Aug 242015
 
 August 24, 2015  Posted by at 9:00 am Finance Tagged with: , , , , ,  13 Responses »


NPC Grand Palace shoe shining parlor, Washington DC 1921

After losing 11% last week, Shanghai this morning was down almost -9% at one point, after lunch went back up to -6.5%, and ended its day at -8.49%. A Black Monday for sure, but is this the BIG ONE? It really doesn’t matter one bit. Unless perhaps you persist in calling your self an investor, in which case we pity you, but not for losing your shirt. Because God knows we’ve said enough times now that there are no functioning markets anymore, and therefore no-one who can rightfully lay claim to the title ‘investor’.

Plenty amongst you will be talking about economic cycles, and opportunities, and debate how to ‘play’ the crash, but all this is useless if and when a market doesn’t function. And just about all markets in the richer part of the world stopped functioning when central banks started buying assets. That’s when you stopped being investors. And when market strategies stopped making sense.

Central banks will come up with more, much more, ‘stimulus’, but what China teaches us today is that we’re woefully close to the moment when central banks will lose the faith and trust of everyone. After injecting tens of billions of dollars in markets, which thereby ceased to function, the global economy is in a bigger mess then it was prior to QE. The whole thing is one big bubble now, and we know what invariably happens to those.

More QE is not an answer. And there is no other answer left either. Those tens of trillions will need to vanish from the global economy before any market can be returned to a functioning one, and by that time of course asset prices will be fraction of what they are now. It may not happen today, but that doesn’t matter: what’s important to know is that it WILL happen.

And if you keep being out there trying to outsmart a non-functioning market, you’ll get burned as badly as the millions of Chinese grandmas who already lost 20%+ so far just this month. And that’s just on their share holdings; Chinese property ‘markets’ will be at least as badly burned.

China’s leaders, and its people, have walked eyes wide open into an ugly albeit nigh perfect trap. They’ve all started to believe that borrowing more could make them richer. Outstanding credit across the entire society has reached idiotic proportions. We can get somewhat of a glance at what levels debt have reached in Steve Keen’s Is This The Great Crash Of China?, in which he argues that a crash is inevitable, simply given those levels.

But we can at the same time be sure that this doesn’t tell the whole story. Much of what has gone on in the shadow banking sector remains unknown and carefully hidden. Thousands of local governments have plunged themselves into the deep end borrowing from trusts and other often shady instruments, at interest levels much higher than the ‘official’ ones. Even these shadow trusts last week have begun asking for bailouts, a development that can only make one think of a Godfather episode of one’s choice.

China’s first big mistake is that Xi and Li and their ilk think they can control housing and stock markets. Which basically means they think they can stop people from selling property and assets when they feel these might go down in ‘value’.

China’s second big mistake is that so many people believe that Xi and Li actually have any such control. Which means the people don’t sell nearly soon enough, and will be saddled with the losses. From an economic perspective, it’s an exercise in stupid futility, or, if you prefer, futile stupidity.

Add to this that the credit that allowed the Chinese to purchase all these alleged assets came from nowhere, and will therefore of necessity have to go back to nowhere, and you have a recipe for deflationary debt deleveraging the likes of which the world may never have seen before in history, unless perhaps you count the tulip- or South Sea bubbles, but they are just small scale anecdotes compared to today.

This deleveraging will be global. We pity the many millions of poor souls who think that countries like the US and Britain will be spared the worst because their economies are doing ‘so well’. Doing well in a global Ponzi is not a recommendation.

China’s fall is being exacerbated by the fact that it has two -heavily intertwined- parties who believe in their own omnipotence, the government (Politburo) and the central bank. Both are being found out at the same moment. And both will resist this discovery. As will all central banks in the west, where at least any idea of omnipotence of governments has long been eradicated.

But the entire west has become so addicted to China’s debt, and the illusion of prosperity and economic recovery it has brought, that all prices everywhere must come down, as noted above, until the tens of trillions of dollars in stimulus measures have vanished into the thin air they were fabricated in. Until value becomes real value again, not this virtual zombie Ponzi pricing.

Today may be just a warning sign, and it may take a while longer before the deluge, but it will come. And since China has nothing left to fall back on but even higher private and public debt levels, make that sooner rather than later.

The main advice we’ve always given with regards to debt deleveraging stands: get out of debt.

Meanwhile, the western financial press, which has been reporting on non-functioning markets for years as if they actually were still functioning, is worrying about a potential Fed rate hike, telling its readers and listeners that the US central bank ‘looks set to make a dangerous mistake’. But the real ‘mistake’ was made a long time ago.

Aug 232015
 
 August 23, 2015  Posted by at 9:54 am Finance Tagged with: , , , , , , , ,  1 Response »


Harris&Ewing Ninth Street N.W., Washington, DC 1915

China Syndrome: How The Slowdown Could Spread To The Brics And Beyond (Observer)
There May Be No Sudden Fallout From China’s Crash – But Give It Time (Das)
IMF Official Says ‘Premature’ To Speak Of Chinese Crisis (Reuters)
The Last Great Bubble May Finally Be Starting To Pop (MarketWatch)
Foreign “Smart Money” Plows into US Housing Bubble 2 (WolfStreet)
Greek Election Heralds Fresh Bailout Battle (Dimitri Sotiropoulos)
Syriza Rebels Clash With Government As Parties Prepare Candidate Lists (Kath.)
Yanis Varoufakis Brands Alexis Tsipras The ‘New De Gaulle’ (Guardian)
Greek House Speaker Ups Attacks On PM, President (Kath.)
Varoufakis: If I’m Convicted Of High Treason, It Would Be Interesting (Observer)
Jeremy Corbyn Wins Economists’ Backing For Anti-Austerity Policies (Guardian)
Migrants Cross Unhindered Into Macedonia; Trains, Busses Await (Reuters)
Refugees Tear Through Police Lines At Macedonian Border (Reuters)
Italian Navy Rescues 3,000 Migrants In Mediterranean
Greek President Wants EU Summit On Refugee Crisis (Kath.)

Not could, but will.

China Syndrome: How The Slowdown Could Spread To The Brics And Beyond (Observer)

Tumbling share prices. A sell-off in commodity markets. Capital flight from some of the world’s riskier countries. Hints of a looming currency war. Financial markets ended last week in panic mode as fears emerged that the world was about to enter the next phase of the crisis that began eight years ago in August 2007. Back then, the problems began in the developed world – in American and European banks – and spread to the rest of the world. The bigger emerging markets – China and India most notably – recovered quickly and acted as the locomotive for global growth while the west was struggling. There was talk of how the future would be dominated by the five Brics countries – Brazil, Russia, India, China and South Africa – and by 11 more emerging market economies, including Turkey, Indonesia, Mexico and Nigeria.

That has happened. Emerging market countries are dominating the news – but for all the wrong reasons. And because, after years of rapid growth, they now account for a bigger slice of the global economy, a crisis would have more serious ramifications than in the past. Emerging markets have a habit of causing trouble. For a quarter of a century after the Latin American debt crisis erupted in Mexico in 1982, the story was of a storm moving from the periphery of the global economy towards its core, the advanced nations that make up the G7. Mexico ran into fresh problems in 1994, there was an Asian debt crisis in 1997, and a Russian default in 1998 before the dotcom bubble burst in 2001. That proved to be a dress rehearsal for the near meltdown of the global financial system in 2007-08.

Now the focus is back squarely on emerging markets. The problem is a relatively simple one. In the post-Great Recession world, the tendency has been for all countries to try to export their way out of trouble. But this model works only if the exports can find a home, as they did when China was growing at double-digit rates. But in the past 18 months, the Chinese economy has slowed, causing problems for two distinct groups of emerging-market economies – the east Asian countries that sell components and finished goods to their big neighbour, and countries that supply China with the fuel and raw materials to keep its industrial machine going.

China’s slowdown has led to a slump in the price of oil and industrial metals. In theory, this should have no net effect on the global economy because lower incomes for commodity-producing countries should be offset by the boost to countries that import commodities. It hasn’t quite worked out that way. Consumers in Europe, Japan and North America have not used the windfall from cheaper energy to go on a spending spree. Meanwhile, emerging market economies are hurting badly. With the western economies one new recession away from deflation, China is making its exports cheaper by devaluing its currency just as oil producers are flooding the world with crude in a bid to balance their budgets.

Read more …

I simply think everything’s worse than what’s reported.

There May Be No Sudden Fallout From China’s Crash – But Give It Time (Das)

In the aftermath of share falls in the Chinese stock market, there is increased focus on the wider effects. China’s problems are unlikely to have any immediate impact on other equity markets directly, due to its limited integration with international markets and the fact that these markets did not see a sharp parallel rise. The effects on China’s economic activity are the primary concern. These, in turn, may flow through into the global economy, affecting growth, trade, commodity prices, inflation and capital flows. The impact on the real economy has been muted to date. The paper profits of inflated share prices did not have a major effect on consumption. It is incorrect to assume, however, that the fall will have no effects.

Chinese households may increase already high saving rates, reducing consumption and slowing growth. The output of the finance industry contributed about 16% of GDP in the first quarter of 2015. It accounted for 1.3 percentage points of China’s 7% growth in the same period, compared with a contribution of about 0.7 points to the 7.4% growth in 2014. The financial impact may be greater. Given that a significant part of the rise in stock prices was driven by borrowings to purchase shares, the recent falls will reduce the value of collateral. To the extent that investors cannot meet margin calls, lenders may suffer losses. Also affected will be many large shareholders and state-owned enterprises, whose holdings are pledged as collateral for loans. The falls increase the risk of default.

The level of leverage may account for the difficulty in initially arresting the pace of the market falls. The consensus view is that such loans are modest relative to the size of the banks (around 1.5% of total banking assets) and the economy, implying the risk of a major financial crisis is limited. But there are reasons for caution. First, the amounts involved may be much larger than expected. The amount of official margin debt extended by securities companies of $250-300bn may be only a fraction of the real level of stock-secured debt. Once vehicles like umbrella trusts, private lending arrangements and the rest are included, the amount may be 50-100% higher.

Read more …

Sure, take your time boys. A forecast for 6.8% growth looks silly though.

IMF Official Says ‘Premature’ To Speak Of Chinese Crisis (Reuters)

China’s economic slowdown and a sharp fall in its stock market herald not a crisis but a “necessary” adjustment for the world’s second biggest economy, a senior IMF official said on Saturday. Fresh evidence of easing growth in China hammered global stock markets on Friday, driving Wall Street to its steepest one-day drop in nearly four years. “Monetary policies have been very expansive in recent years and an adjustment is necessary,” said Carlo Cottarelli, an IMF executive director representing countries such as Italy and Greece on its board. “It’s totally premature to speak of a crisis in China,” he told a press conference.

He reiterated an IMF forecast for a 6.8% expansion in the Chinese economy this year, below the 7.4% growth achieved in 2014. “China’s real economy is slowing but it’s perfectly natural that this should happen … What happened in recent days is a shock on financial markets which is natural,” he added. China’s stock markets have fallen more than 30% since mid-year. Following a slew of poor economic data, Beijing devalued the yuan in a surprise move last week. Cottarelli said the IMF would discuss in coming months with Chinese authorities their decision to weaken the currency.

China is eager for the yuan to join the IMF’s Special Drawing Rights basket of currencies. But the fund is considering extending the current SDR basket by nine months until September 30, 2016. Turning to Greece, which is heading to an early election in September, Cottarelli said the IMF would decide in two or three months whether to join the latest international rescue efforts. The IMF deems Greece’s debt unsustainable and has called for debt relief as a condition to participate in a third bailout. “The debt sustainability assessment will take place after the launch of the program (agreed with creditors) in two or three months. The IMF will then be able to evaluate whether to intervene,” he said.

Read more …

Faith in central banks.

The Last Great Bubble May Finally Be Starting To Pop (MarketWatch)

Forget for a moment the “panic” that is happening in U.S. stocks. Forget about the panic in China. Forget about the panic in Apple. As I argued several weeks back and have written about continuously since, the odds simply have been favoring a summer stock-market correction given the behavior of key inter-market relationships outlined in our award-winning papers (click here to download). Something far more important and spectacular may be underway which likely will only be realized and appreciated after the damage is done. The illusion of stock-market stability is fading, and the Last Great Bubble — faith in central banks — may be starting to pop.

Just as everyone is talking about the Fed raising rates in September and “lift off” finally occurring, the global growth and inflation story is dramatically reversing. It turns out quantitative easing did absolutely nothing for the economy, and it turns out that Europe’s own version of QE simply isn’t working to boost reflation hope. For too long, market participants have been sucked into the idea that the S&P 500 is the money market (as I said on CNBC here). Lower for longer has now become an excuse for too long to buy U.S. markets and believe that risk does not exist when central banks “have our backs.”

The narrative may be on the verge of a significant change. At some point, we have to stop endlessly debating the question of “when” the Fed will raise rates. Instead, we must begin to question what is so wrong with the environment that has resulted in them not having raised rates yet. Unquestionably there are long-term structural forces at play which have been disinflationary, but the bigger issue is that the U.S. stock market turned from a discounting mechanism of the future to yet another failed vehicle for stimulus under the guise of the “wealth effect.”

Read more …

A tad disappointing that Wolf doesn’t link the US bubble to those in Oz, NZ, Canada, which occur for the exact same reasons. It’s a global Anglo development.

Foreign “Smart Money” Plows into US Housing Bubble 2 (WolfStreet)

Wealthy, very nervous foreigners yanking their money out of their countries while they still can and pouring it into US residential real estate, paying cash, and driving up home prices – that’s the meme. But it’s more than a meme as political and economic risks in key countries surge. And home prices are being driven up. The median price of all types of homes in July, as the National Association of Realtors (NAR) sees it, jumped 5.6% from a year ago to $234,000, now 1.7% above the totally crazy June 2006 peak of the prior bubble that blew up in such splendid manner. But you can’t even buy a toolshed for that in trophy cities like San Francisco, where the median house price has reached $1.3 million. And the role of foreign buyers?

[N]ever have so many Chinese quietly moved so much money out of the country at such a fast pace. Nowhere is that Sino capital flight more prevalent than into the US residential real estate market, where billions are rapidly pouring into the American Dream. From New York to Los Angeles, China’s nouveau riche are going on a housing shopping spree.

So begins RealtyTrac’s current Housing News Report. “For economic and political reasons, Chinese investors want to protect their wealth by diversifying their assets by buying US real estate,” William Yu, an economist at UCLA Anderson Forecast, told RealtyTrac. “The best place for China’s smart money to invest is the United States.” In the 12-month period ending March 2015, buyers from China have for the first time ever surpassed Canadians as the top foreign buyers, plowing $28.6 billion into US homes, at an average price of $831,800, according to the NAR. In dollar terms, Chinese buyers accounted for 27.5% of the $104 billion that foreign buyers spent on US homes. It spawned a whole industry of specialized Chinese-American brokers.

Political and economic instability in China along with the anti-corruption drive have been growing concerns for wealthy Chinese, Yu said. “China’s real estate market has peaked already. Their housing bubble has popped.” So they’re hedging their bets to protect their wealth. And more than their wealth…. “China’s economic elites have one foot out the door, and they are ready to flee en masse if the system really begins to crumble,” explained David Shambaugh at George Washington University. China has capital controls in place to prevent this sort of thing for the average guy. But Yu said there are ways for well-connected Chinese to transfer money to the US, particularly those with business relationships in Hong Kong or Taiwan.

But in the overall and immense US housing market, foreign buying isn’t exactly huge. According to NAR, foreign buyers acquired 209,000 homes over the 12-month period, or 4% of existing home sales. But foreign buyers go for the expensive stuff, and in dollar terms, their purchases amounted to 8% of existing home sales. In most states, offshore money accounts for only 3% or less of total homes sales. But in four states it’s significant: Florida (21%), California (16%), Texas (8%), and Arizona (5%). And in some trophy cities in these states, the percentages are huge.

Read more …

A bit overblown. The -seeming- instability is part of the democratic process.

Greek Election Heralds Fresh Bailout Battle (Dimitri Sotiropoulos)

Greek political instability has reached alarming levels, with the emergence of a new left-wing party in parliament defying Syriza. A new coalition government of national unity was needed, in order to start implementing the promised bailout reforms. But the call for snap elections by Prime Minister Alexis Tsipras, and then the launch of Popular Unity – a breakaway anti-austerity party led by former energy minister Panagiotis Lafazanis – have fuelled disunity. All reforms will be put on hold for about six weeks. Greece faces a key sequence of events during that time. First, in line with the constitution, the main opposition parties will get a chance to form a new coalition government. The second-strongest party – centre-right New Democracy – is expected to fail.

Then Popular Unity, launched on Friday and already the third-strongest party, will get its chance next week. Popular Unity will fail too, but Mr Lafazanis could wish for no better way to promote his party on the political scene. Second, fresh elections will be held next month in a heated atmosphere. There is the now familiar division between supporters and opponents of the bailout. But on top of that, a new division will grow between Syriza voters still loyal to Mr Tsipras and Syriza voters who will shift their allegiance to Popular Unity. Popular Unity will be entitled to ample space in the Greek media, during the election campaign, to argue that it, not Syriza, is the true anti-austerity party. It will pose as flag-bearer of the anti-austerity movement that swept Syriza to power after mass protests in 2010-2014.

So Popular Unity will try to draw on the pool of disaffected Syriza voters and other Eurosceptic voters on the left. They oppose the additional public sector cuts, sweeping privatisation and restructuring of pensions, required under the bailout. Most likely, the new party will get considerable support from the many voters – 62% of the total – who said “No” to the third bailout, in the 5 July referendum. Soon after that “No” vote Mr Tsipras performed a u-turn, accepting the austerity demands of Greece’s creditors as the price for keeping Greece in the euro. So now Greece is committed to the €86bn bailout from its eurozone partners – the country’s third in five years.

If the elections have no clear winner and Mr Tsipras – until recently leading in opinion polls – cannot form a clear majority government, complicated negotiations will follow. It could be a protracted period, during which potential coalition allies of Syriza jockey for position. So Mr Tsipras’s resignation – in order to call snap elections – has triggered a process of disintegration in Syriza. He may have saved Syriza from a damaging internecine fight between supporters and opponents of the new bailout. But he has also diminished the chances for a quick economic recovery. Economic instability has been compounded by political instability.

Read more …

Jockeying for position. Kathimerini is hardly the best source for comments on this.

Syriza Rebels Clash With Government As Parties Prepare Candidate Lists (Kath.)

The row between and the rebels that broke away to form their own group on Friday intensified over the weekend as Greece’s parties prepare their candidate lists for the upcoming snap elections. The new leftist party, Popular Unity, comprising 25 breakaway MPs from SYRIZA, took the opportunity to lash out at the government over the weekend. In a statement, the party said the government’s claim to have negotiated with the country’s lenders was a “euphemism” as it led to the country’s third bailout. The party also accused Tsipras’s aides of “confusing the dictatorship of the memorandum with the democratic operation of institutions.” That comment was a reaction to an earlier statement issued by Tsipras’s press office, accusing Parliament Speaker Zoe Constantopoulou of “acting like a dictator” and saying that she was “a wrong choice.”

SYRIZA is expected to start whittling down its list of election candidates this week. The fact that the Popular Unity rebels defected before this process has begun is likely to make Tsipras’s task easier. In January he attempted to maintain the balances between his party’s factions, which is something he no longer needs to do. Also, party sources told Kathimerini that the defections also provide Tsipras with the opportunity to invite candidates of other political persuasions to join the SYRIZA ticket. The party leadership is hoping that a meeting of the SYRIZA central committee this week will lead to an inclusive message being sent out by the leftists as they seek to draw up their lists for the snap elections.

Read more …

“..a split in the party that our people, the courageous voters who voted No, did not deserve..” Well, I think it was inevitable.

Yanis Varoufakis Brands Alexis Tsipras The ‘New De Gaulle’ (Guardian)

Greece’s pre-election campaign has turned ugly before it has even officially commenced, with senior figures – including the former finance minister Yanis Varoufakis – rounding on the prime minister, Alexis Tsipras, for his governance of the crisis-plagued country. Breaking the wary truce since his surprise resignation the day after Greeks voted to reject austerity in a referendum last month, Varoufakis has lashed out at the leftwing leader’s policy choices, saying in an interview in the New Review that Tsipras had decided “to surrender” to the punitive demands of international creditors keeping Athens afloat. Instead of remaining faithful to the anti-austerity platform on which his radical left Syriza party had been elected, the young prime minister had allowed his ego to get the better of him and made a conscious decision to become the “new De Gaulle, or Mitterrand more likely”.

In the wake of Tsipras’s unexpected move on Thursday to call early elections, Varoufakis said: “Tsipras made a decision on that night of the referendum not only to surrender to the troika but also to implement the terms of surrender on the basis that it is better that a progressive government implement terms of surrender that it despises than leave it to the local stooges of the troika, who would implement the same terms of surrender with enthusiasm.” As a result, Syriza once the hope of Europe’s anti-austerity movement, had not only betrayed the cause but mutated into the very thing it had set out not to be. “This mutation I have already witnessed. Those in our party/government who underwent it, then turned against those who refused to mutate, the result being a split in the party that our people, the courageous voters who voted No, did not deserve,” he wrote.

The criticism is the closest Varoufakis has come to distancing himself from the man he did much to mentor in the nearly six months that he oversaw often fraught negotiations with the eurozone and the IMF. Tsipras’s rash decision to resign and call elections – the third poll to be held in Greece this year – the MP argued, amounted to a concerted effort by the leader to purge the party of dissent. “For it is clear,” he continued, “that once you start implementing policies it becomes untenable to say constantly: ‘I am passing law X through parliament even though I think it is toxic.’ At some point either you resign or you remove the cognitive dissonance by beginning to believe that law X ain’t that bad; perhaps it is what the doctor ordered.”

Read more …

Don’t think Zoë and Alexis are best friends anymore.

Greek House Speaker Ups Attacks On PM, President (Kath.)

A brewing row between Parliament Speaker Zoe Constantopoulou and the government peaked over the weekend as the former redoubled her verbal attacks against both Prime Minister Alexis Tsipras and President Prokopis Pavlopoulos, prompting a terse reaction from the offices of both. A day after expressing strong objections to the procedure followed by Pavlopoulos in handing exploratory mandates to the conservative opposition following Tsipras’s resignation, Constantopoulou struck again on Saturday, accusing Tsipras and the president of treating Greece’s institutions as “their fiefdom and property.” Constantopoulou hit out at Tsipras for calling elections “on the sly,” claiming that only Greece’s creditors had been briefed about the plan.

She also slammed Pavlopoulos for not informing her before launching the process of issuing exploratory mandates to party leaders. The Constitution dictates that the president informs the parliamentary speaker on the composition of the House before issuing exploratory mandates, she said. Pavlopoulos did not respond publicly to Constantopoulou on Saturday but his office issued a terse statement. “As of yesterday, the presidency is no longer paying attention to Mrs Constantopoulou,” it said. On Friday, sources in Pavlopoulos’s office had countered accusations of an “institutional faux pas” by declaring that the president had “honored the Constitution to the letter.”

Later on Saturday, Tsipras’s office also issued a curt note, indicating that the premier regretted appointing Constantopoulou to Parliament’s top role. “The parliamentary speaker is acting like a dictator,” it said. “She thinks she’s at the institutional center of democracy when she’s just a wrong choice.”

Read more …

Long and interesting.

Varoufakis: If I’m Convicted Of High Treason, It Would Be Interesting (Observer)

As we finish lunch, we talk about his future plans. He’s dismissive of the criminal investigation against him, which he says doesn’t bother him in the slightest. “I think it’s going to fizzle out. However if I’m prosecuted and convicted of high treason, it would be interesting. For what? Saying no to an agreement that the troika itself considers to be unsustainable? Or indeed for having tried to come up with a defensive plan against threats they were making? In a sense, I would very much like it if it came to it because I would be able to expose them for what they are.” As for the idea that he hacked into private tax accounts, he says there’s nothing secret about tax files. “Let’s say I know your tax file number, so what? They would have to come up with a charge that I tried to create reserve accounts for people to put money into them. OK? Guilty.”

He says he’s not going to return to academia for the time being – although if and when he does, you can imagine that he’ll be in a great deal more demand than he was when plying his trade, largely uncelebrated, in Athens, Sydney and Austin. “I’m a member of parliament, let me remind you, and my commitment to my voters was that I’m not going to abandon them, come what may,” he says, sounding for the first time in our conversation like a politician rather than a theoretician. Can he envisage returning to government? “Yes,” he says, straight away. Would he like to? “Depends on the government,” interjects Stratou.

He gives her a look, as if she’s said too much, and then tells me that serving in a government is like becoming head of an academic department: it’s something the appropriate person should only do reluctantly. I don’t believe this. I think Varoufakis is the sort of political animal who, having tasted power, will not be content to return to the sidelines. He has economic theories that he’s determined to prove will work in practice. It’s that determination, of course, that his critics say was his undoing, but it’s also what made him stand out in a grey and uniform world of political conformity.

[..] A couple of weeks later, Tsipras makes his surprise move and resigns in preparation for a new election and, he hopes, a new mandate. He and Varoufakis have maintained a wary truce, occasionally offering implied or mildly explicit criticisms but on the whole steering clear of an outright conflict. But the election manoeuvre seemed to break the bond of loyalty and mutual constraint. In an email to me two days ago, Varoufakis wrote: “Tsipras made a decision on that night, of the referendum, not only to surrender to the troika but also to implement the terms of surrender on the basis that it is better that a progressive government implement terms of surrender that it despises than leave it to the local stooges of the troika who would implement the same terms of surrender with enthusiasm.”

For Varoufakis it would have been better to “retreat to opposition” than go along with the terms because they will force the party to “mutate” into the very thing it set out not to be. “For it is clear,” he continued, “that once you start implementing policies it becomes untenable to say constantly, ‘I am passing Law X through parliament even though I think it is toxic.’ At some point either you resign or you remove the cognitive dissonance by beginning to believe that Law X ain’t that bad; perhaps it is what the doctor ordered.’ This mutation I have already witnessed. Those in our party/government who underwent it, then turned against those who refused to mutate, the result being a split in the party that our people, the courageous voters who voted NO, did not deserve.”

Read more …

Far as I can see, Corbyn’s PQE is far from perfect, but it’s hardly ‘extreme left”. Corbyn would de very wise to consult Steve Keen, one of the signees, on his Modern Debt Jubilee.

Jeremy Corbyn Wins Economists’ Backing For Anti-Austerity Policies (Guardian)

More than 40 leading economists, including a former adviser to the Bank of England, have made public their support for Jeremy Corbyn’s policies, dismissing claims that they are extreme, in a major boost to the leftwinger’s campaign to be leader. The intervention comes as the Corbyn campaign reveals that a Labour government led by the MP for Islington North would reserve the right to renationalise Royal Bank of Scotland and other public assets, “with either no compensation or with any undervaluation deducted from any compensation for renationalisation” if they are sold at a knockdown price over the next five years.

The leftwinger’s economic policies – dubbed Corbynomics – have come under sustained attack in recent days, including by members of his own party, with Andy Burnham warning his party in an interview with this paper not to forget the lessons of the general election about the importance of economic credibility. But with just under three weeks until Ed Miliband’s replacement is announced, Corbyn’s credibility receives a welcome endorsement as 41 economists make public a letter defending his positions. In the letter to which David Blanchflower, a former member of the Bank of England’s monetary policy committee is a signatory, the economists write: “The accusation is widely made that Jeremy Corbyn and his supporters have moved to the extreme left on economic policy. But this is not supported by the candidate’s statements or policies. His opposition to austerity is actually mainstream economics, even backed by the conservative IMF. He aims to boost growth and prosperity.”

Corbyn remains the frontrunner to be Labour leader, but as his policies, and the risks he poses to the unity of the Labour party, have come under scrutiny, rivals believe he is losing momentum. Burnham’s campaign shared data with the Observer that suggested some of those who had previously committed to voting for Corbyn were now recognising the dangers and either opting for the shadow health secretary or describing themselves as “don’t knows”. But writing in the Observer, Corbyn defended his platform and said the government’s “free market dogma” had to be fought and vowed that a Labour government under his leadership would re-empower the state. The chancellor, George Osborne, intends to sell off £31bn of public assets in 2015-16.

Corbyn writes: “Parliament can feel like living in a time warp at the best of times, but this government is not just replaying 2010, but taking us back to 1979: ideologically committed to rolling back the state, attacking workers’ rights and trade union protection, selling off public assets, and extending the sell off to social housing. “This agenda militates against everything the Chancellor says he wants to achieve. If you want to revive manufacturing and rebalance the economy, you need a strategic state leading the way.”

Read more …

What is this, a wordgame? They’re still “Hundreds of migrants [..], but many of them refugees from the Syrian war and other conflicts in the Middle East..”

Migrants Cross Unhindered Into Macedonia; Trains, Busses Await (Reuters)

Hundreds of migrants crossed unhindered from Greece into Macedonia on Sunday after overwhelmed security forces appeared to abandon a bid to stem their flow through the Balkans to western Europe following days of chaos and confrontation. Riot police remained, but did little to slow the passage of a steady stream of migrants, many of them refugees from the Syrian war and other conflicts in the Middle East, a Reuters reporter at the scene said. Macedonia had declared a state of emergency on Thursday and sealed its southern frontier to migrants pouring in at a rate of 2,000 per day en route to Serbia then Hungary and the Europe Union’s borderless Schengen zone.

That led to desperate scenes at the border, as men, women and children slept under open skies with little access to food or water. Saying they would ration access, riot police used tear gas and stun grenades to drive back crowds, but were overwhelmed on Saturday by several thousand who tore through police lines or ran through nearby empty fields. The state eventually laid on extra trains, and buses arrived from across the country to take the migrants swiftly north to Serbia and the next step of a long journey from the Middle East, Africa and Asia.

“I watched the news on TV and I was astonished,” said Abdullah Bilal, 41, from the devastated Syrian city of Aleppo. “I thought I would face the same when I arrive here. But it was very peaceful. The Macedonian police told us ‘Welcome to Macedonia; trains and buses are waiting for you.'” Mohannad Albayati, 35, from Damascus, traveling with his wife, two children and three brothers, said: “I passed one step but it is a long road to my destination. With Allah’s help I will go to Germany.”

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Wait a minute! Reuters starts calling them refugees!

Refugees Tear Through Police Lines At Macedonian Border (Reuters)

Thousands of migrants stormed across Macedonia’s border on Saturday, overwhelming security forces who threw stun grenades and lashed out with batons before apparently abandoning a bid to stem their flow through the Balkans to western Europe. Some had spent days in the open with little or no food or water after Macedonia on Thursday declared a state of emergency and sealed its borders to migrants, many of them refugees from war in Syria and other conflicts in the Middle East. But by nightfall on Saturday, thousands had crossed the frontier, milling around the border town of Gevgelija where busses had converged from all over the country and trains left in quick succession to take them north to the next leg of their journey through Serbia.

There was no official word from the government, but the level of organisation suggested authorities had opted to move the migrants on as quickly as possibly, having tried and failed to keep them out with razor wire, teargas and stun grenades. “The government is organising additional trains. I don’t know who is organising the busses,” said Alexandra Krause, a senior protection officer with the United Nations refugee agency, UNHCR. No-man’s land, where men, women and children had slept in squalor under open skies appeared largely empty, though more people are certain make their way from Greece.

“In this Europe, animals are sleeping in beds and we sleep in the rain,” said 23-year-old Syrian woman Fatima Hamido on entering Macedonia. “I was freezing for four days in the rain, with nothing to eat.” Thirty-two-year-old Saeed from Syria said of the blocked border: “We know this was not Macedonia and the Macedonian police. This was the European Union. Please tell Brussels we are coming, no matter what.”

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And now we’re back to ‘migrants’?!

Italian Navy Rescues 3,000 Migrants In Mediterranean

The Italian navy rescued 3,000 migrants aboard more than a dozen boats in the Mediterranean on Saturday after receiving requests for help from 22 vessels, the coast guard said. Operations are continuing and it is still unclear where the people will be taken, a spokesman said. Europe is struggling to cope with record influx of refugees as migrants flee war in Middle Eastern countries such as Syria. The Mediterranean has become the world’s most deadly crossing point for migrants. More than 2,300 people have died this year in attempts to reach Europe by boat, according to the International Organisation for Migration. On Saturday, thousands of rain-soaked migrants stormed across Macedonia’s border as police lobbed stun grenades and beat them with batons, seeking to enforce a decree to stem their flow through the Balkans to western Europe.

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Far too late.

Greek President Wants EU Summit On Refugee Crisis (Kath.)

President Prokopis Pavlopoulos has proposed that a EU leaders’ summit be called to discuss a mounting migrant and refugee crisis and called for a closer cooperation with the United Nations. In comments during a meeting on Saturday with Health Minister Panayiotis Kouroublis, Pavlopoulos said a burgeoning migration crisis “is not only a security issue but also a humanitarian concern.” The scale of the problem means it must be tackled jointly, the president said. “There must be a common European policy,” he said, noting that this was “an obligation of the EU and its institutions.” He called for an EU leaders’ summit to be called without delay and with the involvement of the UN refugee agency. Kouroublis, for his part, said the migration crisis “threatens to drown us as a country and we must exhaust all efforts at the European level so that they realize this is not just a Greek issue.”

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 July 11, 2015  Posted by at 10:57 am Finance Tagged with: , , , , , , , , ,  3 Responses »


Jack Delano Mother of three, wiper at the roundhouse. Chicago & North Western R.R.” 1943

Greece Needs $83 Billion in Fresh Funding (WSJ)
Several Eurozone Parliaments To Vote On New Greek Debt Deal (AFP)
Crippled Greece Yields To Overwhelming Power As Deal Looms (AEP)
Greeks Wonder Whether Tsipras Folded or Restored Dignity (NY Times)
OXI-Dation: Has Greece Missed Its Chance To Create A Healthier Europe? (Evel)
Half-Century of European Integration at Stake in Greece Meeting (Bloomberg)
Is A Two-Tiered Europe What’s Next After Greece? (Reuters)
Germany Won’t Spare Greek Pain – It Has An Interest In Breaking Us (Yanis Varoufakis)
Overwhelming Majority Of Greeks Want To Keep Euro (Reuters)
It’s All Greek To Me: The Politics Of Syriza And The Troika (Steve Keen)
Putin Calls US Debt ‘Serious Problem’ as He Defends Greece (Bloomberg)
Greek Deal In Sight As Germany Bows To Huge Global Pressure For Debt Relief (AEP)
France Takes Greece’s Side Against Germany (Crook)
Greek Cash Crunch Goes to Market (NY Times)
Refugees Stuck On Greek Border Have Nothing Left To Lose (Guardian)
Will We Crash Again? -FT/Alphaville Presentation- (Steve Keen)
The Goldman Sachs Banker Who Got Rich Getting Greece Into The Euro (Armitage)
Goldman Could Be Sued For Helping Greece Hide Debts When It Joined Euro (Ind.)
Obama Pushes Trade Partners To Add Drug Rules He Opposes In US (Bloomberg)
Special Investigation: Auckland House Prices (NZ Herald)
Auckland Housing: ‘We’ve Got Chinese Buyers’ (NZ Herald)

Merkel’s nightmare.

Greece Needs $83 Billion in Fresh Funding (WSJ)

Greece will need €74 billion ($82.55 billion) in fresh funding, the three institutions overseeing the eurozone bailout program said in their assessment of the country’s request for a new aid package, according to three European officials. The €74 billion could include €16 billion from the IMF, should the Washington-based institution decide to participate in the new aid program, the officials said. A fourth official said some funding could come from Greece raising money on debt markets. Two officials said the institutions found Greece’s proposals for new overhauls and budget cuts to be a basis for negotiating a new bailout “under certain conditions.”

The development indicates some of the struggles that could lie ahead this weekend, when eurozone finance ministers and leaders meet to decide on how much money they are willing to commit to keeping Greece in their currency union. The institutions’ assessment was sent to eurozone finance ministries Saturday morning. In the early hours on Saturday, Greece’s Parliament passed the new proposal, which included cuts to pensions and tax increases, with the backing of 251 out of 300 lawmakers. The vote was supported by center-right and center-left opposition parties, while 17 lawmakers from Prime Minister Alexis Tsipras’s own left-wing Syriza party failed to support their own government, with two voting against Mr. Tsipras and others abstaining or staying absent.

Eurozone finance ministers are set to meet Saturday to decide how much more money and political capital they are prepared to spend on keeping the flailing country afloat. Only unanimous agreement on the amount of new rescue loans and debt relief to grant Athens will allow the country to avoid full-on bankruptcy and Greek banks to reopen Monday with euros in their tills. Some European officials cautioned that even a broad deal this weekend could collapse later once it comes to nailing down the details and implementing the new measures. The two sides “might end up in agreement in principle,” said one official. “But whether [a bailout] program [is] ever accepted or money disbursed is another thing.”

Greece’s international creditors told national finance ministries early Saturday that they believe the country is eligible for another support program, according to a European official. An official familiar with those talks said new financing needs had been the most divisive issue during that quality check.

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Could still be prickly.

Several Eurozone Parliaments To Vote On New Greek Debt Deal (AFP)

If Greece and its European partners reach a deal on a third aid programme on Sunday, it will still have to be approved by at least eight different national parliaments. And the German Bundestag will even get to vote on it twice. If in most countries, despite certain grumblings, approval of the deal is not really in any doubt, the matter is more complicated in countries such as Slovakia and Latvia. And opposition would grow if the deal includes a write-down of Greece’s debt. In the Netherlands, lawmakers will decide themselves whether to hold a vote or not. The Irish government doesn’t have to ask for parliamentary approval, but it could choose to seek lawmakers’ backing. A majority would near-certain given its majority in the assembly.

The parliaments of Belgium, Luxembourg, Cyprus, Lithuania, Italy, Spain and Portugal will not hold a vote. Neither will the parliaments in Malta or Slovenia, as long as the total financial aid to Greece does not increase. That is unlikely to be the case, if the money comes from the European Stability Mechanism, which euro members paid into in 2012. Slovenian lawmakers will, however, vote if there is some write-off of Greece’s debt. Slovenia has the largest exposure to Greek debt in the euro area as a proportion of its GDP, so parliament may be difficult to convince.

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“The most humiliating and unbearable choice is an agreement that will surrender and loot our country and subjugate our people..”

Crippled Greece Yields To Overwhelming Power As Deal Looms (AEP)

Greece’s Left-wing Syriza government has agreed to draconian austerity terms rejected by the Greek people in a landslide referendum just five days ago, capping one of the most bizarre political episodes of modern times. Prime minister Alexis Tspiras sought to put the best face on a painful climbdown, recoiling from a traumatic fight that would have led to Greece’s ejection from the euro as soon as Monday. He implicitly recognised that the strain of capital controls and economic collapse has been too much to bear. “We are confronted with crucial decisions. We got a mandate to bring a better deal than the ultimatum that the Eurogroup gave us, but we weren’t given a mandate to take Greece out of the eurozone,” he said.

Hopes for a breakthrough set off euphoria across Europe’s stock and bond markets, though Greece still has to face an emergency meeting of Eurogroup ministers on Saturday, and probably a full-dress summit of the EU’s 28 leaders on Sunday. A top Greek banker close to the talks said there is now a “90pc chance” of clinching a deal, thanks both to intervention behind the scenes by a team from the French treasury and to aggressive diplomacy by Washington. Inflows of tourist cash means that there is still €2.75bn of liquidity available, enough to keep ATM machines stocked until Monday night. Greeks will be able to withdraw the daily allowance of €60. Pensioners will continue to draw €120 a week. “We are preparing to open up branches for normal banking services next week. Capital controls will last for a while but not for as long as in Cyprus. The situation is very fluid but we don’t think we will need a major recapitalisation of the banks,” said the source.

