Feb 152017
 
 February 15, 2017  Posted by at 10:34 am Finance Tagged with: , , , , , , , , ,  Comments Off on Debt Rattle February 15 2017
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Times Square New York City, 1958

 

The Political Assassination of Michael Flynn (BBG)
Kucinich Pins Flynn Leak on Intel Community, Warns of Another Cold War (Fox)
America’s Spies Anonymously Took Down Flynn. That Is Deeply Worrying (Week)
Russian Foreign Ministry Says Crimea Will Not Be Returned To Ukraine (R.)
China Credit Surging to Record Underscores PBOC Shift to Tighten (BBG)
China Should Prudently Manage Deleveraging Process – PBOC (R.)
Nigel Farage – You’re In For a Bigger Shock in 2017 (TNTV)
Germany’s Burden: The Euro Is The Most Crisis-Ridden Currency (MW)
Greece Defies Creditors Over More Cuts As Economy Shrinks Unexpectedly (G.)
‘Fed Up’ Exposes The Elite Rot Inside The Federal Reserve (MW)
Why “Everyone Wins” When Housing Is More Expensive (AS)
Who Will Be Blamed if the Oroville Dam Fails? (McMaken)
The Technosphere: You Are Not In Control (Dmitry Orlov)
Greece’s Frozen Children: What Will Happen To Young Refugees? (NS)

 

 

So many diffferent angles. This one from Eli Lake is bearable. “Nunes told me Monday night that this will not end well. “First it’s Flynn, next it will be Kellyanne Conway, then it will be Steve Bannon, then it will be Reince Priebus,” he said. Put another way, Flynn is only the appetizer. Trump is the entree.”

The Political Assassination of Michael Flynn (BBG)

Representative Devin Nunes, the Republican chairman of the House Permanent Select Committee on Intelligence, told me Monday that he saw the leaks about Flynn’s conversations with Kislyak as part of a pattern. “There does appear to be a well orchestrated effort to attack Flynn and others in the administration,” he said. “From the leaking of phone calls between the president and foreign leaders to what appears to be high-level FISA Court information, to the leaking of American citizens being denied security clearances, it looks like a pattern.” Nunes said he was going to bring this up with the FBI, and ask the agency to investigate the leak and find out whether Flynn himself is a target of a law enforcement investigation. The Washington Post reported last month that Flynn was not the target of an FBI probe.

The background here is important. Three people once affiliated with Trump’s presidential campaign – Carter Page, Paul Manafort and Roger Stone – are being investigated by the FBI and the intelligence community for their contacts with the Russian government. This is part of a wider inquiry into Russia’s role in hacking and distributing emails of leading Democrats before the election. Flynn himself traveled in 2015 to Russia to attend a conference put on by the country’s propaganda network, RT. He has acknowledged he was paid through his speaker’s bureau for his appearance. That doesn’t look good, but it’s also not illegal in and of itself. All of this is to say there are many unanswered questions about Trump’s and his administration’s ties to Russia. But that’s all these allegations are at this point: unanswered questions.

It’s possible that Flynn has more ties to Russia that he had kept from the public and his colleagues. It’s also possible that a group of national security bureaucrats and former Obama officials are selectively leaking highly sensitive law enforcement information to undermine the elected government. Flynn was a fat target for the national security state. He has cultivated a reputation as a reformer and a fierce critic of the intelligence community leaders he once served with when he was the director the Defense Intelligence Agency under President Barack Obama. Flynn was working to reform the intelligence-industrial complex, something that threatened the bureaucratic prerogatives of his rivals. He was also a fat target for Democrats. Remember Flynn’s breakout national moment last summer was when he joined the crowd at the Republican National Convention from the dais calling for Hillary Clinton to be jailed.

In normal times, the idea that U.S. officials entrusted with our most sensitive secrets would selectively disclose them to undermine the White House would alarm those worried about creeping authoritarianism. Imagine if intercepts of a call between Obama’s incoming national security adviser and Iran’s foreign minister leaked to the press before the nuclear negotiations began? The howls of indignation would be deafening. In the end, it was Trump’s decision to cut Flynn loose. In doing this he caved in to his political and bureaucratic opposition. Nunes told me Monday night that this will not end well. “First it’s Flynn, next it will be Kellyanne Conway, then it will be Steve Bannon, then it will be Reince Priebus,” he said. Put another way, Flynn is only the appetizer. Trump is the entree.

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Interesting 8-minute, very clear take from Kucinich: “This is like the electronic version of Mad magazine; Spy vs Spy..”

Kucinich Pins Flynn Leak on Intel Community, Warns of Another Cold War (Fox)

During an interview on the FOX Business Network’s Mornings with Maria, former Democratic presidential candidate Dennis Kucinich said the intelligence community was responsible for leaking information that Trump’s national security advisor, Mike Flynn, had secretly discussed sanctions with Russian officials before the inauguration and argued their goal was to spoil the relationship between the U.S. and Russia. “What’s at the core of this is an effort by some in the intelligence community to upend any positive relationship between the U.S. and Russia,” Kucinich said.

And in his opinion, there is a big money motive behind it. “And I tell you there’s a marching band and Chowder Society out there. There’s gold in them there hills,” he said. “There are people trying to separate the U.S. and Russia so that this military industrial intel axis can cash in.” Kucinich added the intelligence community could start a war to succeed. “There’s a game going on inside the intelligence community where there are those who want to separate the U.S. from Russia in a way that would reignite the Cold War,” he said.

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Many on both the left and the right have these worries.

America’s Spies Anonymously Took Down Flynn. That Is Deeply Worrying (Week)

The United States is much better off without Michael Flynn serving as national security adviser. But no one should be cheering the way he was brought down. The whole episode is evidence of the precipitous and ongoing collapse of America’s democratic institutions — not a sign of their resiliency. Flynn’s ouster was a soft coup (or political assassination) engineered by anonymous intelligence community bureaucrats. The results might be salutary, but this isn’t the way a liberal democracy is supposed to function. Unelected intelligence analysts work for the president, not the other way around. Far too many Trump critics appear not to care that these intelligence agents leaked highly sensitive information to the press — mostly because Trump critics are pleased with the result.

“Finally,” they say, “someone took a stand to expose collusion between the Russians and a senior aide to the president!” It is indeed important that someone took such a stand. But it matters greatly who that someone is and how they take their stand. Members of the unelected, unaccountable intelligence community are not the right someone, especially when they target a senior aide to the president by leaking anonymously to newspapers the content of classified phone intercepts, where the unverified, unsubstantiated information can inflict politically fatal damage almost instantaneously.

President Trump was roundly mocked among liberals for that tweet. But he is, in many ways, correct. These leaks are an enormous problem. And in a less polarized context, they would be recognized immediately for what they clearly are: an effort to manipulate public opinion for the sake of achieving a desired political outcome. It’s weaponized spin. This doesn’t mean the outcome was wrong. I have no interest in defending Flynn, who appears to be an atrocious manager prone to favoring absurd conspiracy theories over more traditional forms of intelligence. He is just about the last person who should be giving the president advice about foreign policy. And for all I know, Flynn did exactly what the anonymous intelligence community leakers allege — promised the Russian ambassador during the transition that the incoming Trump administration would back off on sanctions proposed by the outgoing Obama administration.

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Silly idea. The New Cold War.

Russian Foreign Ministry Says Crimea Will Not Be Returned To Ukraine (R.)

Russia will not hand back control of Crimea to Ukraine, Russia’s foreign ministry said on Wednesday, responding to comments from the White House that the United States expected the Black Sea peninsula to be returned. “We don’t give back our own territory. Crimea is territory belonging to the Russian Federation,” Maria Zakharova, spokeswoman for the Russian Foreign Ministry, told a news briefing. On Tuesday, the White House said U.S. President Donald Trump had made it clear that he expects Russia to relinquish control of the territory. Russia annexed Crimea in 2014, prompting the United States and the European Union to impose sanctions on Russia, plunging Western relations with the Kremlin to their worst level since the end of the Cold War.

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Shadow banking resurgence? It was never gone.

China Credit Surging to Record Underscores PBOC Shift to Tighten (BBG)

China added more credit last month than the equivalent of Swedish or Polish economic output, revving up growth and supporting prices but also fueling concerns about the sustainability of such a spree. Aggregate financing, the broadest measure of new credit, climbed to a record 3.74 trillion yuan ($545 billion) in January, exceeding the median estimate of 3 trillion yuan in a Bloomberg survey. New yuan loans rose to a one-year high of 2.03 trillion yuan, less than the 2.44 trillion yuan estimate. The credit surge highlights the challenges facing Chinese policy makers as they seek to balance ensuring steady growth with curbing excess leverage in the financial system. The PBOC recently moved to tighten monetary policy by raising the interest rates it charges in open-market operations and on funds lent via its Standing Lending Facility.

“China is learning what other central banks realized decades ago: trying to control monetary aggregates in a modern financial system is next to impossible,” said James Laurenceson, deputy director of the Australia-China Relations Institute in Sydney. “I expect the PBOC will focus more on interest rates and prudential regulation and supervision going forward.” China’s major state-backed banks tend to splurge at the start of the year as they seek to maximize their profits on lending. The main categories of shadow finance all increased significantly. Bankers acceptances – a bank-backed guarantee for future payment – soared to 613.1 billion yuan from 158.9 billion yuan the prior month. “The PBOC is restraining loans but allowing private credit to flow through shadow banks,” said Andrew Collier, an independent analyst and former president of Bank of China International USA. “This is not a policy designed to conquer China’s debt burden.”

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Yeah, well, it does nothing of the kind.

China Should Prudently Manage Deleveraging Process – PBOC (R.)

China should prudently manage the country’s debt deleveraging process and seek to avoid a liquidity crisis and asset bubbles, according to a central bank working paper published on Wednesday. While overall debt ratios in the world’s second-largest economy were still not high relative to many other countries, the pace of increase has been rapid in recent years, the paper said. China’s debt to GDP ratio rose to 277% at the end of 2016 from 254% the previous year, with an increasing share of new credit being used to pay debt servicing costs, UBS analysts said in a recent note.

China’s top leaders have pledged to focus on addressing rising financial risks and asset bubbles this year. The People’s Bank of China has moved to a moderate tightening bias, raising some key primary money rates this year, which analysts said was part of a bid to control risks from rising leverage. The working paper said China should avoid the negative consequences of both increases in leverage and rapid deleveraging. China should let market forces play a decisive role in the deleveraging process, including allowing defaults, the paper published on the People’s Bank of China website said.

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h/t Mish. “The people want less Europe. We see this again and again when people have referendums and they reject aspects of EU membership. But something more fundamental is going on out there.”

Nigel Farage – You’re In For a Bigger Shock in 2017 (TNTV)

I feel like I am attending a meeting of a religious sect here this morning. It’s as if the global revolution of 2016, Brexit, Trump, the Italian rejection of the referendum, has completely bypassed you. You can’t face up to the fact that this bandwagon is going to roll across Europe in these elections in 2017. A lot of citizens now recognize this form of centralized government simply doesn’t work. … At the heart of it is a fundamental point: Mr. Verhofstadt this morning said, the people want more Europe. They don’t. The people want less Europe. We see this again and again when people have referendums and they reject aspects of EU membership. But something more fundamental is going on out there. ….

No doubt, many of you here will probably despise your own voters for what I am about to say because just last week, Chatham House, the reputable group, published a massive survey from 10 Europen states, and only 20% of people want immigration from Muslim countries to continue. Just 20%. … Which means your voters have a harder line position on this than Donald Trump, or myself, or frankly any party sitting in this Parliament. I simply cannot believe you are blind to the fact that even Mrs. Merkel has now made a u-turn and wants to send people back. Even Mr. Schulz thinks it is a good idea. And the fact is, the Europen Union has no future at all in its current form. And I suspect you are in for as big a shock in 2017 as you were in 2016.

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Throw this into the German election campaign and see what happens.

Germany’s Burden: The Euro Is The Most Crisis-Ridden Currency (MW)

Target-2 occupies a central place. According to latest Bundesbank figures, the German central bank’s claims under the system rose to €796 billion at the end of January, from €754 billion at the end of December, well above the previous record €751 billion in August 2012. The Bundesbank’s ECB claims make up more than half of Germany’s net foreign assets of €1.5 trillion, which have themselves increased enormously since the euro was launched in 1999. If the eurozone broke up, or euro members redenominated their liabilities in a new, lower valued currency, Germany would relinquish a large part of these assets — a loss of German savings that would rival the country’s forced write-downs after the first and second world wars.

Both the ECB and the Bundesbank are playing down the renewed Target-2 increase, saying it reflects technical reasons linked to cross-border payments stemming from the ECB’s asset purchase program. On the one hand, these facts would argue for Germany keeping the system going. On the other, they would suggest that the Germans should try to renegotiate the Target-2 arrangements. At the present rate of increase, the Target-2 balances could be close to €1 trillion by the German elections in seven months. Target was developed during the 1990s as a technical transfer mechanism for facilitating payments within the eurozone. The innocuous name — Trans-European automated real-time gross settlement express transfer — signals its original arcane purpose.

According to Helmut Schlesinger, former Bundesbank president, the system was expected to advance credit simply for overnight settlement. Two decades later, as Schlesinger explains, it has become an overdraft system under which Germany, through its central bank, extends interest-free credit without any repayment date and without economic conditions to the central banks of heavily indebted nations.

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Paradox: BECAUSE the economy shrinks, more cuts ‘reforms’ will be demanded. The IMF wants more pension cuts. But that’s what half the population lives on.

Greece Defies Creditors Over More Cuts As Economy Shrinks Unexpectedly (G.)

The standoff between Greece and its creditors has escalated, with the embattled Athens government vowing it will not give in to demands for further cuts as data showed the country’s economy unexpectedly contracting. As thousands of protesting farmers rallied in Athens over spiralling costs and unpopular reforms, the Hellenic statistical authority revealed that Greek GDP shrank by 0.4% in the last three months of 2016. After growth of 0.9% in the previous three-month period the fall was steep and unforeseen. On Monday the European commission announced that the eurozone’s weakest member was on course to achieving a surplus on its budget of 2.3% after exceeding its 2016 fiscal targets “significantly”.

The setback came as prime minister Alexis Tsipras’ lefist-led coalition said it would not consent to additional austerity beyond the cuts the country had already agreed to administer under its third, EU-led bailout programme. Speaking on state TV, the digital policy minister Nikos Pappas, Tsipras’ closest confidant, insisted that ongoing differences between the EU and IMF over how to put the debt-stricken state back on the road to recovery were squarely to blame for the failure to conclude a compliance review at the heart of the standoff. The IMF has argued vigorously that extra measures worth 2% of GDP will have to be enforced with immediate effect if Greece is to achieve a high post-programme primary surplus of more than 1.5%. “The negotiations should have ended. Greece has done everything that it was asked to do,” he said and added there would be “no more measures”.

The future of the €86bn financial aid programme is contingent on Athens implementing agreed economic reforms. The IMF has repeatedly said it will not sign up to the programme unless the crisis-plagued country is given more generous debt relief in the form of a substantial write-down. With Greece facing a €7bn debt repayment to the ECB in July, fears of a Greek default have once again hit markets with shares falling and interest rates on Greek debt rising. But Tsipras is also under pressure from back-benchers in his fragile two-party administration. After seven years of adopting grueling austerity in return for emergency bailout aid many are openly questioning the wisdom of applying yet more measures that have already put Greece in a permanent debt deflationary cycle.

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Yellen was “oblivious as the housing market in her region imploded on multiple fronts.”

‘Fed Up’ Exposes The Elite Rot Inside The Federal Reserve (MW)

She came armed with an M.B.A., not a Ph.D., which made her suspect in the eyes of staff economists as she gradually worked her way up to Class I Clearance, with access to all policy-related material and briefings. In her columns, DiMartino Booth had warned about lax mortgage-lending standards, a housing bubble and escalating systemic risk. Once ensconced at the Fed, she was left to wonder why so many “highly educated and well-paid economists” were “oblivious as the worst financial crisis since the Great Depression was about to break over their heads.” (One of the main reasons is the Fed’s reliance on econometric models that don’t include anything related to the financial system, such as debt or credit.) It wasn’t just the staff economists who were blind to what was going on in the real world.

Neither former Fed chairman Alan Greenspan, who can boast of two bubbles on his watch, nor his successor Ben Bernanke saw the train wreck coming. Greenspan said a national housing bubble was “unlikely” while Bernanke expected any fallout from the subprime mortgage crisis to be “contained.” Janet Yellen, the current Fed chairwoman, is subject to withering criticism in the book. From 2004-2010, Yellen was president of the San Francisco Fed, whose district encompasses nine Western states and was ground zero for the housing bubble and subsequent bust. DiMartino Booth portrays Yellen as an uber-dove and devout Keynesian, someone who was “oblivious as the housing market in her region imploded on multiple fronts.”

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Why bubbles are blown.

Why “Everyone Wins” When Housing Is More Expensive (AS)

The perceived creditworthiness of a nation is largely dependent on market sentiment of that nation insofar as that the volume and indeed the acceleration of capital flow from that nation towards traditionally hedge instruments is indicative of their realisation of mania and is often known as the Minsky moment. Human nature inherently creates inefficiencies in markets as the incentives for those involved continue to grow, and it is that immutable fact that creates opportunities for those that see the market as being overwhelmingly influenced by self interest. The housing market is a fantastic example of this incentivised self interest. There are layers of self interest that largely go ignored as driving factors for housing price growth and poor risk modelling.

On the lowest level, buyers see property as a safe investment, and most of the time they seek to either make a return on their investment either through rental that exceeds the cost of the mortgage repayments (positive gearing) or to make money by a perceived increase in market value of the property that they can realise once they resell the property, or in many cases a combination of both. There are also people who seek to reduce their tax payment by charging less for rent than they pay in mortgage repayments, however these losses are eventually passed on to tax payers as the government thinks this is a suitable method for reducing rental costs for low income earners and that it reduces overall rental costs. The next level up from this is a combination of brokers, people employed to undertake property valuations and real estate agents, all of whom receive commission as a percentage of the sale price of the property.

