Aug 302017
 
 August 30, 2017  Posted by at 8:39 am Finance Tagged with: , , , , , , , , , ,  2 Responses »


Elliott Erwitt Crowd at Armistice Day Parade, Pittsburgh 1950

 

The Economy Minus Houston (Slate)
Harvey Didn’t Come Out Of The Blue (Naomi Klein)
The US Cities with the Biggest Housing Bubbles (WS)
“Crazy” House Prices Are Firing Up New Zealand’s Voters (BBG)
China’s $2 Trillion of Shadow Lending Throws Focus on Rust Belt (BBG)
Homeowner’s Lawsuit Says Wells Fargo Charged Improper Mortgage Fees (R.)
The Battle for India’s $45 Billion Gold Industry Has Begun (BBG)
US Defense Boost May Unravel Into a $65 Billion Cut (BBG)
England’s Fire Services Suffer 25% Cut To Safety Officers Numbers (G.)
UK’s Leading Companies’ Pension Deficit Rises To 70% Of Their Profits (G.)
We Need To Nationalise Google, Facebook and Amazon (G.)
As Poverty Surges in Italy, Five Star Propose a ‘Citizens’ Income’ (BBG)
Why Every European Country Has A Trump Or Sanders Candidate (Drake)

 

 

A huge number of people will not be able to rebuild, because they lack insurance. And in many cases, rebuilding on the same -flood prone- spot wouldn’t be a good idea to begin with. But where will the people go?

Time to stop talking about the damage to the economy, and focus on the people.

The Economy Minus Houston (Slate)

Houston, America’s fourth-largest city, has a massive, diversified economy. Sure, New Orleans sits near the mouth of the mighty Mississippi River and is an important entrepôt and site for export of raw materials, agricultural commodities chemicals, and petroleum products. But Houston is a larger, busier, and far more important node in the networked economy. Economies derive their power and influence from their connections to other cities, countries, and markets. And Houston is one of the more connected. It is one of the global capitals of the energy and energy services industries. Yes, there’s a degree to which consumption and other economic activity that is forestalled or foregone during a flood is consumption and economic activity deferred. And cleanup efforts tend to be additive to local economies. But in today’s economy, a lot of value can easily be destroyed very quickly.

With only a small portion of the housing stock carrying flood insurance, billions of dollars in property will simply be destroyed and not immediately replaced. People who get paid by the hour, or who work for themselves, won’t be able to make up for the income they’re losing a few weeks from now. Hotel rooms and airplane seats are perishable goods—once canceled, they can’t simply be rescheduled. Refineries won’t be able to make up all the time offline—they can’t run more than 24 hours per day. And given that supply chains rely on a huge number of shipments making their connections with precision, the disruption to the region’s shipping, trucking, and rail infrastructure will have far-reaching effects. If you’re a business in Oklahoma or New Mexico, there’s a pretty good chance the goods you are importing or exporting pass through the Port of Houston.

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Sorry, Naomi, but you can’t take individual events and blame them on cllmate change. The system is far too complex for that. We must stick to science, not lose ourselves in assumptions.

Harvey Didn’t Come Out Of The Blue (Naomi Klein)

Now is exactly the time to talk about climate change, and all the other systemic injustices — from racial profiling to economic austerity — that turn disasters like Harvey into human catastrophes. Turn on the coverage of the Hurricane Harvey and the Houston flooding and you’ll hear lots of talk about how unprecedented this kind of rainfall is. How no one saw it coming, so no one could adequately prepare. What you will hear very little about is why these kind of unprecedented, record-breaking weather events are happening with such regularity that “record-breaking” has become a meteorological cliche. In other words, you won’t hear much, if any, talk about climate change.

This, we are told, is out of a desire not to “politicize” a still unfolding human tragedy, which is an understandable impulse. But here’s the thing: every time we act as if an unprecedented weather event is hitting us out of the blue, as some sort of Act of God that no one foresaw, reporters are making a highly political decision. It’s a decision to spare feelings and avoid controversy at the expense of telling the truth, however difficult. Because the truth is that these events have long been predicted by climate scientists. Warmer oceans throw up more powerful storms. Higher sea levels mean those storms surge into places they never reached before. Hotter weather leads to extremes of precipitation: long dry periods interrupted by massive snow or rain dumps, rather than the steadier predictable patterns most of us grew up with.

The records being broken year after year — whether for drought, storm surges, wildfires, or just heat — are happening because the planet is markedly warmer than it has been since record-keeping began. Covering events like Harvey while ignoring those facts, failing to provide a platform to climate scientists who can make them plain, all while never mentioning President Donald Trump’s decision to withdraw from the Paris climate accords, fails in the most basic duty of journalism: to provide important facts and relevant context. It leaves the public with the false impression that these are disasters without root causes, which also means that nothing could have been done to prevent them (and that nothing can be done now to prevent them from getting much worse in the future).

It’s also worth noting that the Harvey coverage has been highly political since well before the storm made landfall. There has been endless talk about whether Trump was taking the storm seriously enough, endless speculation about whether this hurricane will be his “Katrina moment” and a great deal of (fair) point-scoring about how many Republicans voted against Sandy relief but have their hands out for Texas now. That’s politics being made out of a disaster — it’s just the kind of partisan politics that is fully inside the comfort zone of conventional media, politics that conveniently skirts the reality that placing the interests of fossil fuel companies ahead of the need for decisive pollution control has been a deeply bipartisan affair.

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Wolf Richter with a whole series of US cities, all with record new highs. How people can keep saying there is no bubble in the US, I don’t know.

The US Cities with the Biggest Housing Bubbles (WS)

For the good folks who hope fervently that the Fed doesn’t have reasons to raise rates or unwind QE because there isn’t enough inflation, here is an update on one aspect of inflation – asset price inflation, and particularly house price inflation – where the value of your hard-earned dollars has collapsed over a given number of years to where it takes a whole lot more dollars to pay for the same house. So here are some visuals of amazing house price bubbles, city by city. Bubbles really aren’t hard to recognize, if you want to recognize them. What’s hard to predict accurately is when they will burst. Normally the Fed doesn’t want to acknowledge them. But now it has its eyes focused on them.

The S&P CoreLogic Case-Shiller National Home Price Index for June was released today. It jumped 5.8% year-over-year, not seasonally adjusted, once again outpacing growth in household incomes, as it has done for years. At 192.6, the index has surpassed by 5% the peak in May 2006 of crazy Housing Bubble 1, which everyone called “housing bubble” after it imploded (data via FRED, St. Louis Fed). The Case-Shiller Index is based on a rolling-three month average; today’s release was for April, May, and June data. Instead of median prices, it uses “home price sales pairs,” for example, a house sold in 2011 and then again in 2017. Algorithms adjust this price movement and add other factors. The index was set at 100 for January 2000. An index value of 200 means prices have doubled in the past 17 years, which is what most of the metros in this series have accomplished, or are close to accomplishing.

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There is no easy way out for New Zealand.

“Crazy” House Prices Are Firing Up New Zealand’s Voters (BBG)

As ownership falls to the lowest since 1951, housing affordability is firing up voters ahead of New Zealand’s general election on Sept. 23. The government is under attack for failing to respond to price surges that have forced many to ditch their property dreams. New Labour leader Jacinda Ardern has made housing a key issue, helping restore the main opposition party in opinion polls and leaving the election too close to call. “The government’s response has been too slow and inadequate for many because they’ve seen house prices rising very fast,” said Raymond Miller, professor of politics at Auckland University. “Some voters might well have a feeling of being let down by what they see as indifference to their plight. It’s the government’s Achilles’ heel.” Prices across New Zealand have risen 34% the past three years, fanned by record immigration, historically low interest rates and a supply shortage.

That’s seen the portion of owner-occupied properties slump to 63% of the nation’s 1.8 million homes in the second quarter, down from a peak of 74% in the early 1990s. In response, the ruling National Party has made more land available for development and increased deposit grants to first-home buyers. But it’s done little to curb immigration that’s added 201,000 to the population the past three years, while a policy of taxing profits on investment properties sold within two years of purchase has been criticized as too mild. Labour is pledging a more aggressive solution. It’s promising to ban property sales to non-resident foreigners who it says have fanned price pressures, and will extend the period in which investors will be subject to tax to five years. It wants to curb immigration, and plans to build 100,000 homes over 10 years and sell them at affordable prices.

