The Automatic Earth

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

As I wrote a few days ago: it’s all about credibility and confidence.

• US Stocks Tumble As Fed Sows Fear And Confusion (MarketWatch)

U.S. stocks sank Friday, with the S&P 500 and the Dow Jones Industrial Average closing down for the week, as Federal Reserve’s decision to leave interest rates unchanged fueled fears about global economic growth. The central bank cited concerns about the global economy and a lack of inflation growth in its Thursday decision to leave interest rates unchanged. “Many are confused by the outcome of the recent Fed meeting,” said Kent Engelke at Capitol Securities. “Markets hate confusion and lack of clarity.” The S&P 500 skidded 32.16 points, or 1.6%, to close at 1,958.08 for a weekly loss of 0.2%. All S&P 500 sectors finished lower, led by energy shares. The Dow Jones dropped 289.95 points, or 1.7%, to close at 16,384.79 with all 30 components in the red. The blue-chip index edged down 0.3% for the week.

The Nasdaq shed 66.72 points, or 1.4% to 4,827.23. The tech-heavy index is the only one of the three major stock barometers to finish out the week higher with gains of 0.1%. Trading volume was elevated, with 5.74 billion shares changing hands on the New York Stock Exchange, due to “quadruple witching,” which means the expiration of various stock-index futures, stock-index options, stock options and single-stock futures. Friday is the second highest volume day of the year. “By not raising the rates, the Fed is now fanning global growth fears,” said Steven Wieting, global chief investment strategist, at Citi Private Bank. “The key for future market action depends largely on whether or not the Fed had any good cause to worry about international developments,” Wieting said.

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Setback of easy money: “..the bottom of the ladder has gotten more crowded..”

• The Fed Has To Deal With Its Own Zombie Apocalypse (CNBC)

The Federal Reserve is scared—of lots of things, some obvious, some not so much. Thursday’s Fed decision to delay yet again the long-awaited liftoff from zero rates gave rise to still more speculation about why the U.S. central bank seems so perpetually reticent to normalize monetary policy. There are all the usual suspects, such as low inflation, weak wage gains despite strong job growth and China plus the rest of the emerging global economy. One reason that hasn’t gotten much attention is the need for the Fed to keep rates low both for government debt and the corporations that now have $12.5 trillion in debt. Among the prime beneficiaries of zero interest rates have been low-rated companies that have been able to borrow money at rates often in the 5% to 6% range.

A move to higher rates, even a small one, could have outsized impacts on those bad balance sheet companies.That puts the Fed in a bit of a Faustian bargain with issuers and holders that has become hard to break. Not only has high-yield issuance exploded in the days of the central bank’s ultra-easy accommodation, but the bottom of the ladder has gotten more crowded as well. About a quarter of all debt issued now in the junk universe is held by companies rated B3 or lower, according to Moody’s. Credit standards have continued to loosen as well, with the ratings agency reporting that its covenant quality index—essentially a read on how strict the conditions are on corporate borrowers—is at record lows.

“Businesses as a whole in the U.S. are better placed now to absorb any shocks that might hit them,” Bodhi Ganguli, senior economist at Dun & Bradstreet, said in a phone interview. “However, there are pockets of greater weakness like these zombie companies. These pockets are likely to see some more turbulence than overall conditions. Some companies definitely will go out of business.” It isn’t just the zombies, though, that should worry about higher rates. Corporate America overall has been piling on the debt, which grew 8.3 percent in the second quarter, according to figures the Fed released Friday.

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Would love to see a legal challenge to this. Can the Fed create its own mandates?

• A ‘Third Mandate’ For Fed As China Worries Take Hold (CNBC)

Has the U.S. Federal Reserve become the world’s economic guardian? The central bank’s decision not to lift interest rates this week because of weakening global growth and a recent surge in market volatility has sparked talk of a “third mandate.” Analysts say that explicit references by the Fed following its meeting on Thursday to the China slowdown and its impact mark a significant departure for the central bank, which is mandated to ensure job creation and price stability in the U.S. economy. “The Federal Reserve’s third mandate appears to be global financial stability,” Mark Haefele at UBS said.

