If one needs badly to look for an enemy image so that [one can] promote anti-Russian, so to say, hysteria, and then, with this emotional background, to deploy more and more air force units, ground troop units, getting them closer to Russian borders, then one can hardly find any common ground for cooperation,” he was quoted by Russia’s Itar Tass news agency as saying.

Peskov was also quoted by Reuters as telling reporters that it was “absurd to talk about any threat coming from Russia at a time when dozens of people are dying in the center of Europe and when hundreds of people are dying in the Middle East daily,” adding that “you have to be extremely short-sighted to twist things in that way.”

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Jul 312015
 
 July 31, 2015  Posted by at 10:15 am Finance Tagged with: , , , , , , , , , , ,  4 Responses »
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Harris&Ewing Preparations for inauguration of Woodrow Wilson 1913

September Is Looking Likelier for Fed’s First Rate Increase (NY Times)
SYRIZA To Hold ‘Emergency’ Congress In September (DW)
China’s Stocks Extend Slump in Worst Monthly Decline Since 2009
Corporate Giants Sound Profits Alarm Over China Slowdown (FT)
“The Virtuous Emerging Market Cycle Is Turning Vicious” (Albert Edwards)
Italy Is The Most Likely Country To Leave The Euro (WaPo)
The Greek Coup: Liquidity as a Weapon of Coercion (Ellen Brown)
Greece Crisis Escalates As IMF Witholds Support For New Bail-Out (Telegraph)
IMF Won’t Help Finance Greece Without Debt Relief (Bloomberg)
Will The IMF Throw The Spanner In The Works? (Varoufakis)
The Lethal Deferral of Greek Debt Restructuring (Varoufakis)
A Most Peculiar Friendship (Varoufakis)
The Defeat of Europe – my piece in Le Monde Diplomatique (Varoufakis)
The Last Thing the Eurozone Needs Is an Ever Closer Union (Legrain)
Bailout Money Goes to Greece, Only to Flow Out Again (NY Times)
German FinMin Schäuble Wants To Reduce European Commission Remit (DW)
The IMF’s Euro Crisis (Ngaire Woods)
Deutsche Bank’s Hard Road Ahead (WSJ)
Deutsche Bank Didn’t Archive Chats Used by Employees Tied to Libor Probe (WSJ)
US Spied On Japan Government, Companies: WikiLeaks (AFP)
Europe Could Solve The Migrant Crisis – If It Wanted (Guardian)
Why The Language We Use To Talk About Refugees Matters So Much (WaPo)

Two big events in September?!

September Is Looking Likelier for Fed’s First Rate Increase (NY Times)

The Federal Reserve remains on track to raise interest rates later this year, and perhaps as soon as its next policy meeting in mid-September, as economic growth continues to meet its expectations. The Fed issued an upbeat assessment of economic conditions on Wednesday after a two-day meeting of its policy-making committee. While growth remains disappointing by past standards, the Fed said the economy continued to expand at a “moderate” pace, which is driving “solid job gains and declining unemployment.” The statement suggested officials didn’t need to see much more progress before they started to increase their benchmark rate, which they have held near zero since December 2008.

The Fed, which said after the last meeting, in June, of the Federal Open Market Committee that it wanted to see “further improvement” in labor markets, said on Wednesday that “some further improvement” would now suffice. “The addition of the word ‘some’ may appear minor, but the Fed doesn’t add words willy-nilly to the F.O.M.C. statement,” wrote Michael Feroli at JPMorgan Chase. “It leaves the door wide open to a September liftoff, but still retains the optionality to delay hiking if the jobs reports disappoint between now and mid-September.” The decision to keep rates near zero for at least a few more weeks was unanimous, supported by all 10 voting members of the committee. But a number of those officials have said in recent months that they do not think the Fed should wait much longer.

The Fed’s policy committee next meets Sept. 16 and 17. Surveys of economic forecasters show that most expect the Fed to start raising interest rates at that September meeting. But measures of market expectations point to a December liftoff.[..] The Fed has kept its benchmark interest rate near zero as the main element in its campaign to revive economic growth and increase employment after the Great Recession. And it has repeatedly extended that stimulus campaign in the face of disappointing economic news, to avoid raising rates too soon. In recent months, however, officials including Janet L. Yellen, the Fed’s chairwoman, have suggested they are growing more worried about waiting too long. Economic growth has increased after a rough winter, and employment expanded by an average of 208,000 jobs a month during the first half of the year, dropping the unemployment rate to 5.3%.

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Number 2.

SYRIZA To Hold ‘Emergency’ Congress In September (DW)

The SYRIZA party is seen as sliding toward a split prompted by a rebellion by about a quarter of the party’s Left Platform legislators who voted against austerity measures that were part of the conditions agreed on July 13 in Brussels to secure up to €86 billion in new financing. According to analysts the party differences challenge Tsipras’ authority and complicate Greece’s bailout negotiations. It began when a faction of left wing SYRIZA legislators turned against Tsipras when Parliament voted on the bailout, which passed only with support from opposition parties. Thus the party congress that has been proposed by Prime Minister Tsipras is seen as a test of his leadership.

In a televised address to the central committee, Tsipras warned that the government could fall if it was not supported by its leftist deputies. “The first leftist government in Europe after the Second World War is either supported by leftist deputies, or it is brought down by them because it is not considered leftist,” he said. As conflicts arose in the central committee, a meeting was called to attempt to settle those differences over whether Tsipras should have accepted Greece’s third bailout from international creditors. The central committee meeting coincided with the arrival in Athens of the IMF’s head of mission, Delia Velculescu. According to a report in Thursday’s Financial Times, an internal document showed the IMF board had been told that Greece’s levels of debt and past record of slow or non-existent reform disqualify it for a third.

According to the leaked IMF document, the Washington based lender could take months to decide whether it will take part in a fresh bailout. The IMF’s Velculescu was due to join the other international creditors: the EC, the ECB and the European Stability Mechanism. The four institutions are due to meet Friday with Finance Minister Euclid Tsakalotos and Economy Minister Giorgos Stathakis.

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..and drag everything down with them..

China’s Stocks Extend Slump in Worst Monthly Decline Since 2009

China’s stocks fell, with the benchmark index heading for its worst monthly drop in almost six years, as the government struggles to rekindle investor interest amid a $3.5 trillion rout. The Shanghai Composite Index slid 0.8% to 3,677.83 at 1:02 p.m., dragged down by energy and industrial companies. The gauge has tumbled 14% this month, the biggest loss among 93 global benchmark gauges tracked by Bloomberg, as margin traders cashed out and new equity-account openings tumbled amid concern valuations are unsustainable. While unprecedented state intervention spurred a 18% rebound by the Shanghai Composite from its July 8 low, volatility returned on Monday when the gauge plunged 8.5%.

Outstanding margin debt on mainland bourses has fallen about 40% since mid-June, while the number of new stock investors shrank last week to the smallest since the government started releasing figures in May. Individuals account for more than 80% of stock trading in China. “The support measures may have been less effective than what Beijing imagined,” said Bernard Aw, a strategist at IG Asia. The Hang Seng China Enterprises Index of mainland shares in Hong Kong has tumbled 14% this month, poised for its worst loss since September 2011. The gauge rose 0.4% Friday, while the Hang Seng Index advanced 0.4%. The CSI 300 Index added 0.1%. Industrial & Commercial Bank of China has been the biggest drag on the Shanghai Composite this month, sinking 9.9%. China Petroleum & Chemical has tumbled 14%, while Ping An Insurance plunged 18%.

Turnover has fallen as volatility surged. The value of shares traded on the Shanghai exchange on Thursday was 53% below the June 8 peak, while a 100-day measure of price swings on the Shanghai Composite climbed to its highest in six years on Friday. Valuations remain elevated after a 29% drop by the benchmark equity gauge. The median stock on mainland bourses trades at 66 times reported earnings, higher than in any of the world’s 10 largest markets, according to data compiled by Bloomberg. That compares with a multiple of 13 in Hong Kong. “The volatility in A-share markets, which was boosted by the surge in margin financing, has made share price performance deviate from the value of stocks in unpredictable ways,” said June Lui, portfolio manager at LGM Investments. “We have been cautious on investing in A shares.”

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“Companies thought that China was the land of opportunity, but it’s not living up to that promise..”

Corporate Giants Sound Profits Alarm Over China Slowdown (FT)

Some of the world’s largest companies have sounded the alarm about the slowdown in the Chinese economy, warning that weaker growth would hit profits in the second half of the year. Car companies such as PSA Peugeot Citroën, Audi and Ford have slashed growth forecasts while industrial goods groups such as Caterpillar and Siemens have all spoken out on the negative impact of China. The warnings are a sign that China’s weaker growth and its stock market rout this month are creating a headache for global corporates that have long relied heavily on the world’s second-largest economy to drive revenues. Audi and France’s Renault both cited China as they cut their global sales targets on Thursday, with Christian Klingler at Audi parent Volkswagen, predicting “a bumpy road” in the country this year.

Peugeot slashed its growth forecast for China from 7% to 3% while earlier this week Ford predicted the first full-year sales fall for the Chinese car market since 1990. US companies have also been affected. “In Asia, the China market has clearly slowed,” said Akhil Johri, chief financial officer at United Technologies, the US industrial group at the company’s earnings call last week. “Real estate investment, new construction starts and floor space sold are all under pressure.” “Companies thought that China was the land of opportunity, but it’s not living up to that promise,” says Ludovic Subran, chief economist at Euler Hermes. “They realise the business environment is changing for the worse.”

China’s slowdown, which follows years of extraordinary growth, has been particularly startling in recent months, with figures last week showing that the country’s factory activity contracted by the most in 15 months in July. The poor figures coincide with a time of turbulence on the Chinese stock market. The Shanghai Composite shed 8.5% on Monday, its steepest drop since 2007. The fall came despite a string of interventions by Beijing to stem the slide in equities, including a ban on short selling and an interest-rate cut. In the consumer goods sector, brewer Anheuser-Busch InBev said on Thursday that volumes fell 6.5% in China as a result of “poor weather across the country and economic headwinds”. Among industrial goods companies, Schneider Electric, one of the world’s largest electrical equipment makers, reported a 12% fall in first-half profit and cut guidance because of “weak construction and industrial markets” in China.

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As predicted here.