“We’re going to get the government back into the business of building large numbers of affordable homes for first-home buyers like governments used to in this country,” Labour’s housing spokesman Phil Twyford said in a Television New Zealand interview. “The government has had nine years and they’ve just tinkered around the edges.” Many New Zealanders are motivated to save for a home where they can bring up a family just as their parents and grandparents did. National will be wary that disillusioned home-buyers may turn their back on the party, thwarting its efforts to win a rare fourth term. No party has won an outright majority since the South Pacific nation introduced proportional representation in 1996. National had 44% support in a poll published Aug. 17. Labour had 37% but could get across the line with the additional support of ally the Green Party, which had 4%, and New Zealand First, which got 10%.

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I think the estimates are still low.

China’s $2 Trillion of Shadow Lending Throws Focus on Rust Belt (BBG)

Regional banks in China’s rust-belt provinces are driving the rapid expansion of shadow banking in the country, fueling a web of informal lending that poses wider risks to the financial system, according to a study by UBS. Smaller rust-belt banks like Bank of Tangshan Co. and Baoshang Bank have been using products such as trust beneficiary rights and directional asset-management plans to hide the true state of their bad loans and circumvent lending restrictions, the study by analyst Jason Bedford said. Others have been using the shadow loan instruments to diversify away from lending in their struggling home provinces, exposing themselves to a much wider spectrum of Chinese corporate risk in the event of a default, according to the report. By analyzing 237 Chinese banks, many of them small and unlisted regional lenders, Bedford casts a new spotlight on underground financing and the risks it poses to the nation’s $35 trillion banking industry.

Shadow loans grew almost 15% to 14.1 trillion yuan ($2.3 trillion) by December from a year earlier, equal to about 19% of economic output, he estimates. “This is a sleeper issue,” Bedford wrote. “The remarkable level of concentration in regional banks in rust-belt region banks, combined with evidence that these assets are increasingly being used to roll over loans to existing borrowers as well as being swapped between banks without a clear transfer of risk are alarming.” Accounting for this financing, Chinese banks’ nonperforming loans could be three times higher than the official published level, he said. By recording such lending under “investment receivables” rather than “loans” on their financial statements, banks were able to disguise what is in effect lending, to get around regulatory lending curbs or heavy reliance on wholesale funding.

Such financial engineering also enabled some lenders to overstate their capital adequacy ratios, understate nonperforming loans and reduce provision charges. [..] Bank of Tangshan is an unlisted lender in the struggling northeast city of the same name, which produces more steel than any other city around the world. The firm’s shadow loans grew 86% last year to a size equal to 308% of its formal book, the highest of any bank in China, according to Bedford’s report. Still, the bank reported a bad-loan ratio of just 0.05% last year, the lowest of any bank in UBS’ analysis, exemplifying the “distortion” shadow loan books create in assessing asset quality, Bedford said.

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How is this NOT criminal intent? Where are the indictments?

Homeowner’s Lawsuit Says Wells Fargo Charged Improper Mortgage Fees (R.)

A homeowner has filed a lawsuit accusing Wells Fargo of improperly charging thousands of customers nationwide to lock in interest rates when their mortgage applications were delayed. Filed on Monday in San Francisco federal court, the lawsuit said Wells Fargo managers pressured employees to blame homeowners for the delays, sometimes by falsely stating that paperwork was missing, so homeowners could be stuck with extra fees. Wells Fargo Spokesman Tom Goyda said the bank is reviewing past practices on rate lock extensions and will take steps for customers as appropriate. The lawsuit, which will request the court grant class action status, comes as Wells Fargo is trying to recover from a scandal last year when the bank was fined for opening accounts for customers without their authorization in order to boost sales figures.

Last month, a new lawsuit accused it of charging several hundred thousand borrowers for auto insurance they did not request. Monday’s lawsuit accuses the bank of violating state and federal consumer protection laws, including the U.S. Real Estate Settlement Procedures Act and the U.S. Truth in Lending Act. Earlier this month, Wells Fargo disclosed that the Consumer Financial Protection Bureau was investigating the fees the company charged to lock in interest rates for delayed mortgage loans. In a securities filing, the bank said it was working with regulators to see if customers had been harmed by the fees. Interest rate locks are guarantees by a lender to lock in a set interest rate, usually for several weeks, while a loan is processed. If the rate lock expires before a loan closes, lenders often cover the cost of extending the lock if the delay was their fault.

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Modi taking people’s incomes away. Reforms. Here’s thinking India is nowhere near ready for this.

The Battle for India’s $45 Billion Gold Industry Has Begun (BBG)

India’s past and future are colliding in Anand Ghugre’s family jewelry shop in Mumbai. “We still operate the way my father did for 50 years,” said Ghugre, 52, explaining that transactions were typically in cash and were not always recorded. “For small jewelers and the unorganized sector, most of our sales happen through personal connections. Sometimes they don’t want bills, but the jewelers can’t say no to them.” That way of doing business is under threat as the world’s second-largest gold market faces Prime Minister Narendra Modi’s campaign to bring India’s informal economy to book. About three quarters of the estimated $45 billion of the precious metal that is traded in the country each year makes its way through thousands of family-run jewelry shops that have catered for centuries to the nation’s love of gold.

Modi’s financial reforms, including demonetization and a new goods and services tax, combined with a younger generation that shops online, may usher in a wave of takeovers and mergers by big state-wide and national chains as small shops are swallowed up or close. “The one story that we hear is that the business is becoming problematic for smaller jewelers,” said Chirag Sheth at London-based precious metals consultancy Metals Focus. “The bigger jewelers have deeper pockets, they have larger shops, better designs and better margins. It is very difficult for a smaller guy to compete.” Modi in November banned higher denomination notes to bring unaccounted cash back into the system and introduced tougher proof of identity for purchases, capped the amount of cash used in transactions and topped it off with the uniform goods and services tax last month.

An overhaul of the fragmented industry is also on the cards with the government said to be planning a new policy on gold that will bolster confidence among consumers, where the gifting of gold at weddings and festivals or its purchase as a store of value are deeply held traditions. Fixing quality standards and allowing supply chains to be easily tracked are ways to enhance trust.

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Well, we can’t have that, can we?

US Defense Boost May Unravel Into a $65 Billion Cut (BBG)

U.S. national security funding may be slashed by about $65 billion in January as lawmakers forge ahead with a spending plan that collides with a budget ceiling under a six-year-old law. A $614 billion bill passed by the U.S. House in H.R. 3219 is caught in a political vise: President Donald Trump and most lawmakers want to see increases in Pentagon spending, yet that intention isn’t backed up by an agreement to undo the 2011 Budget Control Act. Without another budget agreement in place, the Defense Department faces automatic across-the-board cuts of 9% to 10% starting in mid-January, according to Chris Sherwood, a Pentagon spokesman. That’s about $65 billion, the Congressional Budget Office estimates.

Enforcement of the act’s caps are returning for the coming fiscal year that begins Oct. 1 after they were adjusted in fiscal 2016 and 2017 for discretionary domestic and national security spending. That was the third time since the act passed that the limits were adjusted, in those cases for both defense and domestic discretionary spending. Trump wants to cut domestic spending while adding to defense, a proposal opposed by Democrats and many Republicans. If the mandatory cuts go ahead, they would be leveled across thousands of Pentagon programs. The White House would have the option of exempting military personnel funds from the automatic cuts, known as sequestration. Such cuts are likely because all of the pending congressional defense bills so far propose busting the cap of $549 billion in national security spending for fiscal year 2018, or $522 billion for the Pentagon alone.

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Cameron and Osborne and May have gutted the entire country.

England’s Fire Services Suffer 25% Cut To Safety Officers Numbers (G.)

Fire services in England have lost more than a quarter of their specialist fire safety staff since 2011, a Guardian investigation has found. Fire safety officers carry out inspections of high-risk buildings to ensure they comply with safety legislation and take action against landlords where buildings are found to be unsafe. Figures released to the Guardian under the Freedom of Information Act showed the number of specialist staff in 26 fire services had fallen from 924 to 680, a loss of 244 officers between 2011 and 2017. Between 2011 and 2016, the government reduced its funding for fire services by between 26% and 39%, according to the National Audit Office, which in turn resulted in a 17% average real-terms reduction in spending power.