“The U.S. central bank has backed away from its first rate rise in over nine years, saying that international economic and financial weakness could dampen activity in the U.S.,” he said. Economists had been split over whether the Fed would deliver a long-anticipated rate increase this week and market expectations for when rates will rise have been pushed back further following a dovish Fed statement. In fact, one reason for the scaling back of rate-hike speculation in recent weeks has been growing concern about weakness in China – the world’s second-largest economy after the U.S. – and a sharp sell-off in emerging and developed markets in August. According to Deutsche Bank, global stock markets lost $5 trillion of their value in six days in August.

“The argument that global market developments are playing second fiddle to U.S. economic developments is a tenuous one, especially if the epicentre of global economic weakness is China – which is very important to U.S. economy,” Nicholas Spiro of Spiro Sovereign Strategy told CNBC. “It’s clear that what’s happening in China, especially in recent months, is having a massive deflationary impact so it’s about time we heard the Fed was concerned about China,” he said. Beijing is targeting a full-year growth rate of around 7%, which would be the slowest rate in almost 25 years. And there are concerns that the target will be missed amid weak economic data and a rout in Chinese stock markets that threaten to undermine confidence further.

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“..the FOMC would have been tightening into a tightening..”

• The Fed Is Trapped: The Naked Emperor’s New “Reaction Function” (Zero Hedge)

Despite all the ballyhooing about moving to a more market-based exchange rate, the PBoC actually did the opposite on August 11. As BNP’s Mole Hau put it “whereas the daily fix was previously used to fix the spot rate, the PBoC now seemingly fixes the spot rate to determine the daily fix, [thus] the role of the market in determining the exchange rate has, if anything, been reduced in the short term.” Obviously, a reduced role for the market, means a greater role for the PBoC, and that of course means intervention via FX reserve drawdowns (i.e. the liquidation of US paper). Of course no one believed that China’s deval was “one and done” which meant that the pressure on the yuan increased and before you knew it, the PBoC was intervening all over the place.

By mid-September, PBoC intervention had cost some $150 billion between onshore spot interventions and offshore spot and forward meddling. The problem – as everyone began to pick up on some 10 months after we announced the death of the petrodollar – is that when EMs start liquidating their reserves, it works at cross purposes with DM QE. That is, it offsets it. Once this became suddenly apparent to everyone at the end of last month, market participants simultaneously realized – to their collective horror – that the long-running slump in commodity prices and attendant pressure on commodity currencies as well as the defense of various dollar pegs meant that, as Deutsche Bank put it, the great EM reserve accumulation had actually begun to reverse itself months ago. China’s entry into the global currency wars merely kicked it into overdrive.

What the above implies is that the Fed, were it to have hiked on Thursday, would have been tightening into a market where the liquidation of USD assets by foreign central banks was already sapping global liquidity and exerting a tightening effect of its own. In other words, the FOMC would have been tightening into a tightening. But that’s not all. When China devalued the yuan it also confirmed what the EM world had long suspected but what EM currencies, equities, and bonds had only partially priced in. Namely that China’s economy was crashing. For quite a while, the fact that Beijing hadn’t devalued even as the yuan’s dollar peg caused the RMB’s REER to appreciate by 14% in just 12 months, was viewed by some as a sign that things in China might not be all that bad.

After all, if a country with an export-driven economy can withstand a double-digit currency appreciation without a competitive devaluation even as the global currency wars are being fought all around it, then the situation can’t be too dire. Put simply, the devaluation on August 11 shattered that theory and reports that China is “secretly” targeting a much larger devaluation in order to boost export growth haven’t helped. For emerging markets, this realization was devastating. Depressed demand from China had already led to a tremendous amount of pain across emerging economies and the message the devaluation sent was that China’s economy wasn’t set to rebound any time soon, meaning global demand and trade will likely remain subdued, as will commodity prices.

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All this and that too.