“The Virtuous Emerging Market Cycle Is Turning Vicious” (Albert Edwards)

Investors are right to feel that the recent rout in commodity prices differs from that seen in the second half of last year. Back then there was more of a feeling that the decline in the oil price was just partly a catch-up with the weakness seen in other commodities earlier in the year and partly due to a very sharp rise in the dollar, most notably against the euro. Indeed the excellent Gerard Minack in his Downunder Daily points out that US$ strength and expanding supply have been headwinds over the past four years. But the recent sharp decline in prices has been noteworthy for its breadth: prices have fallen in all major currencies, and across all major commodity groups. This suggests that global growth has slowed.” But why?

One theme that has played out as we expected over the last year has been the rapidly deteriorating balance of payments (BoP) situation of emerging market (EM) countries, as reflected in sharply declining foreign exchange (FX) reserves (the BoP is the sum of the current account balance and private sector capital flows). We like to stress the causal relationship between swings in EM FX reserves and their boom and bust cycle. The 1997 Asian crisis demonstrated that there is no free lunch for EM in fixing a currency at an undervalued exchange rate. After a few years of export-led boom, market forces are set in train to destroy that artificial prosperity. Boom turns into bust as the BoP swings from surplus to deficit. Why?

When an exchange rate is initially set at an undervalued level, surpluses typically result in both the current account (as exports boom) and capital account (as foreign investors pour into the country attracted by fast growth). The resultant BoP surplus means that EM authorities intervene heavily in the FX markets to hold their currency down. We saw that both in the mid-1990s and before and after the 2008 financial crisis. Heavy foreign exchange intervention to hold an EM currency down creates money and is QE in all but name and underpins boom-like conditions on a pro-cyclical basis. Eventually this boom leads to a relative rise in inflation and a chronically rising real exchange rate even though the nominal rate might be fixed.

EM competitiveness is lost and the trade surplus declines or in extremis swings to large deficit. The capital account can also swing to deficit as fixed direct investment flows reverse as EM countries are no longer cost effective locations for plant. Ultimately as the BoP swings to deficit and FX reserves fall, QE goes into reverse, slowing the economy and exacerbating capital flight. As a virtuous EM cycle turns vicious (like now), commodity prices, EM asset prices and currencies come under heavy downward pressure – at which point it is difficult to discern any longer the chicken from the egg. In my view the egg was definitely laid a few years back as EM real exchange rates rose sharply and the rapid rises of FX reserves began to stall.

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The MSM sets the tone of the debate by calling refugees ‘migrants’, and by calling SYRIZA and M5S ‘populist’. And no, Matt, Greece did not get to choose between Grexit and austerity, but obliteration and austerity.

Italy Is The Most Likely Country To Leave The Euro (WaPo)

What do you call a country that has grown 4.6%—in total—since it joined the euro 16 years ago? Well, probably the one most likely to leave the common currency. Or Italy, for short. It’s hard to say what went wrong with Italy, because nothing ever went right. It grew 4% its first year or so in the euro, but almost not at all in the 15 years since. Now, that’s not to say that it’s been flat the whole time. It hasn’t. It got as much as 14% bigger as it was when it joined the euro, before the 2008 recession and 2011 double-dip erased most of that progress. But unlike, say, Greece, there was never much of a boom. There has only been a bust. The result, though, has been the same. As you can see below, Greece and Italy have both grown a meager 4.6% the past 16 years, although they took drastically different paths to get there.

Part of it is that Italy, as the IMF points out, has real structural problems. It’s hard to start a business, hard to expand one, and hard to fire people, which makes employers wary about hiring them in the first place. That’s led to a small business dystopia, where nobody can achieve the kind of economies of scale that would make them more productive. But, at the same time, Italy had these problems even before it had the euro, and it still managed to grow back then. So part of the problem is the euro itself. It’s too expensive for Italian exporters, and too restrictive for the government that’s had to cut its budget even more than it otherwise would have. This doesn’t make Italy unique—the euro has hurt even the best-run countries—but what does is that Italy’s populists have noticed.

Why is that? Well, more than anything else, the common currency has given Europe a severe case of cognitive dissonance. People hate austerity, but they love the euro even more—they have an emotional attachment to everything it stands for. The problem, though, is that the euro is the reason they have to slash their budgets so much in the first place (at least as long as the ECB will force their banks shut if they don’t). So anti-austerity parties have felt like they have to promise the impossible if they want any hope of gaining power: that they can end the budget cuts without ending the country’s euro membership.

But as Greece’s Syriza party found out, that strategy, if you want to call it one, only gives your people unrealistic expectations and Europe no reason to help you out. The other countries, after all, don’t want to reward what, in their view, is bad budgetary behavior, if not blackmail. And so Greece was all but given an ultimatum: either leave the euro or do even more austerity than it was originally told to do. It chose austerity.

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Good piece by Ellen, and certainly not only because she quotes me.

The Greek Coup: Liquidity as a Weapon of Coercion (Ellen Brown)

In the modern global banking system, all banks need a credit line with the central bank in order to be part of the payments system. Choking off that credit line was a form of blackmail the Greek government couldn’t refuse. Former Greek finance minister Yanis Varoufakis is now being charged with treason for exploring the possibility of an alternative payment system in the event of a Greek exit from the euro. The irony of it all was underscored by Raúl Ilargi Meijer, who opined in a July 27th blog:

The fact that these things were taken into consideration doesn’t mean Syriza was planning a coup . . . . If you want a coup, look instead at the Troika having wrestled control over Greek domestic finances. That’s a coup if you ever saw one. Let’s have an independent commission look into how on earth it is possible that a cabal of unelected movers and shakers gets full control over the entire financial structure of a democratically elected eurozone member government. By all means, let’s see the legal arguments for this.

So how was that coup pulled off? The answer seems to be through extortion. The ECB threatened to turn off the liquidity that all banks – even solvent ones – need to maintain their day-to-day accounting balances. That threat was made good in the run-up to the Greek referendum, when the ECB did turn off the liquidity tap and Greek banks had to close their doors. Businesses were left without supplies and pensioners without food. How was that apparently criminal act justified? Here is the rather tortured reasoning of ECB President Mario Draghi at a press conference on July 16:

There is an article in the [Maastricht] Treaty that says that basically the ECB has the responsibility to promote the smooth functioning of the payment system. But this has to do with . . . the distribution of notes, coins. So not with the provision of liquidity, which actually is regulated by a different provision, in Article 18.1 in the ECB Statute: “In order to achieve the objectives of the ESCB [European System of Central Banks], the ECB and the national central banks may conduct credit operations with credit institutions and other market participants, with lending based on adequate collateral.” This is the Treaty provision. But our operations were not monetary policy operations, but ELA [Emergency Liquidity Assistance] operations, and so they are regulated by a separate agreement, which makes explicit reference to the necessity to have sufficient collateral. So, all in all, liquidity provision has never been unconditional and unlimited.

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Don’t forget there is a fourth ‘institution’ that’s party to the talks now, the ESM. It really is a quadriga.

Greece Crisis Escalates As IMF Witholds Support For New Bail-Out (Telegraph)

Talks over an €86bn bail-out for Greece have been thrown into turmoil after just four days as the IMF said it would have no involvement in the country until it receives explicit assurances over debt sustainability. An IMF official said the fund would withhold financial support unless it has guarantees Greece can carry out a “comprehensive” set of reforms and will be the beneficiary of debt relief from its European creditors. The comments came after the IMF’s executive board was told that the institution could no longer continue pumping more money into the debtor nation, according to a leaked document seen by the Financial Times. The Washington-based Fund has been torn over its involvement in Greece – its largest ever recipient country.

The world’s “lender of last resort’ said it would continue talks with its creditor partners and the Leftist government of Athens, but made it clear the onus of keeping Greece in the eurozone now fell on Europe’s reluctant member states. “There is a need for difficult decisions on both sides… difficult decisions in Greece regarding reforms, and difficult decisions among Greece’s European partners about debt relief,” said the official. “One should not be under the illusion that one side of it can fix the problem.” The delay could last well into next year, forcing the other two-thirds of the Troika – the ECB abd EC – to bear the full costs of keeping Greece afloat.

Athens was forced to request a new IMF rescue package last week after its existing programme – which expired in March 2016 – no longer satisfied IMF conditions to ensure growth and a return to the financial markets for the crisis-ridden economy. IMF managing director Christine Lagarde escalated calls for a “significant debt restructuring” this week. Debt forgiveness has long been the institution’s key condition for extending its involvement in the country after five years of bail-outs. But Europe’s creditor powers – led by Germany – have resisted write-offs, insisting that talks on debt relief can only proceed once the Greek government has satisfied demands to raise taxes, cut pensions spending and privatise assets.

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I’m wondering how much of this was preconceived.

IMF Won’t Help Finance Greece Without Debt Relief (Bloomberg)

The IMF reiterated its unwillingness to provide more financing to Greece without debt relief by euro-member states and further reforms from the Greek government. The Washington-based lender’s management won’t support a new loan program unless Greece’s debt is sustainable in the medium term and the country’s budget is fully financed for 12 months, an IMF official told reporters Thursday on a conference call. The official spoke on condition of anonymity. The IMF will require an explicit, concrete commitment of debt relief from euro-member countries before moving forward with a new loan, the official said. European countries haven’t had detailed discussions with the IMF on a debt restructuring, according to the official.

Greek Finance Minister Euclid Tsakalotos asked the IMF for a new loan in a letter dated July 23 addressed to fund Managing Director Christine Lagarde. Greece has an active loan program with the IMF that expires in March and has about €17 billion that could still be disbursed. In agreeing to a bailout this month that could give Greece as much as €86 billion, most of it financed by euro-zone countries, Greece agreed to seek continued IMF financing beyond March. IMF staff told the fund’s executive board on Wednesday that Greece doesn’t currently qualify for a loan, the Financial Times reported Thursday, citing a confidential summary of the meeting.

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And did it know this when Tsipras signed the latest agreement? Moreover, what does that mean legally?

