Sep 182017
 
 September 18, 2017  Posted by at 9:15 am Finance Tagged with: , , , , , , , , , ,  2 Responses »
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Pablo Picasso The old fisherman 1895

 

Muted Inflation A Trillion-Dollar Puzzle – BIS (R.)
Global Debt Underreported By $14 Trillion – BIS (ZH)
World’s Central Banks Can’t Ignore the Bitcoin Boom – BIS (BBG)
Dogecoin Creator On Cryptocurrencies: “Very Bubble. Much Scam. So Avoid.” (NYT)
The Future Of Cryptocurrency Is Not As It Seems (Eric Peters)
China’s $40 Trillion Banking System: “Largest Imbalances I’ve Ever Seen” (ZH)
Stockman: Trump’s Now ‘Blowing Kisses to Janet Yellen’
Spain’s Prosecutor Warns Over Catalonia Referendum As Leaflets Seized (R.)
After Single Payer Failed, Vermont Embarks On Big Health Care Experiment (WP)
Greek Government Told To Begin Online Auctions Or Face A Bank Bail-In (K.)
In Greece, Full-Time Work Is Not The Norm It Once Was (K.)
Hurricane Maria Heading For Caribbean (AFP)

 

 

Debt is the answer. They want you to think they don’t know that.

Muted Inflation A Trillion-Dollar Puzzle – BIS (R.)

The conundrum of stubbornly low inflation despite a pick-up in global growth and continued monetary stimulus is a “trillion dollar” question, the umbrella body for the world’s leading central banks said on Sunday. The Bank for International Settlements (BIS) said in its latest quarterly report that cheap borrowing rates and the rare simultaneous expansion of advanced and developing economies are driving financial markets higher, with signs of “exuberance” starting to re-emerge. U.S. corporate debt is much higher than before the financial crisis and a drop in the premiums investors demand for riskier lending has boosted sales of so-called covenant-lite bonds offering high yields. The BIS said this raises a question over the potential for another crisis if there is a significant rise in interest rates.

The body has called for a gradual return to higher rates, though central banks are being tentative because of persisting low inflation. “It feels like ‘Waiting for Godot’,” said Claudio Borio, the head of the monetary and economic department of the BIS, referring to a play in which the main characters wait for someone who never arrives. But the BIS says no one has yet worked out why inflation has remained so subdued while economies have approached or surpassed estimates of full employment and central banks have provided unprecedented stimulus. “This is the trillion-dollar question that will define the global economy’s path in the years ahead and determine, in all probability, the future of current policy frameworks,” Borio said. “Worryingly, no one really knows the answer.”

Read more …

The BIS is surprised by lack of inflation, or does it pretend that? And it’s also surprised by swaps and forwards? Really?

Global Debt Underreported By $14 Trillion – BIS (ZH)

In its latest annual summary published at the end of June, the IIF found that total nominal global debt had risen to a new all time high of $217 trillion, or 327% of global GDP…

… largely as a result of an unprecedented increase in emerging market leverage.

While the continued growth in debt in zero interest rate world is hardly surprising, what was notable is that debt within the developed world appeared to have peaked, if not declined modestly in the latest 5 year period. However, it now appears that contrary to previous speculation of potential deleveraging among EM nations, not only was this conclusion incorrect, but that developed nations had been stealthily piling on just as much debt, only largely hidden from the public eye, in the form of swaps and forwards.

According to a just released analysts by the Bank of International Settlements, “FX swaps and forwards: missing global debt?” non-banks institutions outside the United States owe large sums of dollars off-balance sheet through instruments such as FX swaps and forwards. The BIS then calculates what balance sheets would look like if borrowing through such derivative instruments was recorded on-balance sheet, as functionally equivalent repo debt, and calculates that the total “is of a size similar to, and probably exceeding, the $10.7 trillion of on-balance sheet dollar debt”, potentially as much as $13-14 trillion.

[..] “Every day, trillions of dollars are borrowed and lent in various currencies. Many deals take place in the cash market, through loans and securities. But foreign exchange (FX) derivatives, mainly FX swaps, currency swaps and the closely related forwards, also create debt-like obligations. For the US dollar alone, contracts worth tens of trillions of dollars stand open and trillions change hands daily. And yet one cannot find these amounts on balance sheets. This debt is, in effect, missing.”

Read more …

Who says they’re ignoring it? They’re frantically looking to control it.

World’s Central Banks Can’t Ignore the Bitcoin Boom – BIS (BBG)

The world’s central banks can’t sit back and ignore the growth in cryptocurrencies as it could pose a risk to the stability of the financial system, according to the Bank for International Settlements. It said central banks will need to figure out whether to issue a digital currency and what its attributes should be, though the decision is most pressing in countries like Sweden where cash use is dwindling. Institutions need to take into account of not only privacy issues and efficiency gains in payment systems, but also economic, financial and monetary policy repercussions, the BIS said in its Quarterly Review. The analysis comes at the end of a rough week for digital currencies, with JPMorgan CEO Jamie Dimon calling bitcoin a “fraud” and China moving to crack down on domestic trading of cryptocurrencies.

But with bitcoin and others gaining in popularity as payment systems go mobile and investors pour in money, central banks are beginning to delve into them and their underlying blockchain technology, which promises to speed up clearing and settlements. At the Bank of England, Mark Carney has cited cryptocurrencies as part of a potential “revolution” in finance. To better understand the system, the Dutch central bank has created its own cryptocurrency, albeit for internal use only. U.S. officials are exploring the matter too, though in March Federal Reserve Governor Jerome Powell said there were “significant policy issues” that needed further study, including vulnerability to cyber-attack, privacy and counterfeiting.

According to the BIS, one option for central banks might be a currency available to the public, with only the central bank able to issue units that would be directly convertible with cash and reserves. There might be a greater risk of bank runs, however, and commercial lenders might face a shortage of deposits. Another question to be resolved would be the question of privacy.

Read more …

“It’s going to be like the dot-com bust, but on a much more epic scale.”

Dogecoin Creator On Cryptocurrencies: “Very Bubble. Much Scam. So Avoid.” (NYT)

Jackson Palmer no longer thinks it’s funny to imitate Doge, the internet meme about a Shiba Inu dog whose awe-struck expressions and garbled syntax (e.g. “Wow. So pizza. Much delicious.”) made him a viral sensation several years ago. But if he did, he might channel Doge to offer a few cautionary words for investors who are falling for cryptocurrency start-ups, Silicon Valley’s latest moneymaking craze: Very bubble. Much scam. So avoid. Mr. Palmer, the creator of Dogecoin, was an early fan of cryptocurrency, a form of encrypted digital money that is traded from person to person. He saw investors talking about Bitcoin, the oldest and best-known cryptocurrency, and wanted to find a way to poke fun at the hype surrounding the emerging technology. So in 2013, he built his own cryptocurrency, a satirical mash-up that combined Bitcoin with the Doge meme he’d seen on social media.

Mr. Palmer hoped to use Dogecoin to show the absurdity of wagering huge sums of money on unstable ventures. But investors didn’t get the joke and bought Dogecoin anyway, bringing its market value as high as $400 million. Along the way, the currency became a magnet for greed and attracted a group of scammers and hackers who defrauded investors, hyped fake products, and left many of the currency’s original backers empty-handed. Today, Mr. Palmer, 30, is one of the loudest voices warning that a similar fate might soon befall the entire cryptocurrency industry. “What’s happening to crypto now is what happened to Dogecoin,” Mr. Palmer told me in a recent interview. “I’m worried that this time, it’s on a much grander scale.”

[..] Mr. Palmer, a laid-back Australian who works as a product manager in the Bay Area and describes himself as “socialist leaning,” was disturbed by the commercialization of his joke currency. He had never collected Dogecoin for himself, and had resisted efforts to cash in on the currency’s success, even turning down a $500,000 investment offer from an Australian venture capital firm. [..] Mr. Palmer worries that the coming reckoning in the cryptocurrency market — and it is coming, he says confidently — will deter people from using the technology for more legitimate projects. “The bigger this bubble goes, the bigger negative connotation it’s going to have,” he said. “It’s going to be like the dot-com bust, but on a much more epic scale.”

Read more …

Peters is the CIO at One River Asset Management. “Once private markets perfect cryptocurrency technology, governments will commandeer it, killing today’s pioneers. Then with every cryptodollar, yen, euro and renminbi registered on their servers, they’ll have complete dominion over money, laundering, taxation.”

The Future Of Cryptocurrency Is Not As It Seems (Eric Peters)

“Any other thoughts on the matter?” he asked. We’d spent quite some time discussing Bitcoin, Ethereum, and copycat cryptocurrencies popping up faster than North Korean nukes. I mostly listened, he knew far more about the subject; blockchain, distributed ledgers, mining, halving, hash rates. Unlike the S&P 500 realized volatility’s collapse to 8%, these new creations are realizing at 90%. Which makes them attractive to day-traders, adrenaline junkies, who launched 100 crypto hedge funds just last month. It’s the millennial’s wild west. Like all generations, they’ve discovered a new frontier, with few rules, seedy saloons, gunfights, corpses. As our earthly unknowns disappear, we find new ones in the ether. Which is where money belongs; it’s not real, it’s an abstraction, an age-old illusion.

As a golden myth captured mankind’s imagination, we built our societies upon a rare yellow metal. For 2,500 years we fought, killed, conquered. Until governments tired of the arbitrary spending constraints imposed upon them by a scarce element. So they invented today’s fiction, a printed promise, fiat currency. Seigniorage is the difference between that currency’s market value and its cost of production – that spread is a source of vast wealth and power. And in all human history, not a single government has willingly forfeited such a thing. Nor will one ever. Only after a hyperinflationary depression, confronted with revolution, do governments sometimes relinquish their power to print (Zimbabwe most recently).

Consequently, the future of cryptocurrency is not as it seems. Once private markets perfect cryptocurrency technology, governments will commandeer it, killing today’s pioneers. Then with every cryptodollar, yen, euro and renminbi registered on their servers, they’ll have complete dominion over money, laundering, taxation. They’ll track every transaction. Imposing negative interest rates in an instant. There will be no hiding, no mattresses. And in a deflationary panic, they’ll instantaneously add an extra zero to every account, their own especially.

Read more …

“..we’re on a $40 trillion credit system on $2 trillion of equity on maybe $1 trillion of liquid reserves.”

China’s $40 Trillion Banking System: “Largest Imbalances I’ve Ever Seen” (ZH)

KB: We’re in the such late stages of a game that is the largest global imbalance I’ve ever seen in my life. When you look at on balance sheet and off balance sheets, you look at on balance sheet in the banks, you look in the shadow banks. The number of total credit in the system, China is right at $40 trillion. Think about the number I just said. $40 trillion. And that’s using an exchange rate of call it 6.7 to the dollar, right? So it’s grown 1,000% in a decade. And we’re on a $40 trillion credit system on $2 trillion of equity on maybe $1 trillion of liquid reserves.