An estimated €40bn of money stashed in “mattresses” should flow back into deposits as confidence returns. One or two of the weaker banks may need a capital boost of €10bn to €15bn, involving a potential “bail-in” of savings above the insured threshold of €100,000. Any deal almost certainly means the European Central Bank will lift its freeze on emergency liquidity for the Greek financial system as soon as Monday, entirely changing the picture. Syriza accuses the ECB of deploying “liquidity asphyxiation” to bring a rebel democracy to its knees. The ECB freeze has been a controversial political and legal move – given the bank’s treaty obligations to uphold financial stability – and is likely to be dissected by historians for years to come.

A final deal to end the long-running saga is still not certain. The outcome depends on how much debt relief the creditor powers are willing to offer, and whether it is a contractual obligation written in stone or merely a vague promise for the future. Yet the broad outlines are taking shape after Syriza agreed to three more years of fiscal tightening, with deep pension cuts and tax rises, and a raft of “neo-liberal” reform measures that breach almost all the party’s original red lines. Panagiotis Lafazanis, head of Syriza’s Left Platform, protested bitterly, saying it would be better for Greece to restore sovereign self-government and return to the drachma. “The most humiliating and unbearable choice is an agreement that will surrender and loot our country and subjugate our people,” he said.

Party insiders did not hide their disgust, though Mr Tsipras managed to quell a full-scale mutiny. “It is a total capitulation. We never had a ‘Plan B’ for what to do if the ECB cuts off liquidity and the creditors simply destroyed our country, which is what they are doing,” said one Syriza veteran. “We thought that when the time comes, Europe would blink, but that is not what happened. It should have been clear since April that the markets were not going to react to Grexit.” Yanis Varoufakis, the former finance minister, said he would back his successor and close friend, Euclid Tsakalotos, but only for the next two days. “I will reserve my judgment. I have serious doubts as to whether the creditors will really sign on the dotted line and offer substantive debt relief. My fear is that they will make all the right noises, but then fail to follow through, as in 2012,” he told The Telegraph.

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Both.

Greeks Wonder Whether Tsipras Folded or Restored Dignity (NY Times)

Did Prime Minister Alexis Tsipras betray his principles and cave in to Greece’s creditors? Or did he fight valiantly and succeed in establishing that his nation’s debt load is not sustainable and has to be reduced? Those were the questions being asked across Greece on Friday in the wake of Mr. Tsipras’s abrupt decision to give the creditors nearly all of what they have sought throughout the long and contentious negotiations over keeping Greece afloat. From the halls of Parliament to streets filled with people who have suffered through five years of severe economic hardship, Greeks were struggling to process the news, gird themselves for further budget cuts and assess what they had gotten for their efforts to stand against the European orthodoxy.

Some Greeks said they felt betrayed by what they saw as a quick about face. Hundreds of people marched in Athens on Friday night in a rally organized by the Communist Party to protest the reversal of the “no” vote in Sunday’s referendum. A Twitter trend was formed under the hashtag #ExplainNoToTsipras, with some wondering what the point of the referendum was. “And this whole time I thought it was Merkel who was bluffing,” one user wrote, referring to the expectation that Chancellor Angela Merkel of Germany would blink first in the showdown with Mr. Tsipras. In Parliament, opposition parties took to the floor to excoriate Mr. Tsipras’s latest proposals as even worse than those that Greeks rejected in the referendum.

They chided him as naïve for thinking that he would get a better deal from the creditors than the opposition parties had when they ran the country – though early Saturday lawmakers did vote to approve his new package of proposals. “We have to vote yes,” said Harry Theoharis, a member of the new To Potami centrist party. “It’s a bad deal, but it’s this deal or catastrophe.” Evangelos Venizelos, the former leader of Greece’s Socialist Party, even asked Mr. Tsipras’s finance minister whether he would, in effect, apologize for past statements suggesting that the previous government had been incompetent. Early in the day, the government released a photograph of Mr. Tsipras smiling and receiving a standing ovation after briefing members of his Syriza Party on the state of his negotiations with European officials.

But later, on the chamber floor, one Syriza member, Rachel Makri, took the microphone to criticize the new deal and announce that she would not vote for it. “Under no circumstances will I approve proposals that align with the lenders by 80%,” she said. Ms. Makri added that the proposals were what 60% of voters on Sunday had rejected. The mandate from the referendum, she said, would not allow reductions in pensions, one of the concessions made by Mr. Tsipras.

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Love the word choice.

OXI-Dation: Has Greece Missed Its Chance To Create A Healthier Europe? (Evel)

Oxidation can have destructive effects, like rusting. But it’s a process that has great benefits too: it lowers the risk of cancer, improves metabolism, increases the production of energy, and helps weight loss. Could the Greek people’s Oxi vote and its effect on the EU have healthy qualities too? Not likely now, given Syriza’s decision to perform a backflip: the Prime Minister Alexis Tsipras is presenting a memorandum to the Greek parliament that is similar, if not harsher, to the one rejected in the referendum. I’ve heard a lot of odd things in the streets of Athens recently. Foremost among these is the view that we’re heading for an imminent Grexit. We see now that the chances of this happening are about as great as a meteorite hitting New York City tomorrow morning.

I have even wagered a souvlaki (extra onions, no sauce) with a friend, another teacher at the high school where I work, that a new memorandum will soon be signed between Greece’s “radical left” Syriza government and the EU-ECB-IMF troika. All along I’ve maintained Syriza will perform a backflip. As of course, will the establishment in Berlin, Brussels, Frankfurt, and New York. After all, who needs a Grexit? Do German and French banks want a Lehman Brothers-style domino effect financial disaster? Is China interested in seeing Greece forced out of the eurozone? Has the Red Dragon’s huge China Ocean Shipping Company – Cosco – leased the gateway to Europe only to find that the port of Piraeus is no longer in the eurozone? Russia, embattled and politically isolated with tremendous problems of its own?

Or does the United States want Greece out of the EU, with a potentially tempestuous geopolitical seachange at the crossroads of three continents? President Barack Obama and IMF boss Christine Lagarde do not appear to. Even Germany is showing greater “flexibility”. And this makes sense. How could Angela Merkel and her Finance Minister Wolfgang Schäuble be such blind eurocrats as to be motived only by the thirst for revenge — to punish the Greek voters who stubbornly asserted their right to adopt polices incompatible with their obligation as a member of the eurozone?

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Integration was killed in the 5 month negotiation.

Half-Century of European Integration at Stake in Greece Meeting (Bloomberg)

For European leaders gathering in Brussels Sunday to find a way to keep Greece in the euro, the credibility of a half-century of economic and political unification is on the line. Failing to find a solution to Greece’s five-year debt crisis would be arguably the greatest setback in the history of what proponents call “the European project.” Europe’s integration, born in the aftermath of World War II, was always designed to be permanent and irrevocable, the better to make future conflict impossible. A so-called Grexit would dramatically undermine those principles. Even as a proposed deal has taken shape, the EU’s cohesion is under assault on multiple fronts. “This crisis, it seems to me, is calling into question all that the European project has achieved,” said Giles Merritt, secretary general of the Brussels research institute Friends of Europe.

The Greek turmoil “has really showed us where all the weaknesses lie,” he said. In the U.K., Prime Minister David Cameron has promised a referendum on membership in response to relentless criticism of the EU by members of his own Conservative Party and much of the media. In France, Italy, and Spain, populist parties hostile to integration are gaining increasing support, some of them questioning the single currency as well as the pro-European consensus that’s dominated their politics for decades. The leaders of all 28 EU states will try to decide this weekend whether to grant Europe’s most indebted country a new bailout in exchange for economic reforms and spending cuts. France is trying to broker a compromise between Prime Minister Alexis Tsipras’s left-wing government and more hawkish countries like Germany and the Netherlands.

Investors were hailing the possibility of avoiding a breakdown of the most fundamental principle of the European project: its irreversibility. The first sentence of the Treaty of Rome, the 1957 founding document of what is now the EU, described its intent to “lay the foundations of an ever-closer union among the peoples of Europe.” As the EU grew to become the world’s largest trade bloc and granted citizens the right to work in every member state, leaders differed widely over how far and fast integration should proceed. The toughest question: whether it should focus on political union or primarily on trade and economics.

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Isn’t that what we already see? Not as if all have equal votes.

Is A Two-Tiered Europe What’s Next After Greece? (Reuters)

The continuing euro crisis is providing Europe with some tough Greek lessons. First, Europe must avoid overreach. What was politically feasible on the eve of monetary union in the late 1990s is proving less economically sustainable today. Greece should never have been admitted to the euro in 2001. It did not qualify. The numbers were largely fabricated. By 2004, the Greek government confessed its budget deficit was 3.8%, not the statutory 3% required for admission. The euro zone refused to question Greece’s membership, though. This was compounded by years of economic profligacy and endemic political corruption. In addition, a feeding frenzy ensued through an influx of short-term money seeking big profits and readily available credit. Since the EU’s inception, the prospect of membership has carried enormous leverage.

After all, if aspiring member states were able to meet European standards – often achieved by instituting sweeping economic and political reforms – they would win a ticket to first-world status. The inclusion of Spain, Portugal and Greece in the 1980s, and the post-Cold War accession of former communist states of Central and Eastern Europe, were history in the making. The vision of modern Europe’s founding fathers, including German Chancellor Konrad Adenauer, who rebuilt his country into a powerful state after World War Two, and Jean Monnet, the key economic architect of European unity, was becoming a reality. The current woes, however, prove even Europe has its limits. The EU must now be more realistic about its ability to deliver on and manage expectations.

The euro zone needs to get its existing house in order and streamline its institutions. Any talk of further expansion must be placed on hold for the foreseeable future – with the exception of the western Balkans. The security factor still looms large there, particularly in the states of former Yugoslavia. More than 20 people died in Macedonia in May after violence broke out between government forces and an ethnic Albanian paramilitary group. The incident sparked fears of renewed ethnic conflict in the region. Even in pursuit of geopolitical aims, however, the EU must insist on full compliance with accession standards.

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“..accept the bailout’s “logic” and drop any demands for debt restructuring or your loan agreement will “crash” – the unsaid repercussion being that Greece’s banks would be boarded up.”

Germany Won’t Spare Greek Pain – It Has An Interest In Breaking Us (Yanis Varoufakis)

Greece’s financial drama has dominated the headlines for five years for one reason: the stubborn refusal of our creditors to offer essential debt relief. Why, against common sense, against the IMF’s verdict and against the everyday practices of bankers facing stressed debtors, do they resist a debt restructure? The answer cannot be found in economics because it resides deep in Europe’s labyrinthine politics. In 2010, the Greek state became insolvent. Two options consistent with continuing membership of the eurozone presented themselves: the sensible one, that any decent banker would recommend – restructuring the debt and reforming the economy; and the toxic option – extending new loans to a bankrupt entity while pretending that it remains solvent.

Official Europe chose the second option, putting the bailing out of French and German banks exposed to Greek public debt above Greece’s socioeconomic viability. A debt restructure would have implied losses for the bankers on their Greek debt holdings. Keen to avoid confessing to parliaments that taxpayers would have to pay again for the banks by means of unsustainable new loans, EU officials presented the Greek state’s insolvency as a problem of illiquidity, and justified the “bailout” as a case of “solidarity” with the Greeks. To frame the cynical transfer of irretrievable private losses on to the shoulders of taxpayers as an exercise in “tough love”, record austerity was imposed on Greece, whose national income, in turn – from which new and old debts had to be repaid – diminished by more than a quarter.

It takes the mathematical expertise of a smart eight-year-old to know that this process could not end well. Once the sordid operation was complete, Europe had automatically acquired another reason for refusing to discuss debt restructuring: it would now hit the pockets of European citizens! And so increasing doses of austerity were administered while the debt grew larger, forcing creditors to extend more loans in exchange for even more austerity. Our government was elected on a mandate to end this doom loop; to demand debt restructuring and an end to crippling austerity. Negotiations have reached their much publicised impasse for a simple reason: our creditors continue to rule out any tangible debt restructuring while insisting that our unpayable debt be repaid “parametrically” by the weakest of Greeks, their children and their grandchildren.

In my first week as minister for finance I was visited by Jeroen Dijsselbloem, president of the Eurogroup (the eurozone finance ministers), who put a stark choice to me: accept the bailout’s “logic” and drop any demands for debt restructuring or your loan agreement will “crash” – the unsaid repercussion being that Greece’s banks would be boarded up.

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Who did the polling?

Overwhelming Majority Of Greeks Want To Keep Euro (Reuters)

A total of 84% of Greeks want to keep the euro, an opinion poll released on Friday showed, with just 12% favoring a return to the drachma, as the country races to clinch a cash-for-reforms deal with its creditors. The poll by Metron Analysis for Parapolitika newspaper showed that although the overwhelming majority of those polled want to remain in the single currency, 55% said it was the right choice to vote ‘No’ in last weekend’s referendum on tough austerity measures.

SYRIZA maintained a commanding lead over the opposition conservatives with 45.6% of Greeks saying they would vote for the leftist party of Prime Minister Alexis Tsipras were there to be parliamentary polls, up from the 36.3% the party garnered in January’s election. The center-right New Democracy has seen its support drop from 27.8% to 22.7%. It was not immediately clear when the poll was conducted.

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Steve’s dark view.

It’s All Greek To Me: The Politics Of Syriza And The Troika (Steve Keen)

I have to admit that I was flummoxed by the political developments in Greece this week. After winning a referendum based on rejecting the Troika’s terms, Tsirpas capitulated to those same terms—if anything, to somewhat harsher terms—less than a week later. I have given up believing that Syriza was executing a straightforward political strategy—negotiate to get less extreme conditions plus some debt relief—and can now see only 4 other interpretations:
• One of two Byzantine political strategies;
• Absolutely no strategy and chaos that appears Byzantine; or
• They were broken by the EU and have capitulated.

The Troika’s strategy, on the other hand, is pretty straightforward to interpret: an intention to either break Syriza or (preferably) force them out to office, to be replaced by a more compliant party; and an imposition of austerity for both moral reasons, and because, as Ordo-Liberals, they actually think that hard work and reform are all that are needed. Interpreting what’s going on with Syriza is only of peripheral interest: unless they do something absolutely stunning, like default on all their debts and introduce the Drachma overnight, what happens in Greece will be determined by the Troika. So I’m going to address those who support the Troika’s approach first with a plea based on a medical analogy.

Schaeuble’s diagnosis is that market correction of a mis-pricing of Greek risk was the cause of the crisis, and to end it Greece must regain the trust of the international community by undertaking serious reforms. Spreads will fall, and growth will occur, once these reforms are in place. Let’s assume that is correct. What is then being undertaken on Greece is like an emergency medical procedure, from which the patient is expected to emerge cured and stronger. This medical operation analogy can be carried further: when you are undertaking surgery on a patient, what do you do to their vital physical systems? You anaesthetise their brains and nervous systems so that they don’t feel the pain, and you give them an ongoing blood transfusions to make up for the blood lost during the operation.

Is this how the Troika’s program is being administered? It would be, if the huge changes to legal and taxation and subsidy and workplace and privatisation rules were accompanied by allowing a substantial government deficit. The cash flow from the deficit would soften the blow on Greek businesses and societies as they made the painful transition from rules befitting a patronage state across to those of an efficient, modern society.

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“Russia, of course, is able to offer help to its partners regardless of today’s difficulties with the economy..”

Putin Calls US Debt ‘Serious Problem’ as He Defends Greece (Bloomberg)

Russian President Vladimir Putin warned of dangers to the global economy from U.S. borrowing while saying Greece isn’t solely to blame for its debt crisis. “It’s a serious problem not just for the United States but for the whole world economy,” Putin told reporters Friday in the Russian city of Ufa in response to a question on the prospects of the biggest developing nations. “Debt exceeds gross domestic product there.” Putin said he’s concerned about Greece and hopes its crisis will be resolved soon, reiterating that Prime Minister Alexis Tsipras hasn’t asked him for financial aid. Even so, he said Russia has the resources to help its partners. Putin is battling his own economic woes after sanctions over Ukraine and a drop in oil prices triggered Russia’s first recession in six years.

This isn’t the first time the Russian leader has attacked U.S. economic policy: he’s previously derided the “dollar monopoly” that allows the U.S. to act like a “parasite” on the global economy. The ruble is the second-worst performer against the dollar in the past year among more than 150 global currencies tracked by Bloomberg, with a 40% dive. Russia’s central bank resumed purchases of foreign-currency assets in May, planning purchases of $100 million to $200 million a day to replenish reserves. The U.S. ratio of government debt to GDP will fall to 104% in 2018 from 105% in 2014, the IMF predicts. Russia drained its foreign-currency stockpiles as fighting raged in Ukraine and global energy prices plunged. That hasn’t left the government in a position where it can’t assist its allies, according to Putin.

Russian reserves were $359.6 billion as of July 3. “Russia, of course, is able to offer help to its partners regardless of today’s difficulties with the economy,” he said after a meeting of the Shanghai Cooperation Organization. “We’re helping some countries.” Putin said Russia and Greece, both of which are majority Orthodox Christian, have a special relationship. Being a euro member, the government in Athens is unable to take measures such as devaluation to help revive its economy, according to Putin. “Greece is an EU country and within its obligations is conducting rather difficult negotiations with its partners,” he said. “Mr. Tsipras hasn’t approached us regarding aid. And that’s generally understandable because the numbers are big and we know what’s at stake.”

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Let’s see what Bundestag does.

Greek Deal In Sight As Germany Bows To Huge Global Pressure For Debt Relief (AEP)

Germany is at last bowing to pressure as a chorus of countries and key institutions demand debt relief for Greece, a shift that could break the five-month stalemate and avert a potentially disastrous rupture of monetary union at this Sunday’s last-ditch summit. In a highly significant move, the European Council has called on both sides to make major concessions, insisting that the creditor powers must do their part as the radical Syriza government puts forward a new raft of proposals on economic reforms before a deadline expires tonight. “The realistic proposal from Greece will have to be matched by an equally realistic proposal on debt sustainability from the creditors,” said Donald Tusk, the European Council president.

This is the first time Europe’s institutions have acknowledged clearly that Greece’s public debt – 180pc of GDP – can never be repaid and that no lasting solution can be found until the boil is lanced. Any such deal would give Greek premier Alexis Tspiras a prize to take back to the Greek people after they voted by 61pc to 39pc to reject austerity demands in a landslide referendum last weekend. While he would still have to deliver on tough reforms and breach key red lines, a debt restructuring of sufficient scale would probably be enough to clinch a deal, and allow him to return to Athens as a conquering hero. The Greek parliament is due to vote to ratify the measures on Friday. German Chancellor Angela Merkel said “a classic haircut” is out of the question, but tacitly opened the door to other forms debt restructuring, conceding that it had already been done in 2012 by stretching out maturities.

The contours of a deal on Sunday are starting to emerge. Syriza has requested a three-year package of loans from the eurozone bail-out fund (ESM) – perhaps worth as much as €60bn – and is reportedly ready give ground on tax rises and pension cuts. Germany’s subtle shift in position comes as the United States, France, and Italy joined in a united call for debt relief, buttressed by a crescendo of emphatic statements by Christine Lagarde, the head of the IMF. “Greece is clearly in a situation of acute crisis, which needs to be addressed seriously and promptly. We remain fully engaged in order to find a solution to restore stability, growth and debt sustainability,” said Ms Lagarde.

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Far too late.

France Takes Greece’s Side Against Germany (Crook)

You can’t exaggerate the importance of France’s decision to align itself with Greece before this weekend’s crisis meetings. As Wolfgang Munchau correctly notes in the Financial Times, Prime Minister Alexis Tsipras has finally succeeded in dividing the creditors. A split between Germany and France, no less, and on an issue as momentous as this – on the course of the entire European project – isn’t just any division. Ignore all the expressions of bewilderment over Tsipras’s acceptance of terms he and his country just roundly rejected. That’s all beside the point. He had already capitulated – weeks ago – on the larger part of the fiscal obligations in the creditors’ last offer. He was holding out for a commitment to debt relief now, rather than talks about it later.

That’s the condition he’s dropped, and rightly, because a consensus has finally emerged that debt relief, one way or another, will follow if some kind of deal is done. In return, he’s secured France as an ally against Germany. That’s a pretty good deal for Greece. The much more consequential U-turn is in Paris. Suddenly, Tsipras’s promises on fiscal policy are “serious, credible,” according to President Francois Hollande. In truth, of course, they are exactly as serious and credible as they have been for the past five months. Even if Tsipras becomes a born-again fiscal conservative and actually tries to keep these promises, he’ll fail – and everybody knows it. A tightening of fiscal policy as the economy falls further into recession is anti-growth and fiscally counterproductive. Those primary-surplus targets that the creditors want carved in stone are almost impossible to hit.

The crucial thing about the new Greek proposals is not that they’re significantly different from the last set, but that French officials helped to shape them. In this long and convoluted saga, that’s a stunning development. Instead of the usual pre-emptive dismissal from German Finance Minister Wolfgang Schaeuble – saying the new offer has nothing new, is worthless, and what do you expect from the Greeks? – we have a pre-emptive declaration of breakthrough from Hollande. This by no means guarantees success. Certainly, the chances of a genuinely good outcome – softer fiscal targets, prompt agreement on debt relief, and a fully functioning lender of last resort – are still vanishingly small.

But the likelihood of a bad agreement, one that keeps Greece in the euro system and lets its banks reopen without resolving the underlying problems, has surged. I maintain that a bad agreement of that kind is somewhat better than none, and since those sad alternatives are all the EU seems able to contemplate, I suppose I shouldn’t complain. The question for France is, what took you so long? If Hollande had intervened this forcefully five months ago, the savings for European taxpayers, to say nothing of Greece’s citizens, would have been colossal. The question for Berlin is, how much does your alliance with Paris still matter to you?

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Behind the obvious.

Greek Cash Crunch Goes to Market (NY Times)

Athens’s Ichthyoskales fish auction is the largest in Greece, but capital controls and bank closings have hurt its ability to function.

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If the EU doesn’t move now, it’ll will have a nightmare on its hands. And blood.

Refugees Stuck On Greek Border Have Nothing Left To Lose (Guardian)

In a dusty field that straddles the Greek-Macedonian border, quite where one country ends and the other begins is not entirely clear. But several Macedonian soldiers in the area are very certain. “Get back,” one shouts through the darkness, herding hundreds of refugees a couple of metres further south from where they stood a moment ago. “Get back to the Greek border.” The crowds shuffle briefly backwards, and the soldiers seem satisfied. “Please,” a Syrian mother calls back, a toddler in her arms. “We are a family. Where should we go now?” It is a filthy spot, filled with the detritus of past travellers. Surrounded by farmland, the only lighting comes from a nearby train track, and the only bedding is the sand the woman stands on.

“You must sleep here,” the Macedonian replies. It is an alarming order – not just for these refugees, who have walked 40 miles to reach this point, but for the people of the country they have just crossed. Greece has received nearly 80,000 refugees this year, a record figure that has seen it overtake Italy as the primary migrant gateway to Europe. Migrants are arriving in such high numbers by dinghy from Turkey that the authorities – already battling an economic crisis – cannot feed, house, or process their paperwork fast enough, leading to bottlenecks on the Greek islands. One factor helping relieve the pressure was the constant stream of refugees out the other side of Greece, near the northern border town of Idomeni, into Macedonia.

But in the past fortnight, the Macedonian government has begun to regulate the flow. Until a few days ago the route had been blocked for a whole week – raising the spectre of a refugee bottleneck at both ends of Greece, at a time when the country is struggling to support its own citizens, let alone a record wave of refugees. “At a certain point there were more than 2,000 waiting there,” says Stathis Kyroussis, head of mission for MSF, one of the few aid groups helping migrants in this remote area. “People started getting angry, and big groups of two or three hundred tried to force their way through.” By his account, Macedonian soldiers had to use their truncheons to maintain order, and fired in the air to keep people back. “This fact of sealing the border,” says Kyroussis, “coupled with the fact that the flows from the island have really exploded, means that we’ve had many more people coming to Idomeni, and not many passing through.”

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Crystal clear: we will and must China within 1-2 years. Private debt says it all.

Will We Crash Again? -FT/Alphaville Presentation- (Steve Keen)

This is the talk I gave at the FT/Alphaville conference in London last week. A number of people asked me to send the PPT to them, and I got buried in other work and the emails are long lost in my Gmail queue. My apologies to those correspondents to whom I haven’t replied directly.

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Your country can be proud of you, lady.

The Goldman Sachs Banker Who Got Rich Getting Greece Into The Euro (Armitage)

If you thought the Goldman Sachs banker who did the deal to get Greece into the euro might have been chased out of the City of London, think again. Antigone Loudiadis, more widely known as “Addy”, has been richly rewarded by the bank for her dealmaking prowess and now sits atop one of Europe’s fastest growing insurance companies, Rothesay Life. The 52-year-old, who lives with her family in a vast stucco house in west London, was one of the brightest stars in Goldman’s Fleet Street headquarters. While she lists her nationality as Greek, her education was as English as can be. Schooled at Cheltenham Ladies’ College, she went on to Oxford University before joining JPMorgan, and then Goldman, gaining partner status in 2000.

Colleagues describe her as “fiercely clever”, although by some accounts, she was simply fierce. It is said some of her staff would pretend to be on the phone when she walked past them in the office to avoid her infamous rollockings. Although her Continental twang remains hard to place, her fluency in Greek and strong connections in the country were instrumental in winning the lucrative mandate to create the financial deals that would flatter the country’s debts. Christoforos Sardelis, former boss of Greece’s Debt Management Agency who worked on the trades with her, told Bloomberg she was “very professional – a little bit aggressive as is everyone at Goldman Sachs”. But she was trusted by the government which, it should be remembered, was far more right wing than the Syriza party.

What it most liked about her seems to be the way she could magic away the country’s dismal financial position. The trade she came up with is reported to have made the bank hundreds of millions of dollars, although only Goldman knows the true figure. Reports suggest she was paid up to $12m a year by the time she was named co-head of the investment banking group. Not that it wasn’t a stressful job. In an interview in 2005 she told the Wall Street Journal she was “your typical Type A workaholic smoker” with a “stressful schedule”.

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Could.

Goldman Could Be Sued For Helping Greece Hide Debts When It Joined Euro (Ind.)

Goldman Sachs faces the prospect of potential legal action from Greece over the complex financial deals in 2001 that many blame for its subsequent debt crisis. A leading adviser to debt-riven countries has offered to help Athens recover some of the vast profits made by the investment bank. The Independent has learnt that a former Goldman banker, who has advised indebted governments on recovering losses made from complex transactions with banks, has written to the Greek government to advise that it has a chance of clawing back some of the hundreds of millions of dollars it paid Goldman to secure its position in the single currency. The development came as Greece edged towards a last-minute deal with its creditors which will keep it from crashing out of the single currency.

Goldman Sachs is said to have made as much as $500m from the transactions known as “swaps”. It denies that figure but declines to say what the correct one is. The banker who stitched it together, Oxford-educated Antigone Loudiadis, was reportedly paid up to $12m in the year of the deal. Now Jaber George Jabbour, who formerly designed swaps at Goldman, has told the Greek government in a formal letter that it could “right historical wrongs as part of [its] plan to reduce Greece’s debt”. Mr Jabbour successfully assisted Portugal in renegotiating complex trades naively done with London banks during the financial crisis. His work helped trigger a parliamentary inquiry and cost many senior officials and politicians their jobs. It also triggered major compensation payments by banks to the Portuguese taxpayer.

Mr Jabbour, who now runs Ethos Capital Advisors, has also helped expose other cases including allegations against Goldman Sachs and Société Générale over their dealings with Libya relating to financial transactions that left the country’s taxpayers billions of dollars out of pocket. Both banks deny wrongdoing. Based on publicly available information, he believes the size of the profit Goldman made on the transactions was unreasonable. Scrutiny and analysis of the documents and email exchanges could give Greece grounds to seek compensation and assess if the deals were executed for the sole purpose of concealing the country’s debts.

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Typical?!

Obama Pushes Trade Partners To Add Drug Rules He Opposes In US (Bloomberg)

The Obama administration is caught in a trap as it tries to bring home a trade deal with its Pacific Rim partners. Some of the chief beneficiaries may be big drug companies like Novartis, Roche Holding, and Pfizer while the losers could be consumers in both the U.S. and the region. The administration says it’s bound by congressionally imposed instructions to try to get as much current U.S. law as possible into trade accords – including stringent protections for patented drugs that it’s repeatedly tried to ease at home to encourage more cost-saving generics. The disconnect has put U.S. negotiators in the position of pushing provisions in the 12-nation Trans-Pacific Partnership that would preclude the administration from making further attempts to win the legal changes.

It also has negotiators pressing the region’s developing countries to sign onto a schedule for adopting the stronger rules, reversing previous exemptions to allow them easier access to cheap medicines. Even though U.S. Trade Representative Michael Froman says the talks are “in a closing mode,” American proposals for tough intellectual-property protections for drugs are meeting resistance from Australia, New Zealand, Canada and other Pacific Rim nations. Chile’s foreign minister, for one, has said flatly that his country won’t accept some key provisions. At stake: hundreds of billions of dollars or more in extra costs that consumers may have to pay if the proposals make it harder for cheaper generics to win approval.

That, or the loss of protections sought by the U.S. for movies, music and software as well as drugs if no agreement is reached on the deal’s intellectual-property provisions. “The USTR’s drug proposals are an astonishing effort to require other countries to adopt policies that aren’t in their best interests and lock in policies here that the Obama administration doesn’t support,” said Frederick Abbott, a Florida State University law professor and veteran consultant to the World Health Organization and the United Nations on health and trade issues. Negotiators returned to bargaining this week to try to wrap up the most ambitious trade deal in at least a generation covering about 40% of global output. In the U.S., any final accord must be submitted to Congress for an up-or-down vote with no amendments allowed.

U.S. negotiators want to win makers of advanced drugs 12 years of exclusivity for data that might otherwise help competitors produce similar, cheaper versions. The administration has repeatedly sought to cut that period to seven years in domestic law. Negotiators are also seeking language to make it easier for the big drugmakers to win “secondary” patents to strengthen their control over products. The administration has proposed changing U.S. law to make it harder to get such add-ons.

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The denials are the best part.

Special Investigation: Auckland House Prices (NZ Herald)

The first picture has emerged of Chinese buying patterns in Auckland’s pressure-cooker housing market — and it suggests a powerful, big-spending influence. Real-estate figures leaked to the Labour Party, which cover almost 4,000 house sales by one unidentified firm from February to April, indicate that people of Chinese descent accounted for 39.5% of the transactions in the city in that period. Yet Census 2013 data shows ethnic Chinese who are New Zealand residents or citizens account for just 9% of Auckland’s population. The percentage of Chinese buyers in the sales figures rises with the price of houses, peaking at just over 50% for those that sell for more than $1 million.

A similar trend appears in a frequency comparison of buyers’ names — Chinese names make up about eight out of the 20 most common ones among Auckland residents but fill 19 of the top 20 places for house buyers. It is not known if the Chinese buyers were based here or overseas. Labour housing spokesman Phil Twyford claimed the data, which represents 45% of all Auckland sales over the three months, showed for the first time the scale of an issue that was pricing first-home buyers out of the market. “It’s staggering evidence that strongly suggests there’s a significant offshore Chinese presence in the Auckland real estate market. It could not possibly be all Chinese New Zealanders buying; that’s implausible.”

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Got a kitchen sink for sale?

Auckland Housing: ‘We’ve Got Chinese Buyers’ (NZ Herald)

It seems everyone in Auckland has a story to tell about Chinese buyers wanting their house. One elderly Takapuna man was startled to hear a Chinese syndicate was interested in buying his well-established family home. His place wasn’t even on the market when a real estate agent door-knocked the 82-year-old last month, said a relative. “A Chinese syndicate was wanting to buy a series of sections to build a block of apartments. The hard-sell was on apparently, but thankfully he resisted the temptation.” A few suburbs away in Birkenhead, another real estate agent cold-called, leaving his card in the front door of a huge, stately white house, also not on the market.

“It was the smiley face (on the card) which made me call him,” confessed the owner, who had just finished extensive renovations on his three-level wooden villa. “He said ‘we’ve got Chinese buyers’. So we’ve got a CV of $1.9 million but I asked for $3 million. I haven’t heard back.” It’s not surprising the owner deliberately pushed the price up. The willingness of overseas-based Chinese buyers to pay above the odds has become the stuff of Auckland legend – a perception enthusiastically fuelled by many agents. “Our Chinese buyers helped us [at] Harcourts Flat Bush push the house price even higher in East Auckland yesterday and set a new record high price,” agent Tom Chen wrote to his clients in June about an auction, which he said was “again, dominated by Chinese buyers” with “a much higher budget”.

Chen told the Weekend Herald he meant Chinese people who live here, not foreigners, but the evidence suggests most of the big money is coming from overseas. Local agents aggressively market Auckland houses throughout Asia to Chinese buyers, who can borrow money at much lower interest rates. In April, an ad on a Singaporean radio station promoted Auckland as “an investor’s dream”, with no land tax, stamp duty or capital gains tax. In 2013 a Chinese TV producer offered local sellers commercial spots in Asian markets “to get the attention of the majority of the affluent Chinese community”.

The trend has even alarmed some real estate agents – Barfoot and Thompson’s Ian Thornhill raised concerns in 2013 when a Chinese investor with “surplus funds” bought an Epsom house, reportedly for more than $2 million, and then left it empty. “I don’t think it’s a good thing at all,” he told the Herald. “Kiwis are getting really upset. They can’t compete with Asians who have the money and they pay more … It’s as plain as the nose on your face, what’s happening in the auction rooms each week.”

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Jul 092015
 
 July 9, 2015  Posted by at 10:27 am Finance Tagged with: , , , , , , , ,  10 Responses »


Harris&Ewing US Navy Yard, Washington. Sight shop, big gun section 1917

How the NYSE Big Board Went Dark (Bloomberg)
Why Beijing’s Efforts Have Failed to Tame China’s Stock Market (WSJ)
Who Blew Up China’s Stock Bubble? (Bloomberg)
China’s Stock Market Crash Is Just Beginning (MarketWatch)
Global Fallout From China Stock Market Crash May Be Coming Your Way (Quartz)
China Turmoil Grows: 10% Renminbi Drop Predicted (CNBC)
Steel In China ‘Cheaper Per Tonne Than Cabbage’ (Guardian)
Greece And China Expose Limits Of ‘Whatever It Takes’ (Reuters)
Greek Banks Face Closures, Bailout Or Not (Reuters)
The Financial Attack On Greece: Where Do We Go From Here? (Michael Hudson)
More Than 1 in 3 Greeks at Risk of Poverty or Social Exclusion (Kathimerini)
Mainstream Media Lie In Greece (PressProject)
Policy Lessons From The Eurodebacle (Paul Krugman)
ECB Chief Draghi Says Greece Solution Is ‘Really Hard’ (Bloomberg)
Absurd IMF Warning On US Rate Hikes (Mish)
Referendum On The Euro In Italy: The M5S Proposal In The Senate (Vito Crimi)
Preparedness Critics Are History’s Cannon Fodder (Brandon Smith)
The Millionaire Who Rescues Migrants At Sea (Guardian)
UN In Greece Would Struggle To Cope With Refugees If Banks Fail (Guardian)

We’ll never know what happened?!

How the NYSE Big Board Went Dark (Bloomberg)

The first sign of trouble on the New York Stock Exchange was a color – a sickly yellow. On the hand-held computers on the cavernous trading floor, that color meant one thing: the Big Board was down. What began Wednesday morning with a seemingly workaday software glitch soon escalated into one of the most startling computer outages in Wall Street history – and, for the Big Board, a race against the clock. At the 9:30 a.m. opening bell, traders’ orders for some stocks weren’t reaching the proper destinations for processing. Techies were frantic to fix the problem. At about 9:32 a.m., they succeeded. Two hours later, boom. One floor trader started shouting, “My handheld’s down! My handheld’s not working!”

He and other traders hurried over to a ramp on the trading floor where NYSE executives usually meet with them to explain any problems. Not today. Three hours later, still nothing. Everyone was just standing around. “The order flow wasn’t being entered into the display books on the trading floor,” said Pete Costa, president of Empire Executions, who’s worked at the exchange for 34 years. “As soon as that happened, the exchange shut down to understand what was going on.” Every computer screen “went this pukey, canary yellow color,” Costa said. “That means the stock has stopped trading.”

Seven thousand orders were sent but never executed, he said. The system had to be rebooted. That took about 45 minutes. The big concern was getting the exchange up and running as soon as possible. The 4 p.m. closing bell loomed. That’s when the NYSE sets stock prices that indexes and mutual funds use to calculate their values. “My initial reaction was, ‘That’s OK, I hope they can reopen for the close,’” said Jamie Selway at Investment Technology. At the open and before the close, orders can be routed to other exchanges, he said. But at the close, the world needs the NYSE.

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Not the sort of power a politburo has.

Why Beijing’s Efforts Have Failed to Tame China’s Stock Market (WSJ)

Since the last week of June, the Chinese government has intervened in the country’s stock markets nearly every day to stop their steep slide. But the harder Chinese authorities try, the more it looks like they are losing control. The Shanghai Composite Index fell 5.9% on Wednesday and is down nearly one-third from its peak on June 12. Since then, $3.5 trillion in value has been erased from companies in the benchmark index—or nearly five times the size of Apple Inc. China’s bond market and currency also began to get hit Wednesday as worries deepened that a contagion from stock-market losses could further trammel the country’s slowing economy. It felt even more ominous because Chinese officials had rushed out another raft of emergency measures earlier Wednesday to reassure the market.

The moves only heightened what is turning into an epidemic of anxiety among Chinese investors and a crisis of confidence in their leaders. Stocks were volatile early Thursday. “The more the government intervenes, the more scared I am,” said Li Jun, who runs a fishing and restaurant business in the eastern city of Nanjing. He has spent about 3 million yuan, roughly $500,000, on stocks, using borrowed money for about one-third of the total. Mr. Li has sold some of his investments every time the market “popped up a little” following a rescue announcement by the Chinese government. “I have no faith” in its ability to halt the losses, he says. Wednesday’s drop left the Shanghai index down 32% from its peak and at its lowest level since March.

The latest drastic step by Beijing is a six-month ban on stock sales by controlling shareholders and executives who own more than 5% of a company’s shares. Any violation of the rule, announced Wednesday night, would be “treated seriously,” China’s securities regulator said. Early Thursday, China’s central bank said it has provided “ample liquidity” to a company owned by the country’s top securities regulator. The company is lending the funds to securities firms, which then will use the money to buy stocks. The Chinese government has been praised for driving decades of economic growth and keeping the economy strong during the global financial crisis.

In recent years, Chinese authorities have struggled with rising debt levels and the need to reform the economy away from government-driven infrastructure programs and toward consumer spending. As it fought slower growth and a weakening real-estate market, the government turned its attention to the country’s languishing stock markets. But Beijing’s inability to stop the recent decline has rattled investors who have long been used to seeing the government use its power to control markets. “Beijing’s latest bid to calm the market has had the opposite effect,” said Bernard Aw, market analyst at IG Group. “The panic is spreading, and authorities appear to be grasping at straws to hold back the tide.”

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Darn shorts!

Who Blew Up China’s Stock Bubble? (Bloomberg)

In China, the invisible hand of the market sometimes needs help from the iron fist of the state. That’s certainly true after a meltdown vaporized $3.5 trillion in the value of shares traded on the Shanghai and Shenzhen exchanges. President Xi Jinping’s government isn’t being subtle in its campaign to reflate the bubble it had a big role in creating. The government has suspended initial public offerings and eased rules on margin loans, even allowing investors to use their homes as collateral to borrow money to buy stocks. On June 27, the People’s Bank of China cut its benchmark interest rate and the amount of reserves certain banks are required to hold. Days later, it offered financial support to a group of 21 brokerages that have pledged to buy 120 billion yuan ($19.3 billion) worth of shares and hold them for a year.