Will The IMF Throw The Spanner In The Works? (Varoufakis)

“IMF cannot join Greek rescue, board told”… reports Peter Spiegel from Brussels in today’s Financial Times. He adds:“Some Greek officials suspect the IMF and Wolfgang Schäuble, the hardline German finance minister, are determined to scupper a Greek rescue despite this month’s agreement to move forward with a third bailout. In a private teleconference made public this week, Yanis Varoufakis, the former finance minister, said he feared the Greek government would pass new rounds of economic reforms only for the IMF to pull the plug on the programme later this year. “According to its own rules, the IMF cannot participate in any new bailout. I mean, they’ve already violated their rules twice to do so, but I don’t think they will do it a third time,” Mr Varoufakis said. “Dr Schäuble and the IMF have a common interest: they don’t want this deal to go ahead.”

The key issue, of course, is not so much whether the IMF will be part of the deal – a typical fudge could, for instance, be concocted with the IMF providing ‘technical assistance’ to an ESM-only program. The issue is whether the promised debt relief which, astonishingly will be discussed only after the new loan agreement is signed and sealed, will prove adequate – assuming it is granted at all. Or whether, as I very much fear, the debt relief will be too little while the austerity involved proves catastrophically large.

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4 different articles by Yanis today; he’s getting very prolific.

The Lethal Deferral of Greek Debt Restructuring (Varoufakis)

The point of restructuring debt is to reduce the volume of new loans needed to salvage an insolvent entity. Creditors offer debt relief to get more value back and to extend as little new finance to the insolvent entity as possible. Remarkably, Greece’s creditors seem unable to appreciate this sound financial principle. Where Greek debt is concerned, a clear pattern has emerged over the past five years. It remains unbroken to this day. In 2010, Europe and the International Monetary Fund extended loans to the insolvent Greek state equal to 44% of the country’s GDP. The very mention of debt restructuring was considered inadmissible and a cause for ridiculing those of us who dared suggest its inevitability. In 2012, as the debt-to-GDP ratio skyrocketed, Greece’s private creditors were given a significant 34% haircut.

At the same time, however, new loans worth 63% of GDP were added to Greece’s national debt. A few months later, in November, the Eurogroup (comprising eurozone members’ finance ministers) indicated that debt relief would be finalized by December 2014, once the 2012 program was “successfully” completed and the Greek government’s budget had attained a primary surplus (which excludes interest payments). In 2015, however, with the primary surplus achieved, Greece’s creditors refused even to discuss debt relief. For five months, negotiations remained at an impasse, culminating in the July 5 referendum in Greece, in which voters overwhelmingly rejected further austerity, and the Greek government’s subsequent surrender, formalized in the July 12 Euro Summit agreement.

That agreement, which is now the blueprint for Greece’s relationship with the eurozone, perpetuates the five-year-long pattern of placing debt restructuring at the end of a sorry sequence of fiscal tightening, economic contraction, and program failure. Indeed, the sequence of the new “bailout” envisaged in the July 12 agreement predictably begins with the adoption – before the end of the month – of harsh tax measures and medium-term fiscal targets equivalent to another bout of stringent austerity. Then comes a mid-summer negotiation of another large loan, equivalent to 48% of GDP (the debt-to-GDP ratio is already above 180%). Finally, in November, at the earliest, and after the first review of the new program is completed, “the Eurogroup stands ready to consider, if necessary, possible additional measures… aiming at ensuring that gross financing needs remain at a sustainable level.”

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Funny story.

A Most Peculiar Friendship (Varoufakis)

Crises sever old bonds. But they also forge splendid new friendships. Over the past months one such friendship has struck me as a marvellous reflection of the new possibilities that Europe’s crisis has spawned. When I was living in Britain, between 1978 and 1988, Lord (then Norman) Lamont represented everything that I opposed. Even though I appreciated Margaret Thatcher’s candour, her regime stood for everything I resisted. Indeed, there was hardly a demonstration against her government that I failed to join; the pinnacle being the 1984 miners’ strike that engulfed me on a daily basis, in all its bitterness and glory.

For Lord Lamont, a stalwart conservative politician, an investment banker, and long standing Treasury and cabinet minister under both Margaret Thatcher and John Major, my ilk surely represented everything that was objectionable in the youth of the day. And yet since I became minister, and especially after my resignation, Lord Lamont has been steadfast in his support and extremely generous with his counsel. Indeed, I would be honoured if he allowed me to count him as a good friend. Fascinatingly, neither Lord Lamont nor I have changed our political spots much. He remains a solid conservative thinker and politician. And I continue to hold on to my erratic Marxism. Which brings me to the fascinating question: How is such a friendship possible?

The answer is simple: A common commitment to democracy and to the indispensability of Parliament’s sovereignty. Tories like Lord Lamont and lefties of my sort may disagree strongly on society’s ends. But we agree that rules and markets are means to social ends that can only be determined by a sovereign people through a Parliament in which that sovereignty is vested. We may disagree on the functioning, capacity and limits of markets, or even on the precise meaning of freedom in a social context. But we are as one in the conviction that monetary policy cannot de-politicised, not be allowed to determine the limits of a nation’s sovereignty. The notion that a people’s sovereignty ends when insolvency beckons is anathema to both.

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Posted this yesterday as a pic, and awkward format. Here’s the text as Varoufakis posted it.

The Defeat of Europe – my piece in Le Monde Diplomatique (Varoufakis)

Perhaps the most dispiriting experience was to be an eyewitness to the humiliation of the Commission and of the few friendly, well-meaning finance ministers. To be told by good people holding high office in the Commission and in the French government that “the Commission must defer to the Eurogroup’s President”, or that “France is not what it used to be”, made me almost weep. To hear the German finance minister say, on 8th June, in his office, that he had no advice for me on how to prevent an accident that would be tremendously costly for Europe as a whole, disappointed me. By the end of June, we had given ground on most of the troika’s demands, the exception being that we insisted on a mild debt restructure involving no haircuts and smart debt swaps.

On 25th June I attended my penultimate Eurogroup meeting where I was presented with the troika’s ‘take it or leave it’ offer. Having met the troika nine tenths of the way, we were expecting them to move towards us a little, to allow for something resembling an honourable agreement. Instead, they backtracked in relation to their own, previous position (e.g. on VAT). Clearly they were demanding that we capitulate in a manner that demonstrates our humiliation to the whole world, offering us a deal that, even if we had accepted, would destroy what is left of Greece’s social economy. On the following day, Prime Minister Tsipras announced that the troika’s ultimatum would be put to the Greek people in a referendum. A day later, on Friday 27th June, I attended my last Eurogroup meeting.

It was the meeting which put in train the foretold closure of Greece’s banks; a form of punishment for our audacity to consult our people. In that meeting, President Dijsselbloem announced that he was about to convene a second meeting later that evening without me; without Greece being represented. I protested that he cannot, of his own accord, exclude the finance minister of a Eurozone member-state and I asked for legal advice on the matter. After a short break, the advice came from the Secretariat: “The Eurogroup does not exist in European law. It is an informal group and, therefore, there are no written rules to constrain its President.” In my mind, that was the epitaph of the Europe that Adenauer, De Gaulle, Brandt, Giscard, Schmidt, Kohl, Mitterrand etc. had worked towards. Of the Europe that I had always thought of, ever since I was a teenager, as my point of reference, my compass.

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It may be the best recipe for blowing up the Union, though.

The Last Thing the Eurozone Needs Is an Ever Closer Union (Legrain)

‘Fuite en avant’ is a wonderful French expression that is hard to translate into English. Literally, it means “forward flight.” Better approximations include “headlong rush,” “panicky compulsion to exacerbate a crisis,” or even “unconsciously throwing oneself into a dreaded danger.” Faced with Berlin’s power grab to reshape the eurozone along German lines, Paris’s response has been quintessential fuite en avant: proposing even closer ties with Germany in order to try to mitigate the damage done by existing ones. But if a marriage is miserable and divorce is not yet in the cards, might it not be better to have separate bedrooms? To be fair to France’s president, François Hollande, a headlong rush toward greater intimacy has been the default response to previous crises thrown up by European integration, so it is the most common prescription now.

If a fiscal and political union is truly necessary for the eurozone to survive, as many argue, his proposal of a democratically elected eurozone government that would act as a fiscal counterpart to the ECB and – whisper it softly – curb German power may make sense. Italy’s finance minister has suggested something similar. But creating a eurozone government to bridge the economic and political divisions exacerbated by the crisis would be putting the cart before the horse. Or to put it differently, it would be seeking an institutional fix to a much deeper political conflict. Yes, well-functioning common institutions would make Europe’s dysfunctional monetary union work better: Federalism works fine in the United States and elsewhere.

But that is because there is broad political acceptance of those federal institutions’ legitimacy — which, in turn, is because the United States is a nation-state with enough of a sense of shared political community to accept majoritarian democratic rule. Unlike the eurozone. Germany and France sharing a government? Hard to imagine. Germany and Greece? Impossible. Huge numbers of Europeans are unhappy with how the eurozone works. Many don’t trust national elites, let alone European ones. Regrettably, the crisis has revived old stereotypes, such as lazy southerners, and has created new grievances, notably the Troika’s usurping national democracy. Is the solution really to concentrate more powers in Brussels, with France and others giving up even more control over their economic destiny? Is that what French people are clamoring for? Eurozone governance isn’t working, so let’s have more of it. Brilliant.

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Even the NYT wakes up to reality.

Bailout Money Goes to Greece, Only to Flow Out Again (NY Times)

Since 2010 other eurozone countries and the IMF have given Greece about €230 billion in bailout funds. In addition, the ECB has lent about €130 billion to Greek banks. The latest financial aid package is following a similar pattern to the previous ones. Only a fraction of the money, should Greece get it, will go toward healing the economy. Nearly 90% would go toward debts, interest and supporting Greece’s ailing banks. The European Commission has offered to set aside an additional €35 billion development aid package to jump-start the economy. But the funds are difficult to obtain and will become available only in small trickles later in the year. Greeks understandably feel that the latest bailout package is not likely to benefit them very much.

[..] Growth was never the primary consideration when Greece first started receiving bailouts. Back in 2010, political leaders in the eurozone as well as top officials of the IMF were terrified that Greece would default on its debts, imposing huge losses on banks and other investors and threatening a renewed financial crisis. The debt was largely held by Greek and international banks. And Greece, officials feared, could be another Lehman Brothers, the investment bank that collapsed in 2008, setting off a global panic. Forcing banks to take losses on Greek debt “would have had immediate and devastating implications for the Greek banking system, not to mention the broader spillover effects,” said John Lipsky, first deputy managing director of the I.M.F. at the time, during a contentious meeting of the organization’s executive board in May 2010, according to recently disclosed minutes.