• The Fed May Have Just Stoked A Currency War (CNBC)

A lack of activity by the U.S. Federal Reserve on Thursday may not have been a surprise, but it’s left no doubt in analysts’ minds that other central banks will now look to ease policy further, a move that could send more shock waves across global currency markets. Valentin Marinov at Credit Agricole told CNBC Friday that he expects global “currency wars” to intensify from here. He predicts the Bank of Japan, the ECB and the People’s Bank of China (PBOC) has now effectively been pushed into unveiling more stimulus. “The Fed inaction could spur other central banks into action,” he said. “It is currency wars.” The dollar skidded to a three-week low against a basket of major currencies after Thursday’s decision.

This comes after the greenback had been appreciating significantly since the middle of last year in anticipation of higher interest rates in the U.S. A higher interest rate can mean a higher yield on assets and investors in the U.S. have been busy bringing their dollars home, and thus out of high-yielding foreign investments. A weaker dollar in the short term could now leave other global economies frustrated and dent export-focused companies that favor a weak domestic currency. Manipulating reserve levels can be one way that a country’s central bank can intervene against currency fluctuations. Other measures include altering benchmark interest rates and quantitative easing. Central banks often stress that exchange rates are not a primary policy goal and can be seen more as a positive by-product of monetary easing.

There have been discussions in the last few years that countries are purposefully debasing their own currencies – a concern that was termed “currency wars” by Brazil’s Finance Minister Guido Mantega in September 2010. Credit Agricole’s Marinov highlighted that the ECB could be the next to act by ramping up its current bond-buying program, thus weakening the single currency – even though its only mandate is to manage inflation. Analysts at BNP Paribas also stated Friday that the Fed decision had increased their conviction that the ECB would increase its quantitative easing program. Marc Ostwald, strategist at ADM ISI, said in a note Friday that the ECB and the BoJ who will now face “even bigger challenges, given that the Fed is clearly not in any hurry to live up to its part of the ‘policy divergence’ grand bargain.”

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Ambrose is lost. He claims the China crash bottomed out in April, because more debt has been added since then.

• Fed Is Riding The Tail Of A Dangerous Global Tiger (AEP)

The US Federal Reserve would have been mad to raise interest rates in the middle of a panic over China and an emerging market storm, and doubly so to do it against express warnings from the IMF and the World Bank. The Fed is the world’s superpower central bank. Having flooded the international system with cheap dollar liquidity during the era of quantitative easing, it cannot lightly walk away from its global responsibilities – both as a duty to all those countries that were destabilized by dollar credit, and in its own enlightened self-interest. Dollar debt outside the jurisdiction of the US has reached $9.6 trillion, on the latest data from the Bank for International Settlements. Dollar loans to emerging markets have doubled since the Lehman crisis to $3 trillion.

The world has never been so leveraged, and therefore so acutely sensitive to any shift in monetary signals. Nor has the global financial system ever been so tightly inter-linked, and therefore so sensitive to the Fed. The BIS says total debt in the rich countries has jumped by 36%age points to 265pc of GDP since the peak of the last cycle, and by 50 points to 167pc in developing Asia, Latin America, the Middle East, Eastern Europe, and Africa. It is wishful thinking to suppose that the world can brush off a Fed rate rise on the grounds that most of the debt is in local currencies. BIS research shows that they will face a rate shock regardless. On average, a 100 point move in US rates leads to a 43 point move in local currency borrowing costs in EM and open developed economies.

Given that the Fed was forced to reverse course dramatically in 1998 when the East Asia crisis blew up – for fear it would take down the US financial system – it can hardly go ahead nonchalantly with rate rises into the teeth of the storm today when emerging markets are an order of magnitude larger and account for 50pc of global GDP. Even if you reject these arguments, Goldman Sachs says the strong dollar and the market rout in August already amount to 75 basis points of monetary tightening for the US economy itself. Headline CPI inflation in the US is just 0.2pc. Prices fell in August. East Asian is transmitting a deflationary shock to the West, and it is not yet clear whether the trade depression in the Far East is safely over.

The argument that zero rates are unhealthy and impure is to let Calvinist psychology intrude on the hard science of monetary management. The chorus of demands – and just from ‘internet-Austrians’ – that rates should be raised in order to build up reserve ammunition in case they need to be cut later, is a line of reasoning that borders on insanity. If acted on, it would risk tipping us all into the very deflationary trap that we are supposed to be protecting ourselves against, the Irving Fisher moment when a sailing boat rolls beyond the point of natural recovery, and capsizes altogether. So hats off to Janet Yellen for refusing to listen to such dangerous counsel. However, the Fed is damned if it does, and damned if it does not, for by recoiling yet again it may well be storing up a different kind of crisis next year.