There exists such a thing as home equity loans wherein banks and borrowers agree upon a valuation of the property which allows mortgagees or property owners to take on debt based on the perceived value of the property, which extends further credit than the initial loan. This feature of home equity lends itself to false market valuations by appraisers, real estate agents and brokers, in particular because it means that they are incentivised to originate additional loans that then pay commissions based on the appreciation of the previous property investment. Even if the current broker, appraiser or real estate agent is not used by the borrower for financing further property purchases, the industry wide practice almost certainly means that these people will continue to receive additional income as a direct result of the availability of credit in the form of home equity for property purchases.

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Maintenance is far less sexy than building.

Who Will Be Blamed if the Oroville Dam Fails? (McMaken)

While everyone likes to see a shiny new dam or railroad or bridge, the problem with infrastructure projects is that they require maintenance. Unfortunately, while it’s fun to build new dams and promise cheap water to many voters and powerful special interests, maintaining those projects is less exciting. As The Mercury News has reported, 12 years ago, both California and federal officials refused to consider a demand that California heighten precautions and maintenance standards at the Oroville Dam. In response to the demands, the Federal Energy Regulatory Commission (FERC) said the dam’s emergency features were perfectly fine and that the emergency spillway “was designed to handle 350,000 cubic feet per second and the concerns were overblown.”

But, in a development reminiscent of the Army Corp of Engineers’ failure in New Orleans, state officials began ordering evacuations when flows over the spillway reached a mere “6,000 to 12,000 cubic feet per second” or “5% of the rate that FERC said was safe.” Basically, thanks to poorly maintained spillways — and perhaps other oversights — the dam itself is being eroded away, and may soon face total failure. If it does fail, the dam will have failed less than 50 years after its initial — and very, very expensive — construction. The “experts” assure us that this sort of thing has never happened before, of course, and it’s the fault of global warming or it’s just a fluke. But, it’s not as if the dam has never been under strain before. As Reisner recounted in 1987:

“In February of 1980, in the midst of a long spell of wet Pacific fronts, Oroville Reservoir, despite its capacity of something like a trillion gallons, was full, and the dam was spilling — 70,000 cubic feet per second, the Hudson River in full flood, roaring down the spillway at forty miles per hour, sending a plume of mist a thousand feet in the air.” At the time, the dam was only 12 years old. Today, the now-49-year old dam isn’t looking nearly as robust.

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Excellent Dmitry: “..there are at least 5.8 billion people alive in the world who don’t own a car. How can something be considered a necessity if 82% of us don’t seem to need it?”

The Technosphere: You Are Not In Control (Dmitry Orlov)

A good example of how the technosphere controls our tastes is the personal automobile. Many people regard it as a symbol of freedom and see their car as an extension of their personalities. The freedom to be car-free is not generally regarded as important, while the freedoms bestowed by car ownership are rather questionable. It is the freedom to make car payments, pay for repairs, insurance, parking, towing and gasoline. It is the freedom to pay tolls, traffic tickets, title fees and excise taxes. It is the freedom to spend countless hours stuck in traffic jams and to suffer injuries in car accidents. It is the freedom to bring up neurologically damaged children by subjecting them to unsafe carbon monoxide levels (you are encouraged to have a CO detector in your house, but not in your car—because it would be going off all the time). It is the freedom to suffer indignities when pulled over by police, especially if you’ve been drinking. In terms of a harm/benefit analysis, private car ownership makes no sense at all.

It is often argued that a car is a necessity, although the facts tell a different story. Worldwide, there are 1.2 billion vehicles on the road. The population of the planet is over 7 billion. Therefore, there are at least 5.8 billion people alive in the world who don’t own a car. How can something be considered a necessity if 82% of us don’t seem to need it? In fact, owning a car becomes necessary only in a certain specific set of circumstances. Here are some of the key ingredients: a landscape that is impassable except by motor vehicle, single-use zoning that segregates land by residential, commercial, agricultural and industrial uses, a lifestyle that requires a daily commute, and a deficit of public transportation. In turn, widespread private car ownership is what enables these key ingredients: without it, situations in which private car ownership becomes a necessity simply would not arise.

Now, moving people about the landscape is not a productive activity: it is a waste of time and energy. If you can live, send your children to school, shop and work all without leaving the confines of a small neighborhood, you are bound to be more efficient than someone who has to drive between these four locations on a daily basis. But the technosphere is rational to a fault and is all about achieving efficiencies. And so, an obvious question to ask is, What is it about the car-dependent living arrangement, and the landscape it enables, that the technosphere finds to be efficient? The surprising answer is that the technosphere strives to optimize the burning of gasoline; everything else is just a byproduct of this optimization.

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Not the strongest effort, but at the same time, children should always receive our protection.

Greece’s Frozen Children: What Will Happen To Young Refugees? (NS)

The snow-covered tents were an ugly spectacle around the island of Lesbos as this harsh winter gripped Greece. It was in this same area that an accident involving a gas heater had killed a mother and child in late November, when their tent – and others near it – went up in flames. It was pure luck that there weren’t more victims. The incident served as a stark reminder that there are numerous children living in these miserable conditions and that sometimes they die as a result. I had visited the camp just days earlier, hoping to talk to some of the approximately 80 unaccompanied minors who live there. Facilities for refugees around Greece can look anything from decent to shabby, but none resembles a prison as much as the Moria camp on Lesbos. It looks the last place you would host vulnerable children, some of whom are as young as 13.

Yet more than 5,000 children have arrived in Greece without their parents and, like everyone else, they have to be sorted through “hot spots” such as Moria. About 2,500 are still in Greece, and some of them have to live in places like this. While adults and children accompanied by their parents can leave the camp, unaccompanied children, who are placed formally under the guardianship of the district attorney, cannot. The facility, guarded by police in full riot gear and surrounded by concrete walls topped with barbed wire, is both home and prison. It takes nine months on average for an unaccompanied child to be reunited with family in another country – if indeed the child has one. The alternative is that they remain in Greece until they turn 18, when they can try to claim asylum. If a child’s application is rejected, he is then deported back to the country he left years earlier as a child.

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Mar 162015
 
 March 16, 2015  Posted by at 7:17 am Finance Tagged with: , , , , , , , , ,  1 Response »
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NPC People’s Drug Store, 11th & G streets, Washington DC 1920

After Six Years, U.S. Stocks are Back to Normal: Chaos (Bloomberg)
Indeed This Time Is Different: Because It’s Far Worse (Mark St.Cyr)
It’s Time For A Criminal Probe Into Tim Geithner’s Leaks As Fed Vice Chair (ZH)
Germany And Greece Should Look To Goethe To Resolve Their Standoff (Guardian)
Greek Currency Crisis Calls For Controlled Exit (Münchau)
If Greece Leaves Eurozone, Spain And Italy Would Be Next – Minister (ToM)
Greece To Use Nazi Army Archives For Reparation Claim (AFP)
Varoufakis: Greece Has Things Under Control (Deutsche Welle)
Germans Tired of Greek Demands Want Country to Exit Euro (Bloomberg)
Russia Was Ready for Crimea Nuclear Standoff, Putin Says (Bloomberg)
More Than a Million Hit Brazil Streets to Protest Rousseff (Bloomberg)
Beware the $300 Billion Shift Into Treasuries Coming From Japan (Bloomberg)
The Austrian Black Swan Claims Its First Foreign Casualty (Zero Hedge)
The Full Explanation Of How The ECB Broke Europe’s Bond Market (Zero Hedge)
Krugman Is Told to Read More, Write Less, by Swedish Riksbanker (Bloomberg)
A Green Light for the American Empire (Ron Paul)
How to Build a $400 Billion F-35 that Doesn’t Fly (Fiscal Times)

Anyone who still calls himself an investor doesn’t understand what goes on.

After Six Years, U.S. Stocks are Back to Normal: Chaos (Bloomberg)

Nobody said waking up from six years of Federal Reserve-induced slumber would be easy In stocks, volatility is back. The Standard & Poor’s 500 Index, which never went more than three days without a gain in 2014, has twice fallen five straight times since January. Daily equity moves exceeding 1% have jumped 50% from last year and shares tumbled 3% or more over four different stretches in the first quarter. What seems like chaos is a return to normalcy for 70-year-old investor Chris Bertelsen, who says the end of Fed stimulus is long overdue in a market that has tripled since 2009. Volatility indicators bear a resemblance to 2007, the final year of the previous bull market – which this one now exceeds by 12 months.

“We are so skewed by the readily available quantitative easing and that was the abnormal,” said Bertelsen, chief investment officer of Global Financial. “For many investors, particularly those that haven’t seen a period of time like this, it does create queasiness.” The market hasn’t been this turbulent since the European debt crisis three years ago as volatility in currency and energy markets spill over to equities and Fed policy makers signal a rate increase by mid-year.

Less than three months into 2015, the market has seen 15 days when the S&P 500 rose or fell 1% or more, compared with 10 days a quarter in 2014. While the index is little changed for the year and has gone 41 months without a 10% tumble, it’s had more retreats of at least 3% than any time since 2011, data compiled by Bloomberg show. After swinging 0.53% a day in 2014 in the calmest year since 2006, the S&P 500’s daily move has widened to 0.71%, versus the average of 0.76% since 1928. “What we’re seeing in the market today is a preview that this is going to a more volatile year and investors should be positioned,” said Jim McDonald at Northern Trust.

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Amen, brother.

Indeed This Time Is Different: Because It’s Far Worse (Mark St.Cyr)

Suddenly the narrative that “everything is awesome” is showing to not be as “awesome” as it was first proclaimed. Merely a few months have passed since the ending of QE and praises of awesomeness everywhere are morphing into questions more akin to “Oh no: not again!” And with that we are now watching those who pushed, pulled, and levitated that narrative scramble desperately to push another narrative back onto the stage that worked so many times before: “Every sell off over the last 6 years has shown to be a profitable buying opportunity.” i.e., Just buy the dip (JBTFD). Yet it would seem these dips; are far different.

Just for context, over the past week, if you were one of the few remaining “home-gamers” still watching CNBC™, you would have been delighted to see once again their host Jim Cramer go through great pains to explain why he discounts the idea that we’re in a bubble to once again like ringing a bell (he uses buzzers and gongs I believe) the indexes sell off in dramatic fashion bringing back memories of Bear Sterns. As of today any gains for the year have been quelled. But not too worry, for he also contends you should have “dry powder” at the ready. i.e., Be ready to “JBTFD.” My thoughts? “Investing” isn’t going to be so easy this time. Why? Let me be so bold to use the same meme touted by the likes of those who sold it: Because, it truly is – different this time. Without QE, not only is there no one buying.

What’s far, far, far, (did I say far?) worse is: There’s no one to sell too! Effectively through the interventionist policies over the last 6 years via the QE program what the Fed. has accomplished, whether intentionally, or merely complicit in the results were: to systematically exterminate the dreaded “Short sellers.” Today everybody is currently on one side of the market. And that side is: long. The dreaded “Bears” that would even out the markets taking positions on the other side are all about gone. Every empirical statistics, every indicator measured whether it be Investor Intelligence™ data and the like shows, historically – they’ve never been so lopsided. Ever! But that’s only the beginning.

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Great rundown.

It’s Time For A Criminal Probe Into Tim Geithner’s Leaks As Fed Vice Chair (ZH)

Back in January 2013, when looking at the Fed’s 2007 transcripts we stumbled upon something which in a non-banana republic would be the basis of a criminal investigation. What happened, in a nutshell, is that at precisely 8:00 am on August 17, shortly after the infamous Goldman (and other) quant fund blow ups of the summer of 2007 shook the markets, in an attempt to halt the panic selloff in stocks, the Fed announced the following:

To promote the restoration of orderly conditions in financial markets, the Federal Reserve Board approved temporary changes to its primary credit discount window facility. The Board approved a 50 basis point reduction in the primary credit rate to 5-3/4%, to narrow the spread between the primary credit rate and the Federal Open Market Committee’s target federal funds rate to 50 basis points. The Board is also announcing a change to the Reserve Banks’ usual practices to allow the provision of term financing for as long as 30 days, renewable by the borrower. These changes will remain in place until the Federal Reserve determines that market liquidity has improved materially. These changes are designed to provide depositories with greater assurance about the cost and availability of funding. The Federal Reserve will continue to accept a broad range of collateral for discount window loans, including home mortgages and related assets. Existing collateral margins will be maintained. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of New York and San Francisco.

Why was this abnormal, and why should it be the basis for a criminal inquiry? Simple. As we also wrote previously, hours before the Fed officially announced its primary credit rate cut, the market soared by a whopping 40 points just after 2 pm without any actual public news crossing the tape.

In other words, someone leaked the Fed’s decision to a select few just around 2 pm on Thursday, August 16, which can be further confirmed by the continuation of the market’s exuberance in the moments following the Fed’s announcement. This is a bold accusation, and one we wouldn’t make if none other than the Fed subsequently had confirmed that a member of the FOMC had indeed leaked the news of the upcoming rate cut. The leaker in question: the Vice Chairman of the Federal Reserve and then-head of the NY Fed, Tim Geithner himself. From the August 16, 2007 transcript (page 13 of 37) of the conference call preceding this announcement:

MR. LACKER. If I could just follow up on that, Mr. Chairman.
CHAIRMAN BERNANKE. Yes, go ahead.
MR. LACKER. Vice Chairman Geithner, did you say that [the banks] are unaware of what we’re considering or what we might be doing with the discount rate?
VICE CHAIRMAN GEITHNER. Yes.
MR. LACKER. Vice Chairman Geithner, I spoke with Ken Lewis, President and CEO of Bank of America, this afternoon, and he said that he appreciated what Tim Geithner was arranging by way of changes in the discount facility. So my information is different from that.
CHAIRMAN BERNANKE. Okay. Thank you. Go ahead, Vice Chairman Geithner.
VICE CHAIRMAN GEITHNER. Well, I cannot speak for Ken Lewis, but I think they have sought to see whether they could understand a little more clearly the scope of their rights and our current policy with respect to the window. The only thing I’ve done is to try to help them understand—and I’m sure that’s been true across the System—what the scope of that is because these people generally don’t use the window and they don’t really understand in some sense what it’s about.

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“..the words “our boys didn’t die on the beaches of Normandy for this” have been used in conversations between the State Department and the German foreign ministry.”

Germany And Greece Should Look To Goethe To Resolve Their Standoff (Guardian)

The Greek rebellion against Turkish rule, which began in 1821, threatened to upset the entire diplomatic balance of the western world. It flew in the face of the treaty signed by the so-called Holy Alliance (Russia, Austria and Prussia) to suppress revolutionary movements in Europe. Plus it violated the German enlightenment’s ideal of freedom, which was understood as deriving from the rule of law. Under the influence of the philosopher Kant, the Germans who built central Berlin as an off-white replica of Athens believed all freedom came from obeying authority.

The Greeks fighting the Turks in a dirty war, revelling in their image as brigands and urging revolt across Europe, were seen in the Germany of the 1820s much as the German electorate views hordes of radical Greek youth punching the air and singing Katyusha – with distaste. So Goethe, initially, opposed the Greek revolt. He feared Russian power would fill the vacuum if the Turks were beaten. And beyond that he feared it would spark further outbreak of revolution in Europe. What changed Goethe’s mind was the death of Lord Byron, fighing on the Greek side in 1824. In a sudden surge of creativity Goethe set to work on his unfinished drama Faust, modelling the central character now on Byron himself, and turning the second half of the work into a meditation on the nature of freedom.

His U-turn reframed the Greek “rulebreaking” problem within a broader set of rules: the Christian west versus the Ottoman Empire. Goethe declared his support for the Greeks, in opposition to the will of his political masters in Germany. Today, there are a growing number of diplomats in the Anglo-Saxon world who wish Angela Merkel would do a similar volte-face. The Germans’ intransigence on the Greek debt crisis is rooted in the same philosophical stance that initially guided Goethe’s generation: namely, that freedom derives from conformity to authority and the rules. But there was always another idea of freedom in the west – the one espoused by republican France, radical Britain and revolutionary America: that freedom exists in opposition to authority, and that the ultimate human right is to destroy the established order.

It’s strange to see a 200-year-old philosophical debate played out in the diplomatic backchannels of Nato, but that’s what is happening. If Germany’s cultural centre in Athens does end up draped in the banners of the anarchist left, then – in a way – it will be a fine testimony to the relevance of Goethe himself. And yet another example of the troubled psyche of this place called Europe.

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“The conclusion is inevitable: the best way to avoid a Grexident is to prepare for a Grexit.”

Greek Currency Crisis Calls For Controlled Exit (Münchau)

When German economic illiteracy meets with Greek diplomatic illiteracy, nothing good will come of it. Last week, a Greek minister threatened to swamp Germany with Islamic refugees. The Germans are again debating an accidental Greek exit from the eurozone: Grexident. Alexis Tsipras, the Greek Prime Minister, linked a claim about Second World War reparation payments against Germany to present discussions on the extension of a loan agreement. The reparations claim itself is not frivolous. There are even German lawyers who believe Athens has a case. But it is politically mad to link the two. What we are hearing is not the usual noise: there is a loss of trust. The conclusion I draw from this is that the odds of a Greek exit from the eurozone have shortened dramatically in the past two weeks.

The two sides may tone down their rhetoric in the coming days but I cannot see the creditor countries relenting on the conditions of last month’s debt rollover agreement. Nor can I see the Greek government fulfilling them. Since nobody knows how many days or weeks Athens is from insolvency, the risk of a sudden exit is clear and present. Grexit may never happen – but it is time to get ready. Grexit is not an outcome any rational person would wish for. It will undermine the EU’s geostrategic influence. Economically, it will unmask a hidden truth: that the monetary union is just a beefed-up fixed-exchange system. A large number of financial contracts would instantly default. It is unclear how the global financial system would cope. The eurozone’s fledgling economic recovery would be at risk.