To prevent Greece from defaulting on debts, creditors granted Athens a €110 billion bailout in May 2010. But that did not calm fears that other heavily indebted countries might also default. The Greek lifeline was soon followed by bailouts for Ireland and Portugal. When Greece again veered toward a default in summer of 2011, it got a second bailout worth €130 billion, not all of which has been disbursed. Instead of writing off those countries’ debts — standard practice when a country borrows more than it can pay — other eurozone countries and the I.M.F. effectively lent them more money. One of the main goals was to protect European banks that had bought Greek, Irish and Portuguese bonds in hopes of making a tidy profit.

The banks and investors did not escape the pain. In 2012, when Greece was again at risk of default, investors accepted a deal that paid them only about half the face value of their holdings. Much of the aid dispensed to Greece has revolved around banks. Since 2010, Greece has received €227 billion from other eurozone countries and the I.M.F. Of that, €48.2 billion went to replenish the capital of Greek banks. More than €120 billion went to pay debt and interest, and around €35 billion went to commercial banks that had taken losses on Greek debt.

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Whether he said it or not, surely no FinMin should have any say in such matters. it’s utterly ridiculous that at least Merkel doesn’t tell him to shut up.

German FinMin Schäuble Wants To Reduce European Commission Remit (DW)

German Finance Minister Wolfgang Schäuble wants to see the executive body of the EU, the European Commission (EC), lose some of the core fields of responsibility it has previously borne, such as the legal supervision of the EU domestic market, a newspaper reported on Thursday. The “Frankfurter Allgemeine Zeitung” quoted Brussels diplomats as saying that at a meeting of EU finance ministers two weeks ago, Schäuble had called for a quick discussion between EU states about how the EC could fulfil its original functions, which also include monitoring competition within the EU. Schäuble was concerned that the body’s increasing political activities made it incapable of carrying out its function of watching over the correct implementation of the European treaties, according to the report.

The paper said Schäuble has proposed setting up new, politically independent bodies to take over monitoring tasks in view of the EC’s increasing political activity as a “European government.” According to the paper’s report, Schäuble feels that EC president Jean-Claude Juncker exceeded the body’s remit in recent negotiations over new loans for Greece. The German finance minister has often stated that the EC was not empowered to negotiate over Greek loans, but that this was the task of the Eurogroup – made up of eurozone finance ministers – as the representative of European creditors, the paper said. Schäuble attracted much criticism during the recent negotiations on a third bailout for Greece because of his proposal for Greece to temporarily leave the common euro currency.

Juncker has often emphasized that he wants to lead a “political commission.” The German Finance Ministry has dismissed the report, saying that Schäuble merely thought it “important for the Commission to find the right balance between its political function and its role as guardian of the treaties.” This had nothing to do with a “disempowerment of the Commission,” the ministry said.

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Having no morals eventually comes back to haunt.

The IMF’s Euro Crisis (Ngaire Woods)

Over the last few decades, the IMF has learned six important lessons about how to manage government debt crises. In its response to the crisis in Greece, however, each of these lessons has been ignored. The Fund’s participation in the effort to rescue the eurozone may have raised its profile and gained it favor in Europe. But its failure, and the failure of its European shareholders, to adhere to its own best practices may eventually prove to have been a fatal misstep. One key lesson ignored in the Greece debacle is that when a bailout becomes necessary, it should be done once and definitively. The IMF learned this in 1997, when an inadequate bailout of South Korea forced a second round of negotiations. In Greece, the problem is even worse, as the €86 billion ($94 billion) plan now under discussion follows a €110 billion bailout in 2010 and a €130 billion rescue in 2012.

The IMF is, on its own, highly constrained. Its loans are limited to a multiple of a country’s contributions to its capital, and by this measure its loans to Greece are higher than any in its history. Eurozone governments, however, face no such constraints, and were thus free to put in place a program that would have been sustainable. Another lesson that was ignored is not to bail out the banks. The IMF learned this the hard way in the 1980s, when it transferred bad bank loans to Latin American governments onto its own books and those of other governments. In Greece, bad loans issued by French and German banks were moved onto the public books, transferring the exposure not only to European taxpayers, but to the entire membership of the IMF.

The third lesson that the IMF was unable to apply in Greece is that austerity often leads to a vicious cycle, as spending cuts cause the economy to contract far more than it would have otherwise. Because the IMF lends money on a short-term basis, there was an incentive to ignore the effects of austerity in order to arrive at growth projections that imply an ability to repay. Meanwhile, the other eurozone members, seeking to justify less financing, also found it convenient to overlook the calamitous impact of austerity. Fourth, the IMF has learned that reforms are most likely to be implemented when they are few in number and carefully focused. When a country requires assistance, it is tempting for lenders to insist on a long list of reforms. But a crisis-wracked government will struggle to manage multiple demands.

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Split it up already.

Deutsche Bank’s Hard Road Ahead (WSJ)

There’s an old joke in which a tourist asks the way to some pleasant town and gets the answer: “Well, I wouldn’t start from here.” Deutsche Bank’s new leadership should appreciate that more than most. John Cryan, the new chief executive, and the equally new chief financial officer, Marcus Schenck, have one of the biggest jobs among global banks in terms of the cuts needed to both its balance sheet and its cost base. They also, like many other big, global banks must wrestle with a business model in which investors seemingly have lost faith—Deutsche’s stock hasn’t traded above book value since the financial crisis.

Investors will be updated in late October on how these two think they can reshape the bank. Investors will hope for something better than a return on tangible equity of more than 10% in the medium term, which was the miserable target announced before the leadership change in April. One thing investors were told by Mr. Cryan in his first results briefing Thursday is that they shouldn’t have to stump up yet more equity following the bank’s €8 billion rights issue last year. This could prove a challenge to fulfill, though, despite the healthier activity seen in the first half. This pushed Deutsche’s revenues up 20% from a year earlier. Unfortunately, the bank’s costs remain stubbornly high. In the first half, these were equal to 70% of revenue, even excluding hefty legal charges related to the interbank lending rate scandal.

Meanwhile, cutting the bank’s complexity and inefficiencies could take years by Mr. Cryan’s admission. Until this is done, Deutsche will struggle to generate much capital. The bank is actually in a reasonable position on the risk-based capital measure: its core equity tier one capital ratio is 11.4%. However, its leverage ratio is just 3.6% against a target of 5%. And in its largest unit, the investment bank, the leverage ratio is even worse at less than 3%. Changing that will still require a big cut in the investment bank’s assets and liabilities. Mr. Cryan says he will change the bank’s fortunes by weaning it off an overreliance on the balance sheet to generate revenues.

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Fine it $100 billion, see what’s left after that.

Deutsche Bank Didn’t Archive Chats Used by Employees Tied to Libor Probe (WSJ)

A month after reaching a $2.5 billion settlement over interest rate rigging, Deutsche Bank AG told regulators its disclosures may have been incomplete because it accidentally failed to archive electronic chats involving its employees, people familiar with the matter said. The bank is working to recover the records from its systems but might have permanently lost an unknown number of chats dating back to 2005, the people said. The disclosure poses a new regulatory headache for the German lender. Deutsche Bank already has been criticized by regulators for shortcomings in retaining data, including the destruction of hundreds of audiotapes that U.K. regulators said could have been relevant to their investigation into manipulation of the London interbank offered rate, or Libor.

Deutsche Bank disclosed the problem to regulators, including the New York Department of Financial Services, in May, a month after the bank entered into the settlement with a handful of authorities in the U.S. and the U.K., the people familiar with the matter said. “After we discovered this software defect in one of our internal messaging systems, we reported it to our regulators and are presently working with them to rectify it,” the bank said in an emailed statement. “We have been able to recover a majority of the chats via a backup system.” The bank expects the recovery process to be complete in about a month, one of the people familiar with the matter said.

Deutsche Bank so far hasn’t found any communications the bank considers new or relevant to the Libor investigation, one of the people said. The Department of Financial Services, New York state’s top banking regulator, has begun a probe of the incident. It is examining whether potential violations that should have been covered by the Libor settlement weren’t reported because of the error, according to one of the people familiar with the matter. The office is also investigating whether or not the error was intentional and when the bank discovered it.

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Think Abe was surprised to see this?

US Spied On Japan Government, Companies: WikiLeaks (AFP)

The US spied on senior Japanese politicians, its top central banker and major companies including conglomerate Mitsubishi, according to documents released Friday by WikiLeaks, which published a list of at least 35 targets. The latest claim of US National Security Agency espionage follows other documents that showed snooping on allies including Germany and France. There is no specific mention of wiretapping Prime Minister Shinzo Abe but senior members of his government, including Trade Minister Yoichi Miyazawa and Bank of Japan governor Haruhiko Kuroda were targets of the bugging by US intelligence, WikiLeaks said.

Japan is one of Washington’s key allies in the Asia-Pacific region and they regularly consult on defence, economic and trade issues. The spying goes back at least as far as Abe’s brief first term, which began in 2006, WikiLeaks said. Abe swept to power again in late 2012. “The reports demonstrate the depth of US surveillance of the Japanese government, indicating that intelligence was gathered and processed from numerous Japanese government ministries and offices,” it said. “The documents demonstrate intimate knowledge of internal Japanese deliberations” on trade issues, nuclear and climate change policy, among others, it added.

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Europe has no morals.

Europe Could Solve The Migrant Crisis – If It Wanted (Guardian)

Refugees from many countries – not just Sudan but Syria, Eritrea, Afghanistan and beyond – are taking clandestine journeys across Europe in search of a country that will give them the chance to rebuild their lives. Living in Britain and watching what unfolds in Calais – such as the revelation that in recent days there have been 1,500 attempts by migrants to enter the Channel tunnel – it can seem as if they’re all heading here, but in reality Britain ranks mid-table in the proportion of asylum claims it receives relative to population. The number of refugees at Calais has grown because the number of refugees in Europe as a whole has grown. For the most part, their journeys pass unseen, until they hit a barrier – the English Channel; the lines of police at Ventimiglia on the Italy-France border; the forests of Macedonia – that creates a bottleneck and leads to scenes of destitution and chaos.