On July 8, China’s securities regulator banned major company shareholders (those with stakes exceeding 5%), corporate executives, and directors from selling their shares for six months. So far, the government’s moves have had little impact. Since peaking on June 12, the Shanghai Composite Index has fallen almost 32%, dropping more than 5% on some days. The selling pressure in China has been so severe that on July 8, about 1,300 companies halted trading in their stocks on mainland exchanges, freezing $2.6 trillion worth of shares, or 40% of the stock market capitalization. On July 7, Hong Kong followed the mainland exchanges into bear market territory.

The stock market rout, the worst mainland market slump since 1992, has been an embarrassment to Xi and Premier Li Keqiang, who have vowed to push through more than 300 reforms aimed at reducing state intervention and letting market forces play a bigger role in China’s $10 trillion economy. As Chinese stocks made a 150% run from July 2014 through June 12, state-controlled media both urged individual investors to buy and characterized the stock boom as an affirmation of Xi’s policies. “This is a real testing moment for the leadership,” says Zhao Xijun, deputy dean of Renmin University’s School of Finance. “The evaporation of fortunes of more than 80 million individual investors would pose unthinkable social problems for the country.”

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Up today, but with very many stocks supended. Tons of nervous leveraged ‘investors’. How this can end well is very hard to see.

China’s Stock Market Crash Is Just Beginning (MarketWatch)

Since the Shanghai Composite index dropped from a 52-week high around 5,178 on June 12, it’s been downhill all the way. In just three weeks, stocks listed on mainland China’s most prominent exchange tumbled 30% from their seven-year highs. The even more speculative ChiNext Index has lost 42% of its value over 21 days. Investors and traders who piled into Chinese shares over the past year, causing Shanghai to rise 150% and other markets to catapult even more dramatically, faced margin calls on their highly leveraged positions and started selling with both hands and both feet. It was the biggest rout in this volatile market since 1992, and it prompted the Chinese government to take strong measures.

Last week, the Bank of China cut short-term interest rates for the fourth time this year. Regulators relaxed margin requirements and cracked down on short sellers, while state-run media tried to calm jittery investors with happy talk. That did little to stanch the hemorrhage. Over this past weekend, government authorities and “private” Chinese brokerages and companies announced even more dramatic moves to prop up stocks: • Brokerages and mutual-fund companies said they would buy billions of dollars’ worth of Shanghai shares. • A state-owned investment firm said it would buy China-based ETFs. • 28 companies said they would put planned initial public offerings on hold, as IPOs had been the focus of the most intense speculation. • Regulators also increased the kinds of assets that can be used as collateral to buy stocks, to include — are you ready for this? — people’s homes. I’m not making this up.

The goal: Show retail investors that the all-powerful Chinese government had their backs and that the “Beijing Put” was alive and well. Except it wasn’t. Shanghai opened up a strong 8.5% on Monday, despite Greece’s resounding “no” vote in Sunday’s referendum. But shares slipped throughout the trading day and closed up only 2.5%. On Tuesday, Shanghai slipped 1.3%, and on Wednesday plunged 5.9%. That was a clear sign that the government had taken its best shot and failed. Which means that the most likely direction for Shanghai, Shenzhen and other mainland exchanges is down, down, down. Morgan Stanley, which made a good “sell” call on China weeks ago, now expects Shanghai to fall as low as 3,250 by mid-2016. Citigroup analysts told clients the selloff has a “long way to go.” I agree, but I think it could go much, much lower.

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Losing $1 trillion per week.

Global Fallout From China Stock Market Crash May Be Coming Your Way (Quartz)

China’s market downfall has been dramatic and painful for the investors involved. But so far there has been little immediate impact on the rest of the world, because China tightly limits foreign investment in mainland stocks. China’s stock markets are, for the most part, a mom and pop affair—about 80% of the trading that happens in Shanghai and Shenzhen is done by Chinese individuals. They represent at most 14% of the total Chinese population. But there’s little doubt the effects of this downturn will be felt globally—it just may take some time. After all, Chinese investors have lost more about $3.4 trillion in equity value from the markets mid-June peak until the July 7 close. And although the government is supporting state-owned companies in the markets, other companies have seen their market value plummet.

As of July 8, about half of the stocks that traded in Shanghai and Shenzhen have voluntarily halted trading indefinitely—which potentially puts the brakes on everything from corporate expansion plans and spending to the pay their executives take home. And they’re merely suspending stock losses that these companies will have to take eventually. How far could global contagion spread, and where could it go? Here are some trouble spots to watch. Tanking markets are putting foreign banks that have been active in China for years in a tough spot. China’s state media pounced on Morgan Stanley for urging investors to steer clear of Chinese stocks in a June 26 note. Rumors are flying that short-selling “foreign crocodiles” and “foreign devils” are to blame.

Never mind that foreign investors own less than 1% of mainland stocks, according to BofA/Merrill Lynch. Or that the few foreign investors Beijing allows to trade A-shares aren’t even allowed to sell short; or that the Shanghai-Hong Kong Stock Connect caps the number of securities (paywall) that can be sold short to a teeny percentage. More than creating a temporary headache for Morgan Stanley, the accusations could be used to keep the bank off of lucrative China-related business with state-owned companies for years to come—even though it was the right call on mainland stocks. Others including Bank of America and Credit Suisse identified China’s market as a bubble as well. Foreign banks have lent over $1 trillion to Chinese public and private companies as well, with the majority of that concentrated in Hong Kong, UK, US and Japanese lenders.

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Dominoes fall.

China Turmoil Grows: 10% Renminbi Drop Predicted (CNBC)

The renminbi—one of the world’s most tightly controlled currencies—may be hit by significant weakness, with predictions that Beijing will stand down from its traditional interventionist stance. “We’re looking for about 5-10% depreciation over the next one year even though it might be stable over the next few months,” Adarsh Sinha, head of Asia Pacific G10 FX strategy at BofAML Global Research, told CNBC. “History tells us that whenever China is facing any economic volatility, they always keep the currency as flat as a pancake. However, the tricky thing for China is that their capital account is gradually opening up, which makes it difficult for them to credibly stabilize the renminbi now.”

Further monetary easing is widely expected as part of Beijing’s toolkit to halt the panic-selling in mainland stocks, and economists widely agree that will place severe downward pressure on the onshore renminbi (CNY). But if China wishes to gain MSCI status and internationalize the yuan, it cannot continue intervening in currency markets as it’s done in the past, experts say. “Government intervention steps contradict intentions to allow market forces to determine the allocation of resources. Herein was the first major test of embracing market discipline,” said Jeremy Stevens, international economist at Standard Bank in a note, referring to the impact of intervention on Beijing’s international ambitions.

The CNY has traded in a narrow range around 6.2 per dollar in recent sessions but the offshore yuan (CNH), traded outside the mainland, has hit fresh three-month lows against the greenback this week. That said, the CNH is a more freely floating currency so it’s much harder for the PBoC to intervene compared to the onshore yuan.

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And they keep falling.

Steel In China ‘Cheaper Per Tonne Than Cabbage’ (Guardian)

Iron ore prices have plunged to a fresh six-year low as the commodity gets caught up in the fallout from China’s massive sharemarket plunge, with steel now reportedly cheaper per tonne than cabbage. Iron ore prices in China plummeted more than 10% to $US44.59 a tonne on Wednesday night, their lowest level since May 2009. At that price, most Australian miners would be producing at a loss, with the exception of low-cost giants Rio Tinto and BHP Billiton. Miners have already been under pressure on the stock market: Fortescue Metals slumped more than 6% on Wednesday, while BHP and Rio each lost more than 3%. Iron ore prices hit a low of $US47 a tonne in April this year before recovering to rise above $US64 a tonne in June.

IG Markets strategist Evan Lucas said that the price of steel – of which iron ore is a key ingredient – in China was so weak it was “now cheaper per tonne than cabbage”. While copper jumped as the US dollar slipped, oil prices were also on the slide, with US benchmark West Texas Intermediate falling 68 cents to US$51.65 a barrel on Wednesday, its fifth day of losses. Many agricultural commodity prices were also weaker, including cotton and wheat. The slide in iron ore comes as China’s share market remains in freefall, even in the face of the government’s extraordinary efforts to calm investors.

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Point is, central banks should never try to exert all this control.

Greece And China Expose Limits Of ‘Whatever It Takes’ (Reuters)

For a world so confident that central banks can solve almost all economic ills, the dramas unfolding in Greece and China are sobering. “Whatever it takes,” Mario Draghi’s 2012 assertion about what the ECB would do to save the euro, best captures the all-powerful, self-aware central bank activism that’s cosseted world markets since the banking and credit collapse hit eight years ago. From the United States to Europe and Asia, financial markets have been cowed, then calmed and are now coddled by the limitless power of central banks to print new money to ward off systemic shocks and deflation. But even if you believe central banks will do whatever it takes – to save the euro, stop the recession, create jobs, boost inflation, prop up the stock market and so on – it doesn’t necessarily mean it will always work.

Draghi himself merely pleaded for faith on that score three years ago when he added, “Believe me, it will be enough.” Critically, given the direction of events in Athens, his celebrated epigraph was preceded by “Within our mandate…” And so the prospect of the ECB potentially presiding over, some say precipitating, the first national exit from a supposedly unbreakable currency union will inspire a rethink of the limits of Draghi’s phrase for all central banks. Of course, the ECB does not want to push Greece out of the euro. But ‘whatever it takes’ may just not be enough to preserve the integrity of the 19-nation bloc if the ECB’s mandate prevents it from endlessly funneling emergency funding to insolvent Greek banks. And as long as the Greek government is at loggerheads with its creditors, the central bank can’t wave a magic wand of monetary support without breaking its own rules.

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And not even because they’re not solvent. how crazy is that?

Greek Banks Face Closures, Bailout Or Not (Reuters)

Some large Greek banks may have to be shut and taken over by stronger rivals as part of a restructuring of the sector that would follow any bailout of the country, European officials have told Reuters. European leaders will gather on Sunday in a last-ditch attempt to salvage agreement with Greece after months of acrimonious negotiations that have taken the country to the brink of leaving the euro. But regardless of whether or not fresh funds are now unlocked for the government, some Greek banks, damaged by political and economic havoc, may have to be closed and merged with stronger rivals, officials, who asked not to be named, told Reuters.

One official said that Greece’s four big banks – National Bank of Greece, Eurobank, Piraeus and Alpha Bank – could be reduced to just two, a measure that would doubtless encounter fierce resistance in Athens. A second person said that although mergers of banks were necessary, this could happen over the longer term. “The Greek economy is in ruins. That means the banks need a restart,” said the first person, adding that prompt action was necessary following any bailout between Athens and the euro zone. “Cyprus could be a role model.” “You have a tiny bit of time … you would do restructuring straight away.”

Greece’s financial system has been at the heart of the current crisis, hemorrhaging deposits as relations between the radical left-wing government of Prime Minister Alexis Tsipras and creditors worsened. After Athens defaulted on debt owed to the IMF last month, the ECB froze emergency funding for the banks, precipitating their temporary closure and a €60 daily limit on withdrawals from cash machines. A decision by Greek voters last week to reject bailout terms offered by the country’s international creditors prompted the ECB to maintain its cap, meaning that the banks will run out of cash soon.

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Resist.

The Financial Attack On Greece: Where Do We Go From Here? (Michael Hudson)

The major financial problem tearing economies apart over the past century has stemmed more from official inter-governmental debt than private-sector debt. That is why the global economy today faces a similar breakdown to the Depression years of 1929-31, when it became apparent that the volume of official inter-government debts could not be paid. The Versailles Treaty had imposed impossibly high reparations demands on Germany, and the United States imposed equally destructive requirements on the Allies to use their reparations receipts to pay back World War I arms debts to the U.S. Government. Legal procedures are well established to cope with corporate and personal bankruptcy. Courts write down personal and business debts either under “debtor in control” procedures or foreclosure, and creditors take a loss on loans that go bad. Personal bankruptcy permits individuals to make a fresh start with a Clean Slate.

It is much harder to write down debts owed to or guaranteed by governments. U.S. student loan debt cannot be written off, but remains a lingering burden to prevent graduates from earning enough take-home pay (after debt service and FICA Social Security tax withholding is taken out of their paychecks) to get married, start families and buy homes of their own. Only the banks get bailed out, now that they have become in effect the economy’s central planners. Most of all, there is no legal framework for writing down debts owed to the IMF, the ECB, or to European and American creditor governments. Since the 1960s entire nations have been subjected to austerity and economic shrinkage that makes it less and less possible to extricate themselves from debt. Governments are unforgiving, and the IMF and ECB act on behalf of banks and bondholders – and are ideologically captured by anti-labor, anti-government financial warriors.

The result is not the “free market economy” it pretends to be, nor is it the rule of economically rational law. A genuine market economy would recognize financial reality and write down debts in keeping with their ability to be paid. But inter-government debt overrides markets and refuses to acknowledge the need for a Clean Slate. Today’s guiding theory – backed by monetarist junk economics – is that debts of any size can be paid, simply by reducing labor’s wages and living standards, plus by selling off a nation’s public domain – its land, oil and gas reserves, minerals and water distribution, roads and transport systems, power plants and sewage systems, and public infrastructure of all forms.

Imposed by the monopoly of inter-governmental financial institutions – the IMF, ECB, U.S. Treasury, and so forth – creditor financial leverage has become the 21st century’s new mode of warfare. It is as devastating as military war in its effect on population: rising suicide rates, shorter lifespans, and emigration of the age-cohort that always have been the major casualties of war, young adults. Instead of being drafted into the army to fight foreign foes, they are driven from their homes to find work abroad. What used to be a rural exodus from the land to the cities from the 17th century onward is now a “debtor exodus” from countries whose governments owe unpayably high sums to creditor governments and to the banks and bondholders on whose behalf they impose their policy.

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4 million people.

More Than 1 in 3 Greeks at Risk of Poverty or Social Exclusion (Kathimerini)

Nearly 4 million citizens, or more than one in every three, were deemed to be living in poverty or suffering from social exclusion in 2013, with the poverty line set at 4,068 euros per person per year, according to the Hellenic Statistical Authority (ELSTAT). The data released on Wednesday showed that the share of the population living in poverty reached 22.1%, compared with 23.1% in 2012 and 19.7% in 2008. The share of the people at risk of poverty or social exclusion came to 36% in 2013, against 35.7% in 2012 and 27.6% in 2008.

The average annual income per person amounted to 8,879 euros in 2013, and the average disposable income of households in Greece reached 17,270 euros. In total, the number of households at risk of poverty stood at 888,452, out of a total of 4,266,745, or 2,384,035 people out of a total population of 10,785,312 two years ago. The ELSTAT survey also showed that the wealthiest 20% of the population had an annual income 6.5 times higher than the poorest 20% in 2013, compared to 6.6 times higher in 2012.

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Hard to believe in a modern nation.

Mainstream Media Lie In Greece (PressProject)

Last week in Greece, two mass demonstrations were held outside Greek Parliament. NO vote supporters turned out en masse for a rally on Tuesday and the next day saw a demonstration led by the YES camp. Despite the comparable attendance at both rallies, the NO demonstration – according to official figures – was broadcast by all 6 of the nationwide television stations’ major news programs for a cumulative 8 minutes and 33 seconds. YES supporters fared far better, with 47 minutes and 32 seconds of on-air time dedicated to their rally. But the propaganda problem doesn’t just boil down to numbers. Greece’s biggest television station, MEGA Channel, broadcast a report claiming that the capital controls had created mile-long lines outside the banks.

The station cited exaggerated figures and used pictures that, it was later discovered, had been taken years ago in South Africa. When a guest on MEGA asked the anchorwoman “why do you only broadcast the YES viewpoint?” she replied “is it really our fault if all factions in Greece favor a YES?” The results of the referendum, which indicate that every region of the country no matter how small registered a majority NO vote, should provide her with answer enough. From the beginning of the crisis right up to today, the mainstream media in Greece have ‘sold’ austerity’s formula to the nation’s citizens. At the parliamentary investigations committee it was revealed that major journalists had been travelling to the U.S. for IMF seminars.

In 2011, Wikileaks published Top Secret wire messages from the American embassy in Athens regarding monitoring of the country’s media outlets. According to these messages, the embassy was even interfering in how talk shows were edited, in the interest of projecting a more favorable image of the United States abroad. Yannis Pretenteris, until last year Greece’s most popular newscaster, even admitted in his book that he knowingly lied to the Greek people every evening, but that he did so to help save the country. Since the crisis began 3,000 journalists have lost their jobs. This has created a climate of fear and uncertainty in the workplace, and has only led to a hardening of the official line. Simply put, whoever opposes the interests of the media company loses his or her job.

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1 lesson really: stop trying to make things worse.

Policy Lessons From The Eurodebacle (Paul Krugman)

It’s now clear, or should be clear, that the Greek program was doomed to failure without major debt relief; no matter how hard the Greeks tried, austerity would shrink GDP faster than it reduced debt relative to the baseline, so that the debt situation was bound to worsen even as the attempt to balance the budget imposed vast suffering. And there was no good, or even non-terrible, answer given Greece’s membership in the euro. But there’s a broader lesson from Greece that is relevant to all of us — and it’s not the usual one about mending our free-spending ways lest we become Greece, Greece I tell you. What we learn, instead, is that fiscal austerity plus hard money is a deeply toxic mix.

The fiscal austerity depresses the economy, and pushes it toward deflation; if it’s accompanied by hard money (in Greece’s case the euro, but a fixed exchange rate, a gold standard, or any kind of obsessive fear of inflation would do the trick), the result is not just a depression and deflation, but quite likely a failure even to reduce the debt ratio. For comparison, look at everyone’s favorite example of successful austerity, Canada in the 1990s. Canada came in with gross debt of roughly 100% of GDP, roughly comparable to Greece on the eve of the financial crisis. It then proceeded to do a pretty big fiscal adjustment — 6% of GDP according to the IMF’s measure of the structural balance, which is about a third of what Greece has done but comparable to other European debtors. But unemployment fell steadily.

What was Canada’s secret? The answer was, easy money and a large currency depreciation. These offset the drag from austerity, allowing growth to continue. So, how does this play into U.S. policy debates? Well, Republicans love to warn that America might turn into Greece any day now. But look at the policy mix that is now de facto GOP orthodoxy: sharp cuts in government spending (maybe offset by tax cuts for the rich, but these won’t provide much stimulus), combined with a monetary policy obsessed with fears of dollar “debasement”. That is, the conservative side of the US political spectrum, while holding up Greece as a cautionary tale, is actually demanding that we emulate the policy mix that turned Greek debt into a complete disaster.

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No it isn’t. That’s a choice.

ECB Chief Draghi Says Greece Solution Is ‘Really Hard’ (Bloomberg)

ECB President Mario Draghi suggested the Greek debt crisis is getting increasingly hard to fix, speaking hours before the ECB maintained its freeze on extra aid for the country’s banks. Landing in Rome on Wednesday after late-night talks in Brussels, Draghi was asked by Italian journalists if he would really be able “to close the dossier on Greece,” Il Sole 24 Ore and Corriere della Sera reported. “I don’t know,” he’s cited as saying. “This time it’s really difficult.”Draghi’s remarks hint at the impasse faced by euro-area policy makers as they await a detailed economic package from Greek Prime Minister Alexis Tsipras before Thursday’s midnight deadline. Without evidence of a bailout plan, Draghi and his colleagues on the Governing Council refrained from increasing Emergency Liquidity Assistance for Greek banks from the current total of almost €89 billion.

ECB Governing Council member Jens Weidmann, the head of Germany’s Bundesbank, said on Thursday that the ECB shouldn’t expand that credit line unless Greece is in a rescue program. “The Eurosystem should not increase the liquidity provision, and capital controls need to stay in force until an appropriate support package has been agreed by all parties and the solvency of both the Greek government and the Greek banking system has been ensured,” he said. “ELA is no longer being used to finance capital flight. This certainly represents a step forward, and shifts the responsibility to where it belongs: with the governments and parliaments.”

Weidmann also said that any short-term assistance to Greece must come from fiscal policy makers rather than central bankers. Euro-area officials have informally discussed an arrangement whereby the ECB maintains liquidity to Greek lenders in return for a guarantee for the loans, according to people familiar with the matter. One alternative for Greece was given little credence by Draghi on Wednesday, when he was asked by the Italian journalists if Russian President Vladimir Putin might call Tsipras and offer aid. “I do not think that will happen,” Draghi said, according to Il Sole. “It doesn’t seem like a real risk. Also, they don’t have money even for themselves.”

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It really is too dumb.

Absurd IMF Warning On US Rate Hikes (Mish)

The IMF has only one legitimate purpose that I can figure out: To continually write position papers and articles silly enough to keep bloggers loaded with material for rebuttal. The Wall Street Journal provides a case in point with IMF: U.S. Economy at Risk of Stalling Next Year if Fed Raises Rates Prematurely.

“The Federal Reserve risks stalling the U.S. economy by raising interest rates too early, the IMF warned Tuesday as it detailed its call for the central bank to delay a move until 2016.”

The idea that a single rate hike or two would sink the economy now but not in 2016 is of course ridiculous. The IMF’s primary concern is the rising US dollar.

If investors continue to plow into dollar assets, particularly given weaknesses in Europe, China and other emerging markets, “growth could be significantly debilitated,” the fund warned. The IMF estimates each 5% appreciation of the dollar could cut a half-percentage point off U.S. growth.

The IMF wants a weaker dollar for the US and a weaker euro for Europe. How’s that supposed to happen? The IMF is also worried about China. Does it want a weaker yuan too? The problem should be obvious, but obviously it isn’t, so I will spell it out: It’s mathematically impossible for every currency to depreciate against each other simultaneously. The IMF is worried about the loss of credibility if the Fed hikes now and has to reverse later.

“Both the European Central Bank and Sweden’s Riksbank were forced into rate reversals in 2011, and the Bank of Japan seesawed through rate moves in the 1990s and 2000, fund economists noted. Such an about-face puts the Fed’s all-important credibility at stake, the IMF said.”

In reality, there is not a central bank on the planet that has any credibility. Bubble after bubble is the norm. The Fed failed to predict the dotcom bust, the housing boom, the housing bust, or the great recession. The Fed has no credibility to lose. But the Fed does have good company. The credibility of the IMF is nonexistent as well. The number of global GDP downgrades by the IMF is staggering. Heck, for years on end the IMF could not even get Greece correct. Greece missed countless IMF GDP estimates. At long last, the IMF admits what any person with half a brain knew half a decade ago: Greece Will Need Debt Restructuring.

“Greece is in a situation of acute crisis, which needs to be addressed seriously and promptly,” Ms Lagarde said. Getting out of that crisis would take both reforms by Athens and a “debt restructuring”, she said.

That’s actually the first solid statement by Lagarde in years that I agree with. The irony is the eurozone ministers, Germany, and the creditors don’t want to go along with it.

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“..it has been transformed into a banking union rather than a union of people.”

Referendum On The Euro In Italy: The M5S Proposal In The Senate (Vito Crimi)

“Since the month of December, 200 thousand citizens have added their signatures to ask for a popular law that would set up a referendum about whether we stay in the Euro, or more precisely whether we’d like to have a national sovereign currency. A referendum that should have been held BEFORE we went into the Euro, but the decision was taken by the governments without any consultation with the citizens. In recent years, so much has been said about the need to exit the Euro, we have heard proclamations during the election campaigns, in political meetings, on the TV talk shows, but before now there’s never been a solid proposal like this one. It is possible to hold a referendum about whether to stay in the Euro.

It can be done with a constitutional law – like the one in 1989 when the people of Italy were called upon to make a decision about whether to give a mandate to the European Parliament to set up a project for a European Constitution to then submit to the member states of the community for ratification. That was to set up a union of people and yet the only thing you managed to do was to create a currency union. The EU has failed. It’s no good hiding the fact. It’s useless to pretend nothing has happened and to continue to illude ourselves that everything is going well. The Europe of those that dreamed it up, a community of people, with solidarity between states, with equality of rights and duties – all that has failed.

The entry into the Euro, the hegemony of the banks and of the world of finance have transformed the “community” into a “union”, it has been transformed into a banking union rather than a union of people. The propoganda that you have promoted in the last few years – that the Euro and the single currency are essential, that without the Euro our economy would have had a disaster, – that has failed. The economy has suffered a disaster – and that has happened with the Euro …. And a lot of people are starting to notice this. Not just Greece, but also Austria, but that’s not been reported by European or Italian media, in a single week, they have collected nearly 300,000 signatures in support of a popular petition not just about an exit from the Euro – but even from the European Union.

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So true.

Preparedness Critics Are History’s Cannon Fodder (Brandon Smith)

The world is entering a kind of no man’s land, in between the realms of insane denial and utterly obvious crisis. Europe is now destabilizing amid the Greek soap opera (an event that I predicted in January would occur in 2015); China’s stock market bubble is bursting; and the U.S. dollar’s world reserve status is about to be decimated by the global shift toward the International Monetary Fund’s basket currency reserve system. I’m afraid I’m going to have to say this because I don’t know if anyone else will admit it: Alternative economic analysts were right, and the mainstream choir was either terribly wrong or disgustingly dishonest. However, as most of us in the liberty movement are well aware, being right is not necessarily a solution to disaster.

At the forefront of alternative economics and constitutional vigilance are the people doing the real work in the movement: the preppers. These are the activists taking concrete action in the tangible world (as opposed to the ethereal laziness of the intellectual world) first to make themselves as independent as possible from the mainstream grid, thereby removing themselves as a potential refugee or looter in the event of national crisis. Second, they are the people mastering valuable and necessary skills that will allow them to rebuild any collapsed social and financial system. Third, they are the people most capable of defending our inherent freedoms and the principles of our founding culture, and they are the only people organizing locally for mutual aid and security. The fact of the matter is preppers are free, and almost everyone else is a slave — a slave to dependency, a slave to doubt, a slave to ignorance, a slave to fear and, thus, a slave to petty establishment authority.

During the Great Depression, the vast majority of American citizens were rural, farm-oriented people with survival skills far beyond the modern American. “Prepping” in those days was ingrained in our society, rather than marginalized and labeled “fringe.” Today, the numbers are reversed, with a dwindling number of farm-experienced Americans and a vast wasteland of urban and suburban citizens — many with few, if any, legitimate skill sets. During the Great Depression, millions of people died of starvation and general poverty, despite the incredible number of people with rural survival knowledge. What do you think would happen to our effeminate; metrosexual; iPhone-addicted; lisping; limp-wristed; self-obsessed; Twitter-, texting-, video game-addled; La-Z-Boy-riding; overgrown-child culture in the event that another economic crisis even remotely similar were to occur? Yes, most of them would die, probably in a horrible fashion.

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A very impressive story.

The Millionaire Who Rescues Migrants At Sea (Guardian)

[..] The first call came through after four days, on 30 August. The Moas team quickly found itself involved in the simultaneous rescue of two migrant boats, including a wooden fishing vessel with 350 people – many of them families from Syria – that was slowly sinking. By the end of the rescue, water was flooding onto the main deck of the fishing boat, and many of the migrants were in the sea. So many small children were rescued that the Phoenix almost ran out of baby formula. “That was a shock for most of the crew,” Catrambone recalled. “We were a bit overwhelmed with the thought that this was really happening. These children and mothers were at the hands of the sea, at the hands of death.” The Phoenix rescued 1,462 people in 10 weeks and helped a further 1,500 onto Italian navy vessels.

The Phoenix operates in international waters that start just 12 nautical miles from the shores of Libya – now one of the world’s most violent places, where two separate governments have only tenuous control over their territories. An American consultant hired to advise on security fretted that the ship’s unarmed crew was too close to Libyan waters, but Catrambone decided he was overreacting – after long periods working in Iraq and Afghanistan (and a narrow brush with death during a missile strike in Israel), Catrambone felt he knew how to calibrate risk; the success of his own business, he says, is based in part on the tendency of others to exaggerate danger. “We are not afraid to go where others are [afraid],” he told me. “We don’t need a military convoy to take us.”

While Catrambone joined the speedboat crew on rescue missions, Regina and her daughter Maria Luisa helped care for the migrants when they arrived on the Phoenix. One night Maria Luisa found herself talking to a fellow 18-year-old – a cultured, English-speaking Syrian girl named Rasha, who was travelling on her own after both her parents were killed. “I looked at her and I looked at me, and I said: ‘What if I was Rasha? What if I had to see people being killed by snipers every day, seeing my parents killed right before my eyes?’

I would want to leave,” she explained. “She was so brave. She travels, she gets on a boat. And she says: ‘Either I am going to make it, or I am going to die trying.’” The more the rescues went on, and the more stories they heard, the deeper the family and crew found themselves bound to the mission. “You might not get on the Phoenix as a humanitarian,” Catrambone said. “But you are one when you get off.”

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Better get going on this. Unless you’re intent on causing riots.

UN In Greece Would Struggle To Cope With Refugees If Banks Fail (Guardian)

The UN refugee agency says it will struggle to provide basic supplies to a wave of refugees in the Greek islands if Greece’s banking system fails in the coming days. Greece’s islands have in recent weeks overtaken Italy as the primary entry point for refugees to Europe, with nearly 80,000 arriving this year from Turkey – a rate six times the equivalent figure from 2014, according to the UN. More than 9,000 have arrived in the past week alone, and a UN refugee agency spokeswoman on the island of Lesbos, which has taken in around half of the arrivals, says the organisation’s ability to give them items as basic as bottles of water and sleeping mats is at risk.

Speaking from Lesbos, the UN’s Laura Padoan said: “The precarious financial situation means that if we can’t access cash readily, it could threaten our programmes because we pay our suppliers through Greek accounts … We do depend on having ready cash. A lot of programmes depend on cash purchases of Greek goods.” The Greek government has been overwhelmed by the unprecedented wave of refugees on its eastern islands, many of which lie just a few miles from the Turkish coast, allowing refugees largely from the war-torn countries of Syria, Iraq and Afghanistan to risk the short journey in rubber boats. As many as 19 are feared to have drowned in recent days.

Greek officials are struggling to process the refugees in a timely manner, meaning they are unable to quickly reach the mainland and further stretch resources on the islands. Some islanders have set up their own makeshift camps for migrants. The government’s own camps are vastly overcrowded – with around 5,000 refugees squeezed into squalid conditions at the Kara Tepe camp on Lesbos. In at least some camps, the government has been unable to pay local caterers to provide food to the refugees, forcing the army to step in to provide emergency food at one camp on Samos island on Tuesday. In the Greek parliament this week, migration minister Tasia Christodoulopoulou admitted the situation could lead to “imminent riots by people demanding food”.

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Jul 082015
 
 July 8, 2015  Posted by at 10:56 am Finance Tagged with: , , , , , , ,  14 Responses »


G. G. Bain Asbury Park, Jersey Shore 1914

Greece Files Formal Request For Eurozone Loan (Reuters)
Why Greece May Have Already Won (CNN)
[Chinese] People Are Selling Everything In Sight To Get Their Hands On Cash (BBG)
China Stocks Hit Four-Month Lows On Panic Selling (Reuters)
China Tries Japan’s Approach to a Stock Bubble (Pesek)
Greece Debacle Is Only A ‘Minor Rehearsal’ For Coming Crash: Hague (DM)
Greece ‘A Sideshow To China Meltdown’ (HuffPo)
Europe Is Blowing Itself Apart Over Greece, Nobody Seems Able To Stop It (AEP)
ECB Adds ‘Moral Hazard’ To Emergency Liquidity Assistance Rules (BBG)
New Greek Finance Minister Is A Change Of Style, Not Substance (Reuters)
Prominent Economists Urge Merkel To Change Course On Greek Crisis (Reuters)
The Troika Is Politically Bankrupt (Monbiot)
NY Times Urges the Troika to “Make an Example of Greece” (Bill Black)
Austerity Is Not The Solution To The Greek Crisis (Callam Pickering)
Lenders Give Greece Until Sunday To Avoid Grexit (AFP)
Merkel’s Buttons (Yanis Varoufakis)
Politics Always Trumps Economics (Ben Hunt)
Greece creditors Will Gain Nothing From Toppling Europe-Lover Varoufakis (AEP)
Washington Calls For Flexibility On Greece (Leigh)
Want To Help Greece? Go There On Holiday (Alex Andreou)
Steve Keen and Max Keiser (RT)

Can they refuse?

Greece Files Formal Request For Eurozone Loan (Reuters)

Greece has lodged a formal request for a bailout loan with the eurozone’s special support fund, a spokesman for the European Stability Mechanism (ESM) said on Wednesday. “The ESM has received the Greek request,” he said. The Eurogroup of finance ministers is due to consider the application, which is formally addressed to its chairman Jeroen Dijsselbloem, in a conference call on Wednesday.

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Smart.

Why Greece May Have Already Won (CNN)

As it careens from one crisis to the next, many see Greece – and its prime minister, Alexis Tsipras – as a rudderless ship heading aimlessly toward inevitable and total economic collapse. But the editor of a major German newspaper, Die Zeit, believes Tsipras’ “very clever game of chicken” will almost certainly pay off. German Chancellor Angela Merkel “knows she does not want to have a dead body on her hands – not in Europe, not in her Europe,” Josef Joffe told CNN’s Christiane Amanpour on Monday. “German threats, and everybody else’s threats, are not credible.” “There will be no Grexit, neither enforced nor voluntary,” Joffe said, using the shorthand term for a Greek exit from the eurozone.

“The simple reason, which many people don’t understand, is that even with a Grexit, Greece still remains in Europe, and therefore it will have access to all kinds of zillions of money. … The only thing that will change is the spigots where the money runs through.” Two days after Greeks overwhelmingly rejected the austerity inherent to Europe’s bailout offers, Tsipras will discuss the path forward with European leaders on Tuesday. There appears to be some splintering of resolve among the so-called “institutions”. French President Francois Hollande took a somewhat softer tone after meeting with Merkel in Paris on Monday, and the IMF has bucked the line by releasing a preliminary report last week that admitted Greece would likely need the debt relief its government is so desperately trying to get.

“They said, listen, boys and girls, Greece cannot pay,” Joffe said. “If the IMF tells you that, that’s a resounding victory for Tsipras.” European leaders – despite their, by varying degrees, hardline rhetoric – understand that the country will collapse without an injection of money, he said. “Merkel knows that; Hollande knows it; and, above all, who else knows this? Tsipras.” “He has told Europeans, ‘You know what? Come and punish us. You’ll punish yourselves even more. Do you really want to collapse your economy? Do you really want chaos in the streets? Do you want another storm on the Bastille? You don’t, do you?’ “Nobody wants to be in the position where he cuts his nose to spite his face. “And that’s why it is my considered bet that the Greeks have won this game of chicken. Wait a few days and you’ll see.”

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Panic.

[Chinese] People Are Selling Everything In Sight To Get Their Hands On Cash (BBG)

Commodities traded in China are collapsing along with the country’s stock market. Raw materials from silver to lead and sugar to eggs fell to daily trading limits as the Shanghai Composite Index crashed to a three-month low Wednesday. A raft of measures to stabilize equities is failing to stop the bear-market rout in the country’s stock market, which had lured a record number of amateur investors and grown to become the world’s second-largest outside the U.S. “People are selling everything in sight to get their hands on cash,” Liu Xu, a trader at private asset-management company Guoyun Investment Co in Beijing, said by phone. “Some need to cover their margin calls in the stock market while others are gripped by fear that the Chinese economy will be affected by this crisis.”

Commodities prices globally this year have cooled, in part on slowing economic growth in China, the world’s largest consumer of energy, metals and grains. The Bloomberg Commodities Index, which tracks 22 raw materials, is down 7 percent so far this year. The gauge has lost 4.6% in the last three days, the most since 2011. Even as sentiment had soured on speculation demand is weakening, Wednesday’s sell off was fueled more by the rout in the country’s equity market, according to Ivan Szpakowski, a commodities strategist at Citigroup Inc. in Hong Kong. “It’s less commodity specific, and it’s not even reflective of a deterioration in economic growth or commodity demand,” Szpakowski said. “That’s not what we’re seeing. We’re seeing a deterioration in sentiment and a spillover from the equities market.”

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What a surprise, right?!

China Stocks Hit Four-Month Lows On Panic Selling (Reuters)

China stocks tumbled to four-month lows on Wednesday as panicky investors dumped shares across the board, even as the government tried to unveil supportive measures throughout the day session to stop the plunge. To insulate themselves from the meltdown, more than 500 China-listed firms announced trading halts before the market opened, bringing the total number to around 1,300, almost half of China’s roughly 2,800 listed firms. “I’ve never seen this kind of slump before. I don’t think anyone has,” said Du Changchun, analyst at Northeast Securities. “Liquidity is totally depleted.” The CSI300 index of the largest listed companies in Shanghai and Shenzhen fell 6.8%, to 3,663.04, while the Shanghai Composite Index lost 5.9%, to 3,507.19 points.

In an unprecedented sign of desperation, all of China’s three futures index products for July delivery slumped by their 10% daily limit, meaning investors are extremely bearish on all type of stocks – small, mid, and big cap. Most blue chips, the target of government’s intensified purchases, saw previous session’s gains wiped out. Some analysts attributed the sell-off to share suspensions by a huge number of companies. “Given the suspension of stocks comprising a large part of the onshore markets, there are fewer stocks available to sell for those investors needing to meet their margin call requirements,” said John Ford, chief investment officer for Asia Pacific at Fidelity Worldwide Investment.

“This …is in large part responsible for the current liquidity squeeze.” Stocks fell across the board, with only 83 stocks rising, and 1,439 falling. Even Shanghai’s top blue chip exchange-traded funds, the target of purchases by a stabilization fund set up by Chinese brokerages, and state investor Central Huijin, also fell sharply. In an unusual manner, various Chinese government agencies published a series of measures throughout the trading session, including urging major shareholders and top executives of listed companies to buy their own shares, and allowing insurers to buy more blue chips. Bank of America Merrill Lynch said China’s deleveraging and margin calls could be far from over, with no bottom seen until the government becomes buyer of last resort.

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Not going to work.

China Tries Japan’s Approach to a Stock Bubble (Pesek)

In any discussion of historical precedents for China’s ongoing battle with stock traders, Japan’s epic “price-keeping operations” deserve pride of place. In the early 1990s, stock traders started getting spooked by bad debts from Japan’s 1980s bubble years. In response, Tokyo marshalled one of history’s biggest government-buying sprees to hold the Nikkei stock market above 17,000. Untold billions of yen from national pension funds and postal savings accounts were channeled through the Ministry of Finance into shares, and authorities also clamped down on short selling. China, confronted today with plunging shares on the Beijing and Shanghai stock markets, has now organized an intervention that makes Tokyo’s look downright lame.

And that strategy will almost certainly come back to haunt Xi Jinping’s Communist Party, just as it did the Liberal Democratic Party of Japan’s then-Prime Minister Kiichi Miyazawa. So many of the forces behind Japan’s last several lost decades of economic stagnation and deflation can be traced back to the moment Miyazawa’s government decided to treat only the symptoms of the country’s economic frailty, rather than its underlying causes. More than a decade would pass before the LDP admitted Japan’s economy was suffering from the many bad loans the government had encouraged and the bailouts of zombie companies it had organized.

But in many ways, Tokyo never stopped confining its reform efforts to the symptoms of the country’s malaise. The country’s 15 prime ministers over the past two decades have avoided addressing the country’s excess of regulation, rigid labor laws and high trade tariffs. And for all his talk of sweeping change, current Prime Minister Shinzo Abe has been no different. His revival plans, like those of his predecessors, center on boosting asset prices. Abe’s nudging of the $1.1 trillion Government Pension Investment Fund to buy domestic stocks is a reprisal of the price-keeping operations of years past. And the yen’s 34% plunge since late 2012, encouraged by Abe’s government, has pumped up corporate profits and, in turn, the Nikkei stock exchange.

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“In May 1998 Mr Hague used a speech to warn that some countries in the Euro would find themselves ‘trapped in a burning building with no exits’.”