For Greece, an exit may well work in the long run if it is well managed, but it will bring economic misery in the short term. The country is still running a current account deficit, meaning it is reliant on external funding to support domestic consumption. That funding may disappear from one day to the next, should Greece default on its creditors. A preparation for Grexit is not about a Plan B in the top drawer. It means a pre-agreed sequence of actions ready to be implemented. A changeover of a currency regime within a short period of time constitutes an organisational and logistical challenge that goes beyond anything normal states ever do. I would advise against a cold turkey switch into a new currency regime – one that would replace the euro with a new drachma. I doubt this is logically feasible or economically desirable. I would opt for a transitory regime, a smoke-and-mirrors version where nobody knows precisely whether Greece is in or out.

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Crystal clear.

If Greece Leaves Eurozone, Spain And Italy Would Be Next – Minister (ToM)

If Greece were to leave the eurozone, Spain and Italy would also end up quitting the common currency bloc, Greek Defence Minister Panos Kammenos told German newspaper Bild in an interview published yesterday. “If Greece explodes, Spain and Italy will be next and then at some point, Germany. We therefore need to find a way within the eurozone, but this way cannot be that the Greeks keep on having to pay,” he said, according to an advance extract of the broad-ranging interview. He also said Greece did not need a third bailout but rather “a haircut like the one Germany also got in 1953 at the London debt conference”. Athens and Berlin have become engaged in a war of words and Greece has submitted a formal protest to the German Foreign Ministry, accusing Finance Minister Wolfgang Schaeuble of having insulted his Greek counterpart, Yanis Varoufakis.

Schaeuble denies having called Varoufakis “foolishly naive”, as reported by some Greek media. On Schaeuble, Kammenos was quoted as saying: “I don’t understand why he turns against Greece every day in new statements. It’s like a psychological war and Schaeuble is poisoning the relationship between the two countries through that.” The relationship has already been strained by Berlin’s tough stance on Greece’s debt crisis. Kammenos said Schaeuble needed to put up with the new Greek government because it had been elected by the Greek people. He accused Berlin of interfering in Greek domestic affairs, adding: “I get the feeling that the German government is out to get us and some really want to push us out of the eurozone.”

Last week Greece renewed its campaign to seek compensation for the Nazis’ brutal occupation in World War II, an issue Berlin says was settled decades ago. Kammenos called for reparations in the interview, saying, “The gold that the Nazis took to Berlin from Athens was worth a lot of money. We expect compensation for that and also for the forced loan and the destruction of archaeological statues.” Kammenos also suggested Greece would stop taking refugees in the case of a “forced” Greek exit from the eurozone. “Then no agreements would be valid anymore, no treaties, nothing. We would no longer be obliged to take in refugees as a country of arrival. Whoever wants to push us out of the eurozone should know that.”

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Quite a find.

Greece To Use Nazi Army Archives For Reparation Claim (AFP)

Greece will use a trove of Nazi army papers to press its claim for German reparation payments, the defence ministry said on Friday. “This archive contains over 400,000 pages…it will be used toward supporting Greek demands over German obligations in 1941-1944,” the ministry said. “These documents do not just substantiate a historic truth – they are the documents of the Wehrmacht itself, the occupation forces,” said junior defence minister Kostas Isichos. The ministry said it had obtained the papers from US archives. “They are diaries, reports by officers to their superiors…these were not written for publicity, they were mainly secret documents,” he said.

Facing resistance from EU paymaster Germany to its claims for a renegotiation to its bailout, the new radical Greek government has stepped up pressure on Berlin over the controversial issue of war reparations. The Greek justice minister this week said he would activate a 15-year-old Greek Supreme Court ruling allowing the seizure of German assets to pay for war damages. Greece’s parliament also approved a motion to reactivate a special committee to look into war reparations, reimbursement of a forced war loan and the return of archaeological relics seized by German occupation forces.

Berlin argues that the issue of reparations to Greece was settled in 1960 as part of an agreement with several European governments. Isichos said Athens hoped the Wehrmact papers would shed further light on aspects of the occupation period, such as illegal archaeological excavation and looting, “in order to strengthen, not poison” Greek-German relations. “German universities, intellectuals and the German people are invited to join us in discovering this historic treasure…and close this open wound,” he said.

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“Small, insignificant problems of liquidity should not divide Europe..”

Varoufakis: Greece Has Things Under Control (Deutsche Welle)

Finance Minister Yanis Varoufakis told ARD presenter Günther Jauch that Greece would repay its debts while still managing to cover civic needs, social security and a public workforce. In March, Greece is expected to pay €900 million to the IMF. “Small, insignificant problems of liquidity should not divide Europe,” Varoufakis told Jauch. Varoufakis said creditors did not have the right to interfere in Greece’s affairs. The finance minister also repeated a call for Germany to pay 11 billion euros in reparations for Nazi atrocities to Greece. German officials have said that the matter is settled. Varoufakis also addressed a recent video in which he appears to be showing his middle finger at hypothetical German officials at a 2013 speech in Zagreb, two years before he became finance minister. He called it a fake.

Earlier, Greek Prime Minister Alexis Tsipras also said his country was not facing a cash shortage. The denial came as Greece prepares to issue €1 billion in three-month treasury bills on Wednesday to meet debt repayments. “There is absolutely no problem with liquidity,” Tsipras told reporters after meeting with Varoufakis. Negotiations are continuing with creditors on a revised reform plan for Greece. On Sunday, Germany’s Frankfurter Allgemeine Zeitung reported that, with €6 billion in debt bills in March overall on Greece’s books, civil servants should brace themselves for downsized salaries and pensions this month. “Tsipras urgently needs money,” said European Parliament President Martin Schulz in the article. The German parliamentarian, who met Tsipras last week, said Greece would have to convince eurozone nations and the ECB of its determination to carry out reforms.

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Stuffed with propaganda. Not a great idea in Germany.

Germans Tired of Greek Demands Want Country to Exit Euro (Bloomberg)

Berlin cabdriver Jens Mueller says he’s had it with the Greek government and he doesn’t want Germany to send any more of his tax money to be squandered in Athens. “They’ve got a lot of hubris and arrogance, being in the situation they’re in and making all these demands,” said Mueller, 49, waiting for fares near the Brandenburg Gate. “Maybe it’s better for Greece to just leave the euro.” Mueller’s sentiment is shared by a majority of Germans. A poll published March 13 by public broadcaster ZDF found 52% of his countrymen no longer want Greece to remain in Europe’s common currency, up from 41% last month. The shift is due to a view held by 80% of Germans that Greece’s government “isn’t behaving seriously toward its European partners.”

The hardening of German opinion is significant because the country is the biggest contributor to Greece’s €240 billion twin bailouts and the chief proponent of budget cuts and reforms in return for aid. Tensions have been escalating between the two governments since Prime Minister Alexis Tsipras took office in January, promising to end an austerity drive that he blames on Chancellor Angela Merkel. The shift in sentiment comes as Greece, at risk of running out of cash this month, battles with European officials over the release of more bailout funds. Tspipras has also stepped up calls for war reparations from Germany for the Nazi occupation during World War II and Greek Finance Minister Yanis Varoufakis has been locked in a war of words with his German counterpart Wolfgang Schaeuble.

Last week, the Greek government officially complained about Schaeuble’s conduct, to which Schaeuble replied that the whole matter was “absurd.” “The way the Greeks have been behaving has been impossible. Now they’re making their own demands with these reparations,” said Dorli Schneider, an interpreter waiting for a train at Munich’s central station. “Greece should pay back what they owe. We can’t forever give them more money.” German voters’ growing umbrage may make it harder for Merkel to sell any possible deal down the road to the German public and Budestag, which would have to vote on it. She also has to be wary of the anti-euro AfD party trying to peel off her voters, said Juergen Falter, a political scientist at the Johannes Gutenberg University in Mainz.

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That’s not what he said.

Russia Was Ready for Crimea Nuclear Standoff, Putin Says (Bloomberg)

Russian President Vladimir Putin said he was ready to put his country’s nuclear forces on alert when he annexed Ukraine’s Crimean peninsula last year in case of intervention by the U.S. and its allies. “We were ready to do that,” Putin said when asked in a documentary film about Russia’s takeover of Crimea aired Sunday on state television if the Kremlin had been prepared to place its nuclear forces on alert. The Russian leader said he warned the U.S. and Europe not to get involved, accusing them of engineering the ouster of Russian-backed Ukrainian President Viktor Yanukovych. “That’s why I think no one wanted to start a world conflict.”

In the film, called “Crimea: the Road to the Motherland,” broadcast by Rossiya-1, Putin said he sent military intelligence and elite navy marines to spearhead the disarmament of 20,000 Ukrainian troops in the territory. No date was given for the Putin interview. The film was made over eight months. Russia’s seizure of Crimea in March last year provoked the worst geo-political confrontation with the U.S. and Europe since the Cold War. Tensions have escalated during a pro-Russian insurgency in eastern Ukraine that’s killed more than 6,000 people over the past year. Despite a European-brokered cease-fire, the U.S. is considering arming Ukrainian forces.

Putin, 62, whose country has been hit by U.S. and European Union sanctions that have helped to drive the Russian economy toward recession, branded President Barack Obama’s administration as “puppet-masters.” He said the U.S. directed the months of mass protests that overthrew Yanukovych in February last year. The Russian president said he decided to seize Crimea after a crisis all-night meeting with security chiefs from Feb. 22-23 to save the majority-ethnic Russian territory from the “nationalists” in Kiev who would have killed Yanukovych if Russia hadn’t given him refuge. He said the annexation of Crimea wasn’t planned before the overthrow of Yanukovych.

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She needs to go.

More Than a Million Hit Brazil Streets to Protest Rousseff (Bloomberg)

More than 1 million Brazilians, some of them calling for President Dilma Rousseff’s impeachment, took to the nation’s streets Sunday to protest a government beset by scandal and the rising cost of living. The largest protest occurred in Sao Paulo, with 1 million people as of 3:40 p.m. local time, according to its military police. Protests occurred in cites of 16 states and the federal capital, according to O Globo website. Its TV network reported 100,000 protesters in Porto Alegre and 45,000 in Brasilia, citing the military police of those cities. While no violence or vandalism was reported, Sao Paulo police apprehended firework rockets from a group of attendees. Higher taxes and increased prices for government-regulated items like gasoline are rankling Brazilians as the biggest corruption scandal in the nation’s history ensnares elected and appointed officials.

The approval rating of Rousseff’s government has plummeted since she won a close re-election last October. Today’s protests may be bigger than the June 2013 demonstrations in which more than a million people decried deficient public services and demanded an end to corruption. Today’s protest will force the government to present anti-corruption legislation it has already prepared, according to Thiago de Aragao at Arko Advice, a political risk company. Doing so will allow the government to deflect some fire and argue that protests targeted corruption rather than Rousseff or her party, he said. “The government needs to make some response and since, because of the magnitude, they can’t disqualify the size and pressure of the protest, they have to address one of the issues,” De Aragao said by phone.

“The anti-corruption package will be more fluff than anything real, but at this moment it’s one of the main things that the government has to respond with. They don’t have much more than that.” [..] Today marks the 30th anniversary of Brazil’s return to democracy after a 21-year military dictatorship. March 15 will henceforth be remembered as the Day of Democracy, Aecio Neves, who Rousseff bested in the election last year, said in a video posted on his Facebook page, showing him wearing the yellow jersey of the Brazilian national soccer squad. “I’m here to protest against corruption,” said Eliana Batista do Norte, a 55-year-old publicist who marched in Sao Paulo. “It’s not just about throwing the Workers’ Party out. We have to get rid of all the corrupt people. There is already enough information to remove Dilma.”

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They want to buy $300 billion worth of US Treasuries AND purchase all of their own bonds? Wow…

Beware the $300 Billion Shift Into Treasuries Coming From Japan (Bloomberg)

Back in the 1980s, the billions of dollars that the Japanese plowed into U.S. government debt reflected the Asian nation’s burgeoning economic might. Now, they’re at it again, only this time it’s to eke out any return they can. Yields on Japanese debt have been pinned near zero ever since the Bank of Japan embarked on its latest attempt, in April 2013, to end the two decades of stagnation that followed those go-go years. Europe isn’t much of an option, as yields turned negative this year on the region’s own quantitative easing. So why the U.S.? For one, with the Federal Reserve poised to raise interest rates, Treasuries offer the highest yields among debt from the world’s most-industrialized economies.

Then there’s the dollar, whose meteoric rise against virtually every currency has made U.S. assets even more appealing. HSBC says Japanese investors may funnel $300 billion into Treasuries over the next two to three years, double the pace of the nation’s purchases since 2012. “The BOJ is crowding out private investors,” said Yusuke Ito at Mizuho. “They have to find alternatives.” Mizuho’s overseas bond unit, which stepped up buying of Treasuries in mid-2014, has signed up more clients looking for higher-yielding alternatives to Japanese debt, he said. Japan first began to exert its influence in the U.S. government bond market more than three decades ago, when its booming export-driven economy produced trade surpluses that it then plowed into Treasuries year after year.

Japan has since built a stake of $1.23 trillion, making it America’s second-largest overseas creditor, just behind China’s $1.24 trillion. For the U.S. government, maintaining Japanese demand in the $12.6 trillion market for Treasuries is more important than ever, particularly after China pared its own holdings last year by the most on record and as the Fed prepares to raise rates. The good news is that Japanese purchases are poised to accelerate. Of the $500 billion that investors will pull from Japan’s debt market to put abroad through 2017, about 60% will flow into Treasuries, said Andre de Silva, HSBC’s Hong Kong-based head of global emerging-markets rates research.

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“..if a 1.5% write down in the assets of a supposedly well-capitalized German bank can lead to almost overnight insolvency, one can almost imagine what will happen when the Austrian black swan wave reaches Europe’s actually “undercapitalized” banks…”

The Austrian Black Swan Claims Its First Foreign Casualty (Zero Hedge)

Precisely one week ago in “A Black Swan Lands In Southern Austria: The Ripple Effects Of “Mini-Greece Going Off In The Heartland Of Europe”, when analyzing the consequences of the collapse of Austria’s bad bank, we noted perhaps the biggest paradox of Europe’s emergency preparedness response to the Greek collapse and imminent expulsion from the Eurozone: namely that the biggest threat to German banks was no longer in some Mediterranean nation, but in its very own back yard. To wit:

Irony #2, and the biggest one of all: while German banks had spent the past 3 years preparing for the inevitable Grexit and offloading all their exposure to the now insolvent Greek state, it was a waterfall chain of events which started in Germany’s own “back yard”, courtesy of auditors who decided it was unnecessary to mark losses to market until it was far too late, and the immediate outcome is that one ninth of until recently Aaa/AAA-rated Austria is now also insolvent. And that is just the beginning. One can only imagine how many such other “0% risk-weighted” Pandora boxes lie in wait across what are otherwise considered Europe’s safest banks, provinces and nations.

Indeed, it was just the beginning, and moments ago we got confirmation that the next domino has tipped over, following a Reuters report that Germany’s deposit protection fund will take over the property lender Duesseldorfer Hypothekenbank AG (DuesselHyp), which has “run into problems” due to its exposure to Austrian lender Hypo Alpe Adria’s “bad bank” Heta. And while in the US FDIC Failure Fridays works like a well-greased machine, Germany has yet to get the hang of the whole “save the bad news for Friday after market close” thing and has for now has stopped on “Shocker Sundays.” Then again, this being Europe, denial persists even after the moment of failure, and according to Reuters, “the German banking association BdB, which runs the fund, is, however, not planning to wind down the bank, but wants to continue its operations.”

“The deposit protection fund is granting a guarantee for the Heta bonds to eliminate the immediate risks. The goal is a complete takeover of Duesseldorfer Hypothekenbank,” the BdB said in a statement on Sunday.

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It’s starting to feel like the last gasps of a fatally distorted system.

The Full Explanation Of How The ECB Broke Europe’s Bond Market (Zero Hedge)

[..]..it is not just the topic of swapping one asset with a higher collateral velocity for another with a far lower, if not zero, velocity, but also the issue of effective supply. As JPM notes, “another important aspect in Coeuré’s speech regarding market liquidity was the notion of “effective supply”. What matters more for market liquidity and depth is indeed not the overall stock or supply of euro government bonds, but the size of the effective supply as some asset holders may not be willing to sell. And it is effective supply that would determine whether the Eurosystem be able to meet its quantitative targets. While it is inherently difficult to calculate effective supply we believe we can make some reasonable assumptions to proxy it.” But before JPM’s analysis of effective supply in Europe (or lack thereof), it takes one more swipe at just how clueless the Goldman-advised ECB has become:

… we disagree with Coeuré’s view that, similar to their Japanese counterparts, “euro area banks will be more willing to sell euro government bonds to the ECB as they will receive central bank reserves, which in the current low interest rate environment can be viewed by banks as close substitutes for government bonds, and which count towards fulfilling e.g. the required liquidity ratios”. The problem with this argument, in our view, is that the ratio of government bonds + reserves to assets for commercial banks remains low for European banks vs. those in the US or Japan. Euro area and UK banks, in particular, have a ratio of government bonds + reserves to assets of 7% vs. 30% for their US and Japanese counterparts.

If Euro area banks sell no bonds at all to the ECB and at the same time the ECB injects €1.1tr into the Euro area banking system, the ratio of government bonds + reserves to assets would rise to 11%. This will still be well below the 30% for their US and Japanese counterparts. In addition, as we argued above, government bonds are worth more to banks from a collateral point of view given rehypothecation. And this is perhaps one of the reasons that banks are currently willing to hold euro government bonds with yields that are below -20bp. In all, we continue to believe that banks in the Euro area could end up selling bonds to the ECB, but to a much smaller extent than their Japanese counterparts given their much higher need for liquid assets.

