May 182017

Pablo Picasso Bull plates I-XI 1945


Nicole Foss has completed a huge tour de force with her update of the Automatic Earth Primer Guide. The first update since 2013 is now more like a Primer Library, with close to 160 articles and videos published over the past -almost- 10 years, and Nicole’s words to guide you through it. Here’s Nicole:



The Automatic Earth (TAE) has existed for almost ten years now. That is nearly ten years of exploring and describing the biggest possible big picture of our present predicament. The intention of this post is to gather all of our most fundamental articles in one place, so that readers can access our worldview in its most comprehensive form. For new readers, this is the place to start. The articles are roughly organised into topics, although there is often considerable overlap.

We are reaching limits to growth in so many ways at the same time, but it is not enough to understand which are the limiting factors, but also what time frame each particular subset of reality operates over, and therefore which is the key driver at what time. We can think of the next century as a race of hurdles we need to clear. We need to know how to prepare for each as it approaches, as we need to clear each one in order to be able to stay in the race.

TAE is known primarily as a finance site because finance has the shortest time frame of all. So much of finance exists in a virtual world in which changes can unfold very quickly. There are those who assume that changes in a virtual system can happen without major impact, but this assumption is dangerously misguided. Finance is the global operating system – the interface between ourselves, our institutions and our resource base. When the operating system crashes, nothing much will work until the system is rebooted. The next few years will see that crash and reboot. As financial contraction is set to occur first, finance will be the primary driver to the downside for the next several years. After that, we will be dealing with energy crisis, other resource limits, limitations of carrying capacity and increasing geopolitical ramifications.

The global financial system is rapidly approaching a Minsky Moment:

“A Minsky moment is a sudden major collapse of asset values which is part of the credit cycle or business cycle. Such moments occur because long periods of prosperity and increasing value of investments lead to increasing speculation using borrowed money. The spiraling debt incurred in financing speculative investments leads to cash flow problems for investors. The cash generated by their assets is no longer sufficient to pay off the debt they took on to acquire them.

Losses on such speculative assets prompt lenders to call in their loans. This is likely to lead to a collapse of asset values. Meanwhile, the over-indebted investors are forced to sell even their less-speculative positions to make good on their loans. However, at this point no counterparty can be found to bid at the high asking prices previously quoted. This starts a major sell-off, leading to a sudden and precipitous collapse in market-clearing asset prices, a sharp drop in market liquidity, and a severe demand for cash.”

This is the inevitable result of decades of ponzi finance, as our credit bubble expanded relentlessly, leaving us today with a giant pile of intertwined human promises which cannot be kept. Bubbles create, and rely on, building stacks of IOUs ever more removed from any basis in underlying real wealth. When the bubble finally implodes, the value of those promises disappears as it becomes obvious they will not be kept. Bust follows boom, as it has done throughout human history. The ensuing Great Collateral Grab will reveal just how historically under-collateralized our supposed prosperity has become. Very few of the myriad claims to underlying real wealth can actually be met, leaving the excess claims to be exposed as empty promises. These are destined to be rapidly and messily extinguished in a deflationary implosion.

While we cannot tell you exactly when the bust will unfold in specific locations, we can see that it is already well underway in some parts of the world, notably the European periphery. Given that preparation takes time, and that one cannot be late, now is the time to prepare, whether one thinks the Great Collateral Grab will manifest close to home next month or next year. Those who are not prepared risk losing everything, very much including their freedom of action to address subsequent challenges as they arise. It would be a tragedy to fall at the first hurdle, and then be at the mercy of whatever fate has to throw at you thereafter. The Automatic Earth has been covering finance, market psychology and the consequences of excess credit and debt since our inception, providing readers with the tools to navigate a major financial accident.


Ponzi Finance

Nicole: From the Top of the Great Pyramid
Nicole: The Infinite Elasticity of Credit
Nicole: Look Back, Look Forward, Look Down. Way Down
Nicole: Ragnarok – Iceland and the Doom of the Gods
Ilargi: Iceland To Take Back The Power To Create Money
Ilargi: The Only Thing That Grows Is Debt
Ilargi: Central Banks Are Crack Dealers and Faith Healers
Nicole: Promises, Promises … Detroit, Pensions, Bondholders And Super-Priority Derivatives
Nicole: Where the Rubber Meets the Road in America
Ilargi: How Our Aversion To Change Leads Us Into Danger
Ilargi: Debt In The Time Of Wall Street
Ilargi: The Contractionary Vortex Of The Lumpen Proletariat
Ilargi: Hornswoggled Absquatulation


Fred Stein Evening, Paris 1934


The Velocity of Money and Deflation

Nicole: The Resurgence of Risk
Nicole: Inflation Deflated
Nicole: The Unbearable Mightiness of Deflation
Nicole: Debunking Gonzalo Lira and Hyperinflation
Nicole: Dollar-Denominated Debt Deflation
Nicole: Deflation Revisited: The Studio Version
Nicole: Stoneleigh Takes on John Williams: Deflation It Is
Ilargi: US Hyperinflation is a Myth
Ilargi: Everything’s Deflating And Nobody Seems To Notice
Ilargi: The Velocity of the American Consumer
Ilargi: Deflation, Debt and Gravity
Ilargi: Debt, Propaganda And Now Deflation
Ilargi: The Revenge Of A Government On Its People


Markets and Psychology

Nicole: Markets and the Lemming Factor
Ilargi: You Are Not an Investor
Nicole: Over the Edge Lies Fear
Nicole: Capital Flight, Capital Controls and Capital Fear
Nicole: The Future Belongs to the Adaptable
Nicole: A Future Discounted
Ashvin Pandurangi: A Glimpse Into the Stubborn Psychology of 'Fish'
Ashvin Pandurangi: A Glimpse Into the Self-Destructive Psychology of 'Sharks'
Ilargi: Institutional Fish
Ilargi: Optimism Bias: What Keeps Us Alive Today Will Kill Us Tomorrow
Nicole: Volatility and Sleep-Walking Markets


Real Estate

Ilargi: Our Economies Run On Housing Bubbles
Nicole: Welcome to the Gingerbread Hotel
Nicole: Bubble Case Studies: Ireland and Canada
Ilargi: Don’t Buy A Home: You’ll Get Burned


Berenice Abbott Murray Hill Hotel, New York 1937


Metals, Currencies, Interest Rates, and the War on Cash

Nicole: Gold – Follow the Yellow Brick Road?
Nicole: A Golden Double-Edged Sword
Ilargi: Square Holes and Currency Pegs
Nicole: The Special Relativity of Currencies
Nicole: Negative Interest Rates and the War on Cash
Ilargi: This Is Why The Euro Is Finished
Ilargi: The Broken Model Of The Eurozone
Ilargi: Central Banks Upside Down
Ilargi: The Only Man In Europe Who Makes Any Sense


China’s Epic Bubble

Nicole: China And The New World Disorder
Ilargi: Meet China’s New Leader: Pon Zi
Ilargi: China Relies On Property Bubbles To Prop Up GDP
Ilargi: Deflation Is Blowing In On An Eastern Trade Wind
Ilargi: China: A 5-Year Plan And 50 Million Jobs Lost
Ilargi: The Great Fall Of China Started At Least 4 Years Ago
Ilargi: Time To Get Real About China
Ilargi: Where Is China On The Map Exactly?


Commodities, Trade and Geopolitics

Nicole: Et tu, Commodities?
Nicole: Commodities and Deflation: A Response to Chris Martenson
Nicole: Then and Now: Sunshine and Eclipse
Nicole: The Rise and Fall of Trade
Nicole: The Death of Democracy in a Byzantine Labyrinth
Nicole: The Imperial Eurozone (With all That Implies)
Ilargi: The Troika And The Five Families
Ilargi: Globalization Is Dead, But The Idea Is Not
Nicole: Entropy and Empire
Ilargi: There’s Trouble Brewing In Middle Earth


Giotto Legend of St Francis, Exorcism of the Demons at Arezzo c.1297-1299


The second limiting factor is likely to be energy, although this may vary with location, given that energy sources are not evenly distributed. Changes in supply and demand for energy are grounded in the real world, albeit in a highly financialized way, hence they unfold over a longer time frame than virtual finance. Over-financializing a sector of the real economy leaves it subject to the swings of boom and bust, or bubbles and their aftermath, but the changes in physical systems typically play out over months to years rather than days to weeks. 

Financial crisis can be expected to deprive people of purchasing power, quickly and comprehensively, thereby depressing demand substantially (given that demand is not what one wants, but what one can pay for). Commodity prices fall under such circumstances, and they can be expected to fall more quickly than the cost of production, leaving margins squeezed and both physical and financial risk rising sharply. This would deter investment for a substantial period of time. As a financial reboot begins to deliver economic recovery some years down the line, the economy can expect to hit a hard energy supply ceiling as a result. Financial crisis initially buys us time in the coming world of hard energy limits, but at the expense of worsening the energy crisis in the longer term.

Energy is the master resource – the capacity to do work. Our modern society is the result of the enormous energy subsidy we have enjoyed in the form of fossil fuels, specifically fossil fuels with a very high energy profit ratio (EROEI). Energy surplus drove expansion, intensification, and the development of socioeconomic complexity, but now we stand on the edge of the net energy cliff. The surplus energy, beyond that which has to be reinvested in future energy production, is rapidly diminishing. We would have to greatly increase gross production to make up for reduced energy profit ratio, but production is flat to falling so this is no longer an option. As both gross production and the energy profit ratio fall, the net energy available for all society’s other purposes will fall even more quickly than gross production declines would suggest. Every society rests on a minimum energy profit ratio. The implication of falling below that minimum for industrial society, as we are now poised to do, is that society will be forced to simplify.

A plethora of energy fantasies is making the rounds at the moment. Whether based on unconventional oil and gas or renewables (that are not actually renewable), these are stories we tell ourselves in order to deny that we are facing any kind of future energy scarcity, or that supply could be in any way a concern. They are an attempt to maintain the fiction that our society can continue in its current form, or even increase in complexity. This is a vain attempt to deny the existence of non-negotiable limits to growth. The touted alternatives are not energy sources for our current society, because low EROEI energy sources cannot sustain a society complex enough to produce them.

We are poised to throw away what remains of our conventional energy inheritance chasing an impossible dream of perpetual energy riches, because doing so will be profitable for the few in the short term, and virtually no one is taking a genuine long term view. We will make the transition to a lower energy society much more difficult than it need have been. At The Automatic Earth we have covered these issues extensively, pointing particularly to the importance of net energy, or energy profit ratios, for alternative supplies. We have also addressed the intersections of energy and finance.


Energy, EROEI, Finance and ‘Above Ground Factors’

Nicole: Energy, Finance and Hegemonic Power
Ilargi: Cheap Oil A Boon For The Economy? Think Again
Ilargi: We’re Not In Kansas Anymore
Ilargi: Not Nearly Enough Growth To Keep Growing
Ilargi: Why The Global Economy Will Disintegrate Rapidly
Ilargi: The Price Of Oil Exposes The True State Of The Economy
Ilargi: More Than A Quantum Of Fragility
Ilargi: (Re-)Covering Oil and War
Nicole: Oil, Credit and the Velocity of Money Revisited
Nicole: Jeff Rubin and Oil Prices Revisited
Charlie Hall: Peak Wealth and Peak Energy
Ken Latta: When Was America’s Peak Wealth?
Ken Latta: Go Long Chain Makers
Euan Mearns: The Peak Oil Paradox – Revisited
Ilargi: At Last The ‘Experts’ Wake Up To Oil
Ilargi: Oil, Power and Psychopaths
Nicole: A Mackenzie Valley Pipe-Dream?


Unconventional Oil and Gas

Nicole: Get Ready for the North American Gas Shock
Nicole: Shale Gas Reality Begins to Dawn
Nicole: Unconventional Oil is NOT a Game Changer
Nicole: Peak Oil: A (Short) Dialogue With George Monbiot
Nicole: Fracking Our Future
Nicole: The Second UK Dash for Gas: A Faustian Bargain
Ilargi: Jobs, Shale, Debt and Minsky
Nicole (video): Sucking Beer Out Of The Carpet: Nicole Foss At The Great Debate in Melbourne
Ilargi: Shale Is A Pipedream Sold To Greater Fools
Ilargi: The Darker Shades Of Shale
Ilargi: Debt and Energy, Shale and the Arctic
Ilargi: London Is Fracking, And I Live By The River
Ilargi: And On The Seventh Day God Shorted His People
Ilargi: The Oil Market Actually Works, And That Hurts
Ilargi: Drilling Our Way Into Oblivion
Ilargi: Who’s Ready For $30 Oil?
Ilargi: US Shale And The Slippery Slopes Of The Law


Electricity and Renewables

Nicole: Renewable Energy: The Vision and a Dose of Reality
Nicole: India Power Outage: The Shape of Things to Come
Nicole: Smart Metering and Smarter Metering
Nicole: Renewable Power? Not in Your Lifetime
Nicole: A Green Energy Revolution?
Nicole: The Receding Horizons of Renewable Energy
Euan Mearns: Broken Energy Markets and the Downside of Hubbert’s Peak


Underwood&Underwood Chicago framed by Gothic stonework high in the Tribune Tower 1952


In the aftermath of the Fukushima disaster, TAE provided coverage of the developing catastrophe, drawing on an earlier academic background in nuclear safety. It will be many years before the true impact of Fukushima is known, both because health impacts take time to be demonstrable and because the radiation releases are not over. The destroyed reactors continue to leak radiation into the environment, and are likely to do so for the foreseeable future. The vulnerability of the site to additional seismic activity is substantial, and the potential for further radiation releases as a result is similarly large. The disaster is therefore far worse than it first appeared to be. The number of people in harms way, for whom no evacuation is realistic despite the risk, is huge, and the health impacts will prove to be tragic, particularly for the young.


Fukushima and Nuclear Safety

Nicole: How Black is the Japanese Nuclear Swan?
Nicole: The Fukushima Fallout Files
Nicole: Fukushima: Review of an INES class 7 Accident
Nicole: Fukushima: Fallacies, Fallout, Fundamentals and Fear
Nicole: Welcome to the Atomic Village


The Automatic Earth takes a broad view of the context in which finance, energy and resources operate, looking at issues of how society functions at a macro level. Context is vital to understanding the bigger picture, particularly human context as it relates to the critical factor of scale and the emergent properties that flow from it. We have continually emphasised the importance of the trust horizon; in determining what functions at what time, and what kind of social milieu we can expect as matters evolve.

Expansions are built upon the optimistic side of human nature and tend to lead to greater inclusiveness and recognition of common humanity over time. Higher levels of political aggregation, and more complex webs of trading relationships, come into being and achieve popular support thanks to the benefits they confer. In contrast, contractions tend to reveal, and be driven by, the darker and more pessimistic side of human collective psychology. They are social and are political as well as economic. In both directions, collective attitudes can create their own self-fulfilling prophecies at the societal level.

Trust determines effective organisational scale, extending political legitimacy to higher levels of political organisation during expansions and withdrawing it during periods of contraction, leaving political entities beyond the trust horizon. Where popular legitimacy is withdrawn, organisational effectiveness is substantially undermined, and much additional effort may go into maintaining control at that scale through surveillance and coercion.

The effort is destined to fail over the longer term, and smaller scale forms of organisation, still within the trust horizon, may come to hold much greater significance. The key to effective action is to know at what scale to operate at any given time. As we have said before, while one cannot control the large scale waves of expansion and contraction that unfold over decades or centuries, understanding where a given society finds itself within that wave structure can allow people and their communities to surf those waves.


Scale and Society

Nicole: Scale Matters
Nicole: Economics and the Nature of Political Crisis
Nicole: Fractal Adaptive Cycles in Natural and Human Systems
Nicole: Entropy and Empire
Nicole: The Storm Surge of Decentralization
Ilargi: When Centralization Scales Beyond Our Control
Ilargi: London Bridge is (Broken) Down
Ilargi: The Great Divide
Ilargi: Quote of the Year. And The Next
Nicole: Corruption, Culpability and Short-Termism
Ilargi: The Value of Wealth
Ilargi: The Most Destructive Generation Ever
Ilargi: Ain’t Nobody Like To Be Alone


Trust and the Psychology of Contraction

Nicole: Beyond the Trust Horizon
Nicole: Bubbles and the Titanic Betrayal of Public Trust
Ilargi: Why There Is Trump
Ilargi: Who’s Really The Fascist?
Ilargi: Ungovernability
Ilargi: Comey and the End of Conversation
Ilargi: Eurodystopia: A Future Divided
Nicole: War in the Labour Markets
Nicole: An Unstable Tower of Breaking Promises
Ilargi: Libor was a criminal conspiracy from the start


Affluence, Poverty and Debt and Insurance

Nicole: Trickles, Floods and the Escalating Consequences of Debt
Nicole: Crashing the Operating System: Liquidity Crunch in Practice
Ilargi: The Impossible and the Inevitable
Nicole: The View From the Bottom of the Pyramid
Ilargi: The Lord of More
Ilargi: The Last of the Affluent, the Carefree and the Innocent
Ilargi: The Worth of the Earth
Nicole: Risk Management And (The Illusion Of) Insurance


Fred Stein Streetcorner, Paris 1930s


Finally, TAE has provided some initial guidance as to how to position one’s self, family, friends and community so as to reduce vulnerability to system shocks and increase resilience. The idea is to reduce the range of dependencies on the large scale, centralised life-support systems that characterise modernity, and also to reduce dependency on the solvency of middle men. The centralised systems we take so much for granted are very likely to be much less reliable in the future. For a long time we have uploaded responsibility to larger scale organisational entities, but this has led to a dangerous level of complacency.

It is now time to reclaim responsibility for our own future by seeking to understand our predicament and take local control of efforts to mitigate its effects. While we cannot prevent a bubble from bursting once it has been blown, we can make a substantial difference to how widely and deeply the impact is felt. The goal is to provide a sufficient cushion of basic essentials to allow as many people as possible to preserve the luxury of the longer term view, rather than be pitched into a state of short term crisis management. In doing so we can hope to minimise the scale of the human over-reaction to events beyond our control. In the longer term, we need to position ourselves to reboot the system into something simpler, more functional and less extractive of the natural capital upon which we and subsequent generations depend.


Solution Space, Preparation and Food Security

Nicole: The Boundaries and Future of Solution Space
Nicole: Facing the Future – Mitigating a Liquidity Crunch
Nicole: 40 Ways to Lose Your Future
Nicole: How to Build a Lifeboat
Nelson Lebo: Resilience is The New Black
Nelson Lebo: What Resilience Is Not
Nicole: Sandy: Lessons From the Wake of the Storm
Nicole: Crash on Demand? – A Response to David Holmgren
Nicole: Finance and Food Insecurity
Nicole: Physical Limits to Food Security – Water and Climate
Ilargi: Basic Income in The Time of Crisis
Nelson Lebo: (Really) Alternative Banking Systems
Nicole (video): Interview Nicole Foss for ‘A Simpler Way: Crisis as Opportunity’
Happen Films: A Simpler Way: Crisis as Opportunity (full video)



May 102017
 May 10, 2017  Posted by at 3:32 pm Finance Tagged with: , , , , , , , , ,  8 Responses »

Ray K. Metzker Philadelphia 1962


You might have thought, and hoped, that recent events, such as the election of Trump as president of the US, or Brexit, or the rise of Marine Le Pen and other non-establishment forces in Europe, would, as a matter of -natural- course, have led to increased conversation and discussion between parties, entities, whose divisions were material in sparking these events.

But the opposite has happened, and continues to happen at an ever faster and fiercer pace. Various sides of various divides become ever more deaf to what other sides have to say. What still poses as conversation turns into blame games and shouting matches replete with innuendo, fake news and insinuations.

The mainstream media even find they are to an extent redeemed by this -at least financially-. Formerly last-gasp ‘news sources’, suffering from the advent of the interwebs, like the New York Times, CNN, HuffPo and WaPo, as well as Fox, Breitbart on the other side, and many others, have seen their reader- and viewerships expand over the past year as they turned into increasingly impenetrable echo chambers.

They may be losing a lot of potential attention -and revenues- from one side of the -former- debate, but that is more than made up for by rising attention from their faithful flocks. The public feel they need to have an opinion on political matters, and the media are more than willing to define, construct and phrase that opinion for them, to first confirm what people already think, and then raise it a notch or two, or three, or ten.

It works like a charm, and their finance people are looking at the numbers saying: whatever it is you guys do, keep on doing it and add some more, because we’re selling like hotcakes. Still, at least some of the writers must be wondering what exactly it is they’re doing, wondering how to define ‘journalism’ in this day and age.

All this represents a giant loss, one that not a single democracy can arguably tolerate for long, even if few of us seem to care. In democracies, it’s essential that people who do not agree, talk to each other, and do so all the time. The end of that conversation spells the end of democracy.


If anything in the future is revealed about a possible -political- connection between Trump and Russia, it will be gravely tainted by the fact that so much opinion posing as news, and so much news that was not real news, has been published about that possible connection already over the past year and change, without any evidence. The WaPo’s and HuffPo’s of the world will not even be vindicated by such a potential revelation anymore, because they lowered their journalistic levels to match those of the National Enquirer.

But even writing down something as neutral as that last paragraph is prone to lead to demonization from all kinds of ‘sources’. The Russian hack story has embedded itself so profoundly in certain corners of American and European society that it can no longer be denied or even questioned without being interpreted as suspect, if not an outright admission of guilt. All you need to know is there once was PropOrNot and its list of alleged 200 Russian propaganda sites.

It doesn’t matter how often Putin and Foreign Minister Lavrov and spokeswoman Maria Zakharova ask for proof of the accusations, because for a large and influential segment of western mainstream media that is a phase that has long since been passed. There is such an all-encompassing conviction that Russia hacked and otherwise influenced western elections that no proof is deemed necessary.

Or rather, the idea has taken on such a life of its own that things are taken to have been proven that never were. “News’, just like advertizing, has to a large extent become based on the concept of relentless repetition. Say something often enough and people will believe it, certainly when it confirms what they were looking to have confirmed to begin with. If the echo chambers fit enough lost souls, before you know it nobody asks for proof anymore.


It’s not about whether Trump is or has ever been guilty of anything he’s accused of, it’s that the insinuating narratives about that have long been written and repeated ad nauseam. It’s about whether the witch hunt exemplified by PropOrNot makes objective news gathering impossible. And the only possible response to that question must be affirmative. If only because you can’t tell one type of ‘news’ from the other anymore.

The MSM have focused on getting Hillary elected, and they failed miserably. So did she, of course, it wasn’t just them. A failure they attempt to hide from view behind a veil of never-ending anti-Russian stories that even now they still can’t prove. Which is where the FBI comes in. Sure, some of it may yet prove to be true, but even if that is so, that’s in the future, not today.

Does Trump deserve being resisted? It certainly looks that way much of the time. But he should be resisted with facts, not innuendo of yellow paper quality. That destroys the media, and the media are needed to maintain a democracy. That is both their task and their responsibility. They exist to inform people, but have instead turned into opinion-fabricating machines. Both because that expresses the opinions of their ownership, and because it’s commercially more attractive.

Take a step back and oversee the picture, and you’ll find that Trump is not the biggest threat to American democracy, the media are. They have a job but they stopped doing it. They have turned to smearing, something neither the NYT nor the WaPo should ever have stooped to, but did.


Democracy is not primarily under threat from what one party does, or the other, or a third one, it is under threat because parties have withdrawn themselves into their respective echo chambers from which no dialogue with other parties is possible, or even tolerated.

None of this is to say that there will be no revelations about some ties between some Russian entities or persons and some Trump-related ones. Such ties are entirely possible, and certainly on the business front. Whether that has had any influence on the American presidential election is a whole other story though. And jumping to conclusions because it serves your political purposes is, to put it mildly, not helping.

The problem is that so much has been said and printed on the topic that was unsubstantiated, that if actual ties are proven, that news will be blurred by what was insinuated before. You made your bed, guys.

A lot of sources today talk about how Trump was reportedly frustrated with the constant focus on the alleged Russia ties, but assuming those allegations are not true, and remember nothing has been proven after a year of echo-chambering, isn’t it at least a little understandable that he would be?

Comey was already compromised from 10 different angles, and many wanted him gone, though not necessarily at the same time . The same Democrats, and their media, who now scream murder because he was fired, fell over themselves clamoring for his resignation for months. That does not constitute an opinion, it’s the opposite of one: you can’t change your view of someone as important as the FBI director every day and twice on Sundays without losing credibility.

And yes, many Republicans played similar games. It’s the kind of game that has become acceptable in the Washington swamp and the media that report on it. And many of them also protest yesterday’s decision. Ostensibly, it all has to do not with the fact that Comey was fired, but with the timing. Which in turn would be linked to the fact that the FBI is investigating Trump.