The political rhetoric that surrounds these migrants makes it harder to understand why they take such journeys. Often when government ministers are called on to comment, they will try to make a distinction between refugees (good) and “economic migrants” (bad). But a refugee needs to think about more than mere survival – like the rest of us, they’re still faced with the question of how to live. What they find when they reach Europe is a system best described as a “lottery”. In theory the EU has a common asylum system; in reality it varies hugely, with different countries more or less likely to accept different nationalities and with provisions for asylum seekers ranging from decent homes and training to support integration in some countries, to tent camps or detention centres, or being left to starve on the street, in others.

Countries that bear the brunt of new waves of migration, such as Italy, Bulgaria or Greece, find little solidarity from their richer neighbours. The EU spends far more on surveillance and deterrence than on improving reception conditions. For as long as these inequalities continue, refugees will keep on moving. This is a crisis of politics as much as it is one of migration, and I think it will develop in one of two ways. Either Europe will continue to militarise its borders and squabble over resettlement quotas of refugees as if they were toxic waste; or we will find the courage and leadership to create a just asylum system where member states pull together to ensure that refugees are offered a basic standard of living wherever they arrive.

The first option, though alluring to many, will only intensify the chaos it’s supposed to protect us from: we put up a fence at Greece’s land border with Turkey, so refugees take to the Mediterranean instead. Britain and France accuse each other of being a soft touch on asylum seekers, so they allow the situation in Calais to fester. For as long as refugees are treated as a burden, they will be the target of racism and violence.

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I repeat: the MSM sets the tone of the debate by calling refugees ‘migrants’, and by calling SYRIZA and M5S ‘populist’.

Why The Language We Use To Talk About Refugees Matters So Much (WaPo)

In an interview with British news station ITV on Thursday, David Cameron told viewers that the French port of Calais was safe and secure, despite a “swarm” of migrants trying to gain access to Britain. Rival politicians soon rushed to criticize the British prime minister’s language: Even Nigel Farage, leader of the anti-immigration UKIP party, jumped in to say he was not “seeking to use language like that” (though he has in the past). Cameron clearly chose his words poorly. As Lisa Doyle, head of advocacy for the Refugee Council puts it, the use of the word swarm was “dehumanizing” – migrants are not insects. It was also badly timed, coming as France deployed riot police to Calais after a Sudanese man became the ninth person in less than two months to die while trying to enter the Channel Tunnel, an underground train line that runs from France to Britain.

Much of the outrage over the British leader’s comments misses an important point, however: Cameron is far from alone when it comes to troubling use of language to describe the world’s current migration crisis. Language is inherently political, and the language used to describe migrants and refugees is politicized. The way we talk about migrants in turn influences the way we deal with them, with sometimes worrying consequences. Consider even the most basic elements of the language about migration. Writing in the Guardian earlier this year, Mawuna Remarque Koutonin asked why white people were often referred to as expatriates. “Top African professionals going to work in Europe are not considered expats,” Koutonin wrote. “They are immigrants.” [..]

There are worries that even “migrant,” perhaps the broadest and most neutral term we have, could become politicized. Trilling pointed out that Katie Hopkins, a controversial British writer and public figure, likened migrants to “cockroaches” in a column published in the Sun. “As both government policy and political rhetoric casts these people as undesirables — a threat to security; a criminal element; a drain on resources — the word used to describe them takes on a new, negative meaning,” Trilling says. Words such as “swarm” or “invasion” can also have implications just as negative when used in connection to refugees. James Hathaway at the University of Michigan Law School, says that these words are “clearly meant to instill fear.” That’s dangerous because the situation in Calais is already inflamed and full of fear: British tabloids are even calling for Cameron to send in the army, as if the migrants represented a foreign power preparing to invade.

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 January 3, 2015  Posted by at 12:55 pm Finance Tagged with: , , , , , , , ,  2 Responses »
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Jack Delano Joliet, Illinois. Leaving the Atchison, Topeka & Santa Fe railyard 1943

Europe’s Bond Yields Fall To Lowest Since The Black Death (AEP)
Dollar Index Soars To Nearly 9-Year High (MarketWatch)
Greek And European Prospects For 2015 (Varoufakis)
Lithuania Joins Eurozone Despite 40% Of Population Being Against (RT)
Obama Sanctions North Korea For Sony Hack It Didn’t Perpetrate (Zero Hedge)
Oliver Stone’s New Movie: “Ukraine: The CIA Coup” (Zero Hedge)
China Zombie Factories Kept Open To Give Illusion Of Prosperity (FT)
Why The Stock Market Casino Is Dangerous: Looney Tunes And Sand Dunes (Stockman)
As Oil Price Drops, Good Times Run Out for Sand Producers (WSJ)
The ‘Shock’ That Awaits Pensioners At Retirement (BBC)
Michael Hudson: The War on Pensions – The US Budget Anti-Pension Law (NC)
New Consumer Debt Reaches Seven-Year High In UK (Guardian)
Right Wing In Europe Could Bring ‘Turmoil’ (CNBC)
General Motors: A New Year, A New Series Of Recalls (Reuters) <
Failure To Stop Petrobras Scandal Could Haunt Brazil’s Rousseff (Reuters)
The Imperial Collapse Playbook (Dmitry Orlov)
South Australia ‘Incredibly Dangerous’ Wildfires Worst Since 1983 (Bloomberg)

“Nothing like this has been seen in European history since the 14th century, after the depletion of silver mines set off a slow monetary contraction, followed by Edward III’s default on debts to Italian banks and the Black Death soon after..”

Europe’s Bond Yields Fall To Lowest Since The Black Death (AEP)

Bond yields have plummeted to record lows across the eurozone as deflation becomes lodged in the system and markets bet on a blitz of asset purchases by the European Central Bank this month. German five-year yields dropped below zero for the first time ever, touching -0.007% on the first day of new year trading, implying that investors are willing to pay the German government to store their money for the rest of this decade. Italian, Spanish and Portuguese yields have seen spectacular drops over the past two trading days. The French state can borrow for five years at a rate of 0.13%, and Ireland can do so at 0.32%. Nothing like this has been seen in European history since the 14th century, after the depletion of silver mines set off a slow monetary contraction, followed by Edward III’s default on debts to Italian banks and the Black Death soon after, compounding a deflationary collapse.

“What we are seeing is the ‘Japanification’ trade,” said Andrew Roberts, credit chief at RBS. “The eurozone is sinking into corrosive deflation and it is too late to stop. We think the inflation rate in December may already have been negative. The ECB are in trouble, and they know it.” Mario Draghi, the ECB’s president, told Germany’s Handelsblatt that a slip into deflation “cannot be ruled out completely” and admitted that the bank is at mounting risk of breaching its price stability mandate. Mr Draghi said the ECB is “making technical preparations” to boost its balance sheet in early 2015, but offered no fresh clues on how much it will be or whether the measures will include full quantitative easing in the form of sovereign bond purchases.

Investors have taken his comments as a strong hint of QE as soon as this month, even though he repeated his usual caveat that new measures will be undertaken only “should it become necessary to further address risks of a too prolonged period of low inflation”. His interview may have been the trigger for the latest dash for EMU sovereign debt. There are not enough bonds to buy from certain countries if the ECB sweeps into the market on a grand scale. Bank of America said there would be an acute shortage of German debt since Berlin plans to run a budget surplus this year and will therefore be retiring bonds gradually instead of issuing them. The ECB would quickly run out of Latvian or Greek bonds trading on the open market. The US bank predicted bond purchases of between €180bn and €360bn a year, warning that the economic outlook will “deteriorate substantially” if the ECB is prevented from carrying out QE for political reasons.he said.

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On its way to parity.

Dollar Index Soars To Nearly 9-Year High (MarketWatch)

The U.S. dollar soared Friday, building on big gains scored in 2014, on expectations the Federal Reserve will raise interest rates while the ECB and Bank of Japan continue to loosen monetary policy in the year ahead. The ICE dollar index rose to 91.11, up from 90.27 in late North American trade on Wednesday and marking its highest level since March 2006, according to FactSet data. The index rose almost 13% in 2014, to mark its best yearly gain since 2005. “We have entered ‘15 with the same themes that we ended last year, namely positive U.S. sentiment fueling U.S. dollar gains,” wrote Jeremy Stretch, strategist at CIBC in London. Meanwhile, the euro “remains bedeviled by broad-based uncertainty as the Japanese yen remains on the defensive as the Bank of Japan maintains that they still have various tools to ease policy,” he said.

The euro kicked off 2015 on a downbeat note, falling to its lowest level versus the dollar since 2010, after European Central Bank President Mario Draghi hinted that the bank is moving closer to launching a full-scale quantitative easing program. The shared currency fell to $1.2001, down from $1.2099 on Wednesday, its lowest level since 2010. The euro’s weakness on Friday continued a trend seen in 2014, when it lost 12.2% against the dollar on expectations the ECB will act in early 2015 to implement full-blown quantitative easing, to help avert outright deflation in the eurozone. Renewed political turmoil in Greece, which faces a snap general election in January, is also weighing on the shared currency.

Draghi spoke about low inflation in an interview with German newspaper Handelsblatt, published on Friday, in which he said the eurozone remains in danger of falling into a downward spiral of declining consumer prices. “The risk that we do not fulfill our mandate of price stability is higher than six months ago,” he said in the interview. To fight off the risk of deflation, the central bank is therefore preparing to “adjust the scope, pace and composition of measures at the start of 2015, should this be necessary to respond to a too-long period of low inflation,” the ECB president said.

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“The threat to a SYRIZA government will not come from the markets. Remember: Greece is bankrupt and is not borrowing from private investors. [..] the threat to a SYRIZA government comes from the ECB, from the EU and from Berlin.”

Greek And European Prospects For 2015 (Varoufakis)

European media often speak of the “Greek recovery” and the growth of competitiveness of the country to try to persuade the public opinion about the effectiveness of austerity and structural reforms imposed by the Troika. Considering the macroeconomic data, however, we find a youth unemployment above 50%, a negative inflation rate and a debt-deflation spiral out of control. How is it possible to speak of “recovery” when three Greek citizen out of five have exceeded the poverty line? Over the past two years, no fact could get in the way of the EU propaganda machine which, approximately eighteen months ago, went into overdrive in an attempt to shore up the Samaras government, terrified at the prospect of a new government in Athens that insists of speaking truth to power. Have you noticed how the ‘Greek Success Story’ narrative disappeared once elections became inevitable? What kind or ‘recovery’ was it that went up in a puff of smoke the moment an election appeared over the horizon?