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Only solution: moar?!

• Central Banks Fret Stimulus Efforts Are Falling Short (Reuters)

The world’s leading central banks are facing the risk that their massive efforts to revive economic growth could be dragged down again, with some officials arguing for bold new ideas to counter the threat of slow growth for years to come. A day after the U.S. Federal Reserve kept interest rates at zero, citing risks in the global economy, the Bank of England’s chief economist said central banks had to accept that interest rates might get stuck at rock bottom. In Japan, where interest rates have been at zero for more than 20 years, policymakers are already tossing around ideas for overhauling the Bank of Japan’s huge monetary stimulus program as they worry that it will be unsustainable in the future, according to sources familiar with its thinking.

Separately a top ECB official said the ECB’s bond-buying program might need to be rethought if low inflation becomes entrenched. But he added monetary policy would not restore economic growth over the long term. More than eight years after the onset of the financial crisis, the economies of the United States and Britain are growing at a healthier pace, in contrast to those of Japan and in many euro zone countries. But the risk of a sharp slowdown in China and other emerging economies has prevented the Fed from starting to raise interest rates and is being watched closely by the Bank of England.

Investors mostly think that the Fed’s delay will be short-lived and that it could begin raising rates before the end of the year, followed a few months later by Britain’s central bank. But the BoE’s chief economist, Andy Haldane, who has long been gloomy about the chances of a sustainable recovery, said the world might in fact be sinking into a new phase of the financial crisis – this time caused by emerging markets.

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Paid for with monopoly money. Where would the oil price be without this?

• China Is Hoarding the World’s Oil (Bloomberg)

Even after China’s slowing economy dragged crude to a six-year low, oil’s second-biggest consumer remains the main safeguard against a further price meltdown. While China’s surprise currency devaluation helped trigger Brent crude’s slump to about $42 a barrel last month, the nation’s stockpiling of oil can staunch further losses. In the first seven months of the year, China purchased about half a million barrels of crude in excess of its daily needs, the most for the period since 2012, according to data compiled by Bloomberg. As the country gathers bargain barrels for its strategic petroleum reserve, the demand is cushioning an oversupplied market from a further crash, according to Columbia University’s Center on Global Energy Policy.

“It throws a lifeline to the market” that safeguards against the risk of crude touching $20 a barrel, Jeff Currie at Goldman Sachs said. “That lifeline lasts through late 2016.” Other countries have emergency oil-supply buffers, and while the U.S. Strategic Petroleum Reserve has been stable at about 700 million barrels for years, China is expanding its stockpiles rapidly. The Asian nation has accumulated about 200 million barrels of crude in its reserve so far and aims to have 500 million by the end of the decade, according to the International Energy Agency. It’s currently filling a 19 million-barrel facility at Huangdao and will add oil at six sites with a combined capacity of about 132 million barrels over the next 18 months, the Paris-based adviser on energy policy estimates.

“The fact that China is stockpiling crude for public strategic storage certainly offsets the weaker sentiment on China’s oil-product demand,” said Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas SA in London. China’s demand growth is set to slow to an annual rate of 2.3% by the fourth quarter compared with 5.6% in the second quarter, a reflection of “weak car sales data, declines in industrial activity, plummeting property prices and fragile electricity output,” the IEA said in a report on Sept. 11.

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As in: you can’t taper a Ponzi scheme.

• Occam’s Razor Says The Stock Market Is In A Downtrend (MarketWatch)

Investors can forget the “death cross,” “bearish divergences” and “symmetrical triangles,” and what the Federal Reserve says it will do about interest rates, and just focus on Occam’s razor: The S&P 500 abandoned its long-term uptrend in late August, meaning it is now in a downtrend. Occam’s razor is the philosophical principle that suggests, all things being equal, the simplest explanation tends to be the right one. One of the most elementary trading maxims on Wall Street is “the trend is your friend.” That’s basically what all the short-term technical patterns, economic data and earnings reports are used for, to determine which direction the longer-term trend is heading, and whether it’s about to change.