Greece Debacle Is Only A ‘Minor Rehearsal’ For Coming Crash: Hague (DM)

Former foreign secretary William Hague has broken cover to urge Greece to abandon the Euro or be stuck in a ‘permanent crisis’. Mr Hague, who stood down from politics at the election, said Greece had no chance of turning its economy around within the single currency unless Germany agreed to hand over big subsidies ‘forever’. But the former Tory leader went even further, warning that the ‘Greek debacle of 2015’ will not be the end of the euro crisis ‘but its real beginning’ – eventually dragging in Italy, Spain, Portugal and other southern European countries. Mr Hague’s warning comes ahead of a crisis summit of Eurozone leaders in Brussels tonight amid warnings from Germany that the single currency could ‘blow apart’ if Greece is allowed to blackmail the rest of the Eurozone.

Angela Merkel and Francois Hollande were locked in a bitter stand-off ahead of yet another bid by eurozone leaders to prevent the debt-ridden state crashing out of the single currency. Athens yesterday extended its ‘bank holiday’ until at least Thursday after the ECB deferred a decision on whether to continue propping up the country’s financial institutions. But one American hedge fund, Balyasny, yesterday warned investors that Greek banks were on the verge of running dry, leaving the country 48 hours from civil unrest. Writing in the Daily Telegraph today, Mr Hague hit out at European leaders for pushing ahead with the single currency despite warnings that it would trap some countries in permanent recession.

In May 1998 Mr Hague used a speech to warn that some countries in the Euro would find themselves ‘trapped in a burning building with no exits’. The then Tory leader predicted ‘wage cuts, tax hikes, and the creation of vicious unemployment blackspots’. Speaking today Mr Hague said: ‘I hope the Eurozone leaders meeting today will remember that those of us who criticised the euro at its creation were correct in our forecasts. ‘Otherwise they risk adding to the monumental errors of judgement, analysis and leadership made by their predecessors in 1998.’

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“China has more than 120 times the population of Greece..”

Greece ‘A Sideshow To China Meltdown’ (HuffPo)

As the Greek debt drama plays itself out one 60-euro withdrawal at a time, some economic observers are saying the world is paying attention to the wrong crisis. That’s because in the space of three weeks, China’s Shanghai Composite stock index has lost nearly 30% of its value, wiping out some $2.3 trillion U.S. in wealth. As Bloomberg News put it, that’s a loss of $1 billion for every minute of trading. Regulators have halted trading in more than 700 listed companies, and at least two dozen IPOs have been cancelled. And some economists fear the country’s response to the downturn could be worse than the stock market crash itself.

“China could well be setting the stage for another financial time bomb to match its local government debt and real estate bubbles,” said Sherry Cooper, the former chief economist at the Bank of Montreal, in a note issued Tuesday. She described the Greek crisis as a “sideshow” to the real drama unfolding in China. “China has more than 120 times the population of Greece and is the second largest economy in the world, dominating demand for natural resources,” writes Cooper, who is now chief economist at Dominion Lending Centres. It’s that demand for natural resources that makes China very important to Canada’s economy, even if the two countries’ trade relationship isn’t that large.

By largely determining demand for natural resources, China effectively sets the prices Canada gets for its resources on global markets. And China’s crash is already having an impact on Canada, Cooper said in an email to HuffPost. “It has already led to lower commodity prices and therefore further damaged the resource sector of our stock market,” she said. “Today’s very weak trade figures reflect the slowdown in energy exports. Not good news for the Canadian economy.”

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“They just didn’t want us to sign. They had already decided to push us out..”

Europe Is Blowing Itself Apart Over Greece, Nobody Seems Able To Stop It (AEP)

Like a tragedy from Euripides, the long struggle between Greece and Europe’s creditor powers is reaching a cataclysmic end that nobody planned, nobody seems able to escape, and that threatens to shatter the greater European order in the process. Greek premier Alexis Tsipras never expected to win Sunday’s referendum on EMU bail-out terms, let alone to preside over a blazing national revolt against foreign control. He called the snap vote with the expectation – and intention – of losing it. The plan was to put up a good fight, accept honourable defeat, and hand over the keys of the Maximos Mansion, leaving it to others to implement the June 25 “ultimatum” and suffer the opprobrium. This ultimatum came as a shock to the Greek cabinet.

They thought they were on the cusp of a deal, bad though it was. Mr Tsipras had already made the decision to acquiesce to austerity demands, recognizing that Syriza had failed to bring about a debtors’ cartel of southern EMU states and had seriously misjudged the mood across the eurozone. Instead they were confronted with a text from the creditors that upped the ante, demanding a rise in VAT on tourist hotels from 7pc (de facto) to 23pc at a single stroke. Creditors insisted on further pension cuts of 1pc of GDP by next year and a phase out of welfare assistance (EKAS) for poorer pensioners, even though pensions have already been cut by 44pc. They insisted on fiscal tightening equal to 2pc of GDP in an economy reeling from six years of depression and devastating hysteresis.

They offered no debt relief. The Europeans intervened behind the scenes to suppress a report by the IMF validating Greece’s claim that its debt is “unsustainable”. The IMF concluded that the country not only needs a 30pc haircut to restore viability, but also €52bn of fresh money to claw its way out of crisis. They rejected Greek plans to work with the OECD on market reforms, and with the International Labour Organisation on collective bargaining laws. They stuck rigidly to their script, refusing to recognise in any way that their own Dickensian prescriptions have been discredited by economists from across the world. “They just didn’t want us to sign. They had already decided to push us out,” said the now-departed finance minister Yanis Varoufakis.

So Syriza called the referendum. To their consternation, they won, igniting the great Greek revolt of 2015, the moment when the people finally issued a primal scream, daubed their war paint, and formed the hoplite phalanx. Mr Tsipras is now trapped by his success. “The referendum has its own dynamic. People will revolt if he comes back from Brussels with a shoddy compromise,” said Costas Lapavitsas, a Syriza MP. “Tsipras doesn’t want to take the path of Grexit, but I think he realizes that this is now what lies straight ahead of him,” he said.

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Whatever.

ECB Adds ‘Moral Hazard’ To Emergency Liquidity Assistance Rules (BBG)

The European Central Bank warned that “moral hazard” could be a reason to object to the emergency liquidity assistance it allows lenders to access, just a day after it tightened conditions on the aid for Greece. The Eurosystem’s functioning could be disrupted by “provision of ELA at overly generous conditions, which, in turn, could increase the risk of moral hazard on the side of financial institutions or responsible authorities,” the ECB said in a document published on its website Tuesday. “The objective of ELA is to support solvent credit institutions facing temporary liquidity problems. It is not a monetary-policy instrument.”

The document on the ECB’s financial-risk management clarifies the conditions surrounding emergency bank aid at a time when policy makers are restricting the provision of such funding to Greek banks. The reference to moral hazard indicates that officials are worried that bending the liquidity rules for Greece, as the country heads for a possible default, may lead future recipients to act less responsibly. On Monday, the ECB increased the discounts on collateral for lenders receiving ELA from the Bank of Greece. That makes it more difficult for banks to access the funds that have kept them alive as deposit withdrawals accelerated amid uncertainty over the country’s place in the euro. While the risk of ELA is nominally borne by the national central bank that provides it, the Frankfurt-based ECB has broad discretion over the terms. The new document didn’t specify what would quantify “overly generous” provision.

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More left wing.

New Greek Finance Minister Is A Change Of Style, Not Substance (Reuters)

Euclid Tsakalotos, the mild-tempered professor who was appointed as Greece’s new finance minister on Monday, is a clear change in style from his combative predecessor Yanis Varoufakis.The 55-year-old Tsakalotos studied at prestigious private London school St Paul’s and at Oxford University, speaks Greek with a British accent and rarely appears in public, let alone wearing the torso-hugging T-shirts Varoufakis favors.But if European officials expect Athens’ new finance chief, who has already been a key negotiator in drawn-out meetings between the Greek government and creditors, to take a softer approach in the substance of new talks, they can think again.

As the brainchild of Syriza’s economic thinking, Tsakalotos is likely to redouble efforts to put one of the most contentious issues in the five months of financial aid negotiations between Greece and its creditors — debt relief — back on the table. In a news conference after being sworn in, Tsakalotos said he was anxious about the task before him. “I cannot hide from you that I am quite nervous. I am not taking on this job at the easiest point in Greek history,” he said. But the minister, who sat beside his predecessor, said he was keen to restart talks with European partners, in order to act on a decision taken by Greeks in a Sunday referendum to reject previous terms offered by creditors in exchange for aid.

“We want to continue discussions, to take this mandate given to us by the Greek people [to strive] for something better…for all these people who have been suffering so much.” Tsakalotos, who co-authored a book with Greek central bank governor Yannis Stournaras, has been dubbed in leftist jargon a “Revolutionary Europeanist” — an economist who supports European Union integration, but not its capitalist principles. Like Varoufakis, Tsakalotos has often decried Europe for big democratic deficiencies and argued that ill-guided fiscal austerity imposed by the core of the euro zone has unnecessarily impoverished Greece and other countries on the periphery.

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Not going to listen.

Prominent Economists Urge Merkel To Change Course On Greek Crisis (Reuters)

Prominent economists called on German Chancellor Angela Merkel to change her policy course and stop “force-feeding” the Greek people “never-ending austerity” in an open letter published in leading European newspapers on Tuesday. “The medicine prescribed by the German finance ministry and Brussels has bled the patient, not cured the disease,” the economists wrote in an open letter to Merkel published on the website of Germany’s Tagesspiegel. “Right now, the Greek government is being asked to put a gun to its head and pull the trigger,” they said in the letter, which will also appear in France’s Le Monde and in English in The Guardian and The Nation.

“Sadly, the bullet will not only kill off Greece’s future in Europe. The collateral damage will kill the eurozone as a beacon of hope, democracy and prosperity, and could lead to far-reaching economic consequences across the world.” At an emergency eurozone summit on Tuesday, Greek Prime Minister Alexis Tsipras launched a desperate bid to win fresh aid from skeptical creditors. But Merkel, under domestic pressure to take a hard line on Greece, has made it clear that it is up to Tsipras to put forward credible proposals before negotiations with Athens can reopen.

The open letter, which was signed by Thomas Piketty of the Paris School of Economics and Jeffrey D. Sachs from Columbia University among others, urged Merkel to make concessions towards Greece. “To Chancellor Merkel our message is clear: we urge you to take this vital action of leadership for Greece and Germany, and also for the world.” “History will remember you for your actions this week. We expect and count on you to provide the bold and generous steps towards Greece that will serve Europe for generations to come.”

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Morally.

The Troika Is Politically Bankrupt (Monbiot)

Greece may be financially bankrupt, but the troika is politically bankrupt. Those who persecute this nation wield illegitimate, undemocratic powers, powers of the kind now afflicting us all. Consider the International Monetary Fund. The distribution of power here was perfectly stitched up: IMF decisions require an 85% majority, and the US holds 17% of the votes. The IMF is controlled by the rich, and governs the poor on their behalf. It’s now doing to Greece what it has done to one poor nation after another, from Argentina to Zambia. Its structural adjustment programmes have forced scores of elected governments to dismantle public spending, destroying health, education and all the means by which the wretched of the earth might improve their lives.

The same programme is imposed regardless of circumstance: every country the IMF colonises must place the control of inflation ahead of other economic objectives; immediately remove barriers to trade and the flow of capital; liberalise its banking system; reduce government spending on everything bar debt repayments; and privatise assets that can be sold to foreign investors. Using the threat of its self-fulfilling prophecy (it warns the financial markets that countries that don’t submit to its demands are doomed), it has forced governments to abandon progressive policies. Almost single-handedly, it engineered the 1997 Asian financial crisis: by forcing governments to remove capital controls, it opened currencies to attack by financial speculators. Only countries such as Malaysia and China, which refused to cave in, escaped.

Consider the ECB. Like most other central banks, it enjoys “political independence”. This does not mean that it is free from politics, only that it is free from democracy. It is ruled instead by the financial sector, whose interests it is constitutionally obliged to champion through its inflation target of around 2%. Ever mindful of where power lies, it has exceeded this mandate, inflicting deflation and epic unemployment on poorer members of the eurozone. The Maastricht treaty, establishing the European Union and the euro, was built on a lethal delusion: a belief that the ECB could provide the only common economic governance that monetary union required. It arose from an extreme version of market fundamentalism: if inflation were kept low, its authors imagined, the magic of the markets would resolve all other social and economic problems, making politics redundant. Those sober, suited, serious people, who now pronounce themselves the only adults in the room, turn out to be demented utopian fantasists, votaries of a fanatical economic cult.

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“..the troika has been “mak[ing] an example of Greece” for at least five years.”

NY Times Urges the Troika to “Make an Example of Greece” (Bill Black)

It is often the moral and economic blindness of New York Times articles about the EU crisis that is most striking. The newest entry in this field is entitled “Now Europe Must Decide Whether to Make an Example of Greece.” That is a chilling phrase most associated in our popular culture with a Consigliere and his Don deciding whether to order a mob “hit.” It is, therefore, fitting (albeit over the top) as a criticism of the troika’s economic, political, and propaganda war against the Greek people. Except that the article is actually another salvo in that war. Let’s start with the obvious – except to the NYT. “Europe” isn’t “decid[ing]” anything. The troika is making the decisions.

More precisely, it is the CEOs of the elite German corporations and banks that direct the troika’s policies that are making the decisions. The troika simply implements those decisions. The troika consists of the ECB, the IMF, and the European Commission. None of these three entities represents “Europe.” None of them will hold a democratic referendum of the peoples of “Europe” to determine policies. Indeed, they are apoplectic that the Greek government dared to ask the people of Greece through a democratic process whether to give in to the troika’s latest efforts to extort the Greek government to inflict ever more destructive and economically illiterate malpractice on the Greek people.

Second, the troika has been “mak[ing] an example of Greece” for at least five years. It extorted Greece to inflict the economic malpractice of austerity in response to a Great Recession. The result was just what economists warned – Greece was forced, gratuitously, into worse-than-Great Depression levels of unemployment that persist today seven years after Lehman’s collapse. In this process, the troika blocked a prior referendum proposed by Greece’s Socialist Prime Minister George Papandreou in late 2011 and forced him to resign for daring to propose democratic decision-making. Read the Guardian’s risible account of the 2010 coup that the troika engineered in Greece for an unintended insight as to how the UK’s “New Labour” Party has become an anti-labor party of austerity and “aspirational” hostility to efforts to contain the City of London’s criminal culture.

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“Nominal growth of around 2% annually would be enough to stabilise Greek sovereign debt as a share of GDP.”

Austerity Is Not The Solution To The Greek Crisis (Callam Pickering)

Due to earlier debt restructuring, official statistics in Greece vastly overstate its effective debt burden. As a result, Greece’s debt repayments should be manageable provided the European Union and the IMF can devise a reform package that enables the Greece economy to grow at a modest pace. Unfortunately, in the current political environment – which continues to favour harsh austerity over economic growth – it appears as though Greece will need to default or leave the euro before its economy can return to any sense of normality. Government debt in Greece officially sits at around 180% of nominal GDP. Due to earlier debt restructuring, however, effective government debt is functionally much lower.

This has occurred via two distinct channels: the decision by private creditors to accept significant haircuts on existing debt during 2012 and the significant rise in the average maturity of Greek government debt. Average maturity on existing sovereign debt is now around 16 years, double that of Germany and Italy. Further restructuring, assuming that there isn’t a Greek exit, could see the average maturity increase to between 20 and 25 years. As a result, the interest burden on existing government debt in Greece has fallen to 4% of nominal GDP (down from over 7% in 2011), which is considerably lower than the interest burden in both Italy and Portugal. Interest payments in Greece are just 2.2% of outstanding sovereign debt.

By comparison, interest payments in Spain and Italy are estimated at 3.4% and 3.6% of government debt, respectively. The ratio for Greece has declined by two-thirds since 2011. The key difference between Greece and these other countries is that Greece remains firmly in a state of economic depression. Harsh austerity measures have undermined its productive capacity, killed off its banking sector and made it almost impossible for the region to recover in any meaningful sense. The solution to Greece’s problems almost certainly requires a combination of further debt restructuring, growth enhancing reforms, and fiscal or monetary stimulus. Austerity isn’t the answer and will achieve little more than prolonging Greece’s financial and economic crisis.

Nominal growth of around 2% annually would be enough to stabilise Greek sovereign debt as a share of GDP. Growth beyond that would see their debt burden gradually decline towards more normal levels. Unfortunately, the ECB and the troika continue to assume that Greek government debt really does sit at 180% of nominal GDP. They continue to assume that the interest burden of Greece exceeds that of other member countries. In doing so they have done irreparable damage to the Greek economy. In blindly pursuing the interests of private and sovereign creditors, they have all but ensured that Greece will eventually default on their debt and leave the euro.

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Yeah, why not another ultimatum?!

Lenders Give Greece Until Sunday To Avoid Grexit (AFP)

European leaders gave debt-stricken Greece a final deadline of Sunday to reach a new bailout deal and avoid crashing out of the euro, after Greek voters rejected international creditors’ plans in a weekend referendum. In the first step of its renewed bid for funding, Greece’s leftist government must submit detailed reform plans by Thursday, EU President Donald Tusk said after eurozone leaders held an emergency summit with Greek Prime Minister Alexis Tsipras. All 28 European Union leaders will then examine the plans on Sunday in a make-or-break summit that will either save Greece’s moribund economy or leave it to its fate. “Tonight I have to say loud and clear – the final deadline ends this week,” Tusk told a news conference.

“Inability to find an agreement may lead to bankruptcy of Greece and insolvency of its banking system,” he added. European Commission President Jean-Claude Juncker warned “we have a Grexit scenario prepared in detail” if Greece failed to reach a deal, although he insisted he wanted Athens to stay in the euro club. German Chancellor Angela Merkel meanwhile warned Greece would need a debt program lasting “several years” and insisted writing off any of Greece’s €320 billion debt mountain was out of the question. The deadline came after Tsipras and his new finance minister Euclid Tsakalotos came to Brussels to discuss the fall-out from the dramatic referendum. Greeks voted by 61% to reject creditor demands for more austerity in return fresh EU-IMF bailout funds.

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From his book, 2011.

Merkel’s Buttons (Yanis Varoufakis)

Picture the scene when a sheepish finance minister enters the chancellor’s Berlin office bearing a control panel featuring one yellow and one red button, and telling her that she must choose to press one or the other. This is how he explains what each button will do:

The red button If you press it, chancellor, the euro crisis ends immediately, with a general rise in growth throughout Europe, a sudden collapse of debt for each member state to below its Maastricht limit, no pain for Greek citizens (or for the Italians, Portuguese, etc), no guarantees for the periphery’s debts (states or banks) to be provided by German and Dutch taxpayers, interest rate spreads below 3% throughout the eurozone, a diminution in the eurozone’s internal imbalances, and a wholesale rise in aggregate investment.

The yellow button If you press it, chancellor, the situation in the eurozone remains more or less as it is for a decade. The euro crisis continues to bubble along, albeit in a controlled fashion. While the probability of a break-up, which will be a calamity for Germany, remains non-trivial, the chances are that, if you push the yellow button, the eurozone will not break up (with a little help from the ECB), German interest rates will remain extremely low, the euro will be nicely depressed (‘nicely’ from the perspective of German exporters), the periphery’s spreads will be sky-high (but not explosive), Italy and Spain will enter deeper into a debt-deflationary spiral that sees to a reduction of their national income by 15% over the next three years, France shall slip steadily into quasi-insolvency, GDP per capita will rise slowly in the surplus countries and fall precipitously in the periphery.

As for the first “fallen” nations (Greece, Ireland and Portugal), they shall become little Latvias, or indeed Kosovos: devastated lands (after the loss of between 25% and 40% of national income, a massive exodus of their skilled labour) on which our people will holiday and buy cheap real estate. In aggregate, if you choose the yellow button, chancellor, eurozone unemployment will remain well above UK and US levels, investment will be anaemic, growth negative and poverty on the up and up. Which button do you think, dear reader, the chancellor would want to push?

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“Anti-establishment voters are always underrepresented in establishment polls.”

Politics Always Trumps Economics (Ben Hunt)

There are decades where nothing happens; and there are weeks where decades happen.
– Vladimir Lenin (1870 – 1924)

In 1914, Europe had arrived at a point in which every country except Germany was afraid of the present, and Germany was afraid of the future.
– Sir Edward Grey (1862 – 1933)

Last week’s email, “1914 is the New Black”, was the most widely read Epsilon Theory note to date, and given the weekend ’s events it bears repeating, as the echoes of 1914 are growing louder and louder. We are, I think, likely embarked on the death spiral phase of a game of Chicken, just as in the summer of 1914. The stakes are, for now at least, not nearly as cataclysmic today as they were a century ago, but the social and political dynamics are eerily alike. I’m often asked how to get a better take on a historical event like the lead-up to World War I, and the answer is that there’s no substitute for immersing yourself in what people were actually saying and writing at the time the events transpired.

If you’re lucky, perhaps you’ll pick a period that also attracted the attention of a gifted historian like a Robert Caro or a David McCullough. Second best, I’ve found, is to find a gifted editor or anthologist to smooth the path a bit. One such anthologist is Peter Vansittart, who collected a wide range of original texts in his classic books, “Voices: 1870 – 1914” and “Voices from the Great War”. I’ve taken some of those texts and appended them below. They speak for themselves, I hope, to illustrate the defining characteristic of a spiraling game of Chicken – all sides begin to speak in terms of “having no choice” but to take aggressive actions to defend their own interests. Before the quotes, though, three other historical observations:

• The Austrian ultimatum to Serbia – long seen as the proximate cause of World War I – was accepted by the Serbian government almost in its entirety. Unfortunately, that “almost” part made all the difference. An important anecdote to remember the next time someone calls your attention to Tsipras’s acceptance of 90% of the Eurogroup reform ultimatum.

• Anti-establishment voters are always underrepresented in establishment polls. Noted segregationist and Alabama governor George Wallace won the 1972 Democratic Party primary in Michigan despite showing third in polls. Daniel Ortega and his Sandinista regime lost the 1990 Nicaraguan election by 10 percentage points to Violeta Chamorro despite leading by more than 10 points in every pre-election poll. The Syriza NO landslide was no surprise here, and this is an important phenomenon to keep in mind when you start to see opinion polls from Italy and France published over the next few days.

• Politics always trumps economics. My favorite 1914 quote in this regard is from Lord Cunliffe, governor of the Bank of England from 1913 – 1918, who famously declared that war was impossible because “The Germans haven’t the credits.” So what if Greek banks run out of euros? The Greek government will make their own, or maybe issue California-style IOUs and dare the Eurogroup to boot them out of the currency. If you think that an ECB squeeze can put this political genie back in the bottle, you’re making the same classic error as Walter Cunliffe did.

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Petty personal politics.

Greece creditors Will Gain Nothing From Toppling Europe-Lover Varoufakis (AEP)

Yanis Varoufakis was sacrificed to placate the European creditor powers. Germany let it be known that there could be no possible hope of an accord on bail-out conditions as long as this wild spirit remained finance minister of Greece. In a moment of condign fury, Mr Varoufakis had accused EMU leaders of “terrorism”, responsible for deliberately precipitating the collapse of the banks in one of its own member states. (This is objectively true, of course) “I shall wear the creditors’ loathing with pride,” he signed off in his parting shot, ‘Minister no More’. It is an odd end to the ‘OXI’ landslide in the referendum, a 61pc stunner that seemed at first sight to be a vindication of Syriza’s defiant stand over the last six months.

He had looked like the hero of the hour threading through ecstatic crowds in Syntagma Square in the final rally. Fate plays its tricks. “Soon after the announcement of the referendum results, I was made aware of a certain preference by some Eurogroup participants, and assorted ‘partners,’ for my … ‘absence’ from its meetings; an idea that the prime minister judged to be potentially helpful to him in reaching an agreement. For this reason I am leaving the Ministry of Finance today.” His sacking is a paradox. He is the most passionate pro-European in the upper reaches of the Syriza movement, perhaps too much so since he thought it his mission to rescue the whole of southern Europe from ‘fiscal waterboarding’ and smash the 1930s contractionary regime of Wolfgang Schauble’s monetary union for benefit of mankind.

But then he was starting to harbour ‘dangerous’ thoughts. When I asked him before the vote whether he was prepared to contemplate seizing direct control of the Greek banking system, a restoration of sovereign monetary instruments, Grexit, and a return to the drachma — if the ECB maintains its liquidity blockade, forcing the country to its knees – he thought for a while and finally answered yes. “I am sick of these bigots,” he said. His fear was that Greece did not have the technical competence to carry out an orderly exit from EMU, and truth be told, Syriza has already raided every possible source of funds within the reach of the Greek state – bar a secret stash still at the central bank, controlled by Syriza’s political foes – and therefore has no emergency reserves to prevent the crisis spinning out of control in the first traumatic weeks.

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Great timing….

Washington Calls For Flexibility On Greece (Leigh)

For the United States, Greece is a valued NATO ally and a land of relative stability, between the faltering Balkans, North Africa, and the Middle East. Its strategic importance throughout the Mediterranean has increased following the failure of the Arab uprisings and the falling-out of two US allies, Turkey and Israel. Greece’s cooperation is crucial in counter-terrorism and in efforts to cope with the flow of refugees from Syria and the Horn of Africa. It has become a security partner for Israel, a relationship reflected in growing links between the Greek and Jewish communities in the United States. The United States has an interest in Europe’s drive for greater energy security and diversification of supply away from Russia.

Greece aspires to an important role in Europe’s energy security through its own offshore exploration for oil and gas and potential future production and through new interconnectors to the Balkans and up into central Europe. Overall, the “Europeanization” of Greece has saved it from the tribulations of its Balkan neighbors. Much would be lost for the Greek people, the region, the EU, and the United States if Greece became a failed state in an increasingly troubled neighborhood. Russian President Vladimir Putin’s efforts to seduce wayward European states might then have greater success.

Against this background, US President Barack Obama and senior administration officials have repeatedly urged the ECB, the European Commission, and the IMF to show greater flexibility to reach an agreement with Greece. Cabinet members have made dozens of phone calls urging compromise. While the president has not publicly taken a position on the Greek referendum and its implications, he observed earlier this year that “You cannot keep on squeezing countries that are in the midst of depression.” A senior White House official has called for a socially just solution. Clearly the administration would prefer less draconian demands by the creditors but is sensitive to possible accusations of interference.

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Always a good idea.

Want To Help Greece? Go There On Holiday (Alex Andreou)

Covering the Greek crisis for the past few months, the question I am asked most commonly is: “Why won’t Greece just stop whining and pay its debts?” It is quite depressing to realise there are so many people out there who think there is a mattress somewhere in Greece stuffed with a trillion euros, which we are refusing to hand over simply out of radical leftism. The second most commonly asked question, however, cheers me up significantly: “Is there any way we can help?” There is: visit Greece. The weather is just as stunning as it ever was this time of year; the archaeological sites just as interesting; the beaches just as magical; the food just as heart-healthy. The prices are significantly cheaper than usual. It is one of those rare everybody-wins situations.

The people are even more welcoming, more hospitable and more grateful than ever. The reaction to difficulty has been a broader smile, a wider embrace. We understand that you have a choice and we understand why you have chosen Greece right now. Tourism is liquidity. Tourism is solidarity. If you are thinking of helping my country in this way, there are ways to do so perfectly safely and to maximise the benefit. It is important to say that there has been no violence, at all, anywhere. And whenever there has been any trouble in the past, it has always confined itself in a very small and easily avoidable area, in the very centre of Athens. If you are feeling even a little nervous about it, plenty of airlines fly directly to dozens of resorts and stunning, out-of-the-way destinations.

A British friend, Kris, who just came back from Athens, says: “It would be very easy not to know that anything was even going on … There were some queues at ATMs, but no more than in the centre of London during a busy weekend. There is no rationing or shortages. The only exception was the night of the rival rallies, for Yes and Oxi; I was absolutely amazed that they were held less than half a mile apart and there was no trouble whatsoever. From our hotel terrace, it was like listening to democracy in stereo … I would go back in a heartbeat.”

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Great Steve.

Steve Keen and Max Keiser (RT)

In this episode of the Keiser Report, Max Keiser and Stacy Herbert discuss the Greek referendum results, financial terrorism and bail-in fears induced velocity of money. In the second half, Max interviews Professor Steve Keen about the Greek ‘OXI’ (No) vote and the dictatorship of the ECB.

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Jun 292015
 
 June 29, 2015  Posted by at 10:57 am Finance Tagged with: , , , , , , , , ,  11 Responses »


Alfred Eisenstaedt Actress Marilyn Monroe at home 1953

The World Is Defenceless Against The Next Financial Crisis, Warns BIS (Telegraph)
BIS Warns Low Interest Rates Could Spell ‘Entrenched Instability’ (AFP)
The Staggering Cost Of Central Bank Dependence (Wyplosz)
Greece Introduces Capital Controls, Keep Banks Shut As Crisis Deepens (Reuters)
EU Offers Greek Voters 10-Point Plan on June 26 Bailout Offer (Bloomberg)
Athens Is Being Blackmailed (Philippe Legrain)
A Disaster For Athens And A Colossal Failure For The EU (Guardian)
US Urges Europe, IMF To Reach Deal To Keep Greece In Eurozone (Reuters)
The Moral Crusade Against Greece Must Be Opposed (Guardian)
Cautious Merkel On Verge Of Biggest Risk With ‘Grexit’ (Reuters)
The Greeks For Whom All The Talk Means Nothing – Because They Have Nothing (G.)
Grisis (Paul Krugman)
El-Erian: 85% Grexit Odds as ‘Massive’ Contraction Looms (Bloomberg)
Chinese Stocks Crash Most In 19 Years Despite PBOC Hail Mary (Zero Hedge)
A China Market Crash “Poses Great Danger To Social Stability” (Zero Hedge)
Will Beijing Really Be The Last Rescuer For Everyone In The Stock Market? (SCMP)
Does China’s Central Bank Know What It’s Doing? (Bloomberg)
Puerto Rico’s Governor Says Island’s Debts Are ‘Not Payable’ (NY Times)

The central bank of central banks takes position against central bank policy.

The World Is Defenceless Against The Next Financial Crisis, Warns BIS (Telegraph)

The world will be unable to fight the next global financial crash as central banks have used up their ammunition trying to tackle the last crises, the Bank of International Settlements has warned. The so-called central bank of central banks launched a scatching critique of global monetary policy in its annual report. The BIS claimed that central banks have backed themselves into a corner after repeatedly cutting interest rates to shore up their economies. These low interest rates have in turn fuelled economic booms, encouraging excessive risk taking. Booms have then turned to busts, which policymakers have responded to with even lower rates.

Claudio Borio, head of the organisation’s monetary and economic department, said: “Persistent exceptionally low rates reflect the central banks’ and market participants’ response to the unusually weak post-crisis recovery as they fumble in the dark in search of new certainties.” “Rather than just reflecting the current weakness, they may in part have contributed to it by fuelling costly financial booms and busts and delaying adjustment. The result is too much debt, too little growth and too low interest rates. “In short, low rates beget lower rates.” The BIS warned that interest rates have now been so low for so long that central banks are unequipped to fight the next crises. “In some jurisdictions, monetary policy is already testing its outer limits, to the point of stretching the boundaries of the unthinkable,” the BIS said.

Policymakers in the eurozone, Denmark, Sweden and Switzerland have taken their interest rates below zero in an attempt to support their economies, contributing to a decline in bond yields. Extraordinarily low interest rates are not a “new equilibrium” said Jaime Caruana, general manager of the BIS, rejecting the theory of so-called “secular stagnation” which some economists blame for the continued decline in global lending rates. “True, there may be secular forces that put downward pressure on equilibrium interest rates … [but] we argue that the current configuration of very low rates is neither inevitable, nor does it represent a new equilibrium,” he said.

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“..low rates beget lower rates…”

BIS Warns Low Interest Rates Could Spell ‘Entrenched Instability’ (AFP)

The Bank of International Settlements warned Sunday that persistently low interest rates were symptoms of a malaise in the global economy that could end in entrenched instability. The Basel-based institution, considered the central bank for central banks, hailed that plunging oil prices had boosted the global economy over the past year. But it cautioned that global debt burdens and financial risks remained too high, while productivity and financial growth were too low, leaving policy makers with little room to maneuvre. “In the long term, this runs the risk of entrenching instability and chronic weakness,” the report said. Claudio Borio, the head of the BIS monetary and economic department, said the “most visible symptom of this predicament is the persistence of ultra-low interest rates.”

“Interest rates have been exceptionally low for an extraordinarily long time,” he said, warning that previously “unthinkable” monetary policies were being so widely used they risked becoming the new norm. A number of countries, including Switzerland, Denmark and Sweden, have in recent months introduced negative rates, meaning investors have to pay to lend money to these states. Between December 2014 and the end of May, around $2.0 trillion in global long-term sovereign debt, much of it issued by euro area sovereigns, was trading at negative yields, BIS said. Key interest rates are lower now than at the height of the financial crisis that began in 2007, it added. “Such yields are unprecedented,” said the report.

The current low rates “are a vivid reminder of the extent to which monetary policy has been overburdened in an attempt to reinvigorate growth,” Borio said. “They have underpinned the contrast between high risk-taking in financial markets, where it can be harmful, and subdued risk-taking in the real economy, where additional investment is badly needed,” he said. Borio warned that the low rates do not just reflect the current weakness in the global economy, but “may in part have contributed to it by fuelling costly financial booms and busts and delaying adjustment.” “The result is too much debt, too little growth and too low interest rates,” he said, stressing that “low rates beget lower rates.”

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“..central banks are not commercial entities. Accepting losses is part of its public service mission. Keeping the banking system afloat is part of its core mission.”

The Staggering Cost Of Central Bank Dependence (Wyplosz)

This weekend’s dramatic events saw the ECB capping emergency assistance to Greece. This column argues that the ECB’s decision is the last of a long string of ECB mistakes in this crisis. Beyond triggering Greece’s Eurozone exit – thus revoking the euro’s irrevocability – it has shattered Eurozone governance and brought the politicisation of the ECB to new heights. Bound to follow are chaos in Greece and agitation of financial markets – both with unknown consequences.

The ECB has decided to maintain its current level of emergency liquidity to Greece (ECB 2015). By refusing to extend additional emergency liquidity, the ECB has decided that Greece must leave the Eurozone. This may be a legal necessity or a political judgement call, or both. Anyway, it raises a host of unpleasant questions about the treatment of a member country and about the independence of the central bank. As anticipated (Wyplosz, 2015), the negotiations between Greece have led nowhere. As a result, Greece is bound to default on all maturing debts in the days and weeks to come. With a primary budget close to balance, the Greek government could have soldiered on until new negotiations about the unavoidable write-down of its debt.

The risk for the Greeks of this ‘default strategy’ has always been that it depended entirely on the ECB’s willingness to continue providing the Greek banking system with liquidity, especially at a time of a bank run by rational depositors who put a non-zero risk of Grexit. Over the last weeks, the ECB has provided the needed liquidity in the face of a “slow-motion run” on Greek banks. Suddenly, on the morning of 28 June, the ECB has stopped providing emergency funding to Greek banks. In a classical self-fulfilling crisis fashion, this decision is bound to turn the “slow-motion run” into a panic. The bank holiday and capital controls announced will create some breathing space, but very briefly. These measures will not prevent the banking system from collapsing.

The natural consequence will be the collapse of the Greek banking system. At that stage, possibly earlier, the Greek authorities will have no choice but to leave the Eurozone and provide banks with the re-created drachma. Why did the ECB freeze its Emergency Liquidity Assistance (ELA) to Greece? The ECB will undoubtedly come up with all sorts of legal justifications. Whether true or not, this will not change the outcome. If the ECB is truly legally bound to stop ELA, this means that the Eurozone architecture is deeply flawed. If not, the ECB will have made a political decision of historical importance. Either way, this is a disastrous step. Whether it likes it or not, every central bank is a lender of last resort to commercial banks. By not keeping the Greek banking system afloat, the ECB is failing on a core responsibility.

One explanation is that the ECB fears losses. This is partly incorrect, partly misguided. It is incorrect because the ELA loans are provided by the Central Bank of Greece. It is the Central Bank of Greece, and therefore the Greek people, which stands to suffer losses from defaults by commercial banks. It is misguided because central banks are not commercial entities. Accepting losses is part of its public service mission. Keeping the banking system afloat is part of its core mission.

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Forced into capital controls by legally questionable troika measures. Some partnership.

Greece Introduces Capital Controls, Keep Banks Shut As Crisis Deepens (Reuters)

Greece will introduce capital controls and keep its banks closed on Monday after international creditors refused to extend the country’s bailout and savers queued to withdraw cash, taking Athens’ standoff to a dangerous new level. The Athens stock exchange will also be closed as the government tries to manage the financial fallout of the disagreement with the EU and IMF. Greece’s banks, kept afloat by emergency funding from the ECB, are on the front line as Athens moves towards defaulting on a €1.6 billion payment due to the IMF on Tuesday. Greece blamed the ECB, which had made it difficult for the banks to open because it froze the level of funding support rather than increasing it to cover a rise in withdrawals from worried depositors, for the moves.

Prime Minister Alexis Tsipras said the decision to reject Greece’s request for a short extension of the bailout program was “an unprecedented act” that called into question the ability of a country to decide an issue affecting its sovereign rights. “This decision led the ECB today to limit the liquidity of Greek banks and forced the central bank of Greece to propose a bank holiday and a restriction on bank withdrawals,” he said in a televised address. Amid drama in Greece, where a clear majority of people want to remain inside the euro, the next few days present a major challenge to the integrity of the 16-year-old euro zone currency bloc. The consequences for markets and the wider financial system are unclear.

Greece’s left-wing Syriza government had for months been negotiating a deal to release funding in time for its IMF payment. Then suddenly, in the early hours of Saturday, Tspiras asked for extra time to enable Greeks to vote in a referendum on the terms of the deal. Creditors turned down this request, leaving little option for Greece but to default, piling further pressure on the country’s banking system.

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First they present Tsipras with a do-or-die plan, and now they come with another one again.

EU Offers Greek Voters 10-Point Plan on June 26 Bailout Offer (Bloomberg)

The European Commission offered Greek voters a 10-point plan for bailout requirements on Sunday, urging Greece to stay in the euro area. The list reflects the state of play as of 8 p.m. on June 26 and was never finished because negotiations broke down when Prime Minister Alexis Tsipras announced on Friday he would seek a referendum. It’s being published now “in the interest of transparency and for the information of the Greek people,” Commission President Jean-Claude Juncker said on Twitter. Juncker will hold a news conference in Brussels at 12:45 p.m. on Monday, the commission said.

The list of measures was never finished or presented to euro-area finance ministers alongside an “outline of a comprehensive deal” because of “the unilateral decision of the Greek authorities to abandon the process,” the European Union’s executive arm said. The plans, published in English and in the process of being translated into Greek, were endorsed by the ECB and IMF, the commission said. The commission said the plans take into account Greek proposals from June 8, June 14, June 22 and June 25, as well as subsequent political and technical talks.

The Greek government hasn’t been informed of any change in the creditors’ proposals after June 25 if there has been one, a Greek government official said in an e-mailed statement. IMF Managing Director Christine Lagarde said she briefed the IMF board on the state of play. “I shared my disappointment and underscored our commitment to continue to engage with the Greek authorities,” Lagarde said in a statement. “I welcome the statements of the Eurogroup and the European Central Bank to make full use of all available instruments to preserve the integrity and stability of the euro area.”

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“Democracy? What’s that?”

Athens Is Being Blackmailed (Philippe Legrain)

“If the Greek government thinks it should hold a referendum, it should hold a referendum. Maybe it would even be the right measure to let the Greek people decide whether they’re ready to accept what needs to be done.” Fine words from Germany’s finance minister, Wolfgang Schäuble, on May 11. Yet on June 26, when prime minister Alexis Tsipras duly announced a referendum on whether the Greek government should accept its creditors’ highly unsatisfactory final offer, Schäuble and other eurozone finance ministers reacted very differently. They cut off negotiations with Athens, sabotaged the referendum, and set Greece on a course for capital controls, default, and potentially even euro exit. Democracy? What’s that?