But what’s the logic there? That firing Comey would halt that investigation? Why would that be true? Why would a replacement director do that? Don’t FBI agents count for anything? And isn’t the present investigation itself supposed to be proof that there is proof and/or strong suspicion of that alleged link between Russia and the Trump election victory? Wouldn’t those agents revolt if a new director threw that away with the bathwater?

Since we still run on ‘innocent until proven guilty’, perhaps it’s a thought to hold back a little, but given what we’ve seen since, say, early 2016, that doesn’t look like an option anymore. The trenches have been dug.

These are troubled times, but the trouble is not necessarily where you might think it is. America has an undeniable political crisis, and a severe one, but that’s not the only crisis.



Apr 222017
 April 22, 2017  Posted by at 8:38 am Finance Tagged with: , , , , , , , , ,  Comments Off on Debt Rattle April 22 2017

Andrei Rublev Trinity 1411


White House Orders Agencies to Prepare for Potential Government Shutdown (BBG)
Beware: The Next Financial Crisis Is Coming (Planet Ponzi)
Robert Prechter Is Awaiting A Depression-Like Shock In The US (MW)
Fed’s Fisher Warns Trump About Plans To ‘Do A Number’ On Dodd-Frank (BI)
Former FinMin Says China Should Let Local Governments Default on Debt (BBG)
Everything Gets Worse – Pakistan vs. India (Bhandari)
Dijsselbloem Sees ‘Tough’ Greek Debt Relief Talks With IMF (BBG)
Schaeuble Says Greece to Blame for Delays in Bailout Program
Greece Blows EU-IMF Bailout Targets Away With Strong Budget Performance (R.)
Greek Primary Surplus Chokes Market (K.)
On Neocons and their Mental Defects (Taleb)
28 Refugees Found Dead In Drifting Dinghy Off Libyan Coast (Ind.)



It could happen.

White House Orders Agencies to Prepare for Potential Government Shutdown (BBG)

The White House ordered federal agencies Friday to began preparations for a potential partial government shutdown after signaling President Donald Trump would demand money for key priorities in legislation to continue funding the government beyond April 29. But the president and his aides expressed confidence that Congress would work out a spending agreement and that there won’t be any halt in government operations. Administration officials portrayed the order as normal contingency planning, stressing that the previous administration had followed the same practice as funding deadlines approached. “I think we’re in good shape” on avoiding a deadlock on maintaining funding, Trump told reporters in the Oval Office on Friday. White House press secretary Sean Spicer said the administration is “confident” because negotiations are ongoing and “no one wants a shutdown.”

The push to reach an agreement on spending is complicated by White House efforts to try again for a House vote on replacing Obamacare next week, crowding the congressional schedule with two politically thorny measures the same week. House approval of an Obamacare repeal would give the president a legislative victory to boast about before his 100th day in office April 29. But failure to reach an agreement on spending legislation would risk marring the anniversary with a government shutdown. House Republicans plan a conference call Saturday with Ryan and other leaders to discuss the health-care bill as well as spending legislation. Republican Congressional leaders have pushed back against scheduling an Obamacare vote during the week, indicating there isn’t a clear strategy yet for achieving passage.

Mick Mulvaney, Trump’s director of Office of Management and Budget, said Thursday Democrats will need to agree to pay for some Trump’s top priorities, including a wall at the U.S.-Mexico border, in legislation to fund the government for the remainder of the fiscal year, which ends Oct. 1. Democrats responded harshly to Mulvaney’s remarks Thursday. “Everything had been moving smoothly until the administration moved in with a heavy hand,” said Matt House, spokesman for Senate Minority Leader Chuck Schumer of New York.

Read more …

“Constantly printing more money will not end in prosperity, but in ruin.”

Beware: The Next Financial Crisis Is Coming (Planet Ponzi)

There is more debt, credit, and leverage today than there was preceding the banking crisis of 2008. No lessons were learned from that catastrophe as trillions of taxpayer dollars were provided in the form of bank bailouts from the US Federal Reserve. Despite their name, US Federal Reserve Banks are not part of the federal government and they are not banks. For the past 11 years, the Federal Reserve has been run by non-elected officials, Ben Bernanke and Janet Yellen (career academics), alongside a host of X Goldman and JP Morgan bankers. Since 2007, these non-elected bankers have provided banks “temporary, emergency liquidity measures.” Since when is eight years temporary?

Banks have continued to lend trillions and trillions of dollars to fund the construction of grotesquely overpriced residential and commercial properties around the world. The trillions of dollars given in bank bailouts are a perfect example of government “pay-to-play.” When giving out this money, most bankers are making at least three flawed assumptions:
1. Real estate prices will always go up. Clearly, this is the denial phase of “a bubble mentality.”
2. Rents will always keep rising. Rents peaked a few years ago. There is a massive oversupply of high-end residential and commercial properties on the market while real wages have declined. This is a sign that a crash is imminent.
3. The Federal Reserve will always bail them out. With zero transparency or an audit the Federal Reserve’s balance sheet has ballooned from 500 billion to nearly 5 trillion in a short period. The Federal Reserve doesn’t have the money to keep bailing companies out.

The Federal Reserve has become nothing more than a rogue hedge fund taking leveraged, wildly speculative, gargantuan and high-risk positions in bonds and mortgages. Next up, the Fed will angle to dump these toxic real estate assets in your pension fund. There are several steps that need to be taken to address this situation and save your pensions:
1. The President and Congress need to order an immediate audit of the Fed.
2. The Fed’s positions need to be unwound.
3. No more taxpayer funded bailouts – save your pension!

Capitalism without bankruptcy is like Catholicism without hell. Constantly printing more money will not end in prosperity, but in ruin. The coming collapse will be much worse than in 2008-2009 because the debt is so much larger and the Federal Reserve has run out of bullets. Since the 1980s, we have seen real average wages decline, college tuition skyrocket nearly 2,000%, and housing prices hitting all-time new highs while high-paying jobs have disappeared. Rents have risen so much that many small businesses are no longer economically viable. The situation doesn’t look any better for graduates. Graduates entering the jobs market have nearly $250,000 in student debt. A graduate may get a job in Manhattan for $40,000 a year ($3,333 a month before tax) but rent on a studio apartment costs $3,000 a month. The numbers just don’t add up anymore.

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Social mood: “declining stock and property prices, contracting debt, angry and somber music, more intense horror movies..”

Robert Prechter Is Awaiting A Depression-Like Shock In The US (MW)

Avi Gilburt: You’ve said that, once the stock market tops, you expect a major bear market and economic contraction to take hold. What is your general timing for this to occur?

Robert Prechter: The true top for stocks in terms of real money (gold) occurred way back in 1999. Overall prosperity has waned subtly since then. Primary wave five in nominal terms started in March 2009, and wave B up in the Dow/gold ratio started in 2011. Their tops should be nearly coincident.

Gilburt: What do you foresee will set off this event?

Prechter: Triggers are a popular notion, borrowed from the physical sciences. But I don’t think there are any such things in financial markets. Waves of social mood create trends in the stock market, and economic and political events lag behind them. Because people do not perceive their moods, tops and bottoms in markets sneak right past them. At the top, people will love the market, and events and conditions will provide them with ample bases for rationalizing being heavily invested.

Gilburt: You’ve said we will be mired in a “depression-type” event. How long could that last?

Prechter: I don’t know. All I can say for sure is that the degree of the corrective wave will be larger than that which created the malaise of the 1930s and 1940s.

Gilburt: How are conditions going to change from what we have now?

Prechter: The increasingly positive trend in social mood over the past eight years has been manifesting in rising stock and property prices, expanding credit, buoyant pop music, lots of animated fairy tales and adventure movies, suppression of scandals, an improving economy and — despite much opinion — fairly moderate politics. This trend isn’t quite over yet. In the next wave of negative mood, we should see the opposite: declining stock and property prices, contracting debt, angry and somber music, more intense horror movies, eruption of scandals, a contracting economy and political upheaval. That’s been the pattern of history.

It’s all relative, though, and it’s never a permanent condition. Just as people give up on the future, its brightness will return. The financial contraction during the negative mood trend of 2006-2011 was the second worst in 150 years. Yet, thanks to the return of positive mood, many people have already forgotten about it. Investors again embrace stocks, ETFs, real estate, mortgage debt, auto-loan debt and all kinds of risky investments that they swore off just a few years ago.

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Because the Fed is doing such a great job of keeping banks in check.

Fed’s Fisher Warns Trump About Plans To ‘Do A Number’ On Dodd-Frank (BI)

Stanley Fischer, the vice chairman of the Federal Reserve, on Friday delivered an unusually sharp warning to President Donald Trump and his plan to “do a number” on post-crisis reforms aimed at reining in Wall Street. Fed officials usually go out of their way to not appear political, which makes the comments all the more startling. Fischer, a former Citigroup banker and respected policymaker who led the Bank of Israel for many years, appears truly concerned. “We seem to have forgotten that we had a financial crisis, which was caused by behavior in the banking and other parts of the financial system, and it did enormous damage to this economy,” Fischer told CNBC’s Sara Eisen in the lobby of the IMF, responding to a question about the potential rolling back of Dodd-Frank rules.

This happened just as the president was signing an executive order aimed at what he said was “reviewing” Dodd-Frank. “Millions of people lost their jobs. Millions of people lost their houses,” Fischer said. “This was not a small-time, regular recession. This was huge, and it affected the rest of the world, and it affected, to some extent, our standing in the world as well. We should not forget that. “The strength of the financial system is absolutely essential to the ability of the economy to continue to grow at a reasonable rate, and taking actions which remove the changes that were made to strengthen the structure of the financial system is very dangerous.”

Asked specifically about Trump’s vow to “do a number” on Dodd-Frank, Fischer shot back: “I’m not sure precisely what the president said and what a ‘number’ is, but there are aspects of Dodd-Frank, which if they were taken away would have very serious potential consequences for the economy — not immediately but when times get tough.” What provisions is he most worried about? The ability of the Fed and other regulators to wind down large banks, many of which are still seen as too big to fail. “I think it is very important that big banks be subject to the discipline of the possibility of going bankrupt. It is also very important that that discipline extends to not making those changes, the bankruptcy of a big bank, a huge shock and the source of crisis or damage to the overall economy,” Fischer said. “So we need the resolution mechanisms that have been put in place which will allow the authorities and the markets to wind up a big bank.”

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Beware the cascade.

Former FinMin Says China Should Let Local Governments Default on Debt (BBG)

Former Finance Minister Lou Jiwei said China should allow smaller local governments to default on debt because it would signal that central government bailouts aren’t assured. Such defaults would educate investors that their investments will be allowed to go bad, Lou said Friday at a public finance forum in Beijing. “They need to shoulder responsibility,” said Lou, who’s now chairman of the country’s social security fund. “Nobody will save them.” Lou’s comments reiterate those by Premier Li Keqiang and other central government officials such as current Finance Minister Xiao Jie that local government debt shouldn’t be bailed out, or benefit from assumptions it will be.

With economic growth accelerating for a second-straight quarter to 6.9% through March, policy makers have more room to cut leverage and rein in risks. A credit surge since 2014 that underpinned growth has also fueled a further buildup in borrowing. Total debt rose to 258% of economic output last year from 161% in 2008, Bloomberg Intelligence estimates show. Lou said government debt remains broadly safe, but borrowing levels are poised to keep climbing given increased investment in substandard public-private partnership projects.

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Great long read on India and its region.

Everything Gets Worse – Pakistan vs. India (Bhandari)

When Narendra Modi announced on 8th November 2016 that he was demonetizing 86% of the monetary value of all currency in circulation, he gave three major reasons for doing so: to end corruption, to end terrorism and to eliminate counterfeit currency. Ironically, all three are now in far worse condition than they were previously, and even worse than the predictions I made. Many ATMs in India still dispense no cash. The economy is in shatters. This had to happen, as any new cash is rapidly moving under the carpets of the financial powerful that hoard currency. Small businesses are traumatized by the lack of access to cash – many are closing for good. People continue to avoid making non-essential purchases. Even food demand has failed to recover. Poor people very likely are still forced to go to bed half-hungry.

No-one knows whether there are famines in parts of India, as none of the mainstream media are covering the issue. Not unlike North Koreans or the Chinese during the times of Mao, Indians today, particularly members of the so-called educated class, simply cannot see what Modi or their nationalistic paradigm does not want them to see. Indian banks and other financial institutions are extremely unethical. Since privatization was implemented in the 1990s, they have charged fees and commissions for accounts that were never agreed upon. Indians never fight, so this continues. After the demonetization exercise, these mysterious charges have started to appear more often. Then they deduct certain services and financial taxes, and most people don’t make the effort to try to understand them. Indians are getting very tired of the banks – not for moral, but simply for financial reasons.

Bank websites are extremely unwieldy. They require a sequence of passwords and OTPs (one time pad codes), which have an automatic expiry date. Getting the whole sequence right to make an online payment without having these websites freeze during the procedure leaves one with a sense of accomplishment. Most people prefer to walk down to their banks to get bank officials to perform such online transactions. India is simply not ready for the digital age. This experiment in going cashless will end in a disaster. Similar to every tyrant, Modi likes to think that tax collection should be at the heart of society. He imagines a society in which subjects dance around the state. The problem is, one can perfect the tax system or minimize corruption, but with a per capita GDP of $1,718, India simply does not have the required productivity.

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Anything you do can and will be used against you: The more such surplus it has, the less debt relief will be needed.

Dijsselbloem Sees ‘Tough’ Greek Debt Relief Talks With IMF (BBG)

Discussions between Greece’s European creditors and the IMF on additional debt relief for the Mediterranean euro region member will be difficult because of political hurdles within the 19-nation bloc, though a solution is on the horizon, Eurogroup Chairman Jeroen Dijsselbloem said. “Greece: We’re very close, it’s really the last stretch,” he said in a Bloomberg Television interview on Friday in Washington with Francine Lacqua and Tom Keene. “We have a full agreement on the major reforms. How they are to be designed, when they are to be implemented, the size of them.”

IMF Managing Director Christine Lagarde said Friday she had “constructive discussions” with Greek Finance Minister Euclid Tsakalotos in preparation for the return of bailout auditors to Athens after euro-area finance ministers reached a tentative agreement on the measures Greece needs to implement to qualify for the next tranche of emergency loans. Dijsselbloem met Tsakalotos earlier on Friday in Washington. “That will be a tough discussion with the IMF,” said Dijsselbloem, who is also the Dutch Finance Minister in a caretaker cabinet, “There are some political constraints where we can go and where we can’t go.” The level of Greece’s primary budget surplus is key in determining the kind of debt relief it will need. The more such surplus it has, the less debt relief will be needed.

The Hellenic Statistical Authority on Friday unveiled data on last year’s primary surplus, which Eurostat is expected to validate on Monday. The surplus was 3.9% according to the European Union’s statistics office methodology, or 4.2% according to what has been agreed in the bailout program. The bailout target was for a primary surplus of 0.5% of GDP. In spite of its better-than-expected primary surplus last year, the IMF is not convinced Greece will be able to maintain that level of performance for 2018 and beyond. The fund estimates that at least half of the primarily surplus for 2016 came from one-off measures rather than structural changes that will continue delivering results in the years to come, according to a person familiar with its analysis. That has prompted the fund to demand more austerity measures.

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Groundhog man.

Schaeuble Says Greece to Blame for Delays in Bailout Program

German Finance Minister Wolfgang Schaeuble said the Greek government bore responsibility for current delays in the country’s bailout program. Greece is to blame that its creditors didn’t return to Athens during the Greek Easter break to finish negotiations on steps the nation must take to qualify for the next tranche of emergency loans, Schaeuble told reporters Friday on the sidelines of the IMF spring meetings. IMF European Department head Poul Thomsen said at a media briefing there’s been enough progress recently to send back a mission to Greece. Greece and its international creditors struck a tentative agreement at a meeting of euro-area finance ministers in Malta earlier this month, breaking the latest deadlock over the country’s rescue and paving the way for about €7 billion in aid for Athens.

Although the decision represents progress, the euro area won’t unlock the payout until their audit in Athens is concluded. “It would have been possible to continue the mission in Athens immediately in the week after Malta,” said Schaeuble. “This was not possible during the Greek Easter break.” In a statement on Friday, IMF Managing Director Christine Lagarde said she had a “constructive dialogue” with Greek Finance Minister Euclid Tsakalotos “in preparation for the return of the mission to discuss the two legs of the Greece program: policies and debt relief.” The IMF isn’t holding back progress, said Schaeuble. “The IMF isn’t delaying this process at all,” he said.

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The worst thing Greece could do.

Greece Blows EU-IMF Bailout Targets Away With Strong Budget Performance (R.)

Greece far exceeded its international lenders’ budget demands last year, official data showed on Friday, posting its first overall budget surplus in 21 years even when debt repayments are included. The primary surplus – the leftover before debt repayments that is the focus of IMF-EU creditors – was more than eight times what they had targeted. Data released by Greek statistics service ELSTAT – to be confirmed on Monday by the EU – showed the primary budget surplus at 3.9% of GDP last year versus a downwardly revised 2.3% deficit in 2015. This was calculated under European System of Accounts guidelines, which differ from the methodology used by Greece’s in bailout deliberations.

Under EU-IMF standards, the surplus was even larger. Government spokesman Dimitris Tzanakopoulos said the primary budget surplus under bailout terms reached 4.19% of GDP last year versus the 0.5% of GDP target. “It is more than eight times above target,” Tzanakopoulos said in a statement. “Therefore, the targets set under the bailout program for 2017 and 2018 will certainly be attained.” Debt-strapped Greece and its creditors have been at odds for months over the country’s fiscal performance, delaying the conclusion of a key bailout review which could unlock needed bailout funds. The IMF, which has reservations on whether Greece can meet high primary surplus targets, has yet to decide if it will fund Greece’s current bailout, which expires in 2018.

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The surplus kills the economy even more.

Greek Primary Surplus Chokes Market (K.)

The state’s fiscal performance last year has exceeded even the most ambitious targets, as the primary budget surplus as defined by the Greek bailout program, came to 4.19% of GDP, government spokesman Dimitris Tzanakopoulos announced on Friday. It came to €7.369 billion against a target for €879 million, or just 0.5% of GDP. A little earlier, the president of the Hellenic Statistical Authority (ELSTAT), Thanos Thanopoulos, announced the primary surplus according to Eurostat rules, saying that it came to 3.9% of GDP or €6.937 billion. The two calculations differ in methodology, but it is the surplus attained according to the bailout rules that matters for assessing the course of the program. This was also the first time since 1995 that Greece achieved a general government surplus – equal to 0.7% of GDP – which includes the cost of paying interest to the country’s creditors.

There is a downside to the news, however, as the figures point to overtaxation imposed last year combined with excessive containment of expenditure. The amount of €6-6.5 billion collected in excess of the budgeted surplus has put a chokehold on the economy, contributing to a great extent to the stagnation recorded on the GDP level in 2016. On the one hand, the impressive result could be a valuable weapon for the government in its negotiations with creditors to argue that it is on the right track to fiscal streamlining and can achieve or even exceed the agreed targets. On the other hand, however, the overperformance of the budget may weaken the argument in favor lightening the country’s debt load. It is no coincidence that German Finance Minister Wolfgang Schaeuble noted in Washington that over the last couple of years, Greek government deficit forecasts are more realistic than those of the IMF.

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Skin in the game.

On Neocons and their Mental Defects (Taleb)

So we tried that thing called regime change in Iraq, and failed miserably. We tried it in Libya, and now there are now active slave markets in the place. But we satisfied the objective of “removing a dictator”. By the exact same reasoning, a doctor would inject a patient with “moderate” cancer cells “to improve his cholesterol numbers”, and claim victory after the patient is dead, particularly if the post-mortem shows remarkable cholesterol readings. But we know that doctors don’t do that, or, don’t do it in such a crude format, and that there is a clear reason for it. Doctors usually have some skin in the game. And don’t give up on logic, intellect and education, because a tight but higher order logical reasoning would show that the logic of advocating regime changes implies also advocating slavery.

So these interventionistas not only lack practical sense, and never learn from history, but they even make mistakes at the pure reasoning level, which they drown in some form of semi-abstract discourse. The first flaw is that they are incapable in thinking in second steps and unaware of the need for it –and about every peasant in Mongolia, every waiter in Madrid, and every car service operator in San Francisco knows that real life happens to have second, third, fourth, nth steps. The second flaw is that they are also incapable of distinguishing between multidimensional problems and their single dimensional representations –like multidimensional health and its stripped, cholesterol-reading reduced representation. They can’t get the idea that, empirically, complex systems do not have obvious one dimensional cause and effects mechanisms, and that under opacity, you do not mess with such a system.

An extension of this defect: they compare the actions of the “dictator” to the prime minister of Norway or Sweden, not to those of the local alternative. And when a blow up happens, they invoke uncertainty, something called a Black Swan, not realizing that one should not mess with a system if the results are fraught with uncertainty, or, more generally, avoid engaging in an action if you have no idea of the outcomes. Imagine people with similar mental handicaps, who don’t understand asymmetry, piloting planes. Incompetent pilots, those who cannot learn from experience, or don’t mind taking risks they don’t understand, may kill many, but they will themselves end up at the bottom of, say, the Atlantic, and cease to represent a threat to others and mankind.

So we end up populating what we call the intelligentsia with people who are delusional, literally mentally deranged, simply because they never have to pay for the consequences of their actions, repeating modernist slogans stripped of all depth. In general, when you hear someone invoking abstract modernistic notions, you can assume that they got some education (but not enough, or in the wrong discipline) and too little accountability. Now some innocent people, Yazidis, Christian minorities, Syrians, Iraqis, and Libyans had to pay a price for the mistakes of these interventionistas currently sitting in their comfortable air-conditioned offices. This, we will see, violates the very notion of justice from its pre-biblical, Babylonian inception. As well as the ethical structure of humanity.

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Just a week ago we commemorated a man on a cross whose image we remember but whose teachings we’ve forgotten.

28 Refugees Found Dead In Drifting Dinghy Off Libyan Coast (Ind.)

Almost 30 migrants have been found dead in a boat drifting off the coast of Libya as the number of refugees dying in attempts to reach Europe reach record highs. Fishermen found the bodies of 28 people, including four children, in waters near the smuggling hub of Sabratha after more than 8,300 asylum seekers were rescued over the Easter weekend. “Their boat stopped in the middle of the water because the engine was broken,” said Ahmaida Khalifa Amsalam, the interior ministry’s security commander. He said the victims appeared to have died of thirst and hunger after their vessel was left drifting in the Mediterranean.

They were buried in a cemetery dedicated to migrants whose bodies are regularly washed up on the coast of Libya, which remains embroiled in a bloody civil war six years after the UK helped overthrow Muammar Gaddafi. Smugglers have increasingly resorted to packing migrants into flimsy dinghies that are unable to survive the crossing to Europe, with some being intercepted and forced back by the Libyan coastguard, others being rescued by EU officials and aid agencies, and many sinking. Tuesday’s tragic discovery was the latest incident of refugees being found dead inside boats, with a worrying trend emerging suggesting engines are being removed or sabotaged at sea.

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Apr 062017
 April 6, 2017  Posted by at 8:38 am Finance Tagged with: , , , , , , , , ,  4 Responses »

DPC Oyster luggers along Mississippi, New Orleans 1906


Euro Saves Germany, Slaughters the PIGS, & Feeds the BLICS (Hamilton)
Greece Wants Eurozone Summit If Deal On Bailout Doesn’t Happen Soon (AP)
Half Of American Working Families Are Living Paycheck To Paycheck (MW)
Trump Top Economic Adviser Cohn Backs Split Of Lending, Investment Banks (BBG)
IMF Explains How To Subvert Resistance Against Elimination Of Cash (Häring)
Precursors to the ’08 Crisis are Repeating Now (Nomi Prins)
Former Fed Advisor Says Central Bank Shouldn’t Comment On Equities (CNBC)
Is the Fed’s Balance Sheet Headed for the Crapper? (DiMartino Booth)
Toronto House Price Bubble Goes Nuts (WS)
Interest-Only Loans ‘To End In Tears’ (Aus.)
China Is More Fragile than You Realize (DR)
Syria Gas Attack: Assad’s Doing…Or False Flag? (Ron Paul)
Reports In Unmasking Controversy Were Detailed (Fox)
We Are Heading For The Warmest Climate In Half A Billion Years (Conv.)



Absolutely brilliant by Chris Hamilton. Many more graphs in the article. h/t Tyler

Euro Saves Germany, Slaughters the PIGS, & Feeds the BLICS (Hamilton)

Germany was well aware of it’s post WWII collapsing birth rate and the impact of this on economic growth as this shrinking population of young made it’s way into the Core.  Consider Germany’s Core population peaked in 1995 and it’s domestic consumer base has been shrinking since, now down over 3.3 million potential consumers (about a 9% Core decline…remember a depression is a 10% decline in economic activity, which a 9% and growing decline in German consumers would have almost surely induced).