Warren Spencer, a fire safety lawyer, said the figures showed a “clear culture of complacency” about fire safety. “The government has tended to take the view that fewer people are dying in fires, fires occur less frequently, and therefore there’s no need to invest in fire prevention. So there’s been a total brain drain in fire safety knowledge and many experienced specialist officers have left the force,” he said. “But fire safety officers have been saying to me for years that one day, there would be a big fire in a multiple occupancy building, which would make everyone sit up and take notice of the lack of fire safety provision. Tragically, that’s what happened at Grenfell Tower.”

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As dividends keep being paid out.

UK’s Leading Companies’ Pension Deficit Rises To 70% Of Their Profits (G.)

The combined pension deficit of FTSE 350 companies has risen to £62bn, accounting for 70% of their profits. The deficit as a proportion of profits recorded for 2016 is higher than at any time since the financial crisis, following a £12bn rise since 2015. The 25% increase came in a second year of comparatively low profit for UK publicly listed companies. The deficit is the gap between the expected liabilities of pension commitments and the funds that companies hold to pay for pensions. While many have set aside billions in recent years, a trend towards rising life expectancy, combined with lower expectations for returns on investment, has put more pressure on pension schemes and seen the deficit grow. Actuaries have warned that even a slight fall in bond yields would see the pension deficit of the plcs outstrip their aggregate profits by 2019.

The figures, in a report from the actuarial consultancy Barnett Waddingham, show the deficit has risen sharply as a proportion of profits in the past five years, from 25% of the £214bn pre-tax profits of the FTSE 350 in 2011. Even in the aftermath of the financial crisis in 2009, the deficit was lower at 60%. For 21 plcs, the pensions shortfall is more than 10% of their value, which Barnett Waddingham described as alarming. However, the actuaries said recent data suggesting years of austerity had seen gains in UK life expectancy grind to a halt could provide “welcome respite for companies”. It showed that after a century in which the rate of increase in life expectancy had accelerated, the average age of death was levelling off at 79 for men and 83 for women.

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A discussion that must take place. But the political climate doesn’t lean towards nationalization. Besides, how do you nationalize companies that operate in many dozens of countries?

We Need To Nationalise Google, Facebook and Amazon (G.)

At the heart of platform capitalism is a drive to extract more data in order to survive. One way is to get people to stay on your platform longer. Facebook is a master at using all sorts of behavioural techniques to foster addictions to its service: how many of us scroll absentmindedly through Facebook, barely aware of it? Another way is to expand the apparatus of extraction. This helps to explain why Google, ostensibly a search engine company, is moving into the consumer internet of things (Home/Nest), self-driving cars (Waymo), virtual reality (Daydream/Cardboard), and all sorts of other personal services. Each of these is another rich source of data for the company, and another point of leverage over their competitors.

Others have simply bought up smaller companies: Facebook has swallowed Instagram ($1bn), WhatsApp ($19bn), and Oculus ($2bn), while investing in drone-based internet, e-commerce and payment services. It has even developed a tool that warns when a start-up is becoming popular and a possible threat. Google itself is among the most prolific acquirers of new companies, at some stages purchasing a new venture every week. The picture that emerges is of increasingly sprawling empires designed to vacuum up as much data as possible. But here we get to the real endgame: artificial intelligence (or, less glamorously, machine learning). Some enjoy speculating about wild futures involving a Terminator-style Skynet, but the more realistic challenges of AI are far closer.

In the past few years, every major platform company has turned its focus to investing in this field. As the head of corporate development at Google recently said, “We’re definitely AI first.” All the dynamics of platforms are amplified once AI enters the equation: the insatiable appetite for data, and the winner-takes-all momentum of network effects. And there is a virtuous cycle here: more data means better machine learning, which means better services and more users, which means more data. Currently Google is using AI to improve its targeted advertising, and Amazon is using AI to improve its highly profitable cloud computing business. As one AI company takes a significant lead over competitors, these dynamics are likely to propel it to an increasingly powerful position.

What’s the answer? We’ve only begun to grasp the problem, but in the past, natural monopolies like utilities and railways that enjoy huge economies of scale and serve the common good have been prime candidates for public ownership. The solution to our newfangled monopoly problem lies in this sort of age-old fix, updated for our digital age. It would mean taking back control over the internet and our digital infrastructure, instead of allowing them to be run in the pursuit of profit and power. Tinkering with minor regulations while AI firms amass power won’t do. If we don’t take over today’s platform monopolies, we risk letting them own and control the basic infrastructure of 21st-century society.

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Of course the headline said “populists”… Fixed that.

As Poverty Surges in Italy, Five Star Propose a ‘Citizens’ Income’ (BBG)

“Poverty will be center stage in the campaign,” says Giorgio Freddi, professor emeritus of political science at the University of Bologna. The populist Five Star Movement “has imposed the issue on national politics. The mainstream parties are being forced to play catch-up.” Five Star is a fast-growing group fueled by anger at the old political class. Three years ago the movement rode economic concerns to power in Livorno, ending 70 years of rule by the Communists and other left-leaning parties. The new mayor, a former engineer named Filippo Nogarin, introduced a €500 ($590) monthly subsidy to the disadvantaged. That idea is a key plank in Five Star’s national platform, and the group’s leaders have promised to quickly implement such a program if they take power. Beppe Grillo, the former television comedian who co-founded the party, says fighting poverty should be a top priority.

A basic income can “give people back their dignity,” Grillo’s blog declared in April. “The current government is ignoring millions of families in difficulty.” The Five Star program echoes universal basic income schemes being considered around the world. Finland in January started an experiment in which 2,000 unemployed people receive a stipend of €560 per month. And the Canadian province of Ontario this summer began trials in three cities in which individuals can get almost C$17,000 ($13,600) per year. Five Star’s version would give Italians below the poverty line as much as €780 a month. Recipients must perform several hours of community service each week and actively seek work, and they’d be cut off after rejecting three job offers. Five Star says the plan would cost €17 billion a year, funded in part by spending cuts as well as tax hikes on banks, insurance companies, and gambling.

Opinion polls show Five Star neck and neck with the Democratic Party, led by ex-Premier Matteo Renzi, and a center-right bloc including Forza Italia, the party of former Premier Silvio Berlusconi. To keep Five Star from dominating the debate, Prime Minister Paolo Gentiloni, a Renzi ally, has approved a less ambitious plan he calls “the first universal tool against poverty.” The scheme, dubbed “inclusion income,” would give 1.7 million people as much as €485 a month as long as they’re actively seeking work, at a cost of about €2 billion a year. With industrial output down by about 25% from 2008 to 2013 in Italy’s worst postwar recession, either plan could be helpful, says Giuseppe Di Taranto, a professor of economic history at Rome’s Luiss University. “We lost lots of jobs, and poverty has risen so much that we’ve got to experiment.”

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More of the same. But the anti-EU, anti-globalization mood is obvious: “77% of the people questioned in a recent poll could see no advantage to them at all from the country’s membership in the European Union.” While Macron and Merkel are planning a lot more EU. And claiming that the EU is doing fine.

Why Every European Country Has A Trump Or Sanders Candidate (Drake)

As a result of the methods used to promote globalization, the consequences for the West have been tragic. Work is becoming increasingly uncertain and insecure, or it is in the process of disappearing altogether. It would take Veblen’s talents for social satire, which are unsurpassed in all of American literature, to depict with the essential exactitude of artistic synthesis how far the United States has fallen away from democratic grace, the country’s dramatically widening gap between the haves and the have-nots being what it is. Clearly, we are on the wrong course. What the robotics revolution, now at an incipient stage, will do to further diminish opportunities for Western peoples to work can be easily imagined, if the economic imperative of corporate capitalism is the rule to go by.

The same desolating trends can be seen in Europe, where people increasingly regard the European Union as a Trojan horse. The economic elites and their political front-men responsible for this image-challenged contraption lose public support with each new poll. The people by and large blame the European Union and the other accessories of globalization for their worsening standard of living. When informed by the establishment media that thanks to globalization Europe has never been more prosperous and peaceful, Europeans in historic numbers are reacting with disbelief. Their deepening sense of betrayal propels the surge of populism that defines the politics of Europe today. Arguments long-settled in favor of deregulation, liberalization, open borders, and other globalization watchwords have been reopened.