Once that trend is determined, a tenet of the century-old Dow Theory of market analysis says it is assumed to remain in effect, until it gives definite signals that it has reversed, according to the Market Technicians Associations knowledge base. In other words, the trend is your friend, until it isn’t. After cutting through all the noise, a trendline is probably the best chart pattern to determine the trend, as it is also the simplest. And the simplest way to tell if a trend has reversed, is if the trendline breaks. The S&P 500 had been riding a strong weekly uptrend, defined by the trendline connecting the bottom of the last correction in October 2011 with the bottom of the November 2012 pullback and the October 2014 low. The S&P 500 fell below that line in late August, meaning the uptrend flipped to a downtrend. Based on the Occam’s razor principle, the uptrend was the friend of investors for four years, but now it isn’t.

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And so should Greece?!

• Three Reasons Why the US Government Should Default on Its Debt Today (Casey)

The overleveraging of the U.S. federal, state, and local governments, some corporations, and consumers is well known. This has long been the case, and most people are bored by the topic. If debt is a problem, it has been manageable for so long that it no longer seems like a problem. U.S. government debt has become an abstraction; it has no more meaning to the average investor than the prospect of a comet smacking into the earth in the next hundred millennia. Many financial commentators believe that debt doesn’t matter. We still hear ridiculous sound bites, like “We owe it to ourselves,” that trivialize the topic. Actually, some people owe it to other people. There will be big transfers of wealth depending on what happens.

More exactly, since Americans don’t save anymore, that dishonest phrase about how we owe it to ourselves isn’t even true in a manner of speaking; we owe most of it to the Chinese and Japanese. Another chestnut is “We’ll grow out of it.” That’s impossible unless real growth is greater than the interest on the debt, which is questionable. And at this point, government deficits are likely to balloon, not contract. Even with artificially low interest rates. One way of putting an annual deficit of, say, $700 billion into perspective is to compare it to the value of all publicly traded stocks in the U.S., which are worth roughly $20 trillion. The current U.S. government debt of $18 trillion is rapidly approaching the stock value of all public corporations – and that’s true even with stocks at bubble-like highs.

If the annual deficit continues at the $700 billion rate – in fact it is likely to accelerate – the government will borrow the equivalent of the entire equity capital base of the country, which has taken more than 200 years to accumulate, in only 29 years. You should keep all this in the context of the nature of debt; it can be insidious. The only way a society (or an individual) can grow in wealth is by producing more than it consumes; the difference is called “saving.” It creates capital, making possible future investments or future consumption. Conversely, “borrowing” involves consuming more than is produced; it’s the process of living out of capital or mortgaging future production.

Saving increases one’s future standard of living; debt reduces it. If you were to borrow a million dollars today, you could artificially enhance your standard of living for the next decade. But, when you have to repay that money, you will sustain a very real decline in your standard of living. Even worse, since the interest clock continues ticking, the decline will be greater than the earlier gain. If you don’t repay your debt, your creditor (and possibly his creditors, and theirs in turn) will suffer a similar drop. Until that moment comes, debt can look like the key to prosperity, even though it’s more commonly the forerunner of disaster.

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And why not…

• Treasury to Delay Enforcing Part of Tax Law That Curbs Offshore Tax Evasion (WSJ)

The Treasury Department said Friday it would delay enforcement of one key part of a 2010 law that is aimed at curbing offshore tax evasion, in a regulatory victory for banks. The law, the Foreign Account Tax Compliance Act, or FATCA, requires foreign banks to start handing over information about U.S.-owned accounts to the Internal Revenue Service. It also would force banks and other financial institutions around the world to withhold a share of many types of payments to other banks that aren’t complying with the law. In effect, the withholding amounts to a kind of U.S. tax penalty on noncompliant financial institutions. The latest move by Treasury will push back the start of withholding for many types of transactions—such as stock trades—from 2017 until 2019.