The chart below shows Germany’s Core population from 1950–>2040…but understand this is no guestimate through 2040.  This is simply taking the existing 0-24yr/old population (plus anticipated immigration) and sliding them into the Core through 2040.  Germany’s Core population is set to fall by over 30% or 10+ million by 2040 (far more than the 7 million Germans of all ages who died in WWII).


But Germany had a plan.  With the advent of the EU and Euro just as Germany’s Core began shrinking, Germany was able to avoid the pitfalls of a shrinking domestic consumer base, circumvent the strong German currency, and effectively quadruple it’s effective export market across Europe.  German exports, as a % of GDP, have essentially doubled since the advent of the Euro (22% in ’95 to almost 50% in ’16).  The chart below highlights Germany’s shrinking Core vs. rising GDP (primarily via exports) since 1995.

[..] the German motivation for the EU and Euro are fairly plain as are the resultant economic transfusion from South to North.  But for Germany to be a winner, there had to be a loser in this shrinking pie game.  Hello PIGS (Portugal, Italy, Greece, Spain), you lost.  As the old poker adage goes, when you don’t know who the sucker at the table is…it’s you.  Particularly when you “win big” at first and it all seems so easy…but then it all turns.


The chart below shows the PIGS Core population peaking about 15 years later than in Germany but likewise clearly rolling over.  By 2040, the PIGS Core population will be back at it’s 1960 levels…down from the 2010 peak by 17 million or about a 30% decline.

But if we look at the PIGS combined GDP and Core population…we see a very different picture than in Germany.  The chart below shows the PIGS GDP turned down ahead of the Core population peak.  The rise in GDP in these nations was a credit bubble premised on cheap EU wide interest rates more appropriate for Germany.  Exports as a % of GDP (which were higher than Germany’s in ’95) have risen less than half of Germany’s increase (rising as a % primarily due to declining PIGS GDP).  Low German wage increases and high quality German goods helped displace PIGS domestic manufacturing base.

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The logical consequence of the article above. Economic warfare. Tsipras complains about the Troika “moving the goalposts”, but that’s exactly the game, Alexis.

Greece Wants Eurozone Summit If Deal On Bailout Doesn’t Happen Soon (AP)

Top Greek and European officials indicated Wednesday that it’s possible to reach a breakthrough in the country’s difficult bailout talks over the next two days. Greece’s prime minister said that if a deal on paying Athens the next bailout installment fails to materialize, the eurozone should hold a special summit. Alexis Tsipras said negotiators are “just a breath away” from an agreement at Friday’s scheduled meeting in Malta of the so-called eurogroup, the gather of finance ministers from countries that use the euro. But Tsipras blamed unnamed negotiators among Greece’s European creditors and the IMF for “moving the goalposts” each time Greece was getting close to meeting approval conditions for the bailout. “We are not playing games here … that must stop,” he said, after talks in Athens with EU Council President Donald Tusk.

Greece has to agree on budget measures to get access to its loans. But the talks have dragged on for months, freezing the latest loan payout and hurting chances of a Greek economic recovery after years of recession and turmoil. Without the bailout payment, Greece would struggle to make a debt payment in July, raising anew the prospect of default. Tsipras’ left-led government is pushing for a comprehensive deal that would cover more than just spending cuts and harsh reforms by Greece, but also alleviate the country’s debt burden and ease its access later this year to international bond markets. “If the eurogroup is not in a position to (reach an agreement) on Friday, I have asked President Tusk to convene a eurozone summit to achieve an immediate agreement,” Tsipras said. “I don’t think that will be needed, because there will be a result on Friday, but these delays cannot continue.”

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Is it just me, or do we see similar surveys once a week these days? How can anyone maintain that the US economy is doing fine?

Half Of American Working Families Are Living Paycheck To Paycheck (MW)

More than seven years after the Great Recession officially ended, there is yet more depressing research that at least half of Americans are vulnerable to financial disaster. Some 50% of people is woefully unprepared for a financial emergency, new research finds. Nearly 1 in 5 (19%) Americans have nothing set aside to cover an unexpected emergency, while nearly 1 in 3 (31%) Americans don’t have at least $500 set aside to cover an unexpected emergency expense, according to a survey released Tuesday by HomeServe USA, a home repair service. A separate survey released Monday by insurance company MetLife found that 49% of employees are “concerned, anxious or fearful about their current financial well-being.”

One explanation: Americans are crippled under the same amount of debt as they had during the recession. The New York Federal Reserve on Monday predicted that total household debt will reach its previous peak of $12.68 trillion in 2017. The last time it reached that level was in the third quarter of 2008, during the depths of the Great Recession. Indeed, it’s already close: Total household debt in the fourth quarter of 2016 was $12.58 trillion. Fewer borrowers have housing-related debt in 2017 and, instead, have taken on auto and student loans.

One illness can push people to the brink of financial ruin. Wanda Battle, a registered nurse for four decades, was recently hit with a $100,000 medical bill. She has visited her local emergency room on more than one occasion due to severe migraines and mini-strokes. Battle, who is based near Nashville, Tenn., managed to reduce her latest hospital bill to $32,000 based on her relatively low income, but still faces $650 monthly payments for a previous $22,000 medical bill. “There were times I couldn’t work,” she told MarketWatch. “I have not held a job that is continuous.”

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Glass Steagall. Interesting.

Trump Top Economic Adviser Cohn Backs Split Of Lending, Investment Banks (BBG)

In a private meeting with lawmakers, White House economic adviser Gary Cohn said he supports a policy that could radically reshape Wall Street’s biggest firms by separating their consumer-lending businesses from their investment banks, said people with direct knowledge of the matter. Cohn, the ex-Goldman Sachs executive who is now advising President Donald Trump, said he generally favors banking going back to how it was when firms like Goldman focused on trading and underwriting securities, and companies such as Citigroup primarily issued loans, according to the people, who heard his comments. The remarks surprised some senators and congressional aides who attended the Wednesday meeting, as they didn’t expect a former top Wall Street executive to speak favorably of proposals that would force banks to dramatically rethink how they do business.

Yet Cohn’s comments echo what Trump and Republican lawmakers have previously said about wanting to bring back the Glass-Steagall Act, the Depression-era law that kept bricks-and-mortar lending separate from investment banking for more than six decades. In the years after the law’s 1999 repeal, banks such as Citigroup, Bank of America and JPMorgan Chase gobbled up rivals and pushed into all sorts of new businesses, becoming one-stop-shopping financial behemoths. Many banking executives believed that the inclusion of former finance executives like Cohn in Trump’s White House would temper major changes such as a Glass-Steagall return. But his Wednesday remarks suggest he could be a wildcard should Congress get serious about reinstating the law. White House officials haven’t said what an updated version of Glass-Steagall might look like.

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They actually wrote a manual.

IMF Explains How To Subvert Resistance Against Elimination Of Cash (Häring)

The IMF has published a Working Paper on “de-cashing”. It gives advice to governments who want to abolish cash against the will of their citizenry. Move slowly, start with harmless seeming measures, is part of that advice. In “The Macroeconomics of De-Cashing”, IMF-Analyst Alexei Kireyev recommends in his conclusions:

“Although some countries most likely will de-cash in a few years, going completely cashless should be phased in steps. The de-cashing process could build on the initial and largely uncontested steps, such as the phasing out of large denomination bills, the placement of ceilings on cash transactions, and the reporting of cash moves across the borders. Further steps could include creating economic incentives to reduce the use of cash in transactions, simplifying the opening and use of transferrable deposits, and further computerizing the financial system. The private sector led de-cashing seems preferable to the public sector led decashing. The former seems almost entirely benign (e.g., more use of mobile phones to pay for coffee), but still needs policy adaptation.

The latter seems more questionable, and people may have valid objections to it. De-cashing of either kind leaves both individuals and states more vulnerable to disruptions, ranging from power outages to hacks to cyberwarfare. In any case, the tempting attempts to impose de-cashing by a decree should be avoided, given the popular personal attachment to cash. A targeted outreach program is needed to alleviate suspicions related to de-cashing; in particular, that by de-cashing the authorities are trying to control all aspects of peoples’ lives, including their use of money, or push personal savings into banks. The de-cashing process would acquire more traction if it were based on individual consumer choice and cost-benefits considerations.”

Note, that the author is not talking about unreasonable objections and imagined disadvantages: He does count it among the advantages of de-cashing in the very next paragraph that personal savings are pushed into banks and he also does count total control of all aspects of financial life under the pros, as in the last sentence of the last quote below.

“As de-cashing gives incentives to economies’ agents to convert their currency in bank deposits, the deposit base of the banking system will increase, which can help reduce the lending rates and expand credit.”

And finally the advice to do it together:

“Coordinated efforts on de-cashing could help enhance its positive effects and reduce potential costs. At least at the level of major countries and their currencies, the authorities could coordinate their de-cashing efforts. Such coordinated efforts are, in particular, important in the decisions to phase out large denomination bills for all major currencies, to use ceilings and other restrictions on cash transactions, and to introduce the reporting requirements for cash transactions or their taxation. For currency areas, a single decashing policy would be clearly preferable to a national one. Finally, consensus between the public and the private sector and outreach on the advantages and modalities of gradual decashing should be viewed as key preconditions for its success.”

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They’re all over the place.

Precursors to the ’08 Crisis are Repeating Now (Nomi Prins)

The biggest banks are still as dangerous as they were before the last crisis, even as they push for less regulation. The big six banks U.S. banks are JP Morgan Chase, Bank of America, Wells Fargo, Citigroup, Goldman Sachs, and Morgan Stanley. Despite their belly-aching about heinous Dodd-Frank Act regulations cramping their betting style, they have all done damn good recently. Since Trump was elected and started talking about deregulation, the big six bank stock values have collectively skyrocketed 33.5% (as of March 10th). Bank of America tops that rise with an eye-popping increase of 48.8% in three months. Goldman Sachs and Morgan Stanley shares shot up 36.6%. Of course, most stocks have been moving up since the election. But keep in mind that the S&P 500 rose just 10.9% during that same period.

Beyond a few extra capital requirements (mostly in the form of a set of rules called Basel III coming from Europe), the need to establish a “living will” in case of another financial emergency, and some limitations on risky trading, not much has changed for these banks. Since the 2008 financial crisis, the big six banks’ total assets have increased by 21%. The big four by 25%. Yet, of the total Global Derivatives Notional amount of $544 trillion, the big six U.S. banks carry $168 trillion of it. Comparing that figure to their total assets, we get a leverage amount of 24 times. To put that in perspective, that’s only slightly less than the leverage their derivatives positions before the 2008 crisis. The biggest banks are still the ones most at risk, and most threatening to anyone with money in the stock market. Cracks have started popping up that make it clear to us that the next financial crisis is just around the corner.

[..] The Fed’s data shows bank lending to businesses has been strong, perhaps too strong. That’s why it’s just now starting to trail off. We’ve had an epic credit expansionary cycle on the back of cheap, central bank fabricated money and ultra-loose monetary policy — what I call “artisanal” money. But defaults and distressed credit activity is rising. Last year, corporates posted their fifth-highest yearly default volume. According to Forbes, “62 companies defaulted on $59.3 billion in debt — 57% higher than the $37.7 billion of defaults in 2015.” That’s an ominous trajectory.

Bank of America just revealed that its 30-90 day consumer credit delinquencies are rising significantly again. So are delinquencies at Wells Fargo. The bank card default rate is at a 42 month high. U.S. subprime auto loan losses are at their highest level since the ’08 crisis. Banks that had been offering more commercial real estate loans now say they will tighten standards. Fears are rising that a greater%age will become delinquent just as they did in the lead up to the last financial crises. A downturn is inevitable. It’s a matter of when, not if.

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Of course it shouldn’t.

Former Fed Advisor Says Central Bank Shouldn’t Comment On Equities (CNBC)

Federal Reserve officials commented on the stock market in March, as minutes from the Federal Open Market Committee meeting revealed the central bank is working to reduce its $4.5 trillion in bonds on its balance sheet this year. Danielle DiMartino Booth, a former Dallas Fed advisor and president of Money Strong, said on CNBC’s Power Lunch on Monday, “It always makes me uncomfortable,” when the central bank comments on U.S. equities. In the summary of the March meeting, Fed members “commented that the recent increase in equity prices might in part reflect investors’ anticipation of a boost to earnings from a cut in corporate taxes or more expansionary fiscal policy, which might not materialize.

They also expressed concern that the low level of implied volatility in equity markets appeared inconsistent with the considerable uncertainty attending the outlook for such policy initiatives.” “I don’t think it’s necessarily the purview of central bankers to comment on this,” DiMartino Booth said. She said the Fed’s comments on the market shows “they are also verbally concerned about financial instability,” and may consider it when the Fed makes fiscal policy decisions, in addition to labor and inflation mandates. David Nelson, chief strategist at Belpointe Asset Management, agreed, “I don’t think the Fed should be commenting on stock prices.”

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“..getting from Point A ($4.5 trillion) to Point B ($2 trillion based on balance sheet contracting just over a tenth the size of the country’s GDP) will take at least five years.”

Is the Fed’s Balance Sheet Headed for the Crapper? (DiMartino Booth)

The good news, for those fearing having to enter monetary rehab, is that it’s going to take a mighty long time to shrink the balance sheet. The fine folks over at Goldman Sachs figure that getting from Point A ($4.5 trillion) to Point B ($2 trillion based on balance sheet contracting just over a tenth the size of the country’s GDP) will take at least five years. (An aside for you insomniacs out there: Have a look back at Mind the Cap, penned back on December 16, 2015, released hours before the Fed hiked rates for the first time in order to raise the cap on the Reverse Repo Facility (RRP) to $2 trillion. (Mind The Cap via Come what may, you can consider Goldman’s estimate of the terminal value of a $2 trillion balance sheet and the size of the RRP to be anything but coincidental.)

In any event, things change. As per Goldman, by 2022, “…changes in Fed leadership, regulation, Treasury issuance policy, or macroeconomic conditions could alter both the near-term path and the intended terminal size of the balance sheet.” Indeed. It is entertaining to watch market pundits shift in their skivvies trying to assure the masses that a shrinking balance sheet will be welcomed by risky assets. It was downright comical to read that the Fed’s strategically allowing only long-dated Treasuries to expire and not be replaced would prevent the yield curve from inverting, thus staving off recession. Pardon the interruption, but domestic non-financial sector debt stood at about 140% of GDP in 1980. Today, it’s crested 250% of GDP and keeps rising.

Interest rate sensitivity, especially in commercial real estate, household finance and junk bonds is particularly acute. Oh, and by the way, monetary policy is a global phenomenon. At last check, the European periphery and emerging market corporate bond market were not in the best position to weather a rising rate environment. The best performance, though, was delivered by Chair Janet Yellen herself. In the spirit of giving credit its due, Business Insider’s Pedro da Costa highlighted this delightful nugget from testimony Yellen presented to Congress in February: “Waiting too long to remove accommodation would be unwise, potentially requiring the FOMC to eventually raise rates rapidly, which could risk disrupting the financial markets and pushing the economy into recession.” Isn’t the rapidly flattening yield curve communicating that ‘removing accommodation’ today is one and the same with ‘pushing the economy into recession’?

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Better do something, Justin. This is going to blow up in YOUR face.

Toronto House Price Bubble Goes Nuts (WS)

Residential property sales in Greater Toronto soared 17.7% year-over-year to 12,077 homes, according to the Toronto Real Estate Board (TREB). New listings jumped 15.2% to 17,052. Prices for all types of homes, based on the MLS Home Price Index Composite “Benchmark,” soared 28.6%. The “average” selling price soared 33.2%! That average selling price of C$916,567 is up from C$688,011 a year ago. Over the past five years, it has doubled! The heavenly manna was spread across the spectrum. For condos, the average price in Greater Toronto soared 33.1% to C$518,879; for townhouses it soared 32.9% to C$705,078; for semi-detached houses, 34.4% to C$858,202; and for detached houses, 33.4% to C$1,214,422. Even the house price bubble in Beijing cannot compete with this sort of miracle; new house prices there increased only 22% year-over-year in February.

And Sydney’s fabulous house price bubble just flat out pales compared to the spectacle transpiring in Toronto, with prices up only 19% in March. Vancouver has its own housing bubble to deal with. But there, the government of British Columbia has tried to tamp down on wild speculation with various measures, including a transfer tax aimed squarely at foreign non-resident investors, with “mixed” success. Now the great fear in Toronto’s real estate circles is that the government of Ontario might impose similarly cruel and unusual punishment on the participants in this spectacle. Some measures are on the table, with folks wondering how to stop the bubble from inflating further and causing even greater harm to the real economy when it deflates, as all bubbles eventually do.

They’re reluctant. It seems they want to see how BC’s measures are washing out in Vancouver. The central government too is trying to fine-tune some macroprudential measures, but they’ve had absolutely no effect on Toronto’s housing bubble. And the Bank of Canada, which has been fretting about the housing bubble for a while – always couched in its very careful terms – refuses to raise rates. Everyone is talking. No one dares to do anything real about Toronto’s house price bubble. In Toronto, according the real estate folks, it’s all based on fundamentals. It’s based on supply and demand and very rational calculated thinking, and there is no bubble in sight, lenders are just fine, and if Canadians are locked out of the housing market, so be it, it’s just a shortage of housing, really.

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We’re supposed to believe Australia never got the memo? Get real.

Interest-Only Loans ‘To End In Tears’ (Aus.)

Former National Australia Bank boss Don Argus has added to warnings about the overreliance of interest-only loans, declaring it is going to “lead to tears” as interest rates eventually move higher. After a widely expected decision by the Reserve Bank to leave its official cash rate unchanged at a record low 1.5% at its monthly board meeting yesterday, Mr Argus declared that borrowers had “forgotten” the cyclical nature of interest rates. “You can only hope that some of these dizzy values that you see people paying for houses now, you hope that they stand up on any correction, any economic correction”, Mr Argus told The Australian. Backing a tightening of so-called macroprudential controls on home lending announced by the Australian Prudential Regulation Authority last week, Mr Argus, a former BHP Billiton chairman, said the capacity of borrowers to repay loans “was always a primary concern in housing loans of yesteryear”.

“If you progressed to just an interest-only environment, that’s only going to lead to tears.” However, in a speech given in Melbourne last night, RBA governor Philip Lowe took aim at banks and other lenders for making overly generous serviceability assessments. “Despite the focus on this area over recent times, too many loans are still made where the borrower has the skinniest of income buffers after interest payments”, Dr Lowe said. “In some cases, lenders are assuming that people can live more frugally than in practice they can, leaving little buffer if things go wrong. So APRA quite rightly has said lenders can expect a strong supervisory focus on loans with a very low net income surplus.” Dr Lowe also noted that the prevalence of interest-only lending was “unusual” globally.

“A reduced reliance on interest-only loans in Australia would be a positive development and would help improve our resilience. With interest rates so low, now is a good time for us to move in this direction,” he said. Almost 40% of residential mortgage lending in Australia is interest-only, where the borrower pays off the interest rather than the principal.

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“It is about regime survival for a Chinese Communist Party that faces existential risk if they stumble.”

China Is More Fragile than You Realize (DR)

China’s economy is not just about providing jobs, goods and services. It is about regime survival for a Chinese Communist Party that faces existential risk if they stumble. Given the systemic problems inherent in trying to run an economy in the absence of the accurate price signals only free markets provide (a problem for both Chinese socialism and the West’s corrupt crony markets), their challenges are worsening every day. Malinvestments the size of ghost cities are not lost on the world’s central bankers who fear a systemic collapse of China’s economy, nor on the brilliant investors who are betting on China’s collapse like they bet against the corrupt banking products in the U.S. housing bubble. Before the 2008 financial crisis, the Chinese debt-to-GDP ratio was 147%; now, it is at about 250%.

Quietly, the Chinese leadership has begun to lower growth expectations but even those numbers should be taken with skepticism. The methodology used to calculate their GDP figures is not publicly known but uses economic data that can be manipulated for sake of appearances. Declining growth impacts China’s financial market as well. Local banks are struggling with non-performing debt rapidly increasing. Non-bank financial institutions referred to as the “shadow banking system” are spreading, with little regulation or recognition of the risks. The government’s attempts to better regulate the system is stymied by local corruption where exaggerated assets and little documentation mask a wave of malinvestments. Like the appearance of no-doc “liar” loans in the U.S. in 2004-2006, the entire shadow banking system is signalling risk of systemic collapse.

Another source of malinvestment is the real estate market. Commercial real estate bubbles are breathtaking and residential real estate values have begun to fall. This seriously threatens social unrest as many Chinese families have put their life savings into real estate believing well intended but nonsensical government assurances of support to an ever increasing housing market. As is typical with most countries, the Chinese government tries to mask the ravages of inflation by adjusting their public measurement downwards. Doing so conceals the impact it has on households. But when values collapse wiping out the entire family savings for their old age, there will be a terrifying political backlash.

Yet another concern is that the 2008 Lehman bankruptcy marked a plateau in world trade. This has been particularly difficult for China as exports accounted for more than 40% of their GDP. With reduced global trade, China began to lose competitiveness in the market place. Inflation of the money supply in the Chinese economy required higher wages to offset rising prices. In turn, China tried to move into higher value exports by manufacturing more technologically advanced and complicated products. Unfortunately, in the transition, quality suffered and foreign markets began to look for alternatives to Chinese components.

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Good to see I’m not the only one who questions the narrative (see Any of this Sound Familiar?).

Syria Gas Attack: Assad’s Doing…Or False Flag? (Ron Paul)

Just days after the US Administration changed course on Syrian President Assad, saying he could stay, an alleged chemical weapon attack that killed dozens of civilians has been blamed on the Syrian government. Did Assad sign his own death warrant with such an attack…or does some other entity benefit?

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“Sort of like in a divorce case where lawyers are hired, investigators are hired just to find out what the other person is doing from morning until night and then you try to piece it together later on.”

Reports In Unmasking Controversy Were Detailed (Fox)

The intelligence reports at the center of the Susan Rice unmasking controversy were detailed, and almost resembled a private investigator’s file, according to a Republican congressman familiar with the documents. “This is information about their everyday lives,” Rep. Peter King of New York, a member of the House Intelligence committee said. “Sort of like in a divorce case where lawyers are hired, investigators are hired just to find out what the other person is doing from morning until night and then you try to piece it together later on.” On the House Intelligence Committee, only the Republican chairman, Devin Nunes of California, and the ranking Democrat Adam Schiff, also of California, have personally reviewed the intelligence reports. Some members were given broad outlines.

Nunes has consistently stated that the files caused him deep concern because the unmasking went beyond the former national security adviser Mike Flynn, and the information was not related to Moscow. Schiff said in a statement, “I cannot comment on the content of these materials or any other classified documents, and nothing should be inferred from the fact that I am treating classified materials the way they should be treated – by refusing to comment on them. Only the Administration has the power to declassify the information and make it available to the public.” Former National Security Adviser Rice is under scrutiny after allegations she sought to unmask the identities of Trump associates caught up in surveillance – such as phone calls between foreign intelligence targets. Rice denies ever having sought such information for political purposes and has defended her requests as routine.

[..] During his March 20 testimony before the House Intelligence Committee, NSA director Admiral Mike Rogers said only 20 individuals within the agency are authorized to approve those requests. “They receive specific training, there are specific controls put in place in terms of our ability to disseminate information out of the databases associated with U.S. persons,” Rogers said at the time. What it appears to suggest is that the NSA itself agreed that the instances in which Rice requested unmasking warranted that action. FBI Director James Comey was less direct. “I don’t know for sure. As I sit here, surely more, given the nature of the FBI’s work,” he testified.

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What’s a 100 million more or less?

We Are Heading For The Warmest Climate In Half A Billion Years (Conv.)

Carbon dioxide concentrations are heading towards values not seen in the past 200m years. The sun has also been gradually getting stronger over time. Put together, these facts mean the climate may be heading towards warmth not seen in the past half a billion years. A lot has happened on Earth since 500,000,000 BC – continents, oceans and mountain ranges have come and gone, and complex life has evolved and moved from the oceans onto the land and into the air. Most of these changes occur on very long timescales of millions of years or more. However, over the past 150 years global temperatures have increased by about 1ºC, ice caps and glaciers have retreated, polar sea-ice has melted, and sea levels have risen.Some will point out that Earth’s climate has undergone similar changes before. So what’s the big deal?

Scientists can seek to understand past climates by looking at the evidence locked away in rocks, sediments and fossils. What this tells us is that yes, the climate has changed in the past, but the current speed of change is highly unusual. For instance, carbon dioxide hasn’t been added to the atmosphere as rapidly as today for at least the past 66m years. In terms of geological time, 1ºC of global warming isn’t particularly unusual. For much of its history the planet was significantly warmer than today, and in fact more often than not Earth was in what is termed a “greenhouse” climate state. During the last greenhouse state 50m years ago, global average temperatures were 10-15ºC warmer than today, the polar regions were ice-free, palm trees grew on the coast of Antarctica, and alligators and turtles wallowed in swamp-forests in what is now the frozen Canadian Arctic.