RP: Where do you get the equity and liquid reserves from?

KB: Well, it’s the amount of equity in the banks of China. It’s right at about $2 trillion. So that’s kind of a stated number. The reserves is my own calculation, right? The Chinese magically have leveled their reserves out around $3 trillion, which happens to be the minimum level of IMF reserve adequacy as defined by the IMF rule.

RP: So what have they been doing now? So, they were under pressure, and then everything kind of eased off, I guess, as the dollar started weakening a bit.

KB: Yeah. Actually, they’ve done three things. Well, so four things have caused this, quote, easing off that you refer to. Three have been driven by SAFE and the PBOC, one that’s been driven by our illustrious Trump. So the first three are, number one, they essentially halted all cross-border M&A. So if you look at the parabola of M&A coming out of China from 2012 to 2016, it reached dizzying heights in 2016. In 2017, it’s like 15% of the 2016 number and no new deals being announced. Now, they’ll always be some outbound M&A that’s driven by really policy at the Communist Party level, right?

They’ll always buy copper mines in Uganda. They’ll always invest in ports in Greece. They’ll always do things that are from a strategic perspective and a policy perspective. The things that the Communist Party needs to procure resources for its people over the long-term. But when you look at the rampant M&A of money leaving China, they just put a halt to it in November of 2016. And the second thing they did was they made it impossible for multinational corporations to get their profits and or working capital out of China. And that’s something that has been a problem for a lot of the multinationals that do business in China.”

Read more …

Perma bear.

Stockman: Trump’s Now ‘Blowing Kisses to Janet Yellen’

Stockman: Trump’s ‘Done Nothing in Nine Months’ and Is Now ‘Blowing Kisses to Janet Yellen’ (Fox Business, September 15, 2017)

Read more …

EU, UN, US, nobody stands up for democracy. Revealing.

Spain’s Prosecutor Warns Over Catalonia Referendum As Leaflets Seized (R.)

Spanish authorities on Sunday pursued efforts to block an independence vote in Catalonia, seizing campaign materials as the chief prosecutor said jailing the region’s top politician could not be ruled out. The government in the northeastern region is intent on holding a referendum on October 1 that will ask voters whether they support secession from Spain, a ballot Madrid has declared illegal. In a raid on a warehouse in the province of Barcelona on Sunday, police confiscated around 1.3 million leaflets and other campaign materials promoting the vote issued by the Catalan government. The haul was the largest in a series of similar raids, the Interior Ministry said in a statement.

Spanish prosecutors, who have ordered police to investigate any efforts to promote the plebiscite, said last week that officials engaged in any preparations for it could be charged with civil disobedience, abuse of office and misuse of public funds. More than 700 Catalan mayors gathered in Barcelona on Saturday to affirm their support for it. Asked if arresting regional government head Carles Puigdemont was an option if preparations continued, Spain’s chief public prosecutor said in an interview: ”We could consider it because the principal objective is to stop the referendum going ahead. “I won’t rule out completely the option of seeking jail terms… It could happen under certain circumstances,” Jose Manuel Maza was quoted as also telling Sunday’s edition of newspaper El Mundo.

Read more …

Promising.

After Single Payer Failed, Vermont Embarks On Big Health Care Experiment (WP)

Doug Greenwood lifted his shirt to let his doctor probe his belly, scarred from past surgeries, for tender spots. Searing abdominal pain had landed Greenwood in the emergency room a few weeks earlier, and he’d come for a follow-up visit to Cold Hollow Family Practice, a big red barnlike building perched on the edge of town. After the appointment was over and his blood was drawn, Greenwood stayed for an entirely different exam: of his life. Anne-Marie Lajoie, a nurse care coordinator, began to map out Greenwood’s financial resources, responsibilities, transportation options, food resources and social supports on a sheet of paper. A different picture began to emerge of the 58-year-old male patient recovering from diverticulitis: Greenwood had moved back home, without a car or steady work, to care for his mother, who suffered from dementia. He slept in a fishing shanty in the yard, with a baby monitor to keep tabs on his mother.

This more expansive checkup is part of a pioneering effort in this New England state to keep people healthy while simplifying the typical jumble of private and public insurers that pays for health care. The underlying premise is simple: Reward doctors and hospitals financially when patients are healthy, not just when they come in sick. It’s an idea that has been percolating through the health-care system in recent years, supported by the Affordable Care Act and changes to how Medicare pays for certain kinds of care, such as hip and knee replacements. But Vermont is setting an ambitious goal of taking its alternative payment model statewide and applying it to 70% of insured state residents by 2022 which — if it works — could eventually lead to fundamental changes in how Americans pay for health care.

“You make your margin off of keeping people healthier, instead of doing more operations. This drastically changes you, from wanting to do more of a certain kind of surgery to wanting to prevent them,” said Stephen Leffler, chief population health and quality officer of the University of Vermont Health Network. Making lump sum payments, instead of paying for each X-ray or checkup, changes the financial incentives for doctors. For example, spurring the state’s largest hospital system to invest in housing. Or creating more roles like Lajoie’s, focused on diagnosing problems with housing, transportation, food and other services that affect people’s well-being.

Read more …

The Troika is in Athens to turn on the thumbscrews.

Greek Government Told To Begin Online Auctions Or Face A Bank Bail-In (K.)

The possibility that banks will need for a fresh recapitalization grows with every day the delay in the implementation of online property transactions drags on. This might lead to a deposit haircut, along with generating a major crisis in relations between the government and the country’s creditors. Creditor representatives are accusing the government of delay tactics, for party political purposes, in starting electronic auctions. This puts the sustainability of the credit system at risk as it denies them a crucial tool in efforts to tackle the problem of nonperforming loans (NPLs).

The creditors have explicitly warned Athens about the prospect of a new recapitalization and the risk of a bail-in for banks and their depositors unless the auctions proceed quickly, as their representatives told notaries and banks in Greece during the presentations of the auctions’ online platform, according to the president of the Notaries’ Association, Giorgos Rouskas. The creditors reacted strongly when told that the first online auctions would not take place before early 2018 even though during the second bailout review Athens had committed to start the auctions on September 1. The government claimed the system is in place but the law provides for a period of two months between the submission of an auction request and its realization.

Seeing that the government is again trying to renege on its commitments, the creditors put fresh pressure on Athens, which backed down and said the system may open in the coming days for banks, so that the first online auctions can take place by end-November. In an interview with Kathimerini, Rouskas stressed that “the online platform is ready and all technical tests have been completed.” The onus is therefore on the banks now, which Rouskas explains have to register the repeat auctions or any new ones in the system, being the party initiating the auctions. They will then get a date based on the new system. “We have prepared the platform. It is now up to the lender, be that a bank or a private individual, to issue a request for an online auction scheduling, which notaries are forced to follow. This has not happened yet, but I believe we are very close to its implementation,” said Rouskas.

Read more …

Why Greece will not recover. Money supply way down, money velocity way way down.

In Greece, Full-Time Work Is Not The Norm It Once Was (K.)

Official data by the Hellenic Statistical Authority point to an increase in employment by about 250,000 jobs in the last three years (from the second quarter of 2014 to this year’s Q2), but that is only part of the truth. The figures also reveal a constant decline in average salaries, an ongoing increase in the percentage of employed workers who earn less than 500 euros a month – at least one in four gets less than that amount – soaring temporary work (either due to project-specific hirings, subsidies being paid for a restricted period, or time contracts), and a rise in the rate of part-time employment.

Senior and top officials are no longer offered such handsome pay packages, the primary sector is being abandoned and any new enterprises that are being set up are mostly in the field of restaurants, hotels and retail stores. Greeks can only find jobs such as waiters, cleaners, maids or sales assistants, which as a rule are of a seasonal character and fetch a low salary. The 40-hour working week concerns ever fewer workers nowadays, and without the subsidies handed out by the Manpower Organization (OAED) and the increase in tourism flows the unemployment rate probably wouldn’t have declined at all.

Read more …

The season is far from over.

Hurricane Maria Heading For Caribbean (AFP)

Maria became a hurricane Sunday as it headed toward the storm-staggered eastern Caribbean with 75 mile (120 kilometer) per hour winds, the US National Hurricane Center said. Storm warnings and watches went up in many of the Caribbean islands still reeling from the destructive passage of Hurricane Irma earlier this month. As of 2100 GMT, Maria was a Category One hurricane, the lowest on the five point Saffir-Simpson scale, located 140 miles (225 kilometers) northeast of Barbados, the NHC said, bearing west-northwest at 15 miles (24 kilometers) an hour. “On the forecast track, the center of Maria will move across the Leeward Islands Monday night and then over the extreme northeastern Caribbean Sea on Tuesday,” it said.

Hurricane warnings were triggered for St Kitts, Nevis and Montserrat, while lesser ‘watches’ were issued for the US and British Virgin Islands where at least nine people were killed during Irma. A warning is typically issued 36 hours before the first occurrence of tropical storm-force winds while watches are issued 48 hours in advance. Tropical storm warnings were, meanwhile, issued for Martinique, Antigua and Barbuda, Saba and St Eustatius and St Lucia. Barbuda was decimated by Hurricane Irma September 5-6 when it made its first landfall in the Caribbean as a top intensity Category Five storm. The NHC said Maria could produce a “dangerous storm surge accompanied by large and destructive waves” that will raise water levels by four to six feet (1.2 to 1.8 meters) when it passes through the Leeward Islands.

Read more …

Sep 132017
 
 September 13, 2017  Posted by at 9:18 am Finance Tagged with: , , , , , , , , , ,  8 Responses »
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Sergio Larraín Valparaiso Chile 1963

 

Greece Property Value Review A Hard Task (K.)
Creditors Set To Increase Pressure On Athens (K.)
US Threatens To Cut Off China From SWIFT If It Violates North Korea Sanctions (ZH)
Yuan Fixing Takes Center Stage, Again (BBG)
Cryptocurrency Chaos As China Cracks Down On ICOs (R.)
JPMorgan’s Dimon Says Bitcoin ‘Is A Fraud’ (R.)
America’s Fiscal Doomsday Machine (Stockman)
IMF Is Resisting A Moratorium On Barbuda’s Sovereign Debt Repayments (Ind.)
UK’s High Street Banks Are Accident Waiting To Happen (G.)
We Must Repeal The Authorization For The Use Of Military Force (Rand Paul)
Democrats Fought For 25 Years Over Single-Payer. Now Many Back Sanders (Sirota)
China Plans Nationwide Use Of Ethanol Gasoline By 2020 (R.)
Capitalism Can’t Save The Planet – It Can Only Destroy It (Monbiot)

 

 

As EU President Juncker this morning unveils his vision of more Europe all the time, here’s what Europe is really like:

42% of Greek mortgage loans are non-performing. Today’s sale prices are 70-80% lower than in 2008. And that’s before 200-300,000 homes will be forced onto the market this fall.