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He doesn’t get paid to read…

Krugman Is Told to Read More, Write Less, by Swedish Riksbanker (Bloomberg)

Nobel laureate Paul Krugman is way off when he accuses the Swedish central bank of being guilty of “sadomonetarism,” according to the target of his criticism. Deputy Governor Per Jansson says the U.S. economist’s analysis suggests he hasn’t read enough about Sweden. Krugman has criticized the bank for raising rates at the height of Europe’s debt crisis in 2010 and 2011, and then for not cutting fast enough to fight disinflation. The moves made sense at the time, Jansson said, given a consensus among forecasters that prices were rebounding and as the economy was expanding faster than much of Europe, driving up credit growth and house prices.

“When he described Sweden as sort of a deflationary economy, and makes these parallels to Japan, you wonder, has he ever had a look at the data?” Jansson said in a March 12 interview in Stockholm. “Has he seen how Swedish GDP recovered over these crisis years? It completely outperformed the euro area, of course, but even the U.K. It’s close to the U.S.’s performance.” Krugman and other critics say the Riksbank’s policies drove Sweden into a deflationary trap that could have been avoided. The Riksbank, which in the mid-1990s became one of the first to target inflation, last reached its 2% target in 2011. Annual consumer prices have fallen for 11 of the past 14 months.

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“Unfortunately history has shown that even using humanitarian rhetoric as a justification for telling others what to do has never worked.”

A Green Light for the American Empire (Ron Paul)

The American Empire has been long in the making. A green light was given in 1990 to finalize that goal. Dramatic events occurred that year that allowed the promoters of the American Empire to cheer. It also ushered in the current 25-year war to solidify the power necessary to manage a world empire. Most people in the world now recognize this fact and assume that the empire is here to stay for a long time. That remains to be seen. Empires come and go. Some pop up quickly and disappear in the same manner. Others take many years to develop and sometimes many years to totally disintegrate. The old empires, like the Greek, Roman, Spanish and many others took many years to build and many years to disappear. The Soviet Empire was one that came rather quickly and dissipated swiftly after a relatively short period of time. The communist ideology took many decades to foment the agitation necessary for the people to tolerate that system.

Since 1990 the United States has had to fight many battles to convince the world that it was the only military and economic force to contend with. Most people are now convinced and are easily intimidated by our domination worldwide with the use of military force and economic sanctions on which we generously rely. Though on the short term this seems to many, and especially for the neoconservatives, that our power cannot be challenged. What is so often forgotten is that while most countries will yield to our threats and intimidation, along the way many enemies were created.

The seeds of the American Empire were sown early in our history. Natural resources, river transportation, and geographic location all lent itself to the development of an empire. An attitude of “Manifest Destiny” was something most Americans had no trouble accepting. Although in our early history there were those who believed in a powerful central government, with central banking and foreign intervention, these views were nothing like they are today as a consequence of many years of formalizing the power and determination necessary for us to be the policeman of the world and justify violence as a means for spreading a particular message. Many now endorse the idea that using force to spread American exceptionalism is moral and a force for good. Unfortunately history has shown that even using humanitarian rhetoric as a justification for telling others what to do has never worked.

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Why do I keep thinking this is no accident?

How to Build a $400 Billion F-35 that Doesn’t Fly (Fiscal Times)

The Pentagon’s embattled F-35 Joint Strike Fighter continues to be plagued with so many problems that it can’t even pass the most basic requirements needed to fly in combat, despite soaring roughly $170 billion over budget. As the most expensive weapons program in the Pentagon’s history, the $400 billion and counting F-35 is supposed to be unlike any other fighter jet—with high-tech computer capabilities that can identify a combatant plane at warp speed. However, major design flaws and test failures have placed the program under serious scrutiny for years–with auditors constantly questioning whether the jet will ever actually get off the ground, no matter how much money is thrown at it. Last year, military officials faulted contractors for all of the mistakes.

Contractors claimed they had corrected the issues and that there wouldn’t be more costly problems down the road. During an interview on 60 Minutes, Air Force Lt. Gen. Chris Bogdan, who is in charge of the program said, “Long gone is the time when we will continue to pay for mistake after mistake after mistake. Lockheed Martin doesn’t get paid their profit unless each and every airplane meets each station on time with the right quality.” However, a new progress report from the Defense Department casts serious doubts on the progress of the program. The DoD’s Director of Operational Test and Evaluation cites everything from computer system malfunctions to flaws with its basic design—it even found that the jet is vulnerable to engine fires because of the way it’s built.

A separate report from Military.com unearthed another embarrassing issue with the jet that suggests it won’t take off on time. The “precision-guided Small Diameter Bomb II doesn’t even fit on the Marine’s version of the jet, according to Military.com. On top of that, the software needed to operate the top close-air support bomb won’t even be operational until 2022, inspectors said. The Defense Department’s report also suggested that the program’s office isn’t accurately recording the jet’s problems. “Not all failures are counted in the calculation of mean flight hours between reliability events, but all flight hours are counted, and hence component and aircraft reliability are reported higher than if all of the failures were counted,” the report said.

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Feb 172015
 
 February 17, 2015  Posted by at 11:08 am Finance Tagged with: , , , , , , , , ,  1 Response »
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Byron On the streets after a New York blizzard 1899

How Central Banks Have Lost Control Of The World (Telegraph)
Draghi QE Plan Seen Challenged by Hoarders Amassing Bonds (Bloomberg)
Athens Rejects ‘Unacceptable’ Eurozone Demands (Guardian)
Greece Rejects Eurozone’s ‘Absurd’ Offer As Time Runs Out On Talks (Telegraph)
Greece Defies Creditors, Seeking Credit But No Bailout (Reuters)
Brussels’ Blunt Bargaining Presents Austerity As Greece’s Only Option (Guardian)
Greek Brussels Defiance Means Hope at Home Tinged With Anxiety (Bloomberg)
Greek Talks With Euro-Area Finance Ministers Break Up (Bloomberg)
How a Liquidity Squeeze Could Push Greece Out of the Euro (Bloomberg)
UK Chancellor George Osborne Says It’s Crunch Time For The Eurozone
No Time for Games in Europe (Yanis Varoufakis)
Varoufakis: ‘Austerity Has Done Nothing to Solve Greece’s Problems’ (Spiegel)
Germany’s Schaeuble “Very Sceptical” About Greek Debt Talks (Reuters)
Chinese Home Prices Fall For Ninth Month (BBC)
China New Home Prices Drop At Record Pace (CNBC)
Russian Researchers Expose Breakthrough US Spying Program (Reuters)
EU Places New Sanctions On Ukrainians, Russians (CNBC)
Putin Heads Off a US-Russia War (Margolis)
France Should Recognize Crimea As Part Of Russia – Le Pen (RT)
How Many More Wars? (Ron Paul)

“Competitive easing”

How Central Banks Have Lost Control Of The World (Telegraph)

The world’s oldest central bank has ventured into uncharted territory. Last week, Sweden’s Riksbank slashed its main policy rate into negative territory. In doing so, it became the 14th central bank to ease monetary policy so far this year, but the first to actually take its “repo rate” below zero to -0.1pc. This means Sweden is actually charging its banks to lend money. In Britain, the same interest rate currently stands at a historic low of 0.5pc, but could well be cut further if Mark Carney is to be believed. Switzerland and Denmark have already sent their deposit rates to -0.75pc to prevent currency appreciation and defeat deflation.

Faced with the twins threats of deflation and economic stagnation, monetary policymakers are reaching for their interest rate levers and digital money-printing tools in a bid to stave off recessions and debt deflationary dynamics. In energy exporting nations such as Russia, the collapse in oil prices has led to a flight of capital forcing central banks into massive foreign exchange intervention and dramatic rate hikes to prop up the value of their currencies. Loose monetary policy, coupled with the much anticipated tightening from the world’s largest economy later this year, is provoking fears that central banks are losing their grip on the global economy. Here’s a breakdown of the consequences that could emerge from their actions. “Competitive easing” among central banks has stoked fears of a return of international currency wars.

The announcement of unprecedented monetary stimulus from the ECB and the Bank of Japan has led to the respective weakening of their exchange rates and prompted dramatic responses from the smaller central bank players. In Europe, the Swiss, Danish and Swedish authorities have all moved to impose punitive negative interest rates in a bid to prevent their currencies from rocketing in value. The Swiss kicked off this round of devaluation with a shock decision to abandon its de facto peg with the euro in January. The Riksbank has gone further and will begin its own round of bond-buying in response to the ECB’s moves. Denmark meanwhile, has been forced to lower rates four times in three weeks and purchase €32bn in foreign exchange to prevent the krone from developing into a safe haven for investors. This co-ordinated central bank action is reviving the “ghosts of the 1930s”, according to investment bank Morgan Stanley.

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“If it becomes at all clear that the ECB is struggling to buy a sufficient quantity of bonds, it makes it even less likely that anybody will want to sell..”

Draghi QE Plan Seen Challenged by Hoarders Amassing Bonds (Bloomberg)

As if Mario Draghi doesn’t have enough problems already. Europe is trying to avert a crippling bout of deflation. Germany wants austerity and less stimulus. And Greece is demanding to renegotiate the terms of its bailout, a move that has revived the risk of the euro area splintering. Now, there’s yet another: the European Central Bank president’s unprecedented plan to jolt the euro zone out of its economic malaise by buying €1.1 trillion of bonds may be hamstrung, even before it starts. The reason? A dearth of new supply and a lack of willing sellers. Morgan Stanley estimates net issuance from governments will be negative for the first time, once the ECB’s plan is taken into account.

The resulting scarcity makes hoarding of the safest euro-area securities by banks, insurers and pension funds all but inevitable, hindering ECB efforts to buy in 19 months roughly the same proportion of those bonds as the Federal Reserve accumulated in almost six years of Treasuries purchases. “If it becomes at all clear that the ECB is struggling to buy a sufficient quantity of bonds, it makes it even less likely that anybody will want to sell,” said Michael Riddell at M&G, who also said he’d been telling clients the ECB may have difficulty with its purchases. “This would scupper their attempts to boost inflation,” he said. The program has been carefully calibrated to take account of the size of different markets, an ECB spokesman said by e-mail on Monday.

The central bank is not at all worried about its success, and operational details will be regularly reassessed, the spokesman said. While the ECB faces economic risks akin to those in the U.S. when the Fed started quantitative easing, global debt trading has evolved. A tighter balance between supply and demand has pushed up prices, helping send rates in Europe to record lows and leaving €1.2 trillion of the region’s sovereign bonds yielding less than zero. That may make holders of the securities more reluctant to sell. “We have institutional investors, which are desperately looking for yield,” said Franck Dixmier at Allianz Global, a unit of Europe’s biggest insurer. “They will not sell. Because what really matters for a pension fund or an insurance company is the yield at the time you purchase the bond – and there’s the question of reinvestment for those investors.”

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Dirty tricks.

Athens Rejects ‘Unacceptable’ Eurozone Demands (Guardian)

Talks between Greece and its eurozone creditors collapsed in disarray on Monday night, heightening concerns that the country is edging closer to a disruptive exit from the eurozone. The breakdown of discussions in Brussels over the Greek bailout programme appeared to leave both sides as far apart as ever, although eurozone finance ministers said a last-ditch summit could be held on Friday. However, the Greek delegation was told in no uncertain terms that talks would recommence only if the country was willing to extend its bailout package, which carries a list of austerity measures that the new left-wing government in Athens has vowed to pare back. Effectively presenting Greece with an ultimatum, the eurogroup of eurozone finance ministers said Athens had until Friday to agree to maintain the current bailout under the auspices of the Troika – something that Greece has said is unacceptable.

Greece’s finance minister, Yanis Varoufakis, made it clear in the acrimonious discussions in Brussels on Monday that Greece would not accept prolonging the bail out for six months unless the other 18 members of the eurozone agreed to water down the austerity conditions attached to the deal. Varoufakis insisted that an “honourable agreement” was within reach for Greece, despite voicing strong criticism of unspecified advocates of Greece’s current bailout, who were playing “games with the future of Europe”. “We are going to meet half way during the next couple of days,” he said. “Europe will do the usual trick, it will pull a good agreement, an honourable agreement, out of what appears to be an impasse.”

The Syriza-led coalition in Athens is convinced that, despite the tough language used by Germany, it can secure more favourable terms by holding out until closer to the 28 February deadline when its current €172bn bailout expires. But it ran the risk on Monday night of infuriating other eurozone members through its negotiating stance and by leaking the details of a draft agreement while the meeting was going on. A Greek official described the draft agreement as “unacceptable” because it restated that Greece must continue in its current bailout programme. “The Greek authorities have indicated that they intend to successfully conclude the programme, taking into account the new government’s plans,” stated a phrase in the rejected communique, which had been crossed out.

Jeroen Dijsselbloem, the Dutch finance minister who chairs the eurogroup, said there had been disappointment about the failure to find common ground. But he insisted that the Greek government had to make the next move by asking to continue in the bailout programme. “The next step has to come from the Greek authorities; they have to make up their mind.” He said eurozone ministers were likely to meet on Friday, but this would be the last chance to get an agreement.

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“..carrying out the bailout programme was off the table at the summit. Those who bring this back are wasting their time.”

Greece Rejects Eurozone’s ‘Absurd’ Offer As Time Runs Out On Talks (Telegraph)

The latest meeting between Greece and its international lenders over the debt-stricken country’s €172bn bailout ended in disarray on Monday, as the eurozone’s offer was rejected as “absurd” and “unacceptable”. Greece has demanded an end to the EU and IMF’s “adjustment” programme of economic reforms and austerity agreed three years ago in return for a bailout. Eurozone finance ministers met in Brussels on Monday hoping to reach a compromise before the bailout expires on February 28. However, Greek politicians reacted with anger to a draft statement tabled by Jeroen Dijsselbloem, the Dutch finance minister who chairs meetings of eurozone finance ministers. The communique committed Greece’s far-Left Syriza government to “successfully conclude” the EU-IMF programme.

“The Greek authorities gave their firm commitment to refrain from unilateral action and will work in close agreement with its European and international partners, especially in the field of tax policy, privatisation, labour market reforms, financial sector and pensions,” the draft stated. “The Greek authorities committed to ensure appropriate primary fiscal surpluses and financing in order to guarantee debt sustainability in line wit the targets agreed on the November 2012 Eurogroup statement. Moreover, any new measures should be funded, and not endanger financial stability. “On this basis the Greek authorities expressed their intention to request a six-month technical extension of the current programme as an interemediate step. This would bridge the time for the Greek authorities and the eurogroup to work on a follow up arrangement.”

Greece’s government blasted the document, with one source telling Reuters that “carrying out the bailout programme was off the table at the summit. Those who bring this back are wasting their time.” To replace the bailout, Greece is seeking a “bridging arrangement”, worth up to €21bn, that would allow the government in Athens breathing space to implement radical economic reforms. Wolfgang Schaeuble, the German finance minister, accused the Greek government of “behaving irresponsibly” by threatening to tear up agreements made with the eurozone in return for access to the loans which are all that stand between Greece and financial collapse. “It seems like we have no results so far. I’m quite sceptical. The Greek government has not moved, apparently,” he said.

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“He cited what he called a “splendid” proposal from the European Commission by which Greece would get four to six months credit in return for a freeze on its anti-austerity policies..”

Greece Defies Creditors, Seeking Credit But No Bailout (Reuters)

Talks between Greece and euro zone finance ministers over the country’s debt crisis broke down on Monday when Athens rejected a proposal to request a six-month extension of its international bailout package as “unacceptable”. The unexpectedly rapid collapse raised doubts about Greece’s future in the single currency area after a new leftist-led government vowed to scrap the €240 billion bailout, reverse austerity policies and end cooperation with EU/IMF inspectors. Dutch Finance Minister Jeroen Dijsselbloem, who chaired the meeting, said Athens had until Friday to request an extension, otherwise the bailout would expire at the end of the month. The Greek state and its banks would then face a looming cash crunch. How long Greece can keep itself afloat without foreign support is uncertain.

The euro fell against the dollar after the talks broke up but with Wall Street closed for a holiday, the full force of any market reaction may only be felt on Tuesday. The European Central Bank will decide on Wednesday whether to maintain emergency lending to Greek banks that are bleeding deposits at an estimated rate of €2 billion a week. The state faces some heavy loan repayments in March. Seemingly determined not to be browbeaten by a chorus of EU ministers intoning that he needed to swallow Greek pride and come back to ask for the extension, Finance Minister Yanis Varoufakis, a left-wing academic economist, voiced confidence that a deal on different terms was within reach within days.

“I have no doubt that, within the next 48 hours Europe, is going to come together and we shall find the phrasing that is necessary so that we can submit it and move on to do the real work that is necessary,” Varoufakis told a news conference, warning that the language of ultimatum never worked in Europe. He cited what he called a “splendid” proposal from the European Commission by which Greece would get four to six months credit in return for a freeze on its anti-austerity policies. He said he had been ready to sign that – but that Dijsselbloem had then presented a different, and “highly problematic”, deal. A draft of what Dijsselbloem proposed, swiftly leaked by furious Greek officials, spoke of Athens extending and abiding by its “current programme” – anathema to a government which, as Varoufakis said, was elected last month to scrap the package.

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“In the corridors of the European commission, officials will tell anyone interested that Greece long ago relinquished its autonomy.”