The constituency is growing for a politics that puts the well-being of Europeans first. Political measures calling for the protection of European jobs and cultures have gained a following unforeseen prior to 2008. In Italy, for example, 77% of the people questioned in a recent poll could see no advantage to them at all from the country’s membership in the European Union. 64% of them expressed hostility toward it. Eight Italian businesses out of 10 can find nothing positive to say about the European Union. It is seen to be a creature of the banks and the big financial houses. As public relations disasters go, this one has unfolded on an epic scale as the underlying populations, long left out of consideration by the economic elites, have begun to sense the fate their masters have in store for them.

Leaving underlying populations out of consideration was a special feature of the planning that went into globalization. They have been voiceless. In America, Trump gave them a voice, and they responded to him with their political support. It did not matter that he came before them without a plan for their deliverance. That he came to them at all mattered. He understood the depth of the anger and alienation in America against a status quo personified by his opponent, Hillary Clinton, whose repeated and munificently rewarded speeches before the captains of finance on Wall Street effectively branded her as the safe candidate for all who wanted to leave existing economic arrangements fundamentally undisturbed.

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Jun 032015
 
 June 3, 2015  Posted by at 10:06 am Finance Tagged with: , , , , , , , , , ,  1 Response »


Harris&Ewing Childs Restaurant, Washington, DC 1918

IMF Economists Say Some Countries Can ‘Just Live With’ High Debt (Reuters)
Fed Mouthpiece Jon Hilsenrath Furious “Stingy” US Consumers Don’t Spend (ZH)
Goldman Sachs to Companies: Stop Buying Back Your Stock (Bloomberg)
Pension Payments Are Starving Basic City Services (SacBee)
Europe and Greece: The Damage Is Done (Bloomberg)
Greek Standoff Takes Another Twist as Dueling Plans Are Drafted (Bloomberg)
Tsipras To Meet EU’s Juncker As Greece Debt Deadline Looms (AFP)
Take It Or Leave It: Will Greece Accept Deal? (CNBC)
China After the Bubble (Bloomberg)
Is China Repeating Korea’s Mistakes? (Pesek)
China Stocks Stumble As Hanergy Debt Debacle Looms Over All The 500%-Club (ZH)
Big Oil’s Plan to Become Big Gas (Bloomberg)
OECD Warns Lack Of Investment To Prompt New Global Slowdown (Guardian)
More Older Americans Are Being Buried By Housing Debt (AP)
What Australia PM Abbott Doesn’t Get About The Housing Market (BSpectator)
WikiLeaks Announces $100,000 Crowd-Sourced Reward For TPP Text (Politico)
Twenty-Three Geniuses (Jim Kunstler)
Crazyland (Dmitry Orlov)
Record Fall In UK Fresh Food Prices Drives Retail Deflation (Guardian)
Children Trapped In Poverty By UK Government’s ‘Dysfunctional System’ (Guardian)
The Meaninglessness of Ending ‘Extreme Poverty’ (Bloomberg)

Losing their religion.

IMF Economists Say Some Countries Can ‘Just Live With’ High Debt (Reuters)

Some countries with high public debt levels might be able to “just live with it,” because cutting back carries its own risks, three IMF officials said in a paper that disputes decades of dogma about the benefits of austerity. The euro zone and other advanced economies have struggled with ballooning debt in the wake of the 2007-09 global financial crisis. Some have faced pressure to satisfy markets through fast fiscal consolidation. The IMF has already cautioned that cutting back on spending or raising taxes too quickly after the crisis could hurt growth. Now, IMF economists Jonathan Ostry, Atish Ghosh and Raphael Espinoza take that advice a step further, arguing that countries able to fund themselves in markets at reasonable costs should avoid the harmful economic impact of austerity.

“A radical solution for high debt is to do nothing at all,” they write in a blog accompanying a Staff Discussion Note, which does not represent the IMF’s official position, but could help shape its policies. “Debt is bad for growth … but it does not follow that paying down debt is good for growth. This is a case where the cure may be worse than the disease: paying down the debt would require further distorting the economy, with a corresponding toll on investment and growth.” Instead, countries can wait for their debt ratios to fall through higher economic growth or a boost in tax revenues over time. The austerity debate has become a hot political topic in countries such as the United Kingdom and Greece as voters protest the pain of budget cuts.

Greece’s Syriza government swept to power in January promising an end to austerity, but now faces pressure for more cuts in exchange for cash from international lenders. The IMF economists did not mention many specific countries, but cited a 2014 chart from Moody’s Analytics that put most advanced economies, including the United States, United Kingdom and Germany, solidly in the “green zone” of ample fiscal space, meaning there is no rush to cut back debt. France, Spain, Ireland should be cautious about debt, while Portugal faces “significant risk.” Japan, Italy, Greece and Cyprus face “grave risk,” meaning they must cut back, according to the chart.

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Note: as I wrote recently, the savings rate includes debt payments. Which makes it highly misleading. There is no savings glut.

Fed Mouthpiece Jon Hilsenrath Furious “Stingy” US Consumers Don’t Spend (ZH)

No commentary necessary on this piece originally posted on the Wall Street Journal by Jon Hilsenrath (the same ad hoc, trial ballooning Fed mouthpiece whose work as it relates to the Federal Reserve has to be precleared by the Federal Reserve itself as we first reported five years ago). And no, to our best knowledge, this is not the WSJ transforming into the Onion.

from HILSENRATH’S TAKE: A LETTER TO STINGY AMERICAN CONSUMERS

Dear American Consumer,

This is The Wall Street Journal. We’re writing to ask if something is bothering you. The sun shined in April and you didn’t spend much money. The Commerce Department here in Washington says your spending didn’t increase at all adjusted for inflation last month compared to March. You appear to have mostly stayed home and watched television in December, January and February as well. We thought you would be out of your winter doldrums by now, but we don’t see much evidence that this is the case. You have been saving more too. You socked away 5.6% of your income in April after taxes, even more than in March. This saving is not like you. What’s up?

We know you experienced a terrible shock when Lehman Brothers collapsed in 2008 and your employer responded by firing you. We know stock prices collapsed and that was shocking too. We also know you shouldn’t have taken out that large second mortgage during the housing boom to fix up your kitchen with granite countertops. You’ve been working very hard to pay off this debt and we admire your fortitude. But these shocks seem like a long time ago to us in a newsroom. Is that still what’s holding you back? Do you know the American economy is counting on you? We can’t count on the rest of the world to spend money on our stuff. The rest of the world is in an even worse mood than you are. You should feel lucky you’re not a Greek consumer. And China, well they’re truly struggling there just to reach the very modest goal of 7% growth.

The Federal Reserve is counting on you too. Fed officials want to start raising the cost of your borrowing because they worry they’ve been giving you a free ride for too long with zero interest rates. We listen to Fed officials all of the time here at The Wall Street Journal, and they just can’t figure you out.

Please let us know the problem. You can reach us at any of the emails below. Sincerely,

The Wall Street Journal’s Central Bank Team -By Jon Hilsenrath

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“.. the last time buybacks were this high was in 2007, right before equities crashed during the financial crisis..”

Goldman Sachs to Companies: Stop Buying Back Your Stock (Bloomberg)

It looks like Goldman Sachs doesn’t agree with Carl Icahn on at least one big issue: share buybacks. While the billionaire activist investor has continued to push Apple to purchase more of its stock, Goldman has published a note recommending companies stop spending their cash on buying back their overpriced shares and instead use those overpriced shares to buy other companies’ equity. As the bank puts it, “U.S. equity valuations look expensive on most metrics,” with the typical stock in the S&P 500 now trading at a price equal to more than 18 times forward earnings.

In the note, “What managements should do with their cash (M&A) and what they will do (buybacks),” Goldman strategists led by David Kostin argue that the current price to earnings (P/E) expansion phase has lasted 43 months and will likely end when the Federal Reserve starts raising interest rates, which the bank now expects will happen in September. As a firm, you would much rather buy back your stock when it’s trading at lower P/E multiples and get a better price. But as it turns out, corporate managers (much like investors) are pretty bad at timing the stock market. Using history as a guide, the last time buybacks were this high was in 2007, right before equities crashed during the financial crisis, Goldman notes.

Exhibiting poor market timing, buybacks peaked in 2007 (34% of cash spent) and troughed in 2009 (13%). Firms should focus on M&A rather than pursue buybacks at a time when P/E multiples are so high.

However, Goldman doesn’t expect companies to listen to its advice. The temptation to give investors what they seem to want is just too much.