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Mar 152017

Otto Dix The Triumph of Death 1934


Yes, austerity really kills real people, and it kills the societies they live in. Let’s try and explain this in simple terms. It’s a simple topic after all. Austerity is a mere left-over from faith-based policies derived from shoddy economics, and economics is a shoddy field to begin with. The austerity imposed on and in several countries and their economies after 2008, and the consequences it has had in these economies, cannot fail to make you wonder what level of intelligence the politicians have who did the imposing, as well as the economists who advised them in the process.

We should certainly not forget that the people who make these decisions are never the ones affected by them. Austerity hurts the poor. For those who are living comfortably -which includes politicians and economists that “matter”-, austerity at worst means eating and living somewhat less luxuriously. For the poor, taken far enough, it will mean not eating at all, not being able to afford clothing, medical care, even housing. Doing without 10% of very little hits much harder than missing out on 10% of an abundance.

And even then there are differences, for instance between countries. The damage done to British housing, education and health care by successive headless chicken governments is very real, and it will require a huge effort to restore these systems, if that is possible at all. Still, if the British have any complaints about the austerity unleashed upon them, they should really take a look at Greece. As this graph of households having a hard time making ends meet makes painfully clear:



Britain ‘only’ suffers from economically illiterate politicians and economists. Greece, on top of that, has to cope with a currency it has no control over, and with the foreign -dare we say ‘occupying’?- powers that do. A currency that is geared exclusively to the benefit of the richer Eurozone nations. The biggest mistake in building the EU, and the Eurozone in particular, is that the possibility has been left open for the larger and richer nations to reign over the smaller and poorer almost limitlessly. These things only become clear when things get worse, but then they really do.

This ‘biggest mistake’ predicted the end of the ‘union’ from the very moment it was established; all it will take is time, and comprehension. Eurozone rules say a country’s public debt cannot exceed 60% and its deficit must remain less than 3%. Rules that have been broken left right and center, including by the rich, Germany, France, who were never punished for doing so. The poor are.

These limits are completely arbitrary. They come from the text books of the same clueless cabal of economists that the entire Euro façade is based on. The same cabal also who now demand a 3.5% Greek budget surplus into infinity, the worst thing that can happen to an already impoverished economy, because it means even more money must flow out of an entity that already has none.

But let’s narrow our focus to austerity itself, and what makes it such a disaster. And then after that, we’ll take it a step further. We can blame economists for this mess, and hapless politicians, but that’s not the whole story; in the end they’re just messenger boys and girls. First though, here’s what austerity does. Let’s start with Ed Harrison talking about some revealing data that Matt Klein posted on FT Alphaville about comparing post-2008 Greece to emerging economies:

Europe’s Delusional Economic Policies

Here’s how Matt put it: “Greece had a very different post-crisis experience: it never recovered. By contrast, all the other countries were well past their pre-crisis peak after this much time had elapsed. On average, Argentina, Brazil, Indonesia, Thailand, and Turkey have outperformed Greece by more than 40 percentage points after nine years.”

.. unlike those countries, Greece lacked the ability to use the exchange rate as a shock absorber. So while Brazil and Greece faced the same type of downturn in dollar terms – about 45% in GDP per person – Brazilian living standards only deteriorated about 2%, compared to 26% in Greece. The net effect is that Greece had a relatively typical crisis in dollars but an unprecedently painful one in the terms that matter most”.

[..] Greece doesn’t have its own currency so the currency can’t depreciate. Greece must use the internal devaluation route, which makes its labor, goods and services cheaper through a deflationary path – and that is very destructive to demand, to growth, and to credit.

[..] it’s not about reforms, people. It’s about growth. And the euro – and the policies tied to membership – is anti-growth, particularly for a country like Greece that is forced to hit an unrealistic 3.5% primary surplus indefinitely.


Another good report came from the WaPo at about the same time Ed wrote his piece, some 4 weeks ago. After Matt Klein showing how hard austerity hit Greece compared to emerging economies, Matt O’Brien shows us how austerity hit multiple Eurozone countries, compared to what would have happened if they had not cut spending (or introduced the euro). It is damning.

Austerity Was A Bigger Disaster Than We Thought

Cutting spending, you see, shouldn’t be a problem as long as you can cut interest rates too. That’s because lower borrowing costs can stimulate the economy just as much as lower government spending slows it down. What happens, though, if interest rates are already zero, or, even worse, you’re part of a currency union that means you can’t devalue your way out of trouble? Well, nothing good.

House, Tesar and Proebsting calculated how much each European economy grew — or, more to the point, shrank — between the time they started cutting their budgets in 2010 and the end of 2014, and then compared it with what actually realistic models say would have happened if they hadn’t done austerity or adopted the euro.

According to this, the hardest-hit countries of Greece, Ireland, Italy, Portugal and Spain would have contracted by only 1% instead of the 18% they did if they hadn’t slashed spending; by only 7% if they’d kept their drachmas, pounds, liras, escudos, pesetas and the ability to devalue that went along with them if they hadn’t become a part of the common currency and outsourced those decisions to Frankfurt; and only would have seen their debt-to-GDP ratios rise by eight percentage points instead of the 16 they did if they hadn’t tried to get their budgets closer to being balanced.

In short, austerity hurt what it was supposed to help, and helped hurt the economy even more than a once-in-three-generations crisis already had.

[..] the euro really has been a doomsday device for turning recessions into depressions. It’s not just that it caused the crisis by keeping money too loose for Greece and the rest of them during the boom and too tight for them during the bust. It’s also that it forced a lot of this austerity on them. Think about it like this. Countries that can print their own money never have to default on their debts – they can always inflate them away instead – but ones that can’t, because, say, they share a common currency, might have to.

Just the possibility of that, though, can be enough to make it a reality. If markets are worried that you might not be able to pay back your debts, they’ll make you pay a higher interest rate on them – which might make it so that you really can’t.

In other words, the euro can cause a self-fulfilling prophecy where countries can’t afford to spend any more even though spending any less will only make everything worse.

That’s actually a pretty good description of what happened until the ECB belatedly announced that it would do “whatever it takes” to put an end to this in 2012. Which was enough to get investors to stop pushing austerity, but, alas, not politicians. It’s a good reminder that you should never doubt that a small group of committed ideologues can destroy the economy. Indeed, it’s the only thing that ever has.



So those are the outcomes, But what’s the theory, where does the “small group of committed ideologues” go so wrong? Let’s go really basic and simple. Last week, Britsh economist Ann Pettifor, promoting her new book “The Production of Money: How to Break the Power of Bankers”, said this to Vogue:

Politicians who advocate for austerity measures—cutting spending—like to say that the government ought to run its budget the way women manage our households, but unlike us, the government issues currency and sets interest rates and so on, and the government collects taxes. And if the government is managing the economy well, it ought to be expanding the numbers of people who are employed and therefore paying income tax and tax on purchases—purchases that turn a profit for businesses which then hire more employees, and on and on it goes. That’s called the multiplier effect, and for 100 years or so, it’s been well understood. And it’s why governments should invest not in tax breaks for wealthy people, but in initiatives like building infrastructure.

Around the same time, Ann wrote in the Guardian:

[..] the public are told that cuts in spending and in some benefits, combined with rises in income from taxes will – just as with a household – balance the budget. Even though a single household’s budget is a) minuscule compared to that of a government; b) does not, like the government’s, impact on the wider economy; c) does not benefit from tax revenues (now, or in the foreseeable future); and d) is not backed by a powerful central bank. Despite all these obvious differences, government budgets are deemed analogous (by economists and politicians) to a household budget.

[..] If the economy slumps (as in 2008-9) and the private sector weakens, then like a see-saw the public sector deficit, and then the debt, rises. When private economic activity revives (thanks to increased investment, employment, sales etc) tax revenues rise, unemployment benefits fall, and the government deficit and debt follow the same downward trajectory. So, to balance the government’s budget, efforts must be made to revive Britain’s economy, including the indebted private sector.

In other words, when faced with economic hard times, a government should not cut spending, it should increase it -and it can-. Because cutting spending is sure to make things worse. At the same time of course, this is not an option available to Greece, because it has ceded control of its currency, and therefore its economy, to a largely unaccountable and faceless cabal that couldn’t care less what happens in the country.

All they care about is that the debts the banks in the rich part of the eurozone incurred can be moved onto someone else’s shoulders. Which is where -most of- Greece’s crisis came from to begin with. And so, yes, Germany and Holland and France are sitting sort of pretty, because they prevented a banking crisis from happening at home; they transferred it to Greece’s pensioners and unemployed youth. The ‘model’ of the Eurozone allows them to do this. Coincidence? Bug or feature?



Oh, and it’s not only Greece, though it’s by far the hardest hit. Read Roberto Centeno in the Express below. Reminds me of Greeks friends saying: “In 2010, we were told we had €160 billion or so in debt, and we needed a bailout. Now we have over €600 billion in debt, they say. How is that possible? What happened? What was that bailout for?”

‘Spain Is Ruined For 50 Years’

A leading Spanish economist has hit out at the ECB saying “crazy” loans will ruin the lives of the population for the next 50 years. And it is only a matter of time before the Government is forced to default as a debt bubble and low wages effectively forge the worst declines in “living memory”. Leading economist Roberto Centeno, who was an advisor to US president Donald Trump’s election team on hispanic issues, says the country has borrowed €603 billion that it cannot conceivably pay back. And he says Spanish politicians including Minister of Economy Luis de Guindos are “insulting their intelligence” after doing back door deals with the ECB. In a blog post Mr Centeno says there needs to be audits so the country can understand the magnitude of its debt mountain.

He said Spain was “moving steadily towards the suspension of payments which is the result of out of control public waste, financed with the largest debt bubble in our history, supported by the ECB with its crazy policy of zero interest rate expansion and without any supervision.” The expert added the doomed situation will “lead to the ruin of several generations of Spaniards over the next 50 years”. [..] He said the country is currently suffering from a “third world production model”. He added: “We have a third world production model of speculators and waiters, with a labour market where the majority of jobs created are temporary and with remunerations of €600, the largest wage decline in living memory. “And all this was completed with a broken pension system and an insolvent financial system.”

Forecasting an unprecedented shock to the European financial model, Mr Centento is calling for an immediate audit despite a recent revelation that the ECB is failing in its supervisory role over Europe’s banks. He also claimed the Spanish government and European Union leaders have been manipulating figures since 2008. Mr Centento said: “We will require the European Commission and Eurostat to audit and audit the Spanish accounting system for serious accounting discrepancies that may jeopardise stability. “The gigantic debt bubble accumulated by irresponsible governments, and that never ceases to grow, will be the ruin of several generations of Spaniards. “The Bank of Spain’s debt to the Eurosystem is the largest in Europe. “The day that the ECB minimally closes the tap of this type of financing or markets increase their risk aversion, the situation will be unsustainable.”



But then it’s time to move on, courtesy of Michael Hudson, prominent economist, who should be a guest of honor, at the very least, at every Eurogroup meeting. You know, to give Dijsselbloem and Schäuble a reality check. Michael shines a whole different additional light on European austerity policies. This is from an interview with Sharmini Peries:

Finance as Warfare: IMF Lent to Greece Knowing It Could Never Pay Back Debt

MICHAEL HUDSON: You said the lenders expect Greece to grow. That is not so. There is no way in which the lenders expected Greece to grow. In fact, the IMF was the main lender. It said that Greece cannot grow, under the circumstances that it has now. What do you do in a case where you make a loan to a country, and the entire staff says that there is no way this country can repay the loan? That is what the IMF staff said in 2015.

It made the loan anyway – not to Greece, but to pay French banks, German banks and a few other bondholders – not a penny actually went to Greece. The junk economics they used claimed to have a program to make sure the IMF would help manage the Greek economy to enable it to repay. Unfortunately, their secret ingredient was austerity.

[..] for the last 50 years, every austerity program that the IMF has made has shrunk the victim economy. No austerity program has ever helped an economy grow. No budget surplus has ever helped an economy grow, because a budget surplus sucks money out of the economy.

As for the conditionalities, the so-called reforms, they are an Orwellian term for anti-reform, for cutting back pensions and rolling back the progress that the labor movement has made in the last half century. So, the lenders knew very well that Greece would not grow, and that it would shrink.


So, the question is, why does this junk economics continue, decade after decade? The reason is that the loans are made to Greece precisely because Greece couldn’t pay. When a country can’t pay, the rules at the IMF and EU and the German bankers behind it say, don’t worry, we will simply insist that you sell off your public domain. Sell off your land, your transportation, your ports, your electric utilities.

[..] If Greece continues to repay the loan, if it does not withdraw from the euro, then it is going to be in a permanent depression, as far as the eye can see. Greece is suffering the result of these bad loans. It is already in a longer depression today, a deeper depression, than it was in the 1930s.

[..] when Greece fails, that’s a success for the foreign investors that want to buy the Greek railroads. They want to take over the ports. They want to take over the land. They want the tourist sites. But most of all, they want to set an example of Greece, to show that France, the Netherlands or other countries that may think of withdrawing from the euro – withdraw and decide they would rather grow than be impoverished – that the IMF and EU will do to them just what they’re doing to Greece.

So they’re making an example of Greece. They’re going to show that finance rules, and in fact that is why both Trump and Ted Malloch have come up in support of the separatist movement in France. They’re supporting Marine Le Pen, just as Putin is supporting Marine Le Pen. There’s a perception throughout the world that finance really is a mode of warfare.

Sharmini Peries: Greece has now said, no more austerity measures. We’re not going to agree to them. So, this is going to amount to an impasse that is not going to be resolvable. Should Greece exit the euro?

MICHAEL HUDSON: Yes, it should, but the question is how should it do it, and on what terms? The problem is not only leaving the euro. The problem really is the foreign debt that was bad debt that it was loaded onto by the Eurozone. If you leave the euro and still pay the foreign debt, then you’re still in a permanent depression from which you can never exit. There’s a broad moral principle here: If you lend money to a country that your statistics show cannot pay the debt, is there really a moral obligation to pay the debt? Greece did have a commission two years ago saying that this debt is odious. But it’s not enough just to say there’s an odious debt. You have to have something more positive.

[..] what is needed is a Declaration of Rights. Just as the Westphalia rules in 1648, a Universal Declaration that countries should not be attacked in war, that countries should not be overthrown by other countries. I think, the Declaration of International Law has to realize that no country should be obliged to impose poverty on its population, and sell off the public domain in order to pay its foreign creditors.

[..] the looming problem is that you have to pay debts that are so far beyond your ability to pay that you’ll end up like Haiti did after it rebelled after the French Revolution.

[..] A few years after that, in 1824, Greece had a revolution and found the same problem. It borrowed from the Ricardo brothers, the brothers of David Ricardo, the economist and lobbyist for the bankers in London. Just like the IMF, he said that any country can afford to repay its debts, because of automatic stabilization. Ricardo came out with a junk economics theory that is still held by the IMF and the European Union today, saying that indebted countries can automatically pay.

Well, Greece ended up taking on an enormous debt, paying interest but still defaulting again and again. Each time it had to give up more sovereignty. The result was basically a constant depression. Slow growth is what retarded Greece and much of the rest of southern Europe. So unless they tackle the debt problem, membership in the Eurozone or the European Union is really secondary.

There is no such question as “why did austerity fail ‘in a particular case'”?. Austerity always fails. You could perhaps come up with a theoretical example in which a society greatly overspends and toning down spending might balance some things, but other than that, and nothing in what we see today resembles such an example, austerity can only work out badly. And that’s before, as Michael Hudson suggests, austerity is used as a means to conquer people and countries in a financial warfare setting.

This is because our economies (as measured in GDP) are 60-70% dependent on consumer spending. Ergo, when you force consumer spending down through austerity measures, GDP must and will of necessity come down with it. And if you cut spending, stores will close, and then their suppliers will, and they will fire their workers, which will further cut consumer spending etc. It doesn’t get simpler than that.

There is a lot of talk about boosting exports etc., but exports make up only a relatively small part of most economies, even in the US, compared to domestic consumption. As still is the case in virtually every economy, more exports will never make up for what you lose by severely cutting wages and pensions while at the same time raising taxes across the board (Greek reality). The only possible result from this is misery and lower government revenues, in a vicious circle, dragging an economy ever further down.

Since this is so obvious a 5-year old can figure it out in 5 minutes, the reason for imposing the kind of austerity measures that the Eurogroup has unleashed upon Greece must inevitably be questioned in the way professor Hudson does. If someone owes you a substantial amount of money, the last thing you want to do is make sure they cannot pay it back. You want such a person to have a -good- job, a source of income, that pays enough so that they can pay you back. Unless you have your eyes on their home, their car, their daughters, their assets.

What the EU and IMF do with Greece is the exact opposite of that. They’re making sure that Greece gets poorer every day, and the Greeks get poorer, ensuring that the debt, whether it’s odious or not -and that is a very valid question-, will never be paid back. And then they can move in and snap up all of the country’s -rich- resources on the cheap. But in the process, they create a very unstable country, something that may seem to be to their benefit but will blow up in their faces.

It’s not the first time that I say the EU and the US would be well advised to ensure Greece is a stable society, but they all continue to forcibly lead the cradle of democracy in the exact opposite direction.

The best metaphor I can think of is: Austerity is like bloodletting in the Middle Ages, only with a lower success rate.



Feb 282017
 February 28, 2017  Posted by at 10:29 am Finance Tagged with: , , , , , , , ,  Comments Off on Debt Rattle February 28 2017

Ben Shahn L.F. Kitts general store in Maynardville, Tennessee 1935


A Hole in the Head (Jim Kunstler)
Trump’s Fed Can Start a Central Bank Revolution (BBG)
Trump Puts Final Touches on Speech Focusing on Economy, Defense (BBG)
Number Of Distressed US Retailers At Highest Level Since Great Recession (MW)
The Housing Crisis (Renegade)
China’s Continuing Credit Boom (NYFed)
ADB Says Emerging Asia Infrastructure Needs $26 Trillion by 2030 (BBG)
Greece Said to Expect Revised Bailout Proposal for Tuesday Talks
French Court Probes Leave Le Pen Unscathed as Fillon Bid Falters (BBG)
Shell 1991 Film Warned Of Climate Change Danger (G.)
Britain’s Child Migrant Program: Why 130,000 Children Were Shipped Abroad (G.)
Slavery Claims As UK Child Sex Abuse Inquiry Opens (AFP)



Theory vs practice is a worthy discussion….

A Hole in the Head (Jim Kunstler)

We need a new civil war like we need a hole in the head. But that’s just it: America has a hole in its head. It’s the place formerly known as The Center. It didn’t hold. It was the place where people of differing views could rely on each other to behave reasonably around a touchstone called the National Interest. That abandoned place is now cordoned off, a Chernobyl of the mind, where figures on each side of the political margin fear to even sojourn, let alone occupy, lest they go radioactive. Anyway, the old parties at each side of the political transect, are melting down in equivalent fugues of delusion, rage, and impotence — as predicted here through the election year of 2016. They can’t make anything good happen in the National Interest.

They can’t control the runaway rackets that they engineered in legislation, policy, and practice under the dominion of each party, by turns, going back to Lyndon B. Johnson, and so they have driven themselves and each other insane. Trump and Hillary perfectly embodied the climactic stage of each party before their final mutual sprint to collapse. Both had more than a tinge of the psychopath. Trump is the bluff that the Republicans called on themselves, having jettisoned anything identifiable as coherent principles translatable to useful action. Hillary was an American Lady Macbeth attempting to pull off the ultimate inside job by any means necessary, her wickedness so plain to see that even the voters picked up on it. These two are the old parties’ revenge on each other, and on themselves, for decades of bad choices and bad faith.

[..] Something like this has happened before in US history and it may be cyclical. The former Princeton University professor and President, Woodrow Wilson, dragged America into the First World War, which killed over 53,000 Americans (as many as Vietnam) in only eighteen months. He promulgated the Red Scare, a bit of hysteria not unlike the Race and Gender Phobia Accusation Fest on the Left today. Professor Wilson was also responsible for creating the Federal Reserve and all the mischief it has entailed, especially the loss of over 90% of the dollar’s value since 1913. Wilson, the perfect IYI of that day.

The reaction to Wilson was Warren Gamaliel Harding, the hard-drinking, card-playing Ohio Main Street boob picked in the notorious “smoke-filled room” of the 1920 GOP convention. He invoked a return to “normalcy,” which was not even a word (try normality), and was laughed at as we now laugh at Trump for his idiotic utterances such as “win bigly” (or is that big league?). Harding is also known for confessing in a letter: “I am not fit for this office and should never have been here.” Yet, in his brief term (died in office, 1923), Harding navigated the country successfully through a fierce post-World War One depression simply by not resorting to government intervention.

Read more …

… also when it comes to the Fed.

Trump’s Fed Can Start a Central Bank Revolution (BBG)

President Donald Trump will select three members of the Federal Reserve board during his term in office, including a replacement chair for Janet Yellen when her appointment expires early next year. He should seize the chance to refresh the Fed with faces from the business community, adding executives to the roster of PhD economists who currently run monetary policy in most of the world. The Fed appointments come at a key juncture in U.S. economic policy, one that makes business knowhow an even more valuable commodity for a rate-setter than usual. Trump’s fiscal policies will set a new backdrop for the monetary policy environment, given his intention to cut personal and business tax rates and boost investment in the nation’s infrastructure.

So appointing executives to the Fed who’ve had to take fiscal and monetary policy into account when making decisions on where and when to build new factories or make other capital expenditure decisions makes sense. Torsten Slok, the chief international economist for Deutsche Bank, sent around a chart last week showing how the composition of the Fed has become increasingly focused on PhD economists: It’s little wonder that in this populist age central bank independence is under attack. As Bloomberg News reported on Monday, the rise of populism is putting pressure on central banks as “institutions stuffed with unelected technocrats wielding the power to affect the economic fate of millions.” Leavening the boards of policy makers with executives who’ve made hiring and firing decisions and have helped build companies would be a way to address the perception that decisions about borrowing costs are made in ivory towers by economists who’ve all read the same textbooks but don’t inhabit the same world as the people they’re supposed to serve.

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Entertainment 2017-style.

Trump Puts Final Touches on Speech Focusing on Economy, Defense (BBG)

President Donald Trump was still working Monday evening on the final touches of an address to Congress that will focus on economic opportunity and national security, administration officials said. The officials, who briefed reporters on the eve of the address on the condition of anonymity, said the speech will offer a vision of where Trump wants to take the country as well as an early accounting of campaign promises he has already delivered on through executive actions such as the U.S. withdrawal from the Trans-Pacific Partnership trade agreement. They declined to say whether the president would offer more concrete proposals on major goals, such as rebuilding U.S. infrastructure, rewriting the tax code and replacing the Obamacare health plan.

Trump’s speech comes as the new president tries to stabilize his administration after a turbulent start marked by struggles implementing an initial flurry of executive orders and a controversy over contacts between Trump advisers and Russian officials that led to the resignation of his national security adviser. While Trump’s inauguration speech offered a gloomy portrait of an America racked by violence and economic decay, White House press secretary Sean Spicer said earlier Monday that the address to Congress will strive for an optimistic vision focused on “the renewal of the American spirit.”

Surveys show a deep partisan divide over the president’s performance. A Wall Street Journal/NBC News poll released Monday showed Trump’s approval rating at 44% – a record low for a new president. But 85% of Republicans see Trump favorably, versus just 9% of Democrats. National security was the key theme of an early glimpse of the budget the White House offered on Monday. Administration officials said the president’s first budget would seek to boost defense spending by $54 billion – offset by an equivalent cut from other discretionary spending.

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How to kill a city part 827.

Number Of Distressed US Retailers At Highest Level Since Great Recession (MW)

The number of U.S. retailers ranked at the most-distressed level of the credit-rating spectrum has more than tripled since the Great Recession of 2008-2009 and is heading toward record levels in the next five years, Moody’s Investors Service said Monday. The rating agency is the latest to weigh in on the state of the sector, and has 19 names in its retail and apparel portfolio, 14% of which are now trading at Caa/Ca. That’s deep into speculative, or “junk,” territory. It’s also a percentage close to the 16% considered distressed during the 2008/2009 period, said a Moody’s report led by retail analyst Charles O’Shea. The rise is part of a wider trend affecting sectors across Moody’s coverage that has retail replacing oil and gas as the most-troubled industry.