The creditors have tried to blame Tsipras for the breakdown in negotiations. But it was their stubborn refusal to offer an insolvent Greece the debt relief that its depressed economy desperately needs to recover which backed Tsipras into a corner. In exchange for a short-lived infusion of cash, they were insisting on years of grinding austerity dressed up as “reforms”, as I explained previously. With rapacious creditors intent on pillaging the impoverished Greek economy, Tsipras could scarcely agree to their terms. So he gave Greeks themselves a say, while rightly urging them to vote No. Ironically, the exaggerated fear of Grexit and the emotional association, even after five years of debt bondage, between euro membership and being part of modern Europe might well have led Greeks to vote Yes to the creditors’ iniquitous terms.

But eurozone authorities are so terrified of voters that they have sought to deny Greeks a say. They rejected the Greek government’s request to extend the current EU loan program for a month beyond its expiry on June 30. So, if and when Greeks vote on July 5, the program will have expired, and with it the creditors’ offer on which they will be casting their ballots. It would be funny if it weren’t so sad. [..] In the meantime, the creditors continue to ratchet up the pressure. Following on from the refusal to extend the EU loan program, the ECB on June 28 decided not to provide Greek banks with any additional emergency liquidity to cover cash withdrawals, which have gathered pace over the weekend. That political move forced the Greek government to declare a bank holiday on Monday to prevent a run that would cause the Greek banking system to collapse, along with capital controls to prevent euros draining out of the Greek economy.

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“Three days, three crises, and a collective performance that inspires little hope or confidence in their crisis management.”

A Disaster For Athens And A Colossal Failure For The EU (Guardian)

Five years from its inception, the world’s biggest bailout of a sovereign state will grind to an excruciating halt on Tuesday, theoretically leaving Greece high and dry and on its own under a leftwing government bitterly accusing the EU elite of deliberately using the country as a neo-liberal laboratory. If the experiment has been a disaster for Greece, it is also a colossal failure for Europe, with the result that at the very apex of leadership the EU nowadays resembles an unhappy assembly of squabbling politicians locked in what could not be called an “ever closer union”. Take just the last few days. On Thursday leaders at a summit contemplated formally for the first time, however briefly, the prospect of Britain leaving the EU.

By three o’clock on Friday morning they were all at one another’s throats in an unseemly quarrel over who should take part in accommodating a mere 40,000 refugees from Italy and Greece over two years, and on what terms. On Saturday, 18 governments of the eurozone cut Greece off and initiated a process that could end in pushing Athens out of the currency and perhaps out of the union. Three days, three crises, and a collective performance that inspires little hope or confidence in their crisis management. The air is already thick with recrimination, not just between Greece and the rest of Europe, but among the Europeans. France says that Greece must be saved, Germany says impossible.

The European commission is seeking to revive negotiation that are on their deathbed. The Finnish finance minister, Alex Stubb, is looking forward to the funeral. The IMF is at odds with the Europeans over the levels of Greek debt. Everywhere there is the sight of leaders seeking to escape responsibility for a sorry state of affairs. For weeks, in anticipation of the criticism certain to be directed at them in the event of a Greek collapse, senior German figures have privately been saying: “Well, nobody will be able to say that we did not try our best. At the meeting of eurozone finance ministers on Saturday that ended the Greek bailout, the French finance minister, Michel Sapin, was the only one with enough humility to remark that maybe the Europeans had got some things wrong and that things might have been done differently, according to witnesses.

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The US had better get going on the topic.

US Urges Europe, IMF To Reach Deal To Keep Greece In Eurozone (Reuters)

Top US officials waded in at the weekend to try to help resolve Greece’s financial woes, urging Europe and the IMF to come up with a recovery plan that keeps the country in the eurozone. In a series of separate phone calls on Saturday to IMF Managing Director Christine Lagarde and the finance ministers of Germany and France, Treasury Secretary Jack Lew urged them to “find a sustainable solution that puts Greece on a path toward reform and recovery within the eurozone,” according to a Treasury Department statement on Sunday about the calls. Lew noted it is “important for all parties to continue to work to reach a solution, including a discussion of potential debt relief for Greece,” in the run-up to a planned July 5 referendum in Greece on the terms of a bailout.

Greece is facing a looming Tuesday deadline on a 1.6-billion-euro payment due to the IMF. Earlier Sunday, Greece announced it will impose capital controls and keep its banks shut on Monday, after international creditors refused to extend the country’s bailout. Lew also underscored the need for Greece to adopt “difficult measures to reach a pragmatic compromise with its creditors,” the Treasury statement said. The Treasury spokesperson said senior department officials have also been in regulator communication with Greece and that Lew had spoken to Prime Minister Alexis Tsipras “multiple times” over the past two weeks. The department has urged Greece to work closely with its international partners on planning for a bank holiday and capital controls, the spokesperson said.

President Barack Obama spoke with German Chancellor Angela Merkel on Sunday about the Greek situation. “The two leaders agreed that it was critically important to make every effort to return to a path that will allow Greece to resume reforms and growth within the eurozone,” a White House statement said. “The leaders affirmed that their respective economic teams are carefully monitoring the situation and will remain in close touch.”

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“The Eurogroup is an informal group. Thus it is not bound by treaties or written regulations. While unanimity is conventionally adhered to, the Eurogroup president is not bound to explicit rules.”

The Moral Crusade Against Greece Must Be Opposed (Guardian)

‘This is our political alternative to neoliberalism and to the neoliberal process of European integration: democracy, more democracy and even deeper democracy,” said Alexis Tsipras on 18 January 2014 in a debate organised by the Dutch Socialist party in Amersfoort. Now the moment of deepest democracy looms, as the Greek people go to the polls on Sunday to vote for or against the next round of austerity. Unfortunately, Sunday’s choice will be between endless austerity and immediate chaos. As comfortable as it is to argue from the sidelines that maybe Grexit in the medium term won’t hurt as much as 30 years’ drag on GDP from swingeing repayments, no sane person wants either.

The vision that Syriza swept to power on was that if you spoke truth to the troika plainly and in broad daylight, they would have to acknowledge that austerity was suffocating Greece. They have acknowledged no such thing. Whatever else one could say about the handling of the crisis, and whatever becomes of the euro, Sunday will be the moment that unstoppable democracy meets immovable supra-democracy. The Eurogroup has already won: the Greek people can vote any way they like – but what they want, they cannot have. On Saturday the Eurogroup broke with its tradition of unanimity, issuing a petulant statement “supported by all members except the Greek member”.

Yanis Varoufakis, the Greek finance minister, sought legal advice on whether the group was allowed to exclude him, and received the extraordinary reply: “The Eurogroup is an informal group. Thus it is not bound by treaties or written regulations. While unanimity is conventionally adhered to, the Eurogroup president is not bound to explicit rules.” Or, to put it another way: “We never had any accountability in the first place, sucker.” More striking still is this line of the statement: “The Eurogroup has been open until the very last moment to further support the Greek people through a continued growth-oriented programme.” The measures enforced by the troika have created an economic contraction akin to that caused by war. With unemployment at 25% and youth unemployment at nearly half, 40% of children now live below the poverty line.

The latest offer to Greece promises more of the same. The idea that any of this is oriented towards growth is demonstrably false. The Eurogroup president, Jeroen Dijsselbloem, has started to assert that black is white. [..] These talks did not fail by accident. The Greeks have to be humiliated, because the alternative – of treating them as equal parties or “adults”, as Lagarde wished them to be – would lead to a debate about the Eurogroup: what its foundations are, what accountability would look like, and what its democratic levers are – if indeed it has any. Solidarity with Greece means everyone, in and outside the single currency, forcing this conversation: the country is being sacrificed to maintain a set of delusions that enfeebles us all.

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Merkel’s fumble. Dropped ball.

Cautious Merkel On Verge Of Biggest Risk With ‘Grexit’ (Reuters)

“If you break it, you own it,” former U.S. Secretary of State Colin Powell warned President George W. Bush before his invasion of Iraq. Whether it will ever be fair to blame Angela Merkel for “breaking” Greece is debatable. But if the euro zone’s weakest link does default this week and is eventually forced out of the single currency, it seems inevitable that the German chancellor, Europe’s most powerful leader, will “own” the Greek problem and that a decision to let Athens go would profoundly shape her legacy. For months, the notoriously cautious Merkel has been wrestling with the question of whether to risk a “Grexit” and accept the financial, economic and geopolitical backlash it would surely unleash.

Unlike her finance minister, Wolfgang Schaeuble, who sent abundant signals in recent months that he could accept a euro zone that does not include Greece, Merkel has been determined to avoid such an outcome, according to her closest advisers. If Greece ends up leaving the euro zone anyway, many in Germany and elsewhere will blame the left-wing government of Greek Prime Minister Alexis Tsipras that came to power in January. It has infuriated its partners with what they have perceived to be an erratic, confrontational stance in the debt talks. Tsipras’s call on Friday for a referendum on Europe’s latest bailout offer, only days before Greece is due to run out of cash, made it easy for Merkel, 60, to say enough is enough, and threaten to pull the plug once and for all.

But it will be Merkel, more than any other European leader, who will have to sort through the rubble of a “Grexit” and answer the question of why disaster was not averted. A Greek exit could lead to a humanitarian crisis on Europe’s southern rim, spark contagion in euro countries that are only just emerging from years of deep recession, and stoke a fiery new debate about German austerity policies and Merkel’s handling of the crisis. Allowing Greece to exit would be by far the boldest move she has taken since coming to power nearly a decade ago, far riskier than her decision in 2011 to phase out nuclear power.[..]

France has toed the German line until now. But at a decisive meeting of euro zone finance ministers on Saturday, France broke with Germany and other countries, arguing in favor of extending Greece’s bailout to allow a referendum to take place, euro zone officials said. The French were slapped down and the Greek request for an extension denied. Now Merkel, barring a miraculous eleventh hour deal with Athens, must face the consequences.

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Incredibly tragic.

The Greeks For Whom All The Talk Means Nothing – Because They Have Nothing (G.)

On a steep, gardenia-scented street in the north-eastern Athens suburb of Gerakas, in one corner of a patch of bare ground, stands a small caravan. Plastic mesh fencing – orange, of the kind builders use – encloses a neat garden in which peppers, courgettes, lettuces and beans grow in well-tended raised beds. Flowers, too. The caravan is old, but spotless. It is home to Georgios Karvouniaris, 61, and his sister Barbara, 64, two Greeks for whom all the Brussels wrangling over VAT rates, corporation tax and pension reforms has meant nothing – because they have nothing, no income of any kind.

Next Sunday’s referendum – which, if the country stays solvent that long, will either send Greece back to the negotiating table with its creditors or precipitate its exit from the eurozone – is unlikely to affect them much either. “I do not see how any of it will change our lives. I have no hope, anyway,” said Georgios, sitting in a scavenged plastic garden chair beneath a parasol liberated from a skip. After seven years of a crisis that has left 26% of Greece’s workforce unemployed, 30% of its people below the poverty line, 17% unable to meet their daily food needs and 3.1 million without health insurance, it is hard to see how anything decided in Brussels or in Athens in the coming week will do much to change the lives of a large number of Greeks any time soon.

“Those that were already on the margins have been pushed right to the very, very edge, and those who were in the middle have been pushed to the margins,” said Ioanna Pertsinidou of Praksis, a charity that runs day centres for vulnerable people and offers legal and employment advice. “So many people – ordinary, low-to-middle income people with jobs and homes and their lives on track – have seen their lives go drown the drain so fast,” Pertsinidou said. “People who never dreamed that one day they would not be able to pay their electricity bill, or feed their children properly.”

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“The troika clearly did a reverse Corleone — they made Tsipras an offer he can’t accept..”

Grisis (Paul Krugman)

OK, this is real: Greek banks closed, capital controls imposed. Grexit isn’t a hard stretch from here — the much feared mother of all bank runs has already happened, which means that the cost-benefit analysis starting from here is much more favorable to euro exit than it ever was before. Clearly, though, some decisions now have to wait on the referendum. I would vote no, for two reasons. First, much as the prospect of euro exit frightens everyone – me included – the troika is now effectively demanding that the policy regime of the past five years be continued indefinitely. Where is the hope in that? Maybe, just maybe, the willingness to leave will inspire a rethink, although probably not.

But even so, devaluation couldn’t create that much more chaos than already exists, and would pave the way for eventual recovery, just as it has in many other times and places. Greece is not that different. Second, the political implications of a yes vote would be deeply troubling. The troika clearly did a reverse Corleone — they made Tsipras an offer he can’t accept, and presumably did this knowingly. So the ultimatum was, in effect, a move to replace the Greek government. And even if you don’t like Syriza, that has to be disturbing for anyone who believes in European ideals.

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Another useless number from El-Erian. RBS just said 40%. Equally void of meaning.

El-Erian: 85% Grexit Odds as ‘Massive’ Contraction Looms (Bloomberg)

Greece is heading for a “massive economic contraction” and is likely to be forced out of the euro zone, according to Mohamed El-Erian, the former chief executive at Pimco. Greece shut its banks and imposed capital controls in a dead-of-night announcement designed to avert the collapse of its financial system after a weekend of turmoil. People rushed to line up at ATMs and gas stations following Prime Minister Alexis Tsipras’s shock announcement late Friday of a July 5 referendum on austerity measures demanded by the country’s creditors. “There’s an 85% probability that Greece will be forced to leave the euro zone” in the next few weeks, El-Erian said in an interview from New York.

“What we are seeing here is what economists call the sudden stop, when the payment system stops. The logic of a sudden stop is a massive economic contraction, social unrest and it’s going to make continued membership of the euro zone very difficult for Greece.” The euro dropped more then 1% and Treasuries surged by the most since 2011 as the collapse of Greek rescue talks roiled global markets. The lack of trust on both sides now makes it very hard to see how there can be an agreement that would resolve the impasse, said El-Erian, who worked at the IMF from 1983 to 1997.

“This has been an accident in the making for a number of years,” said El-Erian, who is also a Bloomberg View columnist. “It reflects an inability to understand each other’s point of view and an inability to compromise. Europe should have been much more forthcoming on debt reduction and Greece should have been much more forthcoming on implementing reforms.” El-Erian said the ECB will be a key player in trying to contain fallout across the region as the crisis threatens to undo much of the work that President Mario Draghi has done to shore up confidence in the euro as a leading currency of global trade.

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Long predicted, now reality.

Chinese Stocks Crash Most In 19 Years Despite PBOC Hail Mary (Zero Hedge)

Carnage…

*CHINA STOCK PANIC SELLING TO CONTINUE, CENTRAL CHINA ZHANG SAYS

This leave China’s CSI-300 broad stock index futures up just 7% year-to-date…

*CHINA CSI 500 STOCK-INDEX FUTURES FALL BY MAXIMUM 10% LIMIT
*CHINA CSI 500 STOCK-INDEX FUTURES FALL BY LIMIT FOR 2ND DAY

*SHANGHAI COMPOSITE INDEX EXTENDS DROP TO 7.5%
*SHANGHAI COMPOSITE HEADS FOR BIGGEST 3-DAY DROP SINCE 1996

The bounce is dead. CHINEXT – China’s tech-heavy high beta ‘Nasdaq’ – is down 5-6% today, 19% in 3 days, and 33% from highs in early June…!

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XI and Li better think of something, fast.

A China Market Crash “Poses Great Danger To Social Stability” (Zero Hedge)

While Greece has understandably been the focal news event over the weekend – after all it has been 5 years in the making – let’s not forget that in another massive move, one geared squarely to prevent a market collapse and to avoid even further panic, the Chinese central bank cut both its policy rate and the reserve rate in a dramatic push to calm down markets after a 10% crash in just two trading days. Which, incidentally, shows that after the Fed, the BOE, the SNB, the BOJ and the ECB, the PBOC is the latest bank to have cornered itself in a world where it must inflate the bubble at all costs or face the dire consequences. What consequences? Nomura explains:

The policy easing should be viewed as a measure to contain the risk of a hard landing or systemic crisis rather than one to achieve faster growth. In this case, the stronger-than-expected monetary easing may help stem the decline in the equity market following a 10.6% drop over the past two trading days. The positive wealth effect of the equity market on consumption or aggregate demand is limited in China, but an equity market collapse would hurt millions of mid-class households and pose great danger to the economy and social stability.

And there you have it: just like all other central banks, the opportunity cost to markets returning to fair value is nothing short of social conflict (as admirably displayed with every passing day in the US) and even, perhaps, civil war. Which means that unlike before, when the bursting of the bubble would merely lead to a few high flying 1%-ers literally flying from the top floor having lost everything, this time the gamble could not have been higher, and when the central banks finally lose control the outcome will be nothing short of war… just as Paul Tudor Jones, Kyle Bass and countless others have warned before.

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No way.

Will Beijing Really Be The Last Rescuer For Everyone In The Stock Market? (SCMP)

The most dangerous idea gaining traction in the Chinese stock market is the naïve consensus among ordinary investors that no matter how bad the market gets, the Communist Party will eventually rescue everyone. The central bank surprised everyone with its announcement on Saturday that it will cut its benchmark deposit and lending rates by 25 basis points – the fourth reduction since November. Meanwhile, it also decided to reduce the reserve requirement ratio at selected banks to further ease liquidity in the banking system. The unusual “double cut” move came just 24 hours after more than US$760 billion was wiped off the value of mainland stocks – equivalent to the market capitalisation of US technology giant Apple.

The reasons for the market crash are complicated, including margin calls, tight liquidity at the end of the month, and panic. Afterwards, the most frequently heard question was, what will the government do to rescue the market. Rescue? Is this really government’s responsibility? China has been through the planned economy model for decades. This is especially ingrained in the generation of my parents, who make up the bulk of individual investors. Just as everything once belonged to the government, many of these people believe the stock market should also belong to the government. So it’s the job of the government – in other words, the Communist Party – to rescue the market.

Unfortunately, many Chinese experts and professors are also promoting this naïve view of the relationship between domestic investors and the government. After the central bank’s moves on Saturday, many experts told state media that they believed the central bank acted mainly to rescue the stock market, given the timing of the decision. Suddenly, investors who felt that Friday was the end of the world – with more than 2,000 stocks sinking – began to talk about what stocks they should buy on Monday morning. “You still don’t get it? It’s now like the government policy that the stock market must go up. Otherwise, why bother asking the central bank to rescue the market?” said one investor in a post on Weibo. Many others echoed his views on the social media network.

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Not a chance.

Does China’s Central Bank Know What It’s Doing? (Bloomberg)

If you think the U.S. Federal Reserve has a problem communicating its intentions, spare a thought for the People’s Bank of China. In the space of a few days, China’s central bank has changed policy twice, and the message was largely unintelligible both times. Does that matter? One answer: Over the past two weeks, thanks partly to confusion over monetary policy, China’s stock market has suffered its biggest drop in almost 20 years. On Thursday, with the stock market already down from its peak, the central bank subtly eased policy with a technical maneuver involving so-called reverse-repurchase agreements. This left investors wondering, “Is that it?” They’d thought a cut in interest rates was coming; when they concluded it wasn’t, stocks plunged.

Afterward, on Saturday, the PBOC not only cut the benchmark interest rate but also eased its reserve requirements – the first time it has done both at once since 2008. So the central bank went from a surprisingly mild adjustment to a surprisingly dramatic one with a stock-market crash in between. And what PBOC Governor Zhou Xiaochuan intended by these moves still isn’t clear. With the economy slowing, a further lowering of interest rates already made sense on macroeconomic grounds. But the timing of the second and larger change in policy suggests that China’s still-overvalued stock market, rather than the slowing economy, is directing policy. Some analysts are even talking about a “Zhou put” – a Chinese version of the notorious “Greenspan put,” supposedly intended to put a floor under stock prices after the crash of 1987. Many argue that it also pushed U.S. interest rates too low for too long.

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More crisis.

Puerto Rico’s Governor Says Island’s Debts Are ‘Not Payable’ (NY Times)

Puerto Rico’s governor, saying he needs to pull the island out of a “death spiral,” has concluded that the commonwealth cannot pay its roughly $72 billion in debts, an admission that will probably have wide-reaching financial repercussions. The governor, Alejandro García Padilla, and senior members of his staff said in an interview last week that they would probably seek significant concessions from as many as all of the island’s creditors, which could include deferring some debt payments for as long as five years or extending the timetable for repayment. “The debt is not payable,” Mr. García Padilla said. “There is no other option. I would love to have an easier option. This is not politics, this is math.”

It is a startling admission from the governor of an island of 3.6 million people, which has piled on more municipal bond debt per capita than any American state. A broad restructuring by Puerto Rico sets the stage for an unprecedented test of the United States municipal bond market, which cities and states rely on to pay for their most basic needs, like road construction and public hospitals. That market has already been shaken by municipal bankruptcies in Detroit; Stockton, Calif.; and elsewhere, which undercut assumptions that local governments in the United States would always pay back their debt. Puerto Rico’s bonds have a face value roughly eight times that of Detroit’s bonds. Its call for debt relief on such a vast scale could raise borrowing costs for other local governments as investors become more wary of lending.

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May 172015
 
 May 17, 2015  Posted by at 10:35 am Finance Tagged with: , , , , , , , , , , , , ,  2 Responses »


Harris&Ewing Painless Dentist, Washington, DC 1918

Most of US Domestic Manufacturing Now in Technical Recession (Tonelson)
When Fools Rush In… (Reuters)
The Coming Crash of All Crashes – but in Debt (Martin Armstrong)
Are You Ready For The Coming Debt Revolution? (Bill Bonner)
Exit Strategy, Part One: ZIRP (Mehrling)
Why Most Gold Bugs Are Dead Wrong (Jim Rickards)
US Wakes Up To New -Silk- World Order (Pepe Escobar)
Tsipras Told Lagarde Greece Could Not Pay IMF (Kathimerini)
Alexis’s Choice (Macropolis)
German EconMin Says Greece Can Only Get More Aid If It Reforms (Reuters)
Top German Judge Says Greece Has Valid Claim Over WWII Forced Loan (Kathimerini)
The 2012 Greek-German Breakthrough That Didn’t Come (Kathimerini)
Banks Rule the World, but Who Rules the Banks? (Katasonov)
Pope Francis Extends Agenda Of Change To Vatican Diplomacy (Reuters)
China’s Amazon Railway Threatens ‘Uncontacted Tribes’ And Rainforest (Guardian)
‘Paddle in Seattle’ Arctic Oil Drilling Protest Targets Shell (BBC)
Early Human Societies Had Gender Equality (Guardian)

Not looking good.

Most of US Domestic Manufacturing Now in Technical Recession (Tonelson)

[..] the durable goods sub-sector – which represents more than half of domestic manufacturing – entered a technical recession (six months or more of cumulative real output decline), and several industries within durable goods extended their slumps. Here are the manufacturing highlights of the Federal Reserve’s new release on April industrial production:

• According to the Fed, constant dollar manufacturing production in April topped March’s level by just 0.01%. March’s real manufacturing output growth was revised up from 0.13% to 0.29%, but February’s initially revised 0.22% decrease was revised down to a 0.24% drop.

• As a result, after-inflation manufacturing output is 0.54% smaller than last November. Moreover, since January, this production has advanced by only 0.05%.

• The April Fed figures also show that durable goods manufacturing entered a technical recession (with real production down cumulatively by 0.32% since October), and such downturns grew longer in several critical durable goods sub-sectors. In particular,

• although inflation-adjusted automotive output rose by a healthy 1.30% on month in April, its production is still 4.22% lower than in July, 2014;

• thanks to a 0.85% monthly decrease in real output in April, machinery production is now down 0.52% since last August;

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“The thing about bubbles is that speculators often realize stocks are overpriced, but think they’ll get out before the crash.”

When Fools Rush In… (Reuters)

If you want to see the greater fool theory in action, look no further than at what’s happening in the stock market. Since the year 2000 the average small-cap stock in the Russell 2000 Index is up 151% while the average blue chip in the Dow Jones Industrial Average has gained only 57%. As a result, small-cap stocks now seem absurdly overpriced. According to investment research firm MSCI, the average small-cap stock’s price-earnings ratio is 29. The historical average P/E for stocks is about 15.

That’s why GMO, a well-respected mutual fund shop, recently put out one of its grimmest forecasts for small stocks — returns of -1% annualized for the next seven years or -3.2% after deducting inflation. High quality blue chips, by contrast, are expected to deliver 2.7% a year. Yet investors keep pouring money into small-caps. According to Morningstar, small-cap exchange traded funds have experienced $3.3 billion in inflows in 2015 while large-cap ones have seen $35.9 billion in outflows in 2015. The thing about bubbles is that speculators often realize stocks are overpriced, but think they’ll get out before the crash. Both fools and angels know that’s always easier said than done.

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“Banks will give secured car loans at around 4% while their cost of funds is really 0%. This is the widest spread since the Panic of 1899.”

The Coming Crash of All Crashes – but in Debt (Martin Armstrong)

Why are governments rushing to eliminate cash? During previous recoveries following the recessionary declines from the peaks in the Economic Confidence Model, the central banks were able to build up their credibility and ammunition so to speak by raising interest rates during the recovery. This time, ever since we began moving toward Transactional Banking with the repeal of Glass Steagall in 1999, banks have looked at profits rather than their role within the economic landscape. They shifted to structuring products and no longer was there any relationship with the client. This reduced capital formation for it has been followed by rising unemployment among the youth and/or their inability to find jobs within their fields of study.

The VELOCITY of money peaked with our ECM 1998.55 turning point from which we warned of the pending crash in Russia. The damage inflicted with the collapse of Russia and the implosion of Long-Term Capital Management in the end of 1998, has demonstrated that the VELOCITY of money has continued to decline. There has been no long-term recovery. This current mild recovery in the USA has been shallow at best and as the rest of the world declines still from the 2007.15 high with a target low in 2020, the Federal Reserve has been unable to raise interest rates sufficiently to demonstrate any recovery for the spreads at the banks between bid and ask for money is also at historical highs. Banks will give secured car loans at around 4% while their cost of funds is really 0%. This is the widest spread between bid and ask since the Panic of 1899.

We face a frightening collapse in the VELOCITY of money and all this talk of eliminating cash is in part due to the rising hoarding of cash by households both in the USA and Europe. This is a major problem for the central banks have also lost control to be able to stimulate anything.The loss of traditional stimulus ability by the central banks is now threatening the nationalization of banks be it directly, or indirectly. We face a cliff that government refuses to acknowledge and their solution will be to grab more power – never reform.

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“..grandparents prey on their grandchildren..”

Are You Ready For The Coming Debt Revolution? (Bill Bonner)

There is a specter haunting America… and all the developed nations of the world. It is the specter of a debt revolution. We left off yesterday talking about how the economy of the last 30 years – and especially that of the last six years – has favored the old over the young. “Rise up, ye young’uns,” we as much as said, “you have nothing to lose but your parents’ debts.” We showed how the value of U.S. corporate equity, mainly held by older people, had multiplied by 28 times since 1981. That was no honest bull market in stocks; it was a market sent soaring by an explosion of credit. But what did it do for young people whose only assets are their time and their youthful energy? Alas, the real economy has increased by only five times over the same period.

And when you look more closely at work and wages, the specter grows grimmer and more menacing. Average hourly wages have barely budged in the last 30 years. And average household incomes have fallen – from $57,000 to $52,000 – in the 21st century. But as our fingers came to rest yesterday, there was one question hanging in the air, like the smoke from an exploded hand grenade: Why? Was this huge shift – of trillions of dollars of wealth from young working people to old asset holders – an accident? Was it just the maturing of a market economy in the electronic age? Was it because China took the capitalist road in 1979? Or because robots were competing with young people for jobs? Nope… on all three counts.

First, old people, not young people, control government. Ultra-wealthy campaign funders like Sheldon Adelman and the Koch brothers were all born in the 1930s. The big money comes from wealthy geezers like these, eager to buy candidates early in the season when they are still relatively cheap. Old companies fund most Washington lobbyists, too. And old people decide elections: There are a lot of them… and they vote. They know where the money is. Second, the government – doing the bidding of old people – restricts competition, subsidizes well-entrenched industries, raises the cost of employing young people, and directs its bailouts, cheap credit, and contracts to the graybeards. Third, the credit-based money system increases the profits and prices of existing capital. It encourages borrowing and spending.

This rewards the current generation while pushing the costs into the future. None of this was an accident. None of it would have happened without the active intervention of the old folks, using the government to get what they could never have gotten honestly. This is not the same as saying they were completely aware of what they were doing and what consequences their actions would have. We doubt the Nixon administration had any idea what would happen after it tore up the Bretton Woods monetary system in 1971. It was behind the eight ball, fearing foreign governments would call away America’s gold. Few in the White House realized they had made such a calamitous mistake when the president ended the convertibility of the dollar into gold.

And yet it created a world in which parents and grandparents could prey on their grandchildren… for the next 44 years. And it’s still not over. The new credit money – which could be borrowed into existence with no need for any savings or gold backing – was just what old people needed. We have estimated that it increased spending by about $33 trillion over and above what the old, gold-backed system would have allowed.

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Rates must rise first.

Exit Strategy, Part One: ZIRP (Mehrling)

The Fed has announced plans to raise rates in the imminent future, but the market does not believe it. Why not? Conventional wisdom appears to be that the Fed will chicken out, just as it did during the so-called Taper Tantrum. The Fed has signaled its appreciation that “liftoff” will involve increased volatility, and has stated its resolve this time simply to let that volatility happen, but markets don’t believe it. I want to suggest a slightly different source of disconnect, concerning expectations about what exactly will happen in the monetary plumbing when the Fed raises rates. Case in point is the recent Credit Suisse memo, apparently the first of a series, that forecasts “a much larger RRP facility–think north of a trillion” whereas the FOMC itself “expects that it will be appropriate to reduce the capacity of the [RRP] facility soon after it commences policy firming”.

That’s a pretty big disconnect. Pozsar and Sweeney (authors of the CS memo) think about the exit from ZIRP (Zero Interest Rate Policy) from the perspective of wholesale money demand, which they insist is “a structural feature of the system” and “the dominant source of funding in the US money market”. Before the crisis, that money demand was funding the shadow banking system, largely through the intermediation of repo dealer balance sheets. Now, it is funding the Fed’s balance sheet, largely through the intermediation of prime money funds and US bank balance sheets, both of which issue money-like liabilities and invest the proceeds in excess reserves held at the Fed. The big problem that now looms is that neither prime money funds nor banks want that business any more.

Capital regulations have made the bank side of the business unprofitable, and looming requirements that prime money funds mark to market (so-called floating NAV rather than constant NAV) will force them out of the business as well. Where is that money demand going to go? Pozsar and Sweeney say it will go directly to the Fed, causing the swelling of the Reverse Repo Facility pari passu with the shrinking of excess reserves. The mechanism will be a shift from prime money funds and bank deposits into government-only money funds, which will absorb the flow by accumulating RRP.

In other words, the Fed will not be able to shrink its balance sheet as part of this first stage of exit from quantitative easing. It will only be able to shift the way that balance sheet is funded–much less excess reserves held by banks, much more RRP held by government-only money funds. Nevertheless, because this shift will allow the Fed to regain control over the Fed Funds rate, it will accept that consequence. Exit from ZIRP comes before exit from QE.

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“China is not trying to destroy the old boys’ club — they are trying to join it.”

Why Most Gold Bugs Are Dead Wrong (Jim Rickards)

One of the most persistent story lines among gold bugs and market participants who foresee the collapse of the dollar goes something like this: China and many emerging markets including the other BRICS are looking for a way out of the global fiat currency system. That system is dominated today by the U.S. dollar. This dollar dominance allows the U.S. to force certain kinds of behavior in foreign policy and energy markets. Countries that don’t comply with U.S. wishes find themselves frozen out of global payment systems and find their banks unable to transact in dollars for needed imports or to get paid for their exports. Russia, Iran, and Syria have all been subjected to this treatment recently. China does not like this system any more than Russia or Iran but is unwilling to confront the U.S. head-on.

Instead, China is quietly accumulating massive amounts of gold and building alternative financial institutions such as the Asia Infrastructure Investment Bank, AIIB, and the BRICS-sponsored New Development Bank, NDB. When the time is right, China will suddenly announce its actual gold holdings to the world and simultaneously turn its back on the Bretton Woods institutions such as the IMF and World Bank. China will back its currency with its own gold and use the AIIB and NDB and other institutions to lead a new global financial order. Russia and others will be invited to join the Chinese in this new international monetary system. As a result, the dollar will collapse, the price of gold will skyrocket, and China will be the new global financial hegemon. The gold bugs will live happily ever after. The only problem with this story is that the most important parts of it are wrong. As usual, the truth is much more intriguing than the popular version.

Here’s what’s really going on. As with most myths, parts of the story are true. China is secretly acquiring thousands of tons of gold. China is creating new multilateral lending institutions. No doubt, China will announce an upward revision in its official gold holdings sometime in the next year or so. In fact, Bloomberg News reported on April 20, 2015, under the headline “The Mystery of China’s Gold Stash May Soon Be Solved,” that “China may be preparing to update its disclosed holdings…” But the reasons for the acquisition of gold and the updated disclosures, if they happen, are not the ones the blogosphere believes. China is not trying to destroy the old boys’ club — they are trying to join it.

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Precious little has been reported on Kerry’s trip to Sochi, even though it was a big turnaround.

US Wakes Up To New -Silk- World Order (Pepe Escobar)

The real Masters of the Universe in the U.S. are no weathermen, but arguably they’re starting to feel which way the wind is blowing. History may signal it all started with this week’s trip to Sochi, led by their paperboy, Secretary of State John Kerry, who met with Foreign Minister Lavrov and then with President Putin. Arguably, a visual reminder clicked the bells for the real Masters of the Universe; the PLA marching in Red Square on Victory Day side by side with the Russian military. Even under the Stalin-Mao alliance Chinese troops did not march in Red Square. As a screamer, that rivals the Russian S-500 missile systems. Adults in the Beltway may have done the math and concluded Moscow and Beijing may be on the verge of signing secret military protocols as in the Molotov-Ribbentrop pact.

The new game of musical chairs is surely bound to leave Eurasian-obsessed Dr. Zbig “Grand Chessboard” Brzezinski apoplectic. And suddenly, instead of relentless demonization and NATO spewing out “Russian aggression!” every ten seconds, we have Kerry saying that respecting Minsk-2 is the only way out in Ukraine, and that he would strongly caution vassal Poroshenko against his bragging on bombing Donetsk airport and environs back into Ukrainian “democracy”. The ever level-headed Lavrov, for his part, described the meeting with Kerry as “wonderful,” and Kremlin spokesman Dmitry Peskov described the new U.S.-Russia entente as “extremely positive”.

So now the self-described “Don’t Do Stupid Stuff” Obama administration, at least apparently, seems to finally understand that this “isolating Russia” business is over – and that Moscow simply won’t back down from two red lines; no Ukraine in NATO, and no chance of popular republics of Donetsk and Lugansk being smashed, by Kiev, NATO or anybody else. Thus what was really discussed – but not leaked – out of Sochi is how the Obama administration can get some sort of face-saving exit out of the Russian western borderland geopolitical mess it invited on itself in the first place.

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Who leaks what, and why?

Tsipras Told Lagarde Greece Could Not Pay IMF (Kathimerini)

The Greek government is hoping that it will be able to reach a technical agreement with lenders this week, paving the way for it to receive the funds that would allow it to continue meeting its obligations. The difficulty the coalition is facing in servicing its debt and paying pensions and salaries was highlighted by events a few days ago, when – as Kathimerini can reveal – Prime Minister Alexis Tsipras wrote to IMF Managing Director Christine Lagarde to inform her that Athens would not be able to pay the €750 million due to the Fund on May 12 unless the ECB allowed Greece to issue T-bills. Kathimerini understands that the letter, sent on Friday, May 8, was also delivered to European Commission President Jean-Claude Juncker and ECB President Mario Draghi.

Sources also said that Tsipras called US Treasury Secretary Jack Lew to inform him of the situation. It was only over the weekend that a decision to pay the IMF was taken after it emerged that Greece could use some €650 million denominated in Special Drawing Rights issued by the IMF and held in a reserve account to meet the debt repayment. The government provided another €90 millions from other sources to make the payment on May 12. An internal IMF memo leaked by Channel 4 in the UK indicated that Fund officials see Greece’s negotiations with its lenders as being finely balanced. They note that some progress has been made but that the “process is still problematic” as Greek negotiators seem to have “limited room” for maneuver and staff at the institutions do not have access to ministers in Athens.

The note sees progress in the areas of value-added tax, tax administration and an insolvency framework but says that there have been no advances at all in other areas, including on setting new fiscal targets. The IMF officials also express concern that the government is reversing some of the reforms implemented in previous years, especially in terms of the labor market. The memo also raises again the issue of the sustainability of Greece’s debt, saying that there is an “inverse relationship” between the reforms being asked of Greece and the sustainability of its debt. The note, however, says that the Fund is not “pushing European partners to consider a debt relief.”

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He had always already chosen his path.

Alexis’s Choice (Macropolis)

Alexis Tsipras seems to have chosen his path. Whether he will manage to reach the end of it is another matter, but the prime minister’s decision to shake up Greece’s negotiating team and to issue a common statement with European Commission President Jean-Claude Juncker last week made it clear that he prefers the option of agreeing with lenders rather than being left in limbo, or worse. Securing a deal will be some feat. The suggestion last week that the red lines on pensions and labour market reform may be crossed would mean Tsipras entering treacherous territory. It is worth remembering that less than six months ago, his predecessor Antonis Samaras was unwilling – or not able – to pass pension and labour reforms through Parliament, triggering the early presidential election and national vote.

If Tsipras is somehow able to agree to a package that includes policies in these two areas, but is also able to pass it through Parliament and keep his government intact, he will have perhaps completed the most impressive balancing act in modern Greek political history. Whether he is able to do it will depend on the content of the agreement. If most of the measures agreed are seen as restoring fairness in the way that the burden of Greece’s fiscal and structural adjustment is shared, he will have some grounds to argue with SYRIZA MPs and members that the compromise is worth making and the anxiety of the last few months has not been in vain.

However, while the party may accept some of the measures – even the creation of a single VAT rate of around 18% for almost all goods and services – it is difficult to imagine SYRIZA’s most radical personalities sitting back and accepting changes that will affect the majority of pensioners or working Greeks. There is a world of difference between slashing high-end supplementary pensions and having to implement a zero deficit rule that will lead to all of these auxiliary payments being cut or abolished – even though the vast majority come to less than €200 per month. Once Tsipras and his party go behind closed doors to mull the details of an agreement with the institutions (if one actually comes about), there can be no guarantee of what state they will be in when they come out.

There may be a mass walkout, or a few of the more principled or ideologically driven MPs could decide to turn their back on the prime minister. The first scenario would probably lead to the collapse of the government (Tsipras is unlikely to turn to PASOK or Potami to save his administration), while the second would allow the wounded prime minister to hobble on. The third option of holding a referendum to throw the decision back to the Greek electorate is a popular idea among many within SYRIZA but is unlikely to be a risk that Tsipras wants to take.

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Regurgitating parrots.

German EconMin Says Greece Can Only Get More Aid If It Reforms (Reuters)

German Economy Minister Sigmar Gabriel warned the Greek government that Greece could only get further funds if it carried out reforms in a German newspaper interview published on Sunday. Greece’s cash reserves are dwindling and negotiations between Prime Minister Alexis Tsipras’s new left-led government and its lenders over a cash-for-reforms deal have been fraught with delays for months. Asked if Greece could still be saved, Gabriel told Bild am Sonntag that this was up to Athens and said a referendum on the necessary reforms could perhaps speed up decisions. On Monday German Finance Minister Wolfgang Schaeuble suggested Greece might need a referendum to approve painful economic reforms on which its creditors are insisting, but Athens said it had no such plan for now.

Gabriel stressed that the government needed to take action in any case: “A third aid package for Athens is only possible if the reforms are implemented. We can’t simply send money there.” He warned about the consequences of Greece quitting the single currency bloc, saying: “A Greek exit would not only be highly dangerous economically but also politically.” Gabriel said if one country were to leave the euro zone, the rest of the world would look at Europe differently: “Nobody would have any confidence in Europe anymore if we break up in our first big crisis. We shouldn’t talk ourselves into a Grexit.”