Withholding for some other types of payments has already begun. The change will give banks more time to come into compliance with FATCA, and governments and the financial industry more time to work out some of the difficult details involved in withholding on more-complex financial transactions. The withholding provision is “the really big stick” in FATCA, said Michael Plowgian, a former Treasury official who is now at KPMG LLP. “The problem with it is that it’s really complicated…So Treasury and IRS have essentially punted” and created more time to solve some of the sticky technical issues, he added.

The Securities Industry and Financial Markets Association, a Wall Street trade group, applauded the move. Given some of the complexities involved, “the 2017 deadline didn’t seem to make sense,” added Payson Peabody, tax counsel for SIFMA. “They are giving themselves more time and giving everyone else a bit more time to comment” on some of the hard questions. Despite the delay in some withholding, experts say FATCA implementation continues to move ahead.

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First downgrade the country, then wax about how great France really is doing.

• Moody’s Downgrades Credit Rating Of France (AP)

Moody’s Investors Service is downgrading the credit rating of France, saying the French economy will grow slowly for the rest of this decade while the country’s debt remains high. The firm lowered its rating to “Aa2” from “Aa1.” That means France has Moody’s third-highest possible rating. Moody’s said Friday the outlook for economic growth in France is weak, and it does not expect that to change soon. It says the high national debt burden probably will not be reduced in the next few years because of low growth and institutional and political constraints. Overall Moody’s says France’s creditworthiness is “extremely high” because of its large, wealthy, well-diversified economy, high per-capita income, good demographic trends, strong investor base and low financing costs. The outlook was raised to “stable” from “negative.”

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The only way to keep a system going that is drowning in ever more debt.

• Negative Interest Rates ‘Necessary To Protect UK Economy’ – BOE (Telegraph)

The Bank of England may need to push its interest rates into negative territory to fight off the next recession, its chief economist has said. Andy Haldane, one of the Bank’s nine interest rate setters, made the case for the “radical” option of supporting the economy with negative interest rates, and even suggested that cash could have to be abolished. He said that the “the balance of risks to UK growth, and to UK inflation at the two-year horizon, is skewed squarely and significantly to the downside”. As a result, “there could be a need to loosen rather than tighten the monetary reins as a next step to support UK growth and return inflation to target”. Speaking at the Portadown Chamber of Commerce, Mr Haldane’s support for a possible cut in rates came as the Bank as a whole has signalled that the next move in rates would be up.

But recent volatility in financial markets, prompted by China, and a decision by the US Federal Reserve to delay rate hikes, have pushed back expectations of the Bank’s first rate rise to November 2016. Traditionally policymakers have resisted cutting rates below zero because when the returns on savings fall into negative territory, it encourages people to take their savings out of the bank and hoard them in cash. This could slow, rather than boost, the economy. It would be possible to get around the problem of hoarding by abolishing cash, Mr Haldane said, adding: “What I think is now reasonably clear is that the payment technology embodied in [digital currency] Bitcoin has real potential.” His remarks came as he made the case for raising the UK’s inflation target to 4pc from the current level of 2pc.

Mr Haldane said that a trend towards low interest rates across the globe has made it increasingly difficult to fight off recessions. In the past, central banks have helped stimulate economies by slashing interest rates. But with rates at rock bottom in many parts of the world, many have found their ammunition depleted. “Among the large advanced economies, official interest rates are effectively at zero,” Mr Haldane said. In the UK, the Bank’s interest rate has been stuck at 0.5pc for more than six years. One way to supply the Bank with more firepower would “be to revise upwards inflation targets”. The UK’s inflation target is currently 2pc, but this dates from an era when interest rates were closer to 6pc than 0.5pc. It might be necessary to double that target to 4pc, Mr Haldane argued.

Bank research has determined that slowing growth, ageing populations, weaker investment, rising inequality and a savings glut in emerging markets have all contributed to a generational decline in interest rates. Mr Haldane said: “These factors are not will-of-the-wisp. None is likely to reverse quickly. “That would mean there is materially less monetary policy room for manoeuvre than was the case a generation ago. Headroom of two%age points would potentially be insufficient.” However a hike in the inflation target to 4pc would provide extra “wiggle room”.

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The entire world does.