We forecast buybacks will surge by 18% in 2015 exceeding $600 billion and accounting for nearly 30% of total cash spending. We recognize activist investors often advocate for firms to return excess cash to shareholders via buybacks.Tactically, repurchases may lift share prices in the near term, but in our view it is a questionable use of cash at the current time when the P/E multiple of the market is so high. In our view, acquisitions – particularly in the form of stock deals – represent a more compelling strategic use of cash than buybacks given the current stretched valuation of US equities.

Companies in the S&P 500 have so far spent a whopping $2 trillion repurchasing their shares over the past five years.

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Rotting from the bottom.

Pension Payments Are Starving Basic City Services (SacBee)

The Governmental Accounting Standards Board is implementing new rules that require governments, for the first time, to report unfunded pension liabilities on their 2015 balance sheets. This sticker shock should create new urgency for meaningful pension reform. A recent study put the unfunded pension liability for all state and local governments at $4.7 trillion. For too long, pension fund officials and politicians have increased payouts and low-balled contributions. As a result, they now have insufficient funds to pay the promised benefits. Accounting gimmicks have hidden the true cost from the public, who are now on the hook to make up the difference between pension promises and assets.

Illinois and New York have unfunded pension debts north of $300 billion each, while New Jersey, Ohio and Texas exceed $200 billion apiece. But nowhere is the problem worse than in California, which accounts for $550 billion to $750 billion of the total, depending on the calculation. The Golden State reveals the damage from long-term financial mismanagement of pension systems. For example, Ventura County’s pension costs have gone from $45 million in 2004 to $162 million in 2013. Overall from 2008 through 2012, California local governments’ pension spending increased 17% while tax revenue grew only 4%. As a result, a larger share of budgets goes to pensions, crowding out spending on core services such as police.

In San Jose, the police department budget increased nearly 50% from 2002 through 2012, yet staffing fell 20%. More money has been consumed by police pensions, leaving less money to hire and retain officers. In Oakland, police officers were given the option in 2010 to contribute 9% of their salary into their pensions and save 80 police jobs, or keep paying nothing into their pensions and see 80 jobs eliminated. The police union voted to continue paying nothing. Now the department refuses to respond to 44 different crimes because of the staffing cutbacks. Any pension system that forces this trade-off is immoral by threatening life and property.

Skyrocketing pension costs also crowd out other quality-of-life services. Public libraries, parks and recreation centers are shortening their hours or closing. Potholes go unfilled, sidewalks unrepaired and trees untrimmed. A new pension rate hike for California’s local governments will cost the city of Sacramento $12 million more a year – the equivalent of cutting 34 police officers, 30 firefighters and 38 other employees. California’s vested rights doctrine locks local governments into pension benefits for life on the day they hire an employee. They cannot modify pensions, forcing them to cut core services or declare bankruptcy, as happened in Vallejo, Stockton and San Bernardino.

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“Europe’s economic crisis was an opportunity to show financial markets that the euro is to Greece as the dollar is to, say, West Virginia. Whatever happens next, we now know different.”

Europe and Greece: The Damage Is Done (Bloomberg)

With both sides said to be drawing up final proposals, and a definitive debt crunch thought to be imminent, the months of brinkmanship over Greece may at last be drawing to a close. But who knows, really? You might think making this shambles any worse would challenge even these principals. I don’t know. I think they’re up to it. Whatever happens, take a moment to reflect on the damage already done during the stalemate — damage that will persist even if the brink isn’t crossed, and a deal is done to avoid a Greek default plus exit from the euro system. First, Greece’s economic situation, which was bad to begin with, has deteriorated further. Savers have been withdrawing deposits from Greek banks. Investors have hammered the stock market.

Under these conditions, few businesses choose to invest or expand. Despite cheap oil and a weaker euro, the Greek economy has fallen back into recession. Second, as a result, the country’s bad fiscal situation is now worse. Whatever fiscal targets are eventually agreed to — assuming that happens — will be harder to meet. A deal sufficient, four months ago, to stabilize Greece’s public finances and restore growth might no longer work. Greece already has two failed bailout programs to its name. The stalemate makes the failure of the next program, if there is one, more likely. Third, the world has learned that exit from the euro system is not just thinkable but has actually been advocated, as a kind of disciplinary measure, by officials in Germany and other countries.

It’s widely understood that if Greece leaves the euro system or is forced out, attention will turn, sooner or later, to the question of who’s next. Every serious economic setback will raise that question. Less widely understood is that much of this damage to the euro zone’s foundations has already been done, and is irreversible. Once you think the unthinkable — debate the pros and cons, start to plan for it — there’s no going back.

In his celebrated (if belated) intervention in 2012, ECB President Mario Draghi said he would do whatever it took to keep the euro system intact; Europe’s economy rallied. Whatever happens this week or next regarding Greece, Europe’s leaders have reneged on that promise: They might do whatever it takes, but they’ll need to think about it first. Europe’s economic crisis was an opportunity to show financial markets that the euro is to Greece as the dollar is to, say, West Virginia (no disrespect to that fine state). Whatever happens next, we now know different.

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They knew the Greek proposal was coming. And they didn’t even look at it?!

Greek Standoff Takes Another Twist as Dueling Plans Are Drafted (Bloomberg)

The impasse over Greece’s future lingered as both sides worked on rival proposals for the conditions of a financial lifeline with debt payments looming. Greek Prime Minister Alexis Tsipras said his government submitted a new plan, while officials from the country’s creditors were said to be finalizing what would be a final offer to avoid the country defaulting. While the euro rallied on optimism over a deal, Dutch Finance Minister Jeroen Dijsselbloem, who leads the euro-area finance ministers’ group, said institutions are still far from any agreement. “As long as it doesn’t meet economic conditions, we can’t come to an agreement,” he told RTL television. “It’s not right to think that we can meet half way.”

After four months of antagonism and extended deadlines, there’s evidence now of greater urgency in efforts to break the deadlock and decide Greece’s fate. At the same time, there were mixed messages over how final any offer might be and whether any agreement can be reached in coming days. While Greece says it can make a debt repayment to the IMF on Friday, it’s the smallest of four totaling almost €1.6 billion this month. The timing coincides with the expiration of a euro-region bailout by the end of June. The deputy parliamentary leader of German Chancellor Angela Merkel’s party, Ralph Brinkhaus, described the negotiating situation as “very confused.”

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It’s up to Juncker now to save his precious ‘union’,

Tsipras To Meet EU’s Juncker As Greece Debt Deadline Looms (AFP)

Greek Prime Minister Alexis Tsipras will meet European Commission President Jean-Claude Juncker Wednesday for make-or-break bailout talks with a deadline looming for Athens to make a critical repayment. Greece and its international creditors have exchanged proposals to reach a deal to unlock €7.2 billion to help Athens make Friday’s repayment, but months of fractious talks have been deadlocked over creditors’ insistence that Athens undertake greater reforms which Greece’s anti-austerity government has refused to match. Meanwhile there are fears that Greece could default, possibly setting off a chain reaction that could end with a messy exit from the eurozone.

Jeroen Dijsselbloem, the head of the Eurogroup which is comprised of the eurozone’s 19 members, has said he was unimpressed with progress made in the debt talks, after Athens claimed its plan was a «realistic» one. His remarks come with Tsipras due to meet Juncker in Brussels on Wednesday evening, a government source said. Tsipras on Tuesday raised hope of a breakthrough, with the leader of Greece’s left-wing Syriza government telling reporters: «We have made concessions because a negotiation demands concessions, we know these concessions will be difficult.” In Brussels, the European Union called the exchange of documents a positive step, but stopped short of saying a deal was imminent.

“Many documents are being exchanged between the institutions and the Greek authorities… The fact that documents are being exchanged is a good sign,» European Commission spokeswoman Annika Breidthardt said. Asked about the possibility of a deal, she added: «We’re not there yet.”

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I don’t see Syriza rolling over.

Take It Or Leave It: Will Greece Accept Deal? (CNBC)

The Greek Prime Minister is expected to come under pressure on Wednesday to reach a much-needed deal with the country’s international creditors, who have reportedly drafted an agreement – although Greece denies that it has seen the proposals yet. On Tuesday, the Troika drafted the broad lines of an agreement to put to the Greek government, according to Reuters, in a bid to resolve months of tense negotiations over Greek reforms and debt. It comes after the German and French leaders, Angela Merkel and Francois Hollande, held emergency talks with the creditors on Monday night and urged them to find a solution. A Greek government official told CNBC Wednesday that Greece hadn’t yet seen the proposals, however.