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There are videos playing in Athens subway stations that deal with war reparations.

Top German Judge Says Greece Has Valid Claim Over WWII Forced Loan (Kathimerini)

A top German judge has said that Greece has a just claim in its demands for Berlin to repay a loan Athens was forced to issue its Nazi occupiers during World War II. In an interview with Der Spiegel magazine published on Saturday, Dieter Deiseroth, a judge at the Supreme Administrative Court, said that the Greek claim for compensation regarding the money given by the Bank of Greece (estimated at some 11 billion euros in today’s money) has a strong basis as “there’s a lot of evidence to suggest it was a loan.” Deiseroth also argued that private claims for compensation are also valid. “Greece has not waived its demands,” said the judge, who added that an absence of legal action from Athens so far does not constitute an abandoning of claims.

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Part 3 in a series on Merkel and Greece.

The 2012 Greek-German Breakthrough That Didn’t Come (Kathimerini)

Even after the formation of the pro-bailout government under Antonis Samaras following the June 2012 elections, eurozone hawks continued to press for a clean break from Greece. The same pressure was also being applied within the German government: The “infected limb” camp, led by Finance Minister Wolfgang Schaeuble, tried to convince Chancellor Angela Merkel that a Greek exit from the eurozone was not only manageable but also in Europe’s long-term interest. This was the time the so-called Plan Z (leaked to the Financial Times last year) was also put forward. The circle of officials who knew about this contingency plan for handling a Greek eurozone exit was tiny. Joerg Asmussen, Germany’s former state secretary at the Finance Ministry and a member of the ECB’s executive board since the start of 2012, was one of its main overseers.

Asmussen had briefed Merkel on the plan, but the Chancellery had played no role in designing it. In the opposing camp were those who feared a domino effect, arguing that a Greek exit would lead to the collapse of the eurozone. Asmussen and Merkel’s former adviser, Bundesbank chief Jens Weidmann, told the chancellor that they could not know which of the two camps was right. They questioned whether it was possible to shield Portugal from possible Grexit. Merkel became convinced that the risks of a rupture were unpredictably high. By the time she returned from her summer hiking holiday in northern Italy in mid-August, the chancellor had decided to put an end to all discussion of a Greek exit. However, she still needed a partner in Athens she could count on. A few days later she was due to meet with Samaras in Berlin, to ascertain whether he was someone she could do business with.

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A circle jerk that leaves the highest levels invisible.

Banks Rule the World, but Who Rules the Banks? (Katasonov)

These days, it is already a truism that the hegemony of the US is based on the Federal Reserve System’s (FRS) printing press. It is also more or less clear that the shareholders of the FRS are major international banks. These include not just US (Wall Street) banks, but also European banks (London City banks and several in continental Europe). During the 2007-2009 global financial crisis, the FRS quietly gave out more than $16 trillion worth of credit (virtually interest free) to various banks. The owners of the money gave out the credit to themselves, that is to the main shareholder banks of the Federal Reserve. Under strong pressure from US Congress, a partial audit of the FRS was carried out at the beginning of this decade and the results were published in the summer of 2011. The list of credit recipients is also a list of the FRS’ main shareholders.

They are as follows (the amount of credit received is shown in brackets in billions of dollars): Citigroup (2,500); Morgan Staley (2,004); Merrill Lynch (1,949); Bank of America (1,344); Barclays PLC (868); Bear Sterns (853); Goldman Sachs (814); Royal Bank of Scotland (541); JP Morgan (391); Deutsche Bank (354); Credit Swiss (262); UBS (287); Leman Brothers (183); Bank of Scotland (181); and BNP Paribas (175). It is interesting that a number of the recipients of FRS credit are not American, but foreign banks: British (Barclays PLC, Royal Bank of Scotland, Bank of Scotland); Swiss (Credit Swiss, UBS); the German Deutche Bank; and the French BNP Paribas. These banks received nearly $2.5 trillion from the Federal Reserve. We would not be mistaken in assuming that these are the Federal Reserve’s foreign shareholders.

While the makeup of the Federal Reserve’s main shareholders is more or less clear, however, the same cannot be said of the shareholders of those banks who essentially own the FRS’ printing press. Who exactly are the shareholders of the Federal Reserve’s shareholders? To begin with, let us take a good look at the leading US banks. Six banks currently represent the core of the US banking system. The ‘big six’ includes Bank of America, JP Morgan Chase, Morgan Stanley, Goldman Sachs, Wells Fargo, and Citigroup. They occupy the top spots in US bank ratings in terms of indices such as amount of capital, controlled assets, deposits attracted, capitalisation and profit. If we were to rank the banks in terms of assets, then JP Morgan Chase would be in first place ($2,075 billion at the end of 2014), while Wells Fargo is in the lead in terms of capitalisation ($261.7 billion in the autumn of 2014).

In terms of this index, incidentally, Wells Fargo came out on top not only in America, but in the world (although in terms of assets, the bank is only fourth in America and does not even figure in the world’s top twenty). There is some shareholder information on the official websites of these banks. The bulk of the big six US banks’ capital is in the hands of so-called institutional shareholders – various financial companies. These include banks, which means there is cross shareholding. At the beginning of 2015, the number of institutional shareholders of each bank were: Bank of America – 1,410; JP Morgan Chase – 1,795; Morgan Stanley – 826; Goldman Sachs – 1,018; Wells Fargo – 1,729; and Citigroup – 1,247. Each of these banks also has a fairly clear group of major investors (shareholders). These are investors (shareholders) with more than one per cent of capital each and there are usually between 10 and 20 such shareholders. It is striking that exactly the same companies and organisations appear in the group of major investors for every bank.

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Above all parties, and above all politics. A unique position.

Pope Francis Extends Agenda Of Change To Vatican Diplomacy (Reuters)

Pope Francis’ hard-hitting criticisms of globalization and inequality long ago set him out as a leader unafraid of mixing theology and politics. He is now flexing the Vatican’s diplomatic muscles as well. Last year, he helped to broker an historic accord between Cuba and the United States after half a century of hostility. This past week, his office announced the first formal accord between the Vatican and the State of Palestine — a treaty that gives legal weight to the Holy See’s longstanding recognition of de-facto Palestinian statehood despite clear Israeli annoyance. The pope ruffled even more feathers in Turkey last month by referring to the massacre of up to 1.5 million Armenians in the early 20th century as a “genocide”, something Ankara denies.

After the inward-looking pontificate of his scholarly predecessor, Pope Benedict, Francis has in some ways returned to the active Vatican diplomacy practiced by the globetrotting Pope John Paul II, widely credited for helping to end the Cold War. Much of his effort has concentrated on improving relations between different faiths and protecting the embattled Middle East Christians, a clear priority for the Catholic Church. However in an increasingly fractured geopolitical world, his diplomacy is less obviously aligned to one side in a global standoff between competing blocs than that of John Paul’s 27-year-long papacy.

This is reinforced by his status as the world’s first pope from Latin America, a region whose turbulent history, widespread poverty and love-hate relationship with the United States has given him an entirely different political grounding from any of his European predecessors. “Under this pope, the Vatican’s foreign policy looks South,” said Massimo Franco, a prominent Italian political commentator and author of several books on the Vatican. He said the pope has been careful to avoid taking sides on issues like Ukraine, where he has never defined Russia as an aggressor, but has always referred to the conflict between the government and Moscow-backed rebels as a civil war.

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China buys the world as its economy is self-destructing. How do you explain that to your grandchildren?

China’s Amazon Railway Threatens ‘Uncontacted Tribes’ And Rainforest (Guardian)

Chinese premier Li Keqiang is to push controversial plans for a railway through the Amazon rainforest during a visit to South America next week, despite concerns about the possible impact on the environment and on indigenous tribes. Currently just a line on a map, the proposed 5,300km route in Brazil and Peru would reduce the transport costs for oil, iron ore, soya beans and other commodities, but cut through some of the world’s most biodiverse forest. The six-year plan is the latest in a series of ambitious Chinese infrastructure projects in Latin America, which also include a canal through Nicaragua and a railway across Colombia. The trans-Amazonian railway has high-level backing.

Last year, President Xi Jinping signed a memorandum on the project with his counterparts in Brazil and Peru. Next week, during his four-nation tour of the region starting on Sunday, Li will, according to state-run Chinese media, suggest a feasibility study. Starting near Açu Port in Rio de Janeiro state, the proposed track would connect Brazil’s Atlantic coast with Peru’s Pacific coast, via the states of Goiás, Mato Grosso and Rondônia. The logistical challenges are considerable because the line will pass through dense forest, swamps and then either desert or mountains (there are two options for the Peruvian end of the route), as well as areas of conflict between tribes and drug traffickers.

Near the Bolivian border, it will come close to the “Devil’s Railway”, an ill-fated link built in 1912 between Porto Velho in Brazil and Guajará-Mirim in Bolivia. It cost 6,000 lives and was barely used after the collapse of the rubber industry. Financing is likely to come from the China Development Bank, with construction carried out by local firms and the China International Water and Electric Corporation. China’s involvement is partly explained by a desire to reduce freight costs, but it also hopes to create business for domestic steel and engineering firms that have been hit by the slowdown of the Chinese economy.

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Done deal. Unless prices go to $20.

‘Paddle in Seattle’ Arctic Oil Drilling Protest Targets Shell (BBC)

Hundreds of people in kayaks and small boats have staged a protest in the north-western US port city of Seattle against oil drilling in the Arctic by the Shell energy giant. Paddle in Seattle was held by activists who said the firm’s drilling would damage the environment. It comes after the first of Shell’s two massive oil rigs arrived at the port. The firm wants to move them in the coming months to explore for oil off Alaska’s northern coast. Earlier this week, Shell won conditional approval from the US Department of Interior for oil exploration in the Arctic. The Anglo-Dutch company still must obtain permits from the federal government and the state of Alaska to begin drilling. It says Arctic resources could be vital for supplying future energy needs.

A solar-powered barge – The People’s Platform – joined the protesters, who chanted slogans and also sang songs. “This weekend is another opportunity for the people to demand that their voices be heard,” Alli Harvey, Alaska representative for the Sierra Club’s Our Wild America campaign, was quoted as saying by the Associated Press news agency. “Science is as clear as day when it comes to drilling in the Arctic – the only safe place for these dirty fuels is in the ground.” The protesters later gathered in formation and unveiled a big sign which read “Climate justice now”. They mostly stayed outside the official 100-yard (91m) buffer zone around the Polar Pioneer, the Seattle Times newspaper reports. Police and coastguard monitored the flotilla, saying it was peaceful.

The demonstrators are now planning to hold a day of peaceful civil disobedience on Monday in an attempt to shut down Shell operations in the port, the newspaper adds. The port’s Terminal 5 has been at the centre of a stand-off between environmentalists and the city authorities after a decision earlier this year to allow Shell use the terminal as a home base for the company’s vessels and oil rigs. Shell stopped Arctic exploration more than two years ago after problems including an oil rig fire and safety failures. The company has spent about $6bn on exploration in the Arctic – a region estimated to have about 20% of the world’s undiscovered oil and gas.

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Agriculture killed off women’s equal status. And we’re still paying a dear price for that.

Early Human Societies Had Gender Equality (Guardian)

Our prehistoric forebears are often portrayed as spear-wielding savages, but the earliest human societies are likely to have been founded on enlightened egalitarian principles, according to scientists. A study has shown that in contemporary hunter-gatherer tribes, men and women tend to have equal influence on where their group lives and who they live with. The findings challenge the idea that sexual equality is a recent invention, suggesting that it has been the norm for humans for most of our evolutionary history. Mark Dyble, an anthropologist who led the study at University College London, said: “There is still this wider perception that hunter-gatherers are more macho or male-dominated. We’d argue it was only with the emergence of agriculture, when people could start to accumulate resources, that inequality emerged.”

Dyble says the latest findings suggest that equality between the sexes may have been a survival advantage and played an important role in shaping human society and evolution. “Sexual equality is one of a important suite of changes to social organisation, including things like pair-bonding, our big, social brains, and language, that distinguishes humans,” he said. “It’s an important one that hasn’t really been highlighted before.” The study, published in the journal Science, set out to investigate the apparent paradox that while people in hunter-gatherer societies show strong preferences for living with family members, in practice the groups they live in tend to comprise few closely related individuals.

The scientists collected genealogical data from two hunter-gatherer populations, one in the Congo and one in the Philippines, including kinship relations, movement between camps and residence patterns, through hundreds of interviews. In both cases, people tend to live in groups of around 20, moving roughly every 10 days and subsisting on hunted game, fish and gathered fruit, vegetables and honey. [..] The authors argue that sexual equality may have proved an evolutionary advantage for early human societies, as it would have fostered wider-ranging social networks and closer cooperation between unrelated individuals. “It gives you a far more expansive social network with a wider choice of mates, so inbreeding would be less of an issue,” said Dyble. “And you come into contact with more people and you can share innovations, which is something that humans do par excellence.”

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May 092015
 
 May 9, 2015  Posted by at 11:07 am Finance Tagged with: , , , , , , , ,  11 Responses »


Arthur Rothstein Steam shovels on flatcars, Cherokee County, Kansas 1936

Wall Street Soars On Hopes Of Fed Reprieve, Yet Sting In The Tail (AEP)
Wall Street Is One Sick Puppy (David Stockman)
Currencies’ Wild Ride to Get Wilder as US Rate Rise Beckons (Bloomberg)
Low Productivity Alarms US Policy Makers (FT)
Countdown To The Stock-Market Crash Of 2016 Is Ticking Louder (Paul B. Farrell)
‘Good’ Jobs Report? 15 Million Unemployed People Want To Work (MarketWatch)
UK Braces for Battle Over Europe After Cameron’s Victory (Bloomberg)
The $364 Billion Real Estate Threat Inside China’s Biggest Banks (Bloomberg)
Deflation Works! (Bill Bonner)
Documents Distributed by Greece’s Varoufakis ‘Baffle’ Eurozone Officials (WSJ)
Illinois Supreme Court Strikes Down Law to Rein in Public Sector Pensions (WSJ)
Democracy Is A Religion That Has Failed The Poor (Guardian)
Petrobras: The Betrayal of Brazil (Bloomberg)
The Clintons and Their Banker Friends- The Wall Street Connection (Nomi Prins)
Germany Spies, US Denies (Bloomberg)
Trans-Pacific Partnership Will Lead To A Global Race To The Bottom (Guardian)
Is There Such A Thing As A Skyscraper Curse? (Economist, March 28)
Global Crime Syndicates Are Buying Expensive Australia Real Estate (Domain)
Australian PM Adviser Exposes Cimate Change As Hoax, Shames All of Science (SBS)

“Markets keep treating weak data as “good news” (because it delays Fed tightening), but there comes a point when the macro-economic malaise does so much damage to earnings that reality catches up.”

Wall Street Soars On Hopes Of Fed Reprieve, Yet Sting In The Tail (AEP)

Pay packets have fallen across the gamut of US industry, manufacturing, and trade over the last two months, greatly reducing the likelihood of any rise in interest rates by the US Federal Reserve until later this year. The Dow Jones index of stocks soared by 260 points to 18,186 in early trading after the US non-farm payrolls report for April revealed that wage pressures remain all but dead in the American labour market. Contracts on the futures markets immediately pushed out the first rate rise for several months, pricing in a 51pc chance of ‘lift-off’ in December. The long-feared inflexion point for the global monetary cycle may have been delayed once again. Emerging market equities rallied strongly on hopes of another six-month reprieve for dollar debtors across the world.

Companies and state entities outside the US have borrowed a record $9 trillion in dollars, leaving them acutely vulnerable to a currency “margin call” triggered by Fed tightening. This dollar leverage has jumped from $2 trillion fourteen years ago. It is heavily concentrated in Brazil, Russia, South Africa, Turkey, China and the rest of emerging Asia. The US generated 223,000 jobs in April and the unemployment rate fell to a 7-year low of 5.4pc, yet the underlying trend remains disappointingly weak. Both overtime and the number of hours worked edged down. The jobs figure for March was revised down sharply to 85,000. The labour participation rate for men is still stuck at 69.4pc, six percentage points lower than it was fifteen years ago and the lowest level since modern data began after WWII.

Had it not been for a surge in pay for financial services – the spill-over from an increasingly frothy asset boom – overall weekly earnings would have dropped for a second month in a row. It is unclear how the Fed will respond this soggy data. Dennis Lockhart, head of the Atlanta Fed, remained hawkish this week, insisting that the economy would soon return to growth rates of 2.5pc to 3pc after grinding to halt in the first quarter. He warned that a rate rise in June was still “in play”, contrary to market assumptions. “I’m still of the view that the conditions will be appropriate in the middle of the year, which we are getting closer to,” he said. Yet the US economy has not yet recovered from a winter shock.

Mr Lockhart’s own advance indicator – the Atlanta Fed’s GDPNow series – suggests that growth has been running at a pace of just 0.8pc in the five weeks to early May. It is below the Fed’s stall speed gauge. China’s exports fell 6.9pc in April from a year earlier and remain shockingly weak. The eurozone’s retail sales unexpectedly slid 0.8pc in March, and Germany’s index of core industrial orders has turned negative. Markets keep treating weak data as “good news” (because it delays Fed tightening), but there comes a point when the macro-economic malaise does so much damage to earnings that reality catches up.

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“..the number of full-time jobs dropped by 252,000 in April – hardly an endorsement of the awesomeness theme.”

Wall Street Is One Sick Puppy (David Stockman)

The robo-traders – both the silicon and carbon based varieties – were raging again today in celebration of a “goldilocks” jobs report. That is, the headline number for April was purportedly strong enough to sustain the “all is awesome” meme, while the sharp downward revision for March to only 85,000 new jobs will allegedly enable the Fed to kick-the-can yet again – this time until its September meeting. As one Cool-Aid drinker put it, ‘“Probably best scenario in which the market was hoping for growth but not (so strong) that the Fed needs to hike in June,” said Ryan Larson at RBC Global Asset Management.’ Today’s knee jerk rip, of course, is the fifth one of roughly this magnitude since February 20th, but its all been for naught.

The headline based rips have not been able to levitate the S&P 500 for nearly three months now.In fact, however, the incoming data since February 20 has been uniformly bad. The chop depicted in the graph, therefore, only underscores that the market is desperately churning as it attempts to sustain an irrationally exuberant high. Indeed, today’s jobs data was not bullish in the slightest once you get below the headline. Specifically, the number of full-time jobs dropped by 252,000 in April – hardly an endorsement of the awesomeness theme. True enough, the monthly number for this important metric bounces around considerably. Yet that’s exactly why the algo fevers stirred by the incoming data headlines are just one more piece of evidence that the stock market is completely broken.

What counts is not the headline, but the trend; and when it comes to full time jobs there are still 1.1 million fewer now than at the pre-crisis peak in Q4 2007. Needless to say, a net shrinkage of full-time jobs after seven and one-half years is not exactly something that merits a 20.5X multiple on the S&P 500 or 75X on the Russell 2000. That’s the case especially when that same flat lining jobs trend has been underway for nearly a decade and one-half. To wit, since April 2000 the BLS’ full time job count has grown at only 0.35% annually. Now how in the world do you capitalize earnings at a rate which implies gangbusters growth of output and profits as far as the eye can see, when the US economy is self-evidently trapped in a deep rut that represents a drastic downshift from all prior history?

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Rollercoaster ahead.

Currencies’ Wild Ride to Get Wilder as US Rate Rise Beckons (Bloomberg)

If you thought the past week in the foreign-exchange market was wild, you haven’t seen anything yet. That’s the outlook from investors and strategists ranging from State Street Global Advisors to Cambridge Global Payments after price swings in the euro versus the dollar approached the highest level in more than three years. Volatility surged as traders unwound bets for gains in European bonds and stocks that had been funded in euros, prompting demand for the shared currency to close out what are known as carry trades. Price swings accelerated Friday after a lackluster U.S. employment report, raising more questions than answers about the timing of Federal Reserve interest-rate increases. “This unusual backdrop is going to create some turmoil,” Dan Farley at State Street.

“The next several weeks are likely to be choppy as things continue to be absorbed, bouncing off the good and the bad news.” The euro’s one-month implied volatility jumped as high as 13.2%, inching toward the 14% level where it last closed in December 2011. The common currency was unchanged on the week at $1.1199 as of 5 p.m. on Friday in New York. The Bloomberg Dollar Spot Index slid 0.7%, falling a fourth week in its longest run of declines since October 2013. The greenback weakened 0.3% to 119.76 yen. Europe’s bond rout wiped more than $400 billion from the value of the region’s debt in the past two weeks as investors questioned whether the ECB will continue its program of asset purchases through September 2016 amid signs the region’s economy is picking up.

The selloff eroded the premium Treasuries pay over bunds to the narrowest since February, lessening the attractiveness of dollar-denominated assets. “You’re going to see continued volatility driven by the bond markets,” said Karl Schamotta at Cambridge Global Payments in Toronto. “Investors are increasingly concerned that they could be caught in the exits when everyone rushes out of the theater.”

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Apparently these people find it hard to see what’s wrong.

Low Productivity Alarms US Policy Makers (FT)

US innovators claim they have never been busier, but their ideas are persistently failing to transform the country’s economic data. Labour productivity fell an annual 1.9% in the first three months of the year, while unit labour costs rose sharply, official figures showed on Wednesday. The output per hour figures came as the country’s gross domestic product barely grew during the quarter even as it added an average of nearly 200,000 jobs a month. The numbers confirm a longer-run trend of slowing productivity that is alarming policy makers and complicating Federal Reserve decision-making. “It has slowed in quite a worrying way,” said Torsten Slok, chief international economist at Deutsche Bank.

Productivity, which measures how efficiently inputs such as labour and capital are used, evolves over years and decades. This means a single quarter’s data should not be over-interpreted — especially one that was hit by one-time factors including freezing temperatures. The first quarter dive mirrors a weather-affected first quarter in 2014. But the numbers, which follow a 2.1% annual productivity drop in the fourth quarter, confirm a broader tendency that has been mirrored in a number of advanced economies and has perplexed economists. Analysis from the San Francisco Federal Reserve shows there was a surge in US productivity between 1995 and 2003, driven by the IT boom, with growth doubling from the annualised average of 1.5% set in the 1970s, 1980s and early 1990s.

The picture then reversed, however, and the US has been stuck in a lower-productivity growth trend since. Internationally comparable figures from the Conference Board show a broader slowdown among advanced economies including the UK and Japan over recent decades. Some economists say these weak numbers are jarring given the inventiveness being displayed in sectors such as software, medicine, and advanced manufacturing, and the rapid advance of robotics. “People are saying the pace of innovation has never been higher,” says Martin Neil Baily, an economist at Brookings, the think-tank.

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“2016 sounds more and more like McCain/Palin’s 2008 loss when the GOP was also deep in denial about the coming market crash..”

Countdown To The Stock-Market Crash Of 2016 Is Ticking Louder (Paul B. Farrell)

Warning bells just keep getting louder and louder as the countdown to the Crash of 2016 keeps ticking. Wall Street’s in denial, but the Washington Post warns: “U.S. economic growth slows to 0.2%, grinding nearly to a halt.” USA Today hears “Bubble Talk” at the Vegas “Davos for Geeks.” Earlier the Wall Street Journal warned, “declining population could reduce global economic growth by 40%.” Then recently the “slow-growth Fed” was blamed. Wrong, former Fed chief Ben Bernanke counterattacked: “I’m waiting for the Journal to argue for a well-structured program of public infrastructure development, which would support growth in the near term by creating jobs and in the longer term by making our economy more productive.”

But for years the Fed “has been pretty much the only game in town as far as economic policy goes.” Today “we should be looking for a better balance between monetary and other growth-promoting policies, including fiscal policy.” Fiscal policy? No, Ben, not a chance. The GOP controls economic policy. And they will never give “growth-promoting fiscal policy” victories to President Obama and Hillary Clinton before the presidential election of 2016. Never. In spite of Bernanke’s obviously rational solution to the core problems of the American economy, one that would help the American people, the GOP will never, ever agree to fiscal stimulus programs that give the Democrats bragging rights and make Obama and Clinton look good before the elections.

The GOP is hungry for power, very hungry. They lost the presidency twice to Obama. They want it back. And now their collective ego is convinced that with the $889 million backing from the Koch Empire they can beat Hillary and take absolute control of the American democracy: win the presidency, hold Congress, gain the power to issue executive orders and veto legislation, appoint more than 6,000 insiders including cabinet officers, regulatory heads, federal judges, ambassadors, staff bureaucrats, and more. Yes, the GOP knows all that power is on the line in 2016. Listen: 2016 sounds more and more like McCain/Palin’s 2008 loss when the GOP was also deep in denial about the coming market crash. Money manager Jeremy Grantham’s predictions see beyond the Big Oil-funded GOP’s gross denial, he sees that “around the presidential election or soon after, the market bubble will burst, as bubbles always do, and will revert to its trend value, around half of its peak or worse.”

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Only 15 million out of 93 million not in labor force? So 78 million bluntly refuse to work? Hard to believe.

‘Good’ Jobs Report? 15 Million Unemployed People Want To Work (MarketWatch)

There is good news in the jobs market, just not enough of it. The Bureau of Labor Statistics reported Friday that the U.S. economy continued to create jobs at a healthy pace of nearly 200,000 per month in the first four months of the year, and the unemployment rate dipped to 5.4% in April, the lowest since May 2008. But we are still far from achieving an economy that offers a job for everyone who wants one. And wages are barely growing for the 148 million who do have a job. Nearly 15 million jobless people say they want to work, but the Federal Reserve seems nearly ready to declare victory, figuring that the unemployment rate can’t go much lower without setting off a harmful inflationary spiral.

There is scant evidence that tight labor markets are putting any pressure on companies to raise their prices: Unit labor costs are up just 1.1% in the past year. Inflation — no matter how you measure it — is not a risk in the near term, or even in the medium term. There’s little evidence that workers have gotten those hefty raises that economists insisted were coming any day now. Growth in average hourly earnings is stuck in the same tight range of about 2% per year that it’s been at for the past five years. In April, average hourly earnings rose only 0.1%, bringing the change over the past year to 2.2%. And the “average” wage overstates the reality for most workers.

The average is boosted by rapid pay increases for just a few, including executives, whose “salaries” include bonuses and the receipt of shares of the company’s stock or options to buy shares. The encouraging acceleration in compensation that was reported in the employment cost index last week was largely due to sales commissions and bonuses collected by only a few. Most workers aren’t seeing that 2.2% pay increase. For the median full-time worker, usual weekly earnings are up just 1.5% in the past year, far below the 4% pay raise they got the last time that the unemployment rate was as low as 5.4%. (The “median” means that half of the workers got less than a 1.5% pay raise, and half got more.)

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“While the U.K. Independence Party, which campaigns for an EU exit, has only won one seat, the party won 13% of the popular vote..”

UK Braces for Battle Over Europe After Cameron’s Victory (Bloomberg)

David Cameron persuaded U.K. voters to give him a second term as prime minister. Now he needs to persuade them to stay in the European Union. The Conservatives’ surprise win came after a campaign that saw Cameron’s pledge of a referendum on EU membership by 2017 share almost equal billing with his record of delivering economic stability. Cameron, who has said he wants the country to stay in the EU, will first seek to renegotiate Britain’s membership terms. The Conservatives “may even try and bring things forward to stop this wrecking the next two years for them,” said Tim Bale, professor of politics at Queen Mary University in London.

“It’s a very tight majority which means he will have to make promises to people and do things to keep them on board on Europe, in particular as Cameron has a record of backing down under pressure to euro skeptics.” While the pound surged on Cameron’s victory amid optimism that an economic recovery will solidify under his administration, some investors warned that the euphoria could be short lived as a EU referendum draws closer into view. The vote is intended to settle a question that’s divided the nation since the U.K. joined Europe’s common market in 1973, and split the Conservatives for a generation. “Initial short-term cheer could be followed by a medium-term chill,” said Fabrice Montagne at Barclays.

“The referendum is likely to generate a substantial amount of uncertainty, particularly if polls fail to show more substantial support for EU membership in the coming weeks and months.” With most seats declared, the BBC forecast the Tories to take 331 of Parliament’s 650 seats to Labour’s 232 seats, a result that would allow Cameron to govern alone. While the U.K. Independence Party, which campaigns for an EU exit, has only won one seat, the party won 13% of the popular vote, according to the BBC. Last year, UKIP won the most votes in elections for the European Parliament, taking almost a third of Britain’s seats.

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That’s just China’s biggest four banks. “Property prices in 70 Chinese cities have fallen for more than a year..” “Loans backed by properties now comprise 40% of all facilities held by Fitch-rated banks..”

The $364 Billion Real Estate Threat Inside China’s Biggest Banks (Bloomberg)

Fitch Ratings has called real estate the “biggest threat” to Chinese banks as surging loans tied to properties coincide with defaults and falling sales. Corporate loans backed by buildings have grown almost fivefold since 2008 and residential mortgages have more than tripled in the period among lenders rated by Fitch, the company said Friday. That’s seen property loans held by China’s four biggest lenders soar to a total 2.26 trillion yuan ($364 billion), according to their annual reports. “Collateral is supposed to reduce bank risk – but the rise of property collateral in corporate loans may actually increase the chance of bank failure,” Fitch analysts Jack Yuan and Grace Wu said in the report.

“This is because the widespread use of such collateral has lowered the perceived risks of lending, fueling China’s credit build-up and spreading real-estate risk to other sectors of the economy.” Alarm bells sounded last month when Kaisa Group Holdings Ltd. became the first Chinese developer to default on offshore bonds, putting more scrutiny on a sector that made up a third of the nation’s economy in 2013, according to Gavekal Dragonomics. Property prices in 70 Chinese cities have fallen for more than a year, the worst losing streak in at least a decade, while sales have dropped for 11 of the past 24 months, Bloomberg-compiled data show. Loans backed by properties now comprise 40% of all facilities held by Fitch-rated banks, according to the report. Total credit to real estate could be as high as 60% if other types of financing besides direct loans are included, Fitch said.

“The property market is usually one of the main revenue contributors to the state,” said Raymond Chia, the head of credit research for Asia ex-Japan at Schroder Investment Management Ltd. “With the weakness in the sector, especially with excess inventory overhang as well as weak earnings by developers, economic growth will be affected.” Industrial & Commercial Bank of China, the world’s biggest bank by assets, held 443.5 billion yuan of real estate loans, or 6.6% of all facilities, at the end of last year, according to its annual report. The portion for Bank of China, the nation’s second-largest, was 714.6 billion yuan of advances, or 8.4% of its credit book.

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“Today, a long depression in the US would be unbearable. The public couldn’t stand it. Six out of ten households live paycheck to paycheck. Can you imagine what would happen if those paychecks ceased?”

Deflation Works! (Bill Bonner)

As we have seen, Japan has already had a 25-year slump. The US is now in Year 8 of its slump, with fragile growth at only half the rate of the last century. They could get better… or worse. Negative rates could keep the cronies in business. The slump itself – combined with peak debt and 500 million Chinese laborers – could keep inflation in check. But the point comes when investors see that the risk of loss (because something can always go wrong) is greater than the hope of gain. That moment must be approaching in the US stock market. Prices are near record highs, even as the economy flirts with recession. One day, perhaps soon, we will see stocks falling – as much as 1,000 points in 24 hours. Jacking up the stock market has been the Fed’s singular success. Activism has been its creed.

Interventionism is its modus operandi. It will not sit tight as the market falls apart and the economy goes into recession. Instead, it will announce QE 4. It will try to enforce negative interest rates. And it will move – as will the Japanese – to “direct monetary funding” of government deficits. That is, it will dispense with the fiction of “borrowing” from its own central bank. It will simply print the money it needs. The US Fed of 1930 was not nearly as ambitious and assertive as the Fed of 2015. In the ‘30s, it watched as the economy chilled into a Great Depression. As Ben Bernanke told Milton Friedman, “We won’t do that again.” It couldn’t if it wanted to. Back in the ‘30s, consumer debt had barely been invented. Most people still lived on or near farms, where they could take care of themselves even if the economy was in a depression.

Few people had credit. Instead, they had savings. There were no food stamps. No disability. No rent assistance. No zombie industries. No student debt. No auto debt. No cash-back mortgages. And cash was real money, backed by gold. Today, a long depression in the US would be unbearable. The public couldn’t stand it. Six out of ten households live paycheck to paycheck. Can you imagine what would happen if those paychecks ceased? Supposedly, the US economy is still growing… with the stock market near record highs. Yet, one out of every five households in America has not a single wage-earner. Among inner-city black men, ages 20-24, only 4 out of 10 have jobs. Half the households in the US count on government money to make ends meet. And 50 million get food stamps. What would happen to the cities – and the suburbs – in a real depression?

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They try to act as if Yanis were stupid, but they themselves lack understanding of the matter at hand.

Documents Distributed by Greece’s Varoufakis ‘Baffle’ Eurozone Officials (WSJ)

Economic plans and growth estimates distributed by Greek Finance Minister Yanis Varoufakis to some of his eurozone counterparts have baffled officials involved in the talks over its international bailout. Officials say that the files differ greatly from what has been discussed at the technical level in Brussels in recent days and underline how Mr. Varoufakis continues to complicate progress toward a financing deal. The 36-page document, entitled “Greece’s recovery: A blueprint” and seen by The Wall Street Journal, was presented by Mr. Varoufakis to his counterparts in Paris and Rome, as well as senior officials in Brussels, while he was touring European capitals over the past week, according to four European officials.

The Greek Finance Ministry said the document was a first draft of a new plan “for the recovery and growth of the country in the [post-bailout] era,” which it said Mr. Varoufakis had discussed informally with some of his counterparts. “This is a long-term project that goes well beyond the limits of the negotiation that is currently underway in the Brussels Group,” as the group of experts representing Greece and its creditors is known, the ministry said. Greece’s leftist-led government is locked in negotiations with the European Union and the International Monetary Fund over its next slice of financial aid as part of a €245 billion rescue package. Disagreements over cuts to Greece’s pension system and changes to its labor rules that would make it easier to dismiss workers have held up a deal on further loans.

While the talks have become more constructive, differences remain wide, European officials say. The paper focuses on the Greek economy and how it can return to growth. “Perhaps it is time to visualize a recovering Greece before we unlock the present impasse,” the document says, before going into areas where the country plans overhauls. While some of the outlined measures are the same as those agreed to in the negotiations—such as the creation of an independent tax commissioner—the paper differs in other areas. One significant difference is the creation of a so-called bad bank that would house and wind down Greek lenders’ bad loans. “Conveniently, the financing of the bad bank is not treated,” an EU official said.

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Prelude to multiple bankruptcies.

Illinois Supreme Court Strikes Down Law to Rein in Public Sector Pensions (WSJ)

The Illinois Supreme Court struck down the state’s 2013 pension overhaul, unraveling an effort by lawmakers to rein in benefits for the consistently underfunded public-sector system. The current pension shortfall is estimated at $111 billion, one of the largest nationally. The high court affirmed a decision in November by a state circuit court that the legislative changes violated pension protections written into the state constitution. The decision is a victory for a consortium of public-sector unions while creating a huge challenge for new Republican Gov. Bruce Rauner, who already faces a yawning budget deficit for the coming fiscal year.

“The financial challenges facing state and local governments in Illinois are well known and significant,” said Justice Lloyd Karmeier, writing for the entire court. “It is our obligation, however, just as it is theirs, to ensure that the law is followed.” Illinois joins Oregon and Arizona as recent examples of high courts peeling back pension overhauls. Other states, including Colorado and Florida, have upheld laws cutting benefits. Mr. Rauner’s office urged a constitutional amendment to help fix the problem. Otherwise, the state will be forced to turn to tax increases, budget cuts or, as Mr. Rauner discussed earlier this year, municipal bankruptcy. Recent federal bankruptcy cases in Detroit and Stockton, Calif., have raised the question of whether pension benefits are fully protected.

After the ruling, Standard & Poor’s Ratings Services put the state’s credit ratings on watch for potential downgrade, saying Illinois faces “profound credit challenges.” The Illinois law would have reduced retirement costs by shrinking cost-of-living increases for retirees, raising retirement ages for younger workers, and capping the size of pensions. “The court’s ruling confirms that the Illinois Constitution ensures against the government’s unilateral diminishment or impairment of public pensions,” said Michael Carrigan, president of the Illinois ALF-CIO, speaking on behalf of the We Are One Illinois coalition of unions.

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It’s not democracy, it’s what is not democracy but is still called by that name.

Democracy Is A Religion That Has Failed The Poor (Guardian)

Right now I feel ashamed to be English. Ashamed to belong to a country that has clearly identified itself as insular, self-absorbed and apparently caring so little for the most vulnerable people among us. Why did a million people visiting food banks make such a minimal difference? Did we just vote for our own narrow concerns and sod the rest? Maybe that’s why the pollsters got it so badly wrong: we are not so much a nation of shy voters as of ashamed voters, people who want to present to the nice polling man as socially inclusive, but who, in the privacy of the booth, tick the box of our own self-interest. Rewind 24 hours and it felt so different. Thursday morning was lovely in London, full of the promise of spring. Even the spat I had with the man outside my polling station shouting at “fucking immigrants” didn’t disrupt an overall feeling of optimism.

Were people walking just a little bit more purposefully? Was I mistaken in detecting some calm excitement, almost an unspoken communal bonhomie? Perhaps also a feeling of empowerment, a sense that it was “the people” that could now make a difference. But by bedtime the spell had been broken. Things were going to stay the same. No real difference had been made. The utterly miserable thought strikes me that Russell Brand just might have been right. What difference did my vote make? Why indeed do people vote, and care so passionately about voting, particularly in constituencies in which voting one way or the other won’t make a blind bit of difference? And why do the poor vote when, by voting, they merely give legitimacy to a system that connives with their oppression and alienation?

The anthropologist Mukulika Banerjee suggests a fascinating answer: elections are like religious rituals, often devoid of rational purpose or efficacy for the individual participant, but full of symbolic meaning. They are the nearest thing the secular has to the sacred, presenting a moment of empowerment. But is this empowerment illusory? Is, as Banerjee asks, “the ability to vote … a necessary safety valve which allows for the airing of popular disaffection, but which nevertheless ultimately restores the status quo. In such a reading, elections require the complicity of all participants in a deliberate mis-recognition of the emptiness of its procedures and the lack of any significant changes which this ritual brings about, but are a necessary charade to mollify a restless electorate.”

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The numbers are insane and growing. This may well make the country ungovernable.

Petrobras: The Betrayal of Brazil (Bloomberg)

Since March 2014, prosecutors have accused more than 110 people of corruption, money laundering, and other financial crimes. Six construction and engineering firms have been accused of illegal enrichment in what is known as a noncriminal misconduct action. On April 22, Moro delivered the first convictions. He found Costa and Youssef guilty of money laundering, including the Land Rover purchase. Moro gave both men reduced sentences two years house arrest for Costa and three years in prison for Youssef for cooperating with prosecutors. All of that is something of a preview of the big show: Prosecutors say they may accuse some of Brazil s largest builders with running an illegal cartel.

It’s been clearly proven in this case that there was a criminal scheme inside Petrobras that involved a cartel, bid rigging, bribes to government officials and politicians, and money laundering, Moro wrote in sentencing Costa and Youssef. There will be a cartel indictment, says Carlos Lima, a lead prosecutor in the case. I do’ t like to get ahead of myself and say this will happen, but it will. It’s just a matter of time. In filings in Judge Moro’s court, prosecutors have named 16 companies that allegedly formed a cartel to fix Petrobras contracts between 2006 and 2014. The list includes some of Brazil s largest construction and engineering firms, including Camargo Correa, OAS, UTC Engenharia, and the biggest of them all, Construtora Norberto Odebrecht. All of these companies deny being part of a cartel, except Camargo Correa, which declined to comment.