Brussels’ Blunt Bargaining Presents Austerity As Greece’s Only Option (Guardian)

Rarely have European finance ministers given such a clear statement. To the request from Greece to scrap its toxic austerity programme, the answer was no. Jeroen Dijsselbloem, the Dutch finance minister, is not the worst when it comes to convoluted euro-speak. Still, he has rarely delivered such a pithy response. Two weeks of shuttle diplomacy is the blink of an eye in Brussels. But that is all it took for Athens to be told its demand for an alternative bailout, with more relaxed rules, was a dream. The eurogroup said the troika programme must continue. As a concession it agreed the programme could be extended, and it would also allow for some elements to be up for discussion. But an extension must bring with it a commitment to carry through the majority of the reforms attached to the programme.

And any dropping of certain measures – such as a squeeze on public sector employment – must be matched by an agreement to add other elements of austerity. In other words, the abandonment of one public sector cut simply brings with it an equally tough one in a different guise. Dijsselbloem gave Greek prime minister Alexis Tsipras until Thursday to buckle, with a view to holding an emergency eurogroup meeting on Friday to discuss surrender terms. Without a call from Tsipras, Dijsselbloem said the bailout would end on 28 February. From 1 March a new bailout could be debated, but the hint was clear – the terms would be just as tough. And let’s face it, the terms are for a full and total surrender.

Not only will Tsipras give up his economic project, he will effectively be telling the Greek people something many have felt since the first bailout in 2010 – that they are governed from Brussels, and how they vote is irrelevant. In the corridors of the European commission, officials will tell anyone interested that Greece long ago relinquished its autonomy. Such was the severity of its financial crash and the dysfunction in its economy, being run from Brussels was the only answer. For Tsipras to have other ideas was wholly naive. And when last week, after the first eurogroup meeting, he told finance minister Yanis Varoufakis to keep pushing for more and the dapper economics professor went public again with accusations of financial waterboarding, the Eurogroup was left with no alternative but to say no.

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“The rallies show how exhausted Greek society is, how it’s a society on the brink.”

Greek Brussels Defiance Means Hope at Home Tinged With Anxiety (Bloomberg)

Christina Zografou wasn’t among the thousands of Athenians who gathered in Syntagma square on Sunday to support Prime Minister Alexis Tsipras. That’s not because the 21-year-old university student doesn’t support the efforts of his three-week-old government. Rather it’s because Zografou is more anxious than hopeful about what Tsipras will achieve. On Monday night, talks between Greece and its European creditors foundered after Tsipras’s government said the euro area’s proposal to extend existing bailout commitments was “absurd” and “unacceptable.” “I’m not optimistic this government won’t end up like the others; they aren’t prepared,” Zografou said. “The rallies show how exhausted Greek society is, how it’s a society on the brink.”

While opinion polls in Greece point to unprecedented support for the new government, they also show an undercurrent of concern. A Kapa survey of 1,015 Greeks published the day of the rally showed that hope was the overwhelming feeling chosen to describe Tsipras’s handling of the crisis since his election. The most prevalent feeling after that was anxiety. The rallies “place an even greater burden on the government to deliver a ’new deal’ for Greece,” said Spyros Economides, a professor at the London School of Economics. “If they don’t deliver, the goodwill generated among the electorate up to now could quickly be eroded.” Greece’s new anti-austerity government wants to exit the current bailout program, which it blames for the country’s economic hardships, and replace it with a new plan while obtaining bridge financing to avoid defaulting on its international debt.

The plan, which would include raising wages and reinstating government workers, is not getting much support from the country’s creditors. Germany, as the biggest country contributor to Greece’s €240 billion bailouts and the chief proponent of economic reform and budget cuts in return, insists that Tsipras’s government commit to an extension of its current rescue program, which expires Feb. 28. Without a deal, Greece could run out of money, forcing Tsipras to consider abandoning his promises to the electorate to prevent the country from leaving the single currency. In the weeks since Tsipras came to power and as European officials bear down on the new premier, the focus of conversations in Athens’s cafes, bars and sidewalks is all about what needs to be done and what can be done.

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“Varoufakis said his government had been “happy” with a “splendid,” separate draft communique that was produced by European Economic Affairs Commissioner Pierre Moscovici before the meeting.”

Greek Talks With Euro-Area Finance Ministers Break Up (Bloomberg)

European Commission President Jean-Claude Juncker’s 11th-hour effort to strike a deal with Greece on Monday was parried by euro-area finance ministers who sought to extend an austerity program in exchange for financial support. Talks in Brussels ended abruptly and Greek Finance Minister Yanis Varoufakis claimed a bait-and-switch, saying Juncker’s commission offered a path forward that finance ministers then refused to put on the table. Instead, Dutch Finance Minister Jeroen Dijsselbloem offered a different statement tying Greece to its current agreement. Varoufakis rejected that proposal out of hand, and the euro weakened on the impasse. Time is running out: The current aid agreement expires at the end of February.

Failure to reach an accord could see Greece stumble out of the euro, and while Europe’s defenses are stronger than when the country flirted with exit from the single currency three years ago, a departure could ultimately trigger a flight from risk, bank runs and a downturn in European demand. According to seven European officials with direct knowledge of the talks, the meeting quickly unraveled, sending the euro lower. Dijsselbloem, who leads the finance ministers’ group, eventually halted the proceedings, saying ministers could reconvene on Friday if there’s a breakthrough. “The next step has to come from the Greek authorities,” Dijsselbloem told reporters. “They have to make up their minds whether they will ask for an extension.”

Varoufakis said Greece had no choice but to refuse the statement on offer. “In the history of the European Union nothing good has ever come out of ultimatum,” he told reporters after the meeting. Greece is willing to extend the current aid program as long it’s done on the right terms, Varoufakis said. Prime Minister Alexis Tsipras’s government will now return to the bargaining table and “we are ready and willing to do whatever it takes to reach an honorable agreement over the next two days,” he said. [..] Varoufakis said his government had been “happy” with a “splendid,” separate draft communique that was produced by European Economic Affairs Commissioner Pierre Moscovici before the meeting.

Moscovici, speaking after the meeting, called on euro-area finance ministers to be “logical, not ideological” as negotiations continue. He urged Greece to request an extension and said concessions so far leave ample room for a deal. “We both agreed that it could be possible to keep 70% of the current program and to replace measures, but which have to be fully financed, up to 30%” of current requirements, Moscovici said. “30% is not a minor room for politics.”

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“With no access to any source of financing, the insolvent state and its banks would have to start using a new currency, or a currency equivalent, as no economy can survive without cash.”

How a Liquidity Squeeze Could Push Greece Out of the Euro (Bloomberg)

The standoff between Greece and its creditors on how to proceed on its bailout program risks triggering a simultaneous cash and credit crunch, which could drive the country out of the euro area. Here’s how a worst-case scenario could unfold: The Greek government, companies and lenders have all effectively lost access to international markets, due to the uncertainty over the country’s future. The current sources of liquidity are bailout funds from the euro-area nations, the currency bloc’s crisis fund, the IMF and the ECB’s Emergency Liquidity Assistance. Failure to strike a compromise means that these payments would cease. This means that the state would be unable to service its debt obligations, which stand at €22 billion this year, excluding treasury bills, according to the 2015 budget.

Greek aid talks in Brussels ended abruptly Monday. “If the ECB considers the talks to have stalled, there is a risk that it will suspend ELA, perhaps leaving Greece with no choice but to exit the euro zone,” Jennifer McKeown at Capital Economics said. Lack of access to bailout funds would also mean that the Greek state wouldn’t be able to repay its €15 billion outstanding of short-term debt held by the country’s lenders. At present, Greek banks continuously roll over bills, helping the government stay afloat. The ECB decision not to accept Greek bills as collateral for financing operations and accelerating deposit outflows are limiting the ability of banks to buy new bills.

With no access to any source of financing, the insolvent state and its banks would have to start using a new currency, or a currency equivalent, as no economy can survive without cash. This would be the start of a de-facto exit from the euro area, caused by Greece’s inability to deal with a stripping of liquidity worth as much as 96 billion euros, according to Bloomberg calculations below.

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Britain gets nervous. It should offer to act as mediator.

UK Chancellor George Osborne Says It’s Crunch Time For The Eurozone

The UK chancellor, George Osborne, has warned that Britain’s economic stability would be rocked if a deal cannot be reached on Greece’s bailout. Speaking on his way into the European Union ministers’ meeting on Tuesday morning, Osborne said: “We are reaching crunch time for Greece and the eurozone, and I’m here to urge all sides to reach an agreement, because the consequence of not having an agreement would be very severe for economic and financial stability.” He added: “What Britain really needs to see is competence not chaos.”

Talks between Greece and its eurozone creditors collapsed in disarray on Monday night, after Athens rejected a plan to prolong its bailout for six months. Jeroen Dijsselbloem, the chairman of eurozone finance ministers, said on Tuesday morning that eurozone ministers were ready to work with Greece to break the deadlock but insisted that the next move had to come from Athens. “I hope [Greece] will ask for an extension to the programme, and once they do that we can allow flexibility, they can put in their political priorities,” Dijsselbloem said as he arrived for the meeting. Analysts at Commerzbank said the chances of Greece leaving the eurozone were now as high as 50%.

After the eurozone finance ministers again failed to reach an agreement with Greece today, the euro membership of the country hangs in the balance.” Before yesterday’s failed meeting, Commerzbank rated the chances of Greece leaving the currency bloc at 25%.”

Greece is not on the official agenda of the meeting, but a further round of talks between Athens and its eurozone creditors is expected to be getting underway. Dijsselbloem has laid down a deadline of Friday for Greece to ask for an extension to its current bailout deal, which is due to expire on 28 February.

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Truth to power. “I am writing this piece on the margins of a crucial negotiation with my country’s creditors — a negotiation the result of which may mark a generation..”

No Time for Games in Europe (Yanis Varoufakis)

I am writing this piece on the margins of a crucial negotiation with my country’s creditors — a negotiation the result of which may mark a generation, and even prove a turning point for Europe’s unfolding experiment with monetary union. Game theorists analyze negotiations as if they were split-a-pie games involving selfish players. Because I spent many years during my previous life as an academic researching game theory, some commentators rushed to presume that as Greece’s new finance minister I was busily devising bluffs, stratagems and outside options, struggling to improve upon a weak hand. Nothing could be further from the truth. If anything, my game-theory background convinced me that it would be pure folly to think of the current deliberations between Greece and our partners as a bargaining game to be won or lost via bluffs and tactical subterfuge.

The trouble with game theory, as I used to tell my students, is that it takes for granted the players’ motives. In poker or blackjack this assumption is unproblematic. But in the current deliberations between our European partners and Greece’s new government, the whole point is to forge new motives. To fashion a fresh mind-set that transcends national divides, dissolves the creditor-debtor distinction in favor of a pan-European perspective, and places the common European good above petty politics, dogma that proves toxic if universalized, and an us-versus-them mind-set.

As finance minister of a small, fiscally stressed nation lacking its own central bank and seen by many of our partners as a problem debtor, I am convinced that we have one option only: to shun any temptation to treat this pivotal moment as an experiment in strategizing and, instead, to present honestly the facts concerning Greece’s social economy, table our proposals for regrowing Greece, explain why these are in Europe’s interest, and reveal the red lines beyond which logic and duty prevent us from going. The great difference between this government and previous Greek governments is twofold: We are determined to clash with mighty vested interests in order to reboot Greece and gain our partners’ trust. We are also determined not to be treated as a debt colony that should suffer what it must.

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“Our country is literally being pushed under water. Just before we suffer an actual cardiac arrest, we are granted a momentary respite. Then we’re pushed back under water, and the whole thing starts again. My aim is to end this permanent terror of asphyxiation.”

Varoufakis: ‘Austerity Has Done Nothing to Solve Greece’s Problems’ (Spiegel)

SPIEGEL: Mr. Varoufakis, you have referred to the European Union’s bailout policy for Greece as “fiscal waterboarding.” What exactly do you mean by that?
Varoufakis: For the past five years, Greece has been subjected to austerity measures that it cannot, under any circumstances, meet. Our country is literally being pushed under water. Just before we suffer an actual cardiac arrest, we are granted a momentary respite. Then we’re pushed back under water, and the whole thing starts again. My aim is to end this permanent terror of asphyxiation.

SPIEGEL: Do you really think “waterboarding” is an appropriate metaphor for a rescue package?
Varoufakis: Well, it managed to get your attention, didn’t it? So it worked.

SPIEGEL: You are comparing a rescue package with a form of torture the CIA used on prisoners. But Greece was showered with money, not water.
Varoufakis: That money was used to bail out banks, especially banks in Germany and in France, to prevent them from taking losses.

SPIEGEL: Greece would have become insolvent long ago if it hadn’t received help.
Varoufakis: The truth of the matter is that 90% of that money never arrived in Greece.

SPIEGEL: Going back to your metaphor, who is the torturer that keeps pushing Greece under water?
Varoufakis: The troika of technocrats sent periodically to Greece to enforce an unenforceable program, technocrats representing the European Commission, the European Central Bank and the International Monetary Fund. I have nothing against these three institutions as such. However, they sent a cabal of technocrats to Greece to implement and monitor an entirely destructive program.

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The parallel universe: “The problem is that Greece has lived beyond its means for a long time..” And built soupkitchens with all that money?

Germany’s Schaeuble “Very Sceptical” About Greek Debt Talks (Reuters)

Germany’s Finance Minister Wolfgang Schaeuble said in a radio interview on Monday that he was not very optimistic that Greece and its euro zone partners would reach a debt agreement at a meeting in Brussels later in the day. Asked if the Eurogroup of euro zone finance ministers would find a solution for Greece’s debt problems, Schaeuble told Deutschlandfunk: “From what I’ve heard about the technical talks over the weekend, I’m very sceptical, but we will get a report today and then we’ll see.” Schaeuble said Germany did not want Greece ot leave the euro zone, but that the new government in Athens had to fulfil the core conditions of its bailout programme and that it was not about finding a compromise deal “just for the sake of a compromise”.

“The problem is that Greece has lived beyond its means for a long time and that nobody wants to give Greece money anymore without guarantees,” Schaeuble said, noting that Athens had to stick to agreed reforms to become competitive. Schaeuble added that the new Greek government was behaving “quite irresponsibly” right now and that it was no help to insult others who have supported the country in the past. A Greek leftist newspaper close to the ruling party in Athens published a cartoon last week which showed Schaeuble in a Nazi uniform. He is quoted saying “we insist on soap from your fat” and “we are discussing fertilizer from your ashes”, references to the fate of Jews in Nazi death camps. In a separate interview with German broadcaster ZDF, Austria’s finance minister Hans-Joerg Schelling said the new Greek government still appeared to be in “election mode not working mode”.

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Bad to worse.

Chinese Home Prices Fall For Ninth Month (BBC)

The average price of new homes in China’s 70 major cities fell 0.4% in January from a month ago, marking the ninth consecutive decline. Government data showed that prices in the cities of Beijing and Shanghai also fell more last month than they did in December on an annual basis. China’s once red-hot real estate market has been facing headwinds from a slowing economy and oversupply issues. Investors have been turning away from the market and investing in stocks. Home prices fell in 64 of the 70 cities tracked by the National Bureau of Statistics. On an annual basis, prices fell 5.1% in January – marking the fifth consecutive month that prices fell from a year ago.

The continuing slump comes despite a surprise interest rate cut by China’s central bank in November in an attempt to boost growth in the flagging economy. The world’s second-largest economy grew at its slowest pace in 24 years last year, missing its official target and putting pressure on the government to take measures to avoid a sharper downturn. Earlier this month, China’s central bank surprised markets once again by lowering banks’ reserve requirements to boost lending, which is expected to help the property sector. The rate cut was the first since May 2012, although there have been cuts for select small lenders.

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“New home prices fell in 69 of 70 cities by from the year-ago period..”

China New Home Prices Drop At Record Pace (CNBC)

New home prices fell in 69 of 70 cities by an average of 5.1% from the year-ago period, according to Reuters calculations based on fresh data from the National Bureau of Statistics (NBS) on Tuesday. The pace pips the 4.3% decline in December, which was the largest drop since the current data series began in 2011, according to the FT. Both Beijing and Shanghai clocked in steeper on-year price falls, of 3.2% and 4.2%, respectively, in January compared with the 2.7% and 3.7% respective declines seen in December. The People’s Bank of China slashed the reserve requirements of major banks – or the minimum amount of cash banks need to hold back from lending – last month. The move follows the central bank’s surprise interest rate cut in November.

After skyrocketing in recent years, China’s property prices have been cooling amid a glut of supply and as economic growth moderated. The housing sector contributes to about 15% of China’s economy. The world’s second-biggest economy slowed to 7.4% in 2014, the slowest rate in 24 years. “Since the beginning of last year we are already seeing a steady drop in housing prices across the board,” said David Ji, head of research, Greater China, at Knight Frank. “The problem that we have now is that the developers have two to five years of stock to clear. So until that has been cleared, prices aren’t going up any time soon,” he added.

The pain in the sector is being felt by property developers like Kaisa, which on Tuesday said its assets frozen by courts to protect its creditors have risen to more than $2 billion, sending its shares down nearly 10% in Hong Kong. The troubled developer said Monday its debts now exceed $10 billion, of which it may have to repay more than half this year, and that it was in discussions with creditors to restructure its borrowings urgently. Kaisa’s problems underscores the role the informal – or shadow – banking sector plays in the slumping property market. These nontraditional Chinese lenders, or investment vehicles known as trusts, have lent massive amounts to the sector following the Global Financial Crisis, resulting in the accumulation of ballooning debt.

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This could cost US tech firms a fortune.

Russian Researchers Expose Breakthrough US Spying Program (Reuters)

The U.S. National Security Agency has figured out how to hide spying software deep within hard drives made by Western Digital, Seagate, Toshiba and other top manufacturers, giving the agency the means to eavesdrop on the majority of the world’s computers, according to cyber researchers and former operatives. That long-sought and closely guarded ability was part of a cluster of spying programs discovered by Kaspersky Lab, the Moscow-based security software maker that has exposed a series of Western cyberespionage operations. Kaspersky said it found personal computers in 30 countries infected with one or more of the spying programs, with the most infections seen in Iran, followed by Russia, Pakistan, Afghanistan, China, Mali, Syria, Yemen and Algeria.