Greece Property Value Review A Hard Task (K.)

The government is facing a daunting task in adjusting the so-called objective values (the property rates used for tax purposes) to market levels by the end of the year, as its bailout agreement dictates. The huge slump in transactions and the forced sales of properties due to their owners’ debts do not lead to any safe conclusions for the values per area. One in four sales are conducted with prices that lag the objective value by 60-70%, and the prices of 2008 by 70-80%. The Finance Ministry must overcome all the obstacles to bring to Parliament all the necessary adjustments and regulations.

Moreover, once the objective values are brought in line with market rates, the government will have to maintain the same amount of revenues from the Single Property Tax (ENFIA) either by raising the tax’s rates or by introducing a new tax in the form of the old Large Property Tax. Furthermore, once the objective values are reduced by 40-50% to match the going prices, banks’ may see problems with their capital adequacy, as lenders will incur losses by having to revise the collateral they get. Mortgage loans in Greece amount to €59.44 billion, of which 42%, or €25.4 billion are nonperforming.

Read more …

Forget about more Europe, or you’ll wind up with a whole lot less Europe.

Creditors Set To Increase Pressure On Athens (K.)

Technical experts representing the country’s creditors started visiting the country’s ministries in Athens on Monday, paving the way for the third bailout review, which has long ceased to be viewed as a simple matter and is increasingly burdened with problems. Pressure for a satisfactory conclusion to the review will grow with the planned visit on September 25 of Eurogroup chief Jeroen Dijsselbloem, who will meet with Greek Finance Minister Euclid Tsakalotos. Responding to a question by Kathimerini, Dijsselbloem’s spokesman said that the head of the Eurogroup will discuss eurozone issues and certainly the progress of the adjustment program. Government officials estimate that the discussion on the course of the review and the Greek program may be combined with the expiry of Dijsselbloem’s mandate at the Eurogroup chair at year-end.

The Dutch minister – whose last visit in Athens and his meeting with his counterpart at the time, Yanis Varoufakis, was quite eventful – would obviously like to leave on a positive note in regards to the Greek program. It has been rumored that he may seek another office in the eurozone. Sources from Brussels also say that the top European Commission’s top representative, Declan Costello, will also be coming to Athens in the next few days. In addition to the main cluster of 113 prior actions, of which 95 should be implemented by year-end, the creditors have expressed their objections and doubts about recent legislative moves made by the government, such as the labor law passed last Thursday.

Sources say that the creditors have also expressed concerns about clauses related to the reduced value-added tax on agricultural supplies, the opening up of closed professions, as well as the civil service. A large number of the 95 prior actions the government must implement in record time have a high degree of difficulty, and government officials believe this may require revisions on family benefits, the operation of the sell-off hyperfund and its subsidiaries, the opening up of the energy market, etc.

Read more …

How would the US pay for all the shiny trinkets?

US Threatens To Cut Off China From SWIFT If It Violates North Korea Sanctions (ZH)

In an unexpectedly strong diplomatic escalation, one day after China agreed to vote alongside the US (and Russia) during Monday’s United National Security Council vote in passing the watered down North Korea sanctions, the US warned that if China were to violate or fail to comply with the newly imposed sanctions against Kim’s regime, it could cut off Beijing’s access to both the US financial system as well as the “international dollar system.” Speaking at CNBC’s Delivering Alpha conference on Tuesday, Steven Mnuchin said that China had agreed to “historic” North Korean sanctions during Monday’s United Nations vote. “We worked very closely with the U.N. I’m very pleased with the resolution that was just passed. This is some of the strongest items. We now have more tools in our toolbox, and we will continue to use them and put additional sanctions on North Korea until they stop this behavior.”

In response, Andrew Ross Sorkin countered that “we haven’t been able to move the needle on China, which seems to be the real mover on this, in terms of being able to apply the real pressure. What do you think the issue is? What is the problem?” The stunner was revealed in Mnuchin’s answer: “I think we have absolutely moved the needle on China. I think what they agreed to yesterday was historic. I’d also say I put sanctions on a major Chinese bank.That’s the first time that’s ever been done. And if China doesn’t follow these sanctions, we will put additional sanctions on them and prevent them from accessing the U.S. and international dollar system. And that’s quite meaningful.”

And to underscore his point, the Treasury Secretary also said that “in North Korea, economic warfare works. I made it clear that the President was strongly considering and we sent a message that anybody that wanted to trade with North Korea, we would consider them not trading with us. We can put on economic sanctions to stop people trading.” In other words, to force compliance with the North Korean sanctions, Mnuchin threatened Beijing with not only trade war, but also a lock out from the dollar system, i.e. SWIFT, something the US did back in 2014 and 2015 when it blocked off several Russian banks as relations between the US and Russia imploded. Of course, whether the US would be willing to go so far as to use the nuclear option, and pull the dollar plug on its biggest trade partner, in the process immediately unleashing an economic depression domestically and globally is a different matter.

So far Washington has been reluctant to impose economic sanctions on China over concerns of possible retaliatory measures from Beijing and the potentially catastrophic consequences for the global economy. Washington runs a $350 billion annual trade deficit with Beijing, while the PBOC also holds over $1 trillion in US debt. Ironically, the biggest hurdle to the implementation of the just passed sanctions may be the president himself. “We think it’s just another very small step, not a big deal,” Trump told reporters at the start of a meeting with Malaysian Prime Minister Najib Razak. “I don’t know if it has any impact, but certainly it was nice to get a 15-to-nothing vote, but those sanctions are nothing compared to what ultimately will have to happen,” said Trump who has vowed not to allow North Korea to develop a nuclear ballistic missile capable of hitting the United States.

Read more …

Xi demands peace for the Party Congress. Brokerages have been told: no holidays during Congress.

Yuan Fixing Takes Center Stage, Again (BBG)

China’s yuan fixing is back in focus, with a run of surprises moving the market in recent days. The central bank set its reference rate – which limits onshore moves to 2% on either side – at a weaker than expected level for the third day in a row Wednesday. The rates, and the removal of a reserve requirement rule on the trading of foreign-exchange forwards, are fueling bets that authorities want to limit gains after the onshore yuan surged more than 4% against the dollar in the three months through Sept. 7. The People’s Bank of China set Wednesday’s fixing at 6.5382 per dollar, compared with the average forecast of 6.5355 in a Bloomberg survey of 19 traders and analysts. The authorities have had greater opportunity to sway the fixing either way since May, with the introduction of a “counter-cyclical factor” to the rate-setting mechanism.

“The PBOC still wants a relatively stable yuan,” said Nathan Chow at DBS. “Even if it strengthens or weakens, the pace needs to be controlled, and in an orderly and gradual manner. This will be easier for exporters to manage risks. The market expectation is that there should be no big changes or surprises before the party congress next month.” The yuan’s rally began to falter on Friday as the removal of the reserve rule made it less expensive to bet on yuan declines. The monetary authority weakened Tuesday’s fixing by the most in eight months following an overnight surge in a gauge of the greenback, pushing the onshore spot rate lower.

Read more …

“There are a lot of companies raising a lot of money for not very good ideas..”

Cryptocurrency Chaos As China Cracks Down On ICOs (R.)

China’s move last week to ban initial coin offerings (ICO) has caused chaos among start-ups looking to raise money through the novel fund-raising scheme, prompting halts, about-turns and re-thinks. China is cracking down on fundraising through launches of token-based digital currencies, targeting ICOs in a market that has ballooned this year in what has been a bonanza for digital currency entrepreneurs. The boom has fueled a jump in the value of cryptocurrencies, but raised fears of a potential bubble. “This is not unlike the dotcom bubble of 2000,” said a partner at a venture capital fund in Shanghai, who didn’t want to be named because of the issue’s sensitivity. “There are a lot of companies raising a lot of money for not very good ideas, and these will eventually be weeded out. But even from the big dotcom bust, you still have gems.”

“One of the reasons regulators stepped in was that the ICO fever extended beyond the traditional crypto community. The timing was an attempt to pre-empt this before it goes into a much broader mass market in China,” the partner said. Investors in China contributed up to 2.6 billion yuan ($394 million) worth of cryptocurrencies through ICOs in January-June, according to a state-run media report citing National Committee of Experts on Internet Financial Security Technology data. Pre-ICO roadshows featuring elaborate standing room-only presentations at 5-star hotels drew a diverse crowd, including grandmothers – a likely tipping point for regulators. The hype and subsequent crackdown came as China focuses on economic and social stability ahead of next month’s congress of the Communist Party, a once-in-five-years event.

Beijing is also waging a broader campaign against fraudulent fundraising and speculative investment, which analysts attribute to China’s underdeveloped financial regulation and lack of legitimate investment options. While several start-ups said the exuberance had got out of control and they had expected Beijing to act, they said last week’s move panicked investors and caused confusion.

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Worse than tulip bulbs.

JPMorgan’s Dimon Says Bitcoin ‘Is A Fraud’ (R.)

Bitcoin “is a fraud” and will blow up, Jamie Dimon, chief executive of JPMorgan Chase, said on Tuesday. Speaking at a bank investor conference in New York, Dimon said, “The currency isn’t going to work. You can’t have a business where people can invent a currency out of thin air and think that people who are buying it are really smart.” Dimon said that if any JPMorgan traders were trading the crypto-currency, “I would fire them in a second, for two reasons: It is against our rules and they are stupid, and both are dangerous.” Dimon’s comments come as the bitcoin, a virtual currency not backed by any government, has more than quadrupled in value since December to more than $4,100.

[..] “It is worse than tulips bulbs,” Dimon said, referring to a famous market bubble from the 1600s. JPMorgan and many of its competitors, however, have invested millions of dollars in blockchain, the technology that tracks bitcoin transactions. Blockchain is a shared ledger of transactions maintained by a network of computers on the internet. Dimon said such uses will roll out over coming years as it is adapted to different business lines. Financial institutions are hoping blockchain can be adapted to simplify and lower the costs of processes such as securities settlement, loan trading and international money transfers. Dimon predicted big losses for bitcoin buyers. “Don’t ask me to short it. It could be at $20,000 before this happens, but it will eventually blow up.” he said.

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From Reagan’s Budget Director.