Retailers are in the midst of a secular shift to online sales led by juggernaut and that’s forcing many of them to spend heavily on their e-commerce operations. At the same time, mall traffic has slowed dramatically as consumer behavior changes, forcing many to discount heavily, hurting profit margins. The 19 issuers on Moody’s list have more than $3.7 billion of debt maturing in the next five years, with about 30% of that total coming due by the end of 2018. The number is even higher when private credit is included. “While credit markets continue to provide ready access for companies spanning the rating spectrum—allowing many to proactively refinance debt and bolster balance sheets—that could change abruptly if market conditions or investor sentiment shift,” said O’Shea.

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How to kill a city part 828.

The Housing Crisis (Renegade)

Why is UK housing now so out of reach for so many people? Yes, property has been a safe bet, but we ask what are the economic risks and the social side effects of ever-increasing house prices? Host Ross Ashcroft is joined by Dr Rebecca Ross and economist Professor Steve Keen.

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These numbers are beyond fantasy.

China’s Continuing Credit Boom (NYFed)

Debt in China has increased dramatically in recent years, accounting for roughly one-half of all new credit created globally since 2005. The country’s share of total global credit is nearly 25%, up from 5% ten years ago. By some measures (as documented below), China’s credit boom has reached the point where countries typically encounter financial stress, which could spill over to international markets given the size of the Chinese economy. To better understand the associated risks, it is important to examine the drivers of China’s expansion in credit, the increasing complexity of its financial system, and evidence that its supply of credit may be growing more rapidly than reported. Note, however, that there are several features of China’s financial system that reduce the threat of a financial disruption.

Nonfinancial debt in China has increased from roughly $3 trillion at the end of 2005 to nearly $22 trillion, while banking system assets have increased sixfold over the same period to over 300% of GDP. In 2016 alone, credit outstanding increased by more than $3 trillion, with the pace of growth still roughly twice that of nominal GDP. As a result, the “credit-to-GDP gap”—the difference between the debt-to-GDP ratio and its long-run trend—has reached almost 30 percentage points. The international experience suggests that such a rapid buildup is often followed by stress in domestic banking systems. Roughly one-third of boom cases end up in financial crises and another third precede extended periods of below-trend economic growth.

As seen in the chart below, rising nonfinancial sector debt was driven initially by a surge in corporate borrowing in response to the global financial crisis. This additional debt was comprised mostly of medium- and long-term corporate loans related to infrastructure and property projects.

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Better start printing then.

ADB Says Emerging Asia Infrastructure Needs $26 Trillion by 2030 (BBG)

Asia’s infrastructure race is just getting started. Emerging economies across the region will need to invest as much as $26 trillion on building everything from transport networks to clean water through 2030 to maintain growth, eradicate poverty and offset climate change. That’s according to an Asian Development Bank report released Tuesday that highlights the need for massive construction and upgrading of public works and for much greater private sector investment. Leaving out spending to mitigate climate change, some $22.6 trillion will still be needed over the same period, the ADB said. Big-ticket investment of $14.7 trillion is needed for power, $8.4 trillion for transport, $2.3 trillion for telecommunication costs and $800 billion for water and sanitation, adjusted for climate change.

The bulk of infrastructure work is needed in East Asia, which accounts for 61% of the ADB estimate. As a percentage of GDP, the Pacific leads all other sub regions needing investment valued at 9.1% of GDP, followed by South Asia at 8.8%. The new projection of a $1.7 trillion annual infrastructure need, adjusted for climate change, is more than double the $750 billion that the Manila-based development bank estimated in 2009–though the latest report looks at 45 of the ADB’s developing members compared with 32 last time and uses 2015 prices compared to 2008 ones.

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Hard to see how this sadistic play can survive the various elections.

Greece Said to Expect Revised Bailout Proposal for Tuesday Talks

Greece’s auditors are pulling together a list of policies the country needs to implement to unlock additional bailout funds as they prepare for the resumption of talks with Athens on Tuesday, two people familiar with the matter said. Greece has asked European lenders for a draft Supplemental Memorandum of Understanding and the IMF for a Memorandum of Economic and Financial Policies as it braces for details of creditor demands, the people said, declining to be identified as negotiations between the two sides aren’t public. The government expects an accord in March or early April, but the scale of pending issues raises concerns they may be politically hard to sell at home, they said.

Greek Prime Minister Alexis Tsipras’s government last Monday agreed to legislate structural reforms demanded by the IMF that will lower the threshold of tax-free income and amend the pension system by 2019, effectively crossing what it had once characterized as a red line. The government says the deal won’t increase austerity since the new legislation will include stimulus measures in addition to belt-tightening reforms. Tsipras told lawmakers on Friday that the bailout review can be completed by March 20 when euro–area finance ministers are set to meet in Brussels. It could drag on to the next Eurogroup meeting on April 7th given the number of outstanding issues that need to be resolved, the people said. Greece is looking for a “global deal” by May that would also include potential decisions on medium-term debt-relief measures and the inclusion of Greek bonds in the ECB’s debt-purchase program.

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Because Fillon is the establishment.

French Court Probes Leave Le Pen Unscathed as Fillon Bid Falters (BBG)

Prosecutors’ interventions in the French election have so far done more damage to the establishment’s one-time champion than the nationalist firebrand vowing to overthrow the system. The Republican Francois Fillon and National Front leader Marine Le Pen both say the criminal probes they face are political plots against them, but it’s only Fillon, a church-going 62-year-old former prime minister, who has been set back by the allegations. Le Pen’s suspected misuse of her allowance from the European Parliament hasn’t hurt her at all. “The National Fronts is seen as persecuted by the system so their supporters think that if everyone else has gotten rich of the system, it’s good for them to get some of that money back,” said Jean-Yves Camus, a political scientist linked to the Jean Jaures research institute.

“Fillon tried to use the conspiracy angle but it doesn’t work because he’s from the system.” On Tuesday, a committee of lawmakers in Brussels will consider a request from the French courts to strip Le Pen of her parliamentary immunity over two separate cases of defamation and publishing violent images of Islamic State killings on Twitter. The committee is due to release its recommendations to the EU parliament next week, and the full chamber will vote on the issue later in March. Le Pen is battling a range of mainstream politicians asking for one more chance to address voters’ concerns about lackluster economic growth and the perceived threat of immigration and terrorism. Instead, she’s offering voters a chance to upend the status quo by putting up border controls, stopping mass immigration and pulling out of the euro.

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This is a surprise to anyone?

Shell 1991 Film Warned Of Climate Change Danger (G.)

The oil giant Shell issued a stark warning of the catastrophic risks of climate change more than a quarter of century ago in a prescient 1991 film that has been rediscovered. However, since then the company has invested heavily in highly polluting oil reserves and helped lobby against climate action, leading to accusations that Shell knew the grave risks of global warming but did not act accordingly. Shell’s 28-minute film, called Climate of Concern, was made for public viewing, particularly in schools and universities. It warned of extreme weather, floods, famines and climate refugees as fossil fuel burning warmed the world. The serious warning was “endorsed by a uniquely broad consensus of scientists in their report to the United Nations at the end of 1990”, the film noted.

“If the weather machine were to be wound up to such new levels of energy, no country would remain unaffected,” it says. “Global warming is not yet certain, but many think that to wait for final proof would be irresponsible. Action now is seen as the only safe insurance.” A separate 1986 report, marked “confidential” and also seen by the Guardian, notes the large uncertainties in climate science at the time but nonetheless states: “The changes may be the greatest in recorded history.” The predictions in the 1991 film for temperature and sea level rises and their impacts were remarkably accurate, according to scientists, and Shell was one of the first major oil companies to accept the reality and dangers of climate change.

But, despite this early and clear-eyed view of the risks of global warming, Shell invested many billions of dollars in highly polluting tar sand operations and on exploration in the Arctic. It also cited fracking as a “future opportunity” in 2016, despite its own 1998 data showing exploitation of unconventional oil and gas was incompatible with climate goals.

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What nation kicks out its own children…

Britain’s Child Migrant Program: Why 130,000 Children Were Shipped Abroad (G.)

More than 130,000 children were sent to a “better life” in former colonies, mainly Australia and Canada, from the 1920s to 1970s under the child migrant programme. The children, aged between three and 14, were almost invariably from deprived backgrounds and already in some form of social or charitable care. It was believed, they would lead happier lives. Charities such as Barnardo’s and the Fairbridge Society, the Anglican and Catholic churches and local authorities helped with the organisation of the emigration. Once there, the children were often told they were orphans to better facilitate their fresh start. The parents – many of them single mothers forced to give up their child for adoption because of poverty or social stigma – believed this was giving them best chance in life, though often did not have details of where their offspring were sent to.

The reality, for some of those children, was a childhood of servitude and hard labour at foster homes: on remote farms, at state-run orphanages and church-run institutions. They were often separated from siblings. Some were subjected to physical and sexual abuse. In 2010, the then prime minister, Gordon Brown, issued an official apology, expressing regret for the “misguided” programme, and telling the Commons: “To all those former child migrants and their families … we are truly sorry. They were let down. “We are sorry they were allowed to be sent away at the time when they were most vulnerable. We are sorry that instead of caring for them, this country turned its back”. He announced a £6m fund to reunite families that had been torn apart. The last children sailed in 1967. But it is only recently, as their stories have been told, that details of the abuse, and the official sanction which made it possible, has become public.

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…only to have them enslaved and abused.

Slavery Claims As UK Child Sex Abuse Inquiry Opens (AFP)

England’s mammoth inquiry into historical child sex abuse was told of the “torture, rape and slavery” suffered by child migrants shipped to Australia, at its first public hearings on Monday. The wide-ranging Independent Inquiry into Child Sexual Abuse opened by looking at the schemes that sent thousands of vulnerable children to far-flung parts of the Commonwealth in the decades after World War II. David Hill broke down as he told the inquiry of the “endemic” sexual abuse at the school he was sent to in Australia. “I hope this inquiry can promote an understanding of the long-term consequences and suffering of those who were sexually abused,” he said. “Many never recover and are permanently afflicted with guilt, shame, diminished self-confidence, low self-esteem, fear and trauma.”

British Prime Minister Theresa May set up the inquiry in 2014 when she was interior minister. The British Empire sent some 150,000 children abroad over 350 years, according to a 1998 parliamentary study, although the probe started Monday by looking at use of the practice after World War II. It was justified as a means of slashing the costs of caring for lone children and providing disadvantaged young people with a fresh start, while meeting labour shortages in the Commonwealth and populating colonial-era lands with white British settlers. Between 1945 and 1970, youngsters were sent mainly to Australia, but also Canada, New Zealand and what is now Zimbabwe — often without the consent of their families.

But the promise of a good upbringing and an exciting new life in the sun was often, in reality, a world of forced labour, brutal treatment and sexual assault in remote institutions run by churches and charities. “They sent us to a place that was a living hell,” victim Clifford Walsh told the BBC. Oliver Cosgrove was sent to Australia in 1941, one of an estimated 5,000 to 6,000 children shipped there from 1922 to 1967. “Those who were abused tried in vain to tell others, who they hoped and believed might assist them. But they didn’t,” his representative told the inquiry. “This was a systematic and institutional problem.”

Read more …

Feb 232017
 February 23, 2017  Posted by at 9:53 am Finance Tagged with: , , , , , , , , , ,  5 Responses »

Jack Delano Colored drivers entrance, U.S. 1, NY Avenue, Washington, DC 1940


The Absolute Dominance Of The US Economy, In One Chart (MW)
Trump Scorns the IMF’s Globalism, and Now He Gets to Vote on It
The Problem with Gold-Backed Currencies (CHS)
What’s So Great About Europe? (BBG)
Italy Warned by EU Over High Public Debt With Spillover Risk (BBG)
‘Spain Is Ruined For 50 Years’ (Exp.)
Why Greece’s Crisis Has Broken All Previous Records (K.)
Millions In UK Are Just One Unpaid Bill Away From The Abyss (G.)
Oz Reserve Bank Interest Rate Moves Limited By High Debt, House Prices (AbcAu)
Exxon Wiped A Whopping 19.3% Of Its Oil Reserves Off Its Books In 2016 (Q.)
Turkish Provocations Test Greek Resolve (K.)
Greece Okays Asylum Requests Of 10,000 Refugees (K.)



Not sure that’s what I get from the graph.

The Absolute Dominance Of The US Economy, In One Chart (MW)

Despite the bleak picture painted by President Donald Trump of the U.S. as a country in disarray, America’s status as an economic superpower is still very much intact, even as China steadily closes the gap. The U.S. economy, as measured by GDP, is by far the largest in the world at $18.04 trillion. China, the closest thing the U.S. has for a competitor, is No. 2 with a GDP of $11 trillion, while Japan is a distant third with $4.38 trillion. As the chart by illustrates, the U.S. accounts for about a quarter of the global economy, nearly 10 percentage points more than China’s 14.84%. Put another way, the U.S. economy is roughly equivalent to the combined GDPs of the eight next-biggest countries after China — Japan, Germany, the U.K., France, India, Italy, Brazil and Canada.

However, the narrative shifts when countries are grouped by geography, with Asia clearly in the lead. The region, denoted in yellow in the chart, contributed 33.84% to the global GDP. “Asia’s economic center of gravity is in the east, with China, Japan and South Korea together generating almost as much GDP as the U.S.,” said Raul Amoros at North America follows Asia at 27.95%, and Europe trails at 21.37%. The three blocs combined represent about 83% of the world’s economic activity. The chart also highlights the chasm between wealthy and poor countries. South America’s four largest economies — Brazil, Argentina, Venezuela and Colombia — only add up to 4% of the global GDP, while Africa’s three biggest — South Africa, Egypt and Nigeria — account for around 1.5%.

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I picked the last bit of the article.

Trump Scorns the IMF’s Globalism, and Now He Gets to Vote on It

The IMF has already survived one major mission-change. It’s known today as the lender of last resort to countries facing balance-of-payments crises. But in its first three decades, the Fund managed the world’s currency order. That was the role assigned at Bretton Woods in 1944, when the IMF and World Bank were set up. Forty-five nations attended the summit, but two men dominated it: John Maynard Keynes and America’s Harry Dexter White. From the back of her car in Uganda, Lagarde calls them the “founding fathers.” Their goal was to avoid a repeat of the 1930s, when competitive devaluations and tariff wars led to the collapse of world trade. Keynes wanted the IMF to act as a central bank of central banks, denominating their accounts in a new global currency. It would let members devalue or borrow with relative ease. Both creditors and debtors would pay interest on their holdings, discouraging large trade surpluses as well as deficits.

White’s plan was more creditor-friendly, reflecting the U.S. position as world lender. There would be no new currency: IMF members would tie their money to the dollar. They couldn’t devalue without consulting the Fund, and were only supposed to borrow short-term to close balance-of-payments gaps. “The British wanted an automatic source of credit, the Americans a financial policeman,” wrote Keynes’s biographer Robert Skidelsky. The English economist was one of the 20th century’s sharpest thinkers, but it was the U.S. Treasury official who got his way. The system turned out to have a flaw: It depended on the supply of U.S. dollars backed by gold. That link came under pressure as America, financing social programs at home and war in Vietnam, slipped into persistent deficit. In 1971, President Richard Nixon took the dollar off the gold standard, ending phase one at the IMF.

Today there’s a patchwork of floating rates, pegs and currency unions like the euro. It’s not working to everyone’s satisfaction – notably Trump’s. His team has called out several countries, from China to Germany, for gaming the system. Money courses around that system on a scale that would have been unimaginable at Bretton Woods. Massive trade imbalances built up. The dollar remains central. The risks were laid bare in 2008, when a collapsed U.S. housing bubble led to world recession. Since then, some financial leaders – among them the governor of the People’s Bank of China, Zhou Xiaochuan, and his U.K. counterpart Mark Carney – have gently hinted that something more like Keynes’s plan might be in order, to reduce the world’s dollar dependency.

Lagarde doesn’t see that happening on her watch. “It didn’t happen in 1944, when the world had destroyed itself,” she said. “I’m not a dreamer.” She argues instead that what the IMF is doing today will remain useful tomorrow. Countries will always be getting in a financial mess. Someone has to clean it up. Ukraine needed money in 2015: without the IMF, “where would the $17.5 billion come from? Whose pocket would it be?”

Read more …

The curse of the reserve currency. And if you look a bit deeper, any gold-backed currency.

The Problem with Gold-Backed Currencies (CHS)

There is something intuitively appealing about the idea of a gold-backed currency –money backed by the tangible value of gold, i.e. “the gold standard.” Instead of intrinsically worthless paper money (fiat currency), gold-backed money would have real, enduring value–it would be “hard currency”, i.e. sound money, because it would be convertible to gold itself. Many proponents of sound money identify President Nixon’s ending of the U.S. dollar’s gold standard in 1971 as the cause of the nation’s financial decline. If our currency was still convertible to gold, the thinking goes, the system would never have allowed the vast pile of debt to accumulate. The problem with this line of thinking is that it is disconnected from the real-world mechanisms of capital flows and the way money is created in our financial system.

This article explains why Nixon took the USD off the gold standard: since the U.S. was running trade deficits, all of America’s gold would have been transferred to the exporting nations. America’s gold reserves would have disappeared, leaving nothing to back the dollar. The U.S. Empire Would Have Collapsed Decades Ago If It Didn’t Abandon The Gold Standard. The problem to sound-money proponents is trade deficits: if the U.S. only had trade surpluses, then the gold would not drain away. But Triffin’s Paradox explains why this doesn’t work for a reserve currency: a reserve currency has two distinct sets of users: domestic users and global users. Each has different needs, so there is a built-in conflict between the two sets of users.

Global users of the USD need enormous quantities of dollars to use as reserves, to pay debts denominated in USD and to facilitate international trade. The only way the issuing nation can provide enough currency to meet this global demand is to run large, permanent trade deficits–in effect, “exporting” dollars in exchange for goods and services. This is the paradox: to maintain the “exorbitant privilege” of a reserve currency, a nation must “export” its currency in size; a nation that runs trade surpluses cannot supply the world with enough of its currency to act as a reserve currency.

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That is one damning set of numbers.

What’s So Great About Europe? (BBG)

A woman said that maybe the problem with the European Union – or at least the common currency, the euro – was that it was too advantageous to Germany. “Because we have a common currency, we get an edge in exports,” she said. “I profit from this. Thanks!” “Do you think this is harming our neighbor countries?” Armbruster asked. “Yes, definitely,” she responded. “Germany was always a problem in Europe,” interjected Andre Wilkens, a Berlin-based policy wonk who was one of the evening’s featured speakers but mostly sat and listened. “The EU was formed to solve that problem.” Others got up to say that Europe needed more solidarity, with Germans leading the way. It needed more of a sense of community. More attention needed to be paid to the millions of jobless young people in Greece, Italy, Portugal and Spain.

Then things shifted to straight-out Euroenthusiasm. “To be totally honest, I think Europe is super,” said a woman sitting in the front row. Added a man a few rows back: “There are problems that we Germans alone can’t solve.” By working together with the rest of Europe, he went on, Germany had a better shot at fighting climate change and preventing war. It isn’t exactly news that a bunch of people gathered in a theater in downtown Stuttgart support the idea of Europe and even, for the most part, the reality of the European Union. The home of Daimler, Porsche and Robert Bosch is one of the continent’s great economic success stories – and its residents’ political views aren’t necessarily shared by other Germans. On the whole, Germans see the EU in a more positive light than the citizens of most other European countries (I’ve included the 10 most populous EU member countries in the chart below), but they’re still pretty negative about it.

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All Italy can do is pretend. And Brussels likes it that way.

Italy Warned by EU Over High Public Debt With Spillover Risk (BBG)

The European Commission warned that Italy faces excessive economic imbalances as the country’s shaky center-left government struggles to control public debt, boost sluggish growth and mend ailing banks. Troubles including soured bank loans risk spilling into other euro-area countries, the commission said on Wednesday. Italy’s public debt is projected to rise to 133.3% of gross domestic product this year from an estimated 132.8% in 2016. “High government debt and protracted weak productivity dynamics imply risks with cross-border relevance looking forward, in a context of high non-performing loans and unemployment,” the European Union’s executive arm in Brussels said in a set of annual policy recommendations to EU governments. Italy is struggling to maintain government stability amid infighting in the ruling Democratic Party, where some members are pushing for early elections.

The country also faces sluggish GDP growth of 0.9% this year and lingering issues at domestic banks, which are weighed down by €360 billion of bad loans that have eroded profitability, undermined investor confidence and curtailed new lending. “The stock of non-performing loans has only started to stabilize and still weighs on banks’ profits and lending policies, while capitalization needs may emerge in a context of difficult access to equity markets,” the commission said. In May it plans to recommend whether Italy should be subject to a stricter oversight regime – one with fines as a last resort – for failing to keep public debt on a trajectory toward the EU limit of 60% of GDP. The assessment will take into account final economic data for 2016 and Italian government pledges to adopt by the end of April budget-austerity measures worth 0.2% of GDP.

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“We have a third world production model of speculators and waiters, with a labour market where the majority of jobs created are temporary and with remunerations of €600, the largest wage decline in living memory..”

‘Spain Is Ruined For 50 Years’ (Exp.)

A leading Spanish economist has hit out at the ECB saying “crazy” loans will ruin the lives of the population for the next 50 years.And it is only a matter of time before the Government is forced to default as a debt bubble and low wages effectively forge the worst declines in “living memory”. Leading economist Roberto Centeno, who was an advisor to US president Donald Trump’s election team on hispanic issues, says the country has borrowed €603 billion that it cannot conceivably pay back. And he says Spanish politicians including Minister of Economy Luis de Guindos are “insulting their intelligence” after doing back door deals with the ECB. In a blog post Mr Centeno says there needs to be audits so the country can understand the magnitude of its debt mountain.

He said Spain was “moving steadily towards the suspension of payments which is the result of out of control public waste, financed with the largest debt bubble in our history, supported by the ECB with its crazy policy of zero interest rate expansion and without any supervision.” The expert added the doomed situation will “lead to the ruin of several generations of Spaniards over the next 50 years”. And that current Prime Minister Rajoy has employed 2500 special advisors in his central government as opposed to other leaders. He said: ”Our economic future requires drastic decisions to cut public waste, such as eliminating thousands of useless public companies, thousands of useless advisers, [Prime Minister Mariano] Rajoy has 2,500 in Moncloa, compared to Obama’s 600, Merkel’s 400 or the 250 working for Theresa May.

“There’s disastrous management of Health and Education, the cost of which has skyrocketed 60 per cent since they were transferred to the Autonomous Communities while the quality plummeted.” Mr Centento also said the Government and the European Union’s estimations of GDP are completely wrong and has presented them with figures he claims are accurate. He said the country is currently suffering from a “third world production model”. He added: “We have a third world production model of speculators and waiters, with a labour market where the majority of jobs created are temporary and with remunerations of €600, the largest wage decline in living memory, “And all this was completed with a broken pension system and an insolvent financial system.”

Forecasting an unprecedented shock to the European financial model, Mr Centento is calling for an immediate audit despite a recent revelation that the ECB is failing in its supervisory role over Europe’s banks. He also claimed the Spanish government and European Union leaders have been manipulating figures since 2008. Mr Centento said: “We will require the European Commission and Eurostat to audit and audit the Spanish accounting system for serious accounting discrepancies that may jeopardise stability. “The gigantic debt bubble accumulated by irresponsible governments, and that never ceases to grow, will be the ruin of several generations of Spaniards. “The Bank of Spain’s debt to the Eurosystem is the largest in Europe. “The day that the ECB minimally closes the tap of this type of financing or markets increase their risk aversion, the situation will be unsustainable.”

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A feature not a bug.

Why Greece’s Crisis Has Broken All Previous Records (K.)

How unique is the Greek crisis? Two charts tell the tragic tale. The first – from the International Monetary Fund’s recent Article IV report on Greece – compares four major economic crises that took place in the developed world in the last 100 years: the Great Depression in the United States, the Asian financial crisis of the late 1990s, the eurozone recession and Greece’s long collapse. Greece’s performance is by far the worse. The East Asian countries caught in the hurricane of 1997-8 returned to pre-crisis real GDP within three years. The eurozone needed six years, and today its real GDP is only 2% higher than the pre-crisis high point. The output of the US economy had shrunk by a quarter three years after the Wall Street Crash of 1929, but by 1936 it had recovered to pre-crisis levels. The Greek economy contracted by 26% in real terms between 2007 and 2013, and at the end of 2016 – nine years after the start of its own Great Depression – it remained stuck at the bottom.

The second chart, from the analysis service Macropolis, compares the performance of eight countries that have sought assistance from the IMF since 1997 seven years after the start of their programs. The Fund’s best student was Turkey, which doubled its GDP in real terms between 2000 and 2007. Russia was a close second, largely thanks to growth fueled by climbing oil and gas prices. South Korea comes next, with growth well above 50% from its baseline year, while Indonesia, Brazil and Thailand are hovering around 25%. The only countries which remained below their pre-crisis GDP levels seven years after seeking the Fund’s assistance are Argentina (in the aftermath of the 1998-2002 crisis) and Greece. At its low point, three years into its crisis, Argentina’s dollar-denominated GDP – largely because of the devaluation of the peso after the abolition of convertibility – had fallen by two-thirds compared to pre-crisis highs. At the seven-year mark, Argentina, unlike Greece, was experiencing a robust recovery.