The answer is: a ‘recovery’ that existed only in the realm of propaganda. A ‘recovery’ that was engineered by means of two new bubbles, one in the bond market the other in the market for Greek banking shares – bubbles that burst the moment the Greek people seemed as if they were to have a chance to express what they felt about the said ‘recovery’ in the polling stations. A ‘recovery’ evidenced in one quarter’s positive GDP growth (equal to 0.7%), after seven years of continuous decline, which was due to the sad fact that nominal GDP fell – but for the first time it fell less than average prices did. So, let’s be frank: There was no recovery. What we did have was a monstrous denial that was functional to the story Mrs Merkel wanted to convey to European citizens: If austerity worked even in Greece, it must be the right cure for every European realm, and it must thus be accepted unthinkingly by every European – especially the… Italians.

In Greece there will be a general election next January 25, 2015. According to the latest polls, SYRIZA, the main opposition party critic of the austerity measures imposed by the Troika, could be the winner. But, victory at the polls could be precluded by the speculative attack of the markets on spread, aimed at creating a climate of terror among the public. What remains of democracy in this oligarchic regime of the European Union? And the same scenario could be repeated in other countries with those parties critical of the institutional architecture of the EU? The threat to a SYRIZA government will not come from the markets. Remember: Greece is bankrupt and is not borrowing from private investors.

When you do not borrow, you do not care about the interest rate! No, the threat to a SYRIZA government comes from the ECB, from the EU and from Berlin. Days after its election, there is a strong chance that our European partners’ officials, in violation of democracy’s – and logic’s – most basic principles, will threaten the new Athens government with a shutdown of Greece’s banking system until and unless it bows to their will. This is far, far worse, and morally more reprehensible, than being terrorised by the markets. Investors have every right to demand high interest rates in order to lend you money. Fellow democratic governments and unelected central bankers have no right to threaten a newly elected government with Armageddon if it dares ask for a renegotiation of an unsustainable loan agreement with the EU, the ECB and the IMF.

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HA HA! “EU economic affairs commissioner Pierre Moscovici said that in joining the euro, the Lithuanian people are “choosing to be part of an area of stability, security and prosperity.“

Lithuania Joins Eurozone Despite 40% Of Population Being Against (RT)

Lithuania has celebrated the New Year by joining the eurozone. The decision is country’s bid to boost stability despite inflation fears and euro zone debt troubles. However, according to a November poll about 40% of the population opposed the move. Lithuanian Prime Minister Algirdas Butkevicius withdrew his first 10 euro bill from a Vilnius cash machine right after midnight January 1. The exchange rate is now set at one euro for 3.45 litas, the country’s old currency. Both litas and euros will circulate in the country till June. “The euro will serve as a guarantee for our economic and political security,” Butkevicius said at a ceremony which was attended by officials of other Baltic states – Estonia and Latvia.

Latvia joined the eurozone on January 1, 2014 despite opinion polls showing that a majority of the country’s population opposed the move, with just 20% strongly in favor. Estonia joined the currency bloc in 2011. “Myself, and I think, many of you feel sad that the litas, which has served us well for more than two decades, becomes history, but we have to move forward,” said Lithuania’s Finance Minister Rimantas Sadzius at the ceremony. Earlier the country’s President Dalia Grybauskaite said that joining eurozone is symbol of “deeper economic and political integration with the West.” However, not everyone in Lithuania shared the optimism of Grybauskaite.

According to a November survey released by the central bank, only 53% of the population supported the move, while 39% were against. “Financial commitments are a huge burden and increase the country’s debt. I think we should have delayed entry,” financial analyst Valdemaras Katkus told AFP. In the meantime the European Commission has put a huge banner over its headquarters in Brussels, saying “Welcome to the euro area, Lithuania!” EU economic affairs commissioner Pierre Moscovici said that in joining the euro, the Lithuanian people are “choosing to be part of an area of stability, security and prosperity.” Lithuania has already donated millions of euros to the eurozone’s rescue fund for struggling EU members, such as Greece.

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“.. this action is so stupid no amount of commentary would possibly do it justice ..”

Obama Sanctions North Korea For Sony Hack It Didn’t Perpetrate (Zero Hedge)

US foreign policy just jumped the shark: a few days after both the FBI and the US State department were humiliated when it was revealed that it wasn’t North Korea but a disgruntled, laid off Sony employee that was responsible for the “hack”, and when the best possible course of action would have been to simply let this latest embarrassing incident fade from memory, moments ago Obama – currently not working out next to a rainbow or flashing his support of “Shaka” – just signed his first executive order of 2015, imposing even more sanctions against North Korea. From Bloomberg:

President Obama signs order imposing additional sanctions on North Korea in response to country’s “efforts to undermine U.S. cyber-security and intimidate U.S. businesses and artists exercising their right of freedom of speech,” according to Treasury Dept statement. [..] Sanctions target 3 entities, 10 individuals [..] Including North Korea’s intelligence agency, arms dealer, North Korea’s representatives in Namibia, Sudan, Iran, Syria, China “Even as the FBI continues its investigation into the cyber-attack against Sony Pictures Entertainment, these steps underscore that we will employ a broad set of tools to defend U.S. businesses and citizens, and to respond to attempts to undermine our values or threaten the national security of the United States,” Treasury Sec. Lew says in statement.

That this action is so stupid no amount of commentary would possibly do it justice is quite clear, which is why we patiently await North Korean TV to escalate its comedic feud with the “monkey in a tropical jungle.” Perhaps the only silver lining is that Obama did not launch a nuclear attack on Pyongyang outright, although there is still a 2 year period until January 2017. And anything goes, especially once the NSA fabricates another YouTube clip.

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“The truth is not being aired in the West. It’s a surreal perversion of history that’s going on once again, as in Bush pre-Iraq ‘WMD’ campaign.”

Oliver Stone’s New Movie: “Ukraine: The CIA Coup” (Zero Hedge)

From Oliver Stone’s Facebook page: Excuse my absence these past weeks. A combination of overwork, prepping the Snowden movie in Germany & England, a side trip to Moscow, and a devastating head cold have laid me low. Recovering over Christmas in California; winter sun helps. Interviewed Viktor Yanukovych 4 hours in Moscow for new English language documentary produced by Ukrainians. He was the legitimate President of Ukraine until he suddenly wasn’t on February 22 of this year. Details to follow in the documentary, but it seems clear that the so-called ‘shooters’ who killed 14 police men, wounded some 85, and killed 45 protesting civilians, were outside third party agitators.

Many witnesses, including Yanukovych and police officials, believe these foreign elements were introduced by pro-Western factions – with CIA fingerprints on it. Remember the Chavez ‘regime change’/coup of 2002 when he was temporarily ousted after pro and anti-Chavez demonstrators were fired upon by mysterious shooters in office buildings. Also resembles similar technique early this year in Venezuela when Maduro’s legally elected Government was almost toppled by violence aimed at anti-Maduro protestors. Create enough chaos, as the CIA did in Iran ‘53, Chile ‘73, and countless other coups, and the legitimate Government can be toppled. It’s America’s soft power technique called ‘Regime Change 101.’

In this case the “Maidan Massacre” was featured in Western media as the result of an unstable, brutal pro-Russian Yanukovych Government. You may recall Yanukovych went along with the February 21 deal with opposition parties and 3 EU foreign minsters to get rid of him by calling for early elections. The next day that deal was meaningless when well-armed, neo-Nazi radicals forced Yanukovych to flee the country with repeated assassination attempts. By the next day, a new pro-Western government was established and immediately recognized by the US (as in the Chavez 2002 coup). A dirty story through and through, but in the tragic aftermath of this coup, the West has maintained the dominant narrative of “Russia in Crimea” whereas the true narrative is “USA in Ukraine.”

The truth is not being aired in the West. It’s a surreal perversion of history that’s going on once again, as in Bush pre-Iraq ‘WMD’ campaign. But I believe the truth will finally come out in the West, I hope, in time to stop further insanity. For a broader understanding, see Pepe Escobar’s analysis “The new European ‘arc of instability,’” which indicates growing turbulence in 2015, as the US cannot tolerate the idea of any rival economic entity. You might also see “Untold History” Chapter 10 where we discuss the dangers of past Empires which did not allow for the emergence of competing economic countries.

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No surprise here.

China Zombie Factories Kept Open To Give Illusion Of Prosperity (FT)

In the shadow of a group of enormous smokestacks and abandoned foundries, a peeling sign welcomes visitors to the Wenxi Steel Industrial Park. But in the nearby village, the working-age men and many of the women have gone, leaving only the elderly and the very young. ‘If you cut down the big tree, all the small trees around it will die’, says 69-year-old Wang Peiqing, referring to the collapse of Highsee Iron and Steel Group, which operated the foundries before its recent closure devastated the economy of a once-prosperous corner of Shanxi province in central China. The entire region relied on the steel mill; now the young people have to go and look for work across China.

Highsee stopped paying its 10,000 employees six months ago. Local officials estimate the plant supported indirectly the livelihood of about a quarter of Wenxi county s population of 400,000. Highsee was the biggest privately owned steel mill in Shanxi, accounting for 60 per cent of Wenxi s tax revenues. For those reasons, the local government was reluctant to allow the company to go out of business, even though it had been in serious financial difficulties for several years. By 2011 Highsee was already like a dead centipede that hadn t yet frozen stiff with rigor mortis, says one official. More than half the plant shut down, but it was still producing steel even though its suppliers wouldn’t deliver anything without cash up front and it was drowning in debt.

Across the vast expanses of China, similar experiences are playing out, with thousands of companies in heavy industrial sectors plagued by chronic overcapacity that should be going bust instead being propped up by local governments. With enormous power over courts, state-owned banks and local administrative departments, Communist party officials across China are prepared to go to great lengths to support the biggest failing employers in their jurisdictions. It was only last month, four years after Highsee began to flounder, that the company was finally allowed by the government to initiate bankruptcy proceedings.

In the past month alone Chinese media have reported on at least nine large steel mills that appeared to be suspended in limbo after halting production but which are forbidden from going formally bankrupt. There are large numbers of companies across China that should go bankrupt but haven’t done so, says Han Chuanhua, a bankruptcy lawyer at Zhongzi Law Office, a Beijing legal practice. The government doesn’t want to see bankruptcy because as soon as companies go bust, unemployment spikes and tax revenues disappear. By stopping companies from going bankrupt, officials are able to maintain the illusion of local prosperity, economic growth and stable taxes.