America’s Fiscal Doomsday Machine (Stockman)

Maybe the Democrats did win the 2016 election. Or at least the the Deep State and its accomplices among the beltway political class, K-Street lobbies and the media did. That’s because the media won a giant victory against something they deplore and despise more than anything else — the public debt ceiling. They sanctimoniously admonish that it’s a relic of the nation’s fiscally benighted past. They operate on a belief that this is an episodic tendency to threaten America’s credit and to offer Capitol Hill an opening to grandstand about the fiscal verities is a blight on orderly governance. So the Donald’s latest burst of impetuosity — agreeing with Sen. Schumer to permanently abolish the public debt ceiling — has descended on the beltway like manna from heaven.

Not Barack Obama, Bill Clinton, Jimmy Carter or even the Great Texas Porker, Lyndon Johnson, dared to utter the thought of it — at least not in polite company. Suddenly, and notwithstanding all the good he has done disrupting the status quo, the Donald has become the foremost enemy of America’s very financial survival. The Federal budget is a Fiscal Doomsday Machine. The depository of American wars and entitlements have run rampant. Under the pile drivers of a global empire and the retiring baby boom, it is rapidly propelling the nation toward fiscal catastrophe. That grim outcome is virtually guaranteed if the only remaining safety brake — the debt ceiling — is summarily abolished. Due to entitlements, debt service and the slow pipeline of appropriated spending there is no such thing as an annual Federal budget or accountability for how much Uncle Sam spends and borrows.

Instead, the $4.1 trillion that Congressional Budget Office (CBO) projects the Federal government will spend in FY 2018, and the $563 billion it will borrow, reflects the dead hand of the past. Entitlements and other mandatory spending alone is projected to reach $2.566 trillion or 63% of total FY 2018 outlays. Another $307 billion will be required for interest on the nation’s $20 trillion public debt, while upwards of half the $1.22 trillion for so-called “discretionary” or appropriated programs also reflects funds appropriated years ago. Altogether, $3.5 trillion, or 85% of outlays, will be essentially baked into the cake before a single Congressional vote is taken on anything regarding the FY 2018 budget.

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They just want to lend more.

IMF Is Resisting A Moratorium On Barbuda’s Sovereign Debt Repayments (Ind.)

The IMF is resisting putting a moratorium on Barbuda’s sovereign debt repayments in the wake of the devastation left by Hurricane Irma on the tiny Caribbean island. Barbuda is said to have lost around 90% of its structures in the wake of the storm and the national repair and reconstruction bill has been estimated at $150m. The prime minister of Antigua and Barbuda, Gaston Browne, has also said that around half or the island’s population of 1,600 is now homeless. Yet Antigua and Barbuda have debt with the IMF of around $15.8m and a coalition of US faith institutions have been calling on the Fund to pause the repayments of states battered by the hurricane. However, the IMF’s special representative to the UN, Christopher Lane, reportedly suggested late last week that the Fund would rather lend more money to the island, rather than stop collecting the repayments due.

“Our general view is that we’d rather put new money in than to have moratoria,” he said, according to Court House News. Stressing that were technical and political difficulties in simply stopping the debt collection he said: “We borrow money from our members who lend. So we’d have to get agreement from the lending parties.” “We might borrow money from the United States and loan that to Antigua. If we don’t get paid back on time, we’d have to make an arrangement with the source of the funds themselves. It gets a bit arcane, but there’s a number of constraints on how we operate. We’re like a bank. We borrow and lend.”

In a letter to the IMF managing director Christine Lagarde on 7 September the Jubilee USA network wrote: “We invite the IMF to implement an immediate moratorium on debt payments for countries severely impacted by the Category 5 storm until they have rebuilt and recovered.” “For example, the nation of Antigua and Barbuda has almost $3m in debt payments due to the Fund today and a debt payment moratorium could immediately be put into rebuilding Barbuda where almost the entire population is homeless.” The group also urged that further IMF reconstruction payments to Barbuda, and other affected islands, should be in the form of grants, rather than loans.

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All major banks are.

UK’s High Street Banks Are Accident Waiting To Happen (G.)

The UK’s high street banks are an accident waiting to happen and could struggle in another financial crisis, according to a report published on Wednesday to mark the 10th anniversary of the run on Northern Rock. The report criticises the annual health checks – stress tests – that have been conducted by the Bank of England since the crisis and concludes that the methodology used by Threadneedle Street is flawed and the tests not gruelling enough. [..] Kevin Dowd, a professor of finance and economics at Durham University and a long-standing critic of the stress tests, said the Bank does not use the correct measures to assess the health of the banking system. Dowd is also a senior fellow at the Adam Smith Institute, a rightwing thinktank. His analysis – which the Bank of England has previously rejected – focuses on the health check of the major lenders published last November.

Those tests were based on a number of hypothetical scenarios including house prices falling and the global economy contracting by 1.9%. Royal Bank of Scotland failed the test and Barclays and Standard Chartered would both have struggled to cope. Dowd argued that the scenarios were “hardly doomsday” and disputes the way banks’ capital strength is measured. “The stress tests are about as useful as a cancer test that cannot detect cancer. They seek to demonstrate a financial resilience on the part of UK banks that simply isn’t there,” said Dowd in the report. “Our banking system is an accident waiting to happen.” The Bank uses the value of assets as calculated by the banks rather than their value on the markets which, he argued, would give a more accurate assessment of their financial health. “It is disturbing that 10 years on from Northern Rock, the best measures of leverage – those based on market values – indicate that UK banks are even more leveraged than they were then,” said Dowd.

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“American warfare in 7 different countries..”

We Must Repeal The Authorization For The Use Of Military Force (Rand Paul)

As Congress takes up the 2018 National Defense Authorization Act (NDAA), I will insist it vote on my amendment to sunset the 2001 and 2002 Authorizations for the Use of Military Force. Why? Because these authorizations to use military force are inappropriately being used to justify American warfare in 7 different countries. Sunsetting both AUMFs will force a debate on whether we continue the Afghanistan war, the Libya war, the Yemen war, the Syria war, and other interventions. Our military trains our soldiers to be focused and disciplined, yet the politicians who send them to fight have for years ignored those traits when developing our foreign policy. The result? Trillions spent in seemingly endless conflicts in every corner of the globe, while we find ourselves 16 years into the war in Afghanistan wondering what our purpose there even is any more, or if we’ll ever bring our troops home.

If we don’t get this rudderless foreign policy under control now, we’ll still be asking the same questions another 16 years down the road. It’s time to demand the policymakers take their own jobs as seriously as the men and women we ask to risk it all for our nation. Doing so means restoring constitutional checks and balances. Congress has no greater responsibility than defending our country, and the Founders entrusted it with the power of declaring war because they wanted such a weighty decision to be thoroughly debated by the legislature instead of unilaterally made by the Executive branch. Yet Congress has largely abdicated its role anyways, and its sidekick status was plainly evident when former President Obama proposed a new AUMF for the fight against ISIS while insisting he really had all the authority he needed – it being more of a “wouldn’t it be nice” afterthought than an acknowledgement of any required step.

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Not a lot of insight into what’s wrong with US Democrats.

Democrats Fought For 25 Years Over Single-Payer. Now Many Back Sanders (Sirota)

When U.S. Sen. Bernie Sanders’ introduces his Medicare-for-All legislation on Wednesday, advocates of a single-payer, government-sponsored health care hope it will be the end of a bitterly fought policy battle that has roiled the Democratic Party for generations. Since Democratic President Harry Truman first proposed a government-sponsored universal health care system in 1945 — and since a Democratic president and Democratic congress first enacted Medicare and Medicaid in the mid-1960s — progressives have hoped that the United States would follow other industrialized countries by guaranteeing health care to all citizens. Indeed, many of the original proponents of Medicare hoped the system would ultimately be expanded to cover the entire country — as former Social Security commissioner Robert Ball wrote, “We expected Medicare to be a first step toward universal national health insurance.”

And although the intervening years saw the rise of Republican President Ronald Reagan, who derided “socialized medicine,” some Democrats continued to champion the idea. The party’s 1992 presidential contender Jerry Brown ran for the White House promising to support single-payer. But when Bill Clinton defeated him and won the presidency, the Clinton administration opted to back health care reforms that preserved the existing private insurance system — even as Hillary Clinton made favorable comments about single-payer. A generation later, Barack Obama also retreated from single-payer, and instead pushed the Affordable Care Act, which subsidizes the private insurance system.

Now, things appear once again to be shifting. Even as Sanders has declared that his Medicare-for-All bill is not a litmus test, Democrats from across the party’s ideological spectrum are flocking to his legislation. On the progressive side, Democratic senators such as Elizabeth Warren (MA), Jeff Merkley (OR) and Al Franken (MN) have signed onto the legislation. Within the party establishment, former Vice President Al Gore has expressed support, as has conservative former Sen. Max Baucus — one of the architects of the Affordable Care Act whom single-payer advocates saw as a nemesis. With polls showing rising support for government-sponsored health care, the party’s long civil war over the issue may be over, potentially allowing a more unified party to campaign on Medicare-for-All in 2018.

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China has hardly enough land to feed its people.

China Plans Nationwide Use Of Ethanol Gasoline By 2020 (R.)

China plans to roll out the use of ethanol in gasoline nationally by 2020, state media reported on Wednesday citing a government document, as Beijing intensifies its push to boost industrial demand for corn and clean up choking smog. It’s the first time the government has set a targeted timeline for pushing the biofuel, known as E10 and containing 10% corn, across the world’s largest car market, although it has yet to announce a formal policy. Mandates requiring that a minimum amount of biofuel must be blended into fuel for the nation’s cars, similar to the United States and Brazil, are currently set at a provincial level. “This news has greatly boosted confidence inside the industry,” said Michael Mao, analyst with Sublime China Information, adding that without government support ethanol would likely be too expensive to survive in the market.

Shares in biofuel producers rallied on the news, with Shandong Longlive Bio-Technology Co surging 10%, on track for its biggest one-day gain since December 2015. Major producer COFCO Biochemical Anhui Co, a listed unit of state-owned grains trader COFCO, was up almost 6%. A renewed effort to promote the nation’s fledging biofuels industry will be a further blow to major oil producers. On Saturday, the government said it has begun studying when to ban the production and sale of cars using traditional fuels. The news comes after the government said late last year it would aim to double ethanol output by 2020 amid growing pressure to whittle down mountains of ageing corn in state warehouses.

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Some good points, but needs much more work.