Petrobras says it knew nothing about the bid rigging and is collaborating with authorities in the investigation. As to whether it was the victim of a cartel, the company is certain, Mario Jorge Silva, Petrobras’s executive manager for performance, said at an April 22 news conference. In financial filings, Petrobras says 199.6 billion reais worth of contracts were rigged by the alleged cartel. For years, a co-owner of the engineering firm UTC called members to meetings at his offices in Sao Paulo via text messages, according to testimony and documents submitted in Moro’s court. The participants were greeted by an assistant, who handed out name tags. At the meetings, executives took copious notes detailing how the alleged cartel would divvy up Petrobras contracts, at inflated prices. One builder put together a 2 1/2-page encoded guide for group members that describes contract bidding as a soccer tournament, with leagues and teams.

Another document drawn up by a group member lists the chosen winners of upcoming bidding for 14 contracts for a refinery, with the title Fluminense Final Bingo Proposal, using a nickname for the state of Rio de Janeiro. Prosecutors say the builders got away with it by paying kickbacks, usually 3%, on every contract. Petrobras estimates that the graft added up to at least 6.2 billion reais, much of which, prosecutors say, was funneled into the war chests of the parties that backed Luiz In·cio Lula da Silva, president of the country from 2003 to 2010, and his handpicked successor, Dilma Rousseff. Lula and Rousseff haven t been charged with wrongdoing, but special prosecutors have opened criminal investigations into more than 50 members of congress and other politicians implicated in the corruption scheme.

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“..in all these years, Hillary Clinton has not publicly condemned Wall Street or any individual Wall Street leader.”

The Clintons and Their Banker Friends- The Wall Street Connection (Nomi Prins)

The past, especially the political past, doesn’t just provide clues to the present. In the realm of the presidency and Wall Street, it provides an ongoing pathway for political-financial relationships and policies that remain a threat to the American economy going forward. When Hillary Clinton video-announced her bid for the Oval Office, she claimed she wanted to be a “champion” for the American people. Since then, she has attempted to recast herself as a populist and distance herself from some of the policies of her husband. But Bill Clinton did not become president without sharing the friendships, associations, and ideologies of the elite banking sect, nor will Hillary Clinton. Such relationships run too deep and are too longstanding.

To grasp the dangers that the Big Six banks (JPMorgan Chase, Citigroup, Bank of America, Wells Fargo, Goldman Sachs, and Morgan Stanley) presently pose to the financial stability of our nation and the world, you need to understand their history in Washington, starting with the Clinton years of the 1990s. Alliances established then (not exclusively with Democrats, since bankers are bipartisan by nature) enabled these firms to become as politically powerful as they are today and to exert that power over an unprecedented amount of capital. Rest assured of one thing: their past and present CEOs will prove as critical in backing a Hillary Clinton presidency as they were in enabling her husband’s years in office.

In return, today’s titans of finance and their hordes of lobbyists, more than half of whom held prior positions in the government, exact certain requirements from Washington. They need to know that a safety net or bailout will always be available in times of emergency and that the regulatory road will be open to whatever practices they deem most profitable. Whatever her populist pitch may be in the 2016 campaign – and she will have one – note that, in all these years, Hillary Clinton has not publicly condemned Wall Street or any individual Wall Street leader. Though she may, in the heat of that campaign, raise the bad-apples or bad-situation explanation for Wall Street’s role in the financial crisis of 2007-2008, rest assured that she will not point fingers at her friends.

She will not chastise the people that pay her hundreds of thousands of dollars a pop to speak or the ones that have long shared the social circles in which she and her husband move. She is an undeniable component of the Clinton political-financial legacy that came to national fruition more than 23 years ago, which is why looking back at the history of the first Clinton presidency is likely to tell you so much about the shape and character of the possible second one.

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Deepening.

Germany Spies, US Denies (Bloomberg)

Reports of German spying on European corporate targets at the behest of the U.S. have led to calls that Chancellor Angela Merkel was hypocritical for complaining about U.S. spying on Germany. Well, yes — but the hypocrisy of politicians hardly comes as a shock. What’s more striking about the recent revelations is their targets – and what they say about U.S. government claims that it doesn’t spy on behalf of private U.S. corporations. Start with a rather obvious question: Why would the U.S. government rely on Germany to spy on European corporations? Why not just do the spying directly? It’s not as if the U.S. lacks the intelligence capacity to do it. After all, the U.S. spied directly on Merkel in the episode that made her object so strongly and publicly and hypocritically.

It’s hard to know for sure, and the answer may conceivably lie in complex interstate agreements that aren’t public. But there’s a highly plausible alternative answer, one connected to the recent history of U.S. efforts to vilify Chinese government’s industrial espionage. The U.S. may be using Germany to do industrial spying because it wants to claim that, unlike other countries, the U.S. doesn’t do spying on behalf of its corporations. In August 2013, a National Security Agency spokesman told the Washington Post in an e-mail that the Department of Defense “does ***not*** engage in economic espionage in any domain, including cyber.” In case you’re wondering, the six asterisks appeared in the original e-mail. Notice that the NSA statement didn’t say that other agencies avoid economic espionage, just those that are part of the Department of Defense.

Notice, too, that the statement didn’t say that no one shares stolen information with the U.S. The next month, after a fresh round of Edward Snowden revelations, the director of national intelligence, James Clapper, issued a further statement. He acknowledged that “the Intelligence Community” (his capitalization) “collects information about economic and financial matters.” But he insisted that: “What we do not do … is use our foreign intelligence capabilities to steal the trade secrets of foreign companies on behalf of – or give intelligence we collect to – U.S. companies to enhance their international competitiveness or increase their bottom line.” A close, retrospective reading of this statement reveals it to be completely consistent with the U.S. relying on foreign intelligence organizations, such as the Germans, to spy on private targets – and then share the proceeds with American companies for whatever reason.

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All globalization does.

Trans-Pacific Partnership Will Lead To A Global Race To The Bottom (Guardian)

At a time when economic inequality around the globe continues to widen, the Trans-Pacific Partnership (TPP) will only make things worse. Unlike what President Obama claims, the agreement will only encourage a race to the bottom, in which a small percentage of people get ridiculously rich while most workers around the globe stay miserably poor. We can’t let that happen. Today, President Obama is visiting Nike’s headquarters in Beaverton, Oregon to garner support for the trade deal, which would be signed by the US and 11 Pacific Rim countries. That’s an apt place for Obama to beat the free-trade drum – Nike, like the TPP, is associated with offshoring American jobs, widening the income inequality gap, and increasing the number of people making slave wages overseas.

Since the passage of NAFTA in 1993, we’ve seen the loss of nearly five million US manufacturing jobs, the closure of more than 57,000 factories, and stagnant wages. This deal won’t be any different. In November, Zachary Senn, a college student reporter at the Modesto Bee, spent three weeks in Indonesia living with and interviewing workers who make goods for Nike, Adidas, Puma and Converse. When you hear Obama talking about those “high-quality jobs,” think of RM, a 32-year-old mother who told Senn that she works 55 hours, six days a week and makes just $184 a month after 12 years at the PT Nikomas factory, a Nike subcontractor that employs 25,000 people. That’s 83 cents an hour or $2,208 a year. RM works in the sewing department and is expected to process 100 shoes an hour.

“If we don’t meet our quotas, we get yelled at”, she told Senn. “And then the quotas are piled into the next day”. Eating lunch is difficult because the food “smells bad,” and worse yet, RM said there is only one restroom, with 15 stalls, for 850 women. RM told Senn that she doesn’t want Nike to leave Indonesia; she wants an end to verbal abuse and a 50% raise, which would allow her to better provide for her family. Is $368 a month too much to ask from a multinational corporation that posted $27.8 billion in revenue and spent $3 billion on advertising and promotions in fiscal 2014? Nike CEO Mark Parker was paid $14.7 million in compensation last year. That’s $7,656 an hour. Wages in Vietnam, a key TPP partner, are even lower than Indonesia. Nike’s largest production center is in Vietnam where 330,000 mostly young women workers with no legal rights earn just 48 to 69 cents an hour.

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6 weeks old, but too good to leave behind.

Is There Such A Thing As A Skyscraper Curse? (Economist, March 28)

The world is in the middle of a skyscraper boom. Last year nearly 100 buildings over 200 metres tall were built—more than ever before. This year China’s business capital will welcome the Shanghai Tower, which will be the world’s second-tallest building. Saudi Arabia is building Kingdom Tower, which will be the world’s tallest (and twice the height of One World Trade Centre in New York, the tallest building in the Americas). Does this frenzy of building augur badly for the world economy? Various academics and pundits, many of them cited by The Economist, have long argued as much, but new research casts doubt on it.

In 1999 Andrew Lawrence, then of Dresdner Kleinwort Benson, an investment bank, identified what came to be known as the “skyscraper curse”.* Mr Lawrence noticed a curious correlation between the construction of the world’s tallest buildings and economic crises. The unveiling of the Singer Building and the Metropolitan Life Tower in New York, in 1908 and 1909 respectively, roughly coincided with the financial panic of 1907 and subsequent recession. The Empire State Building opened its doors in 1931, as the Great Depression was getting going (it was soon dubbed the “Empty State Building”). Malaysia’s Petronas Towers became the world’s tallest building in 1996, just before the Asian financial crisis. Dubai’s Burj Khalifa, currently the world’s tallest building, opened in 2010 in the middle of a local and global crash.

Skyscrapers can be hugely profitable, since by building upwards developers can rent out more floor space on a given plot of land. But at some point extra storeys are no longer a good deal, since marginal costs—for more lifts and extra steel to stop the building from swaying in the wind, for example—increase faster than marginal revenues (rents or sales). William Clark and John Kingston, an economist and an architect writing in 1930, found that the profit-maximising height for a skyscraper in midtown New York in the 1920s was no more than 63 storeys. (The ideal height is probably not much different today.) Record-breaking skyscrapers could therefore be seen as an indication that gung-ho investors are overestimating the probable future returns from new construction.

Indeed, developers may be building record-breaking towers even though they know they are economically inefficient. There is, after all, a certain cachet to having a very tall building with your name on it. In 1998 Donald Trump, a magnate, presented a plan to build the world’s tallest residential building in New York as the righting of a historical wrong, not a shrewd business move. “I’ve always thought that New York should have the tallest building in the world,” he proclaimed. If such vanity projects can secure funding, the theory goes, financial markets must be out of control and will soon suffer a sharp correction. Mr Trump’s tower opened just as the dotcom bubble was bursting.

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And London, New York etc. Real estate is a great way to launder cash.

Global Crime Syndicates Are Buying Expensive Australia Real Estate (Domain)

Some of Australia’s most expensive real estate is being bought by global crime syndicates, one of the country’s top crime-fighting bodies says. So worried are they about the influx of dirty money that the Australian Crime Commission has launched an investigation looking at money laundering and terrorism financing through property. Concerns that criminals may be targeting real estate were raised within the commission about six months ago, according to an ACC spokeswoman. The Targeting Criminal Wealth Special Investigation is expected to run until June next year. “Taskforce investigations have uncovered information about organised crime entities investing in high-value commodities, such as real estate, to help launder illicit funds into the legitimate economy,” said ACC chief executive Chris Dawson, APM.

“The Australian real estate sector is perceived as stable and at low risk of significant depreciation in the short term, and potential for growth in the long term. It is likely that organised crime are exploiting these conditions to invest in the Australian real estate market to launder the proceeds of illicit activity including drug profits.” The ACC declined to specify countries of concern because the investigation is ongoing. Parliamentary secretary to the Treasurer Kelly O’Dwyer said the federal government was being forced to play catch-up on the issue because there had been no co-ordinated data matching scheme on property records to date. The recently announced data-matching scheme set to start from December 1 as part of the federal government’s crackdown on foreign investment would be a big help to agencies like the ACC in these investigations, Ms O’Dwyer said.

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Brilliant.

Australian PM Adviser Exposes Cimate Change As Hoax, Shames All of Science (SBS)

Business Adviser Maurice Newman has been praised today for his stellar work uncovering that climate change was a hoax perpetrated by the United Nations and the vast majority of the entire scientific community from all around the world. Newman, who also managed to expose the New World Order as something that actually exists and isn’t just made up by conspiracy theorising weirdos, has been widely praised for his efforts in bringing down what is thought to be the most elaborate conspiracy of all time. “Of course he will be in consideration for the Nobel Prize,” said one science observer. “To completely humiliate the vast majority of the scientific community like this on such a huge issue is almost unprecedented.

“In years to come we’ll say Maurice Newman in the same breath as we say Albert Einstein and Isaac Newton. To think, thousands of scientists and millions upon millions of dollars of resources couldn’t uncover this conspiracy but one guy with no expertise managed to bring it all down on a lark.” The world’s scientists have reacted with abject shame at being found out after all this time. “I always knew we’d be found out,” said one scientist. “It’s only so long you can keep something like this up when you have to independently incorporate every person studying climate, sea levels, soil, and thousands of other aspects. The paper trail alone was incredibly obvious. Not to mention our connection with the United Nations meaning we had to have every nation on board with tricking Australia for some reason.

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Mar 292015
 
 March 29, 2015  Posted by at 9:49 am Finance Tagged with: , , , , , , , ,  3 Responses »


Unknown Butler’s dredge-boat, sunk by Confederate shell, James River, VA 1864

QE Will Permanently Impair Living Standards For Generations To Come (Guggenheim)
Fed Chases Equilibrium Phantom, Has Not Learnt From The Crisis (Steve Keen)
Fears Of A New Global Crash As Debts And Dollar’s Value Rise (Guardian)
Investors Flee Market At Crisis-Level Pace (CNBC)
China Banks on Sharing Wealth to Shape New Asian Order (WSJ)
China Wants To Compel US To Engage It As An Equal Partner In AIIB (ATimes)
Russia To Apply For China-Led Infrastructure Bank AIIB (RT)
Netherlands Seeks To Join Asian Infrastructure Investment Bank (Reuters)
Australia to Join China-Led Development Bank, Says Finance Minister (WSJ)
Eurozone Can’t Survive In Current Form, Says PIMCO (Telegraph)
Greek Energy Minister To Visit Moscow, Hits Out At Germany (Reuters)
Greece Submits Reform Proposals To Eurozone Creditors – With A Warning (Guardian)
Fitch Downgrades Greece Amid Bailout Uncertainty (AP)
Opposition Tells Tsipras To Get Control Of His Party (Kathimerini)
Troika Expects Greece To Miss Primary Surplus Target This Year (Reuters)
Ukraine’s $3 Billion Debt To Russia Puts IMF Package At Risk (RT)
Andorra On The Brink Of Europe’s Next Banking Crisis (Telegraph)
Ex-Chancellor Schroeder Criticizes Merkel’s Russia Policy (RT)
Brazil Police Arrest Businessmen Linked to Petrobras Scandal (Reuters)

Just so you can feel rich for a while longer.

QE Will Permanently Impair Living Standards For Generations To Come (Guggenheim)

Essentially, monetary authorities around the globe are levying a tax on investors and providing a subsidy to borrowers. Taxation and subsidies, as well as other wealth transfer payment schemes, have historically fallen within the realm of fiscal policy under the control of the electorate. Under the new monetary orthodoxy, the responsibility for critical aspects of fiscal policy has been surrendered into the hands of appointed officials who have been left to salvage their economies, often under the guise of pursuing monetary order. The consequences of the new monetary orthodoxy are yet to be fully understood. For the time being, the latest rounds of QE should support continued U.S. dollar strength and limit increases in interest rates. Additionally, risk assets such as high-yield debt and global equities should continue to perform strongly.

Despite ultra-loose monetary policies over the past several years, incomes adjusted for inflation have fallen for the median U.S. family. With the benefits of monetary expansion going to a small share of the population and wage growth stagnating, incomes have been essentially flat over the past 20 years. In the long run, however, classical economics would tell us that the pricing distortions created by the current global regimes of QE will lead to a suboptimal allocation of capital and investment, which will result in lower output and lower standards of living over time. In fact, although U.S. equity prices are setting record highs, real median household incomes are 9% lower than 1999 highs. The report from Bank of America Merrill Lynch plainly supports the conclusion that QE and the associated currency depreciation is not leading to higher global output.

The cost of QE is greater than the income lost to savers and investors. The long-term consequence of the new monetary orthodoxy is likely to permanently impair living standards for generations to come while creating a false illusion of reviving prosperity.

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“..Yellen has fallen back on the core concept—that a market economy reaches “equilibrium”—rather than part of the fantasy mechanism by which The Fed believes equilibrium is achieved. Equilibrium. What nonsense!”

Fed Chases ‘Equilibrium’, Has Not Learnt From The Crisis (Steve Keen)

The Financial Crisis of 2007 was the nearest thing to a “Near Death Experience” that the Federal Reserve could have had. One ordinarily expects someone who has such an experience—exuberance behind the wheel that causes an almost fatal crash, a binge drinking escapade that ends up in the intensive care ward—to learn from it, and change their behaviour in some profound way that makes a repeat event impossible. Not so the Federal Reserve. Though the event itself gets some mention in Yellen’s speech yesterday, the analysis in that speech shows that the Fed has learnt nothing of substance from the crisis. If anything, the thinking has gone backwards. The Fed is the speed driver who will floor the accelerator before the next bend, just as he did before the crash; it is the binge drinker who will empty the bottle of whiskey at next year’s New Year’s Eve, just as she did before she woke up in intensive care on New Year’s Day.

So why hasn’t The Fed learnt? Largely because of a lack of intellectual courage. As it prepares to manage the post-crisis economy, The Fed has made no acknowledgement of the fact that it didn’t see the crisis itself coming. Of course, the cause of a financial crisis is far less obvious than the cause of a crash or a hangover: there are no skidmarks, no empty bottle to link effect to cause. But the fact that The Fed was caught completely unawares by the crisis should have led to some recognition that maybe, just maybe, its model of the economy was at fault. Far from it. Instead, if anything is more visible in Yellen’s technical speech than it was in Bernanke’s before the crisis, it’s the inappropriate model that blinded The Fed—and the economics profession in general—to the dangers before 2007.

In fact, that model is so visible that its key word—“equilibrium”—turns up in a word cloud of Yellen’s speech. “Equilibrium” is the 17th most frequent word in the document, and the only significant words that appear more frequently are “Inflation” and “Monetary”. In contrast, “Crisis” gets a mere 6 mentions, and household debt gets only one. What’s evident, when one compares Yellen’s speech to one to a similar audience by Bernanke in July 2007—the month before the crisis began—is that The Fed is just as much in the grip of conventional economic thinking as it was before the crisis.

The only difference is that Bernanke’s speech focused on the “inflation expectations” aspect of The Fed’s model—which would be rather hard for Yellen to focus on, given that inflation is running at zero (versus 4% when Bernanke spoke). So Yellen has fallen back on the core concept—that a market economy reaches “equilibrium”—rather than part of the fantasy mechanism by which The Fed believes equilibrium is achieved. Equilibrium. What nonsense! But the belief that the economy reaches equilibrium—that it can be modelled as if it is in equilibrium—is a core delusion of mainstream economics. There was some excuse for looking at the world prior to the crisis and seeing equilibrium—though the more sensible people saw “Bubble”. But after it? How can one look back on that carnage and see equilibrium?

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Poor nations fall first. Nothing has changed.

Fears Of A New Global Crash As Debts And Dollar’s Value Rise (Guardian)

Greek ministers are spending this weekend, almost five grinding years since Athens was first bailed out, wrangling over the details of the spending cuts and economic reforms they have drawn up to appease their creditors. As the recriminations fly between Europe’s capitals, campaigners are warning that the global community has failed to learn the lessons of the Greek debt crisis – or even of Argentina’s default in 2001, the consequences of which are still being contested furiously in courts on both sides of the Atlantic. As Janet Yellen’s Federal Reserve prepares to raise interest rates, boosting the value of the dollar, while the plunging price of crude puts intense pressure on the finances of oil-exporting countries, there are growing fears of a new debt crisis in the making.

Ann Pettifor of Prime Economics, who foreshadowed the credit crunch in her 2003 book The Coming First World Debt Crisis, says: “We’re going to have another financial crisis. Brazil’s already in great trouble with the strength of the dollar; I dread to think what’s happening in South Africa; then there’s Malaysia. We’re back to where we were, and that for me is really frightening.” Since the aftershocks of the global financial crisis of 2008 died away, the world’s policymakers have spent countless hours rewriting the banking rulebook and rethinking monetary policy. But next to nothing has been done about the question of what to do about countries that can’t repay their debts, or how to stop them getting into trouble in the first place.

Developing countries are using the UN to demand a change in the way sovereign defaults are dealt with. Led by Bolivian ambassador to the UN Sacha Sergio Llorenti, they are calling for a bankruptcy process akin to the Chapter 11 procedure for companies to be applied to governments. Unctad, the UN’s Geneva-based trade and investment arm, has been working for several years to draw up a “roadmap” for sovereign debt resolution. It recommends a series of principles, including a moratorium on repayments while a solution is negotiated; the imposition of currency controls to prevent capital fleeing the troubled country; and continued lending by the IMF to prevent the kind of existential financial threat that roils world markets and causes severe economic hardship.

If a new set of rules could be established, Unctad believes, “they should help prevent financial meltdown in countries facing difficulties servicing their external obligations, which often results in a loss of market confidence, currency collapse and drastic interest rates hikes, inflicting serious damage on public and private balance sheets and leading to large losses in output and employment and a sharp increase in poverty”. It calls for a once-and-for-all write-off, instead of the piecemeal Greek-style approach involving harsh terms and conditions that knock the economy off course and can ultimately make the debt even harder to repay. The threat of a genuine default of this kind could also help to constrain reckless lending by the private sector in the first place.

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“Outflows from equity-based funds in 2015 have reached their highest level since 2009..”

Investors Flee Market At Crisis-Level Pace (CNBC)

Recent market volatility has sent stock market investors rushing for the exits and into cash. Outflows from equity-based funds in 2015 have reached their highest level since 2009, thanks to a seesaw market that has come under pressure from weak economic data, a stronger dollar and the the prospect of monetary tightening. Funds that invest in stocks have seen $44 billion in outflows, or redemptions, year to date, according to Bank of America Merrill Lynch. Equity funds have seen outflows in five of the last six weeks, including $6.1 billion in just the last week. U.S. equities have been particularly hard-hit, with the group surrendering $10.8 billion last week, BofAML reported.

To be sure, the trend could be interpreted as a buy signal. In 2009, the stock market was in the throes of a 60% Great Recession plunge that led to unprecedented levels of stimulus from the Federal Reserve—and the birth of a huge bull market that has pushed stocks up more than 200%. The moves out of equities come as the S&P 500 has been essentially flat for the year, though getting there has seen numerous dips and spikes. The Dow industrials are off about 0.8% in 2015, while the Nasdaq tech barometer has been the strongest of the three major indexes, gaining 2.7%.

Funds focused on cash and investment-grade and government bonds gathered $12 billion in assets last week. Money market funds have just shy of $2.7 trillion in assets despite their promise of basically zero yield, according to the Investment Company Institute. That number has stayed essentially flat over the past year. Bond funds have seen 12 straight weeks of inflows; those focused on higher-quality debt have had 66 straight weeks of inflows. Trends in the $2.1 trillion exchange-traded fund industry help show investors’ mentality.

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China has a plan. The US only has neocons.

China Banks on Sharing Wealth to Shape New Asian Order (WSJ)

President Xi Jinping sketched out China’s vision for a new security and economic order in Asia, offering to spread the benefits of Chinese prosperity and cooperation across the region. In a speech to a regional forum Saturday, Mr. Xi presented China as a partner willing to “jointly build a regional order that is more favorable to Asia and the world.” He highlighted a new China-led infrastructure bank and other initiatives designed to leverage hundreds of billions of dollars to finance railways, ports and other development projects, and foster regional economic integration. Throughout the 30-minute speech, Mr. Xi stressed that China’s vision, while centered on Asia, was open to participation by all countries.

He was careful not to place China at the center of this emerging order, as some regional politicians and security experts have warned could happen. But Mr. Xi said given China’s size, it will naturally play a larger role. “Being a big country means shouldering greater responsibilities for the region, as opposed to seeking greater monopoly over regional and world affairs,” Mr. Xi told the Boao Forum for Asia, an annual China-sponsored conference named for the southern seaside town where it is held. The speech was the latest by Mr. Xi to articulate his government’s plans to use China’s growing power to reshape economic and security arrangements in the region—a change from recent decades when Beijing largely worked within a U.S. and Western-dominated international system.

At the center of these efforts is the new Asian Infrastructure Investment Bank and plans to build infrastructure across Asia and along the maritime routes that historically connected China to the Middle East, Africa and Europe. The plans have been welcomed by many countries and companies throughout the region, which the Asian Development Bank estimates is in need of trillions of dollars of infrastructure. Close U.S. allies and other governments have signed on to the infrastructure bank, despite concerns from Washington about the way the bank will be run.

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“..Beijing has a much bigger game plan of scattering the U.S.’ containment strategy.”

China Wants To Compel US To Engage It As An Equal Partner In AIIB (ATimes)

The AIIB Charter is still under discussion. The media report that China is not seeking a veto in the decision-making comes as a pleasant surprise. Equally, China is actively consulting other founding members (who now include U.K., Germany, France, Italy, etc). These would suggest that Beijing has a much bigger game plan of scattering the U.S.’ containment strategy. Clearly, the Trans-Pacific Partnership free-trade deal is already looking more absurd if China were to be kept out of it. The point is, AIIB gives financial underpinning for the ‘Belt and Road’ initiative, which now the European countries and Russia have embraced, as they expect much business spin-off. China has said that its Silk Road projects are not to be confused as a latter-day Marshal Plan for developing countries, and that, on the contrary, the projects will be run on commercial terms.

Which opens up enormous opportunities for participation by western companies. In geopolitical terms, therefore, China hopes that the ‘win-win’ spirit that permeates the AIIB and ‘Belt and Road’ will render ineffectual the American attempts to hem it in on the world stage and compel Washington to revisit a ‘new type of relations’ with China. As for Bretton Woods, to my mind, China hopes that AIIB will force the pace of IMF reforms (which are stalled at the U.S. Congress for the past 4 years). China’s intention is not to destroy the current financial system but to seek a greater role for it in the decision-making and running of the institutions such as World Bank and IMF. China hopes to force a rethink on the part of the US as regards the IMF (ie, expand and reform the institution, accommodate the renminbi and so on.)

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“I would like to inform you about the decision to participate in the AIIB..”

Russia To Apply For China-Led Infrastructure Bank AIIB (RT)

Russia decided to apply to join the China-led Asian Infrastructure Investment Bank (AIIB), the country’s Deputy Prime Minister Igor Shuvalov said on Saturday. “I would like to inform you about the decision to participate in the AIIB,” which was made by Russian President Vladimir Putin, Shuvalov said at the Boao Forum for Asia. Shuvalov added that Russia welcomes China’s Silk Road Economic Belt initiative and is happy about stepping up cooperation. “We are delighted to be able to step up cooperation in the format of the Eurasian Economic Union (EEU) and China…the free movement of goods and capital within the EEU brings economies of Europe and Asia closer. This is intertwined with the Silk Road Economic Belt initiative, launched by the Chinese leadership,” he said. Britain and Switzerland have been formally accepted as founding members of the AIIB, China’s Finance Ministry confirmed Saturday.

This comes a day after Brazil accepted an invitation to join the bank. “We should push forward with the creation of a regional hub for financial cooperation,” Chinese President Xi Jinping said Saturday, Reuters reported. China should “strengthen pragmatic cooperation in monetary stability, investment, financing, credit rating and other fields,” Xi said. AIIB has 30 founding members with applications still coming in, according to China’s Finance Ministry. Australia has recently applied to join the bank. The application deadline has been set for March 31. Other nations will still be able to join the AIIB after the deadline expires, but only as common members, Chinese Finance Minister Lou Jiwei said last week. China wants to see the AIIB operational before the end of 2015.

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The Netherlands is home to a disproportionately large number of international construction companies..”

Netherlands Seeks To Join Asian Infrastructure Investment Bank (Reuters)

The Netherlands intends to join the Asian Infrastructure Investment Bank (AIIB), Prime Minister Mark Rutte said on Saturday, becoming the latest U.S. ally to seek membership in the China-led institution despite Washington’s misgivings. Rutte announced the decision on his official Facebook page during a visit to China and after a meeting with President Xi Jinping. “There is a great shortage of financing for infrastructure in Asia,” Rutte said. “An investment bank such as the AIIB can meet this demand, and the Netherlands has much expertise in this area”. The United States had warned against the new institution, but after Britain announced it would join, European allies France, Germany and Italy quickly followed suit this month.

South Korea has said it will join, while Japan is still deciding. The AIIB has been seen as a challenge to the World Bank and Asian Development Bank, and a significant setback to U.S. efforts to extend its influence in the Asia Pacific region to balance China’s growing financial clout and assertiveness. Rutte said joining is in the Netherlands’ interests as a trading nation, and said he hoped it would ultimately create jobs. The Netherlands is home to a disproportionately large number of international construction companies, including many with a focus on dredging and maritime construction such as Boskalis , VolkerWessels, Ballast Nedam, Van Oord and BAM, among others.

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“We want this bank to be the best possible bank with the best possible structure..”

Australia to Join China-Led Development Bank, Says Finance Minister (WSJ)

Australia intends to join the new Asian infrastructure bank China is setting up, becoming the latest U.S. ally to announce its participation despite Washington’s concerns about the way the bank may operate. Australian Finance Minister Mathias Cormann said Saturday that Prime Minister Tony Abbott will make an announcement Sunday about Australia’s application for membership in the Asian Infrastructure Investment Bank. Mr. Cormann, speaking at a conference in China, said the decision comes after “very good” discussions on Friday with Chinese Finance Minister Lou Jiwei. He said Australia had been urging that the bank adopt best practices in lending and operations. “We want this bank to be the best possible bank with the best possible structure,” Mr. Cormann said.

Australia’s decision was expected. China had set a deadline for the end of March for countries to become founding members of the bank. Chinese officials have said that founders’ status that would allow some say over setting rules for the bank, which is expected to start operating by the end of the year with $100 billion in capital. Australia had come under pressure from Washington last year not to join the bank, according to U.S. and Australian officials. Washington has expressed concern that the bank, if not governed properly, would contribute to corruption and indebtedness and supplant institutions such as the World Bank and the Asian Development Bank. But with the March deadline looming, other U.S. allies, from Britain and Germany to South Korea, have in recent weeks gone ahead and announced their intention to join.

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EU countries will never give up independence. So they might as well stop pretending this union thing.

Eurozone Can’t Survive In Current Form, Says PIMCO (Telegraph)

The eurozone is “untenable” in its current form and cannot survive unless countries are prepared to cede sovereignty and become a “United States of Europe”, the manager of the world’s biggest bond fund has warned. The Pacific Investment Management Company (PIMCO) said that while the bloc was likely to stay together in the medium term, with Greece remaining in the eurozone, the single currency could not survive if countries did not move closer together. Persistently weak growth in the eurozone had led to voter unrest and the rise of populist parties such as Podemos in Spain, Syriza in Greece, and Front National in France, said PIMCO managing directors Andrew Bosomworth and Mike Amey. “The lesson from history is that the status quo we have now is not a tenable structure,” said Mr Bosomworth.

“There’s no historical precedent that this sort of structure, which is centralised monetary policy, decentralised fiscal policy, can last over multiple decades.” PIMCO said the rise of populist parties demonstrated how uneasy some people had become about the euro. “[Persistently low growth] manifests itself in a lack of support in the common currency, so then it leads to the rise to power of political parties that want to end it,” said Mr Bosomworth. “That’s what we seen in the last few years. [Populist parties have] risen from zero to be a considerable force. In Greece’s case to form a government. ‘This means we’re in a critical situation, because you cannot just plaster over these people’s concerns, there needs to be a political response as well, which involves addressing the question: what is the ultimate future of the monetary union?”

PIMCO used the example of the Latin and Scandinavian unions in the 19th century, which lasted an average of 50 years before breaking up, to illustrate how monetary unions were incompatible with sovereignty. “You need to reach some sort of political agreement about how to share fiscal resources around the zone. We’re a long, long, long way from designing that and getting the political backing for it,” he said. “So while you’re waiting for that and you’ve got low growth, and high unemployment, you run the risk of letting these anti-euro parties to the forefront.” “Will we get the United States of Europe? It’s not impossible, but Europe could also spend many decades in a hybrid form of a political and fiscal federation. While there might not be one government, one passport and one army, we could be moving closer towards that – but not yet.”

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“No list should go over the will and sovereignty of the people..”

Greek Energy Minister To Visit Moscow, Hits Out At Germany (Reuters)

Greece’s Energy Minister Panagiotis Lafazanis will meet his Russian counterpart and the CEO of energy giant Gazprom in Moscow on Monday, as he hit out at the EU and Germany for tightening a ‘noose’ around the Greek economy. Outspoken Lafazanis, on the left wing of Greece’s co-ruling Syriza party, will meet Russian Energy Minister Alexander Novak and Gazprom Chief Executive Alexei Miller as well as other senior government officials, the energy ministry said on Saturday. But as Athens battles to have a list of reforms accepted by its EU partners in order to secure much-needed funds to stave off bankruptcy, Lafazanis criticized Berlin and said the government must not roll back on its commitments.

“No list should go over the will and sovereignty of the people,” he told Kefalaio newspaper in an interview on Saturday. “The Germanized European Union is literally choking our country and tightening week by week the noose around the economy,” he said. Greece will run out of money by April 20, a source familiar with the matter told Reuters on Tuesday, unless it manages to unlock aid by agreeing on a list of reforms with EU-IMF partners with Lafazanis opposed to several energy privatizations.

The previous center-right government had planned to accelerate the sale of a 65% stake in gas utility DEPA, after an initial attempt to sell to Gazprom in 2013 failed. Within days of Syriza taking power in January, Lafazanis said he would scrap the sale. DEPA has previously negotiated with Gazprom in a bid to get cheaper gas supplies and was one of the first European companies to obtain a rebate in 2011. Lafazanis’ visit will come just over a week before Tsipras is due to meet Russian President Vladimir Putin in Moscow although the Greek government has stressed it is not seeking funding from the Kremlin.

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“..we want a solution, but if things don’t go well you have to bear the bad scenario in mind as well. That is the nature of negotiations.”

Greece Submits Reform Proposals To Eurozone Creditors – With A Warning (Guardian)

Greece submitted a long-awaited list of structural reforms to its creditors on Friday as its leftist-led government warned it would stop meeting debt obligations if negotiations failed and aid was not forthcoming. As officials from the EU, the ECB and the IMF prepared to pore over Athens’s latest proposals, the country’s international economic affairs minister, Euclid Tsakalotos, raised the stakes, saying while Greece wanted an agreement it was prepared to go its own way “in the event of a bad scenario”. He told the Guardian: “We are working in the spirit of compromise, we want a solution, but if things don’t go well you have to bear the bad scenario in mind as well. That is the nature of negotiations.” The government, dominated by the anti-austerity Syriza party, had assembled a package of 18 reforms in the hope of unlocking £7.2bn in financial assistance.

The desire was for a positive outcome, Tsakalotos said, but Athens’s new administration was not willing to abandon its anti-austerity philosophy. Two months after assuming office, the government’s priority remained to alleviate the plight of those worst affected by Greece’s catastrophic five-year-long crisis. The British-trained economist said: “Our top priority remains payment of salaries and pensions. If they demand a 30% cut in pensions, for example, they do not want a compromise.” mThe reform-for-cash deal, the latest twist in Greece’s battle to keep bankruptcy at bay, did not – and would not – include any recessionary measures, a government official said, adding it was hoped the proposals would bolster state coffers with €3bn (£2.2bn) in badly needed revenues.

“The actions proposed though the reforms list foresee revenues of €3bn for 2015, which under no circumstances will come from wage or pension cuts,” he said. “The list does not include recessionary measures.” [..] With the country shut out of international capital markets, economists and officials have warned Athens could run out of money by 9 April, when it must pay €450m to the IMF. “The government is not going to continue servicing public debt with its own funds if lenders do not immediately proceed with the disbursement of funds which have been put on hold since 2014,” said government aides. “The country has not taken receipt of an aid instalment from the EU or IMF since August 2014 even though it has habitually fulfilled its obligations.”

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“Lack of market access, uncertain prospects of timely disbursement from official institutions, and tight liquidity conditions in the domestic banking sector..”

Fitch Downgrades Greece Amid Bailout Uncertainty (AP)

Ratings agency Fitch has downgraded Greeces sovereign rating amid growing uncertainty over the new government’s pledge to overhaul reforms needed to restart bailout loan payments and avoid default. The agency late on Friday said it had lowered the country’s rating deeper into non-investment grade status from B to CCC, citing «extreme pressure on Greek government funding.” Rescue lenders are expected this weekend to start reviewing reforms overhauled by Prime Minister Alexis Tsipras’s new left-wing government. The government has promised to ax austerity measures that cut chronic deficits but kept Greece in a punishing recession for six years. “Lack of market access, uncertain prospects of timely disbursement from official institutions, and tight liquidity conditions in the domestic banking sector have put extreme pressure on Greek government funding,” Fitch said.

“We expect that the government will survive the current liquidity squeeze without running arrears on debt obligations, but … the damage to investor, consumer, and depositor confidence has almost certainly derailed Greece’s incipient economic recovery.” Greece has been unable to borrow on international markets since 2010 due to high borrowing rates that reflect a lack of investor confidence in the country. It has relied since then on funds from a €240 billion bailout from other eurozone countries and the IMF. But its creditors are refusing to release the last installments, worth more than €7 billion, unless the government produces an acceptable list by Monday of reforms aiming to restore the country’s tattered economy.

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Tsipras doesn’t care about the old guard.

Opposition Tells Tsipras To Get Control Of His Party (Kathimerini)

Opposition parties called on Prime Minister Alexis Tsipras over the weekend to get a firmer control on his party, claiming that some sections of SYRIZA are seeking a confrontation with lenders. With talks between technical teams from Greece and the institutions under way in Brussels, Tsipras was due to hold a cabinet meeting on Sunday night to brief his ministers about the content of the government’s proposals and the course of discussions in the Belgian capital. However, opposition parties had earlier expressed concern about Tsipras’s apparent inability to get his party to support a compromise with creditors.

“He does not want to cause a rift because he does not have a mandate from voters for such a move and he knows the consequences would be catastrophic,” PASOK leader Evangelos Venizelos said in an interview with Agora newspaper. “On the other hand, he does not have the parliamentary majority needed to support a clean and honest turn toward responsibility.” To Potami also voiced its concern about the comments from some government members after Energy Minister Panayiotis Lafazanis claimed in an interview with Kefalaio weekly that the only way for Greece to exit the crisis is through “a tough confrontation, if not a clash with German Europe.” “Mr Tsipras has to advise his ministers not to play with fire just so they are liked by the minority within his party and the drachma lobby,” said the centrist party in a statement.

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Nice negotiating partners.

Troika Expects Greece To Miss Primary Surplus Target This Year (Reuters)

The three institutions or troika representing Greece’s official creditors expect Athens could miss its goal of a primary budget surplus this year, German magazine Der Spiegel reported on Saturday citing a source within the group of lenders. Greece’s former conservative government said last year it would achieve a primary surplus of 3.0% of GDP in 2015, but the magazine quoted the source as saying: “Probably nothing will remain from that.” It added Greece’s financial situation had worsened since January due to a lack of reforms under leftist Prime Minister Alexis Tsipras. A spokesman for German Finance Minister Wolfgang Schaeuble declined to comment on the report, that also estimated Greece’s funding gap had grown to up to €20 billion.

Greece has sent its creditors a long-awaited list of reforms with a pledge to produce a small budget surplus this year in the hope that this will unlock badly needed cash, Greek government officials said on Friday. The list estimates a primary budget surplus of 1.5 pct for 2015, below the 3% target included in the country’s existing EU/IMF bailout, and growth of 1.4%, the official said. The Greek finance ministry recently revised last year’s primary budget surplus to 0.3%, from 1.5% of GDP as estimated by the former conservative government and agreed with the country’s international lenders. The finance ministry said its estimate was based on preliminary data and was partly due to a shortfall of €3.9 billion in state revenue late last year. Greece’s deputy prime minister was quoted as saying by China’s official Xinhua news agency that Greece will sell its majority stake in the port of Piraeus within weeks, a u-turn by the government as it seeks funds from its creditors.