• The Orthodoxy Has Failed: Europe Needs A New Economic Settlement (Jeremy Corbyn)

David Cameron is traversing Europe, apparently without much idea of what he wants to achieve in his much-feted renegotiation ahead of a referendum in 2016 or 2017. If the prime minister thinks he can weaken workers’ rights and expect goodwill towards Europe to keep us in the EU, he is making a great mistake. Mr Cameron’s support for a bill that would weaken the trade unions, and the cutting of tax credits this week, show that employment rights are under attack. One can imagine that the many rights we derive from European legislation, which underpins paid holidays, working time protection and improved maternity and paternity leave, are under threat too. There is a widely shared feeling that Europe is something of an exclusive club, rather than a democratic forum for social progress.

Tearing up our rights at work would strengthen that view. Labour will oppose any attempt by the Conservative government to undermine rights at work — whether in domestic or European legislation. Our shadow cabinet is also clear that the answer to any damaging changes that Mr Cameron brings back from his renegotiation is not to leave the EU but to pledge to reverse those changes with a Labour government elected in 2020. Workplace protections are vital to protect both migrant workers from being exploited and British workers from being undercut. Stronger employment rights also help good employers, who would otherwise face unfair competition from less scrupulous businesses. We will be in Europe to negotiate better protection for people and businesses, not to negotiate them away.

Too much of the referendum debate has been monopolised by xenophobes and the interests of corporate boardrooms. Left out of this debate are millions of ordinary British people who want a proper debate about our relationship with the EU. We cannot continue down this road of free-market deregulation, which seeks to privatise public services and dilute Europe’s social gains. Draft railway regulations that are now before the European Parliament could enforce the fragmented, privatised model that has so failed railways in the UK. The proposed Transatlantic Trade and Investment Partnership that is being negotiated behind closed doors between the EU and the US, against which I have campaigned, is another example of this damaging approach.

There is no future for Europe if we engage in a race to the bottom. We need to invest in our future and harness the skills of Europe’s people. The treatment of Greece has appalled many who consider themselves pro-European internationalists. The Greek debt is simply not repayable, the terms are unsustainable and the insistence that the unpayable be paid extends the humanitarian crisis in Greece and the risks to all of Europe. The current orthodoxy has failed. We need a new economic settlement.

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Adding up: shame, insult, injury.

• Hungary Stops Train With 1,000 Asylum Seekers Escorted By 40 Croatian Police (RT)

An unannounced train carrying over 1,000 asylum seekers, accompanied by around 40 Croatian police officers, has been intercepted by Hungarian authorities, who accused Zagreb of breaking international laws and intentionally participating in “human smuggling.” The train carrying up to 1,000 refugees was accompanied by some 40 Croatian police officers, who were reportedly detained and then sent back. Croatian police however refuted initial reports that officers accompanying the train were detained or disarmed, explaining that 36 officers “returned” to Croatia in the evening. “There was no disarming or arrests. It is not true,” Croatian police spokeswoman Jelena Bikic told Reuters, claiming that there was “an agreement about the escort between the police officers from the two sides in advance.”

Hungarian authorities said that the incident happened due to Croatia’s failure to coordinate train’s border crossing. According to the head of the Hungarian disaster unit, Gyorgy Bakondi, the Croatian train arrived at Magyarboly without any prior notice, bringing the number of unannounced arrivals to over 4,000 on Friday alone. Croatia’s FM Vesna Pusic claimed that the two countries had agreed “to provide a corridor” for refugees, Sky News reported. However Hungarian spokesman Zoltan Kovacs rejected the claim as a “lie.” “The Croatian system for handling migrants and refugees has collapsed basically in one day,” Kovacs added. “What we see today is the failure of the Croatian state to handle migration issues. What is more we see intentional, intentional, participation in human smuggling taking the migrants to the Hungarian border.”

After Hungary blocked off their border with Serbia this week with the aid of a metal fence and riot police, migrants flooded neighboring Croatia in search for an alternative route. More than 17,000 have arrived in the country since Wednesday morning. “We cannot register and accommodate these people any longer,” Croatian Prime Minister Zoran Milanovic told a news conference. “They will get food, water and medical help, and then they can move on. The European Union must know that Croatia will not become a migrant ‘hotspot’. We have hearts, but we also have heads.”