Capitalism Can’t Save The Planet – It Can Only Destroy It (Monbiot)

There was “a flaw” in the theory: this is the famous admission by Alan Greenspan, the former chair of the Federal Reserve, to a congressional inquiry into the 2008 financial crisis. His belief that the self-interest of the lending institutions would lead automatically to the correction of financial markets had proved wrong. Now, in the midst of the environmental crisis, we await a similar admission. We may be waiting some time. For, as in Greenspan’s theory of the financial system, there cannot be a problem. The market is meant to be self-correcting: that’s what the theory says. As Milton Friedman, one of the architects of neoliberal ideology, put it: “Ecological values can find their natural space in the market, like any other consumer demand.” As long as environmental goods are correctly priced, neither planning nor regulation is required.

Any attempt by governments or citizens to change the likely course of events is unwarranted and misguided. But there’s a flaw. Hurricanes do not respond to market signals. The plastic fibres in our oceans, food and drinking water do not respond to market signals. Nor does the collapse of insect populations, or coral reefs, or the extirpation of orangutans from Borneo. The unregulated market is as powerless in the face of these forces as the people in Florida who resolved to fight Hurricane Irma by shooting it. It is the wrong tool, the wrong approach, the wrong system. There are two inherent problems with the pricing of the living world and its destruction. The first is that it depends on attaching a financial value to items – such as human life, species and ecosystems – that cannot be redeemed for money. The second is that it seeks to quantify events and processes that cannot be reliably predicted.

[..] A system that depends on growth can survive only if we progressively lose our ability to make reasoned decisions. After our needs, then strong desires, then faint desires have been met, we must keep buying goods and services we neither need nor want, induced by marketing to abandon our discriminating faculties, and to succumb instead to impulse. [..] Continued economic growth depends on continued disposal: unless we rapidly junk the goods we buy, it fails. The growth economy and the throwaway society cannot be separated. Environmental destruction is not a byproduct of this system: it is a necessary element.


Illustration: Sebastien Thibault

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Sep 052017
 
 September 5, 2017  Posted by at 7:43 am Finance Tagged with: , , , , , , , , , ,  1 Response »
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Irma

 

The Supernova Nature Of Asset Bubbles (CHS)
Bitcoin Tumbles as PBOC Declares Initial Coin Offerings Illegal (BBG)
China ICO Crackdown May Just Be The Start (R.)
Caribbean, Florida Brace For Hurricane Irma (BBC)
Landlords Demand Rent On Flooded Houston Homes (G.)
Germany Must Pay Poland Up To $1 Trillion In Reparations – Minister (Ind.)
Populist Hopeful Shunned by Italian Elite on Shores of Lake Como (BBG)
China May Be The Real Target Of North Korea’s Pressure (AFP)
Nuclear-Armed Nations Brought The North Korea Crisis On Themselves (G.)
New Kind Of Black Hole Found At The Centre Of The Milky Way (RT)
Established Story That Humans Came From Africa May Be Wrong (Ind.)

 

 

It takes ever more effort to keep a bubble inflated.

The Supernova Nature Of Asset Bubbles (CHS)

The trouble with inflating asset bubbles is that you have to keep inflating them or they pop. Unfortunately for the bubble-blowing central banks, asset bubbles are a double-bind: you cannot inflate assets forever. At some unpredictable point, the risk and moral hazard that are part and parcel of all asset bubbles trigger an avalanche of selling that pops the bubble. This is another facet of The Fed’s Double-Bind: if you stop pumping asset bubbles, they pop as participants realize the music has stopped, and if you keep pumping them, they expand to super-nova criticality and implode.

There are several dynamics at play in this double-bind.

1. The process of inflating a bubble (for example, the current bubbles in stocks and real estate) requires pushing investors and speculators alike into risky asset classes. This puts the market at increasing risk as everyone is pushed to one side of the boat.

2. Those on the other side of the boat (i.e. shorts) are slowly but surely eradicated as the pumping keeps inflating the bubble. When the bubble finally bursts, there are no shorts left to cover, i.e. buy stocks at lower prices to reap their profits.

3. As the bubble continues to expand, the money available to enter the market and keep prices rising declines. The very success of the pumping process strips the markets of new sources of new money, leading to a point where normal selling exceeds new-money buying and the bubble collapses.

4. Money pumping by central banks and governments follows a curve of diminishing return. One analogy is insulin insensitivity: as the systemic distortions build, markets become increasingly insensitive to money pumping. Authorities respond to this intrinsic process of increasing insensitivity by pumping even more money into the system. But as with insulin insensitivity, at some point the system loses all sensitivity to money pumping: no matter how much money central authorities inject, the markets refuse to go higher. At this point, the stick-slip nature of bubbles manifests and modest selling triggers a collapse as participants all rush for the exits. Buyers have vanished and there is no longer a bid at any price.

5. Having pumped the assets higher with ever-greater injections of speculative risk and pumping, central banks and states have exhausted their ability to re-inflate assets as they collapse.

Systems cannot be controlled once risk and moral hazard have been raised to levels where instability is an intrinsic feature of the system. Those who actually believe the Fed can keep asset bubbles inflated at a permanently high plateau will discover their error in dramatic fashion, as the bigger the bubble, the more violent the implosion. This is the super-nova nature of asset bubbles: if you try to deflate the bubble slowly, it implodes, but if you keep inflating the bubble it eventually implodes from its internal extremes.

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China needs its foreign reserves. The last thing it needs is a way for money to leave the country that it has no control over. Other countries have no choice but to follow suit.

Bitcoin Tumbles as PBOC Declares Initial Coin Offerings Illegal (BBG)

Bitcoin tumbled the most since July after China’s central bank said initial coin offerings are illegal and asked all related fundraising activity to be halted immediately, issuing the strongest regulatory challenge so far to the burgeoning market for digital token sales. The People’s Bank of China said on its website Monday that it had completed investigations into ICOs, and will strictly punish offerings in the future while penalizing legal violations in ones already completed. The regulator said that those who have already raised money must provide refunds, though it didn’t specify how the money would be paid back to investors. It also said digital token financing and trading platforms are prohibited from doing conversions of coins with fiat currencies. Digital tokens can’t be used as currency on the market and banks are forbidden from offering services to initial coin offerings.

“This is somewhat in step with, maybe not to the same extent, what we’re starting to see in other jurisdictions – the short story is we all know regulations are coming,” said Jehan Chu at Kenetic Capital in Hong Kong, which invests in and advises on token sales. “China, due to its size and as one of the most speculative IPO markets, needed to take a firmer action.” Bitcoin tumbled as much as 11.4%, the most since July, to $4,326.75. The ethereum cryptocurrency was down more than 16% Monday, according to data from Coindesk. ICOs are digital token sales that have seen unchecked growth over the past year, raising $1.6 billion. They have been deemed a threat to China’s financial market stability as authorities struggle to tame financing channels that sprawl beyond the traditional banking system. Widely seen as a way to sidestep venture capital funds and investment banks, they have also increasingly captured the attention of central banks that see in the fledgling trend a threat to their reign.

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The Chinese know how corrupt their countrymen are.

China ICO Crackdown May Just Be The Start (R.)

China is poised to further tighten rules on virtual currencies after regulators on Monday banned virtual coin fundraising schemes, Chinese financial news outlet Yicai reported, citing sources. China banned and deemed illegal the practice of raising funds through launches of token-based digital currencies, targeting so-called initial coin offerings (ICO) in a market that has exploded since the start of the year. Yicai’s report late Monday cited a source close to decision-makers as saying the announcement on the ban was just the start of further follow-up regulations of virtual currencies. In total, $2.32 billion has been raised through ICOs globally, with $2.16 billion of that being raised since the start of 2017, according to cryptocurrency analysis website Cryptocompare.

Bitcoin rival ethereum, which token-issuers usually ask to be paid in and which has seen dramatic growth this year, fell sharply on the news. It was down almost 20% on Monday at $283, according to trade publication Coindesk. Bitcoin was also down 8%, while the total value of all cryptocurrencies was down around 10% after China’s ban was announced, according to industry website Coinmarketcap.com.

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Wonder what reporting will look like if islands are destroyed but US mainland is not.

Caribbean, Florida Brace For Hurricane Irma (BBC)

Hurricane Irma has been upgraded to a powerful category four storm as warnings have been issued for several Caribbean islands. The hurricane had sustained winds of up to 220km/h (140mph) and was likely to strengthen in the next 48 hours, the US National Hurricane Center (NHC) said. Irma was projected to hit the Leeward Islands, causing storm surges, life-threatening winds and torrential rain. The US state of Florida has declared a state of emergency. It comes as residents in Texas and Louisiana are reeling from the effects of Hurricane Harvey, which struck as a category four storm, causing heavy rain and destroying thousands of homes. However the NHC warned that it was too early to forecast Irma’s exact path or effects on the continental US. Irma was set to reach the Leeward Islands, east of Puerto Rico, by late Tuesday or early Wednesday (local time), the centre added.

The storm was moving at a speed of 20km/h (13mph). It may cause rainfall of up to 25cm (10in) in some northern areas and raise water levels by up to 3m (9ft) above normal levels, the NHC said. Puerto Rico also declared a state of emergency and activated the National Guard. Governor Ricardo Rossello announced the opening of emergency shelters able to house up to 62,000 people, and schools would be closed on Tuesday. Long queues of people formed in shops, with residents stocking water, food, batteries, generators and other supplies. Hurricane warnings have been issued for the islands of Antigua and Barbuda, Anguilla, Montserrat, St Kitts and Nevis, St Martin, Sint Maarten, St Barthelemy, Saba, St Eustatius, Puerto Rico, British Virgin Islands and US Virgin Islands. It means that hurricane conditions are expected in the next 36 hours.

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Absurdity.

Landlords Demand Rent On Flooded Houston Homes (G.)

An acute housing crisis is starting to grip thousands of other families in south-east Texas as the floodwaters ebb away, with a death toll put at 60 on Monday. More than 180,000 houses in the Houston area have been badly damaged, with only a fraction of occupants owning any flood insurance. And under Texas law, rent must still be paid on damaged dwellings, unless they are deemed completely uninhabitable. A spokeswoman for the city of Houston’s housing department said city officials “are aware these problems exist” but said that state law deals with the situation. She said the city was still assessing the total number of people in need of housing assistance. Under the Texas property code, if a rental premises is “totally unusable” due to an external disaster then either the landlord or tenant can terminate the lease through written notice.

But if the property is “partially unusable” because of a disaster, a tenant may only get a reduction in rent determined by a county or district court. “There are a lot of property owners who aren’t conscious of what has gone on; they are being rude and kicking people out,” said Isela Bezada, an unemployed woman who lived with 10 family members in a Houston house until her landlord took her to court to evict her after the hurricane hit. Bezada, like Fuentes, has had almost every area of her life touched by the flood. Her relatives, who work in home renovations, have little opportunity to bring in money until the full gutting of sodden houses – piles of torn up carpet, broken chairs and children’s toys have become a common adornment to the front of Houston homes – and she worries about other family members stranded in Port Arthur by a flooded highway.