“They have not submitted the text and this is what has surprised us. We think it is very odd,” the official, who did not want to be named due to the sensitive nature of the ongoing discussions, told CNBC. The source confirmed that Prime Minister Alexis Tsipras was due to travel to Brussels to meet with the Commission’s President, Jean-Claude Juncker, later in the day. “We’re going to use this evening’s meeting as a basis to discuss our own proposals, which are full and concrete plans and include a final review of our existing bailout program,” the official added. “We have very good ideas about a growth plan and have a set of proposals that will take any thoughts of a ‘Grexit’ (a Greek exit from the euro zone) off the table.”

Any offer of a deal from creditors puts the ball firmly in Greece’s court, although the consequences of it rejecting an agreement could be dire. Athens faces a €300 million payment to the IMF on Friday, but there are doubts that the country can honor the debt without further financial aid. In something of a pre-emptive strike, Greece submitted its own reform proposals to its European counterparts earlier this week, but they were deemed – not for the first time – “insufficient.” Michael Hewson, chief market analyst at CMC Markets, said Wednesday that given the tense negotiations between Greece and its lenders over the last four months, a quick agreement was unlikely.

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“.. local governments have borrowed as much as $4 trillion, mostly through shadowy off-balance-sheet financing vehicles; around $300 billion of that debt matures this year.”

China After the Bubble (Bloomberg)

Chinese Premier Li Keqiang says that rebalancing China’s economy will be as painful as “taking a knife to one’s own flesh.” That may not be much of an exaggeration. The news on China’s economy is bad. Growth has slowed to a little over 5% (quarter on quarter, at an annual rate); prices are falling; consumer confidence is weak; corporate and local-government debts remain dangerously high. Even now, a well-managed exit from the country’s credit binge may be possible, but an entirely painless one is not. Trying too hard to delay the inevitable will end up making things worse. What scares the government most is the prospect of a wave of corporate and municipal defaults.

According to Mizuho Securities Asia, local governments have borrowed as much as $4 trillion, mostly through shadowy off-balance-sheet financing vehicles; around $300 billion of that debt matures this year. Plunging property prices and declining land sales – as well as slower manufacturing investment as companies focus on paying down debt – are worsening the problem by squeezing demand and holding back growth. Several economists expect China to have difficulty meeting its target of 7% growth in gross domestic product this year. Slower growth will make it even harder for local governments to make their payments. Beijing is leading an effort to restructure the borrowing and make it more transparent – but the plan envisioned won’t cover all the debts coming due this year.

China’s State Council recently admitted as much, telling banks to roll over some of the obligations. The directive was understandable; even so, forcing banks to prop up local governments means throwing good money after bad. The problem isn’t solved, and the day of reckoning, when it comes, will be worse. Meanwhile, applying much the same logic, the government has talked up a stock market that now looks wildly inflated. Since last summer, it has been urging households to invest, and official reassurance follows every market setback. Even after a 6.5% plunge on May 28, the Shanghai Composite is still up 127% over the past year, despite the slowing economy and falling profits. On the tech-heavy Shenzhen Composite Index, price-to-earnings ratios in excess of 100 aren’t uncommon.

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“Why would the government want to risk the possibility hundreds of millions of aggrieved day traders heading onto the streets with protest banners?”

Is China Repeating Korea’s Mistakes? (Pesek)

Many observers assume that China is on a path to become the next Japan – a major economy mired in a multiyear deflationary funk that deflates its global clout. And it’s certainly true that the way that Beijing has been downplaying its debt problems is eerily reminiscent of Tokyo’s public relations strategy from the 1990s. But take a closer look at China’s situation, and you’ll realize a better analogy is South Korea. China’s expanding effort to pile debt risks on individual investors is straight out of Seoul’s playbook. South Korea’s economy crashed in 1997 under the weight of debts compiled by the country’s family-owned conglomerates. The government’s strategy for dealing with the fallout consisted of shifting the debt burden to consumers.

With a blizzard of tax incentives and savvy PR, Korea shrouded the idea of amassing household debt to boost growth in patriotic terms. That push still haunts Korea. Today, the country’s household debt as a ratio of gross domestic product is 81%. That far exceeds the ratios in U.S., Germany and, at least for the moment, China. As a result, Korea has been particularly susceptible to downturns in the global economy, which is why the country is now veering toward deflation. Is China repeating Korea’s mistakes? Granted, the specific of Beijing’s economic strategy vary greatly and China’s $9.2 trillion economy is seven times bigger than Korea’s. But the Chinese government’s efforts to prod households to buy stocks and assume greater financial risks are highly reminiscent of Korean policy.

Beijing has been encouraging everyone in the country, from the richest princelings to the poorest of peasants, to buy stocks. And China’s markets have been booming as a result: Over the past 12 months, the Shanghai exchange is up 141%, and the Shenzhen exchange is up 188%. Margin trading, which has fueled these rallies, seems to have jumped another 45% in May, to a total of $484 billion. [..] But who will suffer when stocks inevitably swoon? Beijing is making a risky bet, by assuming Chinese savers will be capable of dealing with the burden of a stock market downturn. This strategy is morally questionable – it’s another instance of Chinese savers being set up to take the fall for government policy, as they were during the hyperinflation of the 1940s, and in modern times, when they faced strict limits on deposit rates.

Moreover, it would be far easier for Beijing to bail out a handful banks and dispose of bad loans that are concentrated at a few dozen companies, than deal with debts that are distributed to households across the country. Increasingly, there are signs that a reckoning will soon be in the offing. On May 28 alone, Shanghai lost $550 billion in market value – a reminder stocks can’t surge 10% a week forever, not even in China. Why would the government want to risk the possibility hundreds of millions of aggrieved day traders heading onto the streets with protest banners?

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They borrowed money from umpteen different sources.

China Stocks Stumble As Hanergy Debt Debacle Looms Over All The 500%-Club (ZH)

If one sentence sums up the farce that the hyper-speculative ponzifest that is the 500% club in China it is “Hanergy Group was basically using the listed company as a means to produce collateral in the form of shares that it could then pledge to secure financing.” While the stock has been cut in half, lenders remain mired in opacity as they try to figure out, as Bloomberg reports, which of Chinese billionaire Li Hejun’s many creditors risk losing every yuan they put into his company? Shenzhen and CHINEXT indices are lower out of the gate today after a 14% and 18% surge in the last 2 days as a group of 11 lenders (ranging from large banks to small asset managers) ask for a meeting to discuss various loans with various Hanergy entities… and whatever they find in Hanergy is bound to have been repeated manifold across China’s manic markets.

As investors grow a little weary of “the opacity about parent finances and billings,” in Hanergy and across numerous other names we are sure. As Bloomberg reports, a plethora of Chinese lenders are exposed to Hanergy Thin Film and its parent company, including Industrial and Commercial Bank of China, which is owed tens of millions of dollars.

“The interesting thing with Hanergy is that so much is happening with the parent company that investors know nothing about,” said Charles Yonts, an analyst with CLSA Asia-Pacific Markets in Hong Kong. “The opacity about parent finances and billings is extraordinary.” A Bloomberg examination of debt held by Hanergy Thin Film and its closely held parent, Hanergy Holding Group Ltd., show Li has tapped a variety of financing sources since the Hong Kong unit’s stock started surging last year. They include policy-bank lending, short-term loans from online lenders with interest rates of more than 10% and partnerships with local governments.

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Anything for a subsidy.

Big Oil’s Plan to Become Big Gas (Bloomberg)

Oil companies that have pumped trillions of barrels of crude from the ground are now saying the future is in their other main product: natural gas, a fuel they’re promoting as the logical successor to coal. With almost 200 nations set to hammer out a binding pact on carbon emissions in December, fossil-fuel companies led by Shell and Tota say they’re refocusing on gas as a cleaner alternative to the cheap coal that now dominates electricity generation worldwide. That’s sparked a war of words between the two industries and raised concern that Big Oil is more interested in grabbing market share than fighting global warming “Total is gas, and gas is good,” Chief Executive Officer Patrick Pouyanne said Monday, in advance of this week’s World Gas Conference in Paris.