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“.. the Fed is committed to sending its interest rate change messages by pony express to speculators who operate in the nano-second based cybersphere of modern trading technology. It’s not even a contest; its a bad joke which showers the 1% with stupendous windfalls.”

Why The Stock Market Casino Is Dangerous: Looney Tunes And Sand Dunes (Stockman)

On August 4th the Wall Street Journal carried a breathless tale of how a handful of obscure oilfield suppliers were striking immense riches in the sand dunes of Wisconsin. Owing to the “shale revolution”, the stock price of an outfit that had originated in the stagnating business of supplying sand traps to golf courses, and which had been at death’s door as recently as 2011, had gone parabolic. Emerge Energy Services (EMES) presently traded at $145 per share, reflecting a red hot gain of 8.5X over its $17 IPO price fifteen months earlier. In a literal sense, silicon valley had come to the silicon dunes of Lake Michigan, as reflected in EMES’ valuation at 43X its LTM earnings.

Given the fact that EMES’ share price had most recently risen by $100 or $2.5 billion of market just since January 2014, the “momo” story was self-evidently all about upside growth, not current profits or cash flow. In fact, during its 14 quarters as a public filer, EMES had generated negative $50 million of operating cash flow after CapEx. So at a total enterprise value of $3.7 billion, the punters chasing the stock straight up the parabolic curve would seemingly have anticipated some stupendous growth indeed. Except……except they had no idea about EMES’ sustainable growth potential and didn’t care because the buyers were robots, day traders and flavor-of-the-month hedge funds.

They were piling into the stock of a company selling a form (white sand) of the second most abundant low-value commodity on planet earth for no other reason than Emerge Energy Services was another momo play on steroids. The “price action” was the investment thesis. Yet this typical momo “rip” had occurred not out of the natural elements of human greed and capitalist enterprise, but because the stock market has been destroyed by the Fed. That is, the combination of ZIRP and wealth effects “puts” have eviscerated all of the checks and balances that contain and modulate speculation in honest free markets. On the one hand, Fed policy has massively subsidized momo speculators in two powerful ways.

First, most of them operate through the options markets or employ other forms of heavy, short-term position leverage. Accordingly, their “carry” cost is close to zero, and their position leverage can be continuously rolled-over without risk. That’s because the Fed’s foolish commitment to “transparency” in pegging its policy rate means that speculators are in the catbird seat. In effect, the Fed is committed to sending its interest rate change messages by pony express to speculators who operate in the nano-second based cybersphere of modern trading technology. It’s not even a contest; its a bad joke which showers the 1% with stupendous windfalls.

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Sand ‘producers’? Is that like water producers?

As Oil Price Drops, Good Times Run Out for Sand Producers (WSJ)

“This isn’t our first rodeo” has become a catchphrase among oil-industry executives who are laying off workers and dialing back spending in the wake of tumbling crude-oil prices. But for many sand producers, this is their first time on the bucking bronco that is the cyclical energy business—and not all of them are ready for the wild ride, industry analysts say. Sand is an important ingredient in hydraulic fracturing, or fracking, which has pushed American oil output above 9 million barrels a day, rivaling the production of Saudi Arabia or Russia. Sand companies’ biggest customers used to be golf courses and glass manufacturers, but the oil boom brought energy clients to their door and now roughly 60% of business is tied to fracking, according to PacWest Consulting Partners, which forecasts sand demand.

Now that oil prices have fallen, many fracking companies are retrenching—and that is bad news for sand producers. Earlier this fall PacWest projected sand use would grow by 20% each year in 2015 and 2016. But following the plunge in oil prices, PacWest now expects sand demand to stay flat. Meanwhile, new sand mines could add another 10% on top of the existing pile, creating a glut and pushing down prices, said Samir Nangia, a principal of PacWest. Global oil prices have plunged 50% since June, as the surging supply—thanks to fracking—collided with lackluster world-wide demand for fuel this fall.

With their revenue threatened, oil drillers and fracking companies are under tremendous pressure to dial down their spending and the companies they buy sand from will be easy targets, said Karen Nickerson, an energy analyst at Moody’s. “They’re going to push on who they can,” she said. U.S. Silica Holdings Inc., which operates sands mines in Wisconsin, Illinois and Oklahoma, says it is still expecting to grow in 2015, said chief executive Bryan Shinn. Even if oil companies drill fewer wells next year, they are increasing the amount of sand they use per well, he said. “This is providing us with a backstop,” said Mr. Shinn, adding that job cuts aren’t in the cards for his company. “We’re not even talking about that. If anything we might be looking to add jobs as opportunities arise.”

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Big collapse coming.

The ‘Shock’ That Awaits Pensioners At Retirement (BBC)

The next generation of Americans to hit retirement will be ‘shocked’ when they find out how little they have to live on. A former Assistant Secretary of the Treasury warns that the US government is standing idly by. “We need to do something, we’re not doing anything,” she says. Professor Alicia Munnell, who is now director of Boston College’s Centre for Retirement Research, tells BBC World Service’s In the Balance programme that most Americans’ voluntary 401(k) pension schemes are seriously under-funded. In a new book, Falling Short, she says the only answer is to work longer and save more. But it is part of a bigger global pensions gap between what is needed to fund pensions and what is actually available in private and public pension pots.

America’s 401(k) was introduced in 1978 as a tax-efficient way of encouraging individual citizens to save for retirement. But the average 401(k) fund, to which individuals and employers contribute, stands at $111,000. That’s about enough to provide just $400 (£256) a month in retirement. On the streets of New York, we questioned people on how confident they were about their retirement income. “I’d say fairly-to-very confident,” says Mark, aged 53 from Boston. “I think we’ve done our part, put as much dough aside as possible. “In the next five to seven years we should be able to save even more – we’ll have to.”

However, Prof Munnell says the first retirees who are going to rely solely on their 401(k) are going to be “stunned” at how little that average $111,000 balance provides them in terms of monthly income. “People are going to be shocked,” she says. Hannah, a 31-year-old New Yorker says: “I think it is getting to the point now in the economy where people my age are going to have to work until they die. “I don’t think social security is going to be able to do anything by the time I retire.” While Prof Munnell says that there will always be some kind of safety net in the US, “we need to put more money in to maintain current benefit levels”.

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And that collapse comes to you courtesy of Congress and Wall Street.

Michael Hudson: The War on Pensions – The US Budget Anti-Pension Law (NC)

On the Senate’s last day in session in December, it approved the government’s $1.1 trillion budget for coming fiscal year. Few people realize how radical the new U.S. budget law was. Budget laws are supposed to decide simply what to fund and what to cut. A budget is not supposed to make new law, or to rewrite the law. But that is what happened, and it was radical. Wall Street’s representatives in Congress – the Democratic leadership as well as Republicans – took the opportunity to create an artificial crisis. The press called this “holding the government hostage.” The House – backed by the Senate – said that it would shut the government down at some future date if two basic laws were not changed. Most of the attention has been paid to Elizabeth Warren’s eloquent attack on the government guaranteeing bank trades in derivatives.

Written by Citigroup lobbyists, this puts taxpayer funds behind future bank bailouts if banks make more bad bets on complex financial derivatives, such as packaged junk mortgage loans. Critics have focused on how there must be a loser for every winner in a derivatives contract. The problem is that if banks lose, the government will bail them out just as it did in 2008. Less attention has been paid to what happens if banks win. They will win largely in making bets against pension funds. Indeed, pension funds have not been treated well by Wall Street in recent years. They are in a bind. Pension funds will fall further and further behind what theyneed to pay retirees if they do not make the impossibly high returns of 8.5%.

The guiding philosophy of pension funds has been that instead of making employers pay enough to cover the pensions they have promised, funds can make money purely financially – by Wall Street sharpies. The problem is that safe interest rates today are less than 1% for Treasury bonds. Everyithing else – stocks, corporate bonds, and hedge fund derivatives – are much more risky. And when Goldman Sachs, or JPMorgan Chase draw up a derivative for a client, their aim is to make money for themselves, not for the client. So pension funds have been at the losing end. Most funds would have done better simply to turn their money over to Vanguard in an indexed fund, and saved management fees.

At the state and local levels, pension funds in New Jersey and other states threaten to go the way of Detroit pension funds – to be cut back so that bondholders can be paid. Many corporate pension funds also are behind, because companies are using their record profits to pay higher dividends and to buy back their stocks to create price gains for speculators. But the funds most under attack are union pension funds. These are the funds that Congress has gone after. The fight is not merely to scale back pension funds – and avoid the government’s Pension Benefit Guarantee Corp (PBGC) being bailed out – but to break the power of unions to attract members or to defend them.

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And wouldn’t you know, some try to attribute this to ‘increased confidence’.

New Consumer Debt Reaches Seven-Year High In UK (Guardian)

Consumer helplines have sounded a warning after Britons ran up their highest level of new debt in November for nearly seven years, with the month’s borrowing on credit cards, loans and overdrafts hitting more than £1.25bn. National Debtline and Ste%hange said the figures from the Bank of England showed a worrying rise in consumers’ reliance on credit, and warned they expected a rush of people seeking help when the first credit card bills of the year started to arrive. Banks and credit card companies have been jostling for business with offers to attract new customers: loan rates have plummeted while balance transfer deals on credit cards have become increasingly generous. The £150bn UK credit card industry is to come under investigation this month by the Financial Conduct Authority over accusations of aggressive marketing after the watchdog suggested it had been pushing “payday loans with plastic”.

The £1.25bn net increase in unsecured borrowing during November was the biggest rise since February 2008, when Northern Rock was nationalised as the credit crunch took hold. It was the third month out of five that consumers had taken on more than £1bn of new debt. More than £980m was taken out in loans and overdrafts during the month, sharply up from the monthly average of £728m over the previous six months. Credit card lending fell to £269m, from £399m in October, but remained above the average for the previous six months. The Bank of England said over the course of three months unsecured lending had grown at its most rapid pace since October 2005, and in November was up 6.9% compared with November 2013. Howard Archer, chief UK economist at IHS Economics, said the surge in retail sales around Black Friday was probably linked to the increase in borrowing – retail experts IMRG estimated £810m was spent online during the promotional day – but he added there were also likely to be other factors behind the rise in debt.