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Driven by fear.

• We Are Double-Plus Unfree (Margaret Atwood)

Governments know our desire for safety all too well, and like to play on our fears. How often have we been told that this or that new rule or law or snooping activity on the part of officialdom is to keep us “safe”? We aren’t safe, anyway: many of us die in weather events – tornados, floods, blizzards – but governments, in those cases, limit their roles to finger-pointing, blame-dodging, expressions of sympathy or a dribble of emergency aid. Many more of us die in car accidents or from slipping in the bathtub than are likely to be done in by enemy agents, but those kinds of deaths are not easy to leverage into panic. Cars and bathtubs are so recent in evolutionary terms that we’ve developed no deep mythology about them.

When coupled with human beings of ill intent they can be scary – being rammed in your car by a maniac or shot in your car by a mafioso carry a certain weight, and being slaughtered in the tub goes back to Agamemnon’s fate in Homer, with a shower-murder update courtesy of Alfred Hitchcock in his film, Psycho. But cars and tubs minus enraged wives or maniacs just sit there blankly. It’s the sudden, violent, unpredictable event we truly fear: the equivalent of an attack by a hungry tiger. Yesterday’s frightful tigerish threat was communists: in the 1950s, one lurked in every shrub, ran the message. Today, it’s terrorists. To protect us from these, all sorts of precautions must, we are told, be taken. Nor is this view without merit: such threats are real, up to a point.

Nonetheless we find ourselves asking whether the extreme remedies outweigh the disease. How much of our own freedom must we sacrifice in order to defend ourselves against the desire of others to limit that freedom by subjugating or killing us, one by one? And is that sacrifice an effective defence? Minus our freedom, we may find ourselves no safer; indeed we may be double-plus unfree, having handed the keys to those who promised to be our defenders but who have become, perforce, our jailers. A prison might be defined as any place you’ve been put into against your will and can’t get out of, and where you are entirely at the mercy of the authorities, whoever they may be. Are we turning our entire society into a prison? If so, who are the inmates and who are the guards? And who decides?

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“..there never was a hiatus, a pause or a slowdown..”

• Global Warming ‘Pause’ Theory Is Dead But Still Twitching (Phys Org)

A study released Thursday is the second this year seeking to debunk a 1998-2013 “pause” in global warming, but other climate scientists insist the slowdown was real, even if not a game-changer. When evidence of the apparent hiatus first emerged, it was seized upon by sceptics as evidence that climate change was driven more by natural cycles that humans pumping carbon dioxide into the atmosphere. “Our results clearly show that … there never was a hiatus, a pause or a slowdown,” Noah Diffenbaugh, the study’s main architect and a professor at Stanford University, said in a statement. The thermal time-out, his team found, resulted from “faulty statistical methods”.

In June, experts from the US National Oceanic and Atmospheric Administration (NOAA) came to the same conclusion, chalking up the alleged slowdown to a discrepancy in measurements involving ocean buoys used to log temperatures. Their results were published in the peer-reviewed journal Science. Beyond a strident public debate fuelled as much by ideology and facts, the “pause” issue has serious real-world implications. Scientifically, a discrepancy between climate projections and observations could suggest that science has overstated Earth’s sensitivity to the radiative force of the Sun. Politically, it could weaken the sense of urgency underlying troubled UN negotiations, tasked with crafting a global pact in December to beat back climate change.

At first, scientists sounding an alarm about the threat of greenhouse gases were stumped by the data, unable to explain the drop-off in the pace of warming. Even the UN’s Intergovernmental Panel on Climate Change (IPCC)—whose most recent 1,000-plus page report is the scientific benchmark for the UN talks—made note of “the hiatus”. Searching for explanations, the IPCC speculated on possible causes: minor volcano eruptions throwing radiation-blocking dust in the atmosphere, a decrease in solar activity, aerosols, regional weather patterns in the Pacific and Atlantic Oceans. To the general relief of the climate science community, the Stanford findings—a detailed review of statistical methodology—would appear to be the final word on the subject.

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