The targets included government and military institutions, telecommunication companies, banks, energy companies, nuclear researchers, media, and Islamic activists, Kaspersky said. The firm declined to publicly name the country behind the spying campaign, but said it was closely linked to Stuxnet, the NSA-led cyberweapon that was used to attack Iran’s uranium enrichment facility. The NSA is the agency responsible for gathering electronic intelligence on behalf of the United States. A former NSA employee told Reuters that Kaspersky’s analysis was correct, and that people still in the intelligence agency valued these spying programs as highly as Stuxnet. Another former intelligence operative confirmed that the NSA had developed the prized technique of concealing spyware in hard drives, but said he did not know which spy efforts relied on it.

Kaspersky published the technical details of its research on Monday, which should help infected institutions detect the spying programs, some of which trace back as far as 2001. The disclosure could further hurt the NSA’s surveillance abilities, already damaged by massive leaks by former contractor Edward Snowden. Snowden’s revelations have hurt the United States’ relations with some allies and slowed the sales of U.S. technology products abroad. The exposure of these new spying tools could lead to greater backlash against Western technology, particularly in countries such as China, which is already drafting regulations that would require most bank technology suppliers to proffer copies of their software code for inspection.

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Can it get any crazier?

EU Places New Sanctions On Ukrainians, Russians (CNBC)

The European Union placed more Ukrainians and Russians under sanctions on Monday, accusing them of “undermining or threatening” Ukraine’s independence. The new list places “restrictive measures” on 28 people or organizations, including Russia’s First Deputy Minister of Defense, Arkady Bakhin. Also on the list was Deputy Minister of Defense Anatoly Antonov and Andrei Kartapolov, the deputy chief of the general staff of the Russian armed forces. The sanctions are due to come into effect immediately. The new penalties are part of an ongoing program by the European Union, but come just days after a cease-fire was announced in Ukraine. Military conflict with Russian separatists has been one of the biggest factors weighing on markets in recent months, but despite the cease-fire some of the rebels have not observed the truce, according to reports.

The Russian Foreign Ministry said that Moscow would “adequately” respond to the sanctions, according to Reuters. It added that the measures contradicted common sense and would not result in a solution to the conflict in eastern Ukraine. Ukraine was thrown into turmoil at the start of last year, after protests between anti-government and pro-EU demonstrators led to a change of leadership. Tensions on the streets of Kiev turned into military conflicts on the eastern border, with Moscow accused of aiding pro-Kremlin rebels in the region. Moscow continues to deny the involvement of Russian troops in the conflict.

Despite these denials, the tensions have hit Russia’s economy hard. It is expected to fall into a recession in the coming year on the back of international economic sanctions from both the U.S. and Europe, combined with a dramatic fall in oil prices. The Russian ruble fell sharply against the dollar after the news of more sanctions Monday, despite appreciating much of the morning session. The economic sanctions now mean Western asset freezes and travel bans for yet more Ukrainians and Russians. As well as commanders of armed separatist group in the region, the list also includes Iosif Kobzon, a Russian singer, who the EU has accused of making statements supporting separatists and voting in favor of the annexation of Crimea.

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“Along came that unlikely man of peace, Russia’s Vlad Putin, who charted a diplomatic course out of the Syria mess for the bumbling White House which had talked itself into corner.”

Putin Heads Off a US-Russia War (Margolis)

Has Russia’s Vladimir Putin pulled Barack Obama’s chestnuts out of the fire for a second time? Will the shaky cease-fire in Ukraine that began this weekend hold up and end a conflict that was threatening a nuclear war between the United States and Russia? The answer to the first question is yes. Remember back in 2013 when the Obama White House was threatening to attack Syria over allegations it was using poison gas? As it turned out, the UN found it was the US-backed Syrian rebels who were likely to have used chemical weapons rather than the Damascus regime. Noble Peace Prize Winner Obama and his lady strategists almost got the US into a war in Syria that could have led to direct clashes with Russia, which was backing the Damascus government.

Along came that unlikely man of peace, Russia’s Vlad Putin, who charted a diplomatic course out of the Syria mess for the bumbling White House which had talked itself into corner. Now, it seems the much-reviled Russian leader is doing it again. The cease-fire agreement forged in Minsk late last week may end or at least de-escalate the conflict in eastern Ukraine that was drawing the US and Russia into a direct confrontation. Whether the cease-fire/truce holds up is uncertain but the absolute necessity of a negotiated settlement over the Ukraine crisis could not be more clear. Nuclear-armed powers must never, ever clash militarily. President Putin proposed the solution over a year ago: autonomy in a federal state and the right to speak Russian for eastern Ukraine.

Most important, Ukraine would never join NATO. Doing so would have put Russia’s vital naval base at Sevastopol under NATO control – as unthinkable for Moscow as for the US to see Norfolk, Virginia or Houston under Russian or Chinese control. Ukraine’s fierce nationalists and their US backers rejected Putin’s plan and set about trying to impose Kiev’s total control by military force. It’s ironic that the US has given total support to Kiev’s war against what it calls “rebels” and “terrorists” while arming and financing Syria’s Sunni rebels whom Damascus brands “rebels” and “terrorists.”

A peace deal comes not an hour too soon. A full battalion of US Army troops is scheduled to arrive in western Ukraine to “train” government troops and lead them into battle. This hare-brained scheme has a potential clash with Russia written all over it. Imagine if Russian troops arrived outside Montreal to train Canadian forces. The US has no strategic interests in Ukraine, which was part of the Soviet Union/Russia until 1991. The whole crazy scheme was promoted by neocons as a way of undermining Russia and putting Ukraine into their ideological orbit.

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“Russia is a great country, a great people, with which Europe has many common strategic interests. We need to talk with Russia..”

France Should Recognize Crimea As Part Of Russia – Le Pen (RT)

The leader of the French National Front Party, Marine Le Pen has urged the French government to recognize Crimea as part of Russia’s territory and to restore ties with Moscow, a “natural ally of Europe.” There is no alternative, but to recognize the legality of Crimea’s ascension into the Russian Federation, Le Pen told the Polish Do Rzeczy in an interview. The French politician says that Paris must accept Crimea’s choice, as it became part of Russia in the time of lawlessness following an orchestrated “coup” last year, when “Neo-Nazi militants organized a revolution in Ukraine.” Le Pen says the Peninsula had no other choice as “power in Kiev was illegal,” at that time. “The authorities [in Kiev] started to make decisions that would lead to civil war,” she added. The leader of the French National Front emphasized that “Russia is a natural ally of Europe.”

“We are pawns in the game of influence between the United States and Russia. Russia is a great country, a great people, with which Europe has many common strategic interests. We need to talk with Russia,” she said. Le Pen has been a strong critic of EU policies towards Russia and US influence in European geopolitics from the very beginning of the Ukrainian conflict. In March, speaking about the results of the referendum in Crimea, Le Pen said that on the peninsula, the people’s choice was to be expected. “This was to be expected,” Le Pen said. “And the people [of Crimea], who lived in fear, rushed into the arms of the country where they were from: as you know it, Crimea is part of Ukraine only for 60 years.”

Earlier this month, Le Pen voiced her disapproval of Washington’s stake in Europe. Regarding Ukraine, we behave like American lackeys,” she said, before warning that “the aim of the Americans is to start a war in Europe to push NATO to the Russian border.” She went on to accuse European leaders of turning a blind eye to the Ukrainian government’s “bombing of civilians,” adding that both those in Crimea and Eastern Ukraine believed the country should be federalized. Equally critical of the EU role in Ukraine, in September, she told Le Monde that the ongoing crisis in Ukraine is “all the European Union’s fault,” saying Brussels had “blackmailed the country to choose between Europe and Russia.” To resolve the conflict, Le Pen has more than once called on necessity to conduct negotiations on federalization and constitutional reforms to decentralize the power, rather than to try solve the issue by military means.

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“Just as the Europeans seem to have been able to negotiate a ceasefire between the opposing sides in that civil war, President Obama plans to pour gasoline on the fire by sending in the US military.”

How Many More Wars? (Ron Paul)

Last week President Obama sent Congress legislation to authorize him to use force against ISIS “and associated persons and forces” anywhere in the world for the next three years. This is a blank check for the president to start as many new wars as he wishes, and it appears Congress will go along with this dangerous and costly scheme. Already the military budget for next year is equal to all but the very peak spending levels during the Vietnam war and the Reagan military build-up, according to the Project on Defense Alternatives. Does anyone want to guess how much will be added to military spending as a result of this new war authorization? The US has already spent nearly $2 billion fighting ISIS since this summer, and there hasn’t been much to show for it. A new worldwide war on ISIS will likely just serve as a recruiting tool for jihadists.

We learned last week that our bombing has led to 20,000 new foreign fighters signing up to join ISIS. How many more will decide to join each time a new US bomb falls on a village or a wedding party? The media makes a big deal about the so-called limitations on the president’s ability to use combat troops in this legislation, but in reality there is nothing that would add specific limits. The prohibition on troops for “enduring” or “offensive” ground combat operations is vague enough to be meaningless. Who gets to determine what “enduring” means? And how difficult is it to claim that any ground operation is “defensive” by saying it is meant to “defend” the US?

Even the three year limit is just propaganda: who believes a renewal would not be all but automatic if the president comes back to Congress with the US embroiled in numerous new wars? If this new request is not bad enough, the president has announced that he would be sending 600 troops into Ukraine next month, supposedly to help train that country’s military. Just as the Europeans seem to have been able to negotiate a ceasefire between the opposing sides in that civil war, President Obama plans to pour gasoline on the fire by sending in the US military. The ceasefire agreement signed last week includes a demand that all foreign military forces leave Ukraine. I think that is a good idea and will go a long way to reduce the tensions. But why does Obama think that restriction does not apply to us?

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Feb 082015
 
 February 8, 2015  Posted by at 11:55 am Finance Tagged with: , , , , , , ,  7 Responses »
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DPC New Orleans milk cart 1903

Tsipras Scrambles to Find a Way Forward for Greece (Bloomberg)
Europe’s Revolt Isn’t Just In Greece Or Spain (MarketWatch)
Greece Could Run Out of Cash in Weeks (WSJ)
Syriza and the French indemnity of 1871-73 (Michael Pettis)
Democracy Could Have Saved Europe From The Disastrous Single Currency (Hannan)
Sarkozy: Crimea Cannot Be Blamed For Joining Russia (RT)
Merkel Objection to Arms for Ukraine May Spur Backlash for Obama (Bloomberg)
Lavrov: US Escalated Ukraine Crisis At Every Stage, Blamed Russia (RT)
Europeans Laugh as Lavrov Talks Ukraine (Bloomberg)
4 Reasons Stocks Aren’t Soaring After That Stellar Jobs Report (MarketWatch)
America’s Shrinking Middle Class Is Holding On For Dear Life (MarketWatch)
Fears For US Economy As Shale Industry Goes Into Hibernation (Observer)
Bitter Economic Winds Hasten Oil Industry Retreat From North Sea (Observer)
US Oil Rig Count Plunges 29% from Peak. Halfway to Bottom? (WolfStreet)
Bracing for Another Storm in Emerging Markets (Kevin Gallagher)
China’s Exports Slump, Imports Crash In January, Record Trade Surplus (Reuters)
China’s Record Trade Surplus Highlights Weak Domestic Demand (Bloomberg)
Stream of ‘Dark’ Foreign Wealth Flows to Elite New York Real Estate (NY Times)
Twitter Execs Enrich Themselves At Shareholders’ Expense (MarketWatch)
Peak Food Is The World’s No. 1 Ticking Time Bomb (Paul B. Farrell)

Should be a good speech. 1 PM EDT.

Tsipras Scrambles to Find a Way Forward for Greece (Bloomberg)

Prime Minister Alexis Tsipras will outline his plans to keep Greece financially afloat while breaking free from its bailout program when he addresses the nation’s parliament on Sunday. “It is very unlikely that the euro zone will give new money to Greece for months, as the Greek positions are uncertain and significant negotiation is necessary,” Nicholas Economides, professor of economics at New York University’s Stern School of Business, said by e-mail. “This puts cash-strapped Greece in a very dire position.” Jeroen Dijsselbloem, head of the group of 19 euro-area finance ministers, on Friday rejected a short-term financing agreement while Greece negotiates a successor program to its current bailout provided by the EU and IMF. The prime minister will need to address doubts about Greece’s ability to pay its bills, possibly as early as the end of the month.

Tsipras will set out measures for the government to take from now until the end of June, corresponding to the bridge program it has requested from country’s creditors, a government official said after a cabinet meeting Saturday. The prime minister will also set out policies for the next 3 1/2 years, said the official, who commented by e-mail and asked not to be identified in line with policy. The speech is scheduled to start at 7 p.m. local time. Tsipras, 40, will be addressing lawmakers exactly two weeks after his Syriza party swept into power with a promise to reject EU demands for more budget austerity. “Faced with financial reality, the new Greek government will have to reverse or severely pare down its pre-election program,” Economides said. “Already, in a major U-turn, the government has abandoned the position that Greece will not fully pay its debt.”

The next showdown with Greece’s EU partners is scheduled for Feb. 11 in Brussels, when Finance Minister Yanis Varoufakis faces his 18 euro-area counterparts in an emergency meeting. Standard & Poor’s lowered Greece’s long-term credit rating one level to B- and kept the ratings on CreditWatch negative. The rating downgrade to B- pushes Greece’s debt six levels into non-investment grade, or junk status. S&P said it plans to “update or resolve” the CreditWatch status by next month. “We could lower our ratings on Greece if we perceive that the likelihood of a distressed exchange of Greece’s commercial debt has increased further because official funding has been curtailed, government borrowing requirements have deteriorated beyond our expectations, or Greece’s external financing has come under greater stress,” S&P said in a statement on Friday.

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“In France and Germany, the mainstream center-left parties have dropped any pretense of fighting the neoliberal orthodoxy that dominates EU economic policy and have been punished by voters accordingly.”

Europe’s Revolt Isn’t Just In Greece Or Spain (MarketWatch)

Greek voters crowded into Athens’ Syntagma Square to celebrate the landslide election of the leftist Syriza party last month, just as they had the victory of the center-left Pasok party in 1981, which ushered in Greece’s first leftist government after it threw off military dictatorship in 1974. The tens of thousands of Spanish voters who filled Madrid’s Puerta del Sol last Saturday also wanted to celebrate the leftist victory in Greece and rally support for a similar result for Spain’s new left-wing party, Podemos, in parliamentary elections at the end of this year. But the electoral victory of Syriza and the rise of Podemos are not signs of a resurgence of the left in Europe. The huge square in Madrid was also filled with demonstrators in May 2011 when a wave of protests opposed the Socialist government’s willingness to go along with European Union austerity policies.

One of the major ironies of the eurozone crisis, in fact, is that the historic left-wing parties in Europe have been so compromised by the austerity policies dictated by Brussels and Berlin that they have lost significant voter support or collapsed altogether. The once-celebrated Pasok, for instance, which led the government when the euro crisis erupted in 2009, has seen its electoral support plunge from its zenith of 48% in 1981 to a paltry 4.7% in last month’s election. The Spanish Socialist Party, which governed Spain for 14 years under Felipe Gonzalez, has seen its support fall from 48% in 1982 to just 22% in the most recent polls, putting it in third place behind Podemos, which is just one-year-old.

In France and Germany, the mainstream center-left parties have dropped any pretense of fighting the neoliberal orthodoxy that dominates EU economic policy and have been punished by voters accordingly. French Socialist President François Hollande, who swept into office with a parliamentary majority in 2012 on pledges that he would fight German-imposed austerity, saw his approval ratings plummet below 20% when he failed to deliver on that promise. Germany’s Social Democrats, too timid to resist the popularity of conservative Chancellor Angela Merkel, have not only been co-opted into her stringent view of European economic policy but into most every aspect of domestic policy as part of a coalition government.

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“Greece “will be the first country to go bankrupt over €5 billion.”

Greece Could Run Out of Cash in Weeks (WSJ)

Greece warned it was on course to run out of money within weeks if it doesn’t gain access to additional funds, effectively daring Germany and its other European creditors to let it fail and stumble out of the euro. Greek Economy Minister George Stathakis said in an interview with The Wall Street Journal that a recent drop in tax revenue and other government income had pushed the country’s finances to the brink of collapse. “We will have liquidity problems in March if taxes don’t improve,” Mr. Stathakis said. “Then we’ll see how harsh Europe is.” Government revenue has declined sharply in recent weeks, as Greeks with unpaid tax bills hold back from settling arrears, hoping the new leftist government will cut them a better deal. Many also aren’t paying an unpopular property tax that their new leaders campaigned against. Tax revenue dropped 7%, or about €1.5 billion ($1.7 billion), in December from November and likely fell by a similar percentage in January, the minister said.

Other senior Greek officials said the country would have trouble paying pensions and other charges beyond February. Greece has made no secret of its precarious financial position, but the minister’s comments suggest the country has even less time than many policy makers thought to resolve its standoff with Europe. Eurozone officials have asked Greece to come up with a specific funding plan by Wednesday, when finance ministers have called a special meeting to discuss the country’s financial situation. The country needs €4 billion to €5 billion to tide it over until June, by which time it hopes to negotiate a broader deal with creditors, Mr. Stathakis said, adding that he believes “logic will prevail.” If it doesn’t, he warned, Greece “will be the first country to go bankrupt over €5 billion.” If the Greek government runs out of cash, the country would be forced to default on its debts and reintroduce its own currency, thus abandoning the euro.