“Relatively high consumer confidence means people have become more prepared to borrow in recent months,” he said. “It also may well be that a significant amount of people have recently been borrowing more due to the squeeze on their purchasing power coming from extended low earnings growth.” The shadow consumer minister, Stella Creasy, said the UK had a “massive looming personal debt crisis” and many households were being forced to borrow to fund living costs. “They’re not buying big fancy TVs and posh holidays – they are borrowing to cover the gap between what they earn and what they need to pay for each month,” she said. Creasy said there was a “big gaping hole at the heart of our economy” being fuelled by borrowing, and tackling problem personal debt needed to be a political priority.

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In the US, it’s already taken over the government.

Right Wing In Europe Could Bring ‘Turmoil’ (CNBC)

European leaders have joined forces to warn of the rise of right-wing political movements on the continent, amid fears of “unrest and political turmoil” in the region if their growth goes unchecked. Speaking in her traditional New Year’s address, German Chancellor Angela Merkel warned against right-wing populism and criticized recent anti-Islamic protests in the country, saying they were driven by prejudice and a hatred of foreigners. And Merkel is not the only leader aware of rise of the right among voters across Europe. Merkel’s counterparts in France and Italy have both made recent comments about the unpalatable prominence of populist movements in their countries. In their new year addresses, French President Francois Hollande attacked what he called “dangerous” populist movements, and Giorgio Napolitano, the 89 year-old outgoing Italian President, warned there was “nothing more unrealistic or dangerous” than calls for Italy to leave the euro zone.

As well as opposing immigration, many of these movements also campaign against the European Union (EU) and the single currency union, the euro zone. Examples include the Alternative for Germany (AfD) and the U.K. Independence Party (UKIP), both of which have positioned themselves as euroskeptic alternatives to the mainstream parties. But more extremist right-wing groups are also gaining in popularity in some countries, with Golden Dawn in Greece getting a boost from anger at the country’s rising unemployment and tough austerity policies, implemented as part of economic reforms. The party is often described as neo-Nazi, although it rejects this label. In countries like France, where growth remains anaemic, the political elite could face real problems from parties like the National Front, Howard Goldring, managing director of Delmore Asset Management, warned.

“The National Front is doing quite well and they are playing on popular fears (over immigration and the economy),” he told CNBC on Friday. “It’s clear that France really has problems and the economy could slow down further and, therefore, you can expect more unrest and political turmoil.” The party’s current leader, Marine Le Pen, has tried to clean up the party’s image after taking over from her father Jean-Marie Le Pen, who made several anti-Semitic comments during his tenure of the party. It comes amid growing concerns about Europe’s tentative economic recovery. Eurozone GDP grew by just 0.2% in the third quarter, on the previous quarter, and inflation remained subdued at 0.3% in November on the back of a lower oil price.

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They still recall more than they produce?!

General Motors: A New Year, A New Series Of Recalls (Reuters)

General Motors began the new year by announcing three new vehicle recalls on Thursday, as the ignition switch crisis continued to dog the automaker after millions of vehicles were recalled in 2014. No crashes or injuries were reported in the latest round of recalls involving 83,572 sport-utility vehicles and pickup trucks. GM expects that fewer than 500 will be affected by the defect, an ignition lock actuator with an outer diameter that exceeds specifications. Still, the issue could spook consumers and investors. Ignition system problems were behind the record number of recalls made in 2014 by GM, which has struggled to rebuild its reputation following its 2009 bankruptcy. The recalls hit GM’s share price, which fell 14.6% during 2014, a year in which shares of rival Ford rose about 0.5%.

GM recalled more than 2.5 million vehicles in 2014 after accidents that caused more than 40 deaths. The compensation program, which is accepting claims until Jan. 31, has received more than 2,200 claims for injuries and deaths as a result of the issue. In the primary recall announced on Thursday, the outsized ignition lock actuator can lead to the ignition key getting stuck in the “start” position. If the vehicle is driven that way and experiences a “significant jarring event,” the ignition lock cylinder could move into the “accessory” position, affecting engine power, power steering and power braking. “Also, the timing of the key movement into the accessory position relative to crash sensing could result in the air bags not deploying in certain crashes,” company spokesperson Alan Alder said in a statement.

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“Investigators say they would have uncovered even more abuses if Petrobras hadn’t refused to provide key documents.”

Failure To Stop Petrobras Scandal Could Haunt Brazil’s Rousseff (Reuters)

When federal investigators first identified signs of corruption at Petrobras in 2009, Dilma Rousseff insisted Brazil’s state-run oil company had nothing to hide. “Petrobras has one of the most accurate accounting standards in the world,” said Rousseff, who was then chairwoman of its board and is now Brazil’s president. “If it wasn’t the case, investors would not be seeking out the company as one of the great investment targets.” Today, it’s clear her confidence was misplaced. Petrobras now acknowledges it overpaid on contracts for years. Prosecutors say engineering firms paid bribes to win Petrobras contracts, systematically overcharged it to the tune of billions of dollars and funneled a cut of the money to corrupt executives, vendors and political parties, including Rousseff’s ruling Workers’ Party.

A Reuters review of a 2009 federal investigation of Petrobras, and interviews with those who conducted it, indicates Rousseff missed opportunities to stop the graft before it erupted into a crisis so big it could push Brazil’s slow-growing economy back into recession next year. Rousseff says she did not know about the corruption, or participate in it, when she was Petrobras’ chairwoman from 2003 to 2010. Opposition leaders say they believe her and that she is unlikely to face impeachment. Polls show her popularity has suffered only slightly. Still, she faces mounting scrutiny over whether she did enough to halt the corruption at Brazil’s biggest company by revenue. The scandal could haunt her in her second term as president, which began on Thursday.

Petrobras’ stock has fallen nearly 50% in the last six months and its market value is down more than 80% from its peak in 2008. Two top former executives and three dozen other suspects allegedly involved in the scheme have been indicted. The accounting standards that Rousseff praised are now in such disrepute that independent auditors have refused to certify Petrobras’ quarterly results because, pending further investigation, they are unable to put a value on its assets.

Records from the Federal Audits Court, or TCU, show that investigators detected widespread over-charging on contracts and irregular tendering practices at major Petrobras projects. They included the Abreu e Lima refinery in northeast Brazil, the biggest single investment project in Petrobras’ history. The TCU advised both the government and Petrobras’ directors in a report that was sent directly to Rousseff and her board. Investigators say they would have uncovered even more abuses if Petrobras hadn’t refused to provide key documents. The TCU’s findings were “a clear warning sign of bigger problems and likely corruption,” Saulo Puttini, who was one of the auditing officials, told Reuters. “What’s happening now is not a surprise to us at all.”

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“.. if they can’t have the run of the place, they make sure that nobody else can either, by setting up a conflict scenario that nobody there can ever hope to resolve.”

The Imperial Collapse Playbook (Dmitry Orlov)

Some people enjoy having the Big Picture laid out in front of them—the biggest possible—on what is happening in the world at large, and I am happy to oblige. The largest development of 2014 is, very broadly, this: the Anglo-imperialists are finally being forced out of Eurasia. How can we tell? Well, here is the Big Picture—the biggest I could find. I found it thanks to Nikolai Starikov and a recent article of his. Now, let’s first define our terms. By Anglo-imperialists I mean the combination of Britain and the United States. The latter took over for the former as it failed, turning it into a protectorate. Now the latter is failing too, and there are no new up-and-coming Anglo-imperialists to take over for it.

But throughout this process their common playbook had remained the same: pseudoliberal pseudocapitalism for the insiders and military domination and economic exploitation for everyone else. Much more specifically, their playbook always called for a certain strategem to be executed whenever their plans to dominate and exploit any given country finally fail. On their way out, they do what they can to compromise and weaken the entity they leave behind, by inflicting a permanently oozing and festering political wound. “Poison all the wells” is the last thing on their pre-departure checklist.

• When the British got tossed out of their American Colonies, they did all they could, using a combination of import preferences and British “soft power,” to bolster the plantation economy of the American South, helping set it up as a sort of anti-United States, and the eventual result was the American Civil War. • When the British got tossed out of Ireland, they set up Belfast as a sort of anti-Ireland, with much blood shed as a result. • When the British got tossed out of the Middle East, they set up the State of Israel, then the US made it into its own protectorate, and it has been poisoning regional politics ever since. (Thanks to Kristina for pointing this out in the comments.) • When the British got tossed out of India, they set up Pakistan, as a sort of anti-India, precipitating a nasty hot war, followed by a frozen conflict over Kashmir. • When the US lost China to the Communists, they evacuated the Nationalists to Taiwan, and set it up as a sort of anti-China, and even gave it China’s seat at the United Nations.

The goal is always the same: if they can’t have the run of the place, they make sure that nobody else can either, by setting up a conflict scenario that nobody there can ever hope to resolve. And so if you see Anglo-imperialists going out of their way and spending lots of money to poison the political well somewhere in the world, you can be sure that they are on their way out. Simply put, they don’t spend lots of money to set up intractable problems for themselves to solve—it’s always done for the benefit of others.

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That bad is bad.

South Australia ‘Incredibly Dangerous’ Wildfires Worst Since 1983 (Bloomberg)

Wildfires raging east of South Australia’s capital Adelaide are the worst the region has seen in more than 30 years, damaging homes and prompting the government to warn of “incredibly dangerous” conditions. A major emergency was declared as South Australia Premier Jay Weatherill today urged residents to leave areas threatened by fires burning out of control for a second day. Blazes have also broken out in neighboring Victoria state. “It could be a catastrophic decision to leave late,” Weatherill said in a news conference broadcast on Sky TV. “We’re dealing with an incredibly dangerous fire” in and around the southern Mount Lofty Ranges, he said.

Conditions in the area are the worst since 1983, when 75 people in the two states died in what became known as the Ash Wednesday fires, South Australia Police Commissioner Gary Burns said at the news conference. Temperatures rose over central Australia in the past week and winds are pushing that hot air south, the Bureau of Meteorology said in a statement yesterday. It forecast temperatures of more than 40 degrees Celsius (104 degrees Fahrenheit) across the southern part of the country. The nation’s hot, dry climate makes wildfires a major risk in the southern hemisphere’s summer. In February 2009, bushfires across Victoria killed 173 people and destroyed 150 homes in the worst blazes in Australian history.

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