His remarks echoed comments two weeks earlier by Shell CEO Ben Van Beurden, who said his company has changed from “an oil-and-gas company to a gas-and-oil company.” Shell began producing more gas than oil in 2013 and Total the following year. Exxon Mobil ’s output rose to about 47% of total production last year from 39% six years ago. Companies are pushing sales in China, India and Europe. Coal from producers led by Glencore and BHP Billiton produces about 40% of the world’s electricity. Shell, Total, BP and other oil companies said Monday in a joint statement that they’re banding together to promote gas as more climate friendly than coal. “The enemy is coal,” Pouyanne said Monday. He vowed to pull out of coal mining and said Total may also halt coal trading in Europe.

A key strategy for gas producers to push this agenda is asking governments to levy a price on carbon emissions from power plants. That creates an economic incentive to switch from coal, the top source of greenhouse gases, to cleaner options. BP CEO Bob Dudley called for a carbon price at the company’s shareholder meeting April 16, while Exxon head Rex Tillerson on May 27 reiterated support for a carbon tax if consensus emerges in the U.S. Even without carbon pricing, gas has been displacing coal in the U.S., Tillerson said in Paris today. “Natural gas use in the U.S. has reduced carbon dioxide emissions to levels not seen since the 1990s,” he said in a speech. “And the U.S. has no comprehensive cost of carbon policy.”

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Too late.

OECD Warns Lack Of Investment To Prompt New Global Slowdown (Guardian)

A dearth of investment by governments and business has left the global economy vulnerable to a renewed slowdown, a leading thinktank has warned as it slashed its forecasts for the United States. The Organisation for Economic Cooperation and Development (OECD) said the recovery since the global financial crisis had been unusually weak, costing jobs, raising inequality and knocking living standards. In its latest outlook, it saw global growth gradually strengthening but not until late 2016 will it return to the average pace of pre-crisis years. The Paris-based thinktank noted a slowdown for many advanced economies in the opening months of 2015 and singled out a sharp dip for the US, the world’s biggest economy.

It cut its projection for US economic growth to 2% this year from a forecast of 3.1% made in March. For 2016, US growth is seen at 2.8%, down from the previous 3% forecast. The OECD is cautious, despite hoping that the weakness in the first quarter of this year was down to temporary factors, such as unusually harsh weather in the US. “The world economy is muddling through with a B-minus average, but if homework is not done and with less-than-average luck, a failing grade is all too possible,” said OECD chief economist Catherine Mann. “On the other hand, how to get the A is known and within reach,” she added, highlighting the need for more investment.

On the upside, the OECD expected growth to be shared more evenly across regions of the world and says labour markets continue to heal in advanced economies while risks of deflation have receded. “Yet, we give the global economy only the barely-passing grade of B-,” said Mann. The dissatisfaction is not just down to an “inauspicious” starting point after a weak first quarter, she added.

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The number of over-75’s who still carry a mortgage has tripled.

More Older Americans Are Being Buried By Housing Debt (AP)

Of all the financial threats facing Americans of retirement age — outliving savings, falling for scams, paying for long-term care — housing isn’t supposed to be one. But after a home-price collapse, the worst recession since the 1930s and some calamitous decisions to turn homes into cash machines, millions of them are straining to make house payments. The consequences can be severe. Retirees who use retirement money to pay housing costs can face disaster if their health deteriorates or their savings run short. They’re more likely to need help from the government, charities or their children. Or they must keep working deep into retirement.

“It’s a big problem coming off the housing bubble,” says Cary Sternberg, who advises seniors on housing issues in The Villages, a Florida retirement community. “A growing number of seniors are struggling with what to do about their home and their mortgage and their retirement.” The baby boom generation was already facing a retirement crunch: Over the past two decades, employers have largely eliminated traditional pensions, forcing workers to manage their retirement savings. Many boomers didn’t save enough, invested badly or raided their retirement accounts. The Consumer Financial Protection Bureau’s Office for Older Americans says 30% of homeowners 65 and older (6.5 million people) were paying a mortgage in 2013, up from 22% in 2001.

Federal Reserve numbers show the share of people 75 and older carrying home loans jumped from 8% in 2001 to 21% in 2011. What’s more, the median mortgage held by Americans 65 and older has more than doubled since 2001 — to $88,000 from $43,400, the financial protection bureau says. In markets hit hardest by the housing bust, a substantial share of older Americans are stuck with mortgages that exceed their home’s value. In Atlanta, it’s 23% of homeowners 50 and older, according to the real-estate research firm Zillow. In Las Vegas, it’s 26%.

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It eats away profits elsewhere.

What Australia PM Abbott Doesn’t Get About The Housing Market (BSpectator)

Prime Minister Tony Abbott doesn’t understand the housing market, doesn’t care about housing affordability, and is therefore poorly versed on the issues facing Australia’s non-mining sector. The housing market and the business sector are intrinsically and unavoidably linked. Neither operates in a vacuum; developments – good and bad – in one market inevitably spill over into the other. The business sector, for example, pays our wages, which many of us obviously use to pay down our mortgages. Meanwhile, land prices are a considerable cost for most businesses – they need floor space to sell their goods or new land to build or expand a factory. If you are prime minister of a country you need to understand how this works.

It’s basic economics and yet there is clear evidence that Abbott simply doesn’t get it. His comments yesterday on the property market and housing affordability were a case in point. “As someone who, along with the bank, owns a house in Sydney I do hope our housing prices are increasing,” Abbott said during question time yesterday. “I do want housing to be affordable, but nevertheless I also want house prices to be modestly increasing.” I am sure that many readers will agree with this sentiment. But Abbott is charged with acting in the public interest; that is the standard by which he is judged. Unfortunately, rising house prices – particularly the type of growth experienced in Sydney – are neither in the public interest nor in the broader interest of Australian businesses.

High land prices are a crippling barrier for many Australian corporations. It’s a key reason – along with high wages – why Australian manufacturing continues to retreat. It hurts shopkeepers and department stores; any business that requires a physical location to operate is hampered by elevated land prices. High land prices make it difficult to produce a sufficient quantity to get fixed costs down to competitive levels. Unfortunately, it’s too costly to buy new land and build a new factory, which means too many Australian businesses fall short of their potential.

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Nice idea.

WikiLeaks Announces $100,000 Crowd-Sourced Reward For TPP Text (Politico)

WikiLeaks announced an effort Tuesday to crowd-source a $100,000 reward for the remaining chapters of the Trans-Pacific Partnership trade deal, after the organization published three draft chapters of the deal in recent years. “The transparency clock has run out on the TPP. No more secrecy. No more excuses. Let’s open the TPP once and for all,” WikiLeaks founder Julian Assange said in a statement.

Critics say that the deal being negotiated by the United States and other Pacific Rim countries would hurt American workers and the economy, while proponents argue that it would help the United States establish a stronger economic foothold in the region with regard to China. The three chapters that WikiLeaks has already published include sections on intellectual property rights, published in November 2013, the environment, published in January 2014, and investment, published this March. The $100,000 reward marks the beginning of a new program for the organization, in which users can pledge funding to get the chapters they want the most.

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“This must be what comes of viewing the world through your cell phone.”

Twenty-Three Geniuses (Jim Kunstler)

If there is a Pulitzer Booby Prize for stupidity, waste no time in awarding it to The New York Times’ Monday feature, The Unrealized Horrors of Population Explosion. The former “newspaper of record” wants us to assume now that the sky’s the limit for human activity on the planet earth. Problemo cancelled. The article and accompanying video was actually prepared by a staff of 23 journalists. Give the Times another award for rounding up so many credentialed idiots for one job. Apart from just dumping on Stanford U. biologist Paul Ehrlich, author of The Population Bomb (1968), this foolish “crisis report” strenuously overlooks virtually every blossoming fiasco around the world. This must be what comes of viewing the world through your cell phone.

One main contention in the story is that the problem of feeding an exponentially growing population was already solved by the plant scientist Norman Borlaug’s “Green Revolution,” which gave the world hybridized high-yielding grain crops. Wrong. The “Green Revolution” was much more about converting fossil fuels into food. What happens to the hypothetically even larger world population when that’s not possible anymore? And did any of the 23 journalists notice that the world now has enormous additional problems with water depletion and soil degradation? Or that reckless genetic modification is now required to keep the grain production stats up?