Most of the €240 billion in aid that Europe and the International Monetary Fund have pumped into the country would be lost. Greece’s new, leftist government has been in a tug of war with its European creditors for days over relaxing strictures of its bailout program. Athens is pressing for less-onerous terms so it can reverse some of the austerity measures weighing on the country, but its partners in the euro currency area, led by Germany, have refused. Before the two sides can address Greece’s broader bailout framework, however, they need to quickly find a way to keep the country solvent. Mr. Stathakis said Athens has asked for €1.9 billion in profits from Greek bonds held by other eurozone governments. In addition, the government wants the eurozone to allow Greece to raise an additional €2 billion by issuing treasury bills, he said. Both proposals clash with the rules governing Greece’s bailout and eurozone officials have dismissed them.

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Very long in-depth analysis of the eurozone by Pettis.

Syriza and the French indemnity of 1871-73 (Michael Pettis)

1. The euro crisis is a crisis of Europe, not of European countries. It is not a conflict between Germany and Spain (and I use these two countries to represent every European country on one side or the other of the boom) about who should be deemed irresponsible, and so should absorb the enormous costs of nearly a decade of mismanagement. There was plenty of irresponsible behavior in every country, and it is absurd to think that if German and Spanish banks were pouring nearly unlimited amounts of money into countries at extremely low or even negative real interest rates, especially once these initial inflows had set off stock market and real estate booms, that there was any chance that these countries would not respond in the way every country in history, including Germany in the 1870s and in the 1920s, had responded under similar conditions.

2. The “losers” in this system have been German and Spanish workers, until now, and German and Spanish middle class savers and taxpayers in the future as European banks are directly or indirectly bailed out. The winners have been banks, owners of assets, and business owners, mainly in Germany, whose profits were much higher during the last decade than they could possibly have been otherwise

3. In fact, the current European crisis is boringly similar to nearly every currency and sovereign debt crisis in modern history, in that it pits the interests of workers and small producers against the interests of bankers. The former want higher wages and rapid economic growth. The latter want to protect the value of the currency and the sanctity of debt.

4. I am not smart enough to say with any confidence that one side or the other is right. There have been cases in history in which the bankers were probably right, and cases in which the workers were probably right. I can say, however, that the historical precedents suggest two very obvious things. First, as long as Spain suffers from its current debt burden, it does not matter how intelligently and forcefully it implements economic reforms. It will not be able to grow out of its debt burden and must choose between two paths. One path involves many, many more years of economic hell, as ordinary households are slowly forced to absorb the costs of debt — sometimes explicitly but usually implicitly in the form of financial repression, unemployment, and debt monetization. The other path is a swift resolution of the debt as it is restructured and partially forgiven in a disruptive but short process, after which growth will return and almost certainly with vigor

5. Second, it is the responsibility of the leading centrist parties to recognize the options explicitly. If they do not, extremist parties either of the right or the left will take control of the debate, and convert what is a conflict between different economic sectors into a nationalist conflict or a class conflict. If the former win, it will spell the end of the grand European experiment.

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“Distrust of the masses is in the EU’s genome.”

Democracy Could Have Saved Europe From The Disastrous Single Currency (Hannan)

“Elections change nothing,” said Wolfgang Schäuble, Germany’s tough-minded finance minister. He was talking about Greece, but he could have been talking about the entire EU racket. The Europhile elites have a guarded and contingent attitude towards democracy. It has its place, to be sure, but it must never be allowed to slow the process of political integration. As the President of the European Commission, Jean-Claude Juncker, put it in response to Syriza’s election victory, “There can be no democratic choice against the European treaties”. He means it. In 2011, in order to keep the euro intact, the EU connived at the toppling of two elected prime ministers: Silvio Berlusconi in Rome and George Papandreou in Athens. Both men were replaced by Eurocrats who presided over, in effect, Brussels-approved civilian juntas.

Although their regimes were called “national governments”, their purpose was to drive through policies that would be rejected at the ballot box. Distrust of the masses is in the EU’s genome. Its founders had lived through the horrors of the Second World War, and associated democracy – especially in its plebiscitary form – with the demagoguery and fascism of the 1930s. They made no bones about vesting supreme power with a group of Commissioners who were immune to public opinion. Sure enough, those Commissioners and their successors saw it as their role to step in when the voters got it wrong – as when, for example, they voted against closer integration in referendums. I could easily fill the rest of this column with either anger or mockery; but I’d rather do Eurocrats the courtesy of taking their argument seriously.

Their contention is, in effect, that voters often misjudge things – that they are likely simultaneously to demand higher spending and lower taxes, and then complain when the money runs out. As José Manuel Barroso, Mr Juncker’s predecessor, put it four years ago, at the height of the economic crisis: “Governments are not always right. If governments were always right we would not have the situation that we have today. Decisions taken by the most democratic institutions in the world are very often wrong.” At first glance, the recent Greek election seems to sustain that view. Here, after all, is a country brought to ruin by excessive spending and borrowing. Yet its voters have just opted for a party that offers more of the medicine that sickened them: a 50% hike in the minimum wage, higher pensions, free electricity for 300,000 households and other fantasies.

[..] When the EU assumed responsibility for the Greek economy, it licensed Greeks to behave irresponsibly. If voters are treated like recalcitrant teenagers, they will behave like recalcitrant teenagers, storming petulantly at the parents whom they none the less expect to pay their phone bills. Greece is an example, not of too much democracy, but of too little. Had the Hellenic Republic been a sovereign country, wholly accountable to its own electorate, things would have worked out very differently. But for the euro, the debt crisis would never have got so badly out of hand: the markets would have imposed their own discipline years ago.

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Dead on: “we must find the means to create a peacekeeping force to protect Russian speakers in Ukraine.” and “It is not destined to join the EU; Ukraine must preserve its role as a bridge between Europe and Russia.”

Sarkozy: Crimea Cannot Be Blamed For Joining Russia (RT)

Crimea cannot be blamed for seceding from Ukraine – a country in turmoil – and choosing to join Russia, said former president of France, Nicolas Sarkozy. He also added that Ukraine “is not destined to join the EU.” “We are part of a common civilization with Russia,” said Sarkozy, speaking on Saturday at the congress of the Union for a Popular Movement Party (UMP), which the former president heads. “The interests of the Americans with the Russians are not the interests of Europe and Russia,” he said adding that “we do not want the revival of a Cold War between Europe and Russia.” Regarding Crimea’s choice to secede from Ukraine when the country was in the midst of political turmoil, Sarkozy noted that the residents of the peninsula cannot be accused for doing so.

“Crimea has chosen Russia, and we cannot blame it [for doing so],” he said pointing out that “we must find the means to create a peacekeeping force to protect Russian speakers in Ukraine.” In March 2014 over 96% of Crimea’s residents – the majority of whom are ethnic Russians – voted to secede from Ukraine to reunify with Russia. The decision was prompted by a massive uprising in Ukraine, that led to the ouster of its democratically elected government, and the fact that the first bills approved by the new Kiev authorities were infringing the rights of ethnic Russians. Concerning Kiev’s hopes of joining the EU in the near future Sarkozy voiced the same position as had been previously expressed by some EU leaders.

“It is not destined to join the EU,” he said. “Ukraine must preserve its role as a bridge between Europe and Russia.” While the West has been criticizing Russia’s stance on Crimea, the Russian Foreign Minister said on Saturday that the peninsula’s residents had the right to “self-determination” citing the March referendum. He gave the example of Kosovo, which despite not holding a referendum, was allowed to leave Serbia and create its own state. “In Crimea what happened complies with the UN Charter on self-determination,” Lavrov said during his speech at the Munich security conference. “The UN Charter has several principles, and the right of a nation for self-determination has a key position.”

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I still don’t get this bit after reading it multiple times: “Obama won’t authorize weapons deployment if Merkel signals that she will not publicly condemn individual nations from arming Ukraine..” Does that mean he will if she will?

Merkel Objection to Arms for Ukraine May Spur Backlash for Obama (Bloomberg)

Germany’s rejection of supplying weapons to Ukrainian forces fighting pro-Russian rebels may heighten the domestic pressure on a reluctant U.S. President Barack Obama to deliver the arms. Increasing numbers of senior military and State Department officials are joining Republican lawmakers in a push to arm Ukraine – an option the commander-in-chief personally opposes, according to three people familiar with the dynamics in the Obama administration. They asked not to be named due to sensitivity of the matter.
German Chancellor Angela Merkel, who made an impassioned case against shipping lethal military support to Ukraine in a speech Saturday at the Munich Security Conference, will discuss the issue with Obama in Washington on Monday. U.S. Secretary of State John Kerry said he’s confident Obama will make his decision soon after the meeting.

Obama’s delay in making his move until after Merkel’s visit reflects not only the gravity of the situation and the dueling arguments, but his emphasis on international alliances, his own deliberative nature and the degree to which he’s concentrated power on foreign policy in the White House. Obama won’t authorize weapons deployment if Merkel signals that she will not publicly condemn individual nations from arming Ukraine, the three people said. If she opposes any unilateral supplying of weapons, Obama will explain his decision to follow her lead by citing the importance of keeping a united front against Russian President Vladimir Putin and the risk of triggering a proxy war with him, the people said. [..]

Merkel in her Saturday speech said, “The progress that Ukraine needs cannot be achieved by more weapons.” Instead, she evoked the perseverance of the U.S. and European diplomatic efforts in confronting the Soviet Union during four decades of Cold War that ended with collapse of communism. Like then, that approach needs staying power and unity, said Merkel, who grew up in communist East Germany. “The problem is that I cannot envisage any situation in which an improved equipment of the Ukrainian army leads to a situation where President Putin is so impressed that he will lose militarily,” she said, reiterating the importance of a negotiated peace without military intervention. “I have to put it in such a blunt manner.” Facing Ukraine President Petro Poroshenko in the audience, she said: “There’s no way to win this militarily — that’s the bitter truth. The international community has to think of a different approach.”

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“Our partners in the West have closed their eyes to everything that the Kiev government has said and done, which includes xenophobia.”

Lavrov: US Escalated Ukraine Crisis At Every Stage, Blamed Russia (RT)

Sergey Lavrov has lashed out at the US for their double standards over Ukraine and taking steps that “only promoted further aggravation” of the conflict. He added Russia is ready to guarantee agreements between Kiev and the self-proclaimed republics. One of the major sticking points of the crisis so far has been the failure of Kiev to engage in talks with militia leaders in the East of the country. Lavrov is staggered the US, who talked with the Taliban during their invasion of Afghanistan, through channels in Doha, Qatar, is unable to put pressure on Kiev to engage in discussions. “In the case of Libya, Afghanistan, Iraq, Yemen and Sudan our partners actively asked governments to enter into dialogue with the opposition, even if they were extremists. However, during the Ukrainian crisis, they act differently, making up excuses and try to justify the use of cluster bombs,” the Russian Foreign Minister said, who was speaking at a security conference in Munich on Saturday.

The issue of the far right’s rise in Ukrainian politics has been swept under the carpet by the US and EU. Some members of the Ukrainian parliament have promoted ideas such as exterminating Russians and Jews. However, these haven’t been reported or caused any alarm in the West, Russia’s foreign minister added. “Our partners in the West have closed their eyes to everything that the Kiev government has said and done, which includes xenophobia. Some have advocated an ethnically clean Ukraine.” Throughout the Ukrainian crisis, the West has viewed Russia as the aggressor. The Kremlin has been accused of arming eastern Ukrainian militia and even sending Russian troops to reinforce them – claims Moscow has repeatedly denied. It has stated on many occasions that despite the damning rhetoric no sufficient evidence has been ever presented.

On the contrary, Lavrov says the US has been the destabilizing factor in Ukraine. “Through every step, as the crisis has developed, our American colleagues and the EU under their influence have tried to escalate the situation,” Lavrov maintained. He pointed to the failure of the EU to engage Russia about Ukraine signing an economic association agreement with the bloc, Western involvement during the Maidan protests, the failure of the West to condemn Ukraine for calling its own citizens terrorists and for supporting a coup, which led to the toppling of a democratically elected president. “The US made it public it brokered the transit of power in Ukraine. But we know perfectly well what exactly happened, who discussed candidates for the future Ukrainian government on the phone, who was at Maidan, and what is going on (in Ukraine) right now,” Lavrov said.

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The west and its press are no longer even capable anymore of discussing Russia without accusing it of a whole range of alleged misdeeds.

Europeans Laugh as Lavrov Talks Ukraine (Bloomberg)

In the span of 45 minutes today, Russian Foreign Minister Sergei Lavrov rewrote the history of the Cold War, accused the West of fomenting a coup in Ukraine and declared himself a champion of the United Nations Charter. The crowd here in Germany laughed at and then booed him, but he didn’t seem to care. When Lavrov took the stage Saturday morning at the Munich Security Conference, he knew it was going to be a tough crowd. He was speaking just after German Chancellor Angela Merkel and ahead of U.S. Vice President Joseph Biden. For two days, almost all of the panelists at the conference had railed against Russia’s actions in Ukraine. The debates were not over whether Russia was a bad actor spoiling international security, but rather how to deal with that consensus view.

He looked nervous, perhaps because Sergei Ivanov, chief of staff to Russian President Vladimir Putin and Lavrov’s superior, was sitting in the front row, staring at him as if to warn him not to mess up. But none of that kept him from turning in an audacious performance. “In any situation, the United States is trying to blame Russia for everything,” he said. “Russia will be committed to peace. We are against combat. We would like to see a withdrawal of heavy weapons.” Lavrov then accused the U.S. of supporting military attacks against innocent Ukrainians. (He chose not to mention the Russian heavy weaponry in Eastern Ukraine or the hundreds of Russian military advisers on the ground.) Lavrov accused the Ukrainian military and government of being anti-Jewish and said that the Hungarian minority in Ukraine was being mistreated.

He called out the U.S. for negotiating with the Afghan Taliban but – in his view – not supporting negotiations between the Ukraine government and the Eastern separatists. Talking about the possibility of the U.S. giving lethal aid to the Ukrainian military, Lavrov leveled a thinly veiled threat that the Russians might invade Ukraine outright, as they did Georgia seven years ago after what they saw as provocation from President Mikheil Saakashvili. “I don’t think our Ukrainian colleagues should hope the support they are receiving will solve their problems,” he said. “That support … is going to their heads in the way it did for Saakashvili in 2008, and we know how that ended.” The crowd took that in stride, but then burst out laughing when Lavrov said that the annexation of Crimea, which was invaded by unmarked Russian troops, was an example of international legal norms working well.

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“Conditions are likely to come together that will allow the Federal Reserve to hike short-term interest rates anytime “from June on,” said Dennis Lockhart, the president of the Atlanta Fed.”

4 Reasons Stocks Aren’t Soaring After That Stellar Jobs Report (MarketWatch)

Why isn’t the stock market ripping higher Friday after that stellar jobs report? The S&P 500 and Dow industrials were up only moderately by around midday, then they turned negative to roughly flat in a hurry. Here are four factors:

1) A rally into the jobs report: Stocks already were showing big gains for the week before the jobs report came out. The S&P 500 is still up 3.4% for the week at last check. The Dow is coming off a four-day winning streak that had it up 720 points for the week as of Thursday’s close. So Friday’s lackluster action probably won’t change a positive weekly trend.

2) Fresh Greek worries: A downgrade of Greece by Standard & Poor’s on Friday afternoon may have sparked a move away from riskier assets like stocks. S&P cut the troubled nation’s long-term rating to B-minus from B, meaning further into junk territory. The folks at ZeroHedge, known for spotlighting the negative, say what’s “scariest” is that S&P itself is mentioning capital controls and bank runs. But other market watchers have been playing down the significance of the latest Greek drama, and they note Friday’s downgrade is similar to an earlier one by Moody’s Investors Service. That said, there are mounting concerns that Greece must get tidy its economic house or risk roiling the market.

3) Rate hikes ahead: The strong jobs report has boosted expectations around the Fed’s rate hikes, and higher rates ought to peel some investors away from stocks. Investors now think the Federal Reserve will raise rates one more time by December 2016 than they expected before Friday’s January job report, as MarketWatch’s Gregg Robb notes. Robb also reports on a notable Fed speech on Friday afternoon. Conditions are likely to come together that will allow the Federal Reserve to hike short-term interest rates anytime “from June on,” said Dennis Lockhart, the president of the Atlanta Fed.

4) A lagging indicator: The January jobs report reveals a lot, but it is important to realize the labor market is often a lagging indicator. Don’t let the stellar report make you forget about real challenges facing the U.S. economy, says MarketWatch’s Steve Goldstein. In a similar vein, Barry Ritholtz at Bloomberg View argues investors might want to ignore every monthly jobs report, since trading off it requires guessing not just the results, but also how much it is already reflected in stock prices.

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And then we go and call that a recovery.

America’s Shrinking Middle Class Is Holding On For Dear Life (MarketWatch)

Middle America is holding on for dear life. The share of Americans who are part of middle-income households has plunged to 51% in 2013 from 61% in 1970, according to new research by the Pew Research Center, a nonpartisan, nonprofit think tank in Washington, D.C. And from 1990 to 2013, the share of adult Caucasians and Asians living in middle-income households decreased the most of any ethnic group, from 58% to 53% (for Caucasians) and from 56% to 50% (for Asians). The decline was less pronounced among Hispanics (from 48% to 47%) and African-Americans (from 47% to 45%). Over the same period, the share of the country that qualifies as ‘lower-income’ has also grown: they make up 29% of all households in 2013, after comprising 25% of all households in 1970.

The share of upper income households, on the other hand, rose from 14% in 1970 to 20% in 2013. (To fall in those categories in 2013, household incomes had to be: $166,623 a year for upper income, $71,014 a year for middle income, and $23,659 a year for lower income.) About one-in-four white and Asian adults are upper income versus just one-in-10 Hispanic and black adults, and there was “no meaningful change in these gaps in the past two decades,” Pew found. What’s more, the median incomes of all households fell by 7% during the “lost decade” of 2000 to 2013. In the last three years (between 2010 and 2013), however, the share of middle-income families has remained steady.