Focusing on the comparison with the Great Depression in the United States, US unemployment peaked in May 1933 at 26%, to be cut by more than half by the end of 1936. In Greece it reached 28% in July 2013, and has since fallen to 23%. The Dow Jones Industrial index lost 85% of its value between August 1929 and May 1932, but it rose fourfold in the three-and-a-half years to the end of 1936 (another 23 years would pass, however, before it got back to pre-crisis levels).

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No, it’s not just the EU, or the euro.

“ economic climate that is normalising low-income families having to live hand to mouth..”

Millions In UK Are Just One Unpaid Bill Away From The Abyss (G.)

As the cocktail of long-term austerity, rising living costs and a slumping post-Brexit economy hits, what’s really frightening is the crisis that is brewing but is barely being noticed. Look at this week’s finding that one in four families now have less than £95 in savings. That’s staggering, not simply because it gives an insight into how large swaths of families in Britain are clinging on financially in a climate of low wages, cut benefits and high rents, but also because it offers us a warning of how little it will take to push them over the edge. There are now 19 million people in this country living below the minimum income standard (an income required for what the wider public view as “socially acceptable” living standards), according to figures released by the Joseph Rowntree Foundation (JRF) this month.

Around 8 million of them could be classed as Theresa May’s “just about managing” families: those who can, say, afford to put food on the table and clothe their children but are plagued by financial insecurity. The other 11 million live far below the minimum income standard and are, the JRF warns, “at high risk of falling into severe poverty”. We are entering a period not simply of growing hardship in this country but of what I would call precarious poverty: the sort that isn’t characterised by the traditional image of lifelong, deep-seated deprivation, but which can hit in a matter of days: a broken washing machine, a late child tax credit payment, an injury that leads to time off work. In an economic climate that is normalising low-income families having to live hand to mouth, increasingly, for a whole economic class, one small unexpected cost can trigger a spiral into debt.

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And now they’re stuck. This is where it gets risky.

Oz Reserve Bank Interest Rate Moves Limited By High Debt, House Prices (AbcAu)

Fears of inflating housing bubbles in Sydney and Melbourne are stopping the Reserve Bank from cutting interest rates to boost the economy, the central bank governor conceded today. The stark admission by Reserve Bank governor Phillip Lowe about the RBA’s dilemma comes as soaring house prices in the eastern states have Australians carrying “more debt than they ever have before”. Dr Lowe delivered the reality check at the Australia Canada Economic Leadership Forum, where he said low interest rates made it attractive for borrowers in both countries to invest in real estate, making further rate cuts an undesirable option. “We are trying to balance multiple objectives at the moment,” he said in response to questions after the speech.

“We’d like the economy to grow a bit more quickly and we’d like the unemployment rate to come down a bit more quickly than is currently forecast. “But if we were to try and achieve that through monetary policy it would encourage people to borrow more money and it probably would put more upward pressure on housing prices and, at the moment, I don’t think either of those two things are really in the national interest.” For the moment, it looks like the Reserve Bank feels content — or locked in — to leaving official interest rates on hold at a record low 1.5%. However, Dr Lowe expressed optimism that this level of rates was low enough to spark business investment and stronger economic growth, and therefore there would be no need to lower rates further.

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That’s a lot of (not) oil.

Exxon Wiped A Whopping 19.3% Of Its Oil Reserves Off Its Books In 2016 (Q.)

ExxonMobil has taken a big hit to one of the pillars underlying its decades of braggadocio: its oil reserves. In an announcement today, Exxon said it had written down its proven oil reserves by a massive 19.3%, a stinging reduction to what is a primary measure of any oil company’s value. As of the end of 2016, Exxon had 20 billion barrels in proven reserves, compared with 24.8 billion a year earlier. This includes the erasure of all 3.5 billion barrels of Exxon’s proven oil sands reserves at Canada’s Kearl field. Last year’s low oil prices made it uneconomical to drill at Kearl, which had been at the core of Exxon’s growth strategy. In addition, for the second straight year, Exxon failed to replace all the reserves it pumped—in 2016, it replaced just 65% of its produced reserves. In 2015, it replaced just 67%.

Prior to these years, Exxon had replaced at least 100% of its production every year since 1993. As bad as that was, it was expected: Exxon had signaled that it would write down reserves in 2016, and analysts had expected the company not to replace what it pumped. What wasn’t anticipated was the impact on Exxon’s vaunted longer-term performance. Almost every year, when Exxon announces its earnings, dividend payouts, reserve replacement results—and nearly any other important annual result—it throws in its 10-year record in the respective category to demonstrate its steady, reliable hand on the tiller. This time, bringing up the 10-year record backfired: The replacement failures of the last two years and the 2016 writedown punched a hole in Exxon’s vaunted 10-year reserves replacement average—it plunged to 82% in 2016, from 115% a year earlier.

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Simmering conflict.

Turkish Provocations Test Greek Resolve (K.)

The recent spike in Turkish provocations in the Aegean and incendiary comments emanating from Ankara are aimed at testing Greece’s resolve, according to Greek analysts. In what was seen as its latest transgression, Turkey dispatched its Cesme research vessel to conduct surveys on Wednesday in international waters between the islands of Thasos, Samothrace and Limnos, but within the area of responsibility of the Hellenic Search and Rescue Coordination Center. The night before, Turkish coast guard vessels conducted patrols in the region around the Imia islets. At the same time, the Cyprus talks are being undermined over what Greeks believe is a minor detail – the decision by the Cyprus Parliament for schools to commemorate a 1950 referendum calling for union with Greece.

Greeks say it is an attempt to shift attention from the fundamental issues of the peace talks, namely post-settlement security and guarantees. In response, Athens has pursued the principle of proportionality by countering the presence of Turkish military and coast guard vessels with an equivalent number of Greek ones, while embarking on a diplomatic campaign at international organizations and in major capitals. Analysts also attribute the spike in tension to the Supreme Court’s refusal to extradite the Turkish servicemen that Ankara says were involved in the July coup attempt. But they also note that it serves as a convenient pretext for Turkey to up the nationalistic rhetoric ahead of the April 16 referendum called by President Recep Tayyip Erdogan in a bid to expand his powers.

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Think maybe rich Europe has slipped Tsipras a few bucks?

Greece Okays Asylum Requests Of 10,000 Refugees (K.)

At least 10,000 refugees, including around 2,000 minors, are expected to remain in Greece over the coming three years as their asylum applications have been approved. The approved asylum claims account for about a sixth of more than 60,000 migrants who are currently stranded in Greece following the decision last year by a series of Balkan states to close their borders amid a massive influx of refugees from Syria and other war-torn states. The arrival of migrants in Greece has slowed significantly following an agreement between the European Union and Turkey in March last year to crack down on human smuggling across the Aegean.

However, boatloads of migrants continue to arrive on Greek shores from neighboring Turkey. On Wednesday, another 145 migrants arrived on the eastern Aegean island of Chios alone. Authorities attribute the sudden spike in arrivals to the unseasonably good weather. According to the Greek Asylum Service, a total of 1,912 migrants lodged asylum applications in January of this year. Last year, when hundreds of thousands of migrants flooded through Greece toward other parts of Europe, a total of 51,091 people applied for asylum in Greece, compared to 13,195 in 2015, 9,432 in 2014 and 4,814 in 2013.

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Dec 232016
 December 23, 2016  Posted by at 9:53 am Finance Tagged with: , , , , , , , , , ,  3 Responses »

Ben Shahn Quick lunch stand in Plain City, Ohio 1938

Donald Trump Can’t Stop The Next Financial Crisis – Jim Rickards (MW)
“Russia Did It” – The Last Stand Of The Neocons (GEFIRA)
94% Of All New Jobs Created During Obama Era Were Part-Time Or Contract (IC)
World Trade Falls to 2014 Level, Trump “Trade War” Might Make it Worse (WS)
Central Banks Have Cut Interest Rates 690 Times Since Lehman Brothers (CNBC)
Italian Government Rides To Rescue Of Stricken Bank Monte Dei Paschi (R.)
Deutsche Bank, Credit Suisse Agree Billion-Dollar Fines With US (CNBC)
US Sues Barclays For Alleged Mortgage Securities Fraud (R.)
Why The Chinese Are Still Snapping Up US Commercial Property (CNBC)
EU Plans To ‘Revitalize’ Complex Financial Products (EUO)
Ron Paul: “We Don’t Have Very Much Room For Condemning Anybody Else” (ZH)
Is Obama a Russian Agent? (Dmitry Orlov)
Air Pollution Cause Of One In Three Deaths In China (SCMP)
1000s Of Refugees Left In Greek Cold, UN And EU Accused Of Mismanagement (G.)
The Automatic Earth in Greece: Big Dreams for 2017 (Automatic Earth)



“Policies that could prevent the crisis [..] include reinstatement of the Glass-Steagall separation of investment and commercial banking, breaking up big banks, banning most derivatives, and tougher law enforcement of bank wrongdoing.”

Donald Trump Can’t Stop The Next Financial Crisis – Jim Rickards (MW)

James Rickards sees threats in many places. In his latest book, “The Road to Ruin: The Global Elites’ Secret Plan for the Next Financial Crisis,” he paints a picture of how that crisis will unfold. He argues that rather than pumping the financial system with liquidity, as happened in 2008, “elites” will freeze the financial plumbing until the crisis has passed. That means banks will close, as will exchanges. Money-market funds will be inaccessible. Forget trying to get your hands on money. Rickards, who was the principal negotiator of the 1998 bailout of Long-Term Capital Management as the hedge fund’s general counsel, calls this new world “ice-nine,” after a fictitious substance in Kurt Vonnegut’s “Cat’s Cradle.” Freezing customer funds in bank accounts is what happened in Cyprus is 2012 and Greece in 2015, he says. In the U.S., the Securities and Exchange Commission adopted a rule in 2014 that lets money-market funds suspend redemptions.

MarketWatch: Why do you believe a financial crisis is coming in 2018, and what do you see as the likely triggers? James Rickards: A financial crisis is certainly coming. In “The Road to Ruin,” I use 2018 as a target date and device because the two prior systemic crises, 1998 and 2008, were 10 years apart. I extended the timeline 10 years into the future from the 2008 crisis to maintain the 10-year tempo, and this is how I arrived at 2018. Yet I make the point in the book that the exact date is unimportant. What is most important is that the crisis is coming and the time to prepare is now. It could happen in 2018, 2019, or it could happen tomorrow. The conditions for collapse are all in place. It’s simply a matter of the right catalyst and array of factors in the critical state. Likely triggers could include a major bank failure, a failure to deliver physical gold, a war, a natural disaster, a cyber–financial attack and many other events. The trigger does not matter. The exact timing does not matter. What matters is that the crisis is inevitable and coming soon. Investors need to prepare.

MW : Is this likely to be on the scale of the 2008 financial crisis? Or what is a better comparison? J.R.: The new crisis will be of unprecedented scale. This is because the system itself is of unprecedented scale and interconnectedness. In complex dynamic systems that reach the critical state, the most catastrophic event that can occur is an exponential function of scale. This means that if you double the system, you do not double the risk; you increase it by a factor of five or 10. Since we have vastly increased the scale of the financial system since 2008, with larger banks, greater concentration of banking assets in fewer institutions, larger derivatives positions, and $70 trillion of new debt, we should expect the next crisis to be much worse than the last. There is no comparison short of wartime exigencies such as 1914. The next crisis will be of unprecedented scale and damage.

MW : On the flip side, what could prevent this crisis? And how do you respond to those who say this is just fear-mongering and a conspiracy theory? What are they missing? J.R.: Policies that could prevent the crisis are spelled out clearly in the book. These include reinstatement of the Glass-Steagall separation of investment and commercial banking, breaking up big banks, banning most derivatives, and tougher law enforcement of bank wrongdoing. The book also explains clearly why the dysfunctions in the system are not a “conspiracy” but the workings of like-minded individuals operating in a closed loop lacking cognitive diversity. I am not a fear-monger; people are already afraid, [and] I’m just trying to shed some light on the situation, which is why readers have responded so positively to the book. The critics do not have a firm grasp of the statistical properties of risk. They are clinging to obsolete equilibrium models instead of embracing more accurate models based on complexity theory and behavioral psychology.

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“..the European establishment is simultaneously bombing a country and importing the country’s inhabitants..”

“Russia Did It” – The Last Stand Of The Neocons (GEFIRA)

By the 2000s, Neocons had taken over the Republican Party in the US and the Labour Party in the UK and could count on allies in Italy (Berlusconi) and Spain (Aznar). In the following decade, Neocon ideology spread virulently, substituting for the failed experiment of military intervention to overthrow non-cooperating governments with covert operations funding and/or arming local groups in Libya, Syria,Tunisia Egypt, Georgia, and Ukraine. Neocon adherents took over the US state department, and their grip on it was strengthened by the appointment of Barack Obama as assistant to Victoria Nuland, Secretary of State for European affairs, wife of Robert Kagan, who is in turn a top Neocon ideologist alongside Paul Wolfowitz. They also created the narrative spread and reinforced by the mainstream media, which expose the alleged crimes of non-cooperating regimes in Syria, Russia and Libya, while ignoring the anti “democratic” behavior by friendly dictatorships such as Saudi Arabia’s kings.

The mission however never changed. What changed is the mood of Western citizens about the government changes and state-building projects of the Western leadership; as the economic and human cost grew endlessly, the Western public opinion has become fed up with interventionism around the world. The British Labour party was the first to face the malcontents: Blairites are being ousted in favour of anti-NATO, sworn pacifist Jeremy Corbyn. Then Donald Trump won the US election with his “America First” i.e. a policy of “non-interventionism and protectionism”, defeating Hillary’s hawkish one, publicly endorsed by Kagan and Wolfowitz; Sarkozy and Juppè were defeated in the primaries in France by Fillon, who is advocating the end of the trade war against big bad Neocon target Russia. The Neocon-backing Western establishment is facing political upheaval all over Europe and the US.

These revolutions are not mere popular movements. Trump’s election is the handing over of power from one influential group to another because a part of the establishment has become fully aware of the problems Europe and the US are facing. After a fourteen-year war on terror in Afghanistan and Iraq the bloodshed spilled over into the streets of Paris and Berlin. The killing of civilians in the streets in Europe was not supposed to happen after the eradication of Al Qaeda and the alleged elimination of its leader Osama Bin Laden. Or should we rather say European insanity is spilling over, as the European establishment is simultaneously bombing a country and importing the country’s inhabitants? What do the Western leadership expect to have on their hands? Meanwhile Russia is reemerging as a more successful international actor.

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Echo chambers are us.

94% Of All New Jobs Created During Obama Era Were Part-Time Or Contract (IC)

A new study by economists from Harvard and Princeton indicates that 94% of the 10 million new jobs created during the Obama era were temporary positions. The study shows that the jobs were temporary, contract positions, or part-time “gig” jobs in a variety of fields. Female workers suffered most heavily in this economy, as work in traditionally feminine fields, like education and medicine, declined during the era. The research by economists Lawrence Katz of Harvard University and Alan Krueger at Princeton University shows that the proportion of workers throughout the U.S., during the Obama era, who were working in these kinds of temporary jobs, increased from 10.7% of the population to 15.8%.

Krueger, a former chairman of the White House Council of Economic Advisers, was surprised by the finding. The disappearance of conventional full-time work, 9 a.m. to 5 p.m. work, has hit every demographic. “Workers seeking full-time, steady work have lost,” said Krueger. Under Obama, 1 million fewer workers, overall, are working than before the beginning of the Great Recession. The outgoing president believes his administration was a net positive for workers, however. “Since I signed Obamacare into law (in 2010), our businesses have added more than 15 million new jobs,” said Obama, during his farewell press conference last Friday.

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It’s going to keep falling no matter what. And regaining some domestic manufacturing capacity is never a bad thing. If you focus of producing essentials, that is.

World Trade Falls to 2014 Level, Trump “Trade War” Might Make it Worse (WS)

“If you get into a trade war with China, sooner or later we’ll have to come to grips with that,” Carl Icahn, now special advisor to President-Elect Trump, told CNBC on Thursday. “I remember the day something like that would really knock the hell out of the market.” A trade war with China surely would be another wall of worry for stocks to climb. Trump’s rhetoric against China, each morsel packaged into 140 characters or less, has already recreated much-needed turbulence [read… Trump Tweets about China, US Businesses Freak out]. “But maybe if you’re going to do it,” Icahn said about the looming trade war with China, “you should get it over with, right?”

This comes after rumors emerged that Trump’s transition team is chewing over the idea to impose import tariffs of up to 10%, “according to multiple sources,” including a “senior Trump transition official,” CNN reported. The idea is to boost US manufacturing. The new tariffs could be imposed by executive order or by Congress as part of broader tax reform legislation. The 10% would be an uptick from the 5% tariff that incoming White House Chief of Staff Reince Priebus had put on the table last week, in “meetings with key Washington players,” two sources “who represent business interests in Washington” told CNN. These tariffs would be in line with Trump’s campaign motto of “America First.” Other countries would, as they always do, retaliate. Hence the term “trade war.”

Countries will be careful not to escalate, but these things can escalate nevertheless, because no one wants to seem weak and back off. Either way, it would pull the rug out from under world trade. But world trade, a reflection of the health of the global goods-producing economy, is already in bad shape. For the past two years, it has been languishing in a condition we now call the Great Stagnation. The CPB Netherlands Bureau for Economic Policy Analysis, a division of the Ministry of Economic Affairs, just released the preliminary data of its Merchandise World Trade Monitor for October. World trade isn’t falling off a cliff, as it had done during the Great Recession, when global supply chains froze up overnight. But since November 2014, it has gone absolutely nowhere:

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“Is There A Way Out?” Not for most. And do give the ECB a special place in this: they are responsible for setting one single rate in countries that need completely different rates.

Central Banks Have Cut Interest Rates 690 Times Since Lehman Brothers (CNBC)

The top 50 central banks around the world have seen a total of 690 interest rate cuts since the collapse of Lehman Brothers in September 2008, according to data from JP Morgan. While this number means one rate cut every three trading days, analysts have warned that central banks may start to run out of ammunition soon. “Essentially these rate cuts came into effect to try and stimulate economic growth and to prop up economies post the financial crisis,” Alex Dryden, global market strategist at JP Morgan Asset Management, told CNBC via email. However, he warned that central banks are running out of room to maneuver.

“The Bank of Japan, for example, own over 45% of the government bond market, over 65% of the domestic ETF market and are a top 10 shareholder in 90% of listed firms. They have also cut rates into negative territory. There isn’t much more they can do.” Markets, however, continue to ride the wave of uncertainty and speculation over whether the world’s central banks will either continue to pump in more and more cash into the economy through bond-buying programs known as QE or conventional ways such as lowering interest rates to stimulate borrowing. But as we delve deeper into this world of ultra-low interest rate and easy monetary policy, there are other areas of the economy that could see a knock-on effect.

This raises a very big question – will the global economy ever exit this low interest rate environment? “No easy way out. The world has changed and the level of neutral interest rates has fallen for most countries,” Jan von Gerich, chief economist at Nordea, told CNBC via email. Gerich further explained that the way inflation is responding to growth seems to have changed, which makes monetary policy considerations harder for central bankers. “The situation varies a lot, though. The Fed is gradually finding at least a partial way out while it is hard to see the ECB raising rates before the next recession arrives.”

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Oh, sweet Jesus: “..allow Italy’s third-largest bank to finally return to operate at full throttle to support the economy..”

Italian Government Rides To Rescue Of Stricken Bank Monte Dei Paschi (R.)

The Italian government approved a decree on Friday to bail out Monte dei Paschi di Siena after the world’s oldest bank failed to win investor backing for a desperately needed capital increase. Looking to end a protracted banking crisis that has gummed up the economy, Prime Minister Paolo Gentiloni said his Cabinet had authorized a €20 billion fund to help lenders in distress – first and foremost Monte dei Paschi. Within minutes of the late-night Cabinet meeting ending, the country’s third largest lender issued a statement saying it would formally request state aid, opening the way for possibly the biggest Italian bank nationalization in decades. The government has said its long-awaited salvage operation will work within EU rules, meaning some Monte dei Paschi bondholders will be forced to accept losses to ensure the taxpayer does not pick up all of the bill.

However, the government and Monte dei Paschi promised protection for around 40,000 retail savers who had bought the bank’s junior debt. Many of the high street investors say they were unaware of the risks when they purchased the paper. “Today marks an important day for Monte dei Paschi, a day that sees it turn a corner and be able to reassure its depositors,” said Gentiloni, who only took office last week and has made the bank rescue his first priority. [..] The collapse of Monte dei Paschi would have threatened the savings of thousands of Italians and could have had devastated the wider banking sector, which is saddled with €356 billion of bad loans – a third of the euro zone’s total. [..] The government said full details of the rescue plan have yet to be worked out, but it outlined the contours in a statement.

It said the bank’s Tier 1 bonds, which are mostly held by professional investors, would be converted into shares at 75% of their nominal value. Tier 2 bonds, which are mostly in the hands of retail investors, will be converted instead at 100% of their face value. To further insulate small savers from losses, Monte dei Paschi will offer to swap the shares they end up with as a result of the forced conversion with regular bonds and sell the same shares to the state instead. “The rescue will require a (new) business plan that European authorities will need to approve and that will allow Italy’s third-largest bank to finally return to operate at full throttle to support the economy and with the full confidence of its depositors,” said Economy Minister Pier Carlo Padoan.

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Where are the indictments?

Deutsche Bank, Credit Suisse Agree Billion-Dollar Fines With US (CNBC)

Deutsche Bank will be hoping for a fresh start in 2017 after reaching a $7.2 billion deal with U.S. authorities to settle allegations of the mis-selling of mortgage-backed securities (MBS). Germany’s largest lender said on Friday morning it had agreed ‘in principle’ to pay a $3.1 billion civil fine to be supplemented with the payment of $4.1 billion in consumer relief overtime. The announcement of the fine comes amid a raft of banking stories related to the mis-selling of MBS which hit the wires before Friday’s European market open. This included news that U.S. federal prosecutors would sue Britain’s Barclays bank and that Credit Suisse had reached a provisional $5.3 billion deal, meaning the Swiss bank will take a pre-tax charge of about $2 billion.

Of the total amount demanded of Credit Suisse, $2.48 billion would be an immediate fine to settle the claims and an additional $2.8 billion would be paid over five years for consumer relief. Deutsche Bank’s agreement follows months of negotiations with the U.S.’s Department of Justice (DoJ) and ranks as the third-highest penalty imposed to date on a bank to settle claims of mis-sold mortgage-backed instruments. Although the $7.2 billion payment is far from negligible, investors may take some cold comfort from the fact it is less than $16.7 billion that Bank of America was required to stump up in August 2014 and the $9.0 billion charged to JPMorgan Chase in November 2013. Furthermore, of the full amount, only the $3.1 billion civil fine component is required to be imminently delivered in cash.

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Again, where are the indictments?

US Sues Barclays For Alleged Mortgage Securities Fraud (R.)

The U.S. Department of Justice on Thursday sued Barclays for fraud in the sale of mortgage securities in the run-up to the financial crisis. The British bank deceived investors about the quality of loans underlying tens of billions of dollars of mortgage securities between 2005 and 2007, according to the lawsuit, which was filed in U.S. district court in Brooklyn, New York. Loans had been made to borrowers with no ability to repay and were based on inflated home appraisals, the complaint said. Barclays said in a statement that the claims in the lawsuit are “disconnected from the facts” and that it has an obligation to defend against “unreasonable allegations and demands.”

In terms of demands, Barclays was apparently referring to negotiations with the Justice Department to settle the claims without a case being filed. “Barclays will vigorously defend the complaint and seek its dismissal at the earliest opportunity,” the statement said. The bank’s U.S.-traded shares were down 1.7 percent at $11.08 shortly before the close of the market. Barclays is among a number of European banks that have been under investigation for misconduct in the sale of mortgage securities, which contributed to the 2008 financial crisis.

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One word: Dollar.

Why The Chinese Are Still Snapping Up US Commercial Property (CNBC)

Interest in U.S. commercial real estate is perking up, particularly from China, as expectations of pro-growth policies from President-elect Donald Trump spark demand for dollar-denominated assets. “(Investors) are seeing the U.S.commercial real estate marketplace as really standing out on a global basis,” said Hessam Nadji, president and chief executive at commercial real estate firm Marcus and Millichap. “It’s not being overbuilt; it’s been very well balanced in this particular cycle in terms of loans that are not going up, the leverage that was very well balanced. They’re at much lower risk at this stage of recovery than we’ve seen in the past,” he told CNBC’s The Rundown. Concerns over the dollar’s appreciation are also prompting some motivation for capital allocation into the U.S. “particularly because the Chinese economy is slowing” and as the yield profile of commercial real estate is competitive, Nadji added.