No, they didn’t notice because the Times is firmly in the camp of techno-narcissism, the belief that the diminishing returns, unanticipated consequences, and over-investments in technology can be “solved” by layering on more technology — an idea whose first cousin is the wish to solve global over-indebtedness by generating more debt. Anyone seeking to understand why the public conversation about our pressing problems is so dumb, seek no further than this article, which explains it all. Climate change, for instance, is only mentioned once in passing, as though it was just another trashy celebrity sighted at a “hot” new restaurant in the Meatpacking District. Also left out of the picture are the particulars of peak oil (laughed at regularly by the Times, which proclaimed the US “Saudi America” some time back), degradation of the ocean and the stock of creatures that live there, loss of forests, the political instability of whole regions that can’t support exploded populations, and the desperate migrations of people fleeing these desolate zones.

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Being monitored was a notion fit for crazies not long ago; now it’s a certainty for everyone.

Crazyland (Dmitry Orlov)

A long time ago—almost a quarter of a century—I worked in a research lab, designing measurement and data acquisition electronics for high energy physics experiments. In the interest of providing motivation for what follows, I will say a few words about the job. It was interesting work, and it gave me a chance to rub shoulders (and drink beer) with some of the most intelligent people on the planet (though far too fixated on subatomic particles). The work itself was interesting too: it required a great deal of creativity because the cutting edge in electronics was nowhere near sharp enough for our purposes, and we spent our time coming up with strange new ways of combining commercially available components that made them perform better than one had the right to expect.

But most of my time went into the care and feeding of an arcane and temperamental Computer Aided Design system that had been donated to the university, and, for all I know, is probably still there, bedeviling generations of graduate students. With grad students just about our only visitors, the atmosphere of the lab was rather monastic, with the days spent twiddling knobs, pushing buttons and scribbling in lab notebooks. And so I was quite pleased when one day an unexpected visitor showed up. I was busy doing something quite tedious: looking up integrated circuit pin-outs in semiconductor manufacturer’s databooks and manually keying them into the CAD system—a task that no longer exists, thanks to the internet.

The visitor was a young man, earnest, well-spoken and nervous. He was carrying something wrapped in a black trash bag, which turned out to be a boombox. These portable stereos that incorporated an AM/FM radio and a cassette tape player were all the rage in those days. He proceeded to tell me that he strongly suspected that the CIA was eavesdropping on his conversations by means of a bug placed inside this unit, and he wanted me to see if it was broadcasting on any frequency and to take it apart and inspect it for any suspicious-looking hardware.

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Interesting as data, but lousy as analysis. Retail deflation is a nonsense misleading term.

Record Fall In UK Fresh Food Prices Drives Retail Deflation (Guardian)

Prices in British shops have moved into their third year of decline as a result of widespread supermarket discounting and cheaper fresh food , according to new industry figures. The British Retail Consortium (BRC) said shop prices in May were down 1.9% on last year’s levels, unchanged from April’s rate of decline and the 25th straight month of deflation. The fall will reinforce expectations that the broader official measure of inflation in the UK will remain low for some months to come after turning negative in April. The BRC found food prices again fell 0.9% in May while non-food deflation held at 2.5%.

Within those categories, fresh food fell at a record pace of 1.9% thanks to meat, milk, cheese and eggs all being cheaper than a year ago, according to the BRC report with market research company Nielsen. Comparable records began in December 2006. The latest BRC-Nielsen Shop Price Index shows prices fell 1.9% in May from a year ago. It was the 25th consecutive month of falling shop prices. Falling non-food prices are now in their third year and food prices have been in deflationary territory for five straight months. “Retailers continue to use price cuts and promotions to stimulate sales which is helping to maintain shop price deflation, and we see little evidence to suggest that prices will rise in the near future,” said Mike Watkins, Nielsen’s head of retailer and business insight.

He predicted that discounting will help keep the official consumer price index (CPI) measure of inflation low for some time. “With many food retailers still using price cuts to attract new shoppers, this is lowering the cost of the weekly shop and so the overall CPI figure in the UK. Deflation and price led competition will continue to be a key driver of sales growth for some time yet,” added Watkins.

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What a country.

Children Trapped In Poverty By UK Government’s ‘Dysfunctional System’ (Guardian)

Thousands of children in the UK, many of them British, are living in dangerous, squalid conditions well below the poverty line as a result of rapid changes to government immigration and benefit policies, a report by the Centre on Migration, Policy and Society at the University of Oxford warned on Wednesday. Children are the “collateral damage” of “a dysfunctional system in which they are the ultimate losers” according to the authors of the Compas report, which estimates that 3,391 families and 5,900 children were supported under local authorities’ Section 17 Children Act 1989 duties in 2012/13. Two thirds of families who were supported by local authorities for up to two years or more – at a cost of £28m for the year – were waiting for a decision from the Home Office; of the cases looked at by the study, 52% were granted leave to remain.

Charities seeing an increase in the numbers forced into destitution – with some families living on as little as £1 per person per day – argue it is only a matter of time before a tragedy on the scale of Victoria Climbié occurs to a child from a family who has “no recourse to public funds” (NRPF), a criterion for many attempting to regulate their immigration status. Victoria Climbié, an eight-year-old, was tortured and murdered by her guardians in 2000. Her death led to a public inquiry and produced major changes in child protection policies in the United Kingdom. NRPF families – including those on visas, overstayers and those applying for British citizenship who cannot work or claim benefits – were being abandoned by the Home Office while their status applications were being processed, leaving cash-strapped local authorities struggling to cope with the burden of caring for children whom they had a legal obligation to protect from destitution.

“There is a real tension between the desire to keep these people out of the welfare state and the legal obligation that falls on local authorities,” said co-author Jonathan Price. “There is a question to be asked about the long-term impact on children of living on subsistence rates that are well below welfare rates.” The report, funded by the Nuffield Foundation, found that support from local authorities varied wildly. Families were grateful for any support they received, but subsistence payments “in all cases were well below support for destitute asylum seekers and hard case support rates”, said the report. One authority provided £23.30 per child per week and nothing for parents: for a family with two parents and one child, a little over £1 per person per day.

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You can’t eat shifting goalposts.

The Meaninglessness of Ending ‘Extreme Poverty’ (Bloomberg)

This September, the world’s leaders will converge on the United Nations to declare a new set of Sustainable Development Goals for planetary progress over the next 15 years. Their first target will be to “eradicate extreme poverty for all people everywhere, currently measured as people living on less than $1.25 a day.” That’s a heady vision, one already embraced both by U.S. President Obama and Jim Kim, president of the World Bank—the organization that set the $1.25 poverty line back in 2005. There’s just one problem: According to the World Bank, extreme poverty isn’t what it used to be. It turns out that the technique the bank has used in the past to set the extreme poverty line essentially guarantees we won’t wipe out extreme poverty by 2030—or ever.

To save face, the World Bank’s economists are likely to change the method to one that creates a definition of extreme poverty that can be eradicated. But in doing so, they’ll set a poverty line that will move further and further away from anyone’s actual idea of what it is to be poor. Ask people what level of income would make them poor and they tend to come up with a number that’s relative to their income. In the U.S., people are surveyed as to the amount of income necessary for a family of four to “get along.” In 1950, the answer was $48 a week, or around 75% of household mean income that year. More than half a century later in 2007, the average answer was $1,000 a week—or around 77% of mean income. Given that most people define poverty using a relative approach, it isn’t surprising that most governments tend to come up with national poverty lines that are explicitly or implicitly relative to average incomes.

The U.S. is an exception: It has a poverty line that is explicitly absolute—you are poor if your income is lower than the cost of a food basket, plus an allowance for nonfood expenditures like rent. This standard was set in the 1960s and has been updated only to reflect inflation. As a proportion of U.S. median household income, the poverty line has fallen from one-half to below one-quarter since 1963. But the European Union uses a poverty line that is explicitly relative—you are poor if you live in a household with an income that is below 60% of mean household income. And it turns out that while most developing countries purport to use an absolute poverty line, in practice they implement a relative approach.

Most commonly, the poverty line is officially set using a basket of goods meant to reflect basic needs. But as countries get richer, the basic needs bundle gets more generous. Food costs start to include meat and fish alongside grains and vegetables, for example. And nonfood costs add utilities and transport alongside rent. That’s why China doubled its (supposedly absolute) poverty line in 2011 after years of strong economic growth. And it’s why there is a strong positive relationship between GDP per capita and the value of the poverty line across countries.

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