“While the muddled recovery has yet to bolster the middle, this flat trend might actually be good news because, for now, it stems a decades-long slide,” it concluded. Not everyone sees this as a reason for celebration. “Marching in place after the recession is a bit like saying, ‘We survived.’ But who has thrived?” says Mark Hamrick, Washington, D.C. bureau chief at personal finance website Bankrate.com. “The problem is that the middle class hasn’t made much headway over the past decade or so.” High-earning Americans have fared better than Middle America, he says. “Ultimately this is an economic problem that presents itself thoroughly across our society. It helps explain why the interests of the middle class have not been well attended to.”

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“The low oil price is bringing to a halt the world’s great engine of supply growth over the last five years..”

Fears For US Economy As Shale Industry Goes Into Hibernation (Observer)

America’s fracking revolution is becoming a victim of its own success. The controversial boom in shale gas and oil has driven the US economic recovery and helped lower world crude prices. But a price plunge from $115 (£75) a barrel last June to just above $50 last week means many shale operations no longer pay. Rigs across the US are being deactivated at a rate of nearly 100 a week. In the final week of January, 94 were pulled offline – the most since 1987, according to oil services company Baker Hughes. The number of active rigs fell by from 1,609 in October to 1,223 in January and some experts predict fewer than 1,000 will remain by the end of the year. “The low oil price is bringing to a halt the world’s great engine of supply growth over the last five years,” said James Burkhard at IHS Energy. “The US upstream is very responsive to changes in price and drilling is likely to slow down further until prices recover.

“The great revival of US production has been from intensive onshore drilling. These aren’t massive $7bn projects that can’t be stopped: these are mostly onshore fracking that be started and stopped much more easily.” Burkhard said the US fracking boom accounted for more than half of global oil supply growth over the last five years, and it is the easiest tap to turn off while the world waits for the oil price to recover. The US has built up its largest stockpile of crude in 84 years. The profitability of onshore US wells varies considerably, with some only turning a profit when oil price is as high as $90 while others can make money at $30. IHS says nearly 30% of new wells started in 2014 can break even at $81 a barrel. By comparison, Morgan Stanley says some Middle Eastern onshore production is profitable at $10 per barrel.

Oil companies big and small have been knocked by falling prices. Chevron last month reported a 30% fall in quarterly profits (its worst since 2009), while oil exploration company ConocoPhillips swung to a loss as its average realised price fell 19% to $52.88 per barrel. Continental Resources, one of the largest drillers in North Dakota’s Bakken shale, said late last year it would cut its active rigs by 40% this year, with three-quarters of cuts coming by April. North Dakota’s Department of Mineral Resources says the state’s producers need a wellhead price of around $55-$65 to sustain current output of 1.2m barrels per day. If similar cuts were made across the industry, the rig count would fall below 1,100 by the end of March and 950 by the end of the year. A collapse in US oil production – now at 12m barrels a day after rising from 5m in 2008 – is likely to have a big impact on the nation’s economy. The fracking boom has made millionaires out of landowners, strengthened the country’s energy security and created hundreds of thousands of well-paid jobs.

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“Bob Dudley, CEO of BP, warned last week that the industry had to prepare for a “new phase” of lower prices that could last months, even years.”

Bitter Economic Winds Hasten Oil Industry Retreat From North Sea (Observer)

For one oil industry veteran, the dismantling of the Brent oil field in the North Sea prompts mixed feelings. There is gratitude for the livelihood earned from Britain’s post-war energy boom. And relief that it means farewell to “hell on Earth”. “Brent kept me and my family in gainful employment, so I have something to be grateful for, but these platforms are from an era long gone,” says Jake Molloy, who was a production assistant on the Brent Delta platform. Describing the structure, which Shell plans to remove from the North Sea, Molloy adds: “Putting people down platform legs [which store pumps and vessels] is really bad. You could climb down thousands of steps to the bottom with 40 pounds of breathing apparatus on your back only for the alarms to go off and you had to go all the way back again. It was the worst working environment – horrendous, hell on earth.”

Shell’s announcement that it plans to remove the platform was just one of many symbolic retreats staged by the oil industry last week. A day after the Brent proposals, Shell’s rival BP said it was taking a $4.5bn (£3bn) hit in its quarterly accounts to pay for the cost of bringing forward the closure of some unprofitable UK fields, partly due to lower oil prices. Situated 115 miles east of the Shetland Islands, Brent is estimated to have produced 10% of all North Sea oil and gas while generating £20bn of tax revenues since it opened in 1976. Brent is not the first North Sea field to face decommissioning and BP has been planning closures for some time. But the timing makes the closures all the more pointed. Shell’s field gave its name to a benchmark that has plummeted over the past year.

The price of a barrel of Brent crude has dived from $115 in June last year to less than $50 last month. The price has bounced back in the past two weeks to $58 but Bob Dudley, CEO of BP, warned last week that the industry had to prepare for a “new phase” of lower prices that could last months, even years. There will be more cost-cutting moves by the global oil industry over the next 12 months. BP is halving its exploration activity, slashing its capital expenditure by 20% and spending $1bn on making staff redundant after recording a $1bn loss in the last quarter. The $4.5bn writedown for its North Sea operations includes “increases in expected decommissioning costs” – an accounting footnote viewed by Iain Reid at BMO Capital Markets, as an inevitable outcome of low oil prices. “It’s bound to lead to North Sea field shutdowns being brought forward,” he says.

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“..the levels of crude oil in storage have soared to a record. Which will pressure prices further.”

US Oil Rig Count Plunges 29% from Peak. Halfway to Bottom? (WolfStreet)

In the US, oil companies have been laying off workers and cutting capital expenditures at a feverish pace. With revenues dropping as a function of the price of oil that has fallen by over half since June, preserving cash is suddenly a priority. Wall Street, after years of handing out money no questions asked, shut off the spigot for junk-rated drillers that need new money the most. So it’s crunch time. The number of rigs actively drilling for oil in the US, reported by Baker Hughes every Friday, is a preliminary gauge of these changes. And during the last reporting week, that rig count plunged by 83 to 1,140 rigs, after having plunged by an all-time record of 93 in the prior week. The rig count is now down 469 rigs, or 29%, from the high of 1,609 in October.

And it’s down 359 rigs over the six reporting weeks so far this year. Never before has the rig count plunged this fast this far. During the financial crisis, the oil rig count fell 60% from peak to trough. If this oil bust plays out the same way on a percentage basis, the count would drop to 642 rigs! The bloodletting in the exploration and production sector would be enormous. Having cut the rig count by 29% already since the October peak, the sector might already be about halfway there. But production of oil from existing and recently completed wells continues to set records, and wells to be completed in the near future will add to it. Demand in the US has been slack. And the levels of crude oil in storage have soared to a record. Which will pressure prices further.

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“Floating exchange rates and resulting depreciation can cause the debt burden of firms and fiscal budgets to bloat overnight.”

Bracing for Another Storm in Emerging Markets (Kevin Gallagher)

In 2012, Brazilian President Dilma Roussef scolded U.S. Federal Reserve Chairman Ben Bernanke’s monetary easing policies for creating a “monetary tsunami”: Financial flows to emerging markets that were appreciating currencies, causing asset bubbles, and generally exporting financial instability to the developing world. Now, as growth increases in the United States and interest rates follow, the tide is turning in emerging markets. Many countries may be facing capital flight and exchange-rate depreciation that could lead to financial instability and weak growth for years to come. The Brazilian president had a point. Until recently U.S. banks wouldn’t lend in the United States despite the unconventionally low interest rates. There was too little demand in the U.S. economy and emerging market prospects seemed more lucrative.

From 2009 to 2013, countries like Brazil, South Korea, Chile, Colombia, Indonesia, and Taiwan all had wide interest rate differentials with the United States and experienced massive surges of capital flows. The differential between Brazil and the U.S. was more than 10 percentage points for a while—a much better bet than the slow growth in the United States. According to the latest estimates from the Bank for International Settlements (BIS), emerging markets now hold a staggering $2.6 trillion in international debt securities and $3.1 trillion in cross border loans—the majority in dollars. Official figures put corporate issuance at close to $700 billion since the crisis, but the BIS reckons that the figure is closer to $1.2 trillion when counting offshore transactions designed to evade regulations. Now the tide is turning.

China’s economy is undergoing a structural transformation that necessitates slower growth and less reliance on primary commodities. Oil prices and the prices of other major commodities are stabilizing or on the decline. It should be no surprise then that many emerging-market growth forecasts are continually being revised downward. Meanwhile, growth and interest rates are picking up in the United States. The dollar gains strength; the value of emerging market currencies fall. [..] Floating exchange rates and resulting depreciation can cause the debt burden of firms and fiscal budgets to bloat overnight. Given that most of the capital inflows were in dollars, depreciating currencies mean that nations and firms will need to come up with ever-more local currency to pay debt—but in a lower growth environment.

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“..imports slumped by 19.9%..”

China’s Exports Slump, Imports Crash In January, Record Trade Surplus (Reuters)

China’s exports fell 3.3% in January from a year earlier, while imports slumped by 19.9%, both missing expectations by a wide margin, and resulting in a record monthly trade surplus of $60 billion. Thinking that easing measures in Europe would boost demand for Chinese goods, analysts polled by Reuters had expected to exports to rise by 6.3%, and imports to fall by only 3%, to give a trade deficit of $48.9 billion. Instead, exports slid 12% on a monthly basis, while imports dove 21.1%, according to the data released by the Customs Administration said on Sunday. The decline was led by a sharp slide in commodities imports, in particular imports of coal which dropped nearly 40% to 16.78 million tonnes, down from December’s 27.22 million tonnes, as well as a scale back in crude oil imports, which slid 7.9%.

While the trade data augured badly for an economy that suffered its slowest economic growth in 24 years in 2014, analysts say strong seasonal distortions due to the Lunar New Year holiday make it difficult to interpret the data. Last year the holiday fell in January, and this year it falls in February. China’s export numbers tend to be erratic, sharp moves in opposite directions are common and the combined January and February figures are often a more accurate gauge of the overall trend, analysts say. [..] During 2014, China’s total trade value increased by 3.4% from a year earlier, short of the official target of 7.5%, and some analysts have raised questions about whether export data was inflated by fake invoicing as firms speculated in the currency and commodities markets.

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“Value of crude oil imports fell 41.8% from a year earlier, iron ore imports dropped 50.3% and coal plummeted 61.8%.” [..] “We are going to see more of these alarming data in the next few months.”

China’s Record Trade Surplus Highlights Weak Domestic Demand (Bloomberg)

China registered a record trade surplus last month as imports plunged on falling commodity prices and weak domestic demand. Imports fell by the most in more than five years, declining 19.9% from a year earlier. That compared with estimates for a 3.2% drop in a Bloomberg survey of analysts. Exports slid 3.3%, leaving a trade surplus of $60 billion, the customs administration in Beijing said. A property downturn and a stall in manufacturing are signals the government may need to step up measures to stimulate the economy, as domestic demand for commodities including crude oil and iron ore declines. The record trade surplus, combined with declines in exports and imports, complicates the government’s management of exchange rates after January’s depreciation.

“It seems that sharp decline in commodity prices, weak domestic demand and weak external demand, reflected in processing imports, all played a role in the decline in imports,” said Wang Tao at UBS in Hong Kong. “Trade data again creates a dilemma for the exchange rate. A record trade surplus is supposed to add appreciation pressure, but declining exports would say otherwise.” It’s not in China’s interest to let the yuan depreciate sharply, Liu Ligang and Zhou Hao at ANZ wrote in a note. “China’s central bank will continue to use a slew of instruments, including fixing rates, open market operations, and direct interventions, to prevent the RMB from weakening sharply,” they wrote.

Value of crude oil imports fell 41.8% from a year earlier, iron ore imports dropped 50.3% and coal plummeted 61.8%. Quantities of the commodities declined as well. Imports declined from all major trade partners, including the EU and US. Falling prices have cut the dollar value of imports and contributed to a prolonged decline in factory gate prices, which may extend to a record 35 months, according to economist estimates. “The slump in imports means a slump in the overall situation of the economy,” said Hu Yifan at Haitong in Hong Kong. “We are going to see more of these alarming data in the next few months.”

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Extensive NYT reasearch project. This reflects very poorly on New York, the US, the UK and London.

Stream of ‘Dark’ Foreign Wealth Flows to Elite New York Real Estate (NY Times)

On the 74th floor of the Time Warner Center, Condominium 74B was purchased in 2010 for $15.65 million by a secretive entity called 25CC ST74B L.L.C. It traces to the family of Vitaly Malkin, a former Russian senator and banker who was barred from entering Canada because of suspected connections to organized crime. Last fall, another shell company bought a condo down the hall for $21.4 million from a Greek businessman named Dimitrios Contominas, who was arrested a year ago as part of a corruption sweep in Greece. A few floors down are three condos owned by another shell company, Columbus Skyline, which belongs to the family of a Chinese businessman and contractor named Wang Wenliang. His construction company was found housing workers in New Jersey in hazardous, unsanitary conditions.

Behind the dark glass towers of the Time Warner Center looming over Central Park, a majority of owners have taken steps to keep their identities hidden, registering condos in trusts, limited liability companies or other entities that shield their names. By piercing the secrecy of more than 200 shell companies, The New York Times documented a decade of ownership in this iconic Manhattan way station for global money transforming the city s real estate market. Many of the owners represent a cross-section of American wealth: chief executives and celebrities, doctors and lawyers, technology entrepreneurs and Wall Street traders. But The Times also found a growing proportion of wealthy foreigners, at least 16 of whom have been the subject of government inquiries around the world, either personally or as heads of companies. The cases range from housing and environmental violations to financial fraud.

Four owners have been arrested, and another four have been the subject of fines or penalties for illegal activities. The foreign owners have included government officials and close associates of officials from Russia, Colombia, Malaysia, China, Kazakhstan and Mexico. They have been able to make these multimillion-dollar purchases with few questions asked because of United States laws that foster the movement of largely untraceable money through shell companies. Vast sums are flowing unchecked around the world as never before whether motivated by corruption, tax avoidance or investment strategy, and enabled by an ever-more-borderless economy and a proliferation of ways to move and hide assets. Alighting in places like London, Singapore and other financial centers, this flood of capital has created colonies of the foreign super-rich, with the attendant resentments and controversies about class inequality made tangible in the glass and steel towers reordering urban landscapes.

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Lovely.

Twitter Execs Enrich Themselves At Shareholders’ Expense (MarketWatch)

In October, we pointed out that the $170 million in stock-based compensation dished out to Twitter employees during the third quarter represented 47% of the company’s third-quarter revenue. That was an outsized amount — much higher than the most recently reported payouts for any company included in the S&P 1500 Composite Index. Twitter suffered a third-quarter net loss of $175 million, owing almost entirely from the stock awards. (Twitter is not yet included in the S&P 1500, presumably because it has been publicly traded for only a little over a year.)

Following a memo to employees in which Twitter CEO Dick Costolo said the company was doing a poor job preventing abuse over its messaging platform, the company said on Thursday that for the fourth quarter, its stock-based compensation totaled $177 million, or 37% of revenue. The company reported a net loss of $125.4 million, or 20 cents a share, but would have shown a profit of $79.3 million, or 12 cents a share, if the non-cash stock awards were excluded. The good news for Twitter was that its fourth-quarter revenue totaled $479.1 million, rising from $361.3 million the previous quarter and $242.7 million a year earlier. The company beat consensus estimates for earnings and revenue, though it reported a slowdown in subscriber growth. Twitter said it expects growth to pick up, and investors believed it, sending the shares up 13% on Friday.

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“We’re slowly poisoning America’s food supply, poisoning the whole world’s food supply.”

Peak Food Is The World’s No. 1 Ticking Time Bomb (Paul B. Farrell)

Global food poisoning? Yes, We’re maxing out. Forget Peak Oil. We’re maxing-out on Peak Food. Billions go hungry. We’re poisoning our future, That’s why Cargill, America’s largest private food company, is warning us: about water, seeds, fertilizers, diseases, pesticides, droughts. You name it. Everything impacts the food supply. Wake up America, it’s worse than you think. We’re slowly poisoning America’s food supply, poisoning the whole world’s food supply. Fortunately Cargill’s thinking ahead. But politicians are dragging their feet. They’re trapped in denial, protecting Big Oil donors, afraid of losing their job security; their inaction is killing, starving, poisoning people, while hiding behind junk-science.

The truth is, America, Big Ag worldwide farm production can’t feed the 10 billion humans forecast on Planet Earth by 2050. Can we wait till 2050 for the fallout? No. The clock’s ticking on the Peak Food disaster dead ahead. We’re at the critical tipping point, the planet is boiling over. Conservative Greg Page, executive chairman of the Cargill food empire, has that great can-do spirit of capitalism: At $43 billion, Cargill is America’s largest privately held company, launched during the Civil War with one grain warehouse. An unabashed optimist, Page was sounding a loud battle cry in Burt Helm’s New York Times op ed, “The Climate Bottom Line:”

Page is a powerful leader, optimistic, realistic, experienced … admits he “doesn’t know … or particularly care … whether human activity causes climate change … doesn’t give much serious thought to apocalyptic predictions of unbearably hot summers and endless storms.” Page wants action, results. Yes, he’s no left-wing environmentalist. Far from it. This is business, jobs, profits, because it’s a fact, climate’s already damaging huge sectors of America’s agricultural business … dust bowls in the heartland, in California’s bone dry central valley, all over … Georgia, North Carolina, Texas, all farm economics are affected. Meanwhile, our politicians dilly-dally, drifting, dragging their feet, in denial, playing petty ideological games.

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