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We don’t solve our problems, we package them.

EU Plans To ‘Revitalize’ Complex Financial Products (EUO)

The EU is trying to “revitalise” a market for controversial financial products, but one of the goals appears to already have been achieved without the EU’s help. Securitisation is the packaging of loans, mortgages, or other contractual debts into securities that can then be sold on the market, together with the risk attached to those debts. It had an instrumental role in the financial crisis of 2008, but the European Commission says giving the securitisation market a boost can help the real economy. The commission has not given a target figure of when “revitalisation” will have been achieved, but spoke in a press release of going back to the “pre-crisis average”.

The commission did not want to comment on the record, but one commission official said that if the market would return to average pre-crisis issuance levels, this would generate €100-€150 billion in additional funding for the economy. “This would already be a major achievement for the securitisation markets,” the commission official said. EUobserver looked at how average issuance levels have done so far, and found that more securities have been created through securitisation since the crisis than before the crisis. This website collected data from the Association for Financial Markets in Europe (AFME), a lobby group for the financial service sector, and the Securities Industry and Financial Markets Association, its US-based counterpart.

Taking a very narrow view, the “pre-crisis” years are 1996-2006. The average issuance of securities in Europe was €168 billion. When including 2007, the average was €203 billion. When including 2008 – when the financial crisis was in full swing – the average was €251 billion. Last week, AFME released data for the third quarter of 2016. The first three quarters of 2016 were the best three quarters since 2012. Taking the most recent data into account, the average annual issuance of securitisation since 2009, is €270 billion. Last year the figure was €216 billion. Even when correcting for inflation, the post-crisis period is already better than the pre-crisis period. Converting the averages to today’s prices, the average since 2009 is €282 billion, compared to a 1996-2007 average of €244 billion.

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“I think the spying and interference is sort of the nature of our governments.”

Ron Paul: “We Don’t Have Very Much Room For Condemning Anybody Else” (ZH)

When asked whether all the “Russian hacking” allegations were just a simple “political stunt” or whether a serious investigation needed to be conducted, Ron Paul offered up a startling bit of reality pointing out that America has a long history of interfering with elections and even invading countries “to have our guy in.” We suspect the following response was a bit more truth than Fox Business News expected.

“I think it is politics more than anything else. It’s really is nothing new. It’s like, guess what – somebody might have done A, B, C.” “The very rarely, if ever, compare what we do with election around the world. We are interfering all the time.” “I’m sure the Russians are interfering. But when you lose, you can jump on that and make a big point of it. But I don’t think it made any difference. I think it’s insignificant.” “If you review the history of how many elections we’ve been involved with, how many countries we’ve invaded and how many people we’ve killed to have our guy in, I’ll tell you what – we don’t have very much room for condemning anybody else.” “I think the spying and interference is sort of the nature of our governments. That’s why I’d like to see government much smaller.”

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Is Obama a Russian Agent? (Dmitry Orlov)

Sometimes a case looks weak because there is no “smoking gun”—no obvious, direct evidence of conspiracy, malfeasance or evil intent—but once you tally up all the evidence it forms a coherent and damning picture. And so it is with the Obama administration vis à vis Russia: by feigning hostile intent it did everything possible to further Russia’s agenda. And although it is always possible to claim that all of Obama’s failures stem from mere incompetence, at some point this claim begins to ring hollow; how can he possibly be so utterly competent… at being incompetent? Perhaps he just used incompetence as a veil to cover his true intent, which was always to bolster Russia while rendering the US maximally irrelevant in world affairs. Let’s examine Obama’s major foreign policy initiatives from this angle.

Perhaps the greatest achievement of his eight years has been the destruction of Libya. Under the false pretense of a humanitarian intervention what was once the most prosperous and stable country in the entire North Africa has been reduced to a rubble-strewn haven for Islamic terrorists and a transit point for economic migrants streaming into the European Union. This had the effect of pushing Russia and China together, prompting them to start voting against the US together as a block in the UN Security Council. In a single blow, Obama assured an important element of his legacy as a Russian agent: no longer will the US be able to further its agenda through this very important international body.

Next, Obama presided over the violent overthrow of the constitutional government in the Ukraine and the installation of an American puppet regime there. When Crimea then voted to rejoin Russia, Obama imposed sanctions on the Russian Federation. These moves may seem like they were designed to hurt Russia, but let’s look at the results instead of the intentions. First, Russia regained control of an important, strategic region. Second, the sanctions and the countersanctions allowed Russia to concentrate on import replacement, building up the domestic economy. This was especially impressive in agriculture, and Russia now earns more export revenue from foodstuffs than from weapons. Third, the severing of economic ties with the Ukraine allowed Russia to eliminate a major economic competitor.

Fourth, over a million Ukrainians decided to move to Russia, either temporarily or permanently, giving Russia a major demographic boost and giving it access to a pool of Russian-speaking skilled labor. Most Ukrainians are barely distinguishable from the general Russian population.) Fifth, whereas before the Ukraine was in a position to extort concessions from Russia by playing games with the natural gas pipelines that lead from Russia to the European Union, now Russia’s hands have been untied, resulting in new pipeline deals with Turkey and Germany. In effect, Russia reaped all the benefits from the Ukrainian stalemate, while the US gained an unsavory, embarrassing dependent.

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Worse than smoking.

Air Pollution Cause Of One In Three Deaths In China (SCMP)

Smog is related to nearly one-third of deaths in China, putting it on a par with smoking as a threat to health, according to an academic paper based on the study of air pollution and mortality data in 74 cities and published in an international journal. The findings by Nanjing University’s School of the Environment, which were published in the November edition of the journal the Science of the Total Environment, provides the latest scientific estimates of the health cost of China’s notorious smog. The latest bout of smog began last Friday, affecting about half a billion people on the mainland, with the severest impact in the last three days. Previous research work have found equally alarming results about the country’s toxic air.

The International Energy Agency published its first study on air pollution in June and estimated that severe air pollution has shortened life expectancy in China by an average 25 months. An academic paper co-authored by researchers from MIT in the US, Tsinghua University and Peking University in China, plus the Hebrew University of Jerusalem in 2013 concluded that bad air has cut life expectancy by an average of 5.5 years in the north of the country. There are so far no concrete or widely agreed estimates on the impact of air pollution on health in China partly because it is scientifically complicated to measure and also because there is little historical precedent for prolonged exposure to such high levels of air pollution.

The six researchers from Nanjing University said they conducted the study because air pollution was the “most severe and worrisome environmental problem in China”, but knowledge of its health effects was insufficient. When they looked into 3.03 million deaths in 2013 in 74 cities in the Beijing-Tianjin-Hebei region and the Yangtze River Delta and Pearl River Delta, they found 31.8 per cent could be linked to PM 2.5 pollution – the tiny smog particles most hazardous to health.

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Yeah, it’s bitter. Still, as I said yesterday on FB: “Right up the alley of my -repeat- article and appeal yesterday. Only, the Guardian itself runs a fund now. So it has reason to publish this. The problem: the paper supports 3 NGOs, all British. As if they know better than Greeks what to do in Greece. It’s a broken record problem. Too much money gets wasted on hubris and 1001 -repeat- preventable fuck-ups.”

1000s Of Refugees Left In Greek Cold, UN And EU Accused Of Mismanagement (G.)

The UN refugee agency and the EU’s aid department have been accused by other aid groups of mismanaging a multimillion-pound fund earmarked for the most vulnerable refugees in Europe, leaving thousands sleeping in freezing conditions in Greece. The Greek government, which has ultimate jurisdiction over camp activities, has also been criticised for failing to use nearly €90m (£75m) of separate EU funding to adequately improve conditions at the camps before the onset of winter. No single actor has overall control of all funding and management decisions in the camps, allowing most parties to distance themselves from blame.

The EU aid department, known as Echo, has given UNHCR more than €14m since April to help prepare roughly 50 refugee camps for the winter in Greece, where an estimated 50,000 mainly Syrian refugees have been stranded since the adoption of new European migration policies in March. A further €24m has been given to UNHCR for other projects. Both organisations stand accused by other aid groups of squandering this money, after failing to properly “winterise” or evacuate dozens of camps before snow fell in Greece earlier in December. In addition to providing warmer bedding and clothes, UNHCR was expected to use this money to move people from tents to heated containers or formal housing; heat warehouses where other refugees are living; provide a consistent supply of hot water; and install insulated flooring for anyone still left in tents.

Months after the funds were dispersed, roughly half of those living in camps had yet to be transferred to formal housing by the onset of winter. Of the 45 camps that were still active at the start of the month, the Guardian visited or was made aware of at least 15 camps that had yet to be properly adapted by the time snow fell in northern Greece at the start of December. UNHCR admitted it was itself aware of only eight camps where all the residents have been moved out of tents and into prefabricated containers.

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Because of all that goes wrong in the NGO structure, we support this:

The Automatic Earth in Greece: Big Dreams for 2017 (Automatic Earth)

Both Konstantinos and myself -and all the other volunteers at O Allos Anthropos- want to thank you so much for all the help you’ve given over the past year -and in 2015-. We’re around $30,000 for 2016 alone, another $5000 since my last article 4 weeks ago. I swear, for as long as I live, this will never cease to amaze me. And then of course what happens is people start thinking and dreaming about what more they can do for those in peril. Wouldn’t you know…

A Merry Christmas to all of you, to all of us. Very Merry. God bless us, every one. Thank you for everything.

If I may make a last suggestion, please forward this ‘dream’ to anyone you know -and even those you don’t-, by mail, Twitter, Facebook, Instagram, word of mouth, any which way you can think of. Go to your local mayor or town council, suggest they can help and get -loudly- recognized for it. There may be a dream involved for 2017, but that was our notion a year ago as well, and look what we’ve achieved a year later: it is very real indeed. And anyone, everyone can become part of that reality for just a few bucks. If the institutions won’t do it, perhaps the people themselves should. That doesn’t even sound all that crazy or farfetched. There’s a lot of us.

Konstantinos Polychronopoulos on Lesbos Dec 2015

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Nov 212016
 November 21, 2016  Posted by at 4:45 pm Finance Tagged with: , , , , , , , , , ,  7 Responses »

Theodor Horydczak “Dome of US Capitol through trees at night” 1943


For the second time in a few weeks (see ‘End of Growth’ Sparks Wide Discontent), former British diplomat Alastair Crooke quotes me extensively, and I gladly return the favor. Crooke here attempts to list -some of- the difficulties Donald Trump will face in executing the -economic- measures he promised to take in his campaign. Crooke argues that, as I’ve indicated repeatedly, for instance in America is The Poisoned Chalice, the financial crisis that never ended may be one of his biggest problems.

Here, again, is Alastair Crooke:



We are plainly at a pivotal moment. President-Elect Trump wants to make dramatic changes in his nation’s course. His battle cry of wanting to make “America Great Again” evokes – and almost certainly is intended to evoke – the epic American economic expansions of the Nineteenth and Twentieth centuries.

Trump wants to reverse the off-shoring of American jobs; he wants to revive America’s manufacturing base; he wants to recast the terms of international trade; he wants growth; and he wants jobs in the U.S. – and he wants to turn America’s foreign policy around 180 degrees.

The run-down PIX Theatre sign reads "Vote Trump" on Main Street in Sleepy Eye, Minnesota. July 15, 2016. (Photo by Tony Webster Flickr)

The run-down PIX Theatre sign reads “Vote Trump” on Main Street in Sleepy Eye, Minnesota. July 15, 2016. (Photo by Tony Webster Flickr)

It is an agenda that is, as it were, quite laudable. Many Americans want just this, and the transition in which we are presently in – dictated by the global elusiveness and search for growth (whatever is meant now by this term “growth”), clearly requires a different economic approach from that followed in recent decades.

As Raúl Ilargi Meijer has perceptively posited, greater self-reliance “is the future of the world, ‘post-growth’, and post-globalization. Every country, and every society, needs to focus on self-reliance, not as some idealistic luxury choice, but as a necessity. And that is not as bad or terrible as people would have you believe, and it’s not the end of the world … It is not an idealistic transition towards self-sufficiency, it’s simply and inevitably what’s left, once unfettered growth hits the skids. …

“Our entire world views and ‘philosophies’ are based on ever more and ever bigger and then some, and our entire economies are built upon it. That has already made us ignore the decline of our real markets for many years now. We focus on data about stock markets and the like, and ignore the demise of our respective heartlands, and flyover countries …

“Donald Trump looks very much like the ideal fit for this transition … What matters [here] is that he promises to bring back jobs to America, and that’s what the country needs … Not so they can then export their products, but to consume them at home, and sell them in the domestic market …There’s nothing wrong or negative with an American buying products made in America instead of in China.

“There’s nothing economically – let alone morally – wrong with people producing what they and their families and close neighbours themselves want, and need, without hauling it halfway around the world for a meagre profit. At least not for the man in the street. It’s not a threat to our ‘open societies’, as many claim. That openness does not depend on having things shipped to your stores over 1000s of miles, that you could have made yourselves, at a potentially huge benefit to your local economy. An ‘open society’ is a state of mind, be it collective or personal. It’s not something that’s for sale.”

A Great Wish

That’s Trump’s ostensible great wish, (it seems). It is not an unworthy one, but things have changed: America is no longer what it was in the Nineteenth or Twentieth centuries, neither in terms of untapped natural resources, nor societally. And nor is the rest of the world the same either.

Mr. Trump rather unfortunately may find that his chief task will not be the management of this Great Re-orientation, but more prosaically, fending off the headwinds which he will face as he hauls on the tiller of the economy.

In short, there is a real prospect that his ambitious economic “remake” may well be prematurely punctured by financial crisis.

These headwinds will not be of his making, and for the main part, they lie beyond human agency per se. They are structural, and they are multiple. They represent the accumulation of an earlier monetary doctrine which will fetter the President-elect into a small corner from which any chosen exit will carry adverse implications.

Ditto for anyone else trying to steer any ship of state in this contemporary global economy. Paradoxically – in an era moving toward greater self-sufficiency – what success Trump may have, however, will likely depend not on self-reliance so much as he would like.

For his foreign policy about turn, he will depend on finding common interest with Russian President Vladimir Putin (that should not be too hard) – and for the economic “about turn” – on Trump’s ability not to confront China, but to come to some modus vivendi with President Xi (less easy).

“Things are not what they were.” Complexity “theory” tells us that trying to repeat what worked earlier – in very different conditions – will likely not work if repeated later. In the Clinton era, for example, 85 percent of the U.S. population growth derived from the working-age population. The headwind that Trump will face is that, over the next eight years, 80 percent of the population growth will comprise 65+ year olds. And 65+ year olds are not a good engine of economic growth. This is not an uniquely American problem; it is a global trend too.

“The peak growth” (according to Econimica blog), “in the annual combined working age population (15-64 year/olds) among all the 35 wealthy OECD nations, China, Brazil, and Russia has collapsed since its 1981 peak. The annual growth in the working age population among these nations has fallen from +29 million a year to just +1 million in 2016 … but from here on, the working age population will be declining every year … These nations make up almost three quarters of all global demand for oil and exports in general. But their combined working age populations will shrink every year, from here on (surely for decades and perhaps far longer). Global demand for nearly everything is set to suffer.

(FFR stands for Federal Funds Rate: i.e. the US key interest rate) Source:

(FFR stands for Federal Funds Rate: i.e. the US key interest rate) Source:

And then there is China: It too is passing through a difficult “transition” from the old economy to an “innovative” one. It too, has an aging population and a debt problem (with a debt-to-gross domestic ratio reaching 247 percent). Trump argues that China deliberately holds down the value of its currency to gain unfair trade advantage, and he further suggests that he intends to confront the Chinese government on this key issue.

Again, Trump does have a point (many nations are managing their exchange rates precisely in order to try to “steal” a little bit extra growth from the diminished global pot). But as noted at Zerohedge, citing the analysis of One River Asset Management executive Eric Peters:

“What’s good for the US in this case [the rising dollar and interest rates in anticipation of ‘Trumponomics’], is not good for emerging markets (EMs). Emerging markets benefit from a weaker dollar, and you’re not going to get that. Emerging markets benefit from global capital flows moving in their direction and that’s not happening either. Back in February, emerging markets were in sharp decline, driven by (1) a strong dollar, (2) rising US interest rates, and (3) slowing Chinese growth. Then China spurred a massive credit stimulus, the Fed became wildly dovish, and the dollar declined sharply.

“Interest rates collapsed throughout the year. As the growing pool of dollar, euro and yen liquidity searched for a decent return, it headed to emerging markets. Trump has reignited the dollar rally, and his fiscal stimulus will force interest rates higher. This reversed everything. [the dollars are heading home]

“And to be sure, the Beijing boys don’t want to see material weakness ahead of next autumn’s Party Congress. But we’re currently near peak impulse from China’s Q1 stimulus.”

In short, Peters is saying that, with the appreciating dollar and rising interest rate environment, growth from emerging markets as a whole will falter, since emerging markets have effectively leveraged their economies to Chinese growth. It used to be the case that they were closely tied to U.S. growth, but it is now China which dominates the EMs’ trade flows [i.e. without China growth, the EMs languish]. The question is, can America reboot its growth whilst China and the EMs languish? It is another structural shift, whereas heretofore, it was vice versa: without U.S. growth, the EMs and China languished. Now it is the converse.

Hollowed-Out Economies

There are other structural changes of course which will make it harder for the industrially hollowed-out economies of the West to recuperate jobs off-shored earlier. Firstly, there has been a systemic shift of innovation and technology eastwards (often to a more skilled and better-educated workforce). This represents not only an economic event, but a redistribution of power too. In any case, technology in this new era is being more job destructive than creative.

In one sense, Trump’s economic plan to “get America working again” through massive debt-financed, infrastructure projects, harks back to the Reagan era, which was also a period in which the dollar was strong. But yet again, “things today are not what they were then.” Inflation then was at 13 percent, Interest rates were around 20 percent, and crucially, the U.S. debt to GDP ratio was a mere 35 percent (compared to today’s estimate of 71.8 percent or 104.5 percent with external debt included).

Then, as Jim Rickards has suggested, the strong dollar was deflationary (deliberately so), and interest rates had nowhere to go, but down. It was the beginning of the three decades’ bond boom, which finally seems to have come to an end, coincident with Trump’s election. Today, inflation has nowhere to go but up – as have interest rates – and the bond market, nowhere to go, but (perilously) down.

Growth and Jobs?

Can Trump then achieve growth and jobs through infrastructure expenditure? Well, “growth” is an ambiguous, shape-shifting term. The first chart shows both sides of the equation … the annual GDP growth and the annual federal debt incurred, spent, and (thus counted as part of the growth) to achieve the purported growth.



The second chart shows the annual GDP minus the annual growth in federal debt to achieve that “GDP growth.” In other words, unlike in the earlier Reagan times, more recently, the debt is producing no growth – but … well … just more debt, mostly.

In fact, what the second chart is reflecting is the dilution – through money “printing” – of purchasing power: away from one entity (the American consumer), through the intermediation of the financial sector, to other entities (mostly financial entities, and to corporations buying back their own shares). This is debt deflation: the American consumer ends having less and less purchasing power (in the sense of residual discretionary income).

The point here is that “growth” is becoming rarer everywhere. Russia and China, like everyone else, are in search for new sources for growth.

As Rickards has said, debt is the “devil” that can undo Trump’s whole schema: a “$1 trillion infrastructure refurbishment plan, along with his proposal to rebuild the military, will — at least in the short-term — significantly increase annual deficits. In fact, deficits are already soaring; the fiscal 2016 budget hole jumped to $587 billion, up from $438 in the prior year, for a huge 34% increase…in addition to this, Trump’s protectionist trade policies would implement either a 35% tariff on certain imports or would require these goods to be produced inside the United States, at much higher prices. For example, the increase in labor costs from goods made in China would be 190% when compared to the federally mandated minimum wage earner in the United States. Hence, inflation is on the way.”

In sum, self-sufficiency implies higher domestic costs and price rises for consumers.

Debt will rise. And there is seemingly already a buyers’ strike against U.S. government debt underway: well over a third of a $1 trillion worth of Treasuries were disposed of, and sold in the year to Aug. 31 by foreign Central Banks. And who is buying it? (Below, the chart shows what this purchasing looks like, as a percentage of total debt issued by the Treasury). Well, foreign central banks have disappeared. (The Chinese have not bought a U.S. Treasury bond since 2011.)

(Above: who purchased the marketable debt as a percentage, by period) Source:

(Above: who purchased the marketable debt as a percentage, by period)


It is the American public who are buying. Will they be willing to take on Trump’s $1 trillion infrastructure spree? Or, will it be “printed” in yet another dilution of the American consumer’s purchasing power? The question of whether the infrastructure splurge does give growth hangs very much in the balance to such answers. (Equity shares in construction firms will do okay, of course).

The bottom line: (Michael Pento, Pento Report): “If interest rates continue to rise it won’t just be bond prices that will collapse. It will be every asset that has been priced off that so called ‘risk free rate of return’ offered by sovereign debt. The painful lesson will then be learned that having a virtual zero interest rate policy for the past 90 months wasn’t at all risk free. All of the asset prices negative interest rates have so massively distorted including; corporate debt, municipal bonds, REITs, CLOs, equities, commodities, luxury cars, art, all fixed income assets and their proxies, and everything in between, will fall concurrently along with the global economy.

“For the record, a normalization of bond yields would be very healthy for the economy in the long-run, as it is necessary to reconcile the massive economic imbalances now in existence. However, President Trump will want no part of the depression that would run concurrently with collapsing real estate, equity and bond prices.”

A Pending Financial Crisis

Trump, to be fair, has said consistently throughout the election campaign that whoever won the Presidential campaign to take office in January would face a financial crisis. Perhaps he will not face the “violent unwind” of the QE and bond bubble as some experts have predicted, but many more – according to Bank of America’s survey of 177 fund managers over the last six days, and controlling just under half a trillion of assets – expect a “stagflationary bond crash.”

This has major political implications. Trump is setting out to do no less than transform the economy and foreign policy of the U.S. He is doing this against a backdrop of many of the followers of the liberal élite, so angered at the election outcome, that they reject completely his electoral legitimacy (and, with the élites themselves staying mum at this rejection of the U.S. democratic process). Movements are being organized to wreck his Presidency (see here for example). If Trump does indeed experience a severe financial “unwind” at a time of such domestic anger and agitation, matters could turn quite ugly.



Alastair Crooke is a former British diplomat who was a senior figure in British intelligence and in European Union diplomacy. He is the founder and director of the Conflicts Forum, which advocates for engagement between political Islam and the West.

Nov 152016
 November 15, 2016  Posted by at 9:41 am Finance Tagged with: , , , , , , , , , ,  2 Responses »

George N. Barnard Atlanta, Georgia. View on Marietta Street 1864

UK Government Has No Plan For Brexit, Leaked Memo Says (BBC)
Why India Wiped Out 86% Of Its Cash Overnight (BBC)
Asian Currencies Drop to 7-Year Low Against US Dollar (BBG)
The Euro-Dollar Parity Bet Is Back (BBG)
‘Trump Thump’ Whacks Bond Market For $1 Trillion Loss (R.)
China: Trump’s First Crisis? (JP Smith)
China’s Central Bank Faces Trump Headache (BBG)
The World’s Biggest Real Estate Binge Is Coming To A City Near You (BBG)
America Has Abdicated Its Leadership of the West (Spiegel)
Memo to Trump: Defense Spending Must Be For Actual Defense (Ron Paul)
The Democratic Party Had a Good if Not Great Candidate in Bernie Sanders (CP)
Russian Economy Minister Detained Over Alleged $2 Million Bribe (R.)
EU Threatens Turkey With Economic Sanctions (TT)
Julian Assange Faces Second Day Of Questioning (ITV)
Highly Contagious Strain Of Bird Flu Sweeps Through Europe ( DW)
100,000 Landslides and Hundreds of Tremors After New Zealand Quake (G._



It’s only been 5 months, after all….: “Whitehall is working on 500 Brexit-related projects and could need 30,000 extra staff..”

UK Government Has No Plan For Brexit, Leaked Memo Says (BBC)

The government has no overall Brexit plan and a negotiating strategy may not be agreed by the cabinet for six months, a leaked memo has suggested. The memo – obtained by The Times and seen by the BBC – warns Whitehall is working on 500 Brexit-related projects and could need 30,000 extra staff. However, there is still no common exit strategy “because of divisions within the cabinet”, the leaked document adds. A government spokesman said it “didn’t recognise” the claims made in the memo. Prime Minister Theresa May hopes to invoke Article 50 – beginning the formal two-year process for leaving the EU – by the end of March next year. However, BBC political correspondent Chris Mason – who has seen the memo – says the document shows how “complex, fraught and challenging delivering Brexit will be”.