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Greece first.

Germany Must Pay Poland Up To $1 Trillion In Reparations – Minister (Ind.)

Germany should consider paying Poland as much as $1 trillion in World War II reparations, according to the Polish foreign minister. Poland’s foreign minister Witold Waszczykowski told local radio station RMF that “serious talks” were needed with Germany to “find a way to deal with the fact that German-Polish relations are overshadowed by the German aggression of 1939 and unresolved post-war issues.” He said Poland’s material losses were about $1 trillion, or higher. Polish defense minister Antoni Macierewicz also accused European critics of trying to “erase” the fate of the Poles at German hands during the war “from the historical memory of Europe”.

The country’s right-wing government has dismissed a 1953 resolution by Poland’s former communist government which dropped any claim to reparations from Germany, and are instead claiming that Germany is “shirking” its moral responsibility. Critics of the government say they are talking about reparations to divert attention from their nationalistic agenda. Around six million Polish citizens, including about three million Jews, were killed during the war and much of Warsaw was destroyed. Mr Waszczykowski did not say when Poland would make public its formal position on repatriations.

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Just keep saying populist often enough. He’s right about the euro: “a currency tailor-made for the German economy.”

Populist Hopeful Shunned by Italian Elite on Shores of Lake Como (BBG)

Populist would-be premier Luigi Di Maio had an awkward introduction to the Italian elite. The Five Star Movement’s most likely candidate for next year’s election was ignored by Italy’s business and financial establishment when he arrived at an exclusive networking event by Lake Como on Sunday. Di Maio, 31, was reduced to posing for photographers, while a passing banking executive muttered that he hoped the populist might learn something from his visit. His group, which wants a referendum on Italy’s euro membership, is virtually tied in opinion polls with the Democratic party of ex-premier Matteo Renzi, and with a possible center-right alliance including the Forza Italia party of Silvio Berlusconi. Di Maio sought to reassure.

Those opinion polls – as well as the possibility of a hung parliament – are prompting fears of political instability and financial turbulence with elections due by late May, even as the third-biggest economy in the euro area recovers from its worst recession since World War II. “We don’t want a populist, extremist or anti-European Italy,” he told the Ambrosetti Forum in Cernobbio, in a bid to win round his skeptical audience. The euro referendum plan is simply “a last resort,” he added, to force reforms of the European Union and “a currency tailor-made for the German economy.”

The proposals of Five Star, co-founded by ex-comic Beppe Grillo, also include a monthly €780 “citizen’s income” for the poor and the jobless, purging private lenders from control of the Bank of Italy, and tougher penalties for managers of bankrupt banks. “We want to stay in the EU and discuss some of the rules which are suffocating and damaging our economy,” Di Maio said. “And the money we’re giving the EU budget every year must be one of the themes to put forward to the other countries.” Many of those ideas were anathema to those debating world affairs at the luxury Villa D’Este hotel – a five-star institution with which the assembled ruling class was altogether more comfortable.

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Xi has to polish his image before the Congress in October. He can’t let this continue.

China May Be The Real Target Of North Korea’s Pressure (AFP)

North Korea’s escalating nuclear provocations are putting putative ally China in an increasing bind, and may be part of a strategy to twist Beijing’s arm into orchestrating direct talks between Pyongyang and Washington, analysts said. The North’s Kim dynasty has repeatedly used nuclear brinkmanship over the years in a push to be taken seriously by the United States but traditionally avoided causing major embarrassment to China, its sole major ally and economic lifeline. But leader Kim Jong-Un’s detonation Sunday of what he called a hydrogen bomb marked the second time this year that the 33-year-old family scion upstaged Chinese President Xi Jinping just as he was hosting a carefully choreographed international gathering.

Communist propaganda deifies Xi as an infallible father figure, but Kim’s actions are puncturing the facade and exposing the Chinese leader’s impotence toward the nuclear crisis on his doorstep. “North Korea’s repeated nuclear and missile tests have put China in a more and more difficult position,” said Shi Yinhong, Director of the Center for American Studies at Renmin University in Beijing. Shi said Kim – who has never met Xi – had become “more and more hostile towards China” after Beijing signed on to tougher new international sanctions against Pyongyang. That has apparently made Kim more willing to bring pressure on Xi, said Jean-Pierre Cabestan, a political science professor at Hong Kong Baptist University. Kim may be using Xi “like a cue ball in billiards,” Cabestan said, “in order to get negotiations with the United States.” “But he has to be careful not to infuriate Xi as China is his only lifeline.”

Pyongyang’s sixth nuclear test, by far its most powerful to date, came just as leaders of the five BRICS emerging economies – Brazil, Russia, India, China, and South Africa – gathered for a summit. The meeting in the southeastern city of Xiamen was intended to be the typical China-hosted event — micromanaged to the smallest detail to portray Xi at home as a wise and benevolent world leader. But Kim stole the spotlight, just as he did in May when the North conducted a missile test that embarrassed Xi as he hosted a large international summit on trade.

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Valid points.

Nuclear-Armed Nations Brought The North Korea Crisis On Themselves (G.)

North Korea’s defiant pursuit of nuclear weapons capabilities, dramatised by last weekend’s powerful underground test and a recent long-range ballistic missile launch over Japan, has been almost universally condemned as posing a grave, unilateral threat to international peace and security. The growing North Korean menace also reflects the chronic failure of multilateral counter-proliferation efforts and, in particular, the longstanding refusal of acknowledged nuclear-armed states such as the US and Britain to honour a legal commitment to reduce and eventually eliminate their arsenals. In other words, the past and present leaders of the US, Russia, China, France and the UK, whose governments signed but have not fulfilled the terms of the 1970 nuclear non-proliferation treaty (NPT), have to some degree brought the North Korea crisis on themselves.

Kim Jong-un’s recklessness and bad faith is a product of their own. The NPT, signed by 191 countries, is probably the most successful arms control treaty ever. When conceived in 1968, at the height of the cold war, the mass proliferation of nuclear weapons was considered a real possibility. Since its inception and prior to North Korea, only India, Pakistan and Israel are known to have joined the nuclear “club” in almost half a century. To work fully, the NPT relies on keeping a crucial bargain: non-nuclear-armed states agree never to acquire the weapons, while nuclear-armed states agree to share the benefits of peaceful nuclear technology and pursue nuclear disarmament with the ultimate aim of eliminating them. This, in effect, was the guarantee offered to vulnerable, insecure outlier states such as North Korea. The guarantee was a dud, however, and the bargain has never been truly honoured.

Rather than reducing their nuclear arsenals, the US, Russia and China have modernised and expanded them. Britain has eliminated some of its capability, but it is nevertheless renewing and updating Trident. France clings fiercely to its “force de frappe”. Altogether, the main nuclear-weapon states have an estimated 22,000 nuclear bombs. A report by the non-governmental British-American Security Information Council in May said nuclear security was getting worse. “The need for nuclear disarmament through multilateral diplomacy is greater now than it has been at any stage since the end of the cold war. Trust and confidence in the existing nuclear non-proliferation regime is fraying, tensions are high, goals are misaligned and dialogue is irregular,” the report said.

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It’s only 100,000 suns. The biggest one is 4,000 times larger.

New Kind Of Black Hole Found At The Centre Of The Milky Way (RT)

A new kind of black hole has been found at the centre of the Milky Way – a find that may help explain the evolution of the phenomena. In research conducted by Japanese astronomers using the ALMA Observatory in northern Chile, a black hole 100,000 times the size of our sun was found within a molecular gas cloud. Its relatively small size means that it is the first to be identified as an intermediate-mass black hole (IMBH). Professor Tomoharu Oka of Japan’s Keio University believes that black holes with masses greater than a million solar masses are at the centre of all galaxies and are essential to their growth. The origins of supermassive black hole, however, remain a mystery. “One possible scenario is IMBHs – which are formed by the runaway coalescence of stars in young compact star clusters – merge at the centre of a galaxy to form a supermassive black hole,” said Prof Oka.

Using the ALMA telescope, the team observed the cloud more than 195 light years from the centre of the Milky Way. In findings published in the journal Nature Astronomy, Prof Oka then used computer simulations to show the high speed motion of the gas cloud, which the team concluded was a sign that it is surrounding a black hole. “Based on the careful analysis of gas kinematics, we concluded a compact object with a mass of about 100,000 solar masses is lurking in this cloud,” Prof Oka added. The IMBH is the second-largest black hole discovered in the Milky Way next to Sagittarius A*, which is 400 million times the size of our sun. According to theories, the Milky Way should be home to about 100 million smaller black holes, but only 60 have been found.

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“.. the absence of evidence for later humans could suggest that the journey “may not have ended well..”

Established Story That Humans Came From Africa May Be Wrong (Ind.)

The belief that humans came out of Africa millions of years ago is widely believed. But it might be about to be entirely re-written, according to the authors of a new study. They claim to have found a footprint in Crete that could change the narrative of early human evolution, suggesting that our ancestors were in modern Europe far earlier than we ever thought. The accepted story of the human lineage has been largely set since researchers found fossils of our early ancestors in South and East Africa, in the middle of the 20th century. Later discoveries appeared to suggest that those that followed remained isolated in Africa for millions of years before finally moving out and into Europe and Asia. But the new discovery of a footprint that appears to have belonged to a human that trod down in Crete 5.7 million years ago challenges that story.

Humans may have left and been exploring other continents including Europe far earlier than we knew. “This discovery challenges the established narrative of early human evolution head-on and is likely to generate a lot of debate,” said Professor Per Ahlberg, who was an author on the study. “Whether the human origins research community will accept fossil footprints as conclusive evidence of the presence of hominins in the Miocene of Crete remains to be seen.” The study looked at the characteristics of the footprint, in particular examining its toes. It found that the footprint didn’t have claws, walked on two feet and had inner toes that went out further than its outer ones. All of that led them to conclude that the foot appeared to belong to our early human ancestors, who could have been walking around Europe at an early time than we ever knew.

They also make clear that the owner of the footprint and their species could have developed the same traits separately from those in Africa. At the time the footprint was made, the Sahara Desert didn’t exist and lush, savannah-like environments went all the way from North Africa to the eastern Mediterranean, and Crete hadn’t yet detached from the Greek mainland. All of that makes it easier to see how those early hominins made their way to the island. But the journey might not run into problems. Mark Maslin from University College London told The Times that while the discovery supports the idea that our ancestors used their new found bipedalism to walk into modern Europe, the absence of evidence for later humans could suggest that the journey “may not have ended well”.