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“If the debt is considered official, it will breach the terms of providing financial assistance..”

Ukraine’s $3 Billion Debt To Russia Puts IMF Package At Risk (RT)

Ukraine’s $3 billion debt to Russia could undermine the IMF’s four-year multibillion dollar bailout program. If the debt is considered official, it will breach the terms of providing financial assistance, said IMF spokesperson William Murray. The Ukraine debt includes $3 billion in Eurobonds lent by Russia to the country’s previous government in December 2013. IMF rules say a bailout cannot be provided to a country if it defaulted on a loan from a state institution. “We have a non-tolerance policy,” William Murray told reporters at a news conference on Thursday, adding that Ukraine’s debt to Russia should be considered state debt. “If I’m not mistaken, the $3 billion Eurobond comes from the Russian sovereign wealth fund, so it’s official debt,” he said.

However, the IMF hasn’t yet clarified its attitude towards the whole matter, Murray said. If Russia rejects the possibility of restructuring Ukraine could face imminent default, placing the IMF in an awkward situation. Russia’s Finance Minister Anton Siluanov said Friday he considers Ukraine’s $3 billion debt official. “Russia is definitely acting as the official creditor in this case,” Siluanov said. Siluanov also said that Russia isn’t ready to restructure the Ukrainian debt, as “it is in a difficult situation itself.” Talking about the possibility of settling Ukraine’s debt to lenders through the Paris club of creditor nations, he said that Russia received no official information about Ukraine talking to the club.

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“After international banks cut off links, withdrawals were capped at €2,500 a week, a limit many people are maxing out.”

Andorra On The Brink Of Europe’s Next Banking Crisis (Telegraph)

Andorra, the tiny Catalan principality nestling in the foothills of the Pyrenees between France and Spain, tends to conjure up images of scenic ski resorts, medieval churches and duty-free shopping. The country has for many years enjoyed the benefits of European borders without the restrictions of EU membership, allowing light-touch regulation that has brought in tourism and wealthy expats from its bordering countries. However, in the last three weeks, the state has been gripped by a banking crisis that threatens to take it to the brink. Bankers have been thrown in jail, savers’ deposits have been restricted, and the country’s government is scrambling to convince powerful regulators thousands of miles away that the country is not a haven for tax evasion.

On Tuesday March 10, the US Treasury Department’s financial crime body, FinCEN, accused Banca Privada d’Andorra (BPA), the country’s fourth-largest bank, of money-laundering. The authority said “corrupt high–level managers and weak anti–money-laundering controls have made BPA an easy vehicle for third–party money-launderers”. Three senior managers at the bank accepted bribes to help criminals in Russia, Venezuela and China, to funnel money through the Andorran system, according to FinCEN. The next day, the state took charge of BPA, dismissing three directors. On the Friday, the bank’s chief executive, Joan Pau Miquel, was arrested and detained. Mr Miquel remains in a jail cell in La Comella, the country’s only prison, with a capacity of 145.

At BPA, the Andorran authorities have installed new management. After international banks cut off links, withdrawals were capped at €2,500 a week, a limit many people are maxing out. Banco Madrid, the Spanish subsidiary of BPA acquired as part of an expansion spree in recent years, filed for administration on Wednesday. The Andorran government insists that BPA is an isolated case, saying it is committed to transparency and that the rest of the sector is clean. For its sake, it had better be right, but many experts fear this is not the case. The state’s banks have assets under management 17 times bigger than the economy, and the sector accounts for a fifth of GDP – almost all of the rest is from tourism.

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“..he understands Moscow’s foreign policy concerns and sees no reason to fear a possible Russian threat in Eastern Europe..”

Ex-Chancellor Schroeder Criticizes Merkel’s Russia Policy (RT)

German ex-Chancellor Gerhard Schroeder has slammed Angela Merkel’s policy towards Russia, saying he understands Moscow’s foreign policy concerns and sees no reason to fear a possible Russian threat in Eastern Europe. Schroeder, the chancellor of Germany from 1998-2005, fully recognized Russia’s concerns, which are linked to the growing isolation of the country. “The Warsaw Pact ceased to exist with the end of the Soviet Union, while NATO not only survived, but also has extensively expanded to the East,” he said in a Saturday interview to Der Spiegel. Schroeder said he knows “no one, not even in Russia, who would be so mad as to just consider placing in question the territorial integrity of Poland or the Baltic states,” he said, seeking to lessen the fears of Russia’s Eastern European neighbors.

The Social Democrat also criticized the attitude of Chancellor Angela Merkel towards Russia. He pointed out that Berlin shouldn’t let the EU Commission “have talks about the EU-association only with Ukraine, and not with Russia,” also stressing that “Ukrainian culture is split itself.” Schroeder has insisted that the attempt of the international isolation of Russia is “wrong,” as responsibility for the Ukraine crisis is “on all parties.” He said that “in this conflict, mistakes have been made by all the sides, and they have led to a spiral of threats, sanctions and the resort to force.” However, he said that Crimea joining Russia last year was a “violation of the international law.” Still, commenting on the expulsion of Russia from the G8 group in 2014, he said that “during a crisis talks are absolutely necessary.”

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And you thought your country was corrupt.

Brazil Police Arrest Businessmen Linked to Petrobras Scandal (Reuters)

Brazilian police on Friday arrested two businesspeople in connection to corruption probe focused on state-owned oil firm Petroleo Brasileiro SA (Petrobras). Dario Galvao, chief executive of a construction group, and Guilherme Esteves, a lobbyist who is being investigated for funneling bribe money, were taken to federal police headquarters in the southern city of Curitiba, a court spokesperson said. Federal judge Sergio Moro ordered the arrests after a request by investigators looking into the Petrobas scandal. Investigators said they were led to Galvao by Shinko Nakandakari, an import figure implicated in the scandal who has been cooperating with the investigation.

Judge Moro called Galvao the mastermind of his company’s criminal activity and said he posed a risk of committing more crimes. “There is evidence of crimes for extended periods, starting at least from 2008 to 2014,” Moro wrote in a court decision. Moro said that a search of Esteves’ home “revealed evidence of corruption crimes and money laundering, with the use of secret accounts abroad by Guilherme Esteves de Jesus to make bribe payments… to leaders of Petrobras and (oil rig maker) SeteBrazil.” In a statement, Grupo Galvao said Galvao’s arrest was “without legal grounding” and he had “not committed any crime.” It also said that Galvao Engenharia, its building subsidiary which filed for bankruptcy this week, rejects vehemently any accusations of being part of a corrupt cartel.

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Mar 182015
 
 March 18, 2015  Posted by at 6:25 am Finance Tagged with: , , , , , , , , , ,  4 Responses »


DPC Station at foot of incline, American Falls, Niagara Falls 1890

The US Economy Just Keeps Disappointing (Bloomberg)
‘Hell Will Break Loose’ If Fed Loses Patience (MarketWatch)
Options Market Signals 2007-Like Crash Risk, Goldman Warns (Zero Hedge)
US Housing Starts Plunge Most in Four Years (Bloomberg)
New BoE Regulator Warns Of Risks From US Rate Hikes, Dollar Strength (Reuters)
Europeans Defy US To Join China-Led Development Bank (FT)
Debunking $1.4 Trillion Europe Debt Myth in Post-Heta Age (Bloomberg)
Greek PM Tsipras To Meet Merkel, Draghi In Brussels On Friday (Kathimerini)
Greece WWII Reparations Cause Split Among German MPs (RT)
Athens Furious At Eurogroup Suggestion Of Capital Controls (Kathimerini)
Greece Grabs Cash as More Than $2 Billion in Payouts Loom (Bloomberg)
Greece’s Euro Exit Seems Inevitable (Bloomberg)
EU Warns Against Bills On Debt Settlement, Humanitarian Crisis (Kathimerini)
Japan Exports Slow Sharply In February But Beat Expectations (CNBC)
China New Home Prices Post Sixth Consecutive Monthly Decline (CNBC)
BoE’s Brazier Says Greek Shock Could Trigger Market Correction (Bloomberg)
EU Support for Russia Sanctions Is Waning (Bloomberg)
ECB Celebration of Its New $1.4 Billion Tower Spoiled by Protests (Bloomberg)
Bolivia: A Country That Dared to Exist (Benjamin Dangl)

“..relative to where economists thought we would be, the U.S. is missing by a large margin..”

The US Economy Just Keeps Disappointing (Bloomberg)

Last week, we reported on how the U.S. economy was the most disappointing major economy in the world based on the Bloomberg Economic Surprise Index, which measures incoming economic data against economist expectations. These measures tend to move in cycles, as they reflect both the absolute economic data as well as the optimism or pessimism of the forecasters, which is in itself cyclical. For the U.S. we keep driving lower, hitting depths not seen since the economic crisis. Again, this doesn’t mean that the economy is anywhere near as bad as it was then. But whether it’s a slowdown caused by the harsh winter or something else, relative to where economists thought we would be, the U.S. is missing by a large margin.

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“On the other hand, if Janet is patient and says so, we’re all going to make an absurd amount of money.”

‘Hell Will Break Loose’ If Fed Loses Patience (MarketWatch)

Daytraders tend to relish when the market bounces around like a leprechaun on a hot griddle. But for everybody else, it’s tense times in the trading pits these days. While a calm often settles over markets in the days leading into a hyped-up Fed statement, recent action says to gird for more rockiness. Dips are being bought and profits are being scalped. Yet for all the sparks flying on the S&P, its up only 1% so far this year. That’s better than down, of course, unless you’re betting the “don’t pass” line. But compare that with the 24% explosion to the upside on Germany’s main index, and you’d be pardoned for suffering Teutonic envy. Shanghai, while no Germany, is also doing better than U.S. stocks, and a tandem of brokers are feeling the bull run in China has a long way to run (see call of the day).

Nevertheless, the U.S. is still firmly entrenched in its own bull party, despite recent queasiness. In fact, we’re just about 2,200 days into it. Another two months, and this bull market will overtake the one from 1974-1980 as the third-longest since 1929, according to Bloomberg. Getting there just might hinge on the Fed’s next move. It could go either way, according to the Fly from the iBankCoin blog, who spoke of extremes. “If we find out this Wednesday that [Janet Yellen] is not, in fact, patient, hell will break loose and 66 seals of hell will be broken — paving way for actual centaurs to roam, wall-kicking people in the faces with their hooves,” he wrote. “On the other hand, if Janet is patient and says so, we’re all going to make an absurd amount of money.”

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“..an epic decoupling of put prices and S&P P/E ratios”

Options Market Signals 2007-Like Crash Risk, Goldman Warns (Zero Hedge)

Although US equity prices have demonstrated a remarkable propensity to completely disregard apparently unimportant things like macro fundamentals, forward earnings estimates, and top-line growth projections, we’ve long argued that eventually, reality will come calling and the farther stretched valuations become in the meantime, the more painful the correction will be. As we noted on Sunday, the cracks are starting to form as DB became the first sell-side firm to predict that EPS will in fact not grow in 2015, prompting us to remark that “EPS growth in 2015 [is] now a wash (if not negative), which implies the only upside for the S&P 500 will once again come from substantial multiple expansion.” Against this backdrop of declining revenues, declining earnings, and pitiable economic projections (thanks a lot Atlanta Fed Nowcast), we bring you yet another sign that a “correction” may indeed be in the cards: an epic decoupling of put prices and S&P P/E ratios. Here’s Goldman:

Long-dated crash put protection costs on the SPX have more than doubled over the past 9 months. We believe it is an important development to watch as it implies investors are increasingly concerned about downside risk even as US equities trade near all-time highs. Based on our conversations with investors over the past few months, it appears the increase in long-dated put prices has largely gone unnoticed among equity and credit investors. In fact, Investment Grade credit spreads have actually tightened slightly over the same period. The rise in long-dated equity put prices may signal an increasing fear that a substantial market correction is on the horizon, despite low short-term put prices which suggest low probably of a near-term drawdown vs history.

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“It was just the weather, basically..”: “Starts of single-family properties dropped 14.9%..” “New construction slumped a record 56.5% in the Northeast..”

US Housing Starts Plunge Most in Four Years (Bloomberg)

Housing starts slumped in February by the most in four years as bad winter weather in parts of the U.S. prevented builders from initiating new projects. Work began on 897,000 houses at an annualized rate, down 17% from January and the fewest in a year, the Commerce Department reported Tuesday in Washington. The median estimate of 80 economists surveyed by Bloomberg called for 1.04 million. “It was just the weather, basically,” said Richard Moody, chief economist at Regions Financial Corp. in Birmingham, Alabama. Still, “my view of the recovery in single-family housing is that it’s coming more gradually than others think.” An increase in building permits was driven by applications for multifamily units, indicating single-family construction, the biggest part of the market, will keep struggling.

While stronger hiring and low borrowing costs have helped the industry advance, sales remain challenged by limited supply of cheaper homes and sluggish wage growth. The median estimate of 81 economists in the Bloomberg survey called for 1.04 million starts. Estimates ranged from annualized rates of 975,000 to 1.08 million after a previously reported January pace of 1.07 million. Building permits climbed 3% to a 1.09 million annualized pace, the fastest since October, after a 1.06 million rate a month earlier. They were projected at 1.07 million, according to the Bloomberg survey median. Permits for single-family dwellings were the lowest since May.

Stock-index futures held losses after the figures. The contract on the Standard & Poor’s 500 Index maturing in June dropped 0.3% to 2,063.3. Starts of single-family properties dropped 14.9% to a 593,000 rate in February. Construction of multifamily projects such as condominiums and apartment buildings decreased 20.8% to an annual rate of 304,000. New construction slumped a record 56.5% in the Northeast and fell 37%, the most since January 2014, in the Midwest. Starts also dropped in the South and West, indicating weather was only partly to blame.

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Hollow.

New BoE Regulator Warns Of Risks From US Rate Hikes, Dollar Strength (Reuters)

The start of U.S. interest rate rises could inject volatility into global financial markets and create risks for Britain’s financial stability, a new member of the Bank of England’s top panel of financial regulators said on Tuesday. Alex Brazier, who took a seat on the BoE’s Financial Policy Committee on Monday, cited the normalisation of U.S. borrowing costs as one of the main global risks for markets. The FPC was set up in 2013 after the failure of Britain’s financial regulation to protect the country against the 2007-08 financial crisis. Last year it imposed curbs on large mortgages and required banks to hold more reserves against potential losses. Brazier – in remarks which share concerns expressed by other BoE officials – said rate hikes by the U.S. Federal Reserve or a change in perceptions of their timing and scale would reflect good news about the U.S. economic recovery.

“However, it would probably reduce the extent of the search for yield and prompt a reduction in global risk appetite,” Brazier said in answer to questions from members of parliament who are reviewing his appointment. Brazier joined the BoE in 2001 after university, and most recently served as principal private secretary to Governor Mark Carney and his predecessor, Mervyn King. “Both of them pushed me to the edges of my limits,” Brazier said, noting that his hair had turned prematurely grey. Brazier is now the BoE’s executive director for financial stability, strategy and risk. This is a new role created last year by Carney as part of a shake-up of the bank. BoE chief economist Spencer Dale briefly held the job before he quit to become chief economist for oil company BP.

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“.. the White House criticism of Britain was a case of sour grapes: “They couldn’t have got congressional approval to join the AIIB, even if they wanted to.”

Europeans Defy US To Join China-Led Development Bank (FT)

France, Germany and Italy have all agreed to follow Britain’s lead and join a China-led international development bank, according to European officials, delivering a blow to US efforts to keep leading western countries out of the new institution. The decision by the three European governments comes after Britain announced last week that it would join the $50bn Asian Infrastructure Investment Bank, a potential rival to the Washington-based World Bank. Australia, a key US ally in the Asia-Pacific region which had come under pressure from Washington to stay out of the new bank, has also said that it will now rethink that position.

The European decisions represent a significant setback for the Obama administration, which has argued that western countries could have more influence over the workings of the new bank if they stayed together on the outside and pushed for higher lending standards. The AIIB, which was formally launched by Chinese President Xi Jinping last year, is one element of a broader Chinese push to create new financial and economic institutions that will increase its international influence. It has become a central issue in the growing contest between China and the US over who will define the economic and trade rules in Asia over the coming decades. When Britain announced its decision to join the AIIB last week, the Obama administration told the Financial Times that it was part of a broader trend of “constant accommodation” by London of China.

British officials were relatively restrained in their criticism of China over its handling of pro-democracy protests in Hong Kong last year. Britain tried to gain “first mover advantage” last week by signing up to the fledgling Chinese-led bank before other G7 members. The UK government claimed it had to move quickly because of the impending May 7 general election. The move by George Osborne, the UK chancellor of the exchequer, won plaudits in Beijing. Britain hopes to establish itself as the number one destination for Chinese investment and UK officials were unrepentant. One suggested that the White House criticism of Britain was a case of sour grapes: “They couldn’t have got congressional approval to join the AIIB, even if they wanted to.”

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A potential bombshell.

Debunking $1.4 Trillion Europe Debt Myth in Post-Heta Age (Bloomberg)

Austria’s decision to burn bondholders of a failed state bank may mean almost €1.3 trillion of European debt once deemed risk-free now comes with a hazard warning. Austria is the first country to wind down a bank, Heta, under the EU’s new Bank Recovery and Resolution Directive after changing laws last year to allow it to write down subordinated debt of its failed predecessor, Hypo Alpe-Adria-Bank. The government is also refusing to stand behind guarantees by the province of Carinthia on Heta’s senior debt. The moves are putting bondholders at risk of losses. As age-old banking mores clash with modern banking rules, investors are being forced to take a second look at how governments have used explicit or implicit promises in the past to issue debt that doesn’t show up in official ledgers.

“People had too much trust in public authorities,” said Otto Dichtl, a credit analyst for financial companies at Stifel Nicolaus. “Austria dropping Carinthia like this is an extraordinary step. We have to see just how this is carried out. From a legal perspective, this is uncharted territory.” Based on current bond prices, Heta’s senior creditors, who bought securities covered by a guarantee from Carinthia province, face losses of more than 40% on their €10.2 billion of debt. Carinthia, a southern Austrian region of 556,000 people with annual revenue of less than €2.4 billion, may face insolvency if the guarantees are triggered. Until this year, figures for debt guarantees weren’t disclosed in most European countries, a fact that helped Greece conceal its true debt levels to gain entry to the euro in 2001.

Greece undertook the biggest debt restructuring on record in 2012. New rules by the European Council, known as the “six pack” directive, led to data as of 2013 being published for the first time last month, revealing €1.28 trillion of government guarantees. The EU introduced the six laws in 2011. As the EU’s biggest user of guarantees, Austria has contingent liabilities corresponding to 35% of national output, or €113 billion, the data show. It isn’t just Austria that has liberally applied state guarantees. Ireland has contingent liabilities equivalent to 32% of its economy, reflecting the collapse of its banking system, while Germany’s tally stands at more than 18% of output. German guarantees, encompassing €512 billion, are the biggest in absolute terms, followed by Spain with €193 billion and France with €117 billion.

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Merkel gets closer.

Greek PM Tsipras To Meet Merkel, Draghi In Brussels On Friday (Kathimerini)

With Greece rapidly running out of funds, Prime Minister Alexis Tsipras has proposed an urgent meeting on the sidelines of the European Union summit that begins on Thursday in a bid to reach an agreement that would allow Athens to get more funds. Greece urgently needs between €3 and €5 billion. Tsipras on Tuesday telephoned European Council President Donald Tusk and asked him to convene a meeting with Chancellor Angela Merkel, President Francois Hollande, ECB President Mario Draghi and EC President Jean-Claude Juncker. The meeting will be held on Friday morning, despite the fact that European officials questioned its use.

Sources in Brussels said the proposal was a mistake, as it focused on meeting with the leaders of two countries, and the heads of the ECB and the Commission, rather than pursuing a collective agreement in the EU, and it was not clear what Tsipras wanted to achieve. If the aim was to achieve more funding, this would have to be the subject of technical discussions between experts and could not be dealt with at the political level. However, with teams of experts still unable to reach a conclusion as to Greece’s financing needs and its compliance with the bailout agreement, agreement at the political level is precisely what Tsipras is after.

He wants an agreement on a framework that will set out what Greece must do in order to get the ECB to allow his country to borrow more, a source in Tsipras’s office told Kathimerini. Tsipras is prepared to accept reforms that will be proposed by Greece’s partners, including privatization, the same source said. They stressed that Athens would draw the line at adopting further austerity measures. “We accept everything else, on the basis of the commitments made in [Finance Minister] Yanis Varoufakis’s letter to the Eurogroup,” the source added. The Greek prime minister is to meet the German chancellor in Berlin on March 23, following an invitation from Merkel on Monday.

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That’s what I said: “Germany can’t simply sweep the demands from Greece off the table.”

Greece WWII Reparations Cause Split Among German MPs (RT)

Several senior Social Democrats (SPD) and Greens have for the first time acknowledged that Greece has a case for WWII reparations. This contradicts the stance of German Chancellor Angela Merkel’s government which had ruled it out. “We should make a financial approach to victims and their families,” said Gesine Schwan, chairwoman of the Social Democratic Party (SPD) values committee told Der Spiegel Online on Tuesday. “It would be good for us Germans to sweep up after ourselves in terms of our history,” she said. “Victims and descendants have longer memories than perpetrators and descendants,” said Schwan, who was nominated as a candidate for President twice in 2004 and 2009. SPD deputy leader Ralf Stegner agreed that the issue should be resolved, however independently from the current debate over the Euro crisis and Greek sovereign debt.

“But independently, we must have a discussion about reparations,” Ralf Stegner told Spiegel. “After decades, there are still international legal questions to be resolved.” SPD is the second major party in Germany that shares power with Merkel’s conservative Christian Democratic Union and the Christian Social Union (CDU/CSU). The SPD were joined by the Green party, with leader Anton Hofreiter saying that “Germany can’t simply sweep the demands from Greece off the table.” “This chapter isn’t closed either morally or legally.” Demands for reparations from Germany dating back to the Nazi occupation during World War II have been voiced by Greek politicians over the past 60 years, but have gained renewed energy amid the recent financial crisis and tough austerity measures in exchange for largely German-backed loans.

In April 2013 Greece officially declared that it would pursue the reparations scheme. Greece’s Prime Minister Alexis Tsipras leader of the anti-austerity Syriza party relaunched the heated debate in February by saying that Athens has a “historical obligation” to claim from Germany billions of euros in reparations for the physical and financial destruction committed during Nazi occupation. However, Germany’s government has said that this issue has already been legally resolved, arguing that Greece is trying to detract attention from the serious financial problems the country is facing.

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“We cannot easily understand the reasons that pushed him to make statements that are not fitting to the role he has been entrusted with.”

Athens Furious At Eurogroup Suggestion Of Capital Controls (Kathimerini)

The chairman of the Eurogroup, Dutch Finance Minister Jeroen Dijsselbloem, on Tuesday became the first European Union official to suggest the possibility of capital controls to prevent Greece leaving the euro, drawing a furious reaction from Athens, which accused him of “blackmail.” “It’s been explored what should happen if a country gets into deep trouble – that doesn’t immediately have to be an exit scenario,” Bloomberg quoted the head of the eurozone’s finance ministers telling his country’s BNR Nieuwsradio. On Cyprus, he said, “we had to take radical measures, banks were closed for a while and capital flows within and out of the country were tied to all kinds of conditions, but you can think of all kinds of scenarios.”

Greece is scrambling to pay its obligations as revenues drop and it needs the European Central Bank to allow it to borrow more funds. Its eurozone partners are awaiting the result of an inspection into Greece’s finances and its compliance with the bailout program. In Athens, the government issued an angry reply. “It would be useful for everyone and for Mr. Dijsselbloem to respect his institutional role in the eurozone,” Gavriil Sakellaridis said. “We cannot easily understand the reasons that pushed him to make statements that are not fitting to the role he has been entrusted with. Everything else is a fantasy scenario. We find it superfluous to remind him that Greece will not be blackmailed.”

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Schaeuble keeps at it: “Greek leaders are “lying to the population..”

Greece Grabs Cash as More Than $2 Billion in Payouts Loom (Bloomberg)

Greece will begin debating measures to boost liquidity as the cash-starved country braces for more than €2 billion in debt payments Friday. Unable to access bailout funding and locked out of capital markets, the government will outline emergency plans to parliament Tuesday to increase funding. Payments due March 20 include interest on a swap originally arranged by Goldman Sachs, said a person familiar with the matter who asked not to be identified publicly discussing the derivative. Prime Minister Alexis Tsipras’s government is burning through cash while trying to get its creditors – euro area member states, the ECB and the IMF – to release more money from its €240 billion bailout program.

European governments have said they won’t disburse any more emergency loans unless the government in Athens implements a set of economic overhauls agreed last month, including pension and sales tax reform. “As days go by, room for maneuver becomes ever smaller,” said Theodore Pelagidis at the Brookings Institution. “The impression given is that there’s no plan A or plan B. There’s nothing.” The government’s revenue-boosting plan includes eliminating fines on those who submit overdue taxes by March 27 to encourage payment, helping cover salaries and pensions due at the end of the month. The bill also requires pension funds and public entities to invest reserves held at the Bank of Greece in government securities and repurchase agreements, and transfers €556 million from the country’s bank recapitalization fund to the state.

A vote on the measures is scheduled for Wednesday. Greek stocks rebounded Tuesday, ending four days of declines, with the benchmark Athens Stock Exchange gaining 2.6%. Yields on 3-year bonds rose 8 basis points to 20.25%. The government said March 14 it has a plan to “enhance its liquidity” and won’t have problems meeting payments for civil servants and retirees due just one week after the March 20th debt payments. Tsipras has pledged to meet the country’s obligations while at the same time ending austerity measures. “None of my colleagues, or anyone in the international institutions, can tell me how this is supposed to work,” German Finance Minister Wolfgang Schaeuble said in Berlin Monday. Greek leaders are “lying to the population,” he said.

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“Put them in front of their contradictions. Make them face the contradictions of the eurozone themselves.”

Greece’s Euro Exit Seems Inevitable (Bloomberg)

Greece’s money troubles resemble a game of pass the parcel, where each successive participant rips another sheet of wrapping paper off the box — which turns out to be empty when the final recipient reaches the core. With time and money running out, a successful endgame seems even less likely than it did a week or a month ago. It’s increasingly obvious that the government’s election promises are incompatible with the economic demands of its euro partners. Something’s got to give. The current money-go-round is unsustainable. Euro-region taxpayers fund their governments, which in turn bankroll the ECB. Cash from the ECB’s Emergency Liquidity Scheme flows to the Greek banks; they buy treasury bills from their government, which uses the proceeds to …repay its IMF debts! No wonder a recent poll by German broadcaster ZDF shows 52% of Germans say they want Greece out of the euro, up from 41% last month.

There’s blame on both sides for the current impasse. Euro-area leaders should be giving Greece breathing space to get its economic act together. But the Greek leadership has been cavalier in its treatment of its creditors. It’s been amateurish in expecting that a vague promise to collect more taxes would win over Germany and its allies. And it’s been unrealistic in expecting the ECB to plug a funding gap in the absence of a political agreement for getting back to solvency. There’s a YouTube video making the rounds on Twitter this week of a lecture Yanis Varoufakis gave in Croatia in May 2013. The most arresting section comes after about two minutes, when the current Greek finance minister literally flips the bird at Germany [..] And if what Varoufakis went on to say is instructive of the game-theory professor’s mind-set, the lack of progress in negotiations with lenders isn’t so surprising:

The most effective radical policy would be for a Greek government to rise up or a Greek prime minister or minister of finance, to rise up in EcoFin in the euro group, wherever, and say “folks, we’re defaulting. We shall not be repaying next May the 6 billion that supposedly we owe the ECB. My God you know, to have a destroyed economy that is borrowing from the ESM to pay to the ECB is not just idiotic, but it’s the epitome of misanthropy.

Say no to that. Put them in front of their contradictions. Make them face the contradictions of the eurozone themselves. Because the moment that the Greek prime minister declares default within the euro zone, all hell will break loose and either they will have to introduce shock absorbers, or the euro will die anyway, and then we can go to the drachma.

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A sovereign nation?

EU Warns Against Bills On Debt Settlement, Humanitarian Crisis (Kathimerini)

The European Commission’s chief representative on the technical team monitoring Greece, Declan Costello, has described draft laws aimed at tackling the humanitarian crisis and launching a 100-installment payment scheme for taxpayers to settle their debts to the state as unilateral actions taken in a fragmentary fashion, according to a text he has reportedly sent to the Greek side. Costello effectively vetoes the bills in his letter, arguing that they are not compatible with the Eurogroup’s February 20 agreement with Athens, as Paul Mason – a journalist who claims to have seen the correspondence between Costello and the Greek authorities – revealed on Tuesday.

There was no reaction to the news from the Finance Ministry up until late last night, with officials pointing to the list of seven actions that Finance Minister Yanis Varoufakis submitted to the latest Eurogroup meeting which, according to the ministry, included the above bills. Nevertheless other government officials confirmed the existence of the text sent by Costello and noted that certain points related to the draft laws – especially those concerning the settlement of debts to tax authorities – must be clarified.

According to the text that Mason published as a Costello letter, the Commission representative says that those bills will have to be included in the general context of reform promotion. “We would strongly urge having the proper policy consultations first, including consistency with reform efforts. There are several issues to be discussed and we need to do them as a coherent and comprehensive package,” Costello reportedly told the government: “Doing otherwise would be proceeding unilaterally and in a piecemeal manner that is inconsistent with the commitments made, including to the Eurogroup as stated in the February 20 communique.” The debt settlement bill was tabled in Parliament on Tuesday night.

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“A plunge in export volumes offset another decline in the cost of oil imports. Net exports should therefore become a drag on [GDP] growth soon..”

Japan Exports Slow Sharply In February But Beat Expectations (CNBC)

Japan’s exports rose at a faster-than-expected pace in February but slowed sharply from the previous month as exports to China waned amid the Lunar New Year holidays. Exports rose 2.4% on year, Ministry of Finance data showed on Wednesday, above expectations for a 0.3% increase in a Reuters poll, but down from a 17% on-year rise in January. Despite the above-view reading, exports were sharply lower compared to January’s reading largely due to 17.3% on-year drop in exports to China, which celebrated the Lunar New Year holiday during February. “A plunge in export volumes offset another decline in the cost of oil imports. Net exports should therefore become a drag on [GDP] growth soon,” Marcel Thieliant, Japan economist at Capital Economics, said in a note.

But Mizuho Bank analysts were more optimistic. “We think this supports the [Bank of Japan’s] view of an ongoing, gradual recovery, underpinning its decision to withhold from adding further stimulus even as [central bank governor] Kuroda expresses his view that inflation might turn negative due to oil prices,” it say in a note. Meanwhile, imports fell 3.6% on year in February, sharply below expectations for a 3.1% increase in a Reuters poll. “[The] drop in import values was largely caused by another decline in petroleum import values, which reached the lowest since late 2010,” Thieliant said. “Judging by the Bank of Japan’s import price index, the plunge in the price of crude oil since last summer has now mostly been reflected in the cost of oil imports. However, import prices of natural gas, which tend to follow the price of crude oil with a lag of about six months, have just started to fall. The trade shortfall may therefore still narrow a touch further in the near-term.”

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“New home prices fell 5.7% on year in February..”

China New Home Prices Post Sixth Consecutive Monthly Decline (CNBC)

China new home prices registered their sixth straight month of annual decline in February, as tepid demand continued to weigh on sentiment despite the government’s efforts to spur buying. New home prices fell 5.7% on year in February, according to Reuters calculations based on fresh data from the National Bureau of Statistics on Wednesday. The reading was worse than January’s 5.1% decline and marks the largest drop since the current data series began in 2011. Meanwhile, both Beijing and Shanghai clocked home price declines. In Beijing, prices fell 3.6% on year following a 3.2% drop in January, while prices in Shanghai fell 4.7%, following January’s 4.2% drop.

However, in a statement after the data was released the Chinese statistics bureau said that home sales are expected to show a significant rebound in March, according to Reuters. “The news isn’t great, and it hasn’t been great for some time. The credit crunch in China is very real and prices do have to adjust after a very long time,” John Saunder, head of APAC at Blackrock told CNBC. “I think the China government is trying to make moves to stabilize things. They’ve undergone a lot of policies and obviously the [central bank] is now reducing the policy rates, so that will all help. but you can’t turn it around instantly,” he said.

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No kidding.

BoE’s Brazier Says Greek Shock Could Trigger Market Correction (Bloomberg)

A failure to find a political solution to Greece’s sovereign debt problem could trigger a market correction, Bank of England official Alex Brazier said. “A bad outcome in these negotiations could trigger a broader reassessment of risk in financial markets,” Brazier, executive director for financial stability at the BOE, told U.K. lawmakers in London on Tuesday. “We start from a position where market pricing looks potentially subject to correction,” he said. “I don’t view Greece as a big direct risk but it could potentially be a trigger for a market reappraisal” Greek Prime Minister Alexis Tsipras’s government is negotiating with euro-area member states, the ECB and the IMF to release more money from its bailout program.

European governments have said they won’t disburse any more emergency loans unless the government in Athens implements a set of economic overhauls agreed last month, including pension and sales tax reform. “I don’t presume to know how likely it is for Greece to leave the euro,” Brazier said. “Although the economic issue is in some ways very simple – there’s a debt overhang that needs to be dealt with – the way that is dealt with is a political issue and I don’t presume to be able to forecast in any way” how the talks will progress, he said. Brazier said U.K. banks’ direct exposure to Greece was small, “amounting to about £2 billion ($3 billion), which is about 1% of their common equity.”

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Given the propaganda underlying the sanctions, inevitable.

EU Support for Russia Sanctions Is Waning (Bloomberg)

For evidence of the European Union’s diminishing appetite for sanctions against Russia, look no further than Vladimir Putin’s Kremlin guestbook. Cyprus President Nicos Anastasiades visited the Russian leader in February, granting the Russian navy access to Cypriot ports; March brought Italian Prime Minister Matteo Renzi, labeled a “privileged partner” by Putin; Greek Prime Minister Alexis Tsipras is due next in Moscow, in April. Along with Hungary, Slovakia, Austria and Spain, the three countries were reluctant backers of economic curbs to protest Russia’s interference with Ukraine. As a wobbly truce takes hold in eastern Ukraine, the anti-sanctions bloc will lay down a marker at an EU summit starting Thursday in Brussels.

“The likeliest outcome is that they will not agree to roll over the sanctions now and they will put off a decision until the last possible moment before the sanctions expire,” Ian Bond, a former British diplomat now with the Centre for European Reform in London, said by phone. EU governments halted trade and visa talks with Russia and started blacklisting Russian politicians and military officers last March, after the annexation of Crimea. Those asset freezes and travel bans were extended by six months in January 2015. It took the shooting down of a Malaysian passenger jet over eastern Ukraine in July to prompt wider-ranging curbs including bans on financing of major Russian banks and the sale of energy-exploration gear to Russia’s resource-dependent economy. Those “stage three” measures are set to expire in July.

Proponents of extending them are led by Poland, the Baltic states and the U.K., and count as one of their own the EU president and summit chairman: former Polish Prime Minister Donald Tusk. The hawks have already backed down by seeking a five-month prolongation until the end of 2015, instead of the usual 12 months. “At some time there should be a decision in our view about the extension of the sanctions until the end of the year,” Lithuanian Foreign Minister Linas Linkevicius said in an interview in Brussels at a meeting of EU diplomats on Monday. Even that is a stretch, at least at this week’s summit. Sanctions require all 28 EU countries to agree, enabling skeptics to play for time, shape policies to their liking and, in the extreme, cast a veto. Greece’s new government, for example, voiced discomfort about renewing the blacklists in January before finally going along.

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As it should be. How can you spend $1.4 billion in tax money, where a few million would have done, when people have no health care, unless you’re a full-blown megalomaniac?!

ECB Celebration of Its New $1.4 Billion Tower Spoiled by Protests (Bloomberg)

As the ECB prepares to inaugurate its new headquarters four months after moving in, more than 10,000 protesters are seeking to spoil the party. Frankfurt, the euro area’s financial capital and home of the common currency, is bracing for demonstrations and sit-ins on Wednesday at locations throughout the city by anti-austerity groups and organizations sympathizing with the plight of Greece. At the ECB’s €1.3 billion premises in the east end, police have erected barbed wire and barricades to keep the protesters at least 10 meters (33 feet) away. “We want a march open to anyone, peaceful and not harming anyone,” Ulrich Wilken, a lawmaker for the Left Party in the Hesse state parliament, said on Tuesday after meeting with police to outline the marchers’ objectives.

“We want an atmosphere of peaceful protest, not the kind of situation the police prepares for with its tanks.” Nine days after the ECB started buying sovereign debt in a €1.1 trillion plan to revive inflation and rescue the economy, protesters are laying the blame for recession and unemployment in the 19-nation euro area at the doors of ECB President Mario Draghi and German Chancellor Angela Merkel. A new government in Greece, led by the leftist Syriza party, is preparing emergency measures to boost liquidity as the cash-starved country braces for more than €2 billion in debt payments on Friday. The country is unable to access bailout funding as it haggles with euro-area governments over the terms of its aid program. Its lenders have been cut off from regular ECB finance lines and pushed onto emergency credit from the Greek central bank.

“In the past, we protested against things like the rescue of the banks in Europe,” said Werner Renz, a representative of protest group Attac. “The focus of our protests this year is on Greece. We need more of Athens in Europe and less of Berlin. There is no way Greece can repay all its debt. The situation can’t be solved by austerity alone.” Draghi is scheduled to host an inauguration ceremony at 11 a.m. with guests including Frankfurt Mayor Peter Feldmann and Hesse’s Economy Minister Tarek Al-Wazir.

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“..indigenous language education, gender parity in government, historical memory, indigenous forms of justice, anti-racism initiatives, and indigenous autonomy.”

Bolivia: A Country That Dared to Exist (Benjamin Dangl)

This movement toward decolonization in the Andes is as old as colonialism itself, but the process has taken a novel turn with the administration of Morales, Bolivia’s first indigenous president. Morales, a former coca farmer, union organizer, and leftist congressman, was elected president in 2005, representing a major break from the country’s neoliberal past. Last October, Morales was re-elected to a third term in office with more than 60% of the vote. His popularity is largely due to his Movement Toward Socialism (MAS) party’s success in reducing poverty, empowering marginalized sectors of society, and using funds from state-run industries for hospitals, schools and much-needed public works projects across Bolivia.

Aside from socialist and anti-imperialist policies, the MAS’s time in power has been marked by a notable discourse of decolonization. Five hundred years after the European colonization of Latin America, activists and politicians linked to the MAS and representing Bolivia’s indigenous majority have deepened a process of reconstitution of indigenous culture, identity and rights from the halls of government power. Part of this work has been carried forward by the Vice Ministry of Decolonization, which was created in 2009. This Vice Ministry operates under the umbrella of the Ministry of Culture, and coordinates with many other sectors of government to promote, for example, indigenous language education, gender parity in government, historical memory, indigenous forms of justice, anti-racism initiatives, and indigenous autonomy.

Before becoming the Vice Minister of Decolonization when the office opened, Félix Cárdenas had worked for decades as an Aymara indigenous leader, union and campesino organizer, leftist politician and activist fighting against dictatorships and neoliberal governments. As a result of this work, he was jailed and tortured on numerous occasions. Cárdenas participated the Constituent Assembly to re-write Bolivia’s constitution, a progressive document which was passed under President Morales’ leadership in 2009. This trajectory has contributed to Cárdenas’ radical political analysis and dedication to what’s called the Proceso de Cambio, or Process of Change, under the Morales government.

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