The leaked Cabinet Office memo – written by an un-named consultant and entitled “Brexit Update” of 7 November – suggests it will take another six months before the government decides precisely what it wants to achieve from Brexit or agrees on its priorities. The report criticises Mrs May, who it says is “acquiring a reputation of drawing in decisions and details to settle matters herself” – an approach it describes as being “unlikely to be sustainable”. The Times says the document also identifies cabinet splits between Foreign Secretary Boris Johnson, Brexit Secretary David Davis and International Trade Secretary Liam Fox on one side, and Chancellor Philip Hammond and Business Secretary Greg Clark on the other.

According to the newspaper, the memo said: “Every department has developed a ‘bottom-up’ plan of what the impact of Brexit could be – and its plan to cope with the ‘worst case’. “Although necessary, this falls considerably short of having a ‘government plan for Brexit’ because it has no prioritisation and no link to the overall negotiation strategy.” The memo also suggests the government does not have enough officials to implement Brexit quickly, while departments are developing individual plans resulting in “well over 500 projects”. It estimates an additional 30,000 extra civil servants could be required to meet the workload. The document also says big businesses could soon “point a gun at the government’s head” to secure what they need to maintain jobs and investment.

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Tax evasion.

Why India Wiped Out 86% Of Its Cash Overnight (BBC)

India is in the middle of an extraordinary economic experiment. On 8 November, Prime Minister Narendra Modi gave only four hours’ notice that virtually all the cash in the world’s seventh-largest economy would be effectively worthless. The Indian government likes to use the technical term “demonetisation” to describe the move, which makes it sound rather dull. It isn’t. This is the economic equivalent of “shock and awe”. Do not believe reports that this is primarily about bribery or terror financing, the real target is tax evasion and the policy is very daring indeed. Mr Modi’s “shock and awe” declaration meant that 1,000 and 500 rupee notes would no longer be valid. These may be the largest denomination Indian notes but they are not high value by international standards – 1,000 rupees is only £12. But together the two notes represent 86% of the currency in circulation.

Think of that, at a stroke 86% of the cash in India now cannot be used. What is more, India is overwhelmingly a cash economy, with 90% of all transactions taking place that way. And that is the target of Mr Modi’s dramatic move. Because so much business is done in cash, very few people pay tax on the money they earn. According to figures published by the government earlier this year, in 2013 only 1% of the population paid any income tax at all. As a result huge numbers of Indians have stashes of tax-free cash hidden away – known here as “black money”. Even the very poorest Indians have some cash savings – maybe just a few thousand rupees stored away for a daughter’s wedding, the kids’ school fees or – heaven forbid – an illness in the family.

But lots of Indians have much more than that. It is not unusual for half the value of a property transaction to be paid in cash, with buyers turning up with suitcases full of 1,000 rupee notes. The size of this shadow economy is reckoned to be as much as 20% of India’s entire GDP. Mr Modi’s demonetisation is designed to drive black money out of the shadows. At the moment you can exchange up to 4,000 (£48) of the old rupees every day in cash for new 500 (£6) and 2,000 (£24) rupee notes. There is no limit to the amount that can be deposited in bank accounts until the end of December, but the government has warned that the tax authorities will be investigating any deposits above 250,000 rupees (£2,962).

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This may continue for a while. Energy in the crosshairs.

Asian Currencies Drop to 7-Year Low Against US Dollar (BBG)

A gauge of emerging Asian currencies is heading for the lowest close since March 2009 as the dollar surged after Donald Trump’s unexpected election victory. The Bloomberg-JPMorgan Asia Dollar Index, which tracks 10 regional currencies, is down 2% this year. As recently as August it was up 1.7%. Emerging assets have tumbled in the past week as the president-elect is seen unleashing a spending surge, pushing the Federal Reserve to raise interest rates.

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The euro is way overvalued anyway, of course. Parity would sake the south to its core, though, much more than the north.

The Euro-Dollar Parity Bet Is Back (BBG)

Donald Trump’s electoral upset has breathed new life into the bet that diverging economic paths will drive the euro toward parity with the dollar for the first time since 2002. Traders see about a 45% chance the European currency will sink to $1 in the next year, about double the probability assigned a week ago. The president-elect’s pledges to boost spending and cut taxes are fueling speculation that economic growth will accelerate, pushing the Federal Reserve to raise interest rates more quickly. That sentiment sent a gauge of the dollar to the strongest since February on Monday, while the euro fell to about $1.07, touching its lowest since 2015.

For Deutsche Bank, the world’s fourth-biggest currency trader, the election results are enough to jolt the euro out of a range it’s been stuck in for months and push it below $1 in 2017. Calls for parity crumbled this year as the Fed cut back on the number of expected rate hikes, even as the ECB continued to add unprecedented amounts of stimulus. Now Trump’s win is rekindling the wager that drove the dollar to back-to-back annual gains in 2014-2015, for its biggest two-year rally since the euro’s 1999 debut. “Divergence is back,” George Saravelos, a strategist at Deutsche Bank in London, wrote in a report dated Nov. 13. “The Trump victory has changed things.”

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The Trump fairytale lacks all sense of reality. He’s going to stumble upon a zillion roadblocks on his way to get the best of what he can get, and that means volatility.

‘Trump Thump’ Whacks Bond Market For $1 Trillion Loss (R.)

Donald Trump’s stunning victory for the White House may mark the long-awaited end to the more than 30-year-old bull run in bonds, as bets on faster U.S. growth and inflation lead investors to favor stocks over bonds. A two-day thumping wiped out more than $1 trillion across global bond markets worldwide, the worst rout in nearly 1-1/2 years, on bets that plans under a Trump administration would boost business investments and spending while firing up inflation. “We’ve had a sentiment shift in the bond market. We’ve seen it, too. People have already started reallocating out of bonds and into stocks,” said Jeff Gundlach, CEO of DoubleLine Capital. “The cracks have been forming for five years – we’re in this slow-grinding higher phase in yields,” he said.

The stampede from bonds propelled longer-dated U.S. yields to their highest levels since January with the 30-year yield posting its biggest weekly increase since January 2009. In the stock market, the blue chip Dow Jones industrial average finished out its best week in five years on Friday as it marked a record high close. The 10-year German Bund yield rose to its highest level in eight months, while the 10-year British gilt yield climbed to its highest level prior to Brexit. [..] While investors dumped most types of bonds after Trump’s victory, they piled into Treasury inflation-protected securities as a hedge against a pick-up in inflation. “You are seeing interest in TIPS right now from a widening investors base,” said Brian Smith, portfolio manager at TCW in Los Angeles, which has $197 billion in assets. Investors poured $1 billion into TIPS in the week ended Nov. 9, the second-biggest inflows since records began in October 2002.

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Trump may hand China exactly what it needs but is afraid to face.

China: Trump’s First Crisis? (JP Smith)

There is a growing possibility that China will be at the epicentre of President-elect Trump’s first crisis, triggered by concerns over the potential impact of protectionist measures on China’s trade surplus, which currently supports the increasingly fragile financing chains supporting corporate debt that the IMF estimates at around 155% of GDP. Trump’s pledges to impose tariffs of up to 45% on Chinese manufactured goods threatens to drive a significant uptick in the amount of capital flight from the renminbi, while the prospect of measures to change the US tax system to encourage companies to repatriate cash to the are already pulling the dollar higher.

At this point the likelihood of Trump actually delivering on his protectionist rhetoric is secondary to the psychological impact on resident corporate and household savers of any potential threat to the current uneasy equilibrium within the Chinese economy. The situation could quickly become much more acute than the one faced by the FOMC earlier this year, when the Fed appears to have backed off raising rates primarily due to concerns about China, so that President Trump will have to make a decision whether to clarify his intentions towards China and possibly repudiate his key campaign pledge at a relatively early stage of his presidency.

The consequences of his not doing so could be to precipitate an economic and financial crisis within China, that would obviously have major adverse consequences for the regional and global economies and also some potentially very serious implications for geopolitical stability. In brief, our longstanding bearish view on China has rested on the governance factors at both a central and local government level that have led to massive cost factor subsidies driving overcapacity across a broad range of industries. This has resulted in very high levels of debt which are being financed from an increasing range of institutions and instruments, most recently the city and county banks and shadow financing instruments, all of which are lack transparency even by Chinese standards.

No-one disputes any more that an increasing amount of financing is being used to service and roll over existing loans and that higher write-offs are not keeping pace with the flow of doubtful loans. The financing structures that surround the overcapacity industries are increasingly fragile especially on a regional level; Chinese enterprises are simply too interconnected to fail. Over the course of 2016, there have been some indications of a visible improvement in both the macro-economic and corporate numbers, as well as some of the more physical and therefore reliable indications of activity such as power production and freight journeys. This has, however, been a function of the massive monetary and fiscal stimulus beginning in the second half of 2015, to head off a potential crisis in response to the plunge in the onshore equity market.

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“As if defusing the world’s biggest debt bomb while keeping economic growth humming wasn’t tough enough..”

China’s Central Bank Faces Trump Headache (BBG)

As if defusing the world’s biggest debt bomb while keeping economic growth humming wasn’t tough enough, Donald Trump’s shock election victory has just made the policy outlook even more complex for People’s Bank of China Governor Zhou Xiaochuan. The president-elect’s threats to slap tariffs of up to 45% on Chinese imports cast a shadow over the economy’s stabilization and the world’s most crucial trade relationship. Protectionism may fuel more international use of the yuan, according to Standard Chartered, while UBS says tariffs may push the PBOC to let the yuan fall further. Longer-term ambitions like capital account opening and yuan internationalization are also clouded, hinging on whether President Trump delivers on candidate Trump’s promises.

The PBOC’s monetary policy becomes trickier, and harder to keep neutral, amid “huge uncertainty” about Trump’s impact on China, according to Larry Hu at Macquarie in Hong Kong. “It’s hard to tell what would be actual policies instead of just campaign rhetoric,” Hu wrote in a note. Even before Trump takes office Jan. 20, there’s reason to think his campaign threats to impose tariffs and label China a currency manipulator may be tempered by the reality of governing. He’s already signaled there may be some watering down of other contentious issues such as building a wall on the Mexican border and scrapping President Barack Obama’s health care program. There’s a low probability that the PBOC will cut its benchmark interest rates or the required reserve ratio for banks this year, the state-run Xinhua News Agency reported Tuesday. The central bank has held its main rates at record lows for more than a year to support growth.

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Whatever happened to people’s right to shelter?

The World’s Biggest Real Estate Binge Is Coming To A City Near You (BBG)

If they were anywhere else in Beijing, the five young women in cowboy hats and matching red, white, and blue costumes would look wildly out of place. But here at the city’s biggest international property fair – a frenetic gathering of brokers, developers and other real estate professionals all jockeying for the attention of Chinese buyers – the quintet of wannabe Texans fits right in. As they promote Houston townhouses (“Yours for as little as $350,000!”), a Portugal contingent touts its Golden Visa program and the Australian delegation lures passersby with stuffed kangaroos. Welcome to ground zero for the world’s largest cross-border residential property boom. Motivated by a weakening yuan, surging domestic housing costs and the desire to secure offshore footholds, Chinese citizens are snapping up overseas homes at an accelerating pace.

They’re also venturing further afield than ever before, spreading beyond the likes of Sydney and Vancouver to lower-priced markets including Houston, Thailand’s Pattaya Beach and Malaysia’s Johor Bahru. The buying spree has defied Chinese government efforts to restrict capital outflows and shows little sign of slowing after an estimated $15 billion of overseas real estate purchases in the first half. For cities in the cross-hairs, the challenge is to balance the economic benefits of Chinese demand against the risk that rising home prices spur a public backlash. “The Chinese have managed to accumulate very large amounts of wealth, and the opportunities to deploy that capital in their own market are somewhat restricted,” said Richard Barkham at CBRE, the world’s largest commercial property brokerage. “China has more than a billion people. Personally, I think we have just seen a trickle.”

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I have too much to say on this to say it here.

America Has Abdicated Its Leadership of the West (Spiegel)

Even history sometimes leans toward pathos. In January 2017, when Donald Trump is sworn in as the 45th president of the United States, the American Age will celebrate its 100th birthday – and its funeral. The West was constituted in its modern form in January 1917. World War I was raging in Europe at the time and in Washington, D.C., President Woodrow Wilson told his country that it was time for Americans to take responsibility for “peace and justice.” In April he said: “The world must be made safe for democracy.” He declared war on Germany and sent soldiers to Europe to secure victory for the Western democracies – and the United States assumed the leadership of the Western world. It was an early phase of political globalization. One hundred years later: Trump.

Trump, who wants nothing to do with globalization; Trump, who preaches American nationalism, isolation, partial withdrawal from world trade and zero responsibility for a global problem like climate change. And all of this after a perverse election campaign marked by resentment, racism and incitement. Human dignity is the centerpiece of the Western project. Following the revolutions in France and the US in the late 18th century, states began guaranteeing human rights for the first time. Human rights have a normative character, as Heinrich August Winkler argued in his monumental work “History of the West.” And a racist cannot embody this normative project. Trump has no sense of dignity – neither for himself nor others. He does not qualify as the leader of the Western world, because he is both unwilling and incapable of assuming that role.

We now face emptiness – the fear of the void. What will happen to the West, to Europe, to Germany without the United States as its leading power? Germany is a child of the West, particularly of the United States, brought to life with American generosity, long spoon-fed and now in a deep state of shock. The American president was always simultaneously our president, at least a little, and Barack Obama was a worthy president of the West. Now, though, we must come to terms with a lack of Western leadership. What were those 100 years like? The history of the modern West can be told in many ways: as a heroic tale, as a story of greed, as a mission or as a tale of fear. This article is about 100 years of fear, in particular the fear for our freedom, a quintessentially American paranoia that spread to the rest of the West. The word is not being used negatively here; we are talking about fear as a bulwark protecting us against danger. There are good fears and bad fears.

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“If the answer to these questions is “yes,” then I am afraid we should prepare for economic collapse in very short order.”

Memo to Trump: Defense Spending Must Be For Actual Defense (Ron Paul)

[..] The military budget is something very different from the defense budget. The military budget is the money spent each year not to defend the United States, but to enrich the military-industrial complex, benefit special interests, regime-change countries overseas, maintain a global US military empire, and provide defense to favored allies. The military budget for the United States is larger than the combined military spending budget of the next seven or so countries down the line. To get the military budget in line with our real defense needs would require a focus on our actual interests and a dramatic decrease in spending. The spending follows the policy, and the policy right now reflects the neocon and media propaganda that we must run the rest of the world or there will be total chaos. This is sometimes called “American exceptionalism,” but it is far from a “pro-American” approach.

Do we really need to continue spending hundreds of billions of dollars manipulating elections overseas? Destabilizing governments that do not do as Washington tells them? Rewarding those who follow Washington’s orders with massive aid and weapons sales? Do we need to continue the endless war in Afghanistan even as we discover that Saudi Arabia had far more to do with 9/11 than the Taliban we have been fighting for a decade and a half? Do we really need 800 US military bases in more than 70 countries overseas? Do we need to continue to serve as the military protection force for our wealthy NATO partners even though they are more than capable of defending themselves? Do we need our CIA to continue to provoke revolutions like in Ukraine or armed insurgencies like in Syria?

If the answer to these questions is “yes,” then I am afraid we should prepare for economic collapse in very short order. Then, with our economy in ruins, we will face the wrath of those countries overseas which have been in the crosshairs of our interventionist foreign policy. If the answer is no, then we must work to convince our countrymen to reject the idea of Empire and embrace the United States as a constitutional republic that no longer goes abroad seeking monsters to slay. The choice is ours.

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“Their corrupt Democratic Party had a good if not great candidate in Bernie Sanders and their DNC deliberately fought to keep him from winning the primaries..”

The Democratic Party Had a Good if Not Great Candidate in Bernie Sanders (CP)

It’s hard to empathize with the corporate liberals who streamed from the Javits Center in tears [last] Tuesday night. Their corrupt Democratic Party had a good if not great candidate in Bernie Sanders and their DNC deliberately fought to keep him from winning the primaries. In every poll taken during his campaign, Sanders beat Donald Trump in a hypothetical general election. Oh, they’ll start pouring out their bile now, blaming everyone but themselves and their candidate. It was the media’s fault for popularizing Trump (a Clinton strategy). It was the FBI’s fault for re-opening the email case (thanks to Huma Abedin’s ex). It was stupid Middle America’s fault for being racist and sexist (was that why they voted for Trump?). It was third-party supporters who screwed us in Florida again (Paul Krugman and Rachel Maddow are furious that leftists didn’t vote for their heroine). It was Russia’s fault for hacking the DNC (no evidence) and plotting to invade Europe (no evidence).

In Hillary’s farewell speech, she kept to form and quoted scripture–the very last guide she has used to shape her political life. In other words, she remained a hypocrite. She talked to little girls who think she is a great flagbearer for womankind, even though she precipitated the brutal destruction of infrastructure, the breakdown of law and order, and the eventual collapse of the Libyan state, throwing thousands of brown women, boys and girls into extreme danger and exile. She exported the same plan to Syria. And she supported a coup d’état in Honduras that has now led to predictably vicious repression and regular homicide. The truth is, Hillary was a terrible candidate. Like Al Gore. She was charmless and toneless. In an election atmosphere typified by personality politics, Hillary lacked one.

She had a rich track record of foreign policy meltdowns at the State Department and a feckless tenure in the Senate. She alienated Congress in 1993 when she failed to get health care reform passed. And she evidently used high office to peddle access and influence to Clinton Foundation donors. Her positions had changed repeatedly, suggesting she couldn’t be trusted. This, compounded by the scandal surrounding her lazy use of email in the trafficking of confidential information, and ham-fisted attempts to cover it up, cast her in the dimmest of lights with many Americans. An albatross husband still despised by conservatives and who loomed hungrily behind the floodlights of her campaign–didn’t help either.

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Russia’s energy and banking sectors remain murky fields.

Russian Economy Minister Detained Over Alleged $2 Million Bribe (R.)

Russian Economy Minister Alexei Ulyukayev has been detained over a $2-million bribe allegedly received for a “positive” assessment, which led to oil producer Rosneft acquiring a 50% stake in Bashneft, the country’s Investigative Committee said on Tuesday. He is the highest-ranked statesman in Russia arrested since the failed coup in 1991. The Investigative Committee, which directly reports to President Vladimir Putin, said the investigation would put forward charges soon. “Ulyukayev was detained at night, immediately after interrogation,” an Investigative Committee official told Reuters. It was not immediately clear, what exactly Ulyukayev, who has overseen massive government privatization, has been accused of, but Russian news outlet RT reported that the minister had been detained in the act of taking the bribe.

Kremlin spokesman Dmitry Peskov told TASS news agency that “this is a serious accusation”. “In any case, only a court is able to decide anything,” he was quoted as saying. RT reported that Peskov said he did not know if Putin was aware of the minister’s detention. According to RT, if found guilty, Ulyukayev could face a fine up to 100 times the size of the bribe plus the loss of the right to serve in some state positions and undertake certain activities for up to 15 years. A prison sentence of as long as 15 years and a fine that was 70 times the size of the bribe were other potential outcomes following a guilty verdict, RT said.

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I’ve said it 1000 times: Turkey will never be a member of the EU. Countries will leave as soon as that propect gets real.

EU Threatens Turkey With Economic Sanctions (TT)

Turkey-EU relations braced for a major showdown after the Turkish government renewed its push for bringing the death penalty back, leading to mutual recriminations, trading barbs over recent days. To reveal the gravity of the situation and its meaning for the EU, European Parliament (EP) President Martin Schulz even spoke about possible economic sanctions against Turkey over draconian emergency practices that destroyed central pillars of democracy and the rule of law. As Turkey’s record on human rights hits lows, its ramifications for the EU accession process becomes evidently palpable with dying prospects for membership in the foreseeable future. The unrelenting political crackdown inside Turkey has left the EU with few options seen deterrent to force Ankara to change its policies at home.

Speaking to German’s Bild am Sonntag newspaper, Schulz said about the political climate in Brussels where EU leaders discuss imposing economic sanctions against Turkey in response to President Recep Tayyip Erdogan’s actions to curb the opposition. The consideration of such an option is preferred to terminating entire talks between Turkey and the EU, he argued. “We as the EU will have to consider which economic measures we can take,” Schulz said. One of the arguments he brought forward is that the breakdown in relations would leave the EU with no leverage and option that it could wield influence Turkey to help the opposition and those who are held in pre-trial detention

But his warnings and comment fell on deaf ears in Ankara, prompting a swift rebuke from Turkish Foreign Minister Mevlut Cavusoglu, who called on Schulz to do whatever possible to back up his threats. Speaking at a press conference in Ankara along with his Chinese counterpart, Cavusoglu called on Schulz to remove banners and booths of Kurdistan Workers’ Party (PKK), which Turkey and the EU consider as a terrorist group, from EP building in Brussels. His criticism refers to periodic protests of pro-PKK groups near EP headquarters in Brussels as European Kurds demonstrate there against the Turkish state, set up tents and booths filled with PKK flags and images of imprisoned PKK chief Abdullah Ocalan.

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If Sweden had a case, they would have made it eons ago. What a disgrace as a country.

Julian Assange Faces Second Day Of Questioning (ITV)

WikiLeaks founder Julian Assange will be questioned for a second day inside the Ecuadorian Embassy in London over a sex allegation. Swedish prosecutor Ingrid Isgren and Swedish police inspector Cecilia Redell will once again interview Assange through a representative of the Ecuadorian government. They said a DNA sample will be taken if he gives consent. It is believed Assange was “fully cooperative” during their initial meeting on Monday. The process could take three days, before Swedish authorities decide on their next move.

However Ms Isgren will not be giving interviews during her stay in London. A statement said: “As the investigation is ongoing, it is subject to confidentiality. “This confidentiality also applies according to Ecuadorian legislation for the investigative measures conducted at the embassy. “Therefore, the prosecutors cannot provide information concerning details of the investigation after the interview.”

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Still waiting for the big one.

Highly Contagious Strain Of Bird Flu Sweeps Through Europe (DW)

The German state of Schleswig-Holstein widened protection measures on Monday to protect against an outbreak of the H5N8 influenza virus among wild birds, which has spread to poultry. All farms – including smallholdings – will be required to tighten biosecurity, with the use of protective clothing and footwear, and the widespread disinfection of all farm buildings and vehicles used to transport poultry. Over the weekend, 30,000 chickens were culled as a precaution at a farm close to the northern city of Grumby, which saw an outbreak of the virus. The affected breeder farm is currently being disinfected and cleaned, Schleswig-Holstein’s environment ministry said on Monday.

Two smaller poultry farms in the same state and the neighboring Mecklenburg-Western Pomerania were also affected over the weekend, but neither states registered new H5N8 cases on Monday, local officials said. So far, five German states have seen bird flu outbreaks, including the southern state of Baden-Württemberg, which reported cases around Lake Constance, which is bordered by Switzerland and Austria. The state of Saxony also confirmed the H5N8 virus was detected in a dead heron at a lake near the city of Leipzig. On Monday, Denmark sought to contain its own outbreak among wild birds by ordering a farm to destroy hundreds of thousands of eggs imported from Germany, as a precaution. Some 300,000 eggs from the farm in Grumby were supplied to a hatchery in the Danish town of Baekke, near Kolding. They are all expected to be destroyed by Tuesday.

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Still waiting for the big one here as well. Jitters all around.

100,000 Landslides and Hundreds of Tremors After New Zealand Quake (G._

Up to 100,000 landslides were caused by New Zealand’s 7.8 magnitude earthquake, officials said, as aftershocks continued to shake parts of both islands of New Zealand and emergency crews worked to help people in the main affected areas. A major relief effort continued on Tuesday, with thousands of people stranded by the quake, which blocked roads and damaged many buildings across parts of the North and South islands. Emergency services and defence personnel were evacuating hundreds of tourists and residents from Kaikoura, the heavily hit South Island town, amid more strong aftershocks on Tuesday.

The powerful earthquake killed two people. It struck just after midnight on Sunday, destroying farm homesteads, sending glass and masonry toppling from buildings in the capital, Wellington, on the North Island and cutting road and rail links throughout the north-east of the South Island. As aftershocks continued to rattle the region on Wednesday, emergency services cordoned off streets in Wellington and evacuated several buildings due to fears one of them might collapse. Gale-force winds and rain were hampering recovery efforts as wild weather brought floods to the Greater Wellington region. Hundreds of aftershocks continued to rock the region. A 5.4 tremor was among the bigger aftershocks and was felt strongly in Wellington.

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