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Sep 032017
 
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Edward Hopper Sunday 1926

 

America’s Superstar Companies Are a Drag on Growth (BBG)
Forget Wall Street – Silicon Valley Is The New Political Power In DC (G.)
Google To Be Hit With Record EU Fine Over Claims Of Phone Software Abuse (T.)
North Korea Quake Seems Related To Nuclear Test (BBG)
Bitcoin Tumbles To Pre Korea-Missile-Launch Level After Topping $5000 (ZH)
China Sees New World Order With Oil Benchmark Backed By Gold (ANR)
Why Houston Doesn’t Need Federal Flood Relief (Mises)
Harvey Could Bankrupt The Federal Flood-Insurance Program (ZH)
Harvey Makes Landfall in Saudi Arabia (BBG)
Pesticides Linked To Birth Abnormalities In Major New Study (Ind.)
France Votes Against The Use Of Pesticide Glyphosate (FarmingUK)

 

 

The perfect recipe for strangling an economy: “..as a result of this increased market power, the big superstar companies have been raising their prices and cutting their wages. This has lifted profits and boosted the stock market, but it has also held down real wages, diverted more of the nation’s income to business owners, and increased inequality. It has also held back productivity, since raising prices restricts economic output.”

America’s Superstar Companies Are a Drag on Growth (BBG)

Here’s a story about the U.S. economy that more people are telling these days. Since the 1980s, antitrust enforcement has gotten weaker. As a result, a few big companies have managed to capture a much bigger share of the market in various industries. Technology may have helped too, by letting big companies spread their geographic reach, and by creating network effects that keep customers locked in to platforms like Facebook. Anyway, as a result of this increased market power, the big superstar companies have been raising their prices and cutting their wages. This has lifted profits and boosted the stock market, but it has also held down real wages, diverted more of the nation’s income to business owners, and increased inequality. It has also held back productivity, since raising prices restricts economic output.

Like all big, sweeping theses about the economy, this story can’t be proven or disproven with a single research paper, or even a dozen papers. But like detectives, economists can probe various pieces and see how each one checks out. In the past few years, researchers have found that industrial concentration – measured by the market share of the four biggest companies in an industry – has indeed been increasing in most parts of the U.S. economy. They’ve documented a correlation between industrial concentration and a decline in labor’s share of national income. They’ve confirmed that profits have risen substantially. They’ve documented a slackening in the enforcement of antitrust law. And they’ve found some evidence that after mergers, prices go up while productivity doesn’t improve.

Now, a series of new papers provides even more support for key aspects of the story. The first, a paper by economists Jan de Loecker and Jan Eeckhout, has caused quite a stir in the economics press and on the blogs. De Loecker and Eeckhout find that markups – the amount that companies charge over and above their costs – have been on the rise since about 1980. Back then, according to the authors’ estimates, the average company charged a price that was about 18% above costs – now, the number is 67%.

The authors then use some very simple econ models to link a rise in markups to declines in labor’s share of national income, low-skilled workers’ wages, reduced labor force participation and a slowdown in the broader economy. It all fits with basic economic theory – less competition leads to increased market power, leading in turn to all sorts of bad economic outcomes. The second paper, by German Gutierrez and Thomas Philippon, looks at declining levels of business investment. Basic theory suggests that when top companies get more market power, they invest less in their businesses as they restrict output and raise prices. Market power could therefore be one big reason for the decline in U.S. business investment:

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But these ‘superstar’ companies can do what they want; they have the power, both politically and economically.

Forget Wall Street – Silicon Valley Is The New Political Power In DC (G.)

Funding thinktanks is just one of the ways that America’s most powerful industries exert their influence over policymakers. Much of the work takes place a quarter of a mile from the White House, in a lesser-known political power base: Washington’s K Street corridor, the epicenter of the lobbying industry. In addition to thinktanks, K Street is packed with slick corporate representatives, hired guns, and advocacy groups. The lobbyists spend their days swarming over members of Congress to ensure their private interests are reflected in legislation and regulation. While the big banks and pharma giants have flexed their economic muscle in the country’s capital for decades, there’s one relative newcomer that has leapfrogged them all: Silicon Valley. Over the last 10 years, America’s five largest tech firms have flooded Washington with lobbying money to the point where they now outspend Wall Street two to one.

Google, Facebook, Microsoft, Apple and Amazon spent $49m on Washington lobbying last year, and there is a well-oiled revolving door of Silicon Valley executives to and from senior government positions. Tech companies weren’t always so cozy with Capitol Hill. During its 1990s heyday, Microsoft accumulated enormous wealth and market share. Despite being one of the world’s largest companies, the PC software pioneer mostly kept away from Washington, spending just $2m on lobbying in 1997. However, the company’s size and anticompetitive business practices attracted the scrutiny of regulators in Clinton’s administration, whipped up by the lobbying of disgruntled competitors including Sun Microsystems, IBM and a company called Novell. The following year, the Department of Justice sued Microsoft, accusing it of using a Windows operating system monopoly to push its Internet Explorer browser to the disadvantage of rivals.

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US ‘superstar’ companies’ power has not yet fully pervaded Europe. A matter of time?!.

Google To Be Hit With Record EU Fine Over Claims Of Phone Software Abuse (T.)

Google faces a multibillion-euro fine by the European Commission for using its Android smartphone software to stifle competition. The record-breaking penalty could be imposed as soon as this month, according to industry and legal sources in Brussels. Other insiders said the commission may wait until later in the year before sanctioning Google. Brussels has accused the world’s second-biggest company of breaking anti-trust laws by forcing mobile phone manufacturers to pre-load Google apps on their devices. The fine will escalate the company’s regulatory woes in Europe, where the commission has waged a long-running campaign to try to ensure competition flourishes in the digital economy. In June, the competition commissioner Margrethe Vestager fined Google €2.4bn (£2.2bn) for doctoring search results to favour its price-comparison shopping service.

Vestager also ordered the company to change how it presents search results. It has until the end of the month to comply with the demand, or face daily fines of 5% of its global turnover. Sources expect the Android fine to be substantially higher than the shopping penalty. The software is a central pillar of the $650bn (£502bn) empire of Alphabet, Google’s owner. It powers an estimated 80% of smartphones. About half of all internet traffic is through phones. Last year Vestager, 49, accused Google of using Android as a tool to “protect and expand its dominant position in internet search”. The company allows handset makers to use the software without paying a fee, but they must pre-install Google’s Chrome browser, search bar and other apps. This stipulation “harms consumers” and prevents digital rivals “from competing on their own merits”, according to Vestager.

In addition to fining Google, she is expected to demand a fundamental overhaul of its relationship with smartphone makers, such as Samsung. That could undermine the big profits Google earns through Android. It monetises the software platform by analysing the mountains of data generated by its apps and selling targeted adverts to clients. [..] the company has strenuously denied breaking competition laws. Last year it said giving away Android “keeps manufacturers’ costs low, while giving consumers unprecedented control of their mobile devices”.

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The pressure on Xi will rise a lot. And US should sit down with Putin. Urgently.

North Korea Quake Seems Related To Nuclear Test (BBG)

North Korea said it successfully tested a hydrogen bomb with “unprecedentedly big power” on Sunday that can be loaded onto an intercontinental ballistic missile, in its first nuclear test under U.S. President Donald Trump’s watch. The test, ordered by Kim Jong Un, was a “perfect success” and confirmed the precision and technology of the hydrogen bomb, according to the Korean Central News Agency. Kim’s regime has defied Trump’s warnings as it seeks the capability to strike America with an atomic weapon. “The creditability of the operation of the nuclear warhead is fully guaranteed,” KCNA said. South Korea’s weather agency said it detected a magnitude 5.7 earthquake around 12:29 p.m. local time near the Punggye-ri nuclear test site in northeast North Korea. Energy from Sunday’s explosion was about six times stronger in force than the nuclear test conducted by Pyongyang last September, the weather agency said.

“All options are on the table,” Japanese Foreign Minister Taro Kono said on public broadcaster NHK. Prime Minister Shinzo Abe said a North Korea nuclear test would be “absolutely unacceptable and we must protest it strongly.” Pyongyang’s actions are set to further increase tensions in Northeast Asia, where concerns have grown this year that a war of words between Trump and Kim could set off a military conflict. It was the sixth nuclear test by Pyongyang since 2006 and the first since the U.S. and South Korea elected new leaders. Trump had no immediate response to the nuclear test, though he sent a tweet thanking relief workers after Hurricane Harvey devastated states in the southern U.S. He has repeatedly lashed out at North Korea since taking office, warning last month of “fire and fury” if Kim’s regime continues to threaten the U.S.

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“Chinese market regulators have begun cracking down on ICOs as “illegal fundraising vehicles” in disguise..“

Bitcoin Tumbles To Pre Korea-Missile-Launch Level After Topping $5000 (ZH)

Shortly after topping $5,000 (according to several exchanges), Bitcoin began to tumble dramatically – now down almost $500 – erasing all the post-North-Korea missile anxiety gains.

Ethereum has crashed even more.

Meanwhile, one of the world’s largest bitcoin exchange, Shanghai-based BTC China, announced it had suspended ICOCoin deposits as well as trading and withdrawals, starting 6pm on Sunday, while Caixin reports that authorities shut down a blockchain conference over the weekend on concerns unregulated Initial Coin Offerings were being used to raise funds illegally, adding that Chinese market regulators have begun cracking down on ICOs as “illegal fundraising vehicles” in disguise, and in taking a page out of the SEC playbook, will soon issue official rules on ICOs. As CoinTelegraph adds, the self-regulatory group National Internet Finance Association of China warned its members about the dangers in participating in initial coin offerings (ICO).

The group claimed that ICOs could be using misleading information as part of fundraising campaigns. In a statement in late August 2017, the online finance organization further warned its member companies to exercise extreme caution when dealing with the new fundraising mechanism. Part of the statement reads: “China Internet Finance Association members should take the initiative to strengthen self-discipline, to resist illegal financial behavior.” [..] an official for Russia’s national legislature said that new laws regulating the exchange of cryptocurrencies will be complete by the end of the fall. Anatoly Aksakov, who leads the State Duma’s financial markets committee, told Russian media this week that next steps involve the formation of a dedicated working group to address the issue.

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Sounds overcooked. But yes, US sanctions are not helping. Still, physical delivery in gold is not what anyone wants, far too clumsy for real trade. And who trusts paper gold? Even better: no-one trusts the yuan.

China Sees New World Order With Oil Benchmark Backed By Gold (ANR)

China is expected shortly to launch a crude oil futures contract priced in yuan and convertible into gold in what analysts say could be a game-changer for the industry. The contract could become the most important Asia-based crude oil benchmark, given that China is the world’s biggest oil importer. Crude oil is usually priced in relation to Brent or West Texas Intermediate futures, both denominated in U.S. dollars. China’s move will allow exporters such as Russia and Iran to circumvent U.S. sanctions by trading in yuan. To further entice trade, China says the yuan will be fully convertible into gold on exchanges in Shanghai and Hong Kong. “The rules of the global oil game may begin to change enormously,” said Luke Gromen, founder of U.S.-based macroeconomic research company FFTT.

The Shanghai International Energy Exchange has started to train potential users and is carrying out systems tests following substantial preparations in June and July. This will be China’s first commodities futures contract open to foreign companies such as investment funds, trading houses and petroleum companies. Most of China’s crude imports, which averaged around 7.6 million barrels a day in 2016, are bought on long-term contracts between China’s major oil companies and foreign national oil companies. Deals also take place between Chinese majors and independent Chinese refiners, and between foreign oil majors and global trading companies. Alan Bannister, Asia director of S&P Global Platts, an energy information provider, said that the active involvement of Chinese independent refiners over the last few years “has created a more diverse marketplace of participants domestically in China, creating an environment in which a crude futures contract is more likely to succeed.”

China has long wanted to reduce the dominance of the U.S. dollar in the commodities markets. Yuan-denominated gold futures have been traded on the Shanghai Gold Exchange since April 2016, and the exchange is planning to launch the product in Budapest later this year. Yuan-denominated gold contracts were also launched in Hong Kong in July – after two unsuccessful earlier attempts – as China seeks to internationalize its currency. The contracts have been moderately successful. The existence of yuan-backed oil and gold futures means that users will have the option of being paid in physical gold, said Alasdair Macleod, head of research at Goldmoney, a gold-based financial services company based in Toronto. “It is a mechanism which is likely to appeal to oil producers that prefer to avoid using dollars, and are not ready to accept that being paid in yuan for oil sales to China is a good idea either,” Macleod said.

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The size of both Texas and Houston Metro GDP is quite something.

Why Houston Doesn’t Need Federal Flood Relief (Mises)

In his article today, Christopher Westley noted that Texas’s economy — when measured by GDP — is larger than Canada’s. In other words: If Texas were an independent country, it would be the world’s 10th largest economy (totaling $1.6 trillion), and its citizens would be more than capable of addressing natural disasters of the magnitude of a major flood. Texas’s economy is also larger than those of Russia and Australia. By why stop our analysis at the state of Texas? Indeed, if we look at the GDP of the Houston metropolitan area, we find it comes in at $503 billion. This total is similar to the GDPs of Poland, Belgium, and Austria. It’s significantly larger than the GDPs of Norway and Denmark. Nor is Texas’s GDP largely driven by federal spending — so we can’t say that Texas’s economy depends on federal spending to stay afloat.

When we look at federal spending in Texas compared to the federal taxes paid by Texans, we find it’s nearly a one-for-one relationship. So, if the Federal government stopped spending in Texas — but allowed Texans to keep their money, Texas would be fine. [..] Of course, we’ll be told that federal disaster relief programs are all about “sharing” and “cooperation” and “kindness.” In reality, it’s all just about forcing one group of people to hand over money to another group of people. There is no doubt that Texas and Houston now face significant challenges in rebuilding after the flood. But, when we demand that other regions and states pay for the rebuilding of Texas, we’re acting as if those other states and communities don’t have problems of their own. Needs related to poverty, infrastructure, and education in, say, Michigan did not magically disappear because Texas experienced a flood.

The only reason it now seems right to take money from people in Michigan, and hand it over to Houstonians, is because Houston’s problems are in the headlines, and Michigans mundane daily problems are not. The central planners have decided that Houstonians deserve Michigan’s money. But the rationale for this decision is purely political, and thus arbitrary. This isn’t to say real sharing and kindness are a bad thing. It’s excellent that private charities have already been hard at work helping with the cleanup in Houston. If one wants to insist that governments be involved, there’s nothing stopping other states from handing over funds to Texas directly. The federal government need not be involved at all.

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Which is why the possibility of a second hurricane hitting the US this year is intriguing.

Harvey Could Bankrupt The Federal Flood-Insurance Program (ZH)

Hurricane Harvey may solve the auto industry’s inventory problem. But right now, it’s about to create a giant headache for the federal government. Based on the latest estimates from Irvine, California-based CoreLogic, insured flood losses for homes in the affected areas of Texas and Louisiana could total between $6.5 billion to $9.5 billion. Since private insurers typically don’t provide personal flood insurance, all but $500 million of that will fall to the Federal Emergency Management Agency’s National Flood Insurance Program, or NFIP. According to the Street, if insured damages reach the high end of this range, it would totally deplete the $7.5 billion of cash and available credit available to the 49-year-old government program, which provides about 98% of residential flood insurance. The program is already about $25 billion in debt to the US Treasury Department and would need Congressional authorization for additional funding.

To be sure, final totals could be much, much higher given the severity of the the “1-in-1000-year” flood. The potential funding shortfall could create problems if Congress doesn’t act quickly this month to shore up the financially-troubled flood-insurance program. As we’ve reported, Congress already has a full agenda in September – a month where lawmakers must pass a funding bill to keep the government open, and another to raise the debt limit and stave off a technical default on US debt. Initially, President Trump said he would force a government shutdown if Congress didn’t approve funding for his border wall in its next budget. However, it appears that he has backed away from this, as the Washington Post reported today that the administration has quietly notified Congress that the $1.6 billion in wall funding would not need to be included in the September continuing resolution.

Furthermore, Congress must explicitly pass legislation to keep the NFIP intact. Without it, the entire program will lapse. To be sure, there are some signs that Republicans are taking steps to ensure that emergency disaster-relief funding is approved as quickly as possible. According to a report in the Wall Street Journal, some Republican lawmakers are raising the possibility that funding for the cleanup effort could be attached to the debt-ceiling bill, giving both measures a strong chance of passing. But it didn’t say if funding for the flood-insurance program would be included. Thanks, in part, to the hurricane, and the perceived political consequences of failing to aid the disaster victims (though Texas has proven to be a reliably red state), Goldman has cut its odds of a government shutdown to 15%.

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“..even as Saudi Arabia sees prices of the end products of its industry spiking, by and large it is not capturing that windfall for itself..”

Harvey Makes Landfall in Saudi Arabia (BBG)

Hurricane Harvey has devastated the Gulf Coast, and its impact is now spreading out to the rest of the U.S., chiefly at gas pumps. But America’s resurgent role in the global energy trade means the ripples extend far beyond its own shores. One place they are lapping onto is Saudi Arabia.In theory, the de-facto leader of efforts by OPEC, Russia and other members of the so-called Vienna Group stands to gain from disruption at the nerve center of the shale boom that has helped to suppress oil prices. In practice, things are a bit more complicated.

The shale boom has moved a lot of U.S. oil production inland and contributed to a glut of barrels building up in storage. So Harvey’s biggest impact on the region’s energy industry has been the closure of ports, refineries and pipelines – and keeping many drivers off highways that have turned into lakes and streams.The net result is depressed demand for crude oil due to absent refiners and panic buying of refined products such as gasoline for the same reason. So even as Saudi Arabia sees prices of the end products of its industry spiking, by and large it is not capturing that windfall for itself:

The disruption should cause U.S. inventories of refined products to fall as they are used to cover shortages and stocks of crude oil and products to drop elsewhere as, for example, European refiners run flat-out to send fuel to the U.S. to capture higher prices. This ultimately helps Saudi Arabia.Again, though, there’s a complicating factor.Saudi Arabia has explicitly targeted the U.S. in its strategy to drain the glut; shipments of its oil to America have dropped noticeably this summer:

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Will we ever stop poisoning ourselves? No high hopes here.

Pesticides Linked To Birth Abnormalities In Major New Study (Ind.)

High exposure to pesticides as a result of living near farmers’ fields appears to increase the risk of giving birth to a baby with “abnormalities” by about 9%, according to new research. Researchers from the University of California, Santa Barbara, compared 500,000 birth records for people born in the San Joaquin Valley between 1997 and 2011 and levels of pesticides used in the area. The average use of pesticides over that period was about 975kg for each 2.6sq km area per year. But, for pregnant women in areas where 4,000kg of pesticides was used, the chance of giving birth prematurely rose by about 8% and the chance of having a birth abnormality by about 9%. Writing in the journal Nature Communications, the researchers compared this to the 5 to 10% increase adverse birth outcomes that can result from air pollution or extreme heat events.

“Concerns about the effects of harmful environmental exposure on birth outcomes have existed for decades,” they wrote. “Great advances have been made in understanding the effects of smoking and air pollution, among others, yet research on the effects of pesticides has remained inconclusive. “While environmental contaminants generally share the ethical and legal problems of evaluating the health consequences of exposure in a controlled setting and the difficulties associated with rare outcomes, pesticides present an additional challenge. “Unlike smoking, which is observable, or even air pollution, for which there exists a robust network of monitors, publicly available pesticide use data are lacking for most of the world.”

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Addicted farmers: “More than half of British farmers say they are concerned that a ban could cost them more than £10,000 every year.”

France Votes Against The Use Of Pesticide Glyphosate (FarmingUK)

The French government has voted against the renewal of an EU Commission license for the pesticide glyphosate. The decision by the French government comes as evidence emerges of the risk of birth defects caused by exposure to pesticides. Monsanto is the major supplier of products containing glyphosate, with ‘Roundup’ being the best-known product. The product is widely used by farmers, gardeners and local authorities to control weeds. In 2015 the World Health Organisation’s (WHO) classified glyphosate as a probable carcinogen. But in March, the EU’s chemicals agency said glyphosate should not be classed as a carcinogen. And a survey has shown that a ban on glyphosate in the UK could force one in five wheat farms into ‘serious financial difficulty’. More than half of British farmers say they are concerned that a ban could cost them more than £10,000 every year.

Speaking at Cereals 2017, NFU Vice President Guy Smith said: “This year looks like being a watershed year for classical chemistry for arable farms with these three decisions on the horizon from Europe. “A poor decision on endocrine disruptor definition could see an end to the availability of around 26 active ingredients; the European Commission is proposing a ban on the use of neonicotinoids on all outdoor crops; and a decision on the reauthorisation of glyphosate is due by the end of the year. “The NFU will continue to make the case for evidence-based decisions to be made in all three of these areas, and we will continue to work with our members to help them make the case to politicians and other decision makers about the importance of these products and to demonstrate the damage that bad decisions will have on farming and our food